Good day and thank you for standing by. Welcome to the Arm First Quarter Fiscal Year 2025 Webcast and Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Rene Haas, Chief Executive Officer of Arm; and Jason Child, Arm's Chief Financial Officer. Thank you, and welcome to our earnings conference call for the first quarter of the fiscal year ending March 31, 2025. On the call today are Rene Haas, Chief Executive Officer of Arm, and Jason Child, Arm's Chief Financial Officer. During the 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 judgment of 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. In addition to any risks that we highlight during the call, important risk factors that may affect our future results and performance are described in our registration statement on Form 20-F filed with the SEC on May 29, 2024. Arm assumes no obligation to update any forward-looking statements, which speak only as of the date they are made. We will refer to non-GAAP financial measures during the discussion. Reconciliation of certain of these non-GAAP financial measures to their most directly comparable GAAP financial measures, as well as a discussion of certain projected non-GAAP financial measures that we are not able to reconcile without unreasonable efforts or supplemental financial information, can be found in our shareholder letter. 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.

Thank you, Jeff, and good afternoon, everyone. I'm pleased to provide you an update on our most recent quarter. We had our fourth straight quarter of record results with 39% year-on-year revenue, which exceeded the high end of the guidance. That was record license revenue, up 70% year-on-year, as companies continue to invest in Arm for AI everywhere. We also had strong royalty revenue, up 17% year-on-year, as the v9 adoption increases. Our long-term growth drivers remain consistent. Every chip being designed today requires a CPU, and these are being designed with Arm in mind with our strong tie into all the world's software. That has driven significant royalty revenue growth. More value per chip, v9 up to 25% now royalty revenue overall, that's up 20% from the previous quarter. More importantly, our smartphone royalty revenue was up 50% year-on-year, against a single-digit increase in units. We are seeing AI everywhere, which is driving demand for Arm's performance and power-efficient compute platform. We had recent announcements in the last quarter for Google's Axion Processor for the cloud, AWS Graviton4 general availability. We were excited to see the announcement of the brand-new Windows on Arm PCs that run Copilot, True AI PCs, and we also announced the Arm Ethos-U85 for Edge AI. One of the significant strategies we've been investing in has been compute subsystems. With our recent launch of CSS for client, we now have active CSS engagements in the major markets of mobile, laptop, cloud and automotive. We are seeing demand for this technology everywhere, driven by the largest software ecosystem on the planet. Hardware, of course, is nothing without the software, and that's what has made Arm the most ubiquitous processor in history. We now have over 20 million software developers, the largest in the world, and we've added KleidiAI software libraries, which will make it easier for developers to benefit from the Arm Compute platform. The future is very bright, and it will be built on Arm going forward. We are extremely pleased over the last four quarters. When I look back to where we were a year ago, discussing whether Arm could be a growth company going forward, to have four quarters of consistent growth since being a public company, I could not be more proud.

Thank you, Rene. Q1 was a great start for fiscal year '25. We grew revenue 39% year-over-year to $939 million. This was our highest-ever quarterly revenue and was above the midpoint of our guided range. Licensing revenue rose 72% year-over-year and royalty revenue was up 17%. We also delivered a non-GAAP operating margin of 48%. As always, license revenue is lumpy. We recommend that you look at annualized contract value or ACV to check the underlying growth rate. ACV in Q1 was up 14% year-over-year, consistent with recent quarters. Remaining performance obligations or RPO was up 29% year-on-year and down sequentially, as we recognized revenue from achieving key delivery milestones from contracts signed in prior quarters. Our Q1 royalty revenue growth was driven by continued Armv9 adoption and a recovery in the smartphone market. Royalty revenue from smartphones increased more than 50% year-over-year compared with a mid-single-digit increase in the number of smartphones sold. In addition, we continued to gain share in automotive and cloud service providers, which is partially offset by continued weakness in IoT and networking equipment, given an ongoing inventory correction in the broader industrial market, as has been widely reported by many of our semiconductor peers. Turning to guidance, I will briefly touch on both the second quarter and the fiscal year ending March 31, 2025. This guidance reflects our current view of our end-markets. For Q2, we expect revenue between $780 million and $830 million, which at the midpoint represents steady revenue year-over-year. As previously guided, we expect Q2 revenue to be the low point of the year due to the timing of revenue recognition from licensing. However, we also expect Q2 to be one of our highest bookings quarters of the year. We expect year-over-year royalty revenue growth to accelerate to the low 20% range in Q2. Investments in our compute platforms are on track and we expect our non-GAAP operating results to be around $500 million. We expect non-GAAP EPS to be between $0.23 and $0.27, unchanged from our prior forecast. Looking out to fiscal year '25, we are reiterating our revenue guidance. We expect revenues to be between $3.8 billion and $4.1 billion, representing an 18% to 27% year-over-year increase. At the midpoint of our revenue guidance, this includes full-year royalty revenue growth in the low 20% range. This is slightly below our prior expectation of the mid-20% range. Feedback from our customers suggest that inventory issues in the industrial IoT and networking seem to be more persistent than originally suggested. We expect the drivers of our healthy royalty revenue growth this year to continue, supported by v9 adoption, share gains in cloud and automotive, and the initial ramp of chips based on our compute subsystems in the second half. We are increasingly optimistic about licensing revenue for the year. At the midpoint of our revenue guidance, we anticipate growth in the low to mid 20% range. We expect Q2 to be the smallest and Q4 to be the largest quarters of the year. We reiterate our outlook for ACV growth in the low double digits for the year, reflecting durable demand for Arm's latest IP.

Thank you, Jason. We'll now move forward with the Q&A portion of the program. Sharon?

Thanks for taking my question. Rene, I was hoping you could help us draw a line between the licensing upside of today to the royalty upside of tomorrow. When I look back to during the IPO process, what you suggested for licensing, you have far exceeded that. But when do you think we will see that reflected in royalty upside in some commensurate manner? What is the right way to kind of help look at this conversion factor between licensing and royalties over time? Thank you.

Yes. Thank you for the question. We are pleased about the growth in the licensing business. The way to think about that growth is really around continued investment in R&D, which is essentially customers looking to design their next-generation SSEs using Arm. What we are seeing, particularly with all things AI, is an increase in licensing momentum. One way to think about that is the AI workloads that some of these chips need to run at the time these chips were conceived. Some of the models they are tasked to run were never even invented yet, which relates back to your timeline question. From the time that we license a piece of IP to a customer and from the time that they put that into a chip and that chip goes into an end system, then ultimately into the customers' hands can be anywhere between three and four years. In some cases, even longer. I would say the mobile industry, particularly smartphones, is probably the fastest at around three years. But when looking at other markets like data centers or automotive, it can be longer than that. The way to think about all this increased licensing activity is a very good predictor of further royalty growth. We are licensing more and more v9 and compute subsystems. Both v9 over v8 and compute subsystems over v9 carry significantly higher royalty rates. So all of this is a very good projection for the future.

Thank you.

Great. Thanks for fitting me in. Rene, it's noticeable here that you've had a raft of good product releases recently. We've had the new Cortex X925 CPU, we've had Immortalis cores. So there's quite a lot of activity going on here, a lot for you to be licensing. But I think somewhat unnoticed is there's quite a few CPU extensions that you've been putting out to market as well. So I'm really just trying to understand, do we see more momentum in the CPU extensions? Do we see more of these coming out? Which markets would they address? And how does this drive some of that royalty growth that you've been talking about over the medium term? Thanks.

Yes, thank you for the question. The way to think about the CPU product line and the GPU product line for that matter, along with the fabric that goes with it, we're introducing these products annually for the smartphone market and PC market in particular; those are annual beats. For the data center market, it tends to be every couple of years, and similar for the automotive side. All of that is driving significant growth and demand for Arm technology. To your question about extensions, if I understand it correctly, it's around taking advantage of more of the v9 features. There's a lot inside version 9 with security and confidential compute. We're seeing increased demand for that across all areas, particularly in the data center. When considering the data center growth, one of the benefits driving increased licensing activity is the fact that these AI data centers are largely custom, meaning the blades, racks, interconnect, everything associated with building an AI data center is different each time, which leads to customization that is beneficial for Arm. At the same time, the power required by AI data centers is unprecedented relative to conventional data centers, which is also advantageous for Arm. The areas I mentioned around security and confidential compute, particularly in AI data centers, become hard requirements.

That's great. Thank you.

Thank you very much. Good afternoon, everybody. Rene, Jason, I had a couple of questions, maybe I'll just ask them at the same time for expediency. But the first one, the licensing business has continued to be really strong for Arm and certainly stronger recently than you guys had even forecast through the IPO process, and maybe some of the upselling to make AI-capable devices in certain markets has been part of that, and obviously, you talked about some of the platform licenses in the data center. However, there's no doubt some correction going on in certain parts of the semiconductor industry. We've seen that across a number of your licensees in broader markets. I wonder if you could give some commentary about what you're seeing in the licensing pipeline juxtaposed against some weakness in some parts of the semis industry. The second part, I know you guys don't plan to report royalties or comment on them based on segments or lines of business on a quarterly basis, but you did call out 50% year-over-year growth in smartphone royalties against the total royalty pie growing 17%. Could you talk about the puts and takes in some of the other non-smartphone sectors of the royalty numbers you just printed? Thanks, guys.

Sure. Thank you, Matt. I'll take the first part of your question and then I'll let Jason address the second part. It's a great question relative to how to think about industry correction, inventory, sell-through, and investment in R&D. In cycles in the past, you might see investment in future design be impacted by what you described. I would say in the current moment, that is not the case. We are not observing any slowdown in licensing relative to anything going on in the end-market. What drives our demand is the AI workloads and the requirements to drive them. Keep in mind that if a designer is designing an SoC tasked to run an AI workload or a small language model at the edge of a device, this is in addition to everything else that the SoC must do. It drives demand for more compute, CPU cores, subsystems, and all of the above relative to new SoC starts. We are not observing any slowing down; if anything, it's picked up. One of the reasons we're seeing the benefits from a revenue standpoint is these are running off existing platforms that are Arm-based. What drives our demand is the virtuous cycle of having the largest number of platforms from a software development standpoint being Arm-based. As a result, the availability of hardware makes it easier for software developers to choose and continue developing on Arm. A long-winded way of saying that on this cycle, we are not observing any slowdown in R&D investment, even with some slowdown in market consumption, as you stated. I'll turn it over to Jason to answer the second part of your question.

Thanks, Matt. On royalties, we're going to provide an update in the accompanying slides, sent out when the call ends, as we promised an annual update on the mix of our royalties and the updates in TAM and market shares. At a high level, I'll provide some key highlights. We saw mobile phone or smartphone royalty revenue grow by over 50%, so strong growth as you said, versus unit growth. For the full year, we saw that grow somewhere in the 20% range when factoring multiple businesses together. We will provide more color across various sectors, where there has been some slowdown. Specifically, PCs were slower last year, but we expect that to change this year. For the cloud compute market, we actually saw our strongest growth, north of 75% year-on-year, driven by projects we've discussed this past year, particularly strong growth within AWS, with projects coming online with Microsoft Cobalt and Google's Axion, which should continue to accelerate. On the auto side, we saw growth around 20% year-on-year. Our focus is primarily on ADAS and IVI segments, showing stronger growth than other auto semiconductor companies. IoT, networking, industrial categories, however, have shown persistent weakness, with negative growth expected to pick up a bit, at least sequentially, this quarter, but were in negative territory last year. We will provide more details, and if you have other questions after that release, we'll be glad to answer them.

Thanks, guys. Really appreciate it.

Great. Thanks for taking my question. I had a question on the compute side of the business, maybe a two-part question, if I may. On the CPU side of the data center, I think it's easier for us to track because there are more obvious deployments there. But I would say on the parallel processing or accelerator side, it's not as easy to track. I wonder if you could give us a sense of where you are in the penetration of that part of the market and how that part of the business compares to the CPU side. Additionally, if we consider the model, my understanding is that you have higher core counts per CPU, which drives ASP higher. Does that same dynamic apply on the accelerator side? Thank you.

Thank you for the question. When considering the AI data center, particularly around the accelerator and CPU, the vast majority of the market today with accelerators belongs to NVIDIA. Their numbers speak for themselves. Relative to the penetration of Arm in the data center, they announced Grace Hopper about 1.5 years ago, which integrates an Arm-based CPU with a Hopper GPU. The next advanced platform they announced, Grace Blackwell, will be shipping soon, with initial volumes just started. We expect that design to have higher volumes than Grace Hopper. We think Grace Blackwell will be a very strong ship for Arm in the AI data center, partnering with NVIDIA. Most accelerators that connect to an Arm CPU are custom chips being done in-house, and it's still early days regarding volume. However, back to my earlier comment, Grace Blackwell's custom design, incorporating custom components, indicates the direction towards high-performance and power-efficient computing inherent in Arm designs. The ultimate benefit of using Arm is the customization, resulting in efficient CPU architecture. It’s still early days for counting units in CPU and AI data centers, but we expect rapid growth, with Grace Blackwell as a key indicator.

Thank you.

Yes. Thanks for taking my question. I want to go back to the commentary on the smartphone. To what extent are you factoring in any kind of inventory correction in a smartphone in your royalty looking forward? To licensing, are you still expecting a significant pickup in Q4 fiscal year, as you were highlighting in the last earnings conference call?

This is Jason. On the smartphone side, this last quarter, we grew the royalties by about 50% year-on-year, while units only grew in the mid-single digits. For this year, we expect similar unit growth but anticipate we’ll outpace that growth, just like we did in Q1, because of the v8 to v9 transition. In fact, for smartphones, about 50% of royalty dollars are now v9 dollars. We've also mentioned that compute subsystems will start coming online in the second half of this year, specifically in mobile. You’ll see it starting in Q4. It will be relatively small, but more material next year. Overall, we expect mobile royalty growth to significantly outpace unit growth for this year, next year, and even over the next few years as we expect the CSS ramp to be akin to the v8 to v9 ramp. Regarding licensing, we do still expect the strongest licensing growth from a total revenue perspective to be in Q4. We have a wide range primarily due to a large pipeline of deals. As Rene mentioned, the pipeline has indeed become stronger than it was 90 days ago. Even with some softness in royalty, we are leaning ahead on royalties on licensing. Large licensing deals typically involve renewals with a six to nine-month cycle for new deals. So it will take time before we have a clearer picture of the shape and sizing, hence the large range for guidance on the licensing side. Our confidence is based on pipeline visibility and discussions we've had. We will update you throughout the quarters.

Great. Thanks for the details.

Hi, guys. A quick question on the handset side. I know you mentioned you're seeing handset CSS on v9. Are you seeing Chinese handset OEMs start to license you for the cores or AI cores? I think you're seeing the chip ASP start to explore, so I'm wondering if you're seeing handset OEMs trying to build their own cores, and if so, when do you expect to see licensing royalties from those?

We do not disclose specific licensing agreements in China, as those are managed through Arm China, our design partner. However, I can confirm that the global macro trends we observe, such as growth in data centers, automotive, and demand for CSS in mobile, also apply to China. The goals of the Chinese market are not fundamentally different. This is mainly because China is part of the same global software ecosystem as other markets, utilizing various platforms like macOS, stock Android, and Windows, all on Arm. Therefore, while we do not mention our partners specifically, the overall behaviors at the macro level remain consistent.

Hi, good afternoon, Rene, Jason. I just wanted to ask a question based on your comment made at Computex regarding the 50% PC market share in five years. To provide context, I understand there are Arm-based PCs already, like Apple's and Chromebooks, while some X86 peers disagree with your claim. They argue that regardless of having a strong AIPC, it's not ISA dependent. What’s your response and thoughts on why this claim of reaching 50% market share is valid? Thanks.

Thank you for the question. I would be concerned if they agreed with my statement of reaching 50% in five years. You're correct that Arm-based solutions are available today, such as Apple’s devices, with their transition showing a significant value proposition. What has changed this time in the Windows ecosystem includes products using the most advanced Arm technology, which are optimized with Microsoft for remarkable battery life. For example, Dell's XPS product line boasts over 19 hours of battery life for Arm-based solutions, exceeding competitors. Additionally, earlier Arm-based Windows devices utilized outdated technology meant for phones. That’s changed now with AIPC compliance. To achieve 50% market share, we need a wider supplier base and coverage of all entry to high-end SKUs. We're confident the ecosystem will fill out in the upcoming years. The combination of multiple vendor supply, excellent battery life, and no-compromise performance makes 50% market share in five years achievable.

Great. Good afternoon and thanks for taking my questions. Just one on my side, maybe for Jason on royalty seasonality. Just looking at the second-half, Jason, considering a big customer coming with v9 adoption in fiscal Q3 and mobile CSS client starting in fiscal Q4, could you help us model that second half in terms of royalties for proper weightings?

Yes. There are a couple of factors: the v8 to v9 adoption, the CSS impact, and seasonality. Additionally, we have to consider what we are comping against due to a recovery in the industry last year. For full-year royalty growth, we expect low 20% year-on-year growth, which is a decrease from the previous 25% expectation. On a quarterly basis, we anticipate roughly 10% growth from Q1 to Q2, Q2 to Q3, and Q3 to Q4, which should bring us to the expected low 20% year-on-year growth.

Thanks very much for taking the question. I had another one on the licensing side. You mentioned that licensing is lumpy, but fortunately, since the IPO, it's been consistently lumpy on the upside. In the current quarter, what has driven that upside relative to your visibility? Are companies taking more Arm content? Did you have more bookings that were able to turn quickly, CSS, or were there pull-forwards from deals you might have expected to recognize revenue on in future periods? I'm just trying to understand where this upside is coming from. Also, Jason, on the last call, you indicated that for the bookings outlook for the year, you expected about 60% of the level seen last year. I missed it, but what is the updated expectation after this robust first quarter?

Thanks for the question. This quarter's stronger licensing directly correlates with the slight reduction we expect in royalties, around $75 million for the year. So, we are seeing visibility into renewals for the biggest drivers of licensing bookings and revenue. Newer deals on newer technologies make forecasting more complicated, hence the range. The fundamentals driving the demand for Arm designs remain robust and stronger than they were 90 days ago, as exemplified by our strong pipeline. However, for the next quarter, you might see negative growth due to comping strong periods from a year ago. Future quarters should return to flattish or slightly positive.

Thanks very much.

Yes. Thank you. Please help me understand the slope of the Arm v9 ramp outside of handsets. You mentioned a 25% penetration of v9 across the overall business. Obviously, it's much higher within handsets. How should we expect the higher v9 royalties to layer into the non-handset portion over time?

As you forecast the overall business, expect roughly 500 basis points of total royalty mix moving to v9, which should continue consistently. Our forecasts suggest that it should remain close to that ratio. Overall, mobile is ahead for a variety of reasons, including a faster timeline from licensing to tape-out. We see overall infrastructure following, then automotive, with IoT lagging. The forecast remains roughly 500 basis points in total due to how our models work, with ongoing expectation for steady progress.

Got it. Thank you.

Thank you. This concludes the question-and-answer session for today. I will now hand the call back to Rene Haas for closing remarks.

Thank you, and again, thank you everyone for the great questions. In summary, again, four quarters as a public company, four quarters of record revenue. I do again recall when we were doing our IPO roadshow and testing the waters regarding Arm as a growth company. I'm pleased that a year later, we've shown four quarters of record growth, and I'm excited about the future regarding CSS, growth with AI, and the insatiable demand for compute. The world's platforms will all be built on Arm, and I could not be more excited about the future. Thank you, everyone.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.