Credo Technology Group Holding Ltd (NASDAQ: CRDO) Q4 & FY2025 Earnings Call 5/29/2025

Credo Technology Group Holding Ltd. announced record-breaking financial results for the fourth quarter and full fiscal year 2025, driven by surging demand for its high-performance connectivity solutions, particularly for AI applications.

Key Financial Highlights:

Fiscal Year 2025 (Full Year):

• Revenue: $436.8 million, a significant 126% increase year-over-year.
• Non-GAAP Gross Margin: 65%, up 257 basis points year-over-year, demonstrating strong profitability.
• Operating Margin: Improved by 2,500 basis points, reflecting strong leverage from top-line growth.
• Earnings Per Share (EPS): $0.70, a substantial $0.62 improvement over the prior year.

Fourth Quarter Fiscal 2025 (Q4):

• Revenue: $170 million, marking a 26% sequential increase and a remarkable 180% year-over-year growth, exceeding guidance.
• Non-GAAP Gross Margin: 67.4%, above the high end of guidance. Product non-GAAP gross margin was 66.5%, up significantly due to increasing scale.
• Non-GAAP Operating Income: $62.5 million, up demonstrably from Q3, leading to a non-GAAP operating margin of 36.8%.
• Non-GAAP Net Income: A record high of $65.3 million, with a non-GAAP net margin of 38.4%, well above the long-term model.
• Cash Flow from Operations: $57.8 million, a significant sequential improvement.
• Ending Cash and Equivalents: $431.3 million, with no debt.
• Top Customers: Three hyperscalers each contributed over 10% of Q4 revenue, with the largest being 61%. Diversification efforts are ongoing, with expectations of two new hyperscale customers in the second half of fiscal year 2026.

Business and Strategic Highlights:

• Active Electrical Cables (AECs): Maintained steep growth, becoming the de facto standard for inter-rack applications due to superior signal integrity, reliability (over 100x greater than optical for rack-to-rack up to 7 meters), and energy efficiency, crucial for AI deployments. Credo's system-level approach provides a significant competitive advantage. PCIe Gen 6 AECs are gaining traction for AI scale-up networks.
• Optical Business: Fiscal 2025 was a standout year, expanding customer diversity across various lane rates and port speeds. A significant DSP win for an 800-gig transceiver with a U.S. hyperscaler is expected for initial deployments in fiscal 2026. Credo unveiled ultra-low-power 100-gig-per-lane optical DSPs (5-nanometer technology) and demonstrated an industry-first 800-gig optical module with ~9 watts power consumption using their LARC LRO DSP. They also showcased a 3-nanometer, 200-gig-per-lane optical DSP for 1.6 terabits per second.
• Retimer Business: Delivered robust results, driven by 50-gig and 100-gig-per-lane Ethernet solutions with advanced features. Customer base expanded to include leading AI server vendors. PCIe Gen 6 retimer family achieved full compliance, with customer momentum accelerating for design wins in calendar 2025 and production revenue in calendar 2026.
• PILOT Software Platform: The company highlighted its PILOT (predictive integrity, link optimization, and telemetry) software, which offers an industry-leading user interface, debugging tools, and advanced telemetry for large-scale deployments, enhancing system monitoring and time-to-market.
• Market Position: Credo solidified its position as a pure-play high-speed connectivity leader, addressing AI infrastructure investments with solutions supporting port speeds from 100 gigabits per second to 1.6 terabits per second. The company anticipates continued strong demand for reliable, power-efficient, high-performance, and tailored solutions for diverse AI network architectures.
• Geographic Diversification & Tariffs: Credo is actively diversifying its manufacturing footprint to mitigate tariff risks and maintain flexibility in its supply chain.

Outlook for Fiscal Year 2026 (FY26):

• Q1 FY26 Revenue: Expected to be between $185 million and $195 million (up 12% sequentially at the midpoint).
• Q1 FY26 Non-GAAP Gross Margin: Projected between 64% and 66%.
• Q1 FY26 Non-GAAP Operating Expenses: Anticipated between $54 million and $56 million.
• Full Year FY26 Revenue: Expected to exceed $800 million, representing over 85% year-over-year growth.
• Full Year FY26 Non-GAAP Operating Expenses: Expected to grow at less than half the rate of revenue.
• Full Year FY26 Non-GAAP Net Margin: Expected to approach 40%.
• Capital Expenditures (CapEx): Anticipated to approximately double compared to fiscal 2025, primarily driven by upcoming 3-nanometer tapeouts.