Credo Technology Group Holding Ltd

Ladies and gentlemen, thank you for standing by. At this time, all participants are on a listen-only mode. Later, we'll conduct a question and answer session. At that time, if you have a question, please press the star button 1 on your touchstone telephone. I will now turn the conference over to your host, Mr. Dan O'Neill. Please go ahead, sir.

Good afternoon, and thank you all for joining us today for our fiscal 2023 first quarter ending earnings call. Joining me today from Credo are Bill Brennan, our Chief Executive Officer, and Dan Fleming, our Chief Financial Officer. I'd like to remind everyone that certain comments made in this call today may include forward-looking statements regarding expected future financial results, strategies and plans, future operations, the markets in which we operate, and other areas of discussion. These forward-looking statements are subject to risks and uncertainties that are discussed in detail in our documents filed with the SEC. It's not possible for the company's management to predict all risks, nor can the company assess the impact of all factors on its business. 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. Given these risks, uncertainties, and assumptions, the forward-looking events discussed during this call may not occur and actual results could differ materially and adversely from those anticipated or implied. The company undertakes no obligation to publicly update forward-looking statements for any reason. After the date of this call, conform these statements to actual results or to changes in the company's 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 performance 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, as well as in our SEC filings, which both can be accessed using the investor relations portion of our website. With that, I'll now turn the call over to our CEO. Bill?

Thank you, Dan. Good afternoon, and thank you to everybody for joining the call. During this call, I'll review our fiscal Q1 results and then share why we continue to be excited about our progress and our plans moving forward. When I conclude, Dan Fleming, our Chief Financial Officer, will provide a detailed review of our financial results and expectations moving forward. Credo's mission is to deliver high-speed connectivity solutions to break bandwidth barriers on every wired connection in the data infrastructure market. We provide innovative, secure, high-speed solutions that deliver improved power efficiency and cost as data rates and bandwidth requirements increase exponentially. Our connectivity solutions are optimized for both electrical and optical Ethernet applications, including the 100 gigabits per second, 200 gig, 400 gig, and 800 gig port markets. All our products are built with our proprietary CERTIs and DSP technologies. Our product families include integrated circuits, or ICs, active electrical cables, or AECs, and SERDES chiplets. Our intellectual property, or IP solutions, consist primarily of SERDES IP licensing. I'm happy to report that in the July quarter, we continued our strong execution, achieving $46.5 million in revenue, an increase from $37.5 million from the last quarter, up 24% sequentially. Our product revenue, which is a key indicator we track closely, was up 37% sequentially, showing the strong progress we're making ramping our AEC products. I would like to now provide an update on our product and SERTI's IP licensing businesses. Starting with an update on active electrical cables, our AEC solutions represent a new high-speed connectivity product category that Credo pioneered. As connection speeds increase, passive copper cables or DACs become obsolete due to severe signal integrity and size challenges. Optical connections, or AOCs, have prohibitive challenges with power and cost. AECs offer compelling in-rack solutions, achieving half the power, half the cost, with better reliability and a more rugged physical design than AOCs. We continue to gain traction due to our engineering ingenuity and customer-first mindset. To date, we've sold ADCs to more than 30 customers, including solutions for 50 gig, 100 gig, 200 gig, 400 gig, and 800 gig ports. Our target customers include data centers, 5G carriers, networking OEMs and ODMs, as well as others in the Ethernet ecosystem. During Q1, we continued to ramp the first two programs at our first major data center customer. We also had our first revenue shipments to that same customer on a third next-generation program. With regards to our second major data center customer, we continue to make progress, shipping the first pre-production AEC units for qualification prior to their ramp. We remain encouraged by our prospects at this customer given the innovative nature of our AEC solution, and we continue to expect the initial ramp of this customer to happen towards the end of this fiscal year. I'm pleased to share that we've fully recovered from the supply chain shortfall caused by the COVID shutdowns in China last quarter, successfully meeting demand in Q1 while building a buffer inventory that will help to minimize the impact of any supply or manufacturing disruptions in the future. We continue to invest aggressively in our next generation 800 gig ports AEC solutions with our leading 100 gig per lane service technology. We've been working closely with our AEC customers to meet their future needs with innovative solutions to address opportunities for both the server rack and the disaggregated switch rack applications. To this end, We've delivered and verified 800 gig port AEC solutions to multiple data center customers, multiple networking OEMs, as well as additional ecosystem partners. Now, turning to our optical solutions. In this market, we work closely with both optical module manufacturers and data center customers to deliver disruptive solutions for optical DSPs, laser drivers, and TIAs. We are in production with two data center customers through numerous optical module manufacturers in a joint development model, or JDM, where our data center customers specify the key components to be used in their optical modules, such as a Credo optical DSP. We're also engaged with several optical manufacturers across various applications, including 100 gig, 200 gig, and 400 gig Ethernet solutions, and beyond the data center, including PON, 5G, and Fiber Channel. Notably, during Q1, we began production with a leading networking OEM for a 64-gig fiber channel optical module. We recently announced our optical DSP with integrated laser driver solutions for next generation 800-gig and 400-gig optical modules with 100-gig per lane CERDIs technology. Credo is now in a strong position to continue to deliver the same disruptive advantages on the combination of performance, power efficiency, and cost for these next generation 100 gig per lane deployments. With this strong progress, we continue to expect our optical solutions will contribute significantly to our growth in the future. And moving to our line card PHYs, we are very pleased with our progress here as well. Credo has quickly become a leader in MACsec solutions that provide data encryption for the growing number of applications requiring high security. We're happy to report that we are now ramping production directly with a second major data center customer deploying our 400 gig port MACsec solution. We see the market trend towards high security applications growing significantly in the future, and we remain bullish on this business. we continue to make strong progress with our Blackhawk 400 gig port re-timer solution as well. Numerous networking OEM and ODM customers are currently transitioning from qualification to mass production. As the market trends toward higher speeds, we will continue to see increasing demand for re-timer and gearbox solutions. Given the signal integrity challenges at 100 gig per lane, Credo is well positioned on our next generation 800 gig line curve five solutions driven by the same theme of delivering disruptive performance, power efficiency, and cost. Earlier this year, we announced our first-generation 800-gig port line card solutions, and I'm happy to say that Credo has already been adopted by several customers as they develop their next-generation 100-gig per lane platforms. Finally, we had another strong quarter with our Certis IP licensing and Certis chiplet business. This market is very strategic for us, and we had a strong revenue contribution in the quarter, Since our last earnings call, we made two significant announcements on our SERDES IP offerings. We announced the industry's first 40-gig PAM3 SERDES IP, which will be important for next-generation consumer designs. This SERDES IP is leveraged from the work we've done with our lead consumer partner, making our IP a clear choice for next-generation consumer designs. We also recently announced availability of our 112 gig CERTIs IP in TSMC's 5 and 4 nanometer processes. We believe we've set a new industry benchmark for lowest power across a broad range of reach requirements, delivering a comprehensive family of options that span from longest reach LR plus links with more than 40 dB loss to the short XSR links required in multi-chip module SOC designs. Credo is unique compared to other SERDES IP providers in that Credo will develop and deploy this same IP in our next generation 5 and 4 nanometer products for our AEC, optical DSP, and line card buy solutions. This becomes a great benefit to our IP licensing partners since Credo is walking the walk on product deployments right in step with our SERDES IP customer deployments. I will also say that we expect to again deliver the best power and performance combination for all our IP and product solutions in 5 and 4 nanometer. In the past, we've talked about Credo's core advantage of using more mature and less expensive process technology while delivering lower power and smaller die sizes than our competition. We refer to this as an N-1 process advantage. We believe we've extended this N-1 process advantage to 5 and 4 nanometer. and that our competition will need to move to more advanced and expensive processes to be competitive with Credo. Regarding our SERDES chiplet efforts, we were honored to be mentioned by Tesla at TSMC's Technology Symposium in June as their key connectivity partner for their leading edge Dojo supercomputer design, where Credo provided their 112 gig XSR SERDES IP and their 3.2 terabit per second chiplets. Also notable, we recently became a UCIE contributing member, building on the market momentum for our industry-leading XSR30s IP and our two 3.2 terabits per second production chiplets. In summary, we continue to be excited about our progress as we deepen relationships with current customers and as we receive commitments from new customers. We're also encouraged by the prospects of our next generation 100 gig per lane solutions based on strong customer feedback and engagement. Near term, we remain focused on delivering strong results in our fiscal 23 as we continue to expect to achieve at least $200 million in revenue, which would represent an annual growth of more than 88%. Now, I'll turn the call over to our CFO, Dan Fleming, to provide more details on our first quarter and to give guidance on Q2.