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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of February, 2024

Commission File Number 001-41800

Arm Holdings plc

110 Fulbourn Road
Cambridge CB1 9NJ
United Kingdom
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☒    Form 40-F ☐

Quarterly report for the three and nine months ended December 31, 2023.


INCORPORATION BY REFERENCE

This report on Form 6-K shall be deemed to be incorporated by reference into the registration statements on Form S-8 (File No. 333-274544) of Arm Holdings plc (including the prospectus forming a part of each such registration statement) and to be a part thereof from the date of this Form 6-K to the extent not superseded by documents or reports subsequently filed or furnished.


Background and Certain Defined Terms
In this report, unless otherwise specified, Arm Holdings plc and its wholly owned subsidiaries are referred to as “the Company”, “Arm”, “we,” “our” or “us”. “The Company” refers (1) to Arm Limited before the corporate reorganization and (2) to Arm Holdings plc after the corporate reorganization.




Table of Contents


Forward-Looking Statements
The following discussion and analysis of our financial condition, results of operations and notes to the unaudited condensed consolidated financial statements included herein contains forward-looking statements that reflect our plans, beliefs, expectations and current views with respect to, among other things, future events and financial performance. Our actual results could differ materially from the forward-looking statements included herein. Statements regarding our future and projections relating to revenue, cost of sales, expenses, costs, income (loss), and potential growth opportunities are typical of such statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in “Risk Factors” in our final prospectus (the “IPO Prospectus”) filed on September 14, 2023 with the U.S. Securities and Exchange Commission (the “SEC”) pursuant to Rule 424(b)(4) under the Securities Act of 1933 (the “Securities Act”), as amended, relating to our Registration Statement on Form F-1.
The following contains forward-looking statements within the meaning of Section 27A of the Securities Act, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, relating to our operations, results of operations and other matters that are based on our current expectations, estimates, assumptions and projections. The forward-looking statements appear in a number of places in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. In some cases, you can identify forward-looking statements by the words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “is/are likely to,” “intend,” “plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “target,” “continue” and “ongoing,” or the negative of these terms or other comparable terminology intended to identify statements about the future. The forward-looking statements and opinions are based upon current expectations and, while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. We undertake no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof and disclaim any obligation to do so except as required by applicable laws.
3

Arm Holdings plc
Condensed Consolidated Income Statements
(in millions, except share and per share amounts)
(Unaudited)

Three Months Ended December 31,Nine Months Ended December 31,
2023202220232022
Revenue:
Revenue from external customers$576 $533 $1,755 $1,526 
Revenue from related parties248 191 550 520 
Total revenue824 724 2,305 2,046 
Cost of sales(36)(29)(113)(79)
Gross profit 788 695 2,192 1,967 
Operating expenses:
Research and development(432)(286)(1,395)(752)
Selling, general and administrative(216)(163)(702)(488)
Disposal, restructuring and other operating expenses, net(6)(2)(6)(6)
Total operating expense(654)(451)(2,103)(1,246)
Operating income (loss)134 244 89 721 
Income (loss) from equity investments, net(1)(6)(13)(80)
Interest income, net28 13 80 21 
Other non-operating income (loss), net(15)(23)(2)4 
Income (loss) before income taxes 146 228 154 666 
Income tax benefit (expense) (59)(46)(72)(145)
Net income (loss)$87 $182 $82 $521 
Net income (loss) per share attributable to ordinary shareholders
Basic $0.08 $0.18 $0.08 $0.51 
Diluted$0.08 $0.18 $0.08 $0.51 
Weighted average ordinary shares outstanding
Basic1,026,894,2661,025,234,0001,025,815,8121,025,234,000
Diluted1,048,888,4891,027,918,9371,040,163,4541,026,956,431
See accompanying notes to the condensed consolidated financial statements.
4

Arm Holdings plc
Condensed Consolidated Statements of Comprehensive Income
(in millions)
(Unaudited)

Three Months Ended December 31,Nine Months Ended December 31,
2023202220232022
Net income (loss)$87 $182 $82 $521 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments23 37 13 (34)
Net change of the effective portion of designated cash flow hedges13 25 (1)4 
Total comprehensive income (loss) $123 $244 $94 $491 
    
See accompanying notes to the condensed consolidated financial statements.
5

Arm Holdings plc
Condensed Consolidated Balance Sheets
(in millions, except par value and share amounts)
(Unaudited)

As of
December 31,
2023
March 31,
2023
Assets:
Current assets:
Cash and cash equivalents$1,551 $1,554 
Short-term investments850 661 
Accounts receivable, net (including receivables from related parties of $217 and $402 as of December 31, 2023 and March 31, 2023, respectively)
799 999 
Contract assets (including contract assets from related parties of $16 and $9 as of December 31, 2023 and March 31, 2023, respectively)
280 154 
Prepaid expenses and other current assets148 169 
Total current assets3,628 3,537 
Non-current assets:
Property and equipment, net221 185 
Operating lease right of use assets204 206 
Equity investments (including investments held at fair value of $576 and $592 as of December 31, 2023 and March 31, 2023, respectively)
748 723 
Goodwill1,628 1,620 
Intangible assets, net163 138 
Deferred tax assets140 139 
Non-current portion of contract assets
143 116 
Other non-current assets240 202 
Total non-current assets3,487 3,329 
Total assets$7,115 $6,866 
Liabilities:
Current liabilities:
Accrued compensation and benefits and share-based compensation$211 $589 
Tax liabilities127 162 
Contract liabilities (including contract liabilities from related parties of $100 and $135 as of December 31, 2023 and March 31, 2023, respectively)
223 293 
Operating lease liabilities26 26 
Other current liabilities (including payables to related parties of $25 and $17 as of December 31, 2023 and March 31, 2023, respectively)
279 293 
Total current liabilities866 1,363 
Non-current liabilities:
Non-current portion of accrued compensation and share-based compensation18 152 
Deferred tax liabilities237 262 
Non-current portion of contract liabilities734 807 
Non-current portion of operating lease liabilities195 193 
Other non-current liabilities61 38 
Total non-current liabilities1,245 1,452 
Total liabilities2,111 2,815 
Commitments and contingencies (Note 12)




6

Arm Holdings plc
Condensed Consolidated Balance Sheets
(in millions, except par value and share amounts)
(Unaudited)


As of
December 31,
2023
March 31,
2023
Shareholders’ equity:
Ordinary shares, $0.001 par value; 1,088,334,144 shares authorized and 1,028,075,347 shares issued and outstanding as of December 31, 2023; and 1,025,234,000 shares authorized, issued and outstanding as of March 31, 2023
2 2 
Additional paid-in capital2,087 1,216 
Accumulated other comprehensive income388 376 
Retained earnings2,527 2,457 
Total shareholders’ equity5,004 4,051 
Total liabilities and shareholders’ equity$7,115 $6,866 
See accompanying notes to the condensed consolidated financial statements.
7

Arm Holdings plc
Condensed Consolidated Statements of Shareholders’ Equity
(in millions, except share amounts)
(Unaudited)


Three Months Ended December 31, 2023
Ordinary Shares
Number of
Shares
AmountAdditional Paid-
in Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Total
Shareholders’
Equity
Balance as of September 30, 20231,025,234,000$2 $1,979 $352 $2,440 $4,773 
Net income (loss)— — — 87 87 
Net change in fair value of the effective portion of designated cash flow hedges, net of tax— — 13 — 13 
Foreign currency translation adjustments, net of tax— — 23 — 23 
Share-based compensation cost— 196 — — 196 
Issuance of vested shares from share-based payment arrangements4,811,099— — — — — 
Tax withholding on vested shares from share-based payment arrangements(1,969,752)— (88)— — (88)
Balance as of December 31, 20231,028,075,347$2 $2,087 $388 $2,527 $5,004 

Three Months Ended December 31, 2022
Ordinary Shares
Number of
Shares
AmountAdditional Paid-
in Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Total
Shareholders’
Equity
Balance as of September 30, 20221,025,234,000$2 $1,271 $307 $2,272 $3,852 
Net income (loss)— — — 182 182 
Net change in fair value of the effective portion of designated cash flow hedges, net of tax— — 25 — 25 
Foreign currency translation adjustments, net of tax— — 37 — 37 
Share-based compensation cost (1)
— (57)— — (57)
Balance as of December 31, 20221,025,234,000$2 $1,214 $369 $2,454 $4,039 
(1)    A $57 million share-based compensation credit was recognized in the three months ended December 31, 2022 for RSU awards previously equity-classified.









8

Arm Holdings plc
Condensed Consolidated Statements of Shareholders’ Equity
(in millions, except share amounts)
(Unaudited)



Nine Months Ended December 31, 2023
Ordinary Shares
Number of
Shares
AmountAdditional Paid-
in Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Total
Shareholders’
Equity
Balance as of March 31, 20231,025,234,000$2 $1,216 $376 $2,457 $4,051 
Net income (loss)— — — 82 82 
Net change in fair value of the effective portion of designated cash flow hedges, net of tax— — (1)— (1)
Foreign currency translation adjustments, net of tax— — 13 — 13 
Share-based compensation cost— 639 — — 639 
Issuance of vested shares from share-based payment arrangements4,811,099— — — — — 
Tax withholding on vested shares from share-based payment arrangements(1,969,752)— (111)— — (111)
Reclassification of RSU awards previously liability-classified (1)
— 343 — — 343 
Distribution to majority ordinary shareholder related to Pelion IOT Limited— — — (12)(12)
Balance as of December 31, 20231,028,075,347$2 $2,087 $388 $2,527 $5,004 
(1)    Includes approximately $212 million of share-based compensation cost recognized in the nine months ended December 31, 2023 for RSU awards previously liability-classified.


Nine Months Ended December 31, 2022
Ordinary Shares
Number of
Shares
AmountAdditional Paid-
in Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Total
Shareholders’
Equity
Balance as of March 31, 20221,025,234,000$2 $1,214 $399 $1,933 $3,548 
Net income (loss)— — — 521 521 
Net change in fair value of the effective portion of designated cash flow hedges, net of tax— — 4 — 4 
Foreign currency translation adjustments, net of tax— — (34)— (34)
Share-based compensation cost—  — —  
Balance as of December 31, 20221,025,234,000$2 $1,214 $369 $2,454 $4,039 
See accompanying notes to the condensed consolidated financial statements.
9

Arm Holdings plc
Condensed Consolidated Statements of Cash Flows
(in millions)
(Unaudited)

Nine Months Ended December 31,
20232022
Cash flows provided by (used for) operating activities:
Net income (loss)
$82 $521 
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation and amortization
124 130 
Deferred income taxes
(26)(26)
Income (loss) from equity investments, net
13 80 
Share-based compensation cost
852 85 
Operating lease expense
26 26 
Other non-cash operating activities, net
(2)(6)
Changes in assets and liabilities:
Accounts receivable, net (including receivables from related parties)
200 (152)
Contract assets, net (including contract assets from related parties)
(154)7 
Prepaid expenses and other assets
(19)29 
Accrued compensation and benefits and share-based compensation
(383)(398)
Contract liabilities (including contract liabilities from related parties)
(148)(10)
Tax liabilities
(46)87 
Operating lease liabilities
(18)(53)
Other liabilities (including payables to related parties)
(78)(64)
Net cash provided by (used for) operating activities
$423 $256 
Cash flows provided by (used for) investing activities
Purchase of short-term investments(540)(985)
Proceeds from maturity of short-term investments351 945 
Purchases of equity investments
(32)(4)
Purchases of intangible assets
(43)(25)
Purchases of property and equipment
(81)(48)
Other investing activities, net, including investments in convertible loans
(1) 
Net cash provided by (used for) investing activities
$(346)$(117)
Cash flows provided by (used for) financing activities
Payment of intangible asset obligations(29)(31)
Other financing activities, net
(10)(1)
Payment of withholding tax on vested shares(48) 
Net cash provided by (used for) financing activities
$(87)$(32)
Effect of foreign exchange rate changes on cash and cash equivalents
7 (10)
Net increase (decrease) in cash and cash equivalents
(3)97 
Cash and cash equivalents at the beginning of the period
1,554 1,004 
Cash and cash equivalents at the end of the period
$1,551 $1,101 





10

Arm Holdings plc
Condensed Consolidated Statements of Cash Flows
(in millions)
(Unaudited)



Nine Months Ended December 31,
20232022
Non-cash operating, investing and financing activities:
Non-cash additions in property and equipment $18 $1 
Non-cash additions in intangible assets$47 $ 
Non-cash additions in operating lease right of use assets$18 $6 
Non-cash additions of operating lease liabilities $18 $6 
Non-cash additions to equity investments from conversion of certain receivables$9 $ 
Non-cash distributions to shareholders$12 $ 
Non-cash withholding tax on vested shares$63 $ 
Non-cash reclassification of share-based compensation costs$343 $ 

See accompanying notes to the condensed consolidated financial statements.
11

Arm Holdings plc
Notes to Condensed Consolidated Financial Statements
(unaudited)

1 - Description of Business and Summary of Significant Accounting Policies
Description of Business
Arm Holdings plc and its wholly owned subsidiaries (the “Company” and also referred to as “we,” “our” or “us”) is a global leader in the semiconductor industry. The Company’s principal operations are the licensing, marketing, research and development of microprocessors, systems intellectual property (“IP”), graphics processing units, physical IP and associated systems IP, software, tools and other related services.
Corporate Reorganization
In September 2023, the Company completed a board approved corporate reorganization which involved (1) the shareholders of Arm Limited exchanging each of the ordinary shares held by them in Arm Limited for newly issued ordinary shares of Arm Holdings Limited; and (2) the re-registration of Arm Holdings Limited as a public limited company under the laws of England and Wales at which time its name was changed to Arm Holdings plc. This corporate reorganization was solely for the purpose of reorganizing the Company’s corporate structure, in which Arm Limited became a wholly owned subsidiary of the holding company, Arm Holdings plc. This transfer of equity resulted in the issuance of ordinary shares of Arm Holdings plc to shareholders in the same class and the same number of ordinary shares as their previous shareholding in Arm Limited. As a result of the corporate reorganization between entities under common control, the historical consolidated financial statements of the Company were retrospectively adjusted for the change in reporting entity. Therefore, the historical consolidated financial statements of Arm Limited became the historical consolidated financial statements of Arm Holdings plc as of the date of the corporate reorganization.
Initial Public Offering
The registration statement on Form F-1 relating to the Company’s initial public offering (“IPO”) was declared effective on September 13, 2023 and the Company’s American depository shares (“ADSs”), each representing one ordinary share of the Company, began trading on the Nasdaq Global Select Market under the ticker symbol “ARM” on September 14, 2023. On September 18, 2023, the Company completed the closing of its IPO. The Company’s controlling shareholder sold an aggregate of 102,500,000 ADSs in the IPO at a price of $51 per ADS, including the underwriters’ full exercise of their option to purchase up to an additional 7,000,000 ADSs to cover over-allotments. The Company did not receive any proceeds from the sale of the ADSs in the IPO.

Upon completion of the IPO, the Company recognized incremental and accelerated share-based compensation expense for which service-based vesting conditions were satisfied or partially satisfied as of September 13, 2023. See Note 9 - Share-based Compensation for further details.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the U.S. (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial information. Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in the accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto as of and for the fiscal year ended March 31, 2023, in the IPO Prospectus.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of only normal recurring adjustments, which are necessary for the fair statement of the unaudited condensed consolidated balance sheets, income statements, statements of comprehensive income, shareholders’ equity and cash flows for these interim periods. The results for the interim periods are not necessarily indicative of results for the full fiscal year.
12

Arm Holdings plc
Notes to Condensed Consolidated Financial Statements
(unaudited)
Principles of Consolidation
The accompanying financial statements include the accounts of the Company, its wholly owned subsidiaries and the Arm Employee Benefit Trust (the “EBT”). All intercompany balances and transactions have been eliminated in consolidation.
The financial statements consolidate all of the Company’s affiliates, and the entities where the Company holds a controlling financial interest, because the Company holds a majority voting interest. The Company reevaluates whether there is a controlling financial interest in all entities when rights and interests change.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant items subject to such estimates include, but are not limited to, revenue recognition, allowance for expected credit losses, income taxes, share-based compensation, impairment considerations for long-lived assets, fair value estimates and impairment for investments. The Company evaluates these estimates on an ongoing basis and revises estimates as circumstances change. The Company bases its estimates on historical experience, anticipated results, trends, and other various assumptions that it believes are reasonable. Actual results could differ materially from the Company’s estimates.
Derivative Financial Instruments and Hedge Activities
The Company uses derivative financial instruments, specifically foreign currency forward contracts, to mitigate exposure from certain foreign currency risk. Certain forecasted transactions, specifically British Pound Sterling (“GBP”) denominated cash flows in the form of payroll and selling, general and administrative expenses are exposed to foreign currency risk. The Company monitors foreign currency exposures on a monthly basis to maximize the economic effectiveness of foreign currency hedge positions.
No derivatives were designated hedges prior to July 2022. All derivatives are recorded at fair value as either an asset or liability. For derivatives not designated as hedges, adjustments to reflect changes in the fair value of the derivatives are included in earnings in other non-operating income (loss), net on the Condensed Consolidated Income Statements.
In July 2022, all foreign currency forward contracts were designated as cash flow hedges in designated hedging relationships with the forecasted foreign denominated cash flows as the hedged transactions. The maximum length of time over which the Company is hedging its exposure to the variability in future foreign denominated cash flows is one year. For cash flow hedges that qualify and are designated for hedge accounting, the change in fair value of the derivative is recorded in the net change in fair value of the effective portion of designated cash flow hedges on the Condensed Consolidated Statements of Comprehensive Income, and subsequently recognized in research and development and selling, general and administrative expenses on the Condensed Consolidated Income Statements when the hedged transaction affects earnings.
The Company classifies all derivative assets and liabilities for designated and non-designated derivatives in prepaid expenses and other current assets and other current liabilities on the Condensed Consolidated Balance Sheets. The Company classifies cash flows from the settlement of effective cash flow hedges for designated and non-designated derivatives in the same category as the cash flows from the related hedged items in operating activities on the Condensed Consolidated Statements of Cash Flows. The foreign currency forward contracts are classified under Level 2 of the fair value hierarchy. See Note 7 - Fair Value.
13

Arm Holdings plc
Notes to Condensed Consolidated Financial Statements
(unaudited)
Recent Accounting Pronouncements
Recently issued accounting pronouncements not yet adopted
Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures: In November 2023, FASB issued ASU 2023-07 which requires incremental reportable segment disclosures. The new standard requires that a public entity disclose significant segment expenses, the title and position of the CODM, and how the CODM uses the reported measures in assessing performance and deciding how to allocate resources. ASU 2023-07 is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements. This ASU will result in additional required disclosures being included in our consolidated financial statements when adopted. The Company will adopt this standard beginning April 1, 2024.
Income Taxes (Topic 740), Improvements to Income Tax Disclosures: In December 2023, the FASB issued ASU No. 2023-09, which requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. This ASU will likely result in additional required disclosures being included in our consolidated financial statements when adopted. We are currently evaluating the provisions of this ASU.
14

Arm Holdings plc
Notes to Condensed Consolidated Financial Statements
(unaudited)


2 - Balance Sheet Components

Certain balance sheet components are as follows:

Accrued compensation and benefits and share-based compensation consist of:

(in millions)As of December 31, 2023As of March 31, 2023
Accrued bonus, commissions, and cash awards$125 $257 
Accrued vacation and sabbatical70 66 
Accrued salaries and fringe benefits7 11 
Share-based payment liabilities (1)
9 255 
Total accrued compensation and benefits and share-based compensation$211 $589 
(1)     In connection with the IPO, the Company paid $244.0 million arising from the normal vesting of liability-classified share-based awards under the 2022 RSU Plan. After completion of the IPO, awards within this plan all are equity-classified. See Note 9 - Share-based Compensation in the Notes to the Condensed Consolidated Financial Statements.


Other current liabilities consist of:

(in millions)As of December 31, 2023As of March 31, 2023
Employee related payroll taxes and payables$108 $48 
Accrued expenses and fees84 119 
Electronic design automation liabilities44 35 
Trade payables31 82 
Customer deposits7 7 
Finance lease liabilities5 2 
Total other current liabilities$279 $293 
15

Arm Holdings plc
Notes to Condensed Consolidated Financial Statements
(unaudited)

3 - Revenue
Revenue Recognition
Revenue for the Company’s major product offerings consists of the following:
License and Other Revenue
Intellectual property license — The Company generally licenses IP under non-exclusive license agreements that provide usage rights for specific applications for a finite or perpetual term. These licenses are made available electronically to address the customer-specific business requirements. These arrangements generally have distinct performance obligations that consist of transferring the licensed IPs, version extensions of architecture IP or releases of IPs, and support services. Support services consist of a stand-ready obligation to provide technical support, patches, and bug fixes over the support term. Revenue allocated to the IP license is recognized at a point in time upon the delivery or beginning of license term, whichever is later. Revenue allocated to distinct version extensions of architecture IP or releases of IP, excluding when-and-if-available minor updates over support term, are recognized at a point in time upon the delivery or beginning of license term, whichever is later.
Certain license agreements provide customers with the right to access a library of current and future IPs on an unlimited basis over the contractual period depending on the terms of the applicable contract. These licensing arrangements represent stand-ready obligations in that the delivery of the underlying IPs is within the control of the customer and the extent of use in any given period does not diminish the remaining performance obligations. The contract consideration related to these arrangements is recognized ratably over the term of the contract in line with when the control of the performance obligations is transferred.
Software sales, including development systems — Sales of software, including development systems, which are not specifically designed for a given license (such as off-the-shelf software), are recognized upon delivery when control has been transferred and customer can begin to use and benefit from the license.
Professional services — Services (such as training and professional and design services) that the Company provides, which are not essential to the functionality of the IP, are separately stated and priced in the contract and accounted for separately. Training revenue is recognized as services are performed. Revenue from professional and design services are recognized over time using the input method based on engineering labor hours expended to date relative to the estimated total effort required. For such professional and design services, the Company has an enforceable right to payment for performance completed to date, which includes a reasonable profit margin and the performance of such services do not create an asset with an alternative use.
Support and maintenance — Support and maintenance is a stand-ready obligation to the customer that is both provided and consumed simultaneously. Revenue is recognized on a straight-line basis over the period for which support and maintenance is contractually agreed pursuant to the license.
Royalty Revenue
For certain IP license agreements, royalties are collected on products that incorporate the Company’s IP. Royalties are recognized on an accrual basis in the quarter in which the customer ships their products, based on the Company’s technology that it contains. This estimation process for the royalty revenue accrual is based off of customer sales which occur using estimates from sales trends and judgment for several key attributes, including industry estimates of expected shipments, the mix of products sold, the percentage of markets using our products, and average selling price. Adjustments to revenue are required in subsequent periods to reflect changes in estimates as new information becomes available, primarily resulting from actual amounts subsequently reported by the licensees.

16

Arm Holdings plc
Notes to Condensed Consolidated Financial Statements
(unaudited)
Disaggregation of Revenue
A summary of the Company’s disaggregated revenue is as follows:
Three Months Ended December 31,
External CustomersRelated PartiesTotal
(in millions)202320222023202220232022
License and Other Revenue (1)
$211 $159 $143 $140 $354 $299 
Royalty Revenue365 374 105 51 470 425 
$576 $533 $248 $191 $824 $724 
(1)    Includes over-time revenue of $37 million and $29 million and point-in-time revenue of $317 million and $270 million for the three months ended December 31, 2023 and 2022, respectively.
Nine Months Ended December 31,
External CustomersRelated PartiesTotal
(in millions)202320222023202220232022
License and Other Revenue (1)
$685 $401 $332 $344 $1,017 $745 
Royalty Revenue1,070 1,125 218 176 1,288 1,301 
$1,755 $1,526 $550 $520 $2,305 $2,046 
(1)    Includes over-time revenue of $84 million and $77 million and point-in-time revenue of $933 million and $668 million for the nine months ended December 31, 2023 and 2022, respectively.
Revenue by geographic region is allocated to individual countries based on the principal headquarters of the customers. The geographical locations are not necessarily indicative of the country in which the customer sells products containing the Company’s technology IP. The following table summarizes information pertaining to revenue from customers based on the principal headquarters address by geographic regions:
Three Months Ended December 31,Nine Months Ended December 31,
(in millions)2023202220232022
United States$387 $296 $1,010 $804 
PRC (1)
206 191 525 521 
Taiwan100 86 381 283 
Republic of Korea50 71 157 185 
Other countries81 80 232 253 
Total$824 $724 $2,305 $2,046 
(1)    “PRC” means the People’s Republic of China, including the Hong Kong Special Administrative Region and the Macau Special Administrative Region, but excluding Taiwan.
For the three months ended December 31, 2023 and 2022, the Company had one customer that represented 25% and 26% of total revenue, respectively. No other customer represented 10% or more of total revenue for the three months ended December 31, 2023 and 2022.
17

Arm Holdings plc
Notes to Condensed Consolidated Financial Statements
(unaudited)
For the nine months ended December 31, 2023, the Company had two customers that collectively represented 34% of total revenue, with the single largest customer accounting for 22% of total revenue and the second largest customer accounting for 12% of total revenue. For the nine months ended December 31, 2022, the Company had two customers that collectively represented 36% of total revenue, with the single largest customer accounting for 25% of total revenue and the second largest customer accounting for 11% of total revenue. No other customer represented 10% or more of total revenue for the nine months ended December 31, 2023 and 2022.
Receivables
A summary of the components of accounts receivable, net is as follows:
(in millions)As of December 31, 2023As of March 31, 2023
Trade receivables$417 $625 
Royalty receivables385 377 
Total gross receivables802 1,002 
Allowance for current expected credit losses(3)(3)
Total accounts receivables, net$799 $999 

As of December 31, 2023, the customer with the largest total receivables balance represented 27% of total receivables, the customer with the second largest total receivables balance represented 13% of total receivables, and the customer with the third largest total receivables balance represented 10% of total receivables. As of March 31, 2023, the customer with the largest total receivables balance represented 40% of total receivables. No other customer represented 10% or more of receivables as of December 31, 2023 or March 31, 2023.
Contract Assets
The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets are created when invoicing occurs subsequent to revenue recognition. Contract assets are transferred to accounts receivable when the right to invoice becomes unconditional. Contract assets increased by $425.0 million and $254.1 million due to the timing of billings to customers, which fell into subsequent periods, as of December 31, 2023 and March 31, 2023, respectively, offset by $271.8 million and $250.7 million of contract assets transferred to accounts receivable, as of December 31, 2023 and March 31, 2023, respectively. The balance and activity for loss allowances related to contract assets was immaterial for all periods presented.
18

Arm Holdings plc
Notes to Condensed Consolidated Financial Statements
(unaudited)
Contract Liabilities
A reconciliation of the movement in contract liabilities is as follows:
(in millions)Total
Current Contract Liabilities$293 
Non-Current Contract Liabilities807 
Balance as of March 31, 2023
$1,100 
Customer prepayment and billing in advance of performance169 
Revenue recognized in the period that was included in the contract liability balance at the beginning of the period(213)
Revenue recognized in the period that was included in the contract liability balance during the period(99)
Balance as of December 31, 2023
$957 
Current portion of contract liabilities$223 
Non-current portion of contract liabilities $734 
Satisfied Performance Obligations
For the three months ended December 31, 2023 and 2022, revenue recognized from previously satisfied performance obligations in prior reporting periods was $529.3 million and $434.0 million, respectively. For the nine months ended December 31, 2023 and 2022, revenue recognized from previously satisfied performance obligations in prior reporting periods was $1,349.9 million and $1,329.0 million, respectively. These amounts primarily represent royalties earned during the period.
Remaining Performance Obligations
Remaining performance obligations represent the transaction price allocated to performance obligations that are unsatisfied, or partially unsatisfied, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods.
The Company has elected to exclude potential future royalty receipts from the disclosure of remaining performance obligations. In certain arrangements, the Company’s right to consideration may not correspond directly with the performance of obligations. Revenue recognition occurs upon delivery or beginning of license term, whichever is later. Accordingly, the analysis between time bands below has been estimated, but the final timing may differ from these estimates. In the absence of sufficient information, where the timing of satisfaction of the remaining performance obligations is dependent on a customer’s action, the transaction price allocated to such performance obligation is included in the outer-year time band unless contract or option expiration aligns with an earlier period or category.
As of December 31, 2023, the aggregate transaction price allocated to remaining performance obligations was $2,433.0 million, which includes $1.2 million of non-cancellable and non-refundable committed funds received from certain customers, where the parties are in negotiations regarding the enforceable rights and obligations of the arrangement.
The Company expects to recognize approximately 28% of remaining performance obligations as revenue over the next 12 months, 26% over the subsequent 13-to 24-month period, and the remainder thereafter.
19

Arm Holdings plc
Notes to Condensed Consolidated Financial Statements
(unaudited)
4 - Equity Investments
A summary of the components of equity investments is as follows:
(in millions)As of December 31, 2023As of March 31, 2023
Equity method investments under fair value option $576 $592 
Equity method investments under equity method10 9 
Non-marketable equity securities162 122 
Total equity investments$748 $723 
Income (loss) from equity investments, net is as follows:
Three Months Ended December 31,Nine Months Ended December 31,
(in millions)2023202220232022
Equity method investments (1)
$(1)$(2)$(15)$(82)
Non-marketable equity securities (includes NAV) (4)2 2 
Total loss from equity investments, net$(1)$(6)$(13)$(80)
(1)Includes equity method investments where the Company elected the fair value option, including those under the net asset value (“NAV”) practical expedient, along with investments accounted for under the equity method.
The Company elected the fair value option to account for certain equity method investments in Acetone Limited and Ampere Computing Holdings LLC (“Ampere”). See discussion below, along with Note 7 - Fair Value, for further information.
For the three and nine months ended December 31, 2023 and 2022, income (loss) from equity method investments not accounted under the fair value option or the NAV practical expedient was immaterial.
The Company holds equity method investments in funds accounted for under the fair value option that apply the NAV practical expedient. The estimated fair values of the Company’s equity securities at fair value that qualify for the NAV practical expedient were provided by the funds based on the indicated market values of the underlying assets or investment portfolios. As of December 31, 2023 and March 31, 2023, the carrying value of equity method investments under the fair value option measured at NAV was $109.3 million and $109.4 million, respectively.
For the three months ended December 31, 2023 and 2022, the Company recognized losses from changes in fair value of $1.1 million and $0.4 million for equity method investments accounted for under the NAV practical expedient. For the nine months ended December 31, 2023, the Company recognized gains from changes in fair value of $0.6 million for equity method investments accounted for under the NAV practical expedient. For the nine months ended December 31, 2022, the Company recognized losses from changes in fair value of $0.6 million for equity method investments accounted for under the NAV practical expedient. Changes in fair value are recorded through income (loss) from equity investments, net on the Condensed Consolidated Income Statements.
Acetone Limited
As of December 31, 2023 and March 31, 2023, the carrying value of the Company’s equity method investment in Acetone Limited was $76.8 million and $92.4 million, respectively. For the three months ended December 31, 2023, the Company did not have any fair value adjustment in connection with the equity method investment in Acetone Limited. For the three months ended December 31, 2022, the Company recognized fair value gain of $7.2 million in connection with the equity method investment in Acetone Limited. For the nine months ended December 31, 2023 and 2022, the Company recognized fair value losses of $15.6 million and $28.0 million, respectively, in income (loss) from equity investments, net on the Condensed Consolidated Income Statements.
20

Arm Holdings plc
Notes to Condensed Consolidated Financial Statements
(unaudited)
Ampere
As of December 31, 2023 and March 31, 2023, the carrying value of the Company’s equity method investment in Ampere was $389.8 million. For the three and nine months ended December 31, 2023, the Company did not recognize any changes in fair value in Ampere. For the three and nine months ended December 31, 2022, the Company recognized fair value losses of $8.9 million and $53.0 million, respectively, in loss from equity investments, net on the Condensed Consolidated Income Statements.
As of December 31, 2023 and March 31, 2023, the outstanding balance of the convertible promissory note with Ampere was $32.0 million and $30.9 million, respectively in other non-current assets on the Condensed Consolidated Balance Sheets. The Company’s maximum exposure to loss is the amounts invested in, and advanced to, Ampere as of December 31, 2023.
Non-marketable Equity Securities
Non-marketable securities are those for which the Company does not have significant influence or control. These represent either direct or indirect, through a capital fund, investments in unlisted early-stage development enterprises which are generating value for shareholders through research and development activities. The Company holds equity interests in certain funds which are accounted for under the NAV practical expedient. As of December 31, 2023 and March 31, 2023, the carrying value of assets measured at NAV was $19.4 million and $18.0 million, respectively.
For the three months ended December 31, 2023 and 2022, the Company recognized losses from changes in fair value of $0.1 million and $3.8 million, respectively, for non-marketable securities accounted for under the NAV practical expedient. For the nine months ended December 31, 2023 and 2022, the Company recognized gains of $2.2 million and losses of $10.8 million, respectively, from changes in fair value for non-marketable securities accounted for under the NAV practical expedient.
In June 2023, the Company entered into a subscription letter with a subsidiary of SoftBank Vision Fund L.P (“SoftBank Vision Fund”) and Kigen (UK) Limited (“Kigen”), an entity of which SoftBank Vision Fund indirectly owned 85% of the share capital on a fully diluted basis with the remainder comprising management incentives. Pursuant to the subscription letter, the Company and this subsidiary of SoftBank Vision Fund each invested $10.0 million paid in cash in exchange for preference shares of Kigen. The preference shares are convertible into common shares of Kigen and are entitled to full dividends, distribution and voting rights. The Company does not have significant influence or control over Kigen and elected to apply the measurement alternative for this investment.
The Company elected to apply the measurement alternative to all other non-marketable equity securities. Under the measurement alternative, these equity securities are recorded at cost minus impairment, if any, plus or minus changes resulting from qualifying observable price changes in orderly transactions.
The components of gains and (losses) which primarily include unrealized gains and losses on non-marketable securities inclusive of those measured under the NAV practical expedient are as follows:
Three Months Ended December 31,Nine Months Ended December 31,
(in millions)2023202220232022
Observable price adjustments on non-marketable equity securities (includes NAV)$ $(4)$2 $3 
Impairment of non-marketable equity securities    (1)
Sale of non-marketable equity securities    
Total income (loss) from equity investments in non-marketable securities, net $ $(4)$2 $2 
21

Arm Holdings plc
Notes to Condensed Consolidated Financial Statements
(unaudited)
For the three months ended December 31, 2023, the Company recognized $2.2 million in dividends from equity investments measured using the NAV practical expedient. For the three months ended December 31, 2022, the Company did not receive dividends from equity investments measured using the NAV practical expedient. For the nine months ended December 31, 2023 and 2022, dividends recognized from equity investments measured using the NAV practical expedient were $4.3 million and $0.3 million, respectively. The total amount of financial commitments to existing investees of the Company not provided for in the condensed consolidated financial statements was $20.3 million and $22.1 million as of December 31, 2023 and March 31, 2023, respectively.
5 - Financial Instruments
Loans and Other Receivables
Loans and other receivables carried at amortized cost is as follows:
(in millions)As of December 31, 2023As of March 31, 2023
Loans and other receivables carried at amortized cost
Loans receivable$26 $25 
Other receivables7 18
Allowance for current expected credit losses(19)(22)
Loans and other receivables carried at amortized cost, net$14 $21 
The allowance for current expected credit losses reflects the Company’s best estimate of expected credit losses of the receivables portfolio determined on the basis of historical experience, current information, and forecasts of future economic conditions.
Loans receivable
For the fiscal year ended March 31, 2021, a loan receivable from Arduino SA (“Arduino”) was impaired in full as the balance was not expected to be recovered. In September 2023 and June 2022, the Company reduced the allowance for expected credit losses given the change in collectability with a corresponding reversal of expense for the portion of the loan receivable that was repaid in exchange for Series B preferred stock in Arduino. As of December 31, 2023, the loan receivable of $16.0 million from Arduino remained fully impaired.
The remaining balance of loans receivables as of December 31, 2023 comprised two five-year loans totaling $7.0 million issued to Allia Limited and a four-year loan of $3.1 million issued to Cerfe Labs, Inc that remained fully impaired. The remaining balance of loans receivables as of March 31, 2023 comprised a five-year loan of $3.1 million issued to Allia Limited and a four-year loan of $3.0 million issued to Cerfe Labs, Inc that was fully impaired in the fiscal year ended March 31, 2023.
Other receivables
As of March 31, 2023, balances included in other receivables comprised mainly of the $12.0 million receivable from the Company’s majority shareholder recorded in prepaid and other current assets on the Condensed Consolidated Balance Sheets related to the Company’s November 2021 sale of Pelion IOT Limited and its subsidiaries (“IoTP”). In August 2023, the Company distributed its receivable related to the Company’s sale of IoTP to the majority shareholder of the Company, which represented a non-cash distribution of $12.0 million. The remaining balance as of December 31, 2023 and March 31, 2023, pertains to lease deposits and other receivables.
Convertible Loans Receivable
In December 2021, the Company acquired a $29.0 million principal balance convertible loan in Ampere. The Company elected the fair value option to measure this convertible loan receivable for which changes in fair value are recorded in other non-operating income (loss), net on the Condensed Consolidated Income Statements. For the three and nine months ended December 31, 2023 and 2022, there were no material gains recognized.
22

Arm Holdings plc
Notes to Condensed Consolidated Financial Statements
(unaudited)
6 - Derivatives
The Company uses derivative financial instruments, specifically foreign currency forward contracts, to mitigate exposure from certain foreign currency risk. Certain forecasted transactions, specifically GBP denominated cash flows in the form of payroll and selling, general and administrative expenses are exposed to foreign currency risk.
As of December 31, 2023, the notional value of outstanding foreign currency forward contracts was £343.0 million and the fair value was $9.1 million. As of March 31, 2023, the notional value of outstanding foreign currency forward contracts was £340.0 million and the fair value was $9.3 million.
The following table presents the notional amounts of the Company’s outstanding derivative instruments:
(in millions)As of December 31, 2023As of March 31, 2023
Designated as cash flow hedges
Foreign currency forward contracts $428 $411 

The following table presents the fair value of the Company’s outstanding derivative instruments:
Derivative AssetsDerivative Liabilities
(in millions)As of December 31, 2023As of March 31, 2023As of December 31, 2023As of March 31, 2023
Designated as cash flow hedges
Foreign currency forward contracts $10 $10 $1 $1 
Cash Flow Hedge Gains (Losses)
The following table presents net gains (losses) on foreign currency forward contracts designated as cash flow hedges:
Three Months Ended December 31,Nine Months Ended December 31,
(in millions)2023202220232022
Condensed Consolidated Statements of Comprehensive Income:
Gains (losses) recognized in Accumulated other comprehensive income on cash flow hedge derivatives$17 $31 $15 $(1)
(Gains) losses reclassified from Accumulated other comprehensive income into income 2 (16)6 
Tax benefit (expense) on cash flow hedges(4)(8) (1)
Net change in fair value of the effective portion of designated cash flow hedges, net of tax (1)
$13 $25 $(1)$4 
Condensed Consolidated Income Statements, before tax:— 
Research and development$ $(1)$9 $(3)
Selling, general and administrative expenses$ $(1)$7 $(3)
(1)    All amounts reported in accumulated other comprehensive income at the reporting date are expected to be reclassified into earnings within the next 12 months.

23

Arm Holdings plc
Notes to Condensed Consolidated Financial Statements
(unaudited)
For the three and nine months ended December 31, 2023 and 2022, the Company’s cash flow hedges were highly effective with immaterial amounts of ineffectiveness recorded in the Condensed Consolidated Income Statements for these designated cash flow hedges and all components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.
Non-designated Hedging Instrument Gains (Losses)
The following table presents net gains (losses) on derivatives not designated as hedging instruments recorded in non-operating income (loss), net on the Condensed Consolidated Income Statements:
Three Months Ended December 31,Nine Months Ended December 31,
(in millions)2023202220232022
Foreign currency forward contracts$ $ $ $(30)
The Company classifies foreign currency forward contracts as Level 2 fair value measurements pursuant to the fair value hierarchy. See Note 7 - Fair Value, for further details.
7 - Fair Value
To provide an indication about the reliability of the inputs used in determining fair value, the Company classifies its fair value financial instruments into the three levels prescribed under GAAP. An explanation of each level follows the tables and qualitative disclosures below. There were no transfers between fair value measurement levels for any periods presented.
The following table presents the Company’s fair value hierarchy for the liability measured and recognized at fair value on a recurring basis:
As of December 31, 2023As of March 31, 2023
(in millions)Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Financial liabilities
Foreign currency forward contracts$ $1 $ $1 $ $1 $ $1 
Total financial liabilities$ $1 $ $1 $ $1 $ $1 
The following table presents the Company’s fair value hierarchy for assets measured and recognized at fair value, excluding investments where the NAV practical expedient has been elected on a recurring basis:
As of December 31, 2023As of March 31, 2023
(in millions)Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Financial assets
Short-term investments(1)
$850 $ $ $850 $661 $ $ $661 
Equity method investments(2)
  466 466   482 482 
Convertible loans receivable  32 32   31 31 
Foreign currency forward contracts 10  10  10 10
Total financial assets$850 $10 $498 $1,358 $661 $10 $513 $1,184 
(1)Short-term investments represent term deposits with banks with a maturity between 3 and 12 months.
(2)In accordance with Accounting Standards Codification (“ASC”) Subtopic 820-10, Fair Value Measurements, investments that are measured at fair value using the NAV practical expedient are not classified in the fair value hierarchy.
24

Arm Holdings plc
Notes to Condensed Consolidated Financial Statements
(unaudited)
The following tables summarize changes in the fair value, along with other activity associated with the Company’s Level 3 financial assets and liabilities:
Equity Method Investments
Three Months Ended December 31,Nine Months Ended December 31,
(in millions)2023202220232022
Fair value of financial assets at the beginning of the period$466 $445 $482 $524 
Additions, net of contributions from shareholders of the Company    
Fair value losses recognized in the Condensed Consolidated Income Statements (2)(16)(81)
Distributions to shareholders of the Company    
Fair value at the end of the period$466 $443 $466 $443 
Convertible Loans Receivable
Three Months Ended December 31,Nine Months Ended December 31,
(in millions)2023202220232022
Fair value of financial assets at the beginning of the period$32 $30 $31 $29 
Additions    
Converted into equity    
Fair value gains recognized in the income statement  1 1 
Fair value at the end of the period$32 $30 $32 $30 
See below for a description of the valuation techniques and inputs used in the fair value measurement of Level 3 investments including equity method investments, convertible loans receivable, and currency exchange contracts.
Equity Method Investments
The Company elected the fair value option in accordance with the guidance in ASC 825, Financial Instruments (“ASC 825”) for its investments in Acetone Limited and Ampere. The Company initially computed the fair value for its investments consistent with the methodology and assumptions that market participants would use in their estimates of fair value with the assistance of a third-party valuation specialist or based on inputs from the investee. The fair value computation is updated on a quarterly basis. The investments are classified within Level 3 in the fair value hierarchy because the Company estimates the fair value of the investments using the (i) the market-calibration approach based on the guideline public company method, (ii) subject to availability of sufficient information, the income approach based on the discounted cash flow method, or (iii) the probability-weighted, expected return (“PWER”) approach.
The market-calibration approach considers valuation multiples that are calibrated to the valuation as of the prior valuation date (i.e., quarterly) based on: (a) changes in the broader market or industry; (b) changes in the guideline public companies; and (c) changes in the company’s operating and financial performance. The fair value computation under this approach includes a key assumption for the range of valuation multiples (i.e., enterprise value or revenue), which requires significant professional judgment by the valuation specialist and is based on observable inputs (e.g., market data) and unobservable inputs (e.g., market participant assumptions).
25

Arm Holdings plc
Notes to Condensed Consolidated Financial Statements
(unaudited)
The PWER approach is based on discrete future exit scenarios to determine the value of various equity securities. Under the PWER approach, the share value today is based on the probability-weighted, present value of expected future distributions, taking into account the rights and preferences of each debt and equity class. The Company considers an initial public offering scenario, a sale scenario, and a scenario assuming continued operation as a private entity for future exit scenarios. The fair value computation under this approach includes key assumptions for time to liquidity outcomes, discounted rate, and present value factors.
The following tables provide quantitative information related to certain key assumptions utilized in the valuation of equity method investments accounted for under the fair value option:
As of December 31, 2023 and March 31, 2023
(in millions)Fair value as of December 31, 2023Fair value as of March 31, 2023Valuation
Technique
Unobservable InputsRange of Estimates
Equity Method Investments$466$482Acetone – Market-Calibration or discounted cash flow

Ampere – PWER
LTM Revenue Multiple


Probability of initial public offering, time to future exit scenario, discount rate
1.4x - 1.7x
 


Probability weighted – 100%
Discount Rate – 18.6%
Convertible Loans Receivable—Ampere
In December 2021, the Company acquired a $29.0 million convertible promissory note in Ampere, which is included in other non-current assets on the Condensed Consolidated Balance Sheets. As of December 31, 2023 and March 31, 2023, the Company’s maximum exposure to loss is the amounts invested in, and advanced to, Ampere. As of December 31, 2023 and March 31, 2023, the Company has not converted any of its convertible promissory note into equity.
The fair value of the Ampere convertible loan is based upon significant unobservable inputs, including the use of a probability weighted discounted cash flows model, requiring the Company to develop its own assumptions. Therefore, the Company has categorized this asset as a Level 3 financial asset.
Some of the more significant unobservable inputs used in the fair value measurement of the convertible loan include applicable discount rates, the likelihood and projected timing of repayment or conversion, and projected cash flows in support of the estimated enterprise value of Ampere. Changes in these assumptions, while holding other inputs constant, could result in a significant change in the fair value of the convertible loan.
If the amortized cost of the convertible loan exceeds its estimated fair value, the security is deemed to be impaired, and must be evaluated for the recognition of credit losses. Impairment resulting from credit losses is recognized within earnings, while impairment resulting from other factors is recognized in other comprehensive income (loss). As of December 31, 2023 and March 31, 2023, the Company has not recognized any credit losses related to this convertible loan.
The fair value calculated using significant unobservable inputs did not differ materially from the amortized cost basis as of December 31, 2023 and March 31, 2023.
Currency Exchange Contracts
For currency exchange contracts, these contracts are valued at the present value of future cash flows based on forward exchange rates at the balance sheet date.
26

Arm Holdings plc
Notes to Condensed Consolidated Financial Statements
(unaudited)
8 - Shareholders’ Equity
Employee Benefit Trust
In September 2023, the Company established the EBT, constituted by a trust deed entered into by the Company and a professional trustee, with the principal purpose to facilitate the efficient and flexible settlement of share-based compensation arrangements with employees. The Company has the power to appoint and remove the trustee and therefore, consolidates the trust. The EBT may acquire newly issued ordinary shares or ADSs at a nominal value or the trustee of the EBT has the power to acquire ordinary shares or ADSs of the Company in the open market, which purchases may be funded by one or more loans from the Company to the EBT or non-repayable gifts made by the Company to the EBT. In November 2023, the EBT purchased a nominal number of ADSs from the Company at par value that remained with the EBT as of December 31, 2023. These ADSs were expected to be transferred out of the EBT, in order to settle future vesting of share-based compensation for employees. As the EBT is consolidated by the Company, ordinary shares or ADSs held by the EBT are considered authorized and issued but not outstanding for the computation of earnings per share.
27

Arm Holdings plc
Notes to Condensed Consolidated Financial Statements
(unaudited)
9 - Share-based Compensation
The Company had the following share-based payment arrangements during the periods presented:
Restricted Share Units—The Arm Limited All Employee Plan 2019 (“2019 AEP”)
With respect to the 2019 AEP, for the three months ended December 31, 2023 and 2022, the Company recognized $53.3 million and $23.6 million of share-based compensation cost, respectively, and $4.7 million and $2.9 million of tax benefit associated with these awards, respectively. For the nine months ended December 31, 2023 and 2022, the Company recognized $474.4 million and $22.2 million of share-based compensation cost, respectively, and $40.5 million and $3.2 million of tax benefit associated with these awards, respectively.
In connection with the IPO, all restricted share units (“RSU”) previously issued under the 2019 AEP were modified to be settled in ordinary shares of the Company except for those awards granted to employees of Arm Technology Israel Ltd., the Company’s Israeli subsidiary (“Arm Israel”). For those RSUs to be settled in ordinary shares, the Company accounted for this change as a modification in accordance with ASC 718, Compensation—Stock Compensation (“ASC 718”) and changed the classification of the awards from liability-classified to equity-classified. During the nine months ended December 31, 2023, as a result of the modification, the Company reclassified $306.6 million from the non-current portion of accrued compensation and share-based compensation to additional paid-in capital on the Condensed Consolidated Balance Sheets. As of October 25, 2023, the Company has determined that the market condition for the 2019 AEP has been met and, therefore, will vest at 100% in March 2024. The modification resulted in the incremental and accelerated share-based compensation cost of $217.2 million at the modification date which affected 5,251 employees. For the remaining RSUs granted to employees of Arm Israel, these awards remain liability-classified and the Company will remeasure the RSUs at fair value at each reporting period through the date of settlement.

The table below identifies the award activity under the 2019 AEP:

Awards
Weighted Average Grant Date Fair Value Per Award(1)
Outstanding as of March 31, 2023
11,601,185$54.47 
Granted2,60354.51 
Cancelled and forfeited(234,922)54.51 
Outstanding and expected to vest as of December 31, 2023
11,368,866$54.70 
(1)As of March 31, 2023, 2019 AEP outstanding awards were liability-classified with a weighted average fair value per RSU of $23.33. For periods presented prior to the IPO, the average grant date fair value per RSU represents the fair value at the IPO.
As of March 31, 2023, the total outstanding liability-classified RSUs expected to vest were 11,601,185 with a weighted average fair value per RSU of $23.33. The IPO triggered a modification which reclassified RSUs from liability-classified to equity-classified in September 2023. As of December 31, 2023, the total outstanding liability-classified RSUs expected to vest were 144,914 with a weighted average fair value per RSU of $69.43 for Arm Israel. As of December 31, 2023, $579.2 million was recognized in additional paid-in capital and $9.4 million was recognized in accrued compensation and benefits and share-based compensation on the Condensed Consolidated Balance Sheets. As of March 31, 2023, $114.2 million was recognized as liability in the non-current portion of accrued compensation and share-based compensation on the Condensed Consolidated Balance Sheets. As of December 31, 2023, there was $33.6 million of total unrecognized compensation cost related to awards issued under the 2019 AEP expected to be recognized over a weighted-average period of 0.2 years . For the nine months ended December 31, 2023, the Company did not have any payments arising from normal course vesting events. For the nine months ended December 31, 2022, liability-classified share-based awards paid were $15.9 million related to the RSUs that had vesting conditions accelerated pursuant to restructuring activities.
28

Arm Holdings plc
Notes to Condensed Consolidated Financial Statements
(unaudited)
Restricted Share Units—Executive IPO Plan (“2019 EIP”)
For the three months ended December 31, 2023, the Company did not recognize any share-based compensation cost associated with this plan. For the three months ended December 31, 2022, $4.1 million of share-based compensation credit was recognized in connection with awards issued under the 2019 EIP. For the nine months ended December 31, 2023 and 2022, $6.2 million and $0.6 million, respectively, of share-based compensation cost and credit, respectively, was recognized in connection with awards issued under the 2019 EIP. The share-based compensation credit for the three and nine months ended December 31, 2022 was attributable to replacement awards issued in December 2022 and executive departures. For the three months ended December 31, 2023, the Company did not record any income tax benefit or expense in connection with the awards under the 2019 EIP. For the three months ended December 31, 2022, the income tax expense recorded was $1.1 million. For the nine months ended December 31, 2023, the Company did not record any income tax benefit or expense in connection with awards under the 2019 EIP. For the nine months ended December 31, 2022, the income tax expense recorded in connection with awards under the 2019 EIP was $0.5 million.
In connection with the IPO, all RSUs previously issued under the 2019 EIP were modified to be settled in ordinary shares of the Company. In accordance with ASC 718, the Company changed the classification of the awards from liability-classified to equity-classified at that time. During the nine months ended December 31, 2023, as a result of the modification, the Company reclassified $5.7 million from non-current portion of accrued compensation and share-based compensation to additional paid-in capital on the Condensed Consolidated Balance Sheets. Upon the IPO, the awards granted under the 2019 EIP became fully vested and the Company recognized accelerated share-based compensation cost of $4.1 million for all awards outstanding under the 2019 EIP prior to the IPO. As of December 31, 2023, all fully vested equity-classified awards were settled in ordinary shares of the Company.
The table below identifies the award activity under the 2019 EIP:
Awards
Weighted Average Grant Date Fair Value Per Award(1)
Outstanding as of March 31, 2023
192,999 $51.00 
Vested(192,999)51.00 
Outstanding and expected to vest as of December 31, 2023
 $ 
(1)As of March 31, 2023, 2019 EIP outstanding awards were liability-classified with a weighted average fair value per RSU of $37.43. For periods presented prior to the IPO, the average grant date fair value per RSU represents the fair value at the IPO.
As of March 31, 2023, the total outstanding liability-classified RSUs that were expected to vest was 192,999 with the weighted average fair value per RSU of $37.43. As of March 31, 2023, $3.6 million was recognized in the non-current portion of accrued compensation and share-based compensation on the Condensed Consolidated Balance Sheets. The Company did not have any payments for liability-classified share-based awards for the nine months ended December 31, 2023 and 2022.

Phantom Share Scheme (Cash-Settled)
As of December 31, 2023 and March 31, 2023, there were no phantom shares outstanding. The Company recognized share-based compensation cost of $0.3 million in connection with phantom shares for the three months ended December 31, 2022. The Company recognized share-based compensation credit of $0.5 million in connection with phantom shares for the nine months ended December 31, 2022, which was attributable to executive departures. No share-based compensation cost and tax expense or benefit related to phantom shares was recognized for the three and nine months ended December 31, 2023. As of March 31, 2023, $1.1 million related to phantom shares was recognized in accrued compensation and benefits and share-based compensation on the Condensed Consolidated Balance Sheets. For the nine months ended December 31, 2023, the Company paid $0.9 million for vested phantom shares. The variance between the amount accrued and paid of $1.1 million and $0.9 million, respectively, was driven by foreign exchange differences as
29

Arm Holdings plc
Notes to Condensed Consolidated Financial Statements
(unaudited)
participants were paid in foreign denominated currencies. As of December 31, 2023, the Company did not have any unpaid amounts in relation to vested phantom share awards.
Restricted Share Units – 2022 Arm Limited RSU Award Plan (“2022 RSU Plan”)
In June 2022, the 2022 RSU Plan was established to grant RSUs to all employees of the Company (“All Employee Awards”) and to grant two types of executive awards to certain of the Company’s executive officers (such awards, the “Annual Awards” and “Launch Awards” and collectively, the “Executive Awards”). The All Employee Awards and Executive Awards were historically disclosed separately due to pre-IPO presentation differences related to classification, but are now disclosed together as post-IPO all are equity-classified, as discussed in more detail below. The All Employee Awards vest in tranches, require continuous service through the vesting date, and are subject to graded vesting over time. At the time of issuance, the Company intended to settle the All Employee Awards in ordinary shares at the vesting date, and such RSU awards were accounted for as equity-classified awards. Launch Awards vest in tranches and require continuous service through the vesting dates and are subject to graded vesting over a period of three years. Annual Awards include a portion that vests over a three-year continuous service period and another portion that is subject to continuous service and satisfaction of certain Company performance conditions. The time-based portion of the Annual Awards vest over a three-year period. The Annual Awards that are subject to continuous service and satisfaction of certain Company performance conditions vest upon the satisfaction of performance metrics as established for each one-year performance period and have the potential to vest between 0% and 200% of the original fixed monetary amount of the award depending on the achievement of annual performance metrics. The 2022 RSU Plan allows for either cash or share settlement of the RSU awards by tranche at the discretion of the remuneration committee of the Company’s board of directors (the “remuneration committee”).
In November 2022, the Company issued Executive Awards under the 2022 RSU Plan. These entitled participants to a fixed amount of cash or, upon the occurrence of a change in control or an initial public offering, a variable number of ordinary shares of the Company equal to a fixed amount of cash, at the discretion of the remuneration committee. Executive Awards granted were originally accounted for as liability-classified awards and upon the IPO, each Executive Award was converted into a variable number of shares based on the closing ADS price of the Company at the IPO date. As of December 31, 2023, all the 2022 RSU Plan awards were expected to be settled in ordinary shares at the vesting date.
In November 2022, the Company determined that it would settle the first tranche of the All Employee Awards outstanding that vested in March and May 2023 by paying cash instead of issuing shares. Other than the change in intent regarding form of settlement, no other terms or conditions regarding the RSUs were changed. The Company accounted for this change as a modification in accordance with ASC 718 and reclassified the affected portion of the award of $57.0 million from equity to liability and remeasured the award at fair value at each reporting period through the date of settlement with consideration that total compensation cost cannot be less than the grant-date fair-value-based measure of the original award.
The 2022 RSU Plan provides vesting schedules applicable prior to and after an IPO. Upon the IPO, the All Employee Awards under the 2022 RSU Plan were accounted for using the vesting schedules applicable after an IPO which resulted in an acceleration of compensation cost. The Company accounted for the changes as a modification in accordance with ASC 718 and recorded $17.7 million of accelerated share-based compensation cost at the modification date which affected 5,041 employees.
In connection with the IPO, all Executive Awards previously issued under the 2022 RSU Plan were modified to be settled in ordinary shares of the Company. Given the awards were no longer expected to be settled in cash but rather expected to be settled in ordinary shares based on the IPO price of $51.00 per ADS, the modification resulted in a change to the classification of the Executive Awards from liability-classified to equity-classified. The Company accounted for this change as a modification in accordance with ASC 718. As a result of the modification, the Company reclassified $9.1 million and $20.2 million in current portion of accrued compensation and benefits and share-based compensation and non-current portion of accrued compensation and share-based compensation, respectively, to additional paid-in capital on the Condensed Consolidated Balance Sheets. The modification resulted in an issuance of 1,875,202 RSUs equal to the fixed monetary amount of all Executive Awards outstanding under the 2022 RSU Plan. Upon the occurrence of the IPO,
30

Arm Holdings plc
Notes to Condensed Consolidated Financial Statements
(unaudited)
the Company recognized accelerated share-based compensation cost of $9.8 million, for which the service-based vesting condition was satisfied or partially satisfied, at the modification date which affected 14 employees.
The table below identifies the award activity under the 2022 RSU Plan:
Awards(1)
Weighted Average Grant Date Fair Value Per Award(1)
Outstanding as of March 31, 2023
11,129,734$35.87 
Executive Awards converted from liability awards
1,875,20251.00 
Granted17,134,48443.68 
Vested(2)
(4,969,122)37.44 
Cancelled and forfeited(532,881)40.27 
Outstanding and expected to vest as of December 31, 2023
24,637,417$41.97 
(1)    Awards and weighted average grant date per share exclude shares related to Annual Awards that currently have no grant date as the future performance objectives have not yet been defined and/or communicated to participants of the plan. For periods presented prior to the IPO, the average grant date fair value per award represents the modification fair value at IPO.
(2)    Includes 351,022 liability-classified awards vested and settled in cash in the nine months ended December 31, 2023.
As of March 31, 2023, the total liability-classified RSUs that are expected to vest were 284,036 with a weighted average fair value per RSU of $40.47. For the nine months ended December 31, 2023, the Company paid $269.0 million arising from the normal vesting of liability-classified share-based awards under the 2022 RSU Plan. All liability-classified awards under the 2022 RSU Plan were vested as of August 15, 2023 and were paid as of September 30, 2023. For the three months ended December 31, 2023 and 2022, share-based compensation cost of $136.7 million and $83.3 million, respectively, was recognized in connection with all awards issued under the 2022 RSU Plan. For the nine months ended December 31, 2023 and 2022, share-based compensation cost of $385.8 million and $140.8 million, respectively, was recognized in connection with RSUs granted under the 2022 Equity Plan. Tax benefits recorded in connection with the 2022 RSU Plan for the three months ended December 31, 2023 and 2022 were $20.3 million and $10.5 million, respectively. Tax benefits recorded for the nine months ended December 31, 2023 and 2022 were $54.3 million and $20.9 million, respectively. As of March 31, 2023, the Company recognized $1.9 million, $253.1 million, and $13.8 million in additional paid-in capital, accrued compensation and benefits and share-based compensation and non-current portion of accrued compensation and share-based compensation, respectively, on the Condensed Consolidated Balance Sheets. As of December 31, 2023, there was $823.9 million total unrecognized compensation expense related to all awards issued under the 2022 RSU Plan expected to be recognized over a weighted-average period of 1.0 year and there were no liability-classified RSUs under the 2022 RSU Plan.
Omnibus Incentive Plan
In August 2023, the Company’s board of directors adopted the Omnibus Incentive Plan (the “Omnibus Incentive Plan”) which became effective in September 2023. The Omnibus Incentive Plan allows for the grant of incentive awards to employees, executive directors, and non-employees, including non-employee directors and consultants of the Company and its subsidiaries. Participants may elect not to participate in the plan. The types of incentive awards granted under the Omnibus Incentive Plan is determined by the Company’s board of directors and the remuneration committee, and the Omnibus Incentive Plan allows for the grant of stock options, share appreciation rights (“SARs”), restricted shares, RSUs, performance stock units (“PSUs”), other awards of cash, shares or other property (which may include a specified cash amount that is payable in cash or shares, or awards tied to the appreciation in the value of shares), dividends and dividend equivalents. Vesting conditions applicable to awards may be based on continued service, achievement of company, business unit or other performance objectives, or such other criteria as the remuneration committee may establish.

31

Arm Holdings plc
Notes to Condensed Consolidated Financial Statements
(unaudited)
In October 2023, the Company started to grant RSUs and PSUs under the Omnibus Incentive Plan to employees, including executives of the Company. The RSUs and PSUs granted neither carry rights to dividends nor voting rights until the shares are issued or transferred to the recipient. The Omnibus Incentive Plan allows for either cash or share settlement of the awards by tranche, if applicable, at the discretion of the remuneration committee. At the time of issuance, the Company intended to settle the RSUs and PSUs in shares at the vesting date and such awards are accounted for as equity-classified awards. The RSUs were granted to existing employees and new hires of the Company and its subsidiaries, Arm Israel and Arm France SAS and vest in tranches, require continuous service through the vesting date and are subject to graded vesting over a period of three years. RSUs granted to employees and new hires of subsidiaries in Israel and France substantially share the same terms as the existing RSUs under the 2022 RSU Plan with differences limited to the vesting schedules. PSUs were awarded to executives of the Company and include a portion that vests over a three-year continuous service period and another portion that is subject to continuous service and satisfaction of certain Company performance conditions. The time-based portion of the PSUs vest over a three-year period. The PSUs that are subject to continuous service and satisfaction of certain Company performance conditions vest upon the satisfaction of performance metrics as established for each one-year performance period and have the potential to vest between 0% and 200% of the original award amount depending on the achievement of annual performance metrics.

Except for performance awards with specific performance criteria, the Company recognizes share based compensation cost using the straight-line method over the requisite service period of the award, net of estimated forfeitures. Awards are forfeited if an employee leaves the Company before the awards vest. For all periods presented, the maximum number of ordinary shares that may be issued under the Omnibus Incentive Plan is equal to the sum of (i) 20,500,000 ordinary shares and (ii) an annual increase on April 1 of each year beginning on April 1, 2024 and ending on April 1, 2028, equal to the lesser of (A) 2% of the aggregate number of ordinary shares outstanding on March 31 of the immediately preceding fiscal year and (B) such smaller number of ordinary shares as determined by the Company’s board of directors or the remuneration committee. No more than 20,500,000 ordinary shares may be issued under the Omnibus Incentive Plan upon the exercise of incentive stock options.

The table below identifies all award activity under the Omnibus Incentive Plan:
Awards(1)
Weighted Average Grant Date Fair Value Per Award(1)
Outstanding as of March 31, 2023
 $ 
Granted1,408,468 57.36 
Cancelled and forfeited
(7,533)63.07
Outstanding and expected to vest as of December 31, 2023
1,400,935 $57.33 
(1)    Awards and weighted average grant date per share exclude shares related to PSUs that currently have no grant date as the future performance objectives have not yet been defined and/or communicated to participants of the plan.
The Company uses the closing ADS price of the Company on the date of grant as the fair value of awards. For each of the thre