December 17, 2018 Synopsys Inc. BUY Company Update : Electronic Design Automation

Review of FY18 10-K new data

We review the new data in Synopsys’ FY18 10-K filing, including revenues from its largest customer, maintenance & services revenue, costs & expenses, acquisitions accounting, and Jay Vleeschhouwer revenues by region. We reviewed 4Q18 results in detail, and [email protected] updated our estimates, in our report dated December 6th, 2018. 646-442-4251 Customer concentration. Synopsys’ largest customer, Intel, accounted for 15.4% of FY18 revenues, or about $481 million Stock Symbol NASDAQ: SNPS (±$2 million), as compared with 17.9% of revenues in FY17, Current Price $86.80 or more than $485 million, 15.9% in FY16, or ≈$385 million, 12 mos. Target Price $115.00 and 12.8% in FY15, or about $287 million (prior to the filing, Market Cap $13,920.6 mln we had approximated that the FY18 amount was about flat with Shares O/S 153.0 mln FY17, or perhaps slightly lower). When we exclude the “software integrity” (SIG) business from the denominator, Intel’s spending Avg Daily Vol. (3 mos.) 972,073 shs. was closer to 17% of revenues in FY18, 19% in FY17, and 16.5% 52-Week Price Low/High $76.61 - $94.80 in FY16. P/B 4.0x Price/ FCF 0.2x The 5-year CAGR of Intel’s spending with Synopsys is about 17% and the 10-year CAGR is almost 13%, both well above EDA Fiscal Year End Oct industry growth rates. The growth reflected a combination of core ROE 16% EDA, IP, and - especially over the past three years - demand EPS for Synopsys’ hardware-based verification systems (Zebu and HAPS). The most recently calculable 5-year CAGR for the EDA FY 19E FY 20E FY 21E industry as a whole, based on available industry statistics, was

Q1 (Jan) $0.95E $1.15E $1.28E about 6% and the 10-year CAGR was about 4%. Q2 (Apr) 1.04E 0.99E 1.31E The non-Intel revenues for the year were, therefore, about $2.64 Q3 (Jul) 1.07E 1.09E 1.32E billion, up 18% year/year. The non-Intel revenues excluding SIG Q4 (Oct) 1.19E 1.38E 1.48E were almost $2.36 billion, up 14%. The 5-year CAGR for non-Intel $4.25E $4.61E $5.39E revenues excluding SIG (which didn’t exist five years ago) was P/E 20.4x 18.8x 16.1x slightly more than 6% (in line with the EDA industry CAGR noted EV/Sales 4.2x 4.0x 3.7x above). Charts 1a-1b depict the progression of Intel’s spending with 120 Synopsys from FY03 through FY18 The amounts shown 100 represent the large majority of Intel’s commercial EDA spending, 80 which, we have previously calculated, have lately accounted for as much as a high-single-digit percent of total commercial EDA 60 revenues and about 5% of Intel’s total R&D spending. 40 Backlog. The company estimates that $1.7 billion of its backlog 20 of $4.0 billion will be recognized after FY19, meaning that about 0 $2.3 billion of backlog will be recognized in the current fiscal year, Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 or about 68% of our estimate for total revenues. This amount is Synopsys Inc. consistent with our model, i.e., if we were to exclude all estimated new bookings for FY19, revenues according to our model would then be about $2.31 billion. In the FY17 10-K, the company had stated it expected $1.5 billion of its backlog at the time to be recognized after FY18.

17 State Street, 3rd Floor, New York, NY 10004 • 212.509.9500 • www.griffinsecurities.com Please Review Disclosures on Page 12 of This Report Synopsys Inc. December 17, 2018

License mix. Upfront license revenues were $357.7 million, up 6% year/year. The increase was “primarily attributable to an increase in the sale of IP products driven by higher demand from customers”. We calculate that upfront revenues account for about a fifth of total IP revenues, the balance consisting of time-based product revenues plus services. The increase in upfront revenues in FY17 had been primarily attributable to an increase in the sale of hardware products.

We calculate that total hardware revenues in FY18 were up by a few percent, including emulation revenues of about $140-$145 million. We have calculated that Cadence Design’s (CDNS, $42.99, Buy) TTM emulation product revenues were about $110 million.

We’re estimating FY19 upfront revenues of about $290 million, subject as always to the inherent variability of both hardware and IP. On the other hand, we’re estimating a 13% increase in subscriptions revenues, to $2.606 billion.

Maintenance & Services. In FY18, maintenance revenues were $100.4 million, up 19% year/year, including, by inference, a 15% increase in 4Q18 to $25.9 million. This represented the third consecutive fiscal year of increasing maintenance revenues, following declines in FY14 and FY15 (FY18 maintenance revenues were a third higher than the FY14 revenues. We’d assume that part of this increase reflects the maintenance attached to hardware sales).

Professional services were $359.6 million, up $78.8 million, or 28%, from FY17. This represented the fourth consecutive fiscal year of increasing services revenues. We calculate that SIG accounted for more than a fifth of the increase in FY18 services revenues, i.e., the increase would still have exceeded 25% excluding SIG, with much (probably most) of that non-SIG increase being attributable to IP engagements.

As noted in the 10-K commentary, the year/year increase was “primarily due to an increase in consulting projects, including contributions from acquisitions, and to a lesser extent, the impact of the extra week in fiscal 2018” (italics added). Aside from IP engagement and SIG services, it will be interesting over time how core EDA services might progress. During its 3Q18 conference call, management made the following comments vis-à-vis customers’ methodologies and design implementation skills: “…do people have to evolve their methodology? My [i.e., CEO] answer would be absolutely yes. The complexity that we see is changing, not only in scale, meaning, more transistors. But also in systemic complexity, meaning, more dimensions that have to be satisfied simultaneously. And the traditional dimensions of speed, area and power are still very foundational…. So it’s in that context that we provide an increasingly large amount of methodology support and help. And also in our Fusion Technology have integrated a number of tools together to essentially accelerate what could be viewed as methodology, but is really the intersection between tools…”.

Therefore, the general direction of core EDA services might very well be higher (corroborated in part by the number of openings for application engineers, or AEs) due to the organic need to support customers (a fact of life in EDA since the inception of the industry), while Synopsys (and for that matter Cadence) would have to balance – or mitigate – that for margin/mix considerations (this is not an easy equation to solve, as we have seen for years as well among EDA’s PLM counterparts in Technical Software).

For FY19, we’re expecting combined maintenance & services revenues of $431 million, down 6%, or about $365 million, down 9%, excluding SIG services (subject to the variability of IP engagements).

Griffin Securities Equity Research 2 Synopsys Inc. December 17, 2018

REGIONAL RESULTS

 Revenues in the U.S. were $1.508 billion, up 11% (vs. up 13%). Based on the U.S. revenue through the first three quarters of FY18, the 4Q18 revenues were $381.6 million, up 16% year/year and $16 million sequentially. Based on industry statistics from the Electronic System Design Alliance (ESDA, formerly EDAC), Synopsys' average share of EDA revenues in the “North America” region has been nearly 40% over the past few years.

 Revenues in Europe were $369.1 million, up 20% (vs. up 7%). Synopsys’ average share of EDA spending in Europe has been more than 25% over the past few years.

 Revenues in Japan were $283.3 million, up 14%, (vs. up 3%). This was the tenth consecutive TTM increase in Japan. Synopsys’ average share of EDA in Japan has been about 33% over the past few years.

 Revenues in Asia (& other) were $960.4 million, up 18% (vs. up 18%). Based on the regional revenue through the first three quarters of FY18, the 4Q18 revenues were $245 million, up 7% year/year and down $6 million sequentially. Synopsys’ average share of EDA has been about 40% in this region over the past few years. The revenues reported for “Asia Pacific” with 4Q18 results were $919 million, a difference of $41 million from the amount reported in the 10-K for “Asia Pacific & other” (e.g., much of the “other” is likely attributable to Canada). The FY17 difference had been $27 million.

COSTS & EXPENSES

 Total costs of revenue were up $81.7 million year/year, or 12%, including cost of license revenues, cost of maintenance & services, and amortization. The increase in cost of revenues was “primarily due to increases of $47.7 million in personnel-related costs as a result of headcount increases, including those from acquisitions, an increase of $11.3 million in costs related to servicing IP consulting arrangements, and an increase of $7.9 million in amortization of intangible assets, as well as one additional week of expenses of approximately $4.5 million” (italics added). The increase in personnel-related costs had been $62.4 million in FY17 and the increase in costs for IP consulting arrangements had been $24.8 million (more than double the FY18 increase). The absence of a specific reference to hardware product costs might suggest that hardware product revenues and/or gross margins did not change materially over the course of the year (the FY17 10-K, on the other hand, had noted a $37.5 million increase in hardware product costs). The 1Q18 10-Q had noted a $2 million increase in hardware product cost of revenues, the 2Q18 10-Q implied an increase of just $0.2 million, and the 3Q18 10-Q had no mention of hardware product costs.

For FY19, we’re estimating total cost of revenues of ≈$721.5 million, or 21.7% of revenues, down $14 million, for a GAAP gross margin increase of 190bp, including a 120bp increase in the product margin and a ≈140bp decrease in the services & maintenance margin.

 Sales & marketing expenses were up $73.8 million year/year, or 13%, to $623 million. The increase “was primarily attributable to an increase of $51.0 million in personnel costs as a result of headcount increases, an increase of $7.5 million due to timing of marketing events, and one additional week of expenses of approximately $5.8 million” (italics added). For FY19, we’re estimating sales & marketing expenses of $654 million, or 19.7% of estimated revenues, down 30bp from the FY17 proportion.

Griffin Securities Equity Research 3 Synopsys Inc. December 17, 2018

 R&D expenses were up $176 million, or 19%, to $1.085 billion. The increase “was primarily due to an increase of $114.4 million in personnel-related costs as a result of headcount increases, including those from acquisitions, and one additional week of expenses of approximately $19.3 million.” (italics added). The increase in personnel-related costs in FY17 had been $40.8 million. Based on the results through the first three quarters of FY18, the increase in R&D personnel-related costs in 4Q18 was $29.0 million (vs. $38.6 million in 3Q18).

For FY19, we’re estimating R&D expenses of $1.14 billion, or 34.3% of revenue, down 50bp.

BALANCE SHEET, ACQUISITION ACCOUNTING & AMORTIZATION

For the year, the company completed acquisitions for an aggregate consideration of $637 million, including Black Duck for $565 million. The purchase price accounting resulted in the allocation of $395.4 million to goodwill and $178 million to intangible assets (hence the increases in estimated amortization described below).

For 2019, the estimated amortization is now $102.6 million, or 3.0% of estimated revenues, vs. the $62.9 million estimated in the FY17 10-K. For 2020, the estimated amortization is now $78.1 million, or 2.2% of estimated revenues, vs. the $44.9 million in the FY17 10-K. Finally, for 2021, the estimated amortization is now $55.9 million, or 1.5% of estimated revenues, vs. the $26.7 million in the FY17 10-K. By comparison, we estimate that for Cadence, amortization will account for 2.1% of estimated 2018 revenues, 1.7% of 2020 revenues, and 1.5% of 2021 revenues.

As of the end of FY18, the company held cash and equivalents of $177.5 million in the U.S. and $545.5 million in its foreign subsidiaries. The 10-K notes too in the “liquidity and capital resources” section that, “during the fourth quarter of fiscal 2018, [we] completed a restructuring of our foreign intellectual property rights, resulting in a one-time tax payment of $67.7 million, which is included in current prepaid taxes”. As of the end of FY18, the outstanding balance on the company’s revolving credit facility was $330 million, with an interest rate of LIBOR plus 1.125%; however, subsequent to the end of FY18, the company drew down $150 million under the revolver, such that the balance is now $430 million, net of repayments.

Griffin Securities Equity Research 4 Synopsys Inc. December 17, 2018

Chart 1a. Synopsys, revenue from Intel, FY03-FY18

$130.0 $125.0 $120.0 $115.0 $110.0 $105.0 $100.0 $95.0 $90.0 $85.0 $80.0 $75.0 $70.0 $65.0 $60.0 $55.0 $50.0 $45.0 $40.0 $35.0 $30.0 $25.0 $20.0

Intel $ to Synopsys

Source: Company data, Griffin Securities. .

Chart 1b. Synopsys, TTM revenue from Intel, FY03-FY18

$500.0 $475.0 $450.0 $425.0 $400.0 $375.0 $350.0 $325.0 $300.0 $275.0 $250.0 $225.0 $200.0 $175.0 $150.0 $125.0 $100.0 $75.0 $50.0 $25.0 $0.0

Intel $ to Synopsys - TTM

Source: Company data, Griffin Securities.

Griffin Securities Equity Research 5 Synopsys Inc. December 17, 2018

Chart 1c. Synopsys, TTM revenue: ex-Intel, ex-SIG, FY03-FY18

$2,700.0 $2,600.0 $2,500.0 $2,400.0 $2,300.0 $2,200.0 $2,100.0 $2,000.0 $1,900.0 $1,800.0 $1,700.0 $1,600.0 $1,500.0 $1,400.0 $1,300.0 $1,200.0 $1,100.0 $1,000.0 $900.0 $800.0 $700.0 $600.0 $500.0 $400.0 $300.0 $200.0 $100.0 $0.0

INTC $ to SNPS - TTM SNPS, ex-INTC - TTM SNPS - ex-Intel, ex-SIG - TTM

Source: Company data, Griffin Securities.

Chart 2a. Synopsys, maintenance & services revenue, FY08-FY18 $100.0 $95.0 $90.0 $85.0 $80.0 $75.0 $70.0 $65.0 $60.0 Cigital → $55.0 $50.0 $45.0 $40.0 $35.0 $30.0 $25.0 $20.0 $15.0 $10.0 $5.0 $0.0

SNPS - services SNPS - maintenance

Source: Company data, Griffin Securities.

Griffin Securities Equity Research 6 Synopsys Inc. December 17, 2018

Chart 2b. Synopsys, TTM maintenance & services revenue, FY08-FY18

$400.0 $390.0 $380.0 $370.0 $360.0 $350.0 $340.0 $330.0 $320.0 $310.0 $300.0 $290.0 $280.0 $270.0 $260.0 $250.0 $240.0 Cigital → $230.0 $220.0 $210.0 $200.0 $190.0 $180.0 $170.0 $160.0 $150.0 $140.0 $130.0 $120.0 $110.0 $100.0 $90.0 $80.0 $70.0 $60.0 $50.0 $40.0 $30.0 $20.0 $10.0 $0.0

SNPS - TTM services SNPS - TTM maintenance

Source: Company data, Griffin Securities

Chart 3. Synopsys, TTM segment revenues, FY08-FY18

$1,750.0 $1,700.0 $1,650.0 $1,600.0 $1,550.0 $1,500.0 $1,450.0 $1,400.0 $1,350.0 $1,300.0 $1,250.0 $1,200.0 $1,150.0 $1,100.0 $1,050.0 $1,000.0 $950.0 $900.0 $850.0 $800.0 $750.0 $700.0 $650.0 $600.0 $550.0 $500.0 $450.0 $400.0 $350.0 $300.0 $250.0 $200.0 $150.0 $100.0 $50.0 $0.0

Core EDA - TTM DFM - TTM

IP, systems & software integrity - TTM Service & Other - TTM

Source: Company data, Griffin Securities.

Griffin Securities Equity Research 7 Synopsys Inc. December 17, 2018

Chart 4a. Synopsys, TTM revenue, by geo, cal. 2004-3Q18

$1,750,000 $1,700,000 Synopsys - TTM Americas Synopsys - TTM Asia $1,650,000 $1,600,000 Synopsys - TTM Europe Synopsys - TTM Japan $1,550,000 $1,500,000 $1,450,000 $1,400,000 $1,350,000 $1,300,000 $1,250,000 $1,200,000 $1,150,000 $1,100,000 $1,050,000 $1,000,000 $950,000 $900,000 $850,000 $800,000 $750,000 $700,000 $650,000 $600,000 $550,000 $500,000 $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0

Source: Company data, Griffin Securities

Chart 4b. Synopsys, TTM share by region, cal. 2004-2Q18

47.5% 45.0% 42.5% 40.0% 37.5% 35.0% 32.5% 30.0% 27.5% 25.0% 22.5% 20.0% 17.5% 15.0% 12.5% 10.0%

Synopsys - TTM Americas share Synopsys - TTM Europe share

Synopsys - TTM Japan share Synopsys - TTM Asia share

Source: ESDA, company data, Griffin Securities.

Griffin Securities Equity Research 8 Synopsys Inc. December 17, 2018

Chart 5a. Synopsys, headcount, 2012-2018

15,000 14,750 14,500 14,250 14,000 13,750 13,500 13,250 13,000 12,750 12,500 12,250 12,000 11,750 11,500 11,250 11,000 10,750 10,500 10,250 10,000 9,750 9,500 9,250 9,000 8,750 8,500 8,250 8,000 7,750 7,500 7,250 7,000 6,750 6,500 6,250 6,000 5,750 5,500 5,250 5,000

SNPS - headcount

Source: Company data, Griffin Securities.

Chart 5b. Synopsys, open positions, by geo, July 2012 – December 2018

600 575 550 525 500 475 450 425 400 375 350 325 300 275 250 225 200 175 150 125 100 75 50 25 0

SNPS - Americas SNPS - Asia SNPS - EMEA

Source: Company data, Griffin Securities.

Griffin Securities Equity Research 9 Synopsys Inc. December 17, 2018

Chart 5c. Synopsys, open positions, by R&D & sales, July 2012 – December 2018

850 825 800 775 750 725 700 675 650 625 600 575 550 525 500 475 450 425 400 375 350 325 300 275 250 225 200 175 150 125 100 75 50 25 0

SNPS - R&D SNPS - sales

Source: Company data, Griffin Securities.

Chart 5d. Synopsys, total open positions, July 2012 – December 2018

1000 975 950 925 900 875 850 825 800 775 750 725 700 675 650 625 600 575 550 525 500 475 450 425 400 375 350 325 300 275 250 225 200 175 150 125 100

SNPS - total

Source: Company data, Griffin Securities.

Griffin Securities Equity Research 10 Synopsys Inc. December 17, 2018

Chart 6. Synopsys, operating & free cash flow, 2006-2021E

$1,100.0 28.0% $1,075.0 $1,050.0 27.5% $1,025.0 27.0% $1,000.0 26.5% $975.0 $950.0 26.0% $925.0 25.5% $900.0 $875.0 25.0% $850.0 24.5% $825.0 $800.0 24.0% $775.0 23.5% $750.0 23.0% $725.0 $700.0 22.5% $675.0 22.0% $650.0 $625.0 21.5% $600.0 21.0% $575.0 20.5% $550.0 $525.0 20.0% $500.0 19.5% $475.0 $450.0 19.0% $425.0 18.5% $400.0 $375.0 18.0% $350.0 17.5% $325.0 17.0% $300.0 $275.0 16.5% $250.0 16.0% $225.0 $200.0 15.5% $175.0 15.0% $150.0 $125.0 14.5% $100.0 14.0% $75.0 13.5% $50.0 $25.0 13.0% $0.0 12.5% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E

SNPS - OCF SNPS - FCF SNPS - operating margin

Source: Company data, Griffin Securities

SYNOPSYS MODEL (in millions, except EPS data)

FY16A 1Q17A 2Q17A 3Q17A 4Q17A FY17A 1Q18A 2Q18A 3Q18A 4Q18A FY18A 1Q19E 2Q19E 3Q19E 4Q19E FY19E 1Q20E 2Q20E 3Q20E 4Q20E FY20E 1Q21E 2Q21E 3Q21E 4Q21E FY21E Product revenue $2,161.8 $569.0 $584.5 $603.8 $602.7 $2,360.0 $662.5 $656.7 $669.6 $672.1 $2,661.0 $687.9 $714.1 $733.3 $759.5 $2,894.8 $752.4 $732.9 $749.3 $808.6 $3,043.2 $797.9 $801.2 $807.6 $839.2 $3,245.9 Services & maint. revenue $263.5 $83.8 $95.5 $91.6 $93.9 $364.9 $106.9 $120.1 $110.1 $123.0 $460.0 $103.4 $110.7 $101.2 $116.0 $431.3 $110.7 $104.7 $113.9 $118.9 $448.2 $105.7 $118.2 $119.7 $123.9 $467.5 Total Revenue $2,425.3 $652.8 $680.1 $695.4 $696.6 $2,724.9 $769.4 $776.8 $779.7 $795.1 $3,121.1 $791.3 $824.8 $834.5 $875.5 $3,326.1 $863.1 $837.6 $863.2 $927.5 $3,491.4 $903.6 $919.4 $927.3 $963.1 $3,713.4 Cost of products $347.3 $97.0 $100.9 $107.1 $108.2 $413.2 $111.4 $108.2 $115.4 $113.4 $448.4 $108.4 $111.8 $115.5 $118.4 $454.0 $116.1 $114.6 $116.9 $119.3 $466.9 $122.0 $124.0 $125.4 $128.4 $499.8 Cost of services $94.0 $37.3 $41.5 $43.8 $42.3 $164.9 $50.8 $50.1 $49.8 $52.8 $203.4 $47.6 $50.9 $47.1 $51.0 $196.6 $49.6 $48.2 $50.8 $52.9 $201.5 $48.6 $52.5 $53.4 $54.5 $209.0 Amortization $102.1 $21.5 $19.6 $18.6 $16.4 $76.1 $19.0 $20.4 $20.2 $24.4 $84.0 $17.7 $17.7 $17.7 $17.7 $70.9 $13.1 $13.1 $13.1 $13.1 $52.5 $9.5 $9.5 $9.5 $9.5 $38.1 Cost of Revenues $543.4 $155.7 $162.0 $169.5 $166.9 $654.2 $181.2 $178.8 $185.4 $190.6 $735.9 $173.7 $180.4 $180.3 $187.2 $721.5 $178.9 $175.9 $180.8 $185.3 $720.9 $180.2 $186.0 $188.3 $192.4 $746.9 Gross profit $1,881.9 $497.0 $518.0 $525.8 $529.8 $2,070.7 $588.3 $598.1 $594.3 $604.5 $2,385.2 $617.6 $644.4 $654.2 $688.4 $2,604.6 $684.2 $661.7 $682.4 $742.2 $2,770.5 $723.5 $733.4 $739.0 $770.6 $2,966.6 R&D $857.7 $212.6 $223.0 $228.7 $244.5 $908.8 $264.4 $252.1 $277.4 $290.9 $1,084.8 $283.9 $283.0 $284.6 $290.7 $1,142.1 $291.2 $292.9 $293.7 $296.4 $1,174.2 $297.4 $299.1 $301.4 $305.4 $1,203.4 Sales & marketing $502.9 $126.5 $137.2 $131.5 $154.0 $549.2 $150.5 $147.2 $158.0 $167.3 $623.0 $157.3 $162.3 $164.2 $170.8 $654.5 $167.5 $172.7 $174.2 $178.5 $692.9 $180.8 $184.2 $185.4 $187.8 $738.2 Gen. & admin. $166.0 $40.9 $83.4 $46.4 $26.2 $196.8 $56.4 $58.8 $84.3 $63.0 $262.6 $59.6 $61.6 $62.2 $63.4 $246.8 $63.4 $64.4 $65.4 $66.4 $259.6 $67.4 $67.9 $68.5 $69.5 $273.3 Amortization $27.5 $8.0 $7.9 $7.9 $7.8 $31.6 $9.5 $10.7 $10.7 $10.7 $41.6 $7.9 $7.9 $7.9 $7.9 $31.7 $6.4 $6.4 $6.4 $6.4 $25.6 $4.4 $4.4 $4.4 $4.4 $17.8 Merger costs $9.6 $12.11 $12.91 $6.03 $5.55 $36.6 ($0.28) $2.18 $0.0 $11.0 $12.9 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 In-process R&D $0.0 $0.00 $0.00 $0.00 $0.00 $0.0 $0.00 $0.00 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 Operating Expenses $1,563.7 $400.2 $464.4 $420.5 $438.1 $1,723.1 $480.6 $471.0 $530.4 $543.0 $2,024.9 $508.7 $514.8 $518.9 $532.8 $2,075.1 $528.4 $536.4 $539.8 $547.8 $2,152.3 $550.0 $555.7 $559.7 $567.2 $2,232.6 Operating Income $318.2 $96.9 $53.6 $105.4 $91.7 $347.6 $107.7 $127.0 $64.0 $61.5 $360.2 $108.9 $129.7 $135.3 $155.6 $529.4 $155.8 $125.3 $142.7 $194.4 $618.2 $173.4 $177.7 $179.3 $203.5 $733.9 Other Income $12.2 $11.5 $8.4 $7.4 $8.2 $35.5 $12.4 ($7.7) $7.9 ($9.3) $3.3 ($3.0) ($3.0) ($3.0) ($3.0) ($12.0) ($3.0) ($3.0) ($2.0) ($2.0) ($10.0) ($2.0) ($1.0) ($1.0) ($1.0) ($5.0) Pretax Income $330.3 $108.4 $62.0 $112.8 $99.9 $383.1 $120.1 $119.3 $71.9 $52.2 $363.5 $105.9 $126.7 $132.3 $152.6 $517.4 $152.8 $122.3 $140.7 $192.4 $608.2 $171.4 $176.7 $178.3 $202.5 $728.9 Income Taxes $62.8 $21.8 $8.7 -$4.0 $220.0 $246.5 $123.8 $16.8 -$7.5 -$202.1 -$69.0 $14.8 $21.5 $22.5 $25.9 $84.8 $26.0 $20.8 $23.9 $32.7 $103.4 $24.0 $24.7 $25.0 $28.3 $102.1 Net Income $267.5 $86.6 $53.3 $116.8 -$120.1 $136.6 -$3.7 $102.5 $79.4 $254.3 $432.5 $91.1 $105.1 $109.8 $126.7 $432.7 $126.8 $101.5 $116.7 $159.7 $504.8 $147.4 $152.0 $153.3 $174.1 $626.9 EPS, non- GAAP $3.02 $0.94 $0.88 $0.92 $0.69 $3.42 $1.10 $1.08 $0.95 $0.78 $3.91 $0.95 $1.04 $1.07 $1.19 $4.25 $1.15 $0.99 $1.09 $1.38 $4.61 $1.28 $1.31 $1.32 $1.48 $5.39 EPS, net $1.73 $0.56 $0.34 $0.75 ($0.78) $0.88 ($0.02) $0.67 $0.52 $1.66 $2.83 $0.59 $0.68 $0.71 $0.82 $2.81 $0.82 $0.66 $0.75 $1.03 $3.26 $0.95 $0.98 $0.99 $1.12 $4.04 Shares 154.8 154.4 154.9 154.7 154.5 154.9 154.1 153.2 152.6 153.0 153.2 153.5 154.0 154.0 153.5 153.9 155.0 155.0 155.0 155.0 155.0 155.0 155.0 155.0 155.0 155.0 Margins & tax rate Product revenue 89.1% 87.2% 86.0% 86.8% 86.5% 86.6% 86.1% 84.5% 85.9% 84.5% 85.3% 86.9% 86.6% 87.9% 86.8% 87.0% 87.2% 87.5% 86.8% 87.2% 87.2% 88.3% 87.1% 87.1% 87.1% 87.4% Services & maint. revenue 10.9% 12.8% 14.0% 13.2% 13.5% 13.4% 13.9% 15.5% 14.1% 15.5% 14.7% 13.1% 13.4% 12.1% 13.2% 13.0% 12.8% 12.5% 13.2% 12.8% 12.8% 11.7% 12.9% 12.9% 12.9% 12.6% Net Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of products 16.1% 17.0% 17.3% 17.7% 18.0% 17.5% 16.8% 16.5% 17.2% 16.9% 16.9% 15.8% 15.7% 15.8% 15.6% 15.7% 15.4% 15.6% 15.6% 14.8% 15.3% 15.3% 15.5% 15.5% 15.3% 15.4% Cost of services & maint. 35.7% 44.5% 43.4% 47.8% 45.0% 45.2% 47.5% 41.7% 45.2% 42.9% 44.2% 46.0% 46.0% 46.5% 44.0% 45.6% 44.9% 46.0% 44.6% 44.5% 45.0% 46.0% 44.4% 44.6% 44.0% 44.7% Cost of Revenues 22.4% 23.9% 23.8% 24.4% 24.0% 24.0% 23.5% 23.0% 23.8% 24.0% 23.6% 21.9% 21.9% 21.6% 21.4% 21.7% 20.7% 21.0% 20.9% 20.0% 20.6% 19.9% 20.2% 20.3% 20.0% 20.1% Gross profit 77.6% 76.1% 76.2% 75.6% 76.0% 76.0% 76.5% 77.0% 76.2% 76.0% 76.4% 78.1% 78.1% 78.4% 78.6% 78.3% 79.3% 79.0% 79.1% 80.0% 79.4% 80.1% 79.8% 79.7% 80.0% 79.9% R&D 35.4% 32.6% 32.8% 32.9% 35.1% 33.4% 34.4% 32.5% 35.6% 36.6% 34.8% 35.9% 34.3% 34.1% 33.2% 34.3% 33.7% 35.0% 34.0% 32.0% 33.6% 32.9% 32.5% 32.5% 31.7% 32.4% Sales & marketing 20.7% 19.4% 20.2% 18.9% 22.1% 20.2% 19.6% 18.9% 20.3% 21.0% 20.0% 19.9% 19.7% 19.7% 19.5% 19.7% 19.4% 20.6% 20.2% 19.3% 19.8% 20.0% 20.0% 20.0% 19.5% 19.9% Gen. & admin. 6.8% 6.3% 12.3% 6.7% 3.8% 7.2% 7.3% 7.6% 10.8% 7.9% 8.4% 7.5% 7.5% 7.5% 7.2% 7.4% 7.3% 7.7% 7.6% 7.2% 7.4% 7.5% 7.4% 7.4% 7.2% 7.4% Merger costs 0.4% 1.9% 1.9% 0.9% 0.8% 1.3% 0.0% 0.3% 0.0% 1.4% 0.4% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Operating Expenses 64.5% 61.3% 68.3% 60.5% 62.9% 63.2% 62.5% 60.6% 68.0% 68.3% 64.9% 64.3% 62.4% 62.2% 60.9% 62.4% 61.2% 64.0% 62.5% 59.1% 61.6% 60.9% 60.4% 60.4% 58.9% 60.1% Oper. margin: non-GAAP 23.5% 26.9% 24.6% 25.1% 18.7% 23.8% 25.5% 24.5% 21.5% 17.2% 22.1% 21.9% 23.6% 24.1% 25.5% 23.8% 25.2% 22.3% 23.8% 27.9% 24.9% 25.6% 25.7% 25.7% 27.7% 26.2% Oper. Margin: GAAP 13.1% 14.8% 7.9% 15.2% 13.2% 12.8% 14.0% 16.4% 8.2% 7.7% 11.5% 13.8% 15.7% 16.2% 17.8% 15.9% 18.0% 15.0% 16.5% 21.0% 17.7% 19.2% 19.3% 19.3% 21.1% 19.8% Other Income 0.5% 1.8% 1.2% 1.1% 1.2% 1.3% 1.6% -1.0% 1.0% -1.2% 0.1% -0.4% -0.4% -0.4% -0.3% -0.4% -0.3% -0.4% -0.2% -0.2% -0.3% -0.2% -0.1% -0.1% -0.1% -0.1% Pretax Income 13.6% 16.6% 9.1% 16.2% 14.3% 14.1% 15.6% 15.4% 9.2% 6.6% 11.6% 13.4% 15.4% 15.9% 17.4% 15.6% 17.7% 14.6% 16.3% 20.7% 17.4% 19.0% 19.2% 19.2% 21.0% 19.6% Income Taxes 19.0% 20.1% 14.1% -3.5% 220.2% 64.4% 103.1% 14.1% -10.5% -386.8% -19.0% 14.0% 17.0% 17.0% 17.0% 16.4% 17.0% 17.0% 17.0% 17.0% 17.0% 14.0% 14.0% 14.0% 14.0% 14.0% Net Income 11.0% 13.3% 7.8% 16.8% -17.2% 5.0% -0.5% 13.2% 10.2% 32.0% 13.9% 11.5% 12.7% 13.2% 14.5% 13.0% 14.7% 12.1% 13.5% 17.2% 14.5% 16.3% 16.5% 16.5% 18.1% 16.9% Year-over-year Product bookings 2.2% 1.2% 54.5% 2.7% 30.0% 19.5% 17.4% 33.4% 5.5% 13.8% 17.0% -18.1% -26.7% 9.1% -10.1% -12.1% 39.6% 33.6% 11.9% 2.5% 18.9% 4.9% 9.3% 3.8% 5.7% 5.9% Product revenues 8.7% 12.1% 7.8% 10.5% 6.6% 9.2% 16.4% 12.3% 10.9% 11.5% 12.8% 3.8% 8.7% 9.5% 13.0% 8.8% 9.4% 2.6% 2.2% 6.5% 5.1% 6.1% 9.3% 7.8% 3.8% 6.7% Services & maint. revenue 4.3% 37.7% 52.4% 32.7% 32.5% 38.5% 27.5% 25.7% 20.2% 30.9% 26.1% -3.3% -7.8% -8.1% -5.7% -6.2% 7.1% -5.4% 12.5% 2.5% 3.9% -4.5% 12.9% 5.1% 4.2% 4.3% Total Revenue 8.2% 14.8% 12.4% 13.0% 9.5% 12.4% 17.9% 14.2% 12.1% 14.1% 14.5% 2.8% 6.2% 7.0% 10.1% 6.6% 9.1% 1.5% 3.4% 5.9% 5.0% 4.7% 9.8% 7.4% 3.8% 6.4% Source: Company data; Griffin Securities estimates

Griffin Securities Equity Research 11 Synopsys Inc. December 17, 2018

Disclosures

ANALYST(s) CERTIFICATION: The analyst responsible for covering the securities in this report certify that the views expressed in this research report accurately reflect their personal views about the subject Companies mentioned and its securities. The analyst responsible for covering the securities in this report certify that no part of their compensation was, is, or will be directly or indirectly related to the specific recommendation or view contained in this research report.

MEANINGS OF RATINGS: Our rating system is based upon 12 to 36 month price targets. BUY describes stocks that we expect to appreciate by more than 20%. HOLD/NEUTRAL describes stocks that we expect to change plus or minus 20%. SELL describes stocks that we expect to decline by more than 20%. SC describes stocks that Griffin Securities has Suspended Coverage of this Company and price target, if any, for this stock, because it does not currently have a sufficient basis for determining a rating or target and/or Griffin Securities is redirecting its research resources. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon. NR describes stocks that are Not Rated, indicating that Griffin Securities does not cover or rate this Company.

DISTRIBUTION OF RATINGS/IB SERVICES: IB Serv./Past 12 Mos.

Rating Count Percent Count Percent

BUY [BUY] 29 82.86 2 6.90 HOLD [HOLD] 6 17.14 0 0 SELL [SELL] 0 0.00 0 0

COMPANIES MENTIONED:

Ticker Company Name Rating

SNPS Synopsys Inc. Buy CDNS Cadence Design Systems Inc. Buy INTC SNPS Synopsys Inc. Buy

MARKET MAKING: Griffin Securities does not maintain a market in the shares of these Companies or any other company mentioned in the report.

COMPENSATION OR SECURITIES OWNERSHIP:

The analyst Jay Vleeschhouwer who is responsible for covering the securities in this report receives compensation based upon, among other factors, the overall profitability of Griffin Securities, including profits derived from investment banking revenue. Jay Vleeschhouwer who prepared the research report, did not receive any compensation from the Companies or any other companies mentioned in this report in connection with the preparation of this report.

The analyst Jay Vleeschhouwer who is responsible for covering the securities in this report currently does not own common stock in the Companies or any other companies mentioned in this report, but in the future may from time to time engage in transactions with respect to the Companies or other companies mentioned in the report.

Griffin Securities Equity Research 12 Synopsys Inc. December 17, 2018

Griffin Securities from time to time in the future may request expenses to be paid for copying, printing, mailing and distribution of the report by the Companies and other companies mentioned in this report. Griffin Securities expects to receive, or intends to seek, compensation for investment banking services from the Companies in the next three months.

Rating and Price Target History for: Synopsys Inc. (SNPS) as of 12-06-2018

08/18/16 02/21/17 05/18/17 08/17/17 11/30/17 02/22/18 08/23/18 12/06/18 B:$64 B:$74 B:$84 B:$86 B:$105 B:$108 B:$112 B:$115 120 100 80 60 40 20 0 2016 Q1 Q2 Q3 2017 Q1 Q2 Q3 2018 Q1 Q2 Q3

Created by: BlueMatrix

Rating and Price Target History for: Cadence Design Systems Inc. (CDNS) as of 11-21-2018

04/26/16 07/26/16 02/02/17 04/25/17 07/25/17 10/27/17 04/24/18 07/24/18 10/23/18 B:$26 B:$28 B:$30 B:$37 B:$39 B:$47 B:$50 B:$52 B:$54 50 45 40 35 30 25 20 15 2016 Q1 Q2 Q3 2017 Q1 Q2 Q3 2018 Q1 Q2 Q3

Created by: BlueMatrix

FORWARD-LOOKING STATEMENTS: This Report contains forward-looking statements, which involve risks and uncertainties. Actual results may differ significantly from such forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the “Risk Factors” section in the SEC filings available in electronic format through SEC Edgar filings at www.SEC.gov on the Internet.

GENERAL: Griffin Securities, Inc. (“Griffin Securities”) a FINRA member firm with its principal office in New York, New York, USA is an investment banking firm providing corporate finance, merger and acquisitions, brokerage, and investment opportunities for institutional, corporate, and private clients. The analyst(s) are employed by Griffin Securities. Our research professionals provide important input into our investment banking and other business selection processes. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein.

Griffin Securities may from time to time perform corporate finance or other services for some companies described herein and may occasionally possess material, nonpublic information regarding such companies. This information is not used in preparation of the opinions and estimates herein. While the information contained in this report and the opinions contained herein are based on sources believed to be reliable, Griffin Securities has not independently verified the facts, assumptions and estimates contained in this report. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information and opinions contained in this report.

Griffin Securities Equity Research 13 Synopsys Inc. December 17, 2018

The information contained herein is not a complete analysis of every material fact in respect to any company, industry or security. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. We are not soliciting any action based on this material. It is for the general information of clients of Griffin Securities. It does not take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, clients should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. Certain transactions - including those involving futures, options, and other derivatives as well as non-investment-grade securities - give rise to substantial risk and are not suitable for all investors. The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. The information contained in this report is subject to change without notice and Griffin Securities assumes no responsibility to update the report. In addition, regulatory, compliance, or other reasons may prevent us from providing updates.

DISCLOSURES FOR OTHER COMPANIES MENTIONED IN THIS REPORT: To obtain applicable current disclosures in electronic format for the subject companies in this report, please refer to SEC Edgar filings at www.SEC.gov. In particular, for a description of risks and uncertainties related to subject companies’ businesses in this report, see the “Risk Factors” section in the SEC filings.

Griffin Securities Equity Research 14