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Credo Technology Group Holding Ltd (CRDO)·Q3 2025 Earnings Summary

Executive Summary

  • Record Q3 FY25 revenue of $135.0M, up 87.4% q/q and 154.4% y/y, driven primarily by an AEC ramp at the largest hyperscaler; non-GAAP GM 63.8% and non-GAAP EPS $0.25 .
  • Material outperformance vs prior company guidance: revenue beat the high end by ~$10M (guided $115–$125M), and non-GAAP GM exceeded guided range (63.8% vs 61–63%) .
  • Q4 FY25 guide implies continued acceleration: revenue $155–$165M, non-GAAP GM 63–65%, non-GAAP opex $50–$52M; FY26 revenue growth expected to exceed 50% with opex growing at half the revenue rate (operating leverage) .
  • Concentration remains a watch item (largest end customer 86% of revenue in Q3), but management expects 3–4 customers >10% of revenue as additional hyperscalers ramp in FY26 .

What Went Well and What Went Wrong

What Went Well

  • AEC-led inflection and record revenue: “We achieved record revenue…driven by our AEC product line, as we experienced the inflection point in our business” .
  • Operating leverage and margin strength: Non-GAAP operating margin expanded to 31.4% (from 11.5% in Q2) on 87% sequential revenue growth; non-GAAP net margin reached 33.6% .
  • Strategic progress in PCIe and optical: PCIe “Toucan” retimer passed PCI-SIG compliance (now slated for integrators list), and optical DSP/LRO roadmaps advancing with 200G/lane tape-outs .

What Went Wrong

  • Customer concentration spiked: largest end customer accounted for 86% of Q3 revenue; management characterized Q3 as an outlier but still expects elevated concentration near term .
  • Working capital drag from the rapid ramp: cash from operations was $4.2M with inventories up to $53.2M; free cash flow slightly negative (-$0.4M) due to working capital and CapEx .
  • Opex set to step up in Q4 with growth investments: non-GAAP opex guided to $50–$52M (vs $43.8M in Q3) as the company scales, which will need to be offset by continued top-line leverage .

Financial Results

Headline P&L (GAAP and non-GAAP)

MetricQ1 FY25 (Aug 3, 2024)Q2 FY25 (Nov 2, 2024)Q3 FY25 (Feb 1, 2025)
Revenue ($M)$59.7 $72.0 $135.0
GAAP Gross Margin %62.4% 63.2% 63.6%
Non-GAAP Gross Margin %62.9% 63.6% 63.8%
GAAP Operating Income (Loss) ($M)$(14.451) $(8.407) $26.194
Non-GAAP Operating Income ($M)$2.189 $8.256 $42.384
GAAP Net Income (Loss) ($M)$(9.540) $(4.225) $29.360
Non-GAAP Net Income ($M)$7.039 $12.255 $45.378
GAAP Diluted EPS$(0.06) $(0.03) $0.16
Non-GAAP Diluted EPS$0.04 $0.07 $0.25

YoY Comparison (Q3 FY24 vs Q3 FY25)

MetricQ3 FY24 (Jan 27, 2024)Q3 FY25 (Feb 1, 2025)
Revenue ($M)$53.1 $135.0
GAAP Gross Margin %61.4% 63.6%
Non-GAAP Gross Margin %62.2% 63.8%
GAAP Net Income ($M)$0.428 $29.360
Non-GAAP Net Income ($M)$6.322 $45.378
GAAP Diluted EPS~$0.00 $0.16
Non-GAAP Diluted EPS$0.04 $0.25

Revenue Mix (by source)

Revenue Source ($M)Q3 FY24Q2 FY25Q3 FY25
Product Sales$40.0 $64.4 $129.4
Product Engineering Services$11.8 $4.6 $2.7
IP License$1.3 $3.0 $3.0
Total Revenue$53.1 $72.0 $135.0

KPIs (Q3 FY25)

KPIQ3 FY25
Product non-GAAP GM excl. engineering services (%)62.4%
Non-GAAP Operating Margin (%)31.4%
Cash & ST Investments ($M)$379.2
Cash from Operations ($M)$4.2
CapEx ($M)$4.6
Free Cash Flow ($M)$(0.4)
Inventory ($M)$53.2
Largest end customer (% of revenue)86%
Non-GAAP diluted Wtd Avg Shares (M)184.492

Guidance Changes

MetricPeriodPrevious GuidanceCurrent Guidance / ActualChange
Revenue ($M)Q3 FY25$115–$125 (Dec. guide) Actual $135.0 Beat vs high end by ~$10M
GAAP Gross Margin (%)Q3 FY2560.6–62.6 Actual 63.6 Beat
Non-GAAP Gross Margin (%)Q3 FY2561.0–63.0 Actual 63.8 Beat
Non-GAAP Opex ($M)Q3 FY25$42–$44 Actual $43.8 In line
Revenue ($M)Q4 FY25N/A$155–$165 New
GAAP Gross Margin (%)Q4 FY25Q3 guide was 60.6–62.6 62.7–64.7 Raised vs prior quarter guide band
Non-GAAP Gross Margin (%)Q4 FY25Q3 guide was 61.0–63.0 63.0–65.0 Raised vs prior quarter guide band
Non-GAAP Opex ($M)Q4 FY25Q3 guide $42–$44 $50–$52 Raised
Diluted Wtd Avg Shares (M)Q4 FY25N/A~188 New
FY26 Revenue GrowthFY26 vs FY25N/A>50% expected New qualitative outlook

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
AEC adoption and reliabilityAECs becoming de facto in-rack; ZeroFlap 800G launched; billions of hours without link flaps; accelerating second-half ramp Record AEC revenue; expansion from in-rack to rack-to-rack up to 7m; 3 hyperscalers in production, 2 more in qualification for FY26 Improving (broader adoption, lengths)
Customer concentration/diversificationQ2 had 3 customers >10% and 4 more 5–10% (diversifying) Q3 largest customer 86% of revenue; expect 3–4 customers >10% going forward as ramps diversify Mixed (near-term concentration up; medium-term diversification)
PCIe strategy (retimers & AECs)Announced PCIe Gen6/7 demos and PCIe AEC roadmap; sampling in CY25, revenues CY26 Toucan retimer passed PCI-SIG compliance; first ODM commitment; targeting Gen6, production revenue CY26 Improving (validation milestones, early wins)
Optical DSP & LRORecord optical DSP revenue; 50G/100G lanes; 3nm 200G/lane taped out; LRO for sub-10W 800G On track vs FY25 goals; breadth across >10 transceiver vendors; 200G/lane demos planned at OFC Improving (engagement breadth)
Gross margin driversScale driving product GM improvement; product GM ex-services 59.6% in Q1 Product GM ex-services 62.4%; Amazon warrant contra revenue rolled off, aiding margin Improving (scale/mix tailwinds)
Working capital & cashQ2 CFO: CFO $10.3M; FCF -$11.7M; inventory build CFO $4.2M; FCF -$0.4M; inventory increased to support ramps Stable (investment for growth)
Inference vs training—Inference could expand AEC TAM due to deployment breadth Emerging positive
Competition/second sourcingMarket large enough for multiple players; Credo focused on being first to qualify/ramp Acknowledge second-sourcing desire; sustain lead via system-level ownership, >20 custom SKUs Stable (defensible positioning)

Management Commentary

  • “We achieved record revenue in the third quarter, driven by our AEC product line, as we experienced the inflection point in our business that we had expected.” — Bill Brennan, CEO .
  • “Our non-GAAP operating margin was 31.4% in the quarter…a sequential increase of nearly 20 percentage points.” — Dan Fleming, CFO .
  • “Our Toucan [PCIe] retimer achieved full PCIe compliance…Credo is only the second vendor to achieve this level of compliance for PCIe Gen5.” — Bill Brennan ; validated via press release .
  • “As we approach the start of fiscal year ’26, we expect revenue growth…to be greater than 50%, and…non-GAAP operating expenses to grow at half the rate of revenue.” — Dan Fleming .

Q&A Highlights

  • Concentration and trajectory: CFO confirmed Q3 largest customer at 86% of revenue; expects this customer to be in the “same ZIP code” in Q4 dollars and concentration to decline as other hyperscalers ramp through FY26 .
  • Margin drivers: Scale was the primary driver; Amazon warrant contra-revenue rolled off, benefiting margins in Q3 and continuing into Q4 .
  • PCIe product roadmap: PCIe retimer compliance achieved; first ODM platform commitment; target Gen6 design-ins CY25 and revenue CY26; potential over $1B TAM by 2027 .
  • Architecture and TAM: AECs expanding from in-rack to rack-to-rack (≤7m) as reliability (ZeroFlap) becomes a priority; inference growth could further expand AEC opportunity .
  • Second sourcing: Hyperscalers want multiple sources, but Credo aims to stay first to sample/qualify/ramp and leverages system-level ownership to maintain lead .

Estimates Context

  • S&P Global Street consensus for Q3 FY25 and Q4 FY25 was unavailable at the time of analysis due to data access limits. As a proxy, we compare results vs company guidance: Q3 revenue and non-GAAP GM both exceeded the guided ranges, indicating a significant company-guidance beat .

Key Takeaways for Investors

  • The AEC-led inflection is real: Q3 revenue +87% q/q with strong margin expansion; Q4 guide suggests continued acceleration, positioning FY25 exit at a higher run-rate .
  • Operating leverage is scaling: non-GAAP operating margin reached 31.4% in Q3; management guides FY26 revenue growth >50% with opex up at half the rate, implying further margin expansion .
  • Near-term risk: customer concentration (86% in Q3) remains elevated; watch for diversification as additional hyperscalers qualify in FY26 (3–4 at >10%) .
  • Strategic adjacency building: PCIe retimer compliance and early ODM traction broaden the growth vector into scale-up networks (revenue potential from CY26) .
  • Optical DSP/LRO optionality: growing 50G/100G lanes base with 200G/lane on deck; supports multi-product growth alongside AECs .
  • Working capital normalization to monitor: inventory build and modest CFO/FCF headwind reflect rapid ramps; expect improvement as supply and consumption curves align .
  • Stock reaction catalysts: sustained Q4 execution vs guide, visible customer diversification updates, additional PCIe/optical milestones (OFC demos, integrators list posting) .

Appendices

Company Guidance Snapshot (as issued)

  • Q4 FY25: Revenue $155–$165M; GAAP GM 62.7–64.7%; non-GAAP GM 63.0–65.0%; GAAP opex $73–$75M; non-GAAP opex $50–$52M; diluted shares ~188M .
  • FY26 qualitative: Revenue growth >50%; non-GAAP opex growth at half the revenue rate .

Additional Relevant Press Releases (Q3 timeframe)

  • PCIe retimer PCI-SIG compliance; pending PCI-SIG Integrators List inclusion (validates interoperability and performance for PCIe 5.0) .