snps-20230731

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JULY 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 000-19807

SYNOPSYS, INC.

(Exact name of registrant as specified in its charter)


Delaware						56-1546236
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

675 ALMANOR AVE

SUNNYVALE, CA 94085

(Address of principal executive offices, including zip code)

(650) 584-5000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock (par value of $0.01 per share)	SNPS	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated Filer

☐

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

As of August 16, 2023, there were 152,083,817 shares of the registrant’s common stock outstanding.

SYNOPSYS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE FISCAL QUARTER ENDED JULY 31, 2023

TABLE OF CONTENTS



		Page
PART I.	Financial Information	1
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Income	2
	Condensed Consolidated Statements of Comprehensive Income	3
	Condensed Consolidated Statements of Stockholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	42
PART II.	Other Information	43
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59
Item 5.	Other Information	59
Item 6.	Exhibits	60
Signatures		61

PART I. FINANCIAL INFORMATION



Item 1.						Financial Statements

SYNOPSYS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value amounts)


	July 31, 2023		October 31, 2022
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,686,144	$	1,417,608
Short-term investments	148,443		147,913
Total cash, cash equivalents and short-term investments	1,834,587		1,565,521
Accounts receivable, net	666,577		796,091
Inventories	282,791		211,927

Prepaid and other current assets	484,357		439,130
Total current assets	3,268,312		3,012,669
Property and equipment, net	535,973		483,300
Operating lease right-of-use assets, net	574,727		559,090
Goodwill	3,887,860		3,842,234
Intangible assets, net	336,723		386,446

Deferred income taxes	813,810		670,653
Other long-term assets	505,826		463,695
Total assets	$	9,923,231	$	9,418,087
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	905,464	$	809,403
Operating lease liabilities	80,192		54,274

Deferred revenue	1,744,326		1,910,822

Total current liabilities	2,729,982		2,774,499
Long-term operating lease liabilities	590,827		581,273

Long-term deferred revenue	194,860		154,472
Long-term debt	18,165		20,824
Other long-term liabilities	389,516		327,829
Total liabilities	3,923,350		3,858,897
Redeemable non-controlling interest	35,877		38,664
Stockholders’ equity:
Preferred stock, $0.01 par value: 2,000 shares authorized; none outstanding	—		—
Common stock, $0.01 par value: 400,000 shares authorized; 152,125 and 152,375 shares outstanding, respectively	1,521		1,524
Capital in excess of par value	1,257,382		1,487,126
Retained earnings	6,389,825		5,534,307
Treasury stock, at cost: 5,136 and 4,886 shares, respectively	(1,542,889)		(1,272,955)
Accumulated other comprehensive income (loss)	(147,284)		(234,277)
Total Synopsys stockholders’ equity	5,958,555		5,515,725
Non-controlling interest	5,449		4,801
Total stockholders’ equity	5,964,004		5,520,526
Total liabilities, redeemable non-controlling interest and stockholders’ equity	$	9,923,231	$	9,418,087

See the accompanying Notes to Condensed Consolidated Financial Statements (unaudited).

SYNOPSYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited, in thousands, except per share amounts)


	Three Months Ended July 31,				Nine Months Ended July 31,
	2023		2022		2023		2022
Revenue:
Time-based products	$	922,874	$	754,322	$	2,513,383	$	2,185,626
Upfront products	297,967		268,584		980,149		973,483
Total products revenue	1,220,841		1,022,906		3,493,532		3,159,109
Maintenance and service	266,447		224,860		749,959		638,141
Total revenue	1,487,288		1,247,766		4,243,491		3,797,250
Cost of revenue:
Products	190,809		164,077		549,908		480,166
Maintenance and service	98,299		87,774		285,056		253,665
Amortization of intangible assets	18,374		19,330		54,886		47,145
Total cost of revenue	307,482		271,181		889,850		780,976
Gross margin	1,179,806		976,585		3,353,641		3,016,274
Operating expenses:
Research and development	507,402		444,826		1,458,328		1,218,761
Sales and marketing	227,134		199,246		660,034		571,329
General and administrative	109,714		91,461		298,161		246,426
Amortization of intangible assets	6,697		7,124		19,996		23,036
Restructuring charges	33,385		—		78,384		12,057
Total operating expenses	884,332		742,657		2,514,903		2,071,609
Operating income	295,474		233,928		838,738		944,665
Other income (expense), net	25,808		2,426		53,353		(41,280)
Income before income taxes	321,282		236,354		892,091		903,385
Provision (benefit) for income taxes	(11,773)		16,708		20,461		76,506
Net income	$	333,055	$	219,646	$	871,630	$	826,879
Net income (loss) attributed to non-controlling interest and redeemable non-controlling interest	(3,197)		(2,980)		(9,068)		(4,215)
Net income attributed to Synopsys	$	336,252	$	222,626	$	880,698	$	831,094

Net income per share attributed to Synopsys:
Basic	$	2.21	$	1.46	$	5.79	$	5.43
Diluted	$	2.17	$	1.43	$	5.68	$	5.31
Shares used in computing per share amounts:
Basic	152,023		152,938		152,204		153,082
Diluted	154,947		155,806		155,119		156,545

See the accompanying Notes to Condensed Consolidated Financial Statements (unaudited).

SYNOPSYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, in thousands)


	Three Months Ended July 31,				Nine Months Ended July 31,
	2023		2022		2023		2022
Net income	$	333,055	$	219,646	$	871,630	$	826,879
Other comprehensive income (loss):
Change in foreign currency translation adjustment	(12,232)		(23,378)		19,297		(63,989)
Changes in unrealized gains (losses) on available-for-sale securities, net of tax of $0 for periods presented	(212)		(1)		1,326		(1,674)
Cash flow hedges:
Deferred gains (losses), net of tax $(2,147) and $(14,995) for the three and nine months ended July 31, 2023, respectively, and of $6,780 and $16,191 for each of the same periods in fiscal 2022, respectively.	5,907		(19,051)		43,489		(41,769)
Reclassification adjustment on deferred (gains) losses included in net income, net of tax of $(2,111) and $(8,707), for the three and nine months ended July 31, 2023, and of $(28) and $(499) for each of the same periods in fiscal 2022, respectively.	5,250		36		22,881		1,543
Other comprehensive income (loss), net of tax effects	(1,287)		(42,394)		86,993		(105,889)
Comprehensive income	331,768		177,252		958,623		720,990
Less: net income (loss) attributed to non-controlling interest and redeemable non-controlling interest	(3,197)		(2,980)		(9,068)		(4,215)
Comprehensive income attributed to Synopsys	$	334,965	$	180,232	$	967,691	$	725,205

See the accompanying Notes to Condensed Consolidated Financial Statements (unaudited).

SYNOPSYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited, in thousands)


				Capital in Excess of Par Value		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Synopsys Stockholders’ Equity		Non-controlling Interest		Stockholders’ Equity
	Common Stock
	Shares	Amount
Balance at April 30, 2023	152,251	$	1,523	$	1,330,072	$	6,075,009	$	(1,428,748)	$	(145,997)	$	5,831,859	$	5,086	$	5,836,945
Net income						336,252						336,252		(557)		335,695
Other comprehensive income (loss), net of tax effects										(1,287)		(1,287)				(1,287)
Purchases of treasury stock	(751)	(8)		8				(300,000)				(300,000)				(300,000)

Common stock issued, net of shares withheld for employee taxes	625	6		(215,666)		(18,796)		185,859				(48,597)				(48,597)
Stock-based compensation				142,968								142,968		1,496		144,464
Adjustments to redeemable non-controlling interest						(2,640)						(2,640)				(2,640)
Recognition of non-controlling interest upon issuance of subsidiary stock												—		(576)		(576)
Balance at July 31, 2023	152,125	$	1,521	$	1,257,382	$	6,389,825	$	(1,542,889)	$	(147,284)	$	5,958,555	$	5,449	$	5,964,004

Balance at October 31, 2022	152,375	$	1,524	$	1,487,126	$	5,534,307	$	(1,272,955)	$	(234,277)	$	5,515,725	$	4,801	$	5,520,526
Net income						880,698						880,698		(1,217)		879,481
Other comprehensive income (loss), net of tax effects										86,993		86,993				86,993
Purchases of treasury stock	(2,382)	(24)		24				(860,724)				(860,724)				(860,724)
Equity forward contract, net				(45,000)								(45,000)				(45,000)
Common stock issued, net of shares withheld for employee taxes	2,132	21		(603,944)		(19,108)		590,790				(32,241)				(32,241)
Stock-based compensation				418,047								418,047		3,902		421,949
Adjustments to redeemable non-controlling interest						(6,072)						(6,072)				(6,072)
Recognition of non-controlling interest upon issuance of subsidiary stock				1,129								1,129		(2,037)		(908)
Balance at July 31, 2023	152,125	$	1,521	$	1,257,382	$	6,389,825	$	(1,542,889)	$	(147,284)	$	5,958,555	$	5,449	$	5,964,004

				Capital in Excess of Par Value		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Synopsys Stockholders’ Equity		Non-controlling Interest		Stockholders’ Equity
	Common Stock
	Shares	Amount
Balance at April 30, 2022	152,955	$	1,530	$	1,517,481	$	5,157,633	$	(999,234)	$	(113,099)	$	5,564,311	$	3,119	$	5,567,430
Net income						222,626						222,626		(307)		222,319

Other comprehensive income (loss), net of tax effects										(42,394)		(42,394)				(42,394)
Purchases of treasury stock	(715)	(8)		8				(217,266)				(217,266)				(217,266)
Equity forward contract, net				(40,000)								(40,000)				(40,000)
Common stock issued, net of shares withheld for employee taxes	764	8		(188,562)				181,659				(6,895)				(6,895)
Stock-based compensation				126,317								126,317		1,288		127,605
Adjustments to redeemable non-controlling interest						(2,673)						(2,673)				(2,673)
Balance at July 31, 2022	153,004	$	1,530	$	1,415,244	$	5,377,586	$	(1,034,841)	$	(155,493)	$	5,604,026	$	4,100	$	5,608,126

Balance at October 31, 2021	153,062	$	1,531	$	1,576,363	$	4,549,713	$	(782,866)	$	(49,604)	$	5,295,137	$	3,806	$	5,298,943
Net income						831,094						831,094		(994)		830,100

Other comprehensive income (loss), net of tax effects										(105,889)		(105,889)				(105,889)
Purchases of treasury stock	(2,400)	(24)		24				(752,266)				(752,266)				(752,266)
Equity forward contract, net				(5,000)								(5,000)				(5,000)
Common stock issued, net of shares withheld for employee taxes	2,342	23		(488,292)				500,291				12,022				12,022
Stock-based compensation				332,149								332,149		1,288		333,437
Adjustments to redeemable non-controlling interest						(3,221)						(3,221)				(3,221)
Balance at July 31, 2022	153,004	$	1,530	$	1,415,244	$	5,377,586	$	(1,034,841)	$	(155,493)	$	5,604,026	$	4,100	$	5,608,126

See the accompanying Notes to Condensed Consolidated Financial Statements (unaudited).

SYNOPSYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)


	Nine Months Ended July 31,
	2023		2022
Cash flows from operating activities:
Net income	$	871,630	$	826,879
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and depreciation	180,033		169,708
Reduction of operating lease right-of-use assets	72,647		65,980
Amortization of capitalized costs to obtain revenue contracts	61,677		54,438
Stock-based compensation	421,949		333,437
Allowance for credit losses	11,937		(4,516)



Deferred income taxes	(166,061)		5,843
Other non-cash	8,649		10,356
Net changes in operating assets and liabilities, net of acquired assets and liabilities:
Accounts receivable	112,511		(121,786)
Inventories	(77,919)		118
Prepaid and other current assets	8,373		(56,075)
Other long-term assets	(116,487)		(20,058)
Accounts payable and accrued liabilities	48,574		(46,356)
Operating lease liabilities	(52,914)		(66,187)
Income taxes	123,924		(60,739)
Deferred revenue	(131,310)		254,353
Net cash provided by operating activities	1,377,213		1,345,395
Cash flows from investing activities:
Proceeds from sales and maturities of short-term investments	104,139		70,847
Purchases of short-term investments	(102,457)		(73,330)
Proceeds from sales of long-term investments	7,248		582
Purchases of long-term investments	(435)		(7,000)

Purchases of property and equipment	(136,520)		(102,934)
Acquisitions, net of cash acquired	(51,324)		(416,323)
Capitalization of software development costs	(2,204)		(1,970)
Other	—		(1,200)
Net cash used in investing activities	(181,553)		(531,328)
Cash flows from financing activities:

Repayment of debt	(2,603)		(76,838)
Issuances of common stock	164,841		161,416
Payments for taxes related to net share settlement of equity awards	(198,969)		(149,130)
Purchase of equity forward contract	(45,000)		(40,000)
Purchases of treasury stock	(860,724)		(717,266)
Other	(122)		(3,413)
Net cash used in financing activities	(942,577)		(825,231)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	14,997		(38,155)
Net change in cash, cash equivalents and restricted cash	268,080		(49,319)
Cash, cash equivalents and restricted cash, beginning of year	1,419,864		1,435,183
Cash, cash equivalents and restricted cash, end of period	$	1,687,944	$	1,385,864

See the accompanying Notes to Condensed Consolidated Financial Statements (unaudited).

SYNOPSYS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Description of Business

Synopsys, Inc. (Synopsys, we, our or us) provides products and services used across the entire Silicon to Software spectrum, from engineers creating advanced semiconductors to software developers seeking to ensure the security and quality of their code.

We are a global leader in electronic design automation (EDA) software that engineers use to design and test integrated circuits (ICs), also known as chips. We provide software and hardware used to validate the electronic systems that incorporate chips and the software that runs on them. We also provide technical services and support to help our customers develop advanced chips and electronic systems. These products and services are part of our Design Automation segment.

We also offer semiconductor intellectual property (IP) products, which are pre-designed circuits that engineers use as components of larger chip designs rather than designing those circuits themselves. These products and services are part of our Design IP segment.

We are also a leading provider of software tools and services that improve the security, quality and compliance of software in a wide variety of industries, including electronics, financial services, automotive, medicine, energy and industrials. These tools and services are part of our Software Integrity segment.

Note 2. Summary of Significant Accounting Policies and Basis of Presentation

We have prepared the accompanying condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Pursuant to these rules and regulations, we have condensed or omitted certain information and footnote disclosures we normally include in our annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The condensed consolidated financial statements are unaudited but, in management’s opinion, we have made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary for a fair presentation of our quarterly results. Our interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. These financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended October 31, 2022 as filed with the SEC on December 12, 2022 (our Annual Report).

Use of Estimates. To prepare financial statements in conformity with U.S. GAAP, management must make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates and could have a material impact on our operating results and financial position.

Principles of Consolidation. The condensed consolidated financial statements include our accounts and the accounts of our wholly and majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Fiscal Year End. Our fiscal year generally ends on the Saturday nearest to October 31 and consists of 52 weeks, with the exception that approximately every five years, we have a 53-week year. When a 53-week year occurs, we include the additional week in the first quarter to realign fiscal quarters with calendar quarters. Fiscal 2023 and 2022 are both 52-week years. Fiscal 2023 will end on October 28, 2023. Fiscal 2022 ended on October 29, 2022. For presentation purposes, the condensed consolidated financial statements and accompanying notes refer to the closest calendar month end.

Comparability. Certain reclassifications have been made to the prior period's condensed consolidated financial statements to conform to the current year presentation. The reclassifications did not have a material impact on the prior period's condensed consolidated balance sheets, statements of income, statements of comprehensive income and statements of cash flows.

Segment Reporting. Effective in the first quarter of fiscal 2023, we realigned our organizational structure to evaluate the results of our Design IP business separately. Our Chief Operating Decision Maker (CODM), our Chief

Executive Officer (CEO), now regularly reviews disaggregated segment information, assesses performance against our key growth strategies and allocates resources based on this new organizational structure. As a result, effective in the first quarter of fiscal 2023, we changed our reportable segments from two reportable segments to the following three reportable segments: (1) Design Automation, which includes EDA tools, system integration solutions and other associated revenue categories, (2) Design IP, which includes IP products, and (3) Software Integrity, which includes a comprehensive solution for building integrity—security, quality and compliance testing—into the customers' software development lifecycle and supply chain. As such, prior period reportable segment results and related disclosures have been reclassified to reflect our current reportable segments.

Goodwill. As a result of the change to our reportable segments, we reassessed our reporting units for the evaluation of goodwill during the first quarter of fiscal 2023. Prior to this change, our reporting units were determined to be the same as reportable segments for the purpose of goodwill impairment assessment. Our reassessment determined that we now have three reporting units, which are the same as our reportable segments.

Goodwill represents the excess of the aggregate purchase price over the fair value of the net tangible and identifiable intangible assets acquired by us. The carrying amount of goodwill at each reporting unit is tested for impairment annually on the first day of the fourth fiscal quarter, or more frequently if facts and circumstances warrant a review. We perform either a qualitative or quantitative assessment for goodwill impairment test. When a quantitative goodwill impairment assessment is performed, we use an income approach based on discounted cash flow analysis, a market approach based on market multiples, or a combination of both. If the fair value of a reporting unit is less than its carrying value, a goodwill impairment loss is recorded for the difference.

The change in reporting units was considered a triggering event, indicating a test for goodwill impairment was required before and after the change in reporting units. We performed those impairment tests, which did not result in the identification of an impairment loss as of January 31, 2023.

If assumptions or estimates with respect to our future performance vary from what is expected, including but not limited to those assumptions relating to inflationary pressure on costs and geopolitical uncertainties, this may impact the impairment analysis and could reduce the underlying cash flows used to estimate fair values and result in a decline in fair value that may trigger future impairment charges.

Assets Held for Sale. Assets are classified as held for sale when all of the following criteria for a plan of sale have been met: (i) management, having the authority to approve the action, commits to a plan to sell the assets; (ii) the assets are available for immediate sale in their present condition, subject only to terms that are usual and customary; (iii) an active program to locate a buyer and other actions required to complete the plan to sell have been initiated; (iv) the sale of the assets is probable and is expected to be completed within one year; (v) the assets are being actively marketed for sale at a price that is reasonable in relation to their current fair value; and (vi) actions necessary to complete the plan of sale indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

Significant Accounting Policies. There have been no material changes to our significant accounting policies included in our Annual Report.

Recently Issued Accounting Pronouncements

In June 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (ASU 2022-03), which applies to all equity securities measured at fair value that are subject to contractual sale restrictions. This change prohibits entities from taking into account contractual restrictions on the sale of equity securities when estimating fair value and introduces required disclosures for such transactions. The standard will become effective for us beginning on November 1, 2024 and will be applied prospectively. Early adoption is permitted. Any future impact from the adoption of this guidance will depend on the facts and circumstances of future transactions.

Note 3. Revenue

Disaggregated Revenue

The following table showed the percentage of revenue by product groups:


	Three Months Ended July 31,				Nine Months Ended July 31,
	2023		2022		2023		2022
EDA	65.5	%	63.8	%	64.7	%	62.2	%
Design IP	23.5	%	25.1	%	24.3	%	26.9	%
Software Integrity	8.9	%	9.5	%	9.3	%	8.9	%
Other	2.1	%	1.6	%	1.7	%	2	%
Total	100.0	%	100.0	%	100.0	%	100.0	%

Contract Balances

The contract assets indicated below are presented as prepaid and other current assets in the condensed consolidated balance sheets. The contract assets are transferred to receivables when the rights to invoice and receive payment become unconditional. Unbilled receivables are presented as accounts receivable, net, in the condensed consolidated balance sheets.

Contract balances were as follows:


	As of
	July 31, 2023		October 31, 2022
	(in thousands)
Contract assets, net	$	270,105	$	260,498
Unbilled receivables	$	49,261	$	46,254
Deferred revenue	$	1,939,186	$	2,065,294

During the three and nine months ended July 31, 2023, we recognized revenue of $344.9 million and $1.6 billion, respectively, including previously unfulfilled contracts that have expired and are no longer subject to an implied promise to provide future services, that was included in the deferred revenue balance as of October 31, 2022.

Contracted but unsatisfied or partially unsatisfied performance obligations were approximately $7.1 billion as of July 31, 2023, which includes $1.4 billion in non-cancellable Flexible Spending Account (FSA) commitments from customers where actual product selection and quantities of specific products or services are to be determined by customers at a later date. We have elected to exclude future sales-based royalty payments from the remaining performance obligations. Approximately 42% of the contracted but unsatisfied or partially unsatisfied performance obligations as of July 31, 2023, excluding non-cancellable FSA, are expected to be recognized over the next 12 months, with the remainder recognized thereafter.

During the three and nine months ended July 31, 2023, we recognized $24.2 million and $75.8 million, respectively, from performance obligations satisfied from sales-based royalties earned during the periods. During the three and nine months ended July 31, 2022, we recognized $33.9 million and $103.5 million, respectively, from performance obligations satisfied from sales-based royalties earned during the periods.

Costs of Obtaining a Contract with Customer

Capitalized commission costs, net of accumulated amortization, as of July 31, 2023 were $96.7 million and included in other long-term assets in our condensed consolidated balance sheets. Amortization of these assets was $22.1 million and $61.7 million during the three and nine months ended July 31, 2023, respectively, and included in sales and marketing expense in the condensed consolidated statements of income. Amortization of these assets was $19.9 million and $54.4 million during the three and nine months ended July 31, 2022, respectively, and included in sales and marketing expense in the condensed consolidated statements of income.

Note 4. Business Combination

During the nine months ended July 31, 2023, we completed two acquisitions for aggregate purchase consideration of $48.6 million, net of cash acquired. The purchase consideration was allocated as follows: $24.6 million to identifiable intangible assets and $28.5 million to goodwill. The total purchase consideration is preliminary, and as additional information becomes available, we may further revise it during the remainder of the measurement period, which will not exceed 12 months from the closing of the acquisition. The goodwill recognized from both acquisitions was assigned to the Design Automation reporting unit, and $5.7 million was deductible for income tax purposes.

We have included the financial results of these acquisitions in our condensed consolidated financial statements from the date of acquisition. These results were not material to our condensed consolidated financial statements.

Transaction costs were $4.5 million and $9.8 million during the three and nine months ended July 31, 2023, respectively. Transaction costs were $5.2 million and $11.3 million during the three and nine months ended July 31, 2022, respectively. These costs mainly consisted of professional fees and administrative costs and were expensed as incurred in our condensed consolidated statements of income.

Note 5. Goodwill and Intangible Assets

Goodwill

As a result of the change in reporting units effective in the first quarter of fiscal 2023, we estimated the fair value of our new reporting units and reallocated goodwill to the reporting units using a relative fair value method. No impairment of goodwill was identified for any period presented.

The changes in the carrying amount of goodwill during the nine months ended July 31, 2023 were as follows:


	(in thousands)




Balance at October 31, 2022	$	3,842,234
Additions	28,503
Adjustments	3,097
Effect of foreign currency translation	14,026
Balance at July 31, 2023	$	3,887,860

During the nine months ended July 31, 2023, we finalized certain estimates impacting total preliminary purchase consideration for certain acquisitions and recorded the resulting measurement period adjustments which increased goodwill.

Intangible Assets

Intangible assets as of July 31, 2023 consisted of the following:


	Gross Carrying Amount		Accumulated Amortization		Net Amount
	(in thousands)
Core/developed technology	$	1,101,118	$	866,708	$	234,410
Customer relationships	431,469		351,474		79,995
Contract rights intangible	193,120		190,036		3,084

Trademarks and trade names	52,825		36,736		16,089

Capitalized software development costs	50,795		47,650		3,145
Total	$	1,829,327	$	1,492,604	$	336,723

Intangible assets as of October 31, 2022 consisted of the following:


	Gross Carrying Amount		Accumulated Amortization		Net Amount
	(in thousands)
Core/developed technology	$	1,083,703	$	813,226	$	270,477
Customer relationships	426,242		333,984		92,258
Contract rights intangible	190,666		188,262		2,404

Trademarks and trade names	52,795		34,054		18,741

Capitalized software development costs	48,591		46,025		2,566
Total	$	1,801,997	$	1,415,551	$	386,446

Amortization expense related to intangible assets consisted of the following:


	Three Months Ended July 31,				Nine Months Ended July 31,
	2023		2022		2023		2022
	(in thousands)
Core/developed technology	$	17,816	$	18,603	$	53,566	$	45,180
Customer relationships	5,801		6,322		17,314		20,819
Contract rights intangible	558		727		1,320		2,180

Trademarks and trade names	896		802		2,682		2,002
Capitalized software development costs(1)	557		619		1,626		2,052
Total	$	25,628	$	27,073	$	76,508	$	72,233

(1) Amortization of capitalized software development costs is included in cost of products revenue in the condensed consolidated statements of income.

The following table presented the estimated future amortization of intangible assets as of July 31, 2023:


Fiscal year	(in thousands)
Remainder of fiscal 2023	$	25,684
2024	93,465
2025	75,385
2026	61,840
2027	41,638
2028 and thereafter	38,711

Total	$	336,723

Note 6. Balance Sheets Components


	As of
	July 31, 2023		October 31, 2022
	(in thousands)

























Other long-term assets:
Deferred compensation plan assets	$	330,224	$	279,096
Capitalized commission, net	96,723		96,509


Other	78,879		88,090
Total	$	505,826	$	463,695

Accounts payable and accrued liabilities:
Payroll and related benefits	$	554,751	$	559,886
Accrued income taxes	165,514		35,290
Other accrued liabilities	118,649		176,647
Accounts payable	66,550		37,580
Total	$	905,464	$	809,403

Other long-term liabilities:
Deferred compensation plan liabilities	$	330,224	$	279,096
Other	59,292		48,733
Total	$	389,516	$	327,829

Assets Held for Sale

During the three months ended July 31, 2023, we commenced a plan to sell two office buildings with approximately 226,000 square feet. As of July 31, 2023, the office buildings had a carrying value of approximately $9.5 million, which was included within property and equipment, net in the condensed consolidated balance sheets.

Note 7. Financial Assets and Liabilities

Cash Equivalents and Short-term Investments

As of July 31, 2023, the balances of our cash equivalents and short-term investments were as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses Less Than 12 Continuous Months		Gross Unrealized Losses 12 Continuous Months or Longer		Estimated Fair Value(1)
	(in thousands)
Cash equivalents:
Money market funds	$	200,288	$	—	$	—	$	—	$	200,288



U.S. government agency securities	2,284		—		—		—		2,284
Total:	$	202,572	$	—	$	—	$	—	$	202,572
Short-term investments:
U.S. government agency & T-bills	$	20,595	$	—	$	(82)	$	(6)	$	20,507
Municipal bonds	1,535		—		—		(22)		1,513


Corporate debt securities	96,614		42		(462)		(529)		95,665
Asset-backed securities	30,971		12		(109)		(116)		30,758


Total:	$	149,715	$	54	$	(653)	$	(673)	$	148,443

(1)See Note 8. Fair Value Measurements for further discussion on fair values.

The contractual maturities of our available-for-sale debt securities as of July 31, 2023 were as follows:


	Amortized Cost		Fair Value
	(in thousands)
less than 1 year	$	67,071	$	66,422
1-5 years	78,935		78,386
5-10 years	1,863		1,853
>10 years	1,846		1,782
Total	$	149,715	$	148,443

As of October 31, 2022, the balances of our cash equivalents and short-term investments were as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses Less Than 12 Continuous Months		Gross Unrealized Losses 12 Continuous Months or Longer		Estimated Fair Value(1)
	(in thousands)
Cash equivalents:
Money market funds	$	77,683	$	—	$	—	$	—	$	77,683



Total:	$	77,683	$	—	$	—	$	—	$	77,683
Short-term investments:
U.S. government agency & T-bills	$	25,816	$	—	$	(174)	$	(39)	$	25,603
Municipal bonds	2,970		—		(12)		(80)		2,878
Corporate debt securities	95,899		7		(747)		(1,135)		94,024
Asset-backed securities	25,826		—		(149)		(269)		25,408




Total:	$	150,511	$	7	$	(1,082)	$	(1,523)	$	147,913

(1)See Note 8. Fair Value Measurements for further discussion on fair values.

Restricted cash. We include amounts generally described as restricted cash in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the condensed consolidated statements of cash flows. Restricted cash is primarily associated with office leases.

The following table provided a reconciliation of cash, cash equivalents and restricted cash included in the condensed consolidated balance sheets:


	As of
	July 31, 2023		October 31, 2022
	(in thousands)
Cash and cash equivalents	$	1,686,144	$	1,417,608
Restricted cash included in prepaid and other current assets	1,055		1,566
Restricted cash included in other long-term assets	745		690
Total cash, cash equivalents and restricted cash	$	1,687,944	$	1,419,864

Non-marketable equity securities. Our portfolio of non-marketable equity securities consists of strategic investments in privately held companies. There was no impairment of non-marketable equity securities during the three months ended July 31, 2023 and there was an immaterial impairment of a non-marketable equity security during the nine months ended July 31, 2023. There was no impairment of non-marketable equity securities during the three and nine months ended July 31, 2022.

Derivatives

We recognize derivative instruments as either assets or liabilities in the condensed consolidated balance sheets at fair value and provide qualitative and quantitative disclosures about such derivatives. We operate internationally and

are exposed to potentially adverse movements in foreign currency exchange rates. We enter into hedges in the form of foreign currency forward contracts to reduce our exposure to foreign currency rate changes on non-functional currency denominated forecasted transactions and balance sheet positions including: (1) certain assets and liabilities, (2) shipments forecasted to occur within approximately one month, (3) future billings and revenue on previously shipped orders, and (4) certain future intercompany invoices denominated in foreign currencies.

The duration of forward contracts, the majority of which are short-term, ranges from approximately 1 month to 27 months at inception. We do not use foreign currency forward contracts for speculative or trading purposes. We enter into foreign exchange forward contracts with high credit quality financial institutions that are rated "A" or above and to date have not experienced nonperformance by counterparties. In addition, we mitigate credit risk in derivative transactions by permitting net settlement of transactions with the same counterparty and anticipate continued performance by all counterparties to such agreements.

The assets or liabilities associated with the forward contracts are recorded at fair value in other current assets or accrued liabilities in the condensed consolidated balance sheets. The accounting for gains and losses resulting from changes in fair value depends on the use of the foreign currency forward contract and whether it is designated and qualifies for hedge accounting. The cash flow impact upon settlement of the derivative contracts is included in "net cash provided by operating activities" in the condensed consolidated statements of cash flows.

Cash Flow Hedging Activities

Certain foreign exchange forward contracts are designated and qualify as cash flow hedges. These contracts have durations of approximately 27 months or less. Certain forward contracts are rolled over periodically to capture the full length of exposure to our foreign currency risk, which can be up to three years. To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge, and the hedges must be highly effective in offsetting changes to future cash flows on the hedged transactions. The related gains or losses resulting from changes in fair value of these hedges is initially reported, net of tax, as a component of other comprehensive income (loss) (OCI) in stockholders’ equity and reclassified into revenue or operating expenses, as appropriate, at the time the hedged transactions affect earnings. We expect a majority of the hedge balance in OCI to be reclassified to the statements of income within the next 12 months.

We did not record any gains or losses related to discontinuation of cash flow hedges during the nine months ended July 31, 2023 and 2022.

Non-designated Hedging Activities

Our foreign exchange forward contracts that are used to hedge non-functional currency denominated balance sheet assets and liabilities are not designated as hedging instruments. Accordingly, any gains or losses from changes in the fair value of the forward contracts are recorded in other income (expense), net. The gains and losses on these forward contracts generally offset the gains and losses associated with the underlying assets and liabilities, which are also recorded in other income (expense), net. The duration of the forward contracts for hedging our balance sheet exposure is approximately one month.

We also have certain foreign exchange forward contracts for hedging certain international revenues and expenses that are not designated as hedging instruments. Accordingly, any gains or losses from changes in the fair value of the forward contracts are recorded in other income (expense), net. The gains and losses on these forward contracts generally offset the gains and losses associated with the foreign currency in operating income. The duration of these forward contracts is usually less than one year. The overall goal of our hedging program is to minimize the impact of currency fluctuations on the net income over the fiscal year.

The effects of the non-designated derivative instruments on the condensed consolidated statements of income were summarized as follows:


	Three Months Ended July 31,				Nine Months Ended July 31,
	2023		2022		2023		2022
	(in thousands)
Gains (losses) recorded in other income (expense), net	$	(1,205)	$	(5,182)	$	3,532	$	(10,443)

The notional amounts in the table below for derivative instruments provided one measure of the transaction volume outstanding:


	As of
	July 31, 2023		October 31, 2022
	(in thousands)
Total gross notional amounts	$	1,283,551	$	1,386,140
Net fair value	$	18,120	$	(50,080)

Our exposure to the market gains or losses will vary over time as a function of currency exchange rates. The amounts ultimately realized upon settlement of these financial instruments, together with the gains and losses on the underlying exposures, will depend on actual market conditions during the remaining life of the instruments.

The following table represented the condensed consolidated balance sheets location and amount of derivative instrument fair values segregated between designated and non-designated hedge instruments:


	Fair values of derivative instruments designated as hedging instruments		Fair values of derivative instruments not designated as hedging instruments
	(in thousands)
Balance at July 31, 2023
Other current assets	$	22,487	$	91
Accrued liabilities	$	4,124	$	334
Balance at October 31, 2022
Other current assets	$	2,315	$	223
Accrued liabilities	$	52,171	$	447

The following table represented the location of the amount of gains and losses on derivative instrument fair values for designated hedge instruments, net of tax in the condensed consolidated statements of income:


	Location of gains (losses) recognized in OCI on derivatives	Amount of gains (losses) recognized in OCI on derivatives (effective portion)		Location of gains (losses) reclassified from OCI	Amount of gains (losses) reclassified from OCI (effective portion)
	(in thousands)
Three months ended July 31, 2023
Foreign exchange contracts	Revenue	$	899	Revenue	$	(1,352)
Foreign exchange contracts	Operating expenses	5,008		Operating expenses	(3,898)
Total		$	5,907		$	(5,250)
Three months ended July 31, 2022
Foreign exchange contracts	Revenue	$	(4,702)	Revenue	$	3,651
Foreign exchange contracts	Operating expenses	(14,349)		Operating expenses	(3,687)
Total		$	(19,051)		$	(36)
Nine months ended July 31, 2023
Foreign exchange contracts	Revenue	$	7,315	Revenue	$	(10,856)
Foreign exchange contracts	Operating expenses	36,174		Operating expenses	(12,025)
Total		$	43,489		$	(22,881)
Nine months ended July 31, 2022
Foreign exchange contracts	Revenue	$	(12,527)	Revenue	$	3,309
Foreign exchange contracts	Operating expenses	(29,242)		Operating expenses	(4,852)
Total		$	(41,769)		$	(1,543)

Note 8. Fair Value Measurements

ASC 820-10, Fair Value Measurements and Disclosures, defines fair value, establishes guidelines and enhances disclosure requirements for fair value measurements. The accounting guidance requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The accounting guidance also establishes a fair value hierarchy based on the independence of the source and objective evidence of the inputs used. There are three fair value hierarchies based upon the level of inputs that are significant to fair value measurement:

Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical instruments in active markets;

Level 2—Observable inputs other than quoted prices included in Level 1 for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-driven valuations in which all significant inputs and significant value drivers are observable in active markets; and

Level 3—Unobservable inputs to the valuation derived from fair valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

On a recurring basis, we measure the fair value of certain assets and liabilities, which include cash equivalents, short-term investments, non-qualified deferred compensation plan assets, and foreign currency derivative contracts.

Our cash equivalents and short-term investments are classified within Level 1 or Level 2 because they are valued using quoted market prices in an active market or alternative independent pricing sources and models utilizing market observable inputs.

Our non-qualified deferred compensation plan assets consist of money market and mutual funds invested in domestic and international marketable securities that are directly observable in active markets and are therefore classified within Level 1.

Our foreign currency derivative contracts are classified within Level 2 because these contracts are not actively traded, and the valuation inputs are based on quoted prices and market observable data of similar instruments.

Our borrowings under our credit and term loan facilities are classified within Level 2 because these borrowings are not actively traded and have a variable interest rate structure based upon market rates currently available to us for debt with similar terms and maturities. See Note 10. Credit and Term Loan Facilities of the Notes to Condensed Consolidated Financial Statements for more information on these borrowings.

Assets/Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis were summarized below as of July 31, 2023:


			Fair Value Measurement Using
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Assets
Cash equivalents:
Money market funds	$	200,288	200,288		$	—	$	—



U.S. government agency securities	2,284		—		2,284		—
Short-term investments:
U.S. government agency & T-bills	20,507		—		20,507		—
Municipal bonds	1,513		—		1,513		—


Corporate debt securities	95,665		—		95,665		—
Asset-backed securities	30,758		—		30,758		—


Prepaid and other current assets:
Foreign currency derivative contracts	22,578		—		22,578		—
Other long-term assets:
Deferred compensation plan assets	330,224		330,224		—		—
Total assets	$	703,817	$	530,512	$	173,305	$	—

Liabilities
Accounts payable and accrued liabilities:
Foreign currency derivative contracts	$	4,458	$	—	$	4,458	$	—
Other long-term liabilities:
Deferred compensation plan liabilities	330,224		330,224		—		—
Total liabilities	$	334,682	$	330,224	$	4,458	$	—

Assets and liabilities measured at fair value on a recurring basis were summarized below as of October 31, 2022:

Fair Value Measurement Using

Description

Total

Quoted Prices in
Active Markets
for Identical Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

(in thousands)

Assets

Cash equivalents:

Money market funds

77,683