Credo Technology Group Holding Ltd

Ladies and gentlemen, thank you for standing by at this time. Our participants are in a listen-only mode. Later, we will conduct a question-and-answer session. At that time, if you have a question, you will need to press the star 11 on your push-button phone. I would now like to hand the conference over to Dan O'Neill. Please go ahead, sir.

Good afternoon, and thank you all for joining us today for our fiscal 2024 fourth quarter and year-ending earnings call. I'm joined today by Bill Brennan, Credo's Chief Executive Officer, and Dan Fleming, Credo's 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 to 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 important measures 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, which can be accessed using the investor relations portion of our website. With that, I'll now turn the call over to our CEO.

Thank you for joining our fourth quarter fiscal 24 earnings call. I'll start by reviewing our results and then I'll provide highlights of what we see for fiscal 25. Our CFO Dan Fleming will then follow with a detailed discussion of our Q4 and fiscal year 24 results and provide our outlook for Q1. Credo is a pure play high-speed connectivity company delivering a range of optimized and innovative connectivity solutions to meet the needs of global data center operators and service providers. We leverage our core SERDES technology and unique customer-focused design approach to deliver a differentiated suite of solutions, including active electrical cables, or AECs, optical DSPs, line card PHYs, SERDES chiplets, and SERDES IP licenses. for Ethernet port speeds ranging from 100 gig up to 1.6 terabits per second. We target the most difficult connectivity challenges facing the market. For our combination of architecture, system level approach, power, and performance are most differentiated. Credo is in a market environment of steadily increasing demand for optimized solutions with higher bandwidth and improved power efficiency. driven by the accelerating connectivity requirements of leading edge AI deployments. I'm pleased to say that during both fiscal Q4 and fiscal 24, Credo achieved record revenue. In Q4, we delivered revenue of $60.8 million and non-GAAP gross margin of 66.1%. In fiscal 24, Credo achieved revenue of $193 million and non-GAAP gross margin of 62.5%. The workloads supported by our solutions changed significantly during the fiscal year, and our growth was primarily driven by AI deployments across our entire portfolio. In fiscal Q4, roughly three-quarters of our revenue was driven by AI workloads. The year was also notable as we diversified our revenue across additional customers and products. I'm proud of the team for delivering solid results across a shifting landscape and also for executing a strong quarterly sequential ramp throughout the year. In our ADC product line, we continued our market leadership and delivered our customers a range of solutions for port speeds ranging from 100 gig to 800 gig. Furthermore, Our approach of delivering system-level solutions with customized hardware and software features has enabled us to build close, collaborative relationships with our customers. Over many design cycles across numerous customers, we have dramatically improved our speed to market in designing and qualifying our solutions. And this remains a key aspect of our competitive advantage. We believe this positions Credo with a unique value to the market that is difficult to replicate. With this, our AECs have quickly become the leading solution for in-rack cabled connectivity for single-lane speeds of 50 gigabits per second and above. In addition to the advantages of AECs that include signal integrity, power, form factor, and reliability, our customers have embraced the opportunity to innovate with Credo as a design partner to optimize system level features that make their AI clusters more efficient. From a customer engagement perspective, fiscal 24 was fruitful as we saw the successful ramp at a new hyperscale customer, qualification at another, and expansion of our ADC engagements with hyperscalers, tier two data centers, and service providers. AECs have quickly transitioned from a new concept to a de facto solution across many data center environments. Based on customer feedback and forecasts, we continue to expect an inflection point in our AEC revenue growth during the second half of fiscal 25. Fiscal 24 was also a strong year for our optical DSP products. During the year, we achieved material production revenues. with significant wins at domestic and international hyperscalers. Additionally, we continue to gain traction with optical module partners and end customers due to our attractive combination of performance, power efficiency, and system costs. AI back-end network deployments are a strong volume driver for the optical transceiver and AOC market, specifically for leading edge 100 gig per lane solutions. As power efficiency has become a more critical factor, Credo's responded with innovative architectural solutions that drastically reduce DSP power while maintaining interoperability and signal integrity at the optical module level. We've made great progress with our linear receive optics DSPs. In November, we announced our LRO DSP solutions, and by March at OFC, we demonstrated production designs with three 800-gig module partners. In the few months since OOC, we've seen continued market acceptance and design activity. These products enable a significant power reduction versus a traditional 800 gig solution. The LRO architecture is the only way to achieve a sub 10 watt 800 gig module that meets existing industry optical standards and facilitates multi-vendor interoperability. We expect the benefits of LRO solutions to become even more impactful in next generation 1.6T optical modules. I feel confident saying that the LPO architecture with no DSP has lost nearly all momentum in the market and that the LRO architecture is showing great promise. I'm encouraged by our customer traction in Q4. We were pleased to kick off multiple new optical DSP design engagements with the leading optical module manufacturers, both with our new LRO DSP and our traditional full DSP solutions. Given our results to date and our customer engagements, we are on track to achieve our optical DSP revenue goal of 10% of our fiscal 25 revenue, and we are enthusiastic about future growth prospects in this category. Regarding our LineCard 5 business, our leadership in this market continues as we transition to more advanced process nodes that deliver improved product performance and power efficiency. During the year, we continue to add to our customer base and have multiple 100 gig per lane wins at industry-leading Tier 1 OEMs and ODMs that serve the global data center market. These include 800 gig and 1.6T gearbox, Retimer, and MaxSec5 products. As we've discussed in the past, AI deployments are the driving force behind our growth for these leading edge devices. In the fourth quarter, we had success with both 50 gig and 100 gig per lane line card products. While 50 gig per lane solutions will continue to have lengthy life cycles, our 100 gig per lane solutions will also start adding to our revenue in fiscal 25. We expect the LineCard 5 business will continue to grow and contribute nicely to our overall business in fiscal 25 and beyond as we continue to invest and innovate in this market. Lastly, I'll discuss our Certi's IP licensing and chiplet businesses. In Q4, our Certi licensing business delivered solid results, owing to our combination of speed, signal integrity, leading power efficiency, and breadth of offering. During fiscal 24, we won licensing business across a range of applications, process nodes, and lane rates. Our wins ranged from 28 nanometer down to 4 nanometer at lane rates ranging from 28 gig to 112 gig. Our chiplet business saw significant growth, led by our largest customer, who deploys our Certi's chiplets in a massive AI cluster. This customer also engaged us to develop a next-generation chiplet for future deployments, which is a testament to our leading technology and customer-centric focus. We are entering fiscal 25 with a strong and diverse funnel of Certi's licensing and chiplet opportunities. In summary, the shift towards generative AI accelerated during our fiscal 24, and we see that continuing into the foreseeable future Industry data and market forecasters point towards continued and growing demand for high-bandwidth, energy-efficient connectivity solutions that are application optimized. Credo benefits from this demand due to our focus on innovative, low-power, customer-centric connectivity solutions for the most demanding applications. Our view into fiscal 25 and beyond has remained consistent for a number of quarters now. And this has only been reinforced by recent wins, production ramps, and customers' forecasts as they continue to formalize their AI deployment plans. And with that, Dan Fleming, our CFO, will now provide additional details.