Ladies and gentlemen, thank you for standing by. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. At this time, if you have a question, you will need to press star followed by the number one on your telephone keypad. If you would like to read your question, press the pound key. 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 fourth quarter of fiscal 2025. Today, I'm joined by Bill Brandon, CREO's Chief Executive Officer, and Dan Fleming, our Chief Financial Officer. During this call, we will make certain forward-looking statements. These forward-looking statements are subject to risks and uncertainties 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 is not possible for the company's management to predict all risks, nor can the company assess the impact of all factors on this 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 issue today, which can be assessed using the investor relations portion of our website. With that, I will turn the call over to our CEO, Bill.

Thanks, Dan. Thank you for joining our earnings call for the fourth quarter of fiscal 25. I'll begin with a review of our results, and then I'll provide highlights for our outlook into fiscal 26. Dan Fleming, our CFO, will follow with a detailed discussion of our Q4 and fiscal year 25 results, and then provide our outlook for the first quarter. In the fourth quarter, we delivered revenue of $170 million, a 26% sequential increase, and up 180% year-over-year. Our non-GAAP gross margin was 67.4%. For Fiscal 25, Credo achieved revenue of $437 million for growth of 126% year-over-year. Our non-GAAP gross margin from Fiscal 25 was 65%. I'm proud of Credo's achievements in Fiscal 25. Record-breaking revenue and profitability were fueled by surging demand for our innovative, reliable, and energy-efficient high-performance connectivity solutions. Our long-term commitment to customer-driven innovation paid off significantly in fiscal 25. Quarterly revenue nearly tripled from Q1 to Q4, validating our foresight and our ability to capitalize on a predicted inflection point. Our agile approach strengthened partnerships with hyperscalers amid a rapidly evolving AI landscape. As a pure-play high-speed connectivity leader, Credo delivers a growing portfolio of differentiated solutions for global data center operators, currently supporting port speeds from 100 gigabits per second to 1.6 terabits per second. Our innovation spans three tiers, advanced series technology, cutting-edge integrated circuit design, and comprehensive system-level solutions. These innovations are seamlessly integrated with our PILOT software platform. PILOT is an acronym for Predictive Integrity, Link Optimization, and Telemetry. PILOT offers an industry-leading user interface, robust debugging tools, and advanced telemetry tailored for large-scale deployments. This holistic innovation strategy enables Credo to deliver copper and optical connectivity solutions that surpass industry standards, providing unmatched functionality, reliability, and energy efficiency. While achieving a remarkable revenue ramp in fiscal 25, we continue to build the foundation for sustained growth. Looking ahead, we anticipate increasing customer diversification across copper and optical connectivity for Ethernet, DCIE, UA-Link, and other emerging applications in both scale-out and scale-up AI networks. Following this significant revenue inflection in Fiscal 25, we're energized by the expanding opportunities and total addressable market that lie ahead. I'll now review our business in more detail. Regarding our active electrical cable product line in Q4, our AEQ revenue maintained a steep growth trajectory. As anticipated, our customer base diversified, with three hyper-sailers each contributing over 10% of our revenue, strengthening our market position. When we pioneered the AEC market years ago, we recognized the compelling advantages over both traditional direct-attached cables, or DACs, and laser-based optical solutions, especially at data rates of 50 gig per lane or higher. AECs have extended the viability of copper connectivity, becoming the de facto standard for intra-rack application. Compared to DACs, AECs deliver superior signal integrity, advanced features, and a more versatile form factor. Now, AECs are gaining traction as a robust rack-to-rack solution for distances up to 7 meters offering over 100 times greater reliability than laser-based optical modules, virtually eliminating link flaps and significantly improving energy efficiency, which are both key enablers for best-in-class AI deployments. Credo's system-level approach has driven substantial competitive advantages by owning the entire solution stack. Surrey's IP, three-timer ICs, system-level design, qualification, and production. Our approach positions Credo for significant innovation and time-to-market advantages. As data center architectures evolve rapidly, we foresee a continued shift towards curated system-level solutions. We're enthusiastic about the ongoing expansion of the AEC market. For instance, our recently demonstrated PCIe Gen 6 AECs at GTC promised the same compelling benefits for AI scale-up networks as deployments transition to rack-scale architectures. Our growing traction with hyperscalers is evident. With strong customer forecasts and new design wins in qualification, we're confident in sustained AEC revenue growth. I'll now discuss our progress in the optical market. Fiscal 25 was a standout year for Credo's optical business. We closed the year with strong momentum, expanding customer diversity across lane rates, port speeds and applications. We achieved our revenue growth targets, delivering 50-gig and 100-gig per-lane optical DSPs to a broad base of optical module customers. In Q4, we secured a significant DSP win for an 800-gig transceiver, with initial deployments expected at a U.S. hyperscaler in Fiscal 26. At the OFC conference in San Francisco last month, Frito's latest optical innovations drew widespread attention from industry leaders. We unveiled our ultra-low-power 100-gig per-lane optical DSPs, built on 5 nanometer technology. This family, including full DSP and Linear Received Optics, or LRO, variants, sets new industry benchmarks for power efficiency. In collaboration with an optical module partner, Credo demonstrated an industry-first 800-gig optical module with total power consumption of roughly 9 watts. Powered by our LARC LRO DSP and single-load optics, we achieved error rates comparable to full DSP solutions, earning significant interest from hyperscalers prioritizing power efficiency for AI deployments. We also showcased our 3-nm, 200-gig per-lane optical DSP, supporting port speeds up to 1.6 terabits per second. With leading signal integrity and power efficiency, this solution positions Creo to drive the industry's transition to 200-gig lane speeds in the coming years. Looking ahead, we see a dynamic and growing market for optical connectivity where reliability and energy efficiency are increasingly critical. CREDO is poised to deliver system-level innovations that provide substantial advantages to our partners. CREDO's optical business demonstrated robust execution of fiscal 25. With our growing differentiation and an expanding system-level market opportunity, we anticipate accelerated revenue growth in the years ahead. Turning to our retimer business, in Q4 and fiscal 25, our retimer business delivered robust results, reinforcing our leadership. Retimer revenue growth was fueled by our 50 gig and 100 gig per lane Ethernet solutions, offering advanced features like MacSec encryption, earboxing, and software-enabled functionality tailored to diverse customer requirements our customer base now includes leading ai server vendors alongside traditional switching clients reflecting the growing adoption of our solutions in ai driven architectures for fiscal 26 we anticipate strong growth driven by the continued shift to 100 gig per lane solutions and increasing demand for system level expertise and software capabilities to address hyperscalers complex ai optimized architectures our recently launched PCIe Gen 6 Retimer Foundation, led by the Toucan Retimer, achieved full compliance at the PCIe Safe Workshop, showcasing superior performance and interoperability. Demonstrations at GTC, OFC, and most recently at Computex with two leading ODM partners further validated our capabilities. Customer momentum for our PCIe Retimers is accelerating, positioning credo the secure design wins in calendar 25 with production revenue expected in calendar 26. Our competitive edge lies in leveraging core surges technology, a customer-centric approach, and system-level innovation to deliver differentiated latency, reach, and power efficiency. Additionally, our pilot development telemetry software platform drives faster time to market, improved yields, and enhanced system monitoring, providing clear advantages based on market feedback. In summary, Fiscal 25 marked a pivotal year for Credo, achieving record revenue, profit, and market adoption of our innovative connectivity solutions, hitting the inflection point we anticipated. Our operational and customer-facing teams executed flawlessly to deliver these results. Credo pioneered a market that transformed how hyperscalers connect switches and servers. We continue to innovate, with recent product announcements reflecting customer-driven solutions. These advancements position us to capture significant opportunities in the global AI infrastructure investment way, fueling our next phase of growth. Reflecting on our journey, Credo has navigated successes and challenges with relentless focus on delivering world-class products. This resilience defines our DNA and is our greatest strength. Thank you, Team Credo, for your dedication. I'm excited for what lies ahead. We see growing demand for high-speed connectivity solutions across our hyperscaler customers to power advanced AI services, a trend we anticipate continuing for the foreseeable future. Customers require reliable, power-efficient, high-performance, and tailored solutions to support their diverse architectures. Credo meets this demand with a differentiated portfolio of copper and optical connectivity solutions customized for customers through IP, tiered innovation strategy, and system-level approach. With that, Dan Fleming, our CFO, will now provide additional details, and will then take questions.

Thank you, Bill, and good afternoon. I will first provide a financial summary of our fiscal year 25, then review our Q4 results, and finally discuss our outlook for Q1 and provide some color on our expectations for fiscal year 26. Revenue for fiscal year 25 was a record at $436.8 million, up 126% year-over-year, driven by product revenue that grew by 157%. Gross margin for the year was 65%, up 257 basis points year over year. Our operating margin improved by 2,500 basis points as we continue to generate considerable top-line leverage, driven by growth in our products, while growing operating expenses considerably slower than revenue. That step up in profitability flowed through to the bottom line as we reported earnings per share of $0.70 for the year, a $0.62 improvement over the prior year. In fiscal year 25, Credo not only delivered the dramatic product growth which we had forecast, but we also demonstrated the earnings power in our business model. Moving on to the fourth quarter, in Q4, we reported revenue of $170 million, up 26% sequentially and up 180% year over year, and well above the high end of our guidance range. Our product business generated $165.9 million of revenue in Q4, up 26% sequentially and up 276% year-over-year. Notably, our AEC product line again grew healthy double digits sequentially to achieve new record revenue levels once again. Our top three end customers were each greater than 10% of revenue in Q4. As a reminder, customer mix will vary from quarter to quarter, and we continue to make progress in diversifying our customer base. We continue to expect that three to four customers will be greater than 10% of revenue in the coming quarters and fiscal year, as hyperscale customers continue to ramp more significant volumes and as we expect to begin to ramp two new hyperscale customers in the second half of fiscal year 26. Our team delivered Q4 non-GAAP gross margin of 67.4%, above the high end of our guidance range, and up 355 basis points sequentially. Our product non-GAAP gross margin was 66.5% in the quarter, up 354 basis points sequentially, and up 1,289 basis points year over year, primarily due to increasing scale. Total non-GAAP operating expenses in the fourth quarter were $52 million at the high end of our guidance range and up 19% sequentially, primarily driven by headcount. Our non-GAAP operating income was $62.5 million in Q4 compared to non-GAAP operating income of $42.4 million in Q3, up demonstrably due to the leverage attained by achieving 26% sequential top-line growth. Our non-GAAP operating margin was 36.8% in the quarter, compared to a non-GAAP operating margin of 31.4% in the prior quarter, a sequential increase of 538 basis points. Our non-GAAP net income was $65.3 million in the quarter, a record high, compared to non-GAAP net income of $45.4 million in Q3. And our non-GAAP net margin was 38.4% in the quarter, well above the high end of our long-term net margin model of 28 to 33%. Cash flow from operations in the fourth quarter was $57.8 million, up $53.6 million sequentially due to cash collection driven by the significant sequential product ramp. CapEx was $3.7 million in the quarter, driven largely by purchases of production equipment, and free cash flow was $54.2 million, an improvement of $54.6 million from the third quarter. We ended the quarter with cash and equivalents of $431.3 million, an increase of $52.1 million from the third quarter. We remain well capitalized to continue investing in our growth opportunities while maintaining a substantial cash buffer. Our Q4 ending inventory was $90 million, up $36.8 million sequentially. Now, turning to our guidance, we currently expect revenue in Q1 of fiscal 26 to be between $185 million and $195 million, up 12% sequentially at the midpoint. We expect Q1 non-GAAP gross margin to be within a range of 64% to 66%. We expect Q1 non-GAAP operating expenses to be between $54 million and $56 million. We expect Q1 diluted weighted average share count to be approximately 188 million shares. These expectations are based on the current tariff regime, which remains fluid. We were pleased to see fiscal year 25 play out as we expected. The rapid shift to AI workloads continued to drive new, broad-based customer engagement, and we executed well to deliver the sequential growth we had forecast throughout the year. As we begin fiscal year 26, we expect revenue to exceed $800 million for year-over-year growth in excess of 85%. We expect non-GAAP operating expenses to grow at less than half the rate of revenue from fiscal year 25 to fiscal year 26. And as a result, we expect our non-GAAP net margin to approach 40%. And with that, I will open it up for questions.

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Vivek Arya with Bank of America. Your line is open.

Thanks for taking my questions. For the first one, on the revenue side, I was hoping you could, you know, perhaps quantify how large were the three 10 percent customers, especially the largest one. And thanks for giving the fiscal 26 revenue outlook that suggests kind of a modest kind of sequential growth through the year. But I think you mentioned that you expect other new hyperscalers to come on board in the second half. So if you could just talk through what the puts and takes are as you look at kind of shaping the year, what could be the upside drivers and downside risks from here through fiscal 26 as you get more customers on board and how to follow up.

All right. Sure, Vivek. This is Dan Fleming. So, as you know, last quarter in our earnings call, we said that we had expected 3% to 4% 10% end customers in the coming quarters and fiscal year. So we reiterated that again in our prepared comments, and that's exactly what we saw in our Q4. So the largest customer was 61% of revenue, no surprise who that was. And we also had a 12% and an 11% customer, and they were the same customers that you saw in Q2 past that 10% threshold. So kind of addressing your second point, we expect to continue our diversification throughout fiscal 26. And in addition to these three customers, we do expect to have two additional hyperscalers in the second half of fiscal 26 in addition to those three 10% customers. It's a little difficult for us to map out exactly how that will chart through the year, but right now if you just kind of apply a linear projection, that's probably as best as we could project at this point in time. But we're certainly excited about our continued revenue diversification across several hyperscalers as our innovative solutions are more broadly adopted across the industry.

And from my follow-up on gross margin, you mentioned scale as a reason for gross margin expansion, but I think for Q1, you're getting gross margin to kind of get back to a trend, 65%, but, you know, you should be getting more scale benefits. So is there anything else in mix or customers that are sound? So just, you know, conceptually, how should we think about the gross margin trajectory for the fiscal year?

And if for extra credit, if you could also tell us about how you think about EBIT margin, because there you are above your longer term model. thank you yeah we're certainly seeing the benefit of scale we saw that in q3 we saw it even more so in q4 as that scale continued to grow so it's a fair question that you ask you know we were up 355 basis points from q3 to q4 gross margin wise and that puts us uh you know above the high end of our long-term model but having said all that our gross margin expansion won't always be linear as we continue to increase scale and there will always be some differences in product mix from quarter to quarter. So we guided Q1 to 65% at the midpoint but more importantly you know we're not setting a new long-term model for gross margin but we're clearly entering a phase right now where gross margin will be at or above the high end of that long-term expectation.

Anything on EBIT then?

You would expect that to follow kind of the improvement or expansion in net margin should fall right through to EBIT. So you could do that math in a pretty straightforward fashion. Our CapEx, the one additional piece I'll give you is if you look at all of the different tape outs and leading those that we have planned over the coming fiscal year, our CapEx might be maybe double what it was this last year. So that'd be the last piece of the equation you would need to come up with your own EBIT.

Again, before going to the next question, if you would like to ask a question, please press star, then the number one on your telephone keypad. We request that you limit your question to one and one follow-up. Your next question comes from the line of stories, Van Ver, with Stifel. Your line is open.

Yes, thank you, Bill, Dan, awesome results, great execution. Bill, I was hoping you could talk a little bit more about some of the use cases with your large customers that are ramping, especially on the AEC side. So, you know, there's clearly, you know, an 800 gig upgrade cycle going on. You know, I guess you're still, you know, shifting some 400 gig.

And especially as we think about the two new customers that are coming out coming on second half of the year um if you could talk to the use cases for those as well that would really help thank you sure so i think we see the use cases being pretty consistent with what we've talked about in the past there's three basic areas there's uh and and the our main business today is in connecting servers with with switches the first business that we ramped was really front-end connections and that that is what we think about traditionally when we think of the network second area is now with back-end networks and specifically with scale-out networks this is the majority of the product that we're shipping today really if we look at at all of the customers combined I would say it's far greater than 50 percent of the shipments that we're seeing scale up back in back in networks for AI the third third area is really within disaggregated chassis and so we see that being a growing part of our business and that exists in both the back-end and front-end networks what we're seeing is is you know our largest volume right now is actually in 50 gig per lane ADCs but

we see the trend moving quickly to 100 gig per lane hopefully that gives you the color you were looking for yeah no that's great and maybe as a follow-up and so related to that because you mentioned the largest volume is still 50 gig I assume that that means is more 400 but you know where are we sort of then in the inflection points of 800 gig is this sort of still very early days for 800 gig upgrades and you know I assume it would be very different by customer right you know some customers probably haven't even moved to 800 gig for your AEC products yet right yeah each one of our customers we kind of use a different market in itself they all have

different strategies and there's you know many different ways to achieve the networking objectives as it relates to AI clusters as it relates also to the network in general and so We see that really towards the end of fiscal 26, we see it, you know, the transition from 50 gig to 100 gig overall broadly for our business will really start to happen in a bigger way. But again, we've got some customers who are already there. 100% of the shipments that we're making are 100 gig per lane. So it's hard to talk generally about it, given the fact that each one of our customers will have a different strategy.

Well, that's great. Congrats again.

Thanks. Your next question comes from the line of Ken Bolton with Needham and Company. Your line is open.

Hey, guys. Let me offer my congratulations as well. I wanted to come back, Dan, to the gross margin and the step down in the July quarter. Wondering if you could just talk to us about the tariff risks i think you've got bizlink and foxlink which manufacture your aec cables both located in china and wondering if tariff risks and and tariff costs are uh having any impact on that gross margin uh in the july quarter and then i've got a follow-up yeah that's not um um We don't expect there to be a significant tariff risk impact to gross margin percentage at this point.

So that's not what's driving potentially a minor reduction in gross margin percentage, Q1 to Q2 or Q4 to Q1. But just thinking of tariffs in general, maybe I'll let Bill comment on them a little more broadly.

Sure. So I think what we've seen, over the last quarter, since our last call, tariffs and the overall macroeconomy are continuing to evolve. We're obviously monitoring the situation closely, and, you know, we're working very closely with our customers, and, you know, ultimately, we're trying to be as flexible as we can in delivering the best solution for each customer. The, you know, over the past year, we've talked about the efforts that we're making to diversify. geographically you know really happy to say that in the kind of worst case scenario you know within months we could be out of one geographic location and into another and so I feel like our team and our customers we're trying to take a you know a mindset that's dynamic and you know ultimately you know we feel like this thing is going to be more well understood over the next three to six months. And we're going to try to be as flexible as we can to deliver solutions in the most efficient way possible.

And my follow up, Bill, you've talked about your fourth and your fifth hyperscale customer ramping. It sounds like kind of more second half of the year. You've got three 10% customers. You're saying there could be three to four. I'm wondering if If you think either of the two hyperscalers that ramped this year, would you expect them to ramp so quickly that one of those could be a 10% customer on a quarterly basis by the end of fiscal 26? Or would you expect a more modest ramp from the two new hyperscalers this year? Thank you.

I think all of the hyperscalers have the potential to be a 10% customer long term. If we look at more of a short-term outlook, it's very hard for us to get specific with that. I will say that one of the two additional customs that we've talked about, the ramp, looks like it's going to happen towards the middle of the year. So we're getting some clarity that, you know, that ramp is planned to be a little bit sooner than we expected. But the additional customer beyond that, it's also firming up, but it looks more towards the second half when that's going to happen. Again, really hard for me to say in that time frame how large these two additional customers will be. But long term, I surely believe that both of them could be a 10% customer long term. Thank you, Bill.

Your next question comes from the line of Tom O'Malley with Barclays. Your line is open.

Hey, guys. Thanks for taking my questions. The first one, to your commentary about a majority of your business being scale out today, if you look at the number of connections, like you're increasingly seeing that a lot of these links are going to be in the scale up architecture, and you're seeing UAL, scale up Ethernet, and then NVFusion now come out and different methods for connecting those Could you talk about your play in the scale-up architecture? And do you think that you need to be embedded deeply in one of those protocols slash standards to have success? Like, to date, it feels like your customer wins are very much, you know, one-on-one, but, you know, as those standards grow and those protocols grow, like, do you feel like that's where you will get the next win of this company is when you get aligned there? And just any comments on NVFusion, please.

Before we jump into NVLink Fusion and scale up Ethernet or SUE and UALink, first of all, there's a large market for PCIe, and so that's Gen 5 today moving to Gen 6, and then longer term when we talk about these other standards, these are all going to be 224 gig, 224 gig 30s um so at the at the you know at in the in the near term we expect that um we're going to increase right we're going to establish revenue and really increase that revenue base in the pcie gen 5 and gen 6 time frame and then after that we're going to be flexible in a sense of offering gen 7 or doing products that would be universal for all of the standards that that we mentioned. At the physical layer, layer one, these are all similar SERDEs and we think that if we talk about AECs specifically, we think that 224 gig per lane AECs will be able to support Ethernet, SUE, UALink and also NVLink Fusion.

So we think generally that the announcement from NVIDIA is good for market open standards are are good and that will open up opportunity for the market in general including credo and that's helpful as a follow-up uh i wanted to to kind of dive in on some comments you made in the preamble on the optical side just talking about the success of the execution this year and then thoughts on growth into next year um in terms of your your opportunities at higher speeds are you seeing more traction with customers today um it seems like there's a lot of diversification going on and just any you know evidence points of that success in the market thus far thanks again Bill yeah our progress with optical

continues so we felt great about what the team was able to accomplish in fiscal 25 and we're looking again to double or even beyond double our our optical revenue fiscal 26 so the majority of our business today is believe it or not 50 gig per lane and we've got several designs that are in flight and we're seeing traction now in revenue for 100 gig per lane designs that is going to continue our share increase for 100 gig per lane optical DSPs will continue I think when when we saw each other at OFC you could you could sense the the interest that we saw in the demonstrations that we made there probably most impressive coming out of that show was showing an 800 gig LRO DSP built into a module that was being demonstrated by showing great error rates and you know the key point was at roughly nine watts so there's an increasing focus on on power efficiency especially in in AI networks in AI clusters and so you know my feeling is that we're going to experience a lot of success in the 100 gig per lane market in in the next 12 to 24 months and of course you know beyond that 200 gig per lane is coming I think you know we're in the camp that says it's going to come a little bit more slowly than predicted as it always seems to happen but also at OFC we demonstrated what we believe is an industry leading a 200 gig per lane optical dsp solution again you know leading air performance and setting probably a new benchmark in power efficiency for that 1.6 t market we're going to come out with both full dsp and the lro variants at the same time and our expectation is that we're really well positioned in that market as that as that develops your next question comes from the

line of Vijay Rakesh with Mizuhu. Your line is open.

Hi, Bill and Dan. Congratulations on a great quarter, I guess. Just a couple of quick questions about the airport. It's a little noisy, but can you talk to what are the, what's the traction you're seeing on optical DSP? I think you talked about three customers going to five.

I'm just wondering if they're all full DSP or LRO, and when do you expect those to become much bigger I guess sure so I feel like we're we're really well positioned right now if we talk about 100 gig per lane solutions and 200 per lane solutions specifically we're gonna have various you know various products that are going to enable our customers to target specifically what they're most interested in so our 12 nanometer family of DSPs is by far the lowest cost, you know, from the standpoint of any DSPs in the market. So super cost effective in 12 nanometer. The product line we came out with recently in 5 nanometer, this sets new benchmarks for power efficiency. And so that is a trend that we see, that that is something that our customers are pursuing pretty aggressively right now. as it relates to full DSP versus LRO we're very agnostic and you know certain customers if they can fit under the under the power ceiling for the module design with a full DSP they'll go with a full DSP in other cases if if you know power efficiency is really critical and we're seeing this market for 800 gig optical DSPs and optical modules you know really really becoming much more prioritize so the sub 10 watts is very much an objective and in the past you know those in the industry have said that the only way to do that is to go to an LPO solution which drops the DSP and creates a whole host of issues with interop and you know and diagnostics so the LRO is a is a solution as we've shown we can deliver on this requirement of sub 10 watt modules and still maintain the benefits of having uh the dsp designed into the system got a second and then last uh on the scale-up side i know you should be able to see yes but when do you expect scale-up um uh very nice to start to get uh or start to show up and get material for you thanks yeah for us we've been pretty consistent saying that um our design ones will come uh this calendar year and our revenue ramp will start in calendar 26 and i feel like we're you know absolutely right on top of of uh of you know that time frame when i think it's going to become a very material and significant part of our business i think you know over the next um you know two to five years this is uh going to be a part of the network where there's intense demand across the board. And so I see our business growing pretty dramatically beyond, say, our fiscal 27 timeframe.

Thank you.

Your next question comes from the line of Carl Ackerman with BNP Paribas. Your line is open.

Yes, thank you. I have two, please. First, Dan, you spoke about CapEx doubling this year to support your sales outlook for fiscal 26 given the capital commitment to support these programs could you discuss whether any of these programs are take or pay that may give you better visibility into the manufacturing ramp requirements for these programs over the next couple quarters no no this is the the largest thing that drives our capex is our production mask set tape outs so um and we've talked now for a while about upcoming three nanometer tape outs in fiscal 26.

So that's really what's driving it. So it's, in a sense, kind of disconnected from any customer contracts or customers specifically. It's really, you know, fundamental devices that we're taping out that we capitalize.

Yep. Thanks for that. I understand that you may not have full visibility into every AEC connection, but do you have a general rule of thumb to think about your AEC sales being used to connect GPU compute racks versus custom compute server racks? I ask because there's a misperception that you're over-indexed to custom basic server racks for AECs. Thank you.

Yeah, I think you got it right, that our AECs are used to connect any kind of GPU to any kind of switch. And we've seen that across the board with our customers. There's definitely no way to look at our AEC business as a proxy for any kind of custom TPU solutions. We're connecting broadly at a lot of our customers with both.

Your next question comes from the line of Suji DeSalvo with Roth Capital. Your line is open.

Hi, Bill, Dan, and Dan. Congrats on the progress here. Maybe it's been a few quarters since some of your competitors have announced AEC products and talked about them. Can you just update us on the competitive landscape? And, you know, obviously you said it'd be a large market where you'd get some share, but maybe you can just talk about the competitive advantages that Credo continues to bring to the marketplace with more folks talking about AUC offerings.

Sure. From our perspective, the competitive environment has not changed meaningfully in the last, you know, 90 or 120 days. We know that our customers want multiple sources. and it's really becoming increasingly clear that the AAC market can support multiple winners. So our goal is to maintain our position as the leader and in doing that or continuing that leadership, it's really based on delivering innovative solutions more quickly than our competition. So we're very, very focused at each one of our customers on delivering the next generation solution, you know, first sampling and then ultimately going through qualification and being the first to ramp. And that has to do with our ability to, you know, to act quickly in a sense that, you know, the entire responsibility for the system level product sits within the Credo organization. And that really comes from product definition, you know, through development, through delivery of first samples, all the way through qualification and ultimately in production we take full ownership there's no question there's no time loss all of our engineers that work on you know the different parts of this from 30s to the to the to the ICs to the system level cable system to the firmware team all of them you know are you know sitting right next to each other and so are it our ability our ability to iterate to close the design and bring it you know through qualification in production I think is probably best in class and you know that's really our focus is to is to make

sure our team is the one that's you know delivering for our customers first and and satisfying them and I think we've done a great job with that thus far okay very helpful there well and then my second question is on the the rack to rack seven meter solution that you're planning is is that gonna the timing that dovetailing as you get into scale up more so second half this year next year or can you just talk about when when the demand for rack-to-rack extended cables would come in versus the ones you're selling today yes I think that you know the catalysts are really in the way that next generation data centers are being built we've talked a lot about liquid cooling and you know the non

linear power sourcing increase that's happening and so we really see the the rack-to-rack opportunity you know come as those deployments increase so you can do a lot to get you know significantly higher density for my computer and that really opens the door to improving the reliability of the network by replacing optical solutions with with AECs you know effectively eliminating link flaps and so we see you know the there's one customer we've you know publicly talked about being xai and and that's you know gone gone very very well we've accomplished their very high level objectives in you know building the most reliable cluster possible but we've got a second customer that's going to ramp this year that the catalyst there was similar in a sense that their ability to move to to these longer length AECs is the door for them to improve the reliability so I believe we'll see we'll see that over time as it relates to scale up that's really going to be you know PCIe Gen 6 to begin with and we expect that that that will become somewhat popular in the calendar 26

calendar 27 timeframe your next question comes from the line of Christopher Rowland with the scanner your line is open hey guys thanks for the question and uh congrats on on these results um uh bill just a broad question for you uh beyond aecs like if we look out maybe three years five years you've talked about optical becoming larger i think 10 percent of revenue or higher at some point um but how would you view your total product mix ACs versus optical versus let's say retimers for scale up versus other how do you see this

mix broadly playing out three to five years from now since that there's a lot of conversation about the necessity to move to optical over time and I think the market has spoken very loudly that, you know, if you can use copper, you will. Even, you know, the folks like NVIDIA have been pretty outspoken in saying that. So we believe that the market for copper is going to, you know, be very large in the next three to five years. But with that said, if we look at the largest investments that we're making right now as a company, they're all in the optical space. so my belief that is that over time yes we'll you know we'll have 10 represented by optical but i think that number will grow if we're especially if you're talking about three to five years we see a tremendous opportunity in the optical space really even beyond you know beyond what we would think of as traditional optical dsbs we're looking at improving implementing the same kind of system level um innovative um you see so there's a lot of learning there and so So when we talk about going beyond the standard, that's something we're very focused on right I will also say that we do see a large opportunity for ICs, and maybe it's in areas that are related to emerging applications within the AI space, specifically with inference. I'm not going to talk too much about that, but addressing different bottlenecks within in the landscape is definitely part of our plan. And there's being, we're investing in, in, you know, different spaces there, but that will definitely play, play into our way in the five-year kind of, so we see a lot.

Excellent. Excited to hear more about those products. My second question is around supply. So you guys are putting up just some really massive growth numbers here. And usually when we have a product take off like this, you can end up with some bottlenecks. So I guess my question is, are you seeing any bottlenecks, any constraints in either front end or back end or at your cable suppliers? um and you know what what has happened to lead times for your products during this growth have have have they uh have they grown um you know and and where are they now um you know just uh yeah the the question is generally like how far do these guys have to book out uh to to get a product yes i think we've shown in the past couple of quarters you know a great ability

to ramp in a short period of time. And if we kind of break it down specifically to the AEC, there's really two pieces. There's the silicon aspect of it, and then there's the system-level aspect. So we've got two different operations teams in the company. We've got a silicon operations team and a systems operations. And so the longest lead time that we've got is really on the silicon side, and that's with TSMC and our assembly partners. on the on the system side with the AEC it's really important that you know that we stay close with all of the different suppliers in our supply chain but specifically the cable assembly partners we've shown great ability to increase volumes quickly and so this isn't you know the same kind of challenges it would be to expand fat capacity you know basically if we install an additional line if we look at say a 24-7 operating kind of situation every line represents about a million units in in production capacity annually and so the the investment that's required is not as significant as taping out a you know say a five nanometer chip or a three nanometer chip it's it's substantially less and so the capex required the lead time to get the equipment and the lead time to bring up the line is actually shorter than what it would take to build a semiconductor from start to finish so I believe we're in good position that even if we do see the kind of you know percentages increase that we've seen over the you know the last 12 months that will be in good shape so again again it's a huge benefit that our systems operations team has close relationships with all of the supply chain part and so it's you know it's important that we have those direct connections so that we don't miss a beat when when you know we're trying to ramp quickly all of our supply chain partners notice that work they know that we're ultimately responsible for you know for making commitments and and delivering the solution your next question comes from the line of Joshua Buhalfer with TD Colin your line is open hey guys congrats on the results and guidance and uh thank you for taking my question um i actually wanted to ask about your your pilot software that you talked about in the prepared remarks um how does that sdk and debug tool differ from what you know your competitors are bringing to market and i was also helping you know are they hoping are there any synergistic elements of that the pilot software brings across your ac d dsp and retimer uh harbor thank you sure so you know we we recently announced the platform but this has been you know this uh you know this debug and development tool has really been something that has been key to our success really over the past decade and so in the ethernet space at the speeds where you know we've been operating having the ability to offer a solution like this to customers is really critical for them to be able to develop the platforms that they're trying to develop. And so when we talk about getting into the PCIe space, what we're bringing is years of experience and years of knowledge to the space. We are going beyond what we have traditionally done, especially as it relates to system-level features like telemetry. we learned a huge amount from our efforts in the AEC space and so the platform you know that you know that we refer to as pilot really touches all levels all three tiers of innovation that we've talked about and even extending into our customer system so it gives great visibility into the series IP read timer ICs or even you know the system level solution so So additionally, adding diagnostic and analytic capabilities along with this telemetry establishes what we think is a new benchmark for the competitive space, and it's specifically related to reliability and uptime stability.

Thank you for all the color there. For my follow-up, I want to ask, as your customer base diversifies through the year, can you maybe compare and contrast what types of infrastructure build-outs that you're servicing with your new customers?

Are these primarily accelerated AI builds? Are they general purpose servers? Are they for internal versus external offerings?

Anything that would help us better understand the composition? comment that both of the new customers that we've we've talked about the first part of the ramp will definitely be related to AI deployments and the longer term we see opportunities related to related to disegregated switch chassis but but you know as you would expect you know truly the AI application that's driving the you know the increased need for ABCs thank you your next question

comes from the line of Richard Shannon with Great Hallam Capital Group. Your line is open.

Well, thanks, Bill and Dan, for taking my questions, and I'll echo congratulations on a couple of great cohorts in a row. My first question is on your DSP with a hyperscaler here. I think you said there's 800 gig, but I'm not sure if you said whether it was a full DSP or LR, or if you can share that one.

But I think more importantly here, we'd love to understand how you can describe the share allocation here it does seem like it's a much bigger deal than any of your wins in the past here so maybe we get a sense of the size of this win versus the ones you've had in the past yeah i think it's hard for me to contrast the size of the opportunity we can look at volumes and we can look at revenue kind of two different things and so i think that if you would break it out you know from a volume standpoint i think it would be you know similar in the sense that that we expect it to be high volume, as you've seen in the past with our designs. You know, given that it's 100 gig per lane, from a revenue standpoint, it's probably going to be the largest opportunity that we've had to date. And so I'm not going to give too much color, given the fact that, you know, this is a super competitive space we're in. But I will say that this implementation is a full DSP implementation. Okay.

Thanks for that, Bill. My second question is, I think a topic that hasn't come up a lot in recent quarters, given how well your AAC business is going, but looking at your IP business, obviously, the revenue is coming down here as you apply seemingly more engineering resources to the product side, it certainly makes sense here. But I'd love to get your sense of how you see this business going over the long term. And in response to one of the last questions you referred to, UA-Link and B-Link Fusion, it just seems like there's some great opportunities there. So maybe you can help us understand kind of long-term for your IP business.

So I think going forward, we're not going to be breaking it out since it's not going to be above 5% of our revenues. What we've seen is we've actually seen an acceleration of our product revenue that causes us to – I mean, when we did our IPO three and a half years ago, we signaled that we thought our IP business would be in the 10% to 15% range on a shorter-term basis of our total revenue. But we've accelerated so quickly that we now find it being sub-5%. From my perspective, it's really a return on investment scenario. And I've always been very consistent in saying that, you know, from a percentage revenue standpoint of our total available market, this is tiny. and I don't expect that to change. I think the way we think about that business internally now is engaging where it makes sense from a strategic perspective. And so we've had lots of opportunities. We'll be talking to a customer about an overall system solution and a key enabler can be us providing the core IP for kind of the main shift that they're developing and then complementary solutions that would connect to that. And so those are very valuable contracts as we engage with those types of customers. And I expect those types of relationships will continue, existing relationships and new relationships. So I think, as I think about our IP business, we're going to be somewhat opportunistic, of course. But the strategic aspect of it is really enabling system-level solutions with key customers.

Your next question comes from the line of story, Svemberg, with Stiefel, your line is open.

Yeah, I just thought of a follow up, Bill, you know, because there's a lot of focus on your AEC business, obviously copper, you know, you did talk about the optical DSP when, but you've also talked about sort of taking that further and perhaps, you know, work on a system level optical solution. I'm just wondering, you know, would you intersect the 200 gig per lane, you know, market with that particular product? Or would you even consider doing it 100 gig?

I think yes to both questions. I think yes for 200 gig for sure, 200 gig per lane solutions. But, you know, I expect 100 gig per lane market to extend for several years. And so we're definitely looking at what kind of value can we add above the standard to make our customers' networks more reliable and more power efficient. And so I would say yes, that we're looking at solutions that don't require a significant shift in speeds.

Great. Well, we look forward to hearing more updates on that system or product. Thank you.

There are no further questions at this time, Mr. Brennan.

I turn the call back over to you thank you very much I'd like to thank everybody for the continued strong interest in Credo and for joining the call and we'll we'll talk shortly thank you very much this concludes today's conference call you may now disconnect