Credo Technology Group Holding Ltd

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

Good afternoon. Thank you for joining our earnings call for the first quarter of fiscal 2025. Today, I am joined by Bill Brennan, Credo's chief executive officer, and Dan Fleming, our chief financial officer. As a reminder, during the call, we will make certain forward-looking statements. These forward-looking statements are subject to risks and uncertainties that are discussed in detail in our documents filed with the SEC, which can be found in the investor relations section of the company's website. 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 the U.S. GAAP. A discussion of why we use non-GAAP financial measures and the 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. I will now turn the call over to our CEO. Bill?

Welcome to our Q1 fiscal 25 earnings call. I'll start with a review of our Q1 performance and then discuss our future outlook. Our CFO, Dan Fleming, will then provide detailed Q1 results and share expectations for Q2. For Q1, Credo reported revenue of $59.7 million and non-GAAP gross margin of 62.9%. Our product revenues of $57.3 million were up 30% compared to the prior quarter. establishing a new quarterly record for the company. Product revenues were driven by rapidly expanding AI deployments. Credo is a pure-play high-speed connectivity company. We deliver a differentiated set of solutions, including active electrical cables, or AECs, optical DSPs, line card PHYs, Serdius chiplets, and Serdius IP licenses for Ethernet port speeds ranging from 100 gig up to 1.6 terabits per second. The data center market is dynamic and evolving rapidly, which we believe will create even more opportunities for Credo. Although we are primarily targeting the leading hyperscalers, we are now observing increased spending by the next tier of data center operators. We see a group of emerging hyperscalers deploying an increasing amount of infrastructure to take advantage of opportunities presented by AI. With these customers, we find we have immediate credibility from our prior success with traditional hyperscalers. And that has indeed helped us to win new programs across our product lines. This is translating into material revenue across several growing customers. Notably, we expect to see a new 10% customer in Q2. Credo aims to extend its reach into new markets as data rates rise. Later this year, we intend to enter the 64-gig PAM4 PCIe Gen 6 market, offering retimer and AEC solutions that are optimized for signal integrity, latency, power efficiency, and cost effectiveness. Now regarding our AEC product line, during the first quarter, AECs continue to be our main source of revenue, and we anticipate that AECs will play a crucial role in driving growth in fiscal 25 and beyond. Today, we're in production with solutions for port speeds up to 800 gig, and we expect to deliver power optimized three nanometer products in 2025 for the 1.6T port market. We've delivered AECs in a wide variety of form factors and with a range of functionality designed to meet the diverse needs of our customers. We think our approach of offering system level products Blending customized hardware and software with fast turnaround time is crucial to maintaining our competitive edge. And as a result, we've developed deep relationships with our customers to deliver very innovative AEC solutions. Based on these customer relationships, market feedback, and the inherent advantages of AECs compared to alternative solutions, we have seen AECs become the de facto solution for in-rack connectivity at 50 gig per lane speeds and above. In addition, increasing rack power densities and the migration to liquid cooling are effectively reducing the physical lengths required for backend network connections, and thereby increasing the opportunity for AECs. During Q1, our existing and new customer relationships continued to expand and develop, providing us with more confidence in the growth prospects of our AEC business going forward. Given that, we continue to expect our ramp of AECs to drive an inflection point in our sequential growth in the back half of fiscal 25. Now I'll turn to our optical DSP business. I'm pleased to report we're making continued progress with our optical DSP business on multiple fronts, with AI deployments accelerating adoption of credibility solutions. Our optical module customers shipped AOCs and transceivers based on credo DSPs to both U.S. and international end customers. Based on Q1 results and our outlook, we remain on track to achieve our goal for optical DSPs to be at least 10% of our fiscal 25 revenue. Beyond our existing production programs, we remain excited about future growth prospects in this category for several reasons. We are currently working with numerous optical module manufacturers to develop AOCs and transceivers, and notably, we've secured our first design win with an industry-leading module manufacturer. Last fall, Credo introduced the concept of LRO, or linear receive optics, which maintains a DSP only in the transmit path of an optical module as an innovative way to reduce power in both 800 gig and 1.6T optics. The LRO concept is increasingly being adopted within the industry, and a new hyperscaler has decided to implement this strategy in their architecture. This application will target 800 gig module power of less than 10 watts, significantly below the typical 15 watts seen with full DSP architectures. We expect to start seeing LRO deployments in calendar 25. At 800 gig and 1.6T port speeds, we see energy efficiency becoming a more critical factor as power delivery and cooling infrastructure becomes even more challenging. Notably, power efficiency drove our decision to move directly to 3 nanometer for Credo's 1.6T DSPs, and we plan to tape out power optimized solutions with both full DSP and LRO options later this calendar year. Taking into account customer feedback and rising momentum, we anticipate sustained growth in our optical business. Now regarding our LineCard 5 business. In the first quarter, our LineCard 5 business was once again an important contributor to our overall product revenue growth, driven by strong contributions from 400 gig and 800 gig solutions. Our LineCard 5 revenue comes from retimer and MECSEC encryption products for port speeds up to 1.6 terabits per second. In this segment, our customers include networking OEMs for traditional switching applications, and more recently, server ODMs for emerging AI appliance applications. We see new demand for our LineCard 5 solutions within Ethernet-based AI appliances for scale-out networks, as rapidly increasing GPU performance places greater signal integrity demands inside the server. These emerging opportunities combined with traditional switch opportunities should lead to TAM growth into the future for our LineCard 5 solutions. Lastly, I'll review our SERDES licensing and chiplet businesses. We continue to make progress with customers and expand our funnel within our SERDES IP licensing and chiplet businesses. For fiscal 25, while we continue to expect quarterly variability due to the nature of revenue recognition, We see growth opportunities driven by a combination of license, royalty, and chiplet revenues. With connectivity speeds rising, fueled mainly by the needs of AI applications, Credo is poised for future growth. We offer a wide range of sturdy solutions up to 224 gig speeds in a wide range of process geometries from 28 nanometer to three nanometer. We continue to win due to our compelling combination of performance power, and exceptional technical support. To summarize, I'm very pleased with our team's performance in Q1, specifically in terms of the strong execution of our product ramp and our ongoing success engaging with customers. The rise of generative AI is driving greater demand for cutting edge, power efficient, high speed connectivity solutions, and Credo is dedicated to advancing our range of solutions. to address this growing demand. This month, Krita will have strong presence at the CIOE Optical Conference in Shenzhen, followed by the ECOC Optical Conference in Germany. We expect these events will add to the momentum we've built since OFC in March. And next month, we'll be very visible at the OCP Conference in Silicon Valley, showcasing a wide array of advanced solutions for AI clusters. Moving forward, We continue to see an inflection point in the second half of fiscal 25, driven by existing and new customer engagements across the entire range of our connectivity solutions. I'll now turn the call over to our CFO, Dan Fleming, and he will provide additional details.