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01/10 19:03
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call summary and Q&A session reflect strong financial performance, optimistic guidance, and strategic growth initiatives. Credo's expectation of 120% YoY revenue growth, expanding customer base, and product line growth are positive indicators. While management avoided specific details on ASP uplift and timeline for a new 10% customer, the overall sentiment remains positive with a focus on system-level solutions and strong market positioning. The lack of market cap information limits precise impact prediction, but the positive outlook suggests a stock price increase in the short term.
Revenue $268 million, representing 20% sequential growth from Q1 and an extraordinary 272% increase year-over-year. The increase is attributed to the continued build-out of the world's largest AI training and inference clusters.
Non-GAAP Gross Margin 67.7%, up 11 basis points sequentially and up 469 basis points year-over-year. This reflects strong operational performance and product mix.
Non-GAAP Net Income $128 million, a record high, demonstrating substantial leverage in the business. This is a 30% sequential increase compared to Q1.
Product Revenue $261.3 million, up 20% sequentially and up 278% year-over-year. Growth was driven by substantial year-over-year growth across 4 domestic hyperscale customers.
Non-GAAP Operating Income $124.1 million, up from $96.2 million in Q1, driven by more than 20% sequential top-line growth and mid-single-digit OpEx growth.
Non-GAAP Operating Margin 46.3%, compared to 43.1% in the prior quarter, a sequential increase of 319 basis points.
Cash Flow from Operations $61.7 million, up $7.5 million sequentially, reflecting strong operational cash generation.
CapEx $23.2 million, driven largely by purchases of production MACsec.
Free Cash Flow $38.5 million, down from $51.3 million in Q1 due to higher CapEx investments.
Cash and Equivalents $813.6 million, an increase of $333.9 million from Q1, largely from the proceeds of the ATM offering.
Active Electrical Cables (AEC): Fastest-growing segment with strong revenue growth. Four hyperscalers contributed over 10% of total revenue, with a fifth starting to contribute. AECs are displacing optical connections up to 7 meters, offering better reliability and power efficiency.
Integrated Circuits (IC): Strong performance driven by retimers and optical DSPs. Significant growth expected in 50-gig and 100-gig per lane deployments, with 200-gig solutions showing promise. PCIe retimer and AEC families progressing on plan.
Zero Flap Optics: New laser-based optical connectivity family delivering AEC-class reliability. Currently in live data center trials with initial revenue expected in fiscal '27.
Active LED Cables (ALCs): New connectivity category using micro LEDs. First products to sample in fiscal '27, with revenue ramping in fiscal '28. TAM expected to be more than double the size of AEC TAM.
OmniConnect Gearboxes: New product family addressing memory-to-compute connectivity. First product, Weaver, offers significant improvements in memory capacity and bandwidth. Initial revenue expected in fiscal '28.
Total Addressable Market (TAM) Expansion: Credo's TAM is expected to exceed $10 billion in the coming years, more than tripling from 18 months ago.
Revenue Growth: Record revenue of $268 million in Q2, up 20% sequentially and 272% year-over-year.
Gross Margin: Non-GAAP gross margin at 67.7%, up sequentially and year-over-year.
Net Income: Non-GAAP net income of $128 million, a record high.
Cash Flow: Cash flow from operations at $61.7 million, with free cash flow at $38.5 million.
Strategic Partnerships: Deep partnerships forged through innovative frameworks and pilot debug platforms.
New Growth Pillars: Introduction of three new product categories: Zero Flap Optics, Active LED Cables, and OmniConnect Gearboxes, each targeting multibillion-dollar markets.
Forward-looking statements: The company acknowledges that forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially and adversely from those anticipated or implied. Management cannot predict all risks or assess the impact of all factors on the business.
Customer concentration: Revenue is heavily reliant on a few hyperscale customers, with 3 to 4 customers expected to contribute more than 10% of revenue in the coming quarters. This concentration poses a risk if any of these customers reduce their orders or switch to competitors.
Tariff regime: The current tariff regime remains fluid, which could impact costs and profitability.
Inventory levels: Ending inventory increased significantly to $150.2 million, which could pose a risk if demand does not materialize as expected, leading to potential write-offs or reduced cash flow.
Capital expenditures: CapEx increased significantly, driven by production investments. This could strain cash flow if revenue growth does not meet expectations.
Supply chain constraints: The company highlighted potential constraints in the supply chain, particularly for high-bandwidth memory, which could impact product availability and customer satisfaction.
Market competition: The company operates in highly competitive markets, including AI clusters and connectivity solutions, where technological advancements and pricing pressures could impact market share and profitability.
Regulatory and compliance risks: The company must navigate complex regulatory environments, which could lead to compliance costs or operational disruptions.
Revenue Projections: Revenue for Q3 of fiscal '26 is expected to be between $335 million and $345 million, representing a 27% sequential increase at the midpoint. Sequential revenue growth in the mid-single digits is expected toward the end of fiscal '26 and into fiscal '27, leading to more than 170% year-over-year growth in fiscal '26.
Gross Margin: Non-GAAP gross margin for Q3 of fiscal '26 is expected to be within a range of 64% to 66%.
Operating Expenses: Non-GAAP operating expenses for Q3 of fiscal '26 are expected to be between $68 million and $72 million. For fiscal '26, non-GAAP operating expenses are expected to increase year-over-year by approximately 50%.
Net Margin and Income: Non-GAAP net margin for fiscal '26 is expected to be approximately 45%, with net income projected to more than quadruple year-over-year.
Customer Growth: Each of the top 4 customers from Q2 is expected to grow significantly year-over-year in fiscal '26. Revenue diversification is expected to strengthen further, with the fourth customer surpassing the 10% revenue threshold for fiscal '26.
Product Revenue Growth: Significant growth is expected in the AEC product line and IC business, including retimers and optical DSPs. New product categories such as Zero Flap optics, ALCs, and OmniConnect gearboxes are anticipated to contribute to revenue growth in fiscal '27 and beyond.
Market Opportunities: The total market opportunity for Credo's connectivity solutions is projected to exceed $10 billion in the coming years, more than triple the market size from 18 months ago.
The selected topic was not discussed during the call.
The earnings call summary and Q&A session reflect strong financial performance, optimistic guidance, and strategic growth initiatives. Credo's expectation of 120% YoY revenue growth, expanding customer base, and product line growth are positive indicators. While management avoided specific details on ASP uplift and timeline for a new 10% customer, the overall sentiment remains positive with a focus on system-level solutions and strong market positioning. The lack of market cap information limits precise impact prediction, but the positive outlook suggests a stock price increase in the short term.
Credo's earnings call highlighted strong financial performance with 126% revenue growth and a 65% gross margin. Product innovation and customer diversification, including new hyperscaler contributions, were emphasized. The Q&A session revealed optimism in addressing AI connectivity bottlenecks and expanding AEC adoption. Despite management's lack of specificity on some aspects, the overall guidance is optimistic, expecting revenue to exceed $800 million with expanding margins. The positive sentiment is bolstered by the resolution of patent lawsuits and anticipated growth in the optical DSP market, suggesting a likely stock price increase of 2% to 8%.
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