Astera Labs, Inc.

At this time, I would like to welcome everyone to the Estera Labs first quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After management remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one again. We do ask that you please limit your questions to two. I will now turn the call over to Leslie Green, Investor Relations for Astera Labs. Leslie, you may begin.

Thank you, Regina. Good afternoon, everyone, and welcome to the Astera Labs first quarter 2024 earnings call. Joining us today on the call are Jitendra Mohan, Chief Executive Officer and Co-Founder, Sanjay Jitendra, President, Chief Operating Officer and Co-Founder, and Mike Tate, Chief Financial Officer. Before we get started, I would like to remind everyone that certain comments made in this call today may include forward-looking statements regarding, among other things, expected future financial results, strategies and plans, future operations, and the markets in which we operate. These forward-looking statements reflect management's current beliefs, expectations, and assumptions about future events. which are inherently subject to risks and uncertainties that are discussed in detail in today's earnings release and in the periodic reports and filings we file from time to time with the SEC, including the risks set forth in the final perspective relating to our IPO. It is not possible for the company's management to predict all risks and uncertainties that could have an impact on these forward-looking statements, or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statement. In light of these risks, uncertainties, and assumptions, the results, events, or circumstances reflected in the forward-looking statements discussed during this call may not occur and actual results could differ materially from those anticipated or implied. All of our statements are made based on information available to management as of today, and the company undertakes no obligation to update such statements after the date of this call to conform to these as a result of new information, future events, or changes in our expectations, except as required by law. Also during this call, we will refer to certain non-GAAP financial measures, which we consider to be an important measure of the company's performance. These non-GAAP financial measures are provided in addition to and not as a substitute for or superior to financial results prepared in accordance with U.S. GAAP. A discussion of why we use non-GAAP financial measures and reconciliations between our GAAP and non-GAAP financial measures is available in the earnings release we issued today, which can be accessed through the investor relations portion of our website. and will also be included in our filings with the SEC, which will also be accessible through the investor relations portion of our website. With that, I would like to turn the call over to Jitendra Mohan, CEO of Astera Labs. Jitendra.

Thank you, Leslie. Good afternoon, everyone, and thanks for joining our first earnings conference call as a public company. This year is off to a great start, with Astera Labs seeing strong and continued momentum along with the successful execution of our IPO in March. First and foremost, I would like to thank our investors, customers, partners, suppliers, and employees for their steadfast support over the past six years. We have built Astera Labs from the ground up to address the connectivity bottlenecks to unlock the full potential of AI in the cloud. With your help, we've been able to scale the company and deliver innovative technology solutions to the leading hyperscalers and AI platform providers worldwide. But our work is only just beginning. We are supporting the accelerated pace of AI infrastructure deployments with leading hyperscalers by developing new product categories while also exploring new market segments. Looking at industry reports over the past several weeks, it is clear that we remain in the early stages of a transformative investment cycle by our customers to build out the next generation of infrastructure that is needed to support their AI roadmaps. According to recent earning reports, On a consolidated basis, CapEx spent during the first quarter for the four largest U.S. hyperscalers grew by roughly 45% year-on-year to nearly $50 billion. Qualitative commentary implies continued quarterly growth in CapEx for this group through the balance of the year. This is truly an exciting time for technology innovators within the cloud and AI infrastructure market, and we believe SR Labs is well-positioned to benefit from these growing investment trends. Against the strong industry backdrop, Eterra Labs delivered strong Q1 results with record revenue, strong non-GAAP operating margin, positive operating cash flows, while also introducing two new products. Our revenue in Q1 was $65.3 million, up 29% from the previous quarter, and up 269% from the same period in 2023. Non-GAAP operating margin was 24.3%, and we delivered $0.10 of pro forma, non-GAAP diluted earnings per share. I will now provide some commentary around our position in this rapidly evolving AI market. Then I will turn the call over to Sanjay to discuss new products in our growth strategy. Finally, Mike will provide additional details on our Q1 results and our Q2 financial guidance. Monkeys AI model sizes continue doubling about every six months, fueling the demand for high performance AI platforms running in the cloud. Modern GPUs and AI accelerators are phenomenally good at compute, but without equally fast connectivity, they remain highly underutilized. Technology innovation within the AI accelerator market has been moving forward at an incredible pace, and the number and variety of architectures continues to expand to handle trillion parameter models while improving AI infrastructure utilization. We continue to see our hyperscaler customers utilize the latest merchant GPUs and proprietary AI accelerators to compose unique data center-scale AI infrastructure. However, no two clouds are the same. The major hyperscalers are architecting their systems to deliver maximum AI performance based on the specific cloud infrastructure requirements, from power and cooling to connectivity. We are working alongside our customers to ensure these complex and different architectures achieve maximum performance and operate reliably even as data rates continue to double. As the systems continue to move data faster and grow in complexity, we expect to see our average dollar content per AI platform increase, and even more so with the new products we have in development. Our conviction in maintaining and strengthening our leadership position in the market is rooted in our comprehensive intelligent connectivity platform and our deep customer partnerships. The foundation of our platform consists of semiconductor-based and software-defined connectivity ICs, modules, and boards, which all support our Cosmos software suite. We provide customers with a complete customizable solution, chips, hardware, and software, which maximizes flexibility without performance penalties, delivers deep fleet management capabilities, and matches pace with the ever-quickening product introduction cycles of our customers. Not only does Cosmos software run on our entire product portfolio, but it is also integrated within our customers' operating staff to deliver seamless customization, optimization, and monitoring. Today, Acela Labs is focused on three core technology standards, PCI Express, Ethernet, and Compute Express Link. By shipping three separate product families, all generating revenue and in various stages of adoption and deployment, supporting these different connectivity protocols. Let me touch upon each of these critical data center connectivity standards and how we support them with our differentiated solutions. First, PCI Express. PCIe is the native interface on all AI accelerators, CPUs, and GPUs, and is the most prevalent protocol for moving data at high bandwidth and low latency inside servers. Today, we see PCIe Gen 5 getting widely deployed in AI servers. These AI servers are becoming increasingly complex. Faster signal speeds in combination with complex server topologies are driving significant signal integrity challenges. To help solve these problems, our hyperscalers and AI accelerator customers utilize our PCIe smart DSP retimers to extend the reach of PCIe Gen 5 between various components within a heterogeneous computer architecture. Our ARIES product family represents the gold standard in the industry for performance, robustness, and flexibility, and is the most widely deployed solution in the market today. Our leadership position, with millions of critical data links running through our ARIES retimers and our Cosmos software, enables us to do something more, become the eyes and ears to monitor the connectivity infrastructure and help fleet managers ensure their AI infrastructure is operating at peak utilizations. Deep diagnostics and monitoring capabilities in our chips and extensive fleet management features in our Cosmos software, which are deployed together in our customer's fleet, have become a material differentiator for us. Our Cosmos software provides the easiest and fastest path to deploy the next generation of our devices. We see AI workloads and newer GPUs driving the transition from PCIe Gen 5, running at 32 gigabits per second per lane, to PCIe Gen 6, running at 64 gigabits per second per lane. Our customers are evaluating our Gen 6 solutions now, and we expect them to make design decisions in the next six to nine months. In addition, while we see our ARIES devices being heavily deployed today for interconnecting AI accelerators with CPUs and networking, we also expect our ARIES devices to play an increasing role in backend fabrics, interconnecting AI accelerators to each other in AI clusters. Next, let's talk about Ethernet. Ethernet protocol is extensively deployed to build large-scale networks within data centers. Today, Ethernet makes up the vast majority of connections between servers and top-of-rack switches. Driven by AI workloads' insatiable need for speed, Ethernet data rates are doubling roughly every two years, and we expect the transition from 400 gig Ethernet to 800 gig Ethernet to take place later in 2025. 800 gig ethernet is based on 100 gigabits per second per lane signaling rate, which is facing tremendous pressure on conventional passive cabling solutions. Like our PCIe retimers, our portfolio of Taurus ethernet retimers helps relieve these connectivity bottlenecks by overcoming reach, signal integrity, and bandwidth issues by enabling robust 100 gig per lane connectivity over copper. And like our AD's portfolio, which is largely sold in a chip format, We sell our Taurus portfolio largely in the form of smart cable modules that are assembled into active electrical cables by our cable partners. This approach allows us to focus on our strengths and fully leverage our Cosmos software suite to offer customization, easy qualification, deep telemetry, and field upgrade to our customers. At the same time, this model enables our cable partners to continue to excel at bringing the best cabling technology to our common end customers. We expect 400 gig deployments based on our Taurus smart cable modules to begin to ramp in the back half of 2024. We see the transition to 800 gig Ethernet starting to happen in 2025, resulting in broad demand for AECs to both scale up and scale out AI infrastructure and strong growth for our Taurus Ethernet smart cable module portfolio over the coming years. Last is Compute Express Link, or CXL. CXL is a low-latency cache-coherent protocol which runs on top of PCIe protocol. CXL provides an open standard for disaggregating memory from compute. CXL allows you to balance the memory bandwidth and capacity requirements independently from compute requirements, resulting in better utilization of compute infrastructure. Over the next several years, data center platform architects plan to utilize CXL technology to solve memory bandwidth and capacity bottlenecks that are being exacerbated by the exponential increase in compute capability of CPUs and GPUs. Major hyperscalers are actively exploring different applications of CXL memory expansion. While the adoption of CXL technology is currently in its infancy, we do expect to see increased departments with the introduction of next-generation CXL-capable data centers server CPUs such as Granite Rapids, Turing, and others. Our first-to-market portfolio of Leo CXL memory connectivity controllers is very well positioned to enable our customers to overcome memory bottlenecks and deliver significant benefits to their end customers. We have worked closely with our hyperscaler customers and CPU partners to optimize our solution to seamlessly deliver these benefits without any application-level software changes. Furthermore, we have used our Cosmos software to include significant learnings we have had over the last 18 months and to customize our Leo memory expansion solution to the differing requirements from each hyperscaler. We anticipate memory expansion will be the first high-volume use case that will drive design into volume production in 2025 timeframe. We remain very excited about the potential of CXL in data center applications. and believe that most new CPUs will support CXL, and hyperscalers will increasingly deploy innovative solutions based on CXL. With that, let me turn the call over to our President and CEO, Sanjay Gajendra, to discuss some of our recent product announcements and our long-term growth strategy.