Arm Holdings Plc_ Solid Dec-Qtr Results_In-Line Guide; Licensing _ Design Engagement Pipeline Continues To Expand On AI_Systems Solutions Focus. Thu Feb 06 2025

Summary of Arm Holdings Plc Conference Call Company Overview - Company: Arm Holdings Plc - Industry: Semiconductors & Semiconductor Capital Equipment / IT Hardware Key Financial Results - F3Q25 Results: - Revenues of $983 million, up 17% Q/Q and 19% Y/Y, exceeding consensus of $947 million driven by strong licensing and royalties [2][15] - Operating margin (OPM) of 45%, above consensus of 41.9% due to higher revenues and gross margins [15] - EPS of $0.39, surpassing consensus of $0.34 [15] - F4Q25 Outlook: - Expected revenues of $1.225 billion, up 25% Q/Q and 32% Y/Y, in line with consensus [15] - EPS guidance of $0.52, consistent with consensus of $0.53 [15] Licensing and Royalties - Licensing Growth: - Increased activity in high-value licensing due to the rise of AI workloads, leading to higher compute capability demands [2][15] - CSS (Compute Sub-System) solutions are expected to contribute mid- to high-single-digit percentage of royalty revenue by the end of the fiscal year [2][15] - Royalty Revenue: - ARMv9 products accounted for 25% of royalty revenues in the Dec-Qtr, with expectations to reach 60-70% over the next 2-3 years [2][15] - Royalty revenue mix increased 2x Y/Y in dollars [2][15] Market Position and Growth Potential - Market Penetration: - Arm is positioned to achieve a revenue CAGR of over 20% and EPS CAGR of over 40% in the coming years, driven by higher IP content and market share gains against legacy architectures [2][15] - Strong growth anticipated in AI, automotive, and datacenter segments [2][15] Financial Estimates and Valuation - Revised Estimates: - Adjusted FY26 estimates to reflect stronger adoption of CSS solutions, increasing price target to $175 from $160 [2][15] - Assumes a P/E multiple of ~62x on estimated EPS of ~$2.80 exiting FY26, which is a 55% premium to average EDA peers [2][10][15] Key Metrics - Financial Estimates: - FY24 Revenue: $3,233 million - FY25 Revenue: $3,991 million - FY26 Revenue: $5,157 million - FY25 Adjusted EPS: $1.61, FY26 Adjusted EPS: $2.26 [8][9] - Performance Drivers: - Arm's revenue growth is expected to be 20.7% Y/Y in FY24, 23.4% in FY25, and 29.2% in FY26 [8][9] Other Important Insights - China Market: - Increased sales in China, contributing 25% of total sales, driven by strong Android smartphone shipments [2][15] - Cash Flow: - Generated $423 million in cash flow from operations and $349 million in free cash flow during F3Q25 [17] - Backlog and Bookings: - Bookings normalized with a decline of 32% Q/Q, and backlog decreased by 3% Q/Q [15] This summary encapsulates the key points from the conference call, highlighting Arm Holdings' strong financial performance, growth potential, and strategic positioning in the semiconductor industry.