Arm Holdings plc American Depositary Shares Q1 FY2026 earnings call

• Began fiscal year 2026 with strong momentum fueled by AI compute demands. Q1 was the second highest revenue quarter at $1.05 billion. • Royalty revenue up 25% YOY to $585 million, with strong momentum across end markets. Licensing revenue $468 million. • Arm Neoverse chips powering major AI infrastructure, expected to top hyperscaler market share to nearly 50% this year. • AI moving to edge with Arm's efficiency and scale, technology leaders integrating Arm's AI capabilities. • Over 22 million developers build on Arm, driving software ecosystem. • CSS adoption exceeded expectations, with 3 additional CSS licenses signed this quarter. • Accelerating R&D investments to support future opportunities.

Total revenue for Q1 was $1.05 billion, with royalty revenue reaching $585 million, up 25% year-on-year, representing approximately 55.7% of total revenue. Licensing revenue was $468 million, accounting for about 44.3% of total revenue. Royalty revenue grew across all end markets, and licensing revenue saw growth with ACV up 28% year-on-year.

• Q2 revenue expected between $1.01 billion and $1.11 billion, midpoint represents ~25% YOY growth. • Expect both royalties and licensing to be flat sequentially. • Q2 non-GAAP operating expense expected ~$655 million. • Non-GAAP EPS expected in range of $0.29 to $0.37. • High confidence in healthy growth in coming years due to customer design pipelines, contracted royalty rates, and rising demand for custom silicon and AI.

• Limited direct impact on royalty and licensing revenues from current tariff and macro climate, but continued uncertainty reduces near-term visibility on royalty revenue. • Indirect impact on end demand has less visibility.

Q: David O'Connor asked about Arm's strategy in ASICs and moving to full-end solutions.

A: Rene said further integration is the direction, CSS successful, looking at moving beyond current platform, with company having expertise to design chiplets.

Q: Vivek Arya asked about royalty growth delta and Q3/Q4 expectations.

A: Jason said royalties came close to forecast, maybe slower growth in smartphone sector, but overall royalties expected to be close to previous quarter.

Q: Joe Quatrochi asked about Neoverse share last year and workload mix.

A: Rene said last year share was sub-20%, now approaching nearly 50% due to general purpose workload gains and AI workloads moving to Arm.

Q: Mark Lipacis asked about FX impact on EPS and Neoverse share asymptote.

A: Jason said ~$0.01 per quarter FX impact expected, Rene said Arm's unique position allows share gains to continue beyond 50%.

Q: Andrew Gardiner asked about ACV drivers and CSS royalty rate magnitude.

A: Jason said ACV step-up from CSS deals and SoftBank licensing, CSS royalty rates higher than expected.

Q: Vijay Rakesh asked about SoftBank license deal and server side market share.

A: Rene said SoftBank's Stargate has potential, market share gains independent of specific product strategy.

Q: Steven (on behalf of Krish) asked about hyperscalers' CapEx implications.

A: Rene said increased CapEx is tailwind for Arm, CSS royalty growth to expand.

Q: Sebastien Naji asked about Arm China business and export controls.

A: Rene said China market tracks global, no change from export controls, Jason said China revenue in Q1 was 21%.

Q: Stephane Houri asked about Armv9 adoption.

A: Jason said royalties stepped up, Rene said royalty growth not directly tied to v9 penetration.

Q: Lee Simpson asked about Ethos, Zena CSS.

A: Rene said Ethos for low-power edge, Zena CSS for automotive L2-L4 ADAS, with strong pipeline for Zena deals.