Q4 2024 Arm Holdings plc Earnings Call

Operator: Good day, and thank you for standing by. Welcome to the ARM fourth quarter fiscal year ending 2024 conference call. At this time, all participants are in a listen-only mode.

Good day and thank you for standing by welcome to the arm first fourth quarter fiscal year, ending 2024 conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone you will then hear an audit.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand over the conference. Speaker, Ian Thornton, Vice President of Investor Relations, please go ahead. Thank you very much. Good morning, good afternoon, everybody.

<unk> message at Viking that your hand is raised to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker Ann Thornton Vice President of Investor Relations. Please go ahead.

Ian Thornton: My name is Ian Thornton, and I'm the head of investor relations at Arm. I would like to welcome everyone to our earnings conference call for the fourth quarter of the fiscal year ending March 31st, 2021. I'm joined today by Rene Haas, the Chief Executive Officer of Arm, and Jason Child, Arm's Chief Financial Officer. Hopefully, you will all have downloaded and read the shareholder letter. If not, it is available on the Arm Investor Relations website at investors.arm.com.

Ian Thornton: Thank you very much.

Ian Thornton: Hey, good morning, good afternoon, everybody.

Ian Thornton: My name is Ian Johnson, and I'm, the head of Investor Relations at all I would like to welcome everyone to our earnings conference call for the fourth quarter of the fiscal year ending March 31 2024.

Ian Thornton: I'm joined today by Randy Haugh, Chief Executive Officer of <unk>, and Jason Joe Armes, Chief Financial Officer.

Ian Thornton: Hopefully you will all have downloaded and read the shareholder letter if not it is available on the Investor Relations website at investors <unk> com.

Ian Thornton: The shareholder letter provides a comprehensive update on our strategic process for the quarter. Before we begin, I'd like to remind everyone that during the course of this conference call, Arm will discuss forecasts, targets, and other forward-looking information regarding the company and its financial results. While these statements represent our best current judgments about future results and performance as of today, our actual results are subject to many risks and uncertainties that could cause actual results to differ materially from what we expect.

The shareholder letter provides a rich update on our strategic process in the quarter progress.

Ian Thornton: In addition to any risks that we highlight during this call, important risk factors that may affect our future results and performance are described in our registration statement on Form F1 filed with the SEC on September 14th, 2020. Arm assumes no obligation to update any forward-looking statements, which speak only as of the date they are made. In addition, we will refer to non-GAAP financial measures during the discussion, reconciliations of certain of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and a discussion of certain projected non-GAAP financial measures that we are not able to reconcile without unreasonable efforts. Supplementary financial information can be found in the shareholder letter that we released earlier today.

Ian Thornton: Before we begin I would like to remind everyone that during the course of this conference call.

Ian Thornton: Discuss forecasts targets and other forward looking information regarding the company and its financial results.

Ian Thornton: While these statements represent our best current judgments about future results and performance as of today.

Ian Thornton: <unk> results are subject to many risks and uncertainties that could cause actual results to differ materially from what we expect.

In addition to any risks that we highlight during this call important risk factors that may affect our future results and performance are described in our registration statements on form S. One filed with the SEC on September 14th 2023.

Ian Thornton: <unk> assumes no obligation to update any forward looking statements, which speak only as of the date they are made.

Ian Thornton: In addition, we will refer to non-GAAP financial measures during the discussion.

Ian Thornton: Reconciliations of certain of these non-GAAP financial measures to the most directly comparable GAAP financial measures and a discussion of certain projected non-GAAP financial measures that were not able to reconcile without unreasonable efforts and supplementary financial information can be found in the shareholder letter that we released earlier today.

Ian Thornton: The shareholder letter and other earnings-related materials are available on our website at investors.arm.com. And with that, I'll turn the call over to Rene, who has some prepared remarks. Thank you, Ian. And hello, everyone.

The shareholder letter in other earnings related materials are available on our website at investors <unk> com and with that I'll turn the call over to Rene who has some prepared remarks.

Rene Haas: So, I'm just going to make a few comments to kick off the call, and then I'll pass it over to Jason. But in summary, this quarter, Q4, obviously being the end of our fiscal year, was just outstanding. We have record revenues for this quarter, and for our first fiscal year as a public company being completed, also record revenues, exceeding the high end of the guidance range. More specifically, for Q4, revenue is up 47% year-on-year. Royalty income is up 37% year-on-year.

Rene: Thank you Ian and Hello, everyone.

Rene: I'm just going to make a few comments to kick off the call and then I will I'll pass it over to Jason.

Rene Haas: In summary.

Rene: This quarter Q4, obviously being the end of our fiscal year was just outstanding we have record revenues for this quarter and for our first fiscal year.

Ian Thornton: As a public company being completed also record revenue.

Jason: The high end of the guidance range more specifically for Q4.

Speaker Change: Revenue was up 47% year on year royalty is up 37% year on year and this is really driven by acceleration of benign adoption that which I'll speak about a little bit more and also licensing up 60% year on year, which is really a function of increased R&D investment to capture the huge.

Rene Haas: And this is really driven by the acceleration of B9 adoption, which I'll speak about a little bit more, and also licensing up 60% year-on-year, which is really a function of increased R&D investment to capture the huge opportunity that is all things AI. Now, in looking back, the expansion strategies that we talked about during our roadshow and that IPO are now all driving growth for the company. As mentioned, we had significant royalty growth in the last quarter, up year-on-year 37 percent, really driven by V9 adoption.

Speaker Change: That is all things AI.

Speaker Change: Now looking back.

Speaker Change: The expansion strategies that we talked about during our road show in the IPO are now all driving growth for the company.

Speaker Change: As mentioned, we had significant royalty growth in the last quarter up year on year to 37% really driven by benign adoption and what we're seeing is the acceleration of <unk> nine which drives not only better royalties, but we're also seeing more cpus inside the chip, which compounds that royalty growth.

Rene Haas: And what we're seeing is the acceleration of V8 to V9, which drives not only better royalties, but we're also seeing more CPUs inside the chip, which compounds that royalty growth, really across all end markets. The significant driver for that in client has been around smartphones, but broadly, we also see that in our infrastructure business as well.

Speaker Change: Really across all end markets.

Ian Thornton: <unk>.

Ian Thornton: The significant driver for that in client has been around smartphones, but broadly we also see that in our infrastructure business as well and benign adoption will only continue to increase.

Rene Haas: And B9 adoption will only continue to increase. In the last quarter, we've also seen proof points of our diversification strategy. Google, the latest hyperscaler, announced their Axion processor based on ARM, a custom ship intended for the data center.

Ian Thornton: In the last quarter, we've also seen proof points of our diversification strategy Google.

Rene Haas: Google the latest hyper scaler announced Theyre axion processor based on arm customer.

Ian Thornton: Custom chip and tenant for the data center.

Rene Haas: They chose us largely because of our compute efficiency, but also the ability to not only have a high-performance chip but to design an increasingly performant blade, rack, and system for a fantastic TCO. We also announced our very first autonomous solutions based on V9. This is very, very significant as we're now bringing V9 performance to the automotive sector with automotive-enhanced features such as functional safety, and we expect huge growth in this area. And we also have introduced the lowest power transformer on the planet, the Ethos U85, for IoT-based design.

Rene Haas: It shows us largely because of our compute efficiency, but also the ability to not only have a high performing chip, but to design and create increasingly performance blade rack and system for a fantastic Tcl.

Rene Haas: We also announced their very first autonomous solutions based on <unk>. Nine. This is very very significant as we are now bringing benign performance to the automotive sector with automotive enhanced features such as functional safety and we expect huge growth around this area.

Ian Thornton: And we also have introduced the lowest power transformer on to plan out the ethos <unk> 85 for Iot based designs.

Rene Haas: One of the strategies we've put in place that we are most comfortable with in terms of its growth but very confident in terms of its trajectory is around what we call compute subsets. And these are essentially taking blocks of IP, putting them together into a full solution, verified and validated, that saves customers huge time to market and also gives them a highly performant solution. So we announced our V3 Neoverse CSS this quarter, which will give increased performance and benefits to customers.

Ian Thornton: One of the strategies, we put in place that we are most comfortable with in terms of its growth, but very confident in terms of its trajectory is around our what we call compute subsystems.

Ian Thornton: And these are essentially taking blocks of IP, putting them together into a full solution verified and validated that saves customers huge time to market and also gives them a highly performance solution.

Ian Thornton: So we announced our <unk> of our CSS this quarter, which will give increased performance and benefits to customers.

Rene Haas: The first automotive CSS is now in discussions with our key partners, that customers in terms of time to market and efficiency, and our first customer in the Neoverse space doing a design, Microsoft, their Cobalt chip is now ramping. But probably from a more exciting standpoint, we are oversubscribed on this compute subsystem strategy. We have far more demand for the product than anticipated, and we are anticipating growing that significantly over time. Every end market that we approach has a need for CSSs, and we're very excited about talking about them in the future. All of this is also being driven by AI.

Ian Thornton: The first automotive CSS is now in discussions with our key partners.

Rene Haas: As the customers in terms of time to market and efficiency and our first customer and the new of our space doing a design Microsoft Theyre cobalt chip is now ramping.

Rene Haas: But probably from a more exciting standpoint, we are oversubscribed on this compute subsystem strategy.

Ian Thornton: Have far more demand.

Ian Thornton: For the product and we anticipated and we are anticipating growing that significantly over time.

Ian Thornton: Every end market that we approach has a need for CSS is and we're very excited about talking about them in the future.

Ian Thornton: All of this is also being driven by AI. What we're seeing is because arm has the largest installed base of Cpus on the planet.

Rene Haas: What we are seeing is because Arm is the largest installed base of CPUs on the planet and has over 70% of the world's population using those CPUs, it's natural that as these AI workloads are now being moved from anywhere on the Edge devices to the training data center, they need support from an Arm CPU standpoint. So whether it's from cloud to Edge, from GPT to LLAMA, all AI workloads rely on and run on Arm. And we only see this increasing. Our licensing activity is probably the best proxy for that.

Ian Thornton: And has over 70% of the world's population using those Cpus, it's natural that as these AI workloads are now being moved from anywhere from the edge devices to the training data center that they need support from an arm CPU standpoint, so whether it's from cloud to edge from GPT to Lama, all AI workloads rely and run on arm.

Ian Thornton: We only see this increasing our licensing.

Ian Thornton: Activity is probably the best proxy for that.

Rene Haas: The way to think about licensing revenue as it applies to AI is, as software is moving faster than hardware, the hardware designs need to be upgraded quickly to make sure they can capture the needs of these new AI workloads. So because of that, we have seen a huge growth in our licensing activity. We talked about that last quarter, and it continued this quarter. So, based upon this, we are very, very confident of our growth outlook for the upcoming year.

Ian Thornton: The way to think about licensing revenue as a place to AI is software is moving faster than hardware the hardware designs need to be upgraded quickly to make sure. They can capture the needs of these new AI workloads. So because of that we have seen huge growth in our licensing activity, we've talked about that last quarter and it continued this quarter.

Ian Thornton: So based upon this we are very very confident of our growth outlook for the upcoming year. This past year was over 20% revenue growth.

Rene Haas: This past year was over 20% revenue growth, and we expect that to be even better than that in this year and the upcoming years. Our growth has been accelerating. Lastly, it took Arm 20 years to get to a billion in revenue. It took us 10 years to get to 2 billion.

Rene Haas: And we expect that to be even better than that in this year and the upcoming years our growth has been accelerating.

Ian Thornton: Lastly, it's taken arm 20 years to get to $1 billion in revenue.

Ian Thornton: It took us 10 years to get to $2 billion.

Jason E. Child: This year, we passed $3 billion in only two years after our first $2 billion year, and we expect to be near $4 billion this year. The future is very bright, and we'll run unarmed, and I could not be more excited about the future that we have. And with that, I'll turn it over to Jason. Thank you, Rene.

Ian Thornton: This year, we passed $3 billion in only two years after our first $2 billion a year and we expect to be near at $4 billion. This year.

Jason: <unk> is very bright and will run on arm and I could not be more excited about the future that we have.

Ian Thornton: And with that I'll turn it over to Jason.

Jason: Thank you Renee.

Jason E. Child: T4 was a strong end to a tremendous year for Arm. For the quarter, we grew revenue 47% year over year to $928 million, with licensing revenue up 60% and record royalty revenue up 37%, while also delivering a non-GAAP operating margin of 42%. Also... As well as delivering strong revenues, we have grown our remaining performance obligations, or RPO, by 45% year-over-year to nearly $2.5 billion. The Royalty Acceleration and Record RPO provides a great setup for FYE25.

Jason: Q4 was a strong end to a tremendous year for our for the quarter. We grew revenue, 47% year over year to $928 million, but licensing revenue up 60% and record royalty revenue up 37%, while also delivering non-GAAP operating margin of 42%.

Jason E. Child: Also.

Jason E. Child: As well as delivering strong revenues. We also had growth have grown our remaining performance obligations or <unk> by 45% year over year to nearly $2 5 billion.

Jason E. Child: The royalty acceleration and record Rps provides a great setup for FY 'twenty five.

Jason E. Child: Turning to guidance, I will briefly touch on both the first quarter and fiscal year ending March 31st, 2025. For Q1, we expect revenue of between $875 and $925 million, representing a 30% to 37% year-over-year increase. Non-GAF operating expense is expected to be $475 million, a sequential decline due to a change in remuneration as we complete our transition away from cash rewards to equity and a one-time Q4 expense.

Jason E. Child: Turning to guidance I will briefly touch on both the first quarter and fiscal year ended March 31 2025.

Ian Thornton: For Q1, we expect revenue of between $875 million to $925 million, representing a 30% to 37% year over year increase non.

Jason E. Child: non-GAAP operating expense is expected to be $475 million, a sequential decline due to a change of our numeration as we complete our transition away from cash rewards to equity awards.

Ian Thornton: And a one time Q4 expense.

Jason E. Child: Resulting non-gap EPS is expected to be between 32 and 36. Unpacking Q1 revenue dynamics a little further, we expect royalty revenue to remain strong, with year-over-year growth of approximately 20%. This growth is driven by continued Arm V9 adoption and recovery in smartphone, along with continued share gains in automotive and in hypersales. However, this is partially offset by weakness in IOT driven by inventory correction in the broader industrial market, as has been widely reported by many of our semiconductor customers.

Jason E. Child: Resulting non-GAAP EPS is expected to be between 32% and 36.

Ian Thornton: Yeah.

Jason E. Child: Unpacking Q1 revenue dynamics, a little further we expect royalty revenues to remain strong with year over year growth of approximately 20%.

Jason E. Child: This growth was driven by continued RMB nine adoption and recovery in smartphones, along with continued share gains in automotive and in Hyperscale.

Jason E. Child: This was partially offset by weakness in Iot driven by inventory correction in the broader industrial market as has been widely reported by many of our semiconductor peers.

Jason E. Child: For Q1 licensing and other revenues, we expect slight sequential growth driven by revenue from backup. Looking at the fiscal 25, we expect revenues of between $3.8 and $4.1 billion, representing a 17 to 27% year over year increase. We expect non-GAAP operating expenses of $2.05 billion, representing a 19% year-over-year increase, as we continue to invest in R&D to support future growth. Our full year non-GAAP EPS is expected to be between $1.45 and $1.75. We believe our licensed business is best understood by the measure Annualized Contract Value, or ACV.

Jason E. Child: For Q1 licensing and other revenues, we expect a slight sequential growth driven by our revenue from backlog.

Ian Thornton: Looking at the fiscal 'twenty five we expect revenues of between three eight and $4 1 billion, representing a 17% to 27% year over year increase.

Ian Thornton: We expect non-GAAP operating expenses of 2.05 billion, representing a 19% year over year increase as we continue to invest in R&D to support future growth initiatives.

Ian Thornton: Our full year non-GAAP EPS is expected to be between $1 45, and $1 65.

Ian Thornton: We believe our license business is best understood by the measure annualized contract value or ACD.

Jason E. Child: Our outlook for ACB remains strong. We expect low double-digit growth for the year, reflecting the durable demand in ARM's latest IP. Licensing revenue, however, will continue to be lumpy from period to period due to the timing of revenue recognition. Based on our current forecast, we expect the first half to represent approximately 40% of our license revenue for the year, with Q2 being the smallest and Q4 being the largest quarter of the year.

Ian Thornton: Our outlook for ACB remains strong we expect low double digit growth for the year, reflecting the durable demand an arm's latest IP.

Ian Thornton: Licensing revenue. However, we will continue to be lumpy from period to period due to the timing of revenue recognition based on our current forecast. We expect the first half to represent approximately 40% of our license revenue for the year with Q2 being the smallest and Q4 being the largest quarter of the year.

Jason E. Child: We have high visibility through a combination of backlog, renewals, and new licenses. For royalties, we remain very confident in the demand for ARM-based chips and expect full-year growth in the mid-20% range driven by continued V9 adoption, market share gains in cloud and automotive, as well as chips based on our compute subsystems starting to ramp in the second half of the year. Looking out further beyond this year, based on the pipeline for new licenses, agreements already signed, and royalty-bearing ships in development or now shipping, we expect to maintain total revenue growth of at least 20% year-over-year for each of the fiscal years ending in 2026 and 2027. I'll now turn the call back over to you.

Ian Thornton: We have high visibility through a combination of backlog renewals and new licenses.

Jason E. Child: For royalties, we remain very confident in the demand for arm based chips and expect full year growth in the mid 20% range driven by continued benign adoption market share gains and cloud and automotive as well as chips based on our compete subsystems starting to ramp in the second half of the year.

Ian Thornton: Looking out further beyond this year based on the pipeline for new licenses agreements already signed and royalty bearing chips in development or now shipping we expect to maintain total revenue growth of at least 20% year over year for each of the physical fiscal years, ending in 2026 and 27.

Jason E. Child: I'll now turn the call back over to Ian.

Ian Thornton: Thank you Jason. We will now move to the Q&A portion of the call. We request that you limit yourself to just one question each so that everyone gets a chance to ask their most pressing question. If time allows, we'll go around again. I hand over to you, Operator. To withdraw your question, please press star one one again. Please limit yourself to one question and rejoin the queue.

Ian: Thank you, Jason we will now move to the Q&A portion of the call. We request that you limit yourself to just one question. Each so that everyone gets a chunk of their most pressing question.

Ian: Tom allowance will go around again.

Operator: Back to you operator, certainly as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please limit yourself to one question and rejoin the queue. Please standby, while we compile the Q&A roster.

Operator: Please stand by while we compile the Q&A. One moment for our first question. The first question will come from Ross Seymour of Dochu Bank. Your line is open. Hi guys.

Ross Seymour: Our first question.

Operator: First question will come from Ross Seymore of Deutsche Bank. Your line is open.

Ross Clark Seymore: Thanks for asking the question. Congratulations on the strong results and guide. Rene, I had a question about your infrastructure business and specifically the cloud side. You rattled off a number of the disparate design wins that are starting to ramp from a number of hyperscaler customers. What I was really wondering is, during the IPO process, you talked about 10 percent market share in that market rising to roughly, I think you said 27 percent or so.

Ross Seymour: Hey, guys. Thanks for asking the question and congrats on the strong results and guide.

Ross Clark Seymore: Rene I had a question on your infrastructure business and specifically the cloud side, you rattled off a number of the juice for design wins that are starting to ramp from a number of the hyperscale customers. What I was really wondering is during the IPO process, you talked about 10% market share in that market rising to roughly I think you said, 27% or so.

Ross Clark Seymore: Are those products that are occurring now and being launched, contemplating that original ramp, or are you seeing an acceleration above and beyond the growth rate that you had laid out for all of us during the IPO process? I would say I'm still confident in those numbers, Ross. I would say one of the dynamics that have changed a bit since we chatted, and I think it's a positive for us, is the increased investment in the data center around all things AI. And that bodes well for Arm for a couple of reasons.

Operator: Are those products that are occurring now and being launched are they contemplating that original ramp or are you seeing an acceleration above and beyond the growth rate that you had laid out for all of us during the IPO process.

Operator: I would say I'm still confident in those numbers Ross I would say one of the dynamics that has changed.

Operator: Since we chatted in I think it's a positive for US is the increased investment in the data center around all things AI and that bodes well for arm for a couple of reasons first off when you think about power efficiency and what's required for the data center.

Ross Clark Seymore: First off, when you think about power efficiency and what's required for the data center, the implementation of an ARM-based design gets very, very interesting relative to not only building a custom chip that will be more power efficient, but by designing a blade, an interconnect to storage, and an overall rack that will be much more power efficient.

Operator: The implementation of an arm based design gets very very interesting relative to not only building accustomed ship that will be more power efficient.

Operator: Designing a blade and interconnect into storage and an overall rack that will be much more power efficient secondly, and I think we've chatted about this during the IPO process with Grace Hopper, but I think now with Nvidia is most recent announcement Grace Blackwell you are going to see.

Rene Haas: Secondly, and I think we chatted about this, you know, during the IPO process with Grace Hopper, but I think now with NVIDIA's most recent announcement, Grace Blackwell, you are going to see, and the Acceleration of Arm in the Datacenter in these AI applications. One of the benefits that you get in terms of designing a chip such as Grace Blackwell is that by integrating the Arm CPU with the NVIDIA GPU, you're able to get an interconnect between the CPU and the GPU that allows for a much higher access to memory, which is one of the limiting factors for training and inference applications. In a conventional system, where you might connect to an x86 externally, you have to do that over a PCIe bus, which is much slower.

Operator: And acceleration of arm in the data center in these AI applications one of the benefits that you get in terms of the designing of chips such as Grace Blackwell is by integrating the arm CPU with Nvidia GPU Youre able to get an interconnect between the CPU and GPU that allows for a much higher access to memory.

Rene Haas: Which is what are the limiting factors is for training and inference applications.

Operator: The conventional system, where you might connect to an X 86 externally you have to do that over a pcie bus which is much slower so by using a accustomed bus and the Nvidia example, like envy link you get much higher memory bandwidth. So I think what that is going to mean is that arm adoption in the data center will increase.

Rene Haas: So by using a custom bus, like NVLink in the NVIDIA example, you get much higher memory bandwidth. So I think what that is going to mean is that ARM adoption in the data center will increase, probably faster than the numbers that we had indicated, but we're not saying anything official right now. Thank you. Please take a moment for our next question. And our next question will come from Vivek Arya of Bank of America Securities. Your line is open, Vivek.

Operator: Faster than numbers that we had indicated but we're not seeing anything official right now.

Vivek Arya: Thank you.

Speaker Change: One moment for our next question.

Operator: And our next question will come from Vivek Arya of Bank of America Securities. Your line is open.

Vivek Arya: Thanks so much for the question. It's on the V9 conversion. If I look at slide 15 of the chart presentation you have, it shows that it took, you know, about seven years or so for V8 to become about half of the base. Rene, how do you expect this V9 conversion to go? You know, it seems to have gotten off to a faster start, 20 percent or so conversion in a year. What's your assumption of what that conversion looks like in your fiscal 25? I think Jason said mid-20 percent growth or so in royalty. What does that imply for the level of conversion leaving?

Vivek Arya: Thanks, so much for the question.

Vivek Arya: <unk>.

Vivek Arya: <unk> conversion if I look at slide 15 of the presentation you have it shows that.

Vivek Arya: About seven years or so for VA to become about top of the base.

Vivek Arya: How do you expect this Vienna and conversion it seems to have gotten off to foster obligates, 20% or so conversion in the year.

Vivek Arya: What's your assumption of what that conversion looks like in your fiscal 'twenty five I think Jason said mid 20% growth or so noisy what does that imply.

Vivek Arya: For the level of conversion exiting the year.

Rene Haas: Yeah, I'll let Jason touch on that conversion rate. But what I can say from a high level about the difference between V8 and V9 is that back in the conversion from V7 to V8, we really didn't have an infrastructure business at all to speak about. We do today, and that is all V9.

Speaker Change: Yes, I'll, let Jason touch on that conversion rate, but what I can say from a high level what is different between VA and benign is.

Vivek Arya: Back into the conversion from <unk> to VA, we really didn't have an infrastructure business at all to speak about we do today and that is all benign. So that is going to be a growth driver that we saw in terms of conversion for benign from VA that we just didn't see from <unk> 78.

Rene Haas: So that is going to be a growth driver that we saw in terms of conversion for V9 from V8 that we just didn't see from V7 to V8, in the smartphone business. We are seeing a fairly rapid acceleration in the premium handset segment that is moving to V9. And I think it's been pretty well documented that it's the premium handset business that has enjoyed probably better growth than some of the other segments, which is accelerating as well. So those are two drivers for V9 that will look, I think, a bit different from V8, and why it should happen more quickly.

Rene Haas: In the smartphone business.

Rene Haas: We are seeing a fairly rapid acceleration in.

Rene Haas: In the premium handset segment that is moving to a benign and I think it's been pretty well documented that it's the premium handset business that has enjoyed probably better growth than some of the other segments, which has accelerated as well. So that those are two drivers for benign debt will look I think a bit different than <unk> and why it should happen more quickly.

Rene Haas: I'll, let Jason comment on what we think the potential exit rate might be and particularly how it applies to our year on year revenue growth projection.

Jason E. Child: I'll let Jason comment on what we think the potential exit rate might be and particularly how it applies to our year-on-year revenue growth projection. Yeah, I would say the 500 basis points of growth, or as a percentage of total, going from 10 to 15 last quarter and then this most recent quarter from 15 to 20. I think that's a pretty steady clip; it could be plus or minus, but that, you know, somewhere around five ish percent growth, 500 basis points of share growth per quarter is probably a reasonable assumption.

Jason E. Child: So that puts you probably somewhere in the two to three year timeframe where we probably get to the high end, which is probably somewhere maybe around 60 to 70%. Because there is still going to be some V8 and V9 out there, you know, even as we see growth in V9 adoption.

Jason: I would say the the 500 basis points.

Jason: Growth or as a percentage of total going from 10 to 15 last quarter and then this most recent quarter from 15 to 20.

Jason: I think thats, a pretty steady clip that it could be plus or minus but that somewhere around five ish percent growth.

Jason: 500 basis points of share growth per quarter is probably a reasonable assumption. So that puts you probably out somewhere in the two to three year timeframe that we would probably get to the high end, which is probably somewhere maybe around $60 to 70%.

Jason E. Child: Because there is still going to be some VA and benign out there.

Jason E. Child: Even as we see growth.

Jason: In the benign adoption keep in mind I think when we talked about this back at IPO and even last quarter. You do also see an increased royalty that's almost double from benign when you go to sub systems and so we start to see our sub systems come online at the end of this year.

Matthew D. Ramsay: Keep in mind, I think, you know, when we talked about this, back at IPO, and even last quarter, you do also see an increased royalty, that's almost double from V9, when you go to subsystems. And so we start to see our subsystems come online at the end of this year, late in the back half of this year, and then that will start to take hold next year. That also probably will probably have somewhere in the kind of three to four year timeframe of becoming a large share of our royalties.

Jason: In the back half of this year and then that will start to take hold next year that also probably has somewhere in the kind of three to four year timeframe.

Matthew D. Ramsay: Of becoming a large share of our royalty. So so that's the reason why we have high confidence in a royalty forecast that.

Matthew D. Ramsay: So that's the reason why we have high confidence in a royalty forecast that should be, you know, pretty, pretty strong and, you know, in a kind of out of protein or in that 20% range for years to come. And our next question will be coming from Matt Ramsay of TD Cohen. Your line is open. Thank you very much. Good afternoon, Rene. I wanted to follow up a little bit on the... Unknown Speaker started as well.

Matthew D. Ramsay: Should be.

Jason: Pretty pretty strong.

Matthew D. Ramsay: And kind of at a protein or in that 20% range for years to come.

Matthew D. Ramsay: Thank you.

Speaker Change: And one moment for our next question.

Matthew D. Ramsay: Okay.

Speaker Change: And our next question will be coming from Matt Ramsay of TD Cowen Your line is open.

Matthew D. Ramsay: Thank you very much everybody good afternoon.

Matthew D. Ramsay: Rene I wanted to follow up a little bit on the infrastructure business question that Ross.

Matthew D. Ramsay: Started off with.

Rene Haas: And one of the questions I've been getting from folks is, very, very clearly how Grace Hopper and Grace Black are accelerators for pulling ARM into the data center, and you've announced with Amazon and Microsoft. On the flip side... The Accelerated Data, at a percentage of CapEx. Versus accelerators, that accelerator.

Matthew D. Ramsay: And one of the questions I've been getting from folks is I can see very very clearly how things like Grace Hopper Grace Blackwell will be.

Rene Haas: Accelerants of pulling arm into the data center and you've announced with.

Rene Haas: With Amazon and Google and Microsoft Other design wins that will do the same thing on the flip side.

The accelerated data center.

Rene Haas: If you just look at our percentage of Capex that goes to Cpus versus accelerators that accelerate our portion is going to be a vast majority of it seems like and that trend is accelerating pretty rapidly. So maybe you could speak a little bit to arms role not just in the head node of accelerated servers, but.

Rene Haas: The vast majority, it seems like, and that trend is accelerating pretty rapidly. We could speak a little bit about Arm's role, not just in the head node of accelerated servers, but across the accelerator portion of that exciting. Yeah, thanks, Matt, for the question. I think if you go back to the original design when we had the hyperscalers, and that was with AWS and Graviton.

Speaker Change: Across the accelerated portion of that sort.

Speaker Change: Sort of exciting growth in Capex.

Speaker Change: Yeah. Thanks, Matt for the question I think if you go back to the original design win we had with the Hyperscale.

Rene Haas: And that was with the AWS and graviton.

Rene Haas: One of the benefits they talked about specifically in terms of using ARM was performance per dollar. And the performance per dollar metric becomes increasingly important as you talk about these large CapEx spends having to manage both the CPU and GPU balance. I think that is also going to be a tailwind for growth with us because not only do you get a better TCO from a chip standpoint in terms of performance per dollar, but again, just launching into the AWS example for a moment.

Speaker Change: One of the benefits they talked about specifically in terms of using arm was performance per dollar.

Rene Haas: The performance per dollar metric becomes increasingly important as you talk about these large capex spends having to manage both the CPU and GPU balance.

Rene Haas: I think that is candidly also going to be a tailwind for growth with us because not only do you get a better <unk>.

Rene Haas: So from a chip standpoint in terms of performance per dollar, but again just launching into the AWS examples for a moment.

Rene Haas: They build a chip called Nitro, which is based on ARM for storage offload. And when you combine a Nitro SoC with a Graviton SoC into an EC2 compute rack, and then you potentially now configure that for acceleration, that's going to give you a pretty compelling, So I think, candidly, the trade-off, and this is why the question in terms of what's going on with AI and how we think about market share, I think that's gonna be a tailwind for Arm, because not only with these standard devices can you configure something that's fairly interesting, but you can start to imagine if anyone wants to do a custom implementation to greatly enhance some of those interconnect features I talked about, it gets very, very interesting. And only Arm allows that flexibility. There's no way to do that with any alternative.

Rene Haas: They build a chip called Nitro, which is based on arm <unk>.

Rene Haas: For storage offload and when you combine our nitro Soc with a graviton Soc.

Rene Haas: Into an easy to compute rack and then you've potentially now configure that for acceleration.

Rene Haas: That's going to give you.

Rene Haas: Pretty compelling cost advantage versus the competition. So I think candidly the tradeoffs and this is why the question in terms of.

Rene Haas: What's going on with AI and how we think about market share I think that's going to be a tailwind for arm.

Rene Haas: <unk> not only with the standard devices can you configure something thats fairly interesting, but you can start to imagine if anyone wants to do a custom implementation to greatly enhance some of those interconnects features I talked about it gets very very interesting and only arm allows us flexibility there's no there's no.

Rene Haas: Way to do that with any alternative and.

Rene Haas: And not only is there no way to do that with the alternative architecture that is the incumbent today, but more importantly, Arm has done all the work with the partners relative to running the boot code, the system interface, everything to boot the operating system. So we are extremely well positioned to do well on that platform. So, I think the short summary is, I think everything you described is actually gonna be quite good for us, which is why I think the growth numbers for our market share in the data center were probably better than we had originally articulated. In one moment for our next question. Our next question will come from Mehdi Hosseini of Susquehanna International Group. Your line is open.

Rene Haas: Not only is there no way to do that with the alternative architecture that is the incumbent today, but more importantly, RM has done all the work with the partners relative to running the boot code the system interface everything to bring the operating system. So we are extremely well positioned to do well on that platform.

Mehdi Hosseini: So I think the short summary is I think everything you described is actually can be quite good for us which is why I think the growth numbers for our market share in the data center will probably better than we had originally articulated.

Mehdi Hosseini: Thank you very much.

Mehdi Hosseini: And one moment for our next question.

Mehdi Hosseini: Our next question will come from Matthew <unk> of Susquehanna International Group. Your line is open.

Mehdi Hosseini: Yes, thanks for taking my question. Just want to go back to your fiscal year 25 color and specifically on the licensing. Should I assume that the licensing mix rebounded in the second half of fiscal year 25? Is that going to be driven by more of the smartphone customers renewing for V9? Or is that going to be more broad-based?

Rene Haas: Yes.

Mehdi Hosseini: Thanks for taking my question just wanted to go back to your fiscal year 'twenty five color and specifically on the licensing should I assume that the licensing mix rebound in the second half of fiscal year is that going to be driven by more of the smartphone customers renewing for arm <unk>.

Mehdi Hosseini: Or is that going to be more broad base.

Jason E. Child: I would expect it to be more broad-based. As I mentioned, it's going to be mostly in Q4. I mean, that's going to be the biggest licensed quarter of the year. But definitely, with the focus on AI and the focus on AI capability in really all the different end markets that we serve, you should expect it to be quite broad-based. And on the smartphone, it's going to be that the royalty will kick in with the smartphone shipment in calendar 25. Well, our first subsystems will start to launch basically in the last quarter of the year.

Mehdi Hosseini: I would expect it to be more broad based as I mentioned, it's going to be mostly in Q4, I mean, thats theyre going to be the biggest license quarter of the year.

Jason E. Child: But definitely with.

Jason E. Child: The focus on AI and the focus on AI capability in.

Jason E. Child: And really all of the different end markets that we serve.

Jason E. Child: You should expect it to be quite broad based.

Jason E. Child: And on the smartphone is going to be the royalty would kick in with the smartphone shipment.

Kevin: Kevin do you 25.

Jason E. Child: Well, our first sub systems will start to launch.

Jason E. Child: Basically in the last quarter of the year. So you should see it in our Q4, but I guess it would be in calendar Q1 of 'twenty five.

Jason E. Child: So you should see it in our Q4, but I guess it would be in calendar Q1 of 25. Yeah, from the time we license the technology to the time we see a royalty, it's probably two or three years, best case, which is why the confidence level that we have in terms of royalty growth is quite high because those contracts are done. We know the rates. We know the market share, etc. For the new designs, to Matt's question earlier and Ross's, if you're trying to develop an SoC that's going to fit in the server and it needs to run Linux and it needs to run SUSE or Kubernetes, et cetera, et cetera, there's really only one choice.

Jason E. Child: From the time, we license that technology till the time, we see a royalty.

Jason E. Child: Probably two or three years best case.

Jason E. Child: Which is why the confidence level that we have in terms of.

Jason E. Child: Royalty growth is quite high because of those contracts are done we know the rates, we know the market share et cetera for the new designs.

Jason E. Child: To Matt's question earlier, and Ross is if youre trying to develop an SFC that's going to fit in the server and it needs to run Linux and it needs to run.

Jason E. Child: To say, our kubernetes et cetera, et cetera, there's really only one choice.

Rene Haas: Arm. If you're trying to build an SoC to run Windows, there's only one choice. It's Arm. If you're trying to build an SoC to run Android or Gemini, there's only one choice. It's Arm.

Jason E. Child: If you are trying to build an SFC to run windows, There's only don't choice. It's arm if youre trying to build an SFC to run Android or Gemini, there's only one choice. It's arm. So the confidence we have in terms of licensing happening is extremely high.

Rene Haas: So the confidence we have in terms of licensing happening is extremely high. The tricky part is always in terms of visibility, whether that license is signed on December 15th or January 15th, which moves across a quarter boundary. But in terms of the confidence that it's going to happen, it's extremely high because the choices are rather limited if you want to participate in that market. And when you add in factors such as Copilot and things such as Gemini for Android, that's why we're seeing an accelerating effort by the licensees to be able to get access to next-generation technology to take advantage of these new AI.

Rene Haas: The tricky part is always in terms of the visibility whether that licenses signed on December 15th of January 15th which moves across quarter boundary, but in terms of the confidence that it's going to happen.

Rene Haas: It's extremely high because the choices are rather limited if you want to participate in that market.

Rene Haas: And when you add in factories onto windows, such as co pilot.

Rene Haas: And things such as Gemini for Android.

Rene Haas: That's why we're seeing an accelerating.

Rene Haas: Of the licensees to be able to get access to next generation technology to take advantage of these new AI features.

Speaker Change: Thank you.

Rene Haas: Thank you, and one moment for our next question. As a friendly reminder, please limit yourself to one question. And our next question comes from Charles Shee of Needham and Company. Charles, your line is open. Oh, thank you very much. Good afternoon.

Speaker Change: Ken one moment for our next question is a friendly reminder, please limit yourself to one question.

Charles Shee: And our next question comes from Charles <unk> of Needham <unk> Company. Charles Your line is open.

Charles Shee: I have a question, maybe a little bit backward looking. This was a question I got quite frequently over the last quarter about your royalty revenue growth seen in the December quarter. And obviously, you see another sequential, very strong sequential growth in March. So in the December quarter, since you already disclosed how much of the royalty revenue comes from related parties, which is a proxy for Arm China. We did notice that Arm China actually was the driver for the royalty revenue growth in December, at least on a sequential basis. Outside of China, it's probably only like 4% ish of the sequential growth.

Charles Shee: Oh. Thank you very much good afternoon, I have a question, maybe a little bit backward looking.

Speaker Change: This was the question I got quite frequently over the last quarter about your.

Charles Shee: Royalty revenue growth seeing.

Charles Shee: Seeing in December quarter, and obviously you see another sequential very strong sequential growth in March so in December quarter. Thank you already disclosed how much of the royalty revenue coming from related parties, which.

Charles Shee: As a proxy of.

Charles Shee: China.

Charles Shee: We didn't notice that China actually.

Charles Shee: What's the driver for the royalty revenue growth in December at least on a sequential basis.

Charles Shee: Outside of China, It's probably only like a 4% ish of the sequential growth so wonder.

Speaker Change: If you guys can.

Speaker Change: Use this opportunity to clarify what was driving that.

Charles Shee: Over 50% sequential.

Charles Shee: China royalty revenue growth.

Speaker Change: In December quarter, and can you kind of give us a breakdown for the March quarter.

Jason E. Child: So wonder if you guys can use this opportunity to clarify what was driving that over 50% sequential China royalty revenue growth in the December quarter. And can you kind of give us a breakdown for the March quarter, which one, either it's China or the non-China, is driving most of the sequential growth? Thank you. Sure, this is Jason. I'll take that question.

Charles Shee: Which one either China or the non China is driving most of the sequential growth.

Jason E. Child: So first, I would say there has been a little bit of recovery in China, in the handset market. It was up, what is it, one and a half, 2% or so year on year going back to the December quarter. So a little bit was just the general market. But the bigger impact was, I would say, the mix shift of the Chinese consumer buying from, I would say, OEMs or partners. Our revenues are based on where the customer is but based on where the partner who effectively sold the product is.

Jason E. Child: Kim.

Jason E. Child: Sure. This is Jason I'll take that question. So first I would say there has been a little bit of recovery in China and handset market. It was up.

Jason E. Child: 152% or so year on year going back to the December quarter. So a little bit was just the general market, but the bigger impact was I would say the mix shift of the Chinese consumer buying from I would say Oems or partners are.

Jason E. Child: Our revenues are based on where the customer is that based on where the partner who effectively sold the product was so basically there was a transfer from.

Jason E. Child: So basically, there was a transfer from Chinese customers buying from Chinese, you know, producers versus someone from outside. And so what that shows up as from a royalty perspective is a shift from the rest of the world to related parties. And by the way, related parties are mostly China. There are other parties in there as well.

Jason E. Child: Chinese customers buying from Chinese.

Jason E. Child: Chinese producers versus someone from outside of China.

Jason E. Child: And so that what that shows up as from a royalty perspective, a shift from rest of world to related parties and by the way. It related parties does is mostly China. There are other parties in there as well now in terms of the.

Jason E. Child: Now, in terms of the March quarter end, you will see similar trends. The rest of the world did accelerate. I mean, we saw pretty significant royalty acceleration from, what was it, 11%, 12% back in Q3, and it was 37% in Q4. So there is a broad-based increase across the world. But you are going to see more acceleration also in China for really the same factors that we saw back in Q3 as well. Garden, may I ask a quick clarification?

Garden: The March quarter, and you will see similar trends.

Garden: The world did accelerate.

Jason E. Child: We saw a pretty significant royalty acceleration from what was it 11, 12% back in Q3 and it was 37% in Q4. So there is broad based increase across the world.

Jason E. Child: But you are going to see more acceleration also in China for really the same factors that we saw back in Q3 as well.

Jason E. Child: Jason, when you talk about acceleration, the percentages, do you mean yi on yi or qi on qi? Thank you. Okay, thank you. Our next question will come from Toshiya Hari of Goldman Sachs. Your line is open. Hi, thank you so much for taking the question.

Garden: Got it got it may I ask a quick clarification, Jason when you talk about acceleration in the percentage assuming that year on year or Qian queue. Thank you.

Toshiya Hari: Okay. Thank you.

Toshiya Hari: One moment for our next question.

Toshiya Hari: Our next question will come from Toshi Hari.

Toshiya Hari: Goldman Sachs. Your line is open.

Toshiya Hari: I had a relatively short-term question on the June quarter outlook for your royalty business, maybe one for Jason. Based on your comments, I think for royalty, you're assuming something like a 7% sequential decline in revenue. Given the V8 to V9 transition, I would assume I would think your blended royalty rate continues to grow nicely. So, units must be down maybe double digits, again, Q over Q. I think typical seasonality is up sequentially if I look at your business over the past couple of years.

Toshiya Hari: Hi, Thank you so much for taking the question.

Toshiya Hari: Had a relatively short term question on the June quarter outlook for your royalty business, maybe one for Jason.

Toshiya Hari: Based on your comments I think for royalty, you're assuming something like a 7% sequential decline.

Toshiya Hari: And revenue.

Toshiya Hari: Given the VA to benign transition I would I would assume I would think.

Toshiya Hari: Your blended royalty rate continues to grow nicely so units must be down maybe double digits.

Toshiya Hari: Again Q over Q.

Toshiya Hari: Think typical seasonality is up sequentially, if I look at your business over the past couple of years. So I guess the question is what's driving that sequential decline I know you're coming off a really high base, but curious.

Jason E. Child: So, I guess the question is, what's driving that sequential decline? I know you're coming off a really high base, but I'm curious what you're assuming, whether it be the smartphone market or some of the other big drivers. Thank you.

Jason E. Child: We're assuming whether it be the smartphone market or some of the other big drivers. Thank you.

Jason E. Child: Sure, so the driver of the 7% sequential decline is really us looking at the combination of what we are seeing all of our partners forecast, either through good faith estimates or what they've actually just disclosed publicly. And so when I look across, I mean, all the big players, when I look across all those different markets, I'm basically seeing, you know, pretty, you know, pretty significant declines or weakness, specifically in, I would say, networking and industrial IoT. I think on the mobile side, things will be pretty consistent.

Speaker Change: Sure so the driver of the 7%.

Jason E. Child: <unk> decline is really us looking at the combination of what are we seeing all of our partners forecast either through good faith estimates.

Jason E. Child: Or what they've actually just disclose publicly and so when I look across I mean, you know all the big players when I look across all those different markets I am basically seen.

Jason E. Child: Pretty pretty significant.

Jason E. Child: Declines or weakness specifically in.

Jason E. Child: I would say networking and industrial and Iot.

Jason E. Child: I think on the mobile side.

Jason E. Child: Things will be pretty consistent and so so our growth overall is still be very very much positive in the kind of 20 ish percent range, but because we're coming off of the kind of the bottom out from over a year ago.

Jason E. Child: And so, our growth overall will still be very, very positive in the kind of 20% range. But because we're coming off of the kind of bottom out from over a year ago, the year on year will look a little, a little less significant than it did last quarter. But you know, we'll see if our partners end up seeing different impacts, which of course flow through our royalties. They're perhaps maybe an upside, but that's what we're seeing right now.

Jason E. Child: Our on year will look a little a little less significant than it did last quarter.

Jason E. Child: We will see if if if our partners end up seeing different impacts which of course flow through our royalties.

Jason E. Child: Perhaps maybe upside, but but that's what we're seeing right now and we.

Jason E. Child: And, you know, we'll obviously let you know what we see at the end of the month. And Jason, just to clarify, is it fair to say that automotive and IOT are relative underperformers, and intergenic client and infrastructure should be relatively resilient? Is that a fair statement?

Jason E. Child: We will obviously, let you know what we see it in the quarter.

Jason E. Child: And Jason just to clarify is it fair to say that automotive and Iot are relative underperformers and into June in client and infrastructure should be relatively relatively resilient is that a fair statement, yeah, I think generally right.

Jason E. Child: Yeah, I think it's generally right. Okay, thank you. One moment for our next question, and our next question will come from Ananda Baruah of Loop Capital. Ah, yeah, I did that.

Speaker Change: Okay. Thank you.

Ananda Prosad Baruah: Thank you one moment for your next question.

Jason E. Child: And our next question will come from Ananda Baruah of loop capital Your line.

Ananda Prosad Baruah: Yes. Good afternoon, thanks for taking the question.

Ananda Prosad Baruah: Thank you for taking the question. You know, Rene, maybe you, I'd love to get your thoughts on PC potential over the next few years and clients given all the work with various folks in the ecosystem that you've been doing. There seems to be a lot of really interesting reciprocity going on. So just any thoughts on the potential would be great.

Ananda Prosad Baruah: I guess.

Ananda Prosad Baruah: Rene maybe Renee I loved.

Ananda Prosad Baruah: Get your thoughts on.

Ananda Prosad Baruah: PC potential over there.

Ananda Prosad Baruah: The next few years and.

Ananda Prosad Baruah: And client given all the all the work.

Ananda Prosad Baruah: Gary.

Ananda Prosad Baruah: Yes.

Ananda Prosad Baruah: But you've been doing the Aladdin really interesting reciprocity going on.

Ananda Prosad Baruah: Just any thoughts on the potential would be would be great. Thanks.

Rene Haas: Yeah, thanks for the question. You know, we've obviously been working on the Windows ecosystem for a long time. The Apple ecosystem has completely converted over. So when we think about our growth, we're talking about Windows, I think, over the next number of years. We are very positive about the growth potential. I think one of the things that's needed for the PC industry to grow, particularly the Windows on ARM segment, is going to be a diversification of the supplier base to provide multiple units, multiple SKUs, multiple price points, and multiple experiences for end consumers. Everything I'm hearing says that there are going to be multiple suppliers to serve that market over the next 12 to 36 months.

Rene Haas: Yes, thanks for the question.

Rene Haas: We've been obviously working on the windows ecosystem for for a long time.

Rene Haas: The Apple ecosystem has completely converted over so when we think about our growth we're talking about windows.

Rene Haas: I think over the next number of years.

Rene Haas: We are very.

Rene Haas: Positive about the growth potential I think one of the things thats needed for the PC industry to grow, particularly the windows on arm's segment is going to be a diversification of the supplier base to provide multiple units multiple skus multiple price points and multiple experiences for for end consumers.

Rene Haas: <unk>.

Rene Haas: Everything I am hearing says that theyre going to be multiple suppliers to serve that market over the next 12.

Rene Haas: And with that, we think now will be the time in the next two, three years where the ARM ecosystem will take a significant level of market share, primarily because of the level of experience that we've seen in the other ecosystems, the fantastic performance, the great battery life, the fact that you can build a high-performance machine minus a fan. I think all those things are going to add up to significant growth. So I think once the vendor base diversifies, I think we're going to see that growth start to kick in over the next 12 to 36 months. Yeah, it's really great content.

Rene Haas: <unk> to 36 months.

Rene Haas: And with that we think now will be the time over the next two to three years, where the arm ecosystem will take a significant level of market share primarily because of the level of experience that we've seen in the other ecosystem.

Rene Haas: Fantastic performance the great battery life.

Rene Haas: The fact that you can build a high performance machine minus a fan I think all of those things are going to add up for FY <unk> growth. So I think once the once the vendor base Diversifies I think we're going to see that growth start to kick in over the next 12 months to 36 months.

Ananda Prosad Baruah: Thanks a lot. I really appreciate it. You're welcome. And one moment for our next question. Our next question will come from Gary Mobley of Wells Fargo Securities. Gary, your line is open.

Rene Haas: Yes, it's really great.

Speaker Change: Thanks, a lot really appreciate it.

Ananda Prosad Baruah: Welcome.

Gary Wade Mobley: One moment for our next question.

Ananda Prosad Baruah: Our next question will come from Gary Mobley of.

Gary Wade Mobley: Wells Fargo Securities Gary Your line is open.

Gary Wade Mobley: Hey guys, thanks for taking my question. You. When fiscal year 25 is done, you will have grown your licensing revenue by 20% for the prior two years. And that's well above what you were predicting during the IPO roadshow. And, seemingly, you're predicting, you know, long-term 10% growth. So, you know, is that the new long-term target we should think about in terms of license revenue growth? And related to that, you highlight how you converted, you know, half of your top 30 customers into ATA licensees. How hard will it be to convert the other half?

Gary Wade Mobley: Hey, guys. Thanks for taking my question.

Speaker Change: Thank you.

Gary Wade Mobley: When you're 25 is done you will have grown your licensing revenue, 20%, 20% rate for the prior two years.

Gary Wade Mobley: And that's well above what you were predicting during the IPO roadshow and seemingly you're predicting long term, 10% growth. So is that the new long term target. We should think about in terms of license revenue growth and related to that you highlight how you converted.

Gary Wade Mobley: Half of your top 30 customers into <unk> licensees.

Gary Wade Mobley: Hardware would be to convert the other half.

Rene Haas: So thanks for the question. The way I think about the licensing revenue, and you're right, it's a nice, pleasant upside that that has been, and will continue to be, very, very strong. The indications that we get looking forward are that we don't see anything that would stop the licensing activity from being positive momentum. The reason for that is what I mentioned before.

Speaker Change: So thanks for the question the way I think about the licensing revenue and Youre right. Its a nice a pleasant upside that has been.

Rene Haas: Continue to be very very strong.

Rene Haas: The indications that we get looking forward is that we don't see anything that would stop the licensing activity being.

Rene Haas: Positive momentum the reason for that is what I mentioned before if you are trying to enter into these markets.

Rene Haas: If you're trying to enter into these markets that are A, requiring more and more AI, B, requiring rich application ecosystem support, and C, broad OS support, the only logical choice that partners have is on. And for that reason, we're very confident that we will continue to maintain and sustain that level of momentum. I think in terms of what percentage of customers ultimately move over to an ATA, my estimation is that probably 80% of the customer base at some point in time can be on that, and which will give us a lot of increased predictability in terms of license renewals, not so much the if they'll renew, but the when, which is probably as important as anything going forward. So Jason, may I defer to you on the second part of that question? Well, let's see.

Jason: That are requiring more and more AI be required the rich application ecosystem support and see broad OS support.

Jason: The only logical choice that partners have his arm and for that reason.

Jason: We're very confident that we continue to maintain and sustain that level of momentum.

Jason: I think in terms of what percentage of customers ultimately move over to <unk>.

Jason: My estimation is that probably 80% of the customer base at some point in time can beyond that.

Jason: And which will give us a lot of.

Jason: Increased predictability in terms of.

Jason: License renewals not so much the issue.

Jason: If they'll renew but.

Jason: The win which is so important.

Rene Haas: Okay.

Rene Haas: [music].

Rene Haas: Alright, so Jason I'll make I'll defer to you on the second part of that question.

Jason E. Child: So it's on ATA. So we did, I'm not sure if you caught it in the notes, we did increase our ATA partners from 27 to 31. So add four more.

Jason: Well, let's.

Jason: Let's see so on and so we did.

Jason: I'm not sure if you caught in the no.

Jason: We did increase our <unk> partners from $27 31, so add four more so a little over roughly half of our I would say at least of the of the.

Jason E. Child: So a little over roughly half of our, I'd say at least the top 20 are there now. But I would say what we're happy about is when we look into next year, even versus what we thought at IPO, we thought that we would probably have closer to 30% year-on-year growth in royalties. And, you know, we were all expecting kind of a full industry kind of correction. Turns out that, you know, the industrial and IoT and networking aren't quite there yet.

Jason: Top 20 are there now.

Jason E. Child: But I would say what what what we're happy about is when we look into next year, even versus what we thought at IPO. We thought that we would probably have closer to 30% year on year growth in royalties.

Jason E. Child: We were all expecting kind of full industry kind of correction it turns out that.

Jason E. Child: The industrial and Iot and networking arent quite there and so even though we are taking down royalty a little bit we're able to take up licensed by even more.

Jason E. Child: And so even though we are taking down royalties a little bit, we're able to take up licenses by even more than that royalty reduction, mostly because of what Rene just talked about, specifically this demand for additional licensing capabilities, you know, very much related to AI. Now, in terms of it being the new normal, I would say no, because, you know, all license deals, or at least certainly the large ATAs, they have a very high conversion into royalties.

Rene Haas: And that royalty reduction, mostly because of what I just talked about specifically this demand for additional <unk>.

Jason E. Child: Licensing capabilities.

Jason E. Child: Very much related to AI.

Jason E. Child: Now in terms of it being the new normal I would say no because all license deals or at least certainly the large <unk>. They have a very high conversion into royalties. So they typically especially with a larger more kind of mature companies. They typically are pretty good about turning those into the design wins and then turning those into.

Jason E. Child: So they typically, especially with larger, more mature companies, they typically are pretty good about turning those into design wins and then turning those into royalties. And because these deals are all on B9, they're higher royalty rates than, you know, the older kind of counterparts.

Jason E. Child: Royalties and because these deals are all in benign or higher royalty rates than then.

Jason E. Child: The older kind of counterparts. So I would expect what we talked about back at IPO. When we would get in the next couple of years get to royalties at 75 plus percent of our total revenue that's very much still the expectation I would say.

Jason E. Child: So I would expect what we talked about back at IPO, when we would get to royalties at, you know, 75 plus percent of our total revenue, that's still the expectation. I would say we're just starting to see, you know, that as we get deeper into the B9 penetration lifecycle and then also as we see the compute subsystems start to come online again at even higher royalty rates at the end of this year, that gives us a great setup for, I would say, a higher, much higher mix of royalties as we go into next year. Thank you both.

Jason E. Child: Just starting to see that as we get deeper into the benign penetration life.

Jason E. Child: Our lifecycle and then also as we see the compute subsys and start to come online again at even higher royalty rates.

Jason E. Child: The end of this year.

Jason E. Child: Gives us a great setup for I would say a higher much higher mix of royalties as we go into next year.

Jason E. Child: Thank you both.

Speaker Change: Thank you.

Gary Wade Mobley: And one moment for our next question. Our next question will come from Lee Simpson of Morgan Stanley. Lee, your line.

Speaker Change: And one moment for our next question.

Gary Wade Mobley: Our next question will come from Lee Simpson of Morgan Stanley Lee Your line is open.

Lee John Simpson: Great, thanks for putting me on here. I just want to take us back to the V9 profiles that you stood up for automotive, the automotive enhanced profiles, and that includes Lee licensing from Texas, NXP, NVIDIA, etc. Just kind of understand how much of that licensing would have been recognized in Q4's number, how much would have gone into RPO, and maybe just related to that. I don't know if I heard correctly, but you mentioned multiple customers are working on the CSS release for this in 2025. Thanks.

Lee John Simpson: Great. Thanks, Paul for fitting me on here.

Lee John Simpson: I just want to take us back to the benign profiles that you stood up for automotive the automotive enhanced.

Lee John Simpson: Files, and then includes Lee licensing from Texas, NXP and video et cetera, just trying to understand.

Lee John Simpson: How much of that licensing would've been recognized in Q4 number how much would have gone into <unk> and maybe just related to that.

Lee John Simpson: If I heard correctly, but did you mentioned multiple customers are working on the CSS release for this in 2025.

Rene Haas: Yeah, so I'll let Jason go into detail relative to the contribution of the automotive V9A technology from a licensing standpoint. On the CSS engagement, we have multiple partners who are engaged in that. The way to think about the automotive industry is that it is an extremely complex market that needs some degree of customization but also wants some level of standardization.

Lee John Simpson: Yes.

Speaker Change: I'll, let Jason go into detail relative to the contribution of the automotive.

Rene Haas: Benign AI.

Jason: The technology from a licensing standpoint.

Rene Haas: On the CSS engagement.

Jason: We have multiple partners who are engaged in that.

Rene Haas: And the way to think about the automotive industry is that it is an extremely comp.

Speaker Change: Complex market that needs. Some degree of customization, but also want some level of standardization and each of the automotive Oems would love to have a solution that supports a full software stack that would have a number of different contributions relative to.

Rene Haas: And each of the automotive OEMs would love to have a solution that supports a full software stack that would have a number of different contributions relative to differentiation but also something that can be standardized. So to that level, we've had incredible engagement with lots of different OEMs at this level. And we're very, very confident that the kind of demand that we've seen for CSSs in our other businesses will be there in automotive. It just makes all kinds of sense when you think about the complexity of these devices, the cost involved, but also the need for supply chain resilience.

Rene Haas: Differentiation, but also something that can be standardized so to that level. We've had incredible engagement with lots of different Oems across this level and we're very very confident that the kind of demand that we've seen for CSS is.

Rene Haas: In our other businesses will be there in automotive it just makes all kinds of sense. When you think about the complexity of these devices the cost involved but yet the need for supply chain resiliency. So I'll, let I'll, let Jason address the question relative to the licensing revenue and how that all.

Rene Haas: So I'll let Jason address the question relative to the licensing revenue and how that all ties together. Yeah, so the licensing revenue for, in this case, for automotive, is a little unique. Typically, we get, you know, around 50% of the booking at the time of booking will be booked as revenue. In this case, since V9 isn't quite delivered for auto, it's coming very, very soon. That is actually delayed.

Rene Haas: Together.

Jason: So the licensing revenue for in this case for automotive is a little unique typically we get around 50% of the of the booking at the time of booking will be booked as revenue in this case since <unk> nine is its not quite delivered for auto is coming very very soon.

Jason E. Child: So it all is going into the backlog. It will be released as soon as it's launched, and we'll announce when that happens. Great, thanks for collaborating. Thank you. One moment for our next question. Our next question will be coming from Timm Schulze-Milander of Redburn Atlantic. Yeah, hi, thanks for taking my question.

Jason: It is actually delayed so it all is going into backlog. It will be released as soon as it's launched and we will announce when that happens.

Timm Nikolaus Schulze: Great. Thanks for clarifying.

Timm Nikolaus Schulze: One moment for our next question.

Timm Nikolaus Schulze: Our next question will be coming from Tim Schultz Melinda.

Timm Nikolaus Schulze: Byrne Atlantic Your line is open.

Timm Nikolaus Schulze: So I just wanted to dig back into the royalty outlook for next quarter and just try to maybe disaggregate a little bit the volume and the pricing impact. I think you talked about the mix increasing by about five percentage points a quarter, which over the course of 25 should give us a pretty decent tailwind. But I think you guided that royalties are going to grow somewhere in the 25% range. Can you maybe just give us a little bit of an idea about how that breaks down between volume, price, and mix?

Timm Nikolaus Schulze: Yes, hi, Thanks for taking my question. So I just wanted to dig back into the <unk>.

Timm Nikolaus Schulze: Royalty outlook for next quarter.

Timm Nikolaus Schulze: And just trying to maybe disaggregate, a little bit the volume and the pricing impact. Thank.

Timm Nikolaus Schulze: You talked about the mix, increasing by about five percentage points quarter, which over the course of 'twenty five should give us a pretty decent tailwind, but I think you guided the royalties are going to grow somewhere in the sort of 25% range could you maybe just give us a little bit of a color about how that breaks down between volume.

Speaker Change: Price and mix. Thank you.

Jason E. Child: Thank you. Okay, so last quarter, if I look at all of our partners, their growth on average, And we don't have all their details on mix, but their growth on average was around around two-ish percent. And obviously, you know, we grew it at 37.

Timm Nikolaus Schulze: Okay. So last quarter, if I look at all of our partners their growth on average.

Jason E. Child: We don't have all their details on mix, but there are growth on average was around around two ish percent and obviously.

Jason E. Child: So that differential is very much the mix of, you know, either more premium ships, higher royalties, as well as the royal high royalties related to V9. So, I would say going into the next quarter, we're expecting that our overall peer group that we're getting paid royalties on is probably in that five-ish percent range. And then we're now expecting that our royalties, as we said, will be somewhere in the 20% range.

Jason E. Child: We we grew at 37, so that differential is very much the mix of either print more premium chips higher royalties as well as the royal higher royalties related to <unk>.

Jason E. Child: So in the I would say going into the next quarter.

Jason E. Child: We're expecting that our overall peer our overall peer group that we get paid royalties on is probably in that five ish percent range.

Jason E. Child: And then we're now expecting.

Jason E. Child: Our royalties as we said it'll be somewhere in the 20% range, obviously mix. The benign portion we have a decent handle on but the mix across different.

Jason E. Child: Obviously, mixed, the V9 portion we have a decent handle on, but the mix across different aspects of the market for premium is just very hard to know ahead of time. So those are the key components.

Jason E. Child: The different aspects of the market premium is there is just very hard to know ahead of time. So that's those are the key components I would say going forward, we do expect to see.

Jason E. Child: I would say going forward, we do expect to see effective unit growth because again, I'm assuming that the mix across most of these other, we don't get all the detail, but I've assumed that most of it's gonna be pretty consistent. I would assume that we're gonna continue to have our royalty growth mostly because of the V9 and mixed impacts continue to run pretty significantly ahead of the overall market unit growth. I got it.

Jason E. Child: Effectively unit growth because again I'm, assuming that the mix across most of these other than if we don't we don't get all the detail, but I would assume most of it's going to be pretty consistent I would assume that we're going to continue to have.

Jason E. Child: Our royalty growth, mostly because of the benign and mix impacts continued to run.

Jason E. Child: Pretty significantly ahead of the overall <unk>.

Jason E. Child: Market unit growth.

Speaker Change: Got it very helpful. Thank you.

Timm Nikolaus Schulze: Very helpful. Thank you. In one moment for our next question, and our next question will be coming from Harlan Sur of J.P. Morgan. Harlan, your line is open. Good afternoon.

Speaker Change: Thank you.

Speaker Change: And one moment our next question.

Harlan L. Sur: And our next question will be coming from Harlan sur.

Harlan L. Sur: Jpmorgan Colin your line is open.

Harlan L. Sur: Thanks for taking my question. Your backlog was up 45% year-over-year, and your Q4 ACV was strong, so a very, very strong end to the year. Obviously, a combination of some large renewals, but more importantly, customers, across all of your end markets, right? Adopting the higher value-added compute and compute subsystems, IPS, they sort of look towards their future chip design programs. As you look at your renewal pipeline, discussions with customers, and their program timing, it looks like you are going to drive strong licensing growth again this year, but does the pipeline suggest that the team can grow total backlog this fiscal year? Harlan, this is Jason.

Harlan L. Sur: Good afternoon. Thanks for taking my question and backlog was up 45% year over year strong Q4 <unk>. So.

Jason: Very strong.

Jason: And to the year, obviously, a combination of some large renewals, but more importantly customers. It seems like across all of your end markets, while adopting the higher value added compute and compete subsystems IPSA sort of look towards the future chip design programs.

Jason: When you look at your renewal pipeline discussion with customers and their program timing.

Harlan: Thank you you are going to drive strong licensing growth again this year, but the pipeline suggests that the team can grow total backlog with this fiscal year.

Jason E. Child: I'll start with that. I start with your question. I think at a high level, if I looked at last year, you can kind of back into bookings by looking at revenue plus change in backlog. That total number was about $2.2 billion last year.

Harlan L. Sur: Harlan This is Jason I'll start with that I start with your question I think at a high level, if I looked at last year.

Jason: You can kind of back into bookings by looking at revenue plus change a backlog that total number.

Jason: About $2 2 billion last year.

Jason: And if you look at kind of what we're assuming for this year.

Jason E. Child: And if you look at kind of what we're assuming for this year, we're definitely assuming less than that. Now, last year, we started with a number that was quite a bit below $2.2 billion. And as we mentioned, we had a really strong booking year, mostly because of the incremental deals that came mostly due to AI. So our assumptions for this year on license are that right now, we'll probably have maybe 60% of the bookings that we had last year, at least that's what it would take to get to kind of our plan.

Jason E. Child: We're definitely assuming less than that now.

Jason E. Child: Now last year, we started with a number that was quite a bit below $2 2 billion and as we mentioned we had a really strong bookings.

Jason E. Child: Mostly because of the incremental deals that became because of.

Jason E. Child: Mostly due to AI so our assumptions for this year on license is that right now we will probably have maybe 60% of the bookings that we had last year at least that's what it would take to get to kind of our plan.

Jason E. Child: Now.

Jason E. Child: Now, there certainly is opportunity. If you look at last year, there was some overage that was, you know, probably somewhere in that similar range. We started out with a plan that was probably more like 60 or 70% of what we actually achieved. So, you know, we do have good line of sight to the current plan. And, and, you know, we did provide a relatively wide range, mostly because we have to try to factor in the timing of when these deals are going to hit and whether, you know, Q3 or Q4, or whatever.

Jason E. Child: There certainly is opportunity if you look last year. It was there was some overage that was.

Jason E. Child: Somewhere in that similar range, we started out with a plan that was probably 160 or 70% of what we actually achieved so.

Jason E. Child: We do have good line of sight to the current plan and we did provide.

Jason E. Child: A relatively wide range, mostly because we have to try to factor in the timing of when these deals are going to hit in one.

Jason E. Child: So, but, but in terms of, you know, if you kind of back up and say, well, when I see kind of the midpoint of guidance for this year, how much, you know, what's the competence level? You know, I would say we're at 80 plus percent of the midpoint of our plan, of our guidance is already either in backlog or under contract enrollment. So really what we're trying to do is forecast what the incremental bookings that we're going to sign for the year, which a lot of that's already in the pipeline, and then what possibly could there be beyond that. I'm not really forecasting the stuff that's beyond that, beyond what's in the pipeline today, but if this year looks like last year, that's where some possible upside would come. Thank you, Jason.

Jason E. Child: The Q3 or Q4 or whatever so, but but in terms of.

Jason E. Child: If you kind of back up and say well when I see kind of the midpoint of guidance for this year, how much whats the confidence level I would say, we're at 80 plus percent of the midpoint of our plan.

Jason E. Child: Our guidance is already either in backlog or under contract and royalties. So really what we're trying to do is forecast what is the incremental bookings that that we're going to sign up for the year of which a bunch of that is already in pipeline and then and then what we could there be beyond that.

Speaker Change: I'm not really forecasting this stuff that's beyond that.

Jason E. Child: And what's in the pipeline today.

Jason E. Child: But if it if this year looks like last year.

Jason: That's where some possible upside would come.

Speaker Change: Oh, Thank you Jason.

Jason: Thanks Harlan.

Harlan L. Sur: Thanks, Harlan. Thank you. Thank you. I would now like to turn the call back to Rene Haas, CEO, for closing remarks. Thank you, everyone. And thank you for all the questions.

Jason: Thank you I would now like to turn the call back to Renee Haas CEO for closing remarks.

Rene Haas: Very good set of dialogue, and hopefully, we'll give some insight in terms of why we are so confident about the future of our company. This is our third quarter as a public company. So this is the third time we've done one of these calls, and it's the third time that we've reported record revenue to you. And this is the third time that we're going to be forecasting growth for the quarter going forward. So we've had three quarters of record revenue as a public company. We're also forecasting that for next quarter.

Rene Haas: Thank you everyone and thank you for all the questions.

Rene Haas: <unk>.

Rene Haas: Good set of dialogue and hope we will give some insight in terms of why we are so confident about the.

Rene Haas: The future of our company. This is our third quarter.

Rene Haas: Public company. So it's the third time, we've done one of these calls and it's the third time that we reported record revenue to you and it's the third time that we're going to be forecasting growth on a quarter going forward. So.

Rene Haas: We've had three quarters of record revenue as a public company. We're also forecasting that next quarter.

Rene Haas: And I think, again, what you're seeing is the validation of the strategies that we put in place some years ago all coming to fruition. The expansion of our business into multiple markets, such as infrastructure, automotive, client PCs, and, of course, smartphones. In addition to that, the AI tailwind, which has driven unprecedented growth for our licensing business. Thus, Arm is a platform company unlike any other. It's a business unlike any other, and the growth and outlook for the company could not have been brighter. To come off of a year where we're talking about 20% growth and then talking about a year following and a year following where we will do better than that, it's a great business to be in.

Rene Haas: And I think again, what youre seeing is.

Rene Haas: The validation of the strategy that we put in place some years ago, all coming to fruition the expansion of our business into multiple markets such as infrastructure automotive.

Rene Haas: Client Pcs and of course smartphones.

Rene Haas: In addition to that the AI tailwind, which is driven unprecedented growth for our licensing business. So arm as a platform company. Unlike any other.

Rene Haas: It is a business unlike any other and the growth and outlook for the company could not have been brighter to come off a year, where we're talking about 20% growth and then talking about a year following in a year following what we will do better than that.

Rene Haas: So thank you for all your time, and I'll leave it now to Ian or who else to close the call. That's all from us and thank you very much indeed. We'll talk to some of you later in 90 days time. And this concludes today's conference call. Thank you for participating. You may now disconnect. Gary Mobley, Sarah Russo, Ananda Baruah, Andrew Gardiner, Toshiya Hari, Yu Shi, Ambrish Srivastava, Sara Russo, Harlan Sur, Rene Haas, Arm Holdings, ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? www.mytrendyphone.co.uk ??? ??? ??? Satsang with Mooji Satsang with Mooji Satsang with Mooji Satsang with Mooji Satsang with Mooji Satsang with Mooji ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Copyright © 2020 Mooji Media Ltd. All Rights Reserved. No part of this recording may be reproduced without Mooji Media Ltd.'s express consent. ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?

Speaker Change: <unk> business to be in so thank you for all your time and I'll leave it to enter who else too close to call.

Speaker Change: That's all from US. Thank you Raj and Dave will talk to some of you later.

Rene Haas: On today's call.

Rene Haas: And this concludes today's conference call. Thank you for participating you may now disconnect.

Speaker Change: Thank you.

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