Astera Labs, Inc. Q3 FY2024 earnings call

• Astera Labs achieved a fifth consecutive record quarterly revenue in Q3, with $113 million, up 47% Q/Q and 206% Y/Y.
• Demonstrated strong operating leverage in Q3 with non-GAAP operating margin expanding to over 32% and non-GAAP EPS of $0.23.
• Announced the Scorpio Smart Fabric Switch family in Q4, expanding connectivity solutions for AI infrastructure.
• Joined the UALink Consortium as a promoting member, contributing to developing open high-speed, low-latency interconnect for scale-up connectivity between accelerators.
• Shift towards shorter AI platform refresh cycles, leveraging trusted partnerships in data center infrastructure deployment.
• Utilizes non-GAAP financial measures, with a discussion available in the earnings release.

Astera Labs delivered record quarterly revenue of $113.1 million in Q3 2024, up 47% from the previous quarter and 206% from Q3 2023. The Aries product family was the largest sales contributor, driven by both third-party GPUs and internally developed AI accelerators. Taurus revenue diversified beyond 200 gig applications with an initial production ramp of 400-gig Ethernet-based systems. Leo CXL revenues came from preproduction volumes for next-generation CXL capable compute platforms. Scorpio Smart Fabric Switches started shipping in preproduction volumes in Q3, with the company estimating its total market opportunity for four product families to exceed $12 billion by 2028. Aries contributed significantly to revenue upside, Taurus and Leo also saw strong ramps, and Scorpio expanded the market opportunity.

• Expect Q4 revenue to be between $126 million and $130 million, up ~11%-15% Q/Q.
• Non-GAAP gross margins expected to be approximately 75%.
• Non-GAAP operating expenses预计 to be in the range of $54 million to $55 million.
• Interest income expected to be approximately $10 million.
• Non-GAAP tax rate预计 to be approximately 10%, and non-GAAP fully diluted EPS预计 to be between $0.25 and $0.26.

Forward-looking statements are subject to risks and uncertainties discussed in the earnings release and periodic SEC filings, including risks related to market uncertainties, competition, and the ability to execute on growth strategies.

Q: Good afternoon. And congratulations on the strong results. On your core, Retimer business looks like very strong this year, looks strong next year. Majority of the XPU shipments are still going to be I think Gen 5 based where your market share is still somewhere in the range of, I think, like 95%. And your customers, both merchant and ASIC are ramping new SKUs starting second half of this year, first half of next year. We've also got the ramp of your Gen 6 products, Retimers, Scorpio Switch products with your lead GPU customer in which they're ramping now, but AEC firing, SCM is firing. So given all of this activity, I assume your visibility and backlog is quite strong. Maybe if you can just qualitatively sort of articulate your confidence on driving sequential growth over the next several quarters or at least visibility for a strong first half of next year versus second half of this year?

A: Yes. Thanks, Harlan. Yes, right now, our visibility is very strong, both as always with our backlog position, but also the breadth of designs we have -- right now, we're really kind of entering a new phase of growth here where our revenue streams are clearly diversifying. If you look at right now versus a year ago, we're very excited about the breadth of designs and product lines that we're ramping in. So in the back half of this year, obviously, Taurus has been very incremental, and that continues in Q4 and also the programs that we're ramping on Taurus are just getting started. So we have good confidence that Taurus will continue to grow nicely into 2025. Aries, as you alluded to, the Gen 5 story is still -- got a lot of legs. We have both with the merchant GPUs, but also on these internal ASIC designs, a lot of those products are just starting. And with the Gen 5, we have both the front-end connectivity and the back-end connectivity. Incrementally, Gen 6 will start to play out as well. And with Gen 6, we get an ASP boost on top of that. And then finally, with Leo, we've been talking about Leo for quite a while, but these are new types of technologies that are being adopted in the marketplace, and we're happy to report that we do have line of sight to our first production shipments starting in the middle of the year next year.

Q: Great. Thank you. And congratulations on the numbers. I wonder if you could talk about the Scorpio business in terms of -- you gave a number for 2028. Can you give us a sense for what that ramp looks like? Any kind of qualitative discussion of how big it could be in calendar '25, would be very helpful. Thank you.

A: Yes. Thanks, Joe. Yes. What's exciting is, since our public release, we're getting a lot of incremental excitement for the customer base. And what's really neat about the Scorpio product family is a diversity of designs that we're seeing. So clearly, being first with the Gen 6, there's a lot of interest in that application. But there's still a lot of Gen 5 opportunities that are developing that we're addressing as well because with a Gen 6 capable switch, it's backwards compatible. So both design opportunities are open for us. And then incrementally, we have the X-Series that does the back-end connectivity, and that's kind of a greenfield opportunity as well. So these designs are generally a little more customized systems. So the bring up in the qualification cycle is a little bit a lot more long. So we -we take a conservative view on how they ramp like we always do with most of our business. But overall, given that we expect Scorpio to exceed 10% of our revenues in 2025. And as the deployments get into production during the course of the year and exit the year at a very good run rate and good momentum going into 2026.