Astera Labs, Inc.

Previous wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2024 included in our Annual Report on Form 10-K filed with the SEC on February 14, 2025. As discussed in the section titled “Special Note about Forward-Look Statements,” this discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” and included elsewhere in this Quarterly Report on Form 10-Q and Annual Report on Form 10-K filed with the SEC on February 14, 2025.

Current wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2024 included in our Annual Report on Form 10-K filed with the SEC on February 14, 2025. As discussed in the section titled “Special Note about Forward-Looking Statements,” this discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” and included elsewhere in this Quarterly Report on Form 10-Q and Annual Report on Form 10-K filed with the SEC on February 14, 2025.

Previous wording

Today, our connectivity solutions are at the heart of major AI platforms deployed worldwide featuring both commercially available Graphic Processing Units (“GPUs”) and proprietary AI accelerators. We offer our customers four product families across multiple form factors including ICs, boards, and modules. Our products, which include Aries PCIe®/CXL®Smart DSP Retimers, Aries PCIe®/CXL® Smart Cable Modules™, Taurus Ethernet Smart Cable Modules™, Leo CXL Memory Connectivity Controllers, and Scorpio Smart Fabric Switches, are built upon industry standard connectivity protocols such as Peripheral Component Interconnect Express (“PCIe”), Ethernet, and Computer Express Link (“CXL”), to address the growing demand for purpose-built connectivity solutions that solve critical data, network, and memory bottlenecks inherent in cloud and AI infrastructure.

Current wording

Today, our connectivity solutions are at the heart of major AI platforms deployed worldwide featuring both commercially available Graphic Processing Units (“GPUs”) and proprietary AI accelerators. We offer our customers four product families across multiple form factors including ICs, boards, and modules. Our products, which include Aries PCIe®/CXL®Smart DSP Retimers, Aries PCIe®/CXL® Smart Cable Modules™, Taurus Ethernet Smart Cable Modules™, Leo CXL Memory Connectivity Controllers, and Scorpio Smart Fabric Switches, are built upon industry standard connectivity protocols such as Peripheral Component Interconnect Express (“PCIe”), Ethernet, and Compute Express Link (“CXL”), to address the growing demand for purpose-built connectivity solutions that solve critical data, network, and memory bottlenecks inherent in cloud and AI infrastructure.

Previous wording

Since our inception, we have created and commercialized first-to-market PCIe, Ethernet, and CXL products. We have become a trusted partner and a proven supplier to our hyperscaler and system OEM customers. We have experienced strong growth since the commercial launch of Aries in 2020. Our revenue grew from $34.8 million in 2021, $79.9 million in 2022, and$115.8 million in 2023 to $396.3 million in 2024. Our revenue was$351.4 million for the six months ended June 30, 2025, driven by a sizable increase in demand for our products. We have made significant investments in the design and development of new products and platform enhancements. Although we have recently recorded quarterly net income, we have not yet achieved profitability on an annual basis.

Current wording

Since our inception, we have created and commercialized first-to-market PCIe, Ethernet, and CXL products. We have become a trusted partner and a proven supplier to our hyperscaler and system OEM customers. We have experienced strong growth since the commercial launch of Aries in 2020. Our revenue grew from $34.8 million in 2021, $79.9 million in 2022, and$115.8 million in 2023 to $396.3 million in 2024. Our revenue was$581.9 million for the nine months ended September 30, 2025, driven by a sizable increase in demand for our products. We have made significant investments in the design and development of new products and platform enhancements. Although we have recently recorded quarterly net income, we have not yet achieved profitability on an annual basis.

Previous wording

Our revenue for the three and six months ended June 30, 2025 increased by 150% and 147%, respectively, compared to the same periods in 2024. The increase for both periods was primarily due to an increase in overall unit shipments driven by higher demand for our Aries, Scorpio, and Taurus products, as well as higher overall average selling prices resulting from an incremental mix of hardware modules and Scorpio products.

Current wording

Our revenue for the three and nine months ended September 30, 2025 increased by 104% and 128%, respectively, compared to the same periods in 2024. The increase for both periods was primarily due to an increase in overall unit shipments driven by higher demand for our Aries, Scorpio, and Taurus products, as well as higher overall average selling prices resulting from an increased mix of hardware modules and Scorpio products.

Previous wording

Gross margin decreased by 210 basis points (“bps”) and 230 bpsto 75.8% and 75.4%for the three and six months ended June 30, 2025, respectively, compared to 77.9% and 77.7%, respectively, for the same periods in 2024. The decrease for both periods was primarily driven by product mix as we shipped more hardware modules.

Current wording

Gross margin decreased by 150 basis points (“bps”) and 200 bpsto 76.2% and 75.7%for the three and nine months ended September 30, 2025, respectively, compared to 77.7% and 77.7%, respectively, for the same periods in 2024. The decrease for both periods was primarily driven by product mix as we shipped more hardware modules.

Previous wording

Operating expenses increased by $21.6 million, or 26%, for the three months ended June 30, 2025, compared to the same period in 2024. The increase was primarily driven by a $17.9 million increase in headcount related expenses resulting from a 75% increase in headcount, a $5.2 million increase in expenses related to our R&D initiatives, a $2.7 million increase in other operating costs to support our business expansion primarily related to our new headquarters relocation, and a $1.0 million increase in professional service fees. These increases were partially offset by a $7.9 million decrease in non-cash stock-based compensation expense.

Current wording

Operating expenses increased by $23.6 million, or 24%, for the three months ended September 30, 2025, compared to the same period in 2024. The increase was primarily driven by a $23.7 million increase in headcount related expenses resulting from a 79% increase in headcount, a $2.2 million increase in other operating costs to support our business expansion, and a $1.4 million increase in expenses related to our research and development (“R&D”) initiatives. These increases were partially offset by a $5.1 million decrease in non-cash stock-based compensation expense.

Previous wording

Operating expenses decreased by $3.8 million, or 2%, for the six months ended June 30, 2025, compared to the same period in 2024, primarily driven by a $62.6 million decrease in non-cash stock-based compensation expense, which resulted primarily from the recognition of time-based vesting of RSUs following the satisfaction of the liquidity event vesting condition in connection with our IPO in the prior period. Thedecrease was partially offset by a $36.0 million increase in headcount related expenses resulting from a 75% increase in headcount, a $12.0 million increase in expenses related to our R&D initiatives, a $5.9 million increase in other operating costs to support our business expansion primarily related to our new headquarters relocation, a $2.1 million increase in professional services fees, and a $1.1 million increase in depreciation and amortization expenses.

Current wording

Operating expenses increased by $19.9 million, or 6%, for the nine months ended September 30, 2025, compared to the same period in 2024. The increase was primarily driven bya $59.7 million increase in headcount related expenses resulting from a 77% increase in headcount, a $13.1 million increase in expenses related to our R&D initiatives, an $8.0 million increase in other operating costs to support our business expansion primarily relating to our new headquarters relocation, a $3.3 million increase in professional services fees, and a $1.6 million increase in depreciation and amortization expenses. The increase was partially offset by a $67.7 million decrease in non-cash stock-based compensation expense, which resulted primarily from the recognition of time-based vesting of RSUs following the satisfaction of the liquidity event vesting condition in connection with our initial public offering (“IPO”) in the prior period.

Previous wording

Comparison of the Three and Six Months Ended June 30, 2025 and 2024

Current wording

Comparison of the Three and Nine Months Ended September 30, 2025 and 2024

Previous wording

Total revenue increased $115.1 million, or 150%, and$209.3 million, or 147%, for the three and six months ended June 30, 2025, respectively, compared to the same periods in 2024. The increase was primarily due to an increase in overall unit shipments driven by higher demand for our Aries, Scorpio, and Taurus products, as well as higher overall average selling prices resulting from an incremental mix of hardware modules and Scorpio products.

Current wording

Total revenue increased $117.5 million, or 104%, and$326.7 million, or 128%, for the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024. The increase was primarily due to an increase in overall unit shipments driven by higher demand for our Aries, Scorpio, and Taurus products, as well as higher overall average selling prices resulting from an increased mix of hardware modulesand Scorpio products.

Previous wording

Total cost of revenue increased $29.4 million, or 173%, and$54.7 million, or 172%, for the three and six months ended June 30, 2025, respectively, compared to the same periods in 2024. The increase was primarily due to higher overall unit shipments and a shift in product mix, resulting from an incremental mix of hardware modules and Scorpio products.

Current wording

Total cost of revenue increased $29.6 million, or 117%, and$84.2 million, or 148%, for the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024. The increase was primarily due to higher overall unit shipments and a shift in product mix, resulting from an increased mix of hardware modulesand Scorpio products.

Previous wording

Gross margin decreased 210 bpsto 75.8%for the three months ended June 30, 2025 compared to 77.9% for the same period in 2024. Gross margin decreased 230 bpsto 75.4%for the six months ended June 30, 2025 compared to 77.7% for the same period in 2024. The decr ease for both periods was primarily driven by product mix as we shipped more hardware modules.

Current wording

Gross margin decreased 150 bpsto 76.2%for the three months ended September 30, 2025 compared to 77.7% for the same period in 2024. Gross margin decreased 200 bpsto 75.7%for the nine months ended September 30, 2025 compared to 77.7% for the same period in 2024. The decrease for both periods was primarily driven by product mix as we shipped more hardware modules.

Previous wording

Research and development expense increased $26.6 million, or 66%, for the three months ended June 30, 2025, compared tothe same period in 2024. The increase was primarily due to a $18.5 million increase in personnel-related andnon-cash stock-based compensation expenses resulting froma 100%increase in headcount, as well as a$5.2 million increase in overall spending to support our R&D initiatives.

Current wording

Research and development expense increased $65.9 million, or 46%, for the nine months ended September 30, 2025, compared to the same period in 2024. The increase was primarily due to a $46.1 million increase in personnel-related costs including $1.1 million of non-cash stock-based compensation expenses resulting from a 99%increase in headcount, a $12.1 million increase in overall spending to support our R&D initiatives, and a $4.4 million increase in other operating costs to support our business expansion.

Previous wording

Sales and marketing expense decreased $3.5 million, or 16%, for the three months ended June 30, 2025, compared to the same period in 2024. The decrease was primarily due to a$6.6 million decrease in non-cash stock-based compensation expense, which resulted primarily from time-based vesting of RSUs granted prior to our IPO. The decrease was partially offset by a $2.4 million increase in personnel-related expenses resulting froma 21% increase in headcount.

Current wording

Sales and marketing expense decreased $3.9 million, or 17%, for the three months ended September 30, 2025, compared to the same period in 2024. The decrease was primarily due to a$6.8 million decrease in non-cash stock-based compensation expense, which resulted primarily from the recognition of time-based vesting of RSUs granted prior to our IPO. The decrease was partially offset by a $2.6 million increase in personnel-related expenses resulting froma 25% increase in headcount.

Previous wording

Sales and marketing expense decreased $37.3 million, or 48%, for the six months ended June 30, 2025, compared tothe same period in 2024. The decrease was primarily due to a$43.5 million decrease in non-cash stock-based compensation expense, which resulted primarily from the recognition of time-based vesting of RSUs following the satisfaction of the liquidity event vesting condition in connection with our IPO in the prior period. The decrease was partially offset by a $5.0 million increase in personnel-related expenses resulting from a 26% increase in headcount.

Current wording

Sales and marketing expense decreased $41.2 million, or 41%, for the nine months ended September 30, 2025, compared to the same period in 2024. The decrease was primarily due to a$50.3 million decrease in non-cash stock-based compensation expense, which resulted primarily from the recognition of time-based vesting of RSUs following the satisfaction of the liquidity event vesting condition in connection with our IPO in the prior period. The decrease was partially offset by a $7.5 million increase in personnel-related expenses resulting from a 25% increase in headcount.

Previous wording

General and administrative expense decreased $1.6 million, or 7%, for the three months ended June 30, 2025, compared to the same period in 2024. The decrease was primarily due to a$6.2 million decrease in non-cash stock-based compensation expense, which resulted primarily from time-based vesting of RSUs granted prior to our IPO. The decrease was partially offset by a $1.9 million increase in personnel-related expenses resulting froma 46% increase in headcount, $1.9 million increase in other operating costs to support our business expansion primarily related to our new headquarters relocation, and a $0.6 million increase in professional services fees associated with the continued development of our public company infrastructure.

Current wording

General and administrative expense decreased $0.7 million, or 3%, for the three months ended September 30, 2025, compared to the same period in 2024. The decrease was primarily due to a$5.3 million decrease in non-cash stock-based compensation expense, which resulted primarily from the recognition of time-based vesting of RSUs granted prior to our IPO. The decrease was partially offset by a $2.4 million increase in personnel-related expenses resulting froma 43% increase in headcount, a $1.2 million increase in professional services fees associated with the continued development of our public company infrastructure, and a $0.7 million increase in other operating costs to support our business expansion.

Previous wording

General and administrative expense decreased $4.1 million, or 9%, for the six months ended June 30, 2025, compared tothe same period in 2024. The decrease was primarily due to a$13.2 million decrease in non-cash stock-based compensation expense, which resulted primarily from the recognition of time-based vesting of RSUs following the satisfaction of the liquidity event vesting condition in connection with our IPO in the prior period. The decrease was partially offset by a $4.8 million increase in personnel-related expenses resulting froma 60% increase in headcount, a $2.7 million increase in other operating costs to support our business expansion primarily related to our new headquarters relocation, and a $1.1 million increase in professional services fees associated with the continued development of our public company infrastructure.

Current wording

General and administrative expense decreased $4.9 million, or 7%, for the nine months ended September 30, 2025, compared to the same period in 2024. The decrease was primarily due to a$18.5 million decrease in non-cash stock-based compensation expense, which resulted primarily from the recognition of time-based vesting of RSUs following the satisfaction of the liquidity event vesting condition in connection with our IPO in the prior period. The decrease was partially offset by a $7.3 million increase in personnel-related expenses resulting froma 55% increase in headcount, a $3.4 million increase in other operating costs to support our business expansion primarily related to our new headquarters relocation, and a $2.3 million increase in professional services fees associated with the continued development of our public company infrastructure.

Previous wording

For the three and six months ended June 30, 2025, interest income increased $0.6 million, or 6%, and $8.5 million, or 66%, compared tothe same periods in 2024. The increase was primarily due to higher average balances of short-term investments and cash equivalents as a result of our IPO and cash flow from operations.

Current wording

For the three months ended September 30, 2025, interest income increased $0.5 million, or 5%, compared tothe same period in 2024. The increase was primarily due to higher average balances of short-term investments and cash equivalents as a result of cash flow from operations.

Previous wording

The benefit from income tax increased$16.7 million, or 276%, for the six months ended June 30, 2025, compared to the same period in 2024, primarily due to an increase in benefits from the excess tax benefits related to equity compensation, the foreign derived intangible income deduction, and the U.S. research and development credits, partially offset by capitalized research and development expenditures in accordance with Section 174 of the Internal Revenue Code.

Current wording

The benefit from income tax increased$50.6 million, or 323%, for the nine months ended September 30, 2025, compared to the same period in 2024, primarily due to excess tax benefits related to equity compensation. The increase was partially offset by the decreased foreign-derived intangible income deduction and U.S. research and development credits from indirect effects of the OBBBA.

Previous wording

We define non-GAAP operating income as operating income (loss) presented in accordance with GAAP, adjusted to exclude stock-based compensation expenses, and employer payroll taxes related to the time-based vesting and net settlement of RSUs with a liquidity event-based vesting condition that was satisfied in connection with the IPO. We define non-GAAP operating margin as non-GAAP operating income divided by revenue. We have presented non-GAAP operating income and non-GAAP operating margin because we consider they are useful metrics for investors and other users of our financial information in evaluating our operating performance as it excludes the impact of stock-based compensation expense, and employer payroll taxes related to the time-based vesting and net settlement of restricted stock units in connection with our IPO, a charge that can vary from period to period for reasons that are unrelated to our core operating performance. These metrics also provide investors and other users of our financial information with an additional toolto eliminate the effects of items that may vary for different companies for reasons unrelated to core operating performance.

Current wording

We define non-GAAP operating income as operating income (loss) presented in accordance with GAAP, adjusted to exclude stock-based compensation expenses, and employer payroll taxes related to the time-based vesting and net settlement of RSUs with a liquidity event-based vesting condition that was satisfied in connection with the IPO. We define non-GAAP operating margin as non-GAAP operating income divided by revenue. We have presented non-GAAP operating income and non-GAAP operating margin because we consider them useful metrics for investors and other users of our financial information in evaluating our operating performance as it excludes the impact of stock-based compensation expense, and employer payroll taxes related to the time-based vesting and net settlement of RSUs in connection with our IPO, a charge that can vary from period to period for reasons that are unrelated to our core operating performance. These metrics also provide investors and other users of our financial information with an additional toolto eliminate the effects of items that may vary for different companies for reasons unrelated to core operating performance.

Previous wording

(3) Incometax effect is calculated based on the tax laws in the jurisdictions in which we operate and is calculated to exclude the impact of stock-based compensation expense and one-off discrete tax adjustments that are unrelated to our core operating performance. We no longer maintain valuation allowance for non-GAAP purposes due to our profitability on a non-GAAP basis. For the three months ended June 30, 2025 and 2024, the non-GAAP tax rate was approximately 9% and 23%, respectively. For the six months ended June 30, 2025 and 2024, the non-GAAP tax rate was approximately 8% and 23%, respectively.

Current wording

(3) Incometax effect is calculated based on the tax laws in the jurisdictions in which we operate and is calculated to exclude the impact of stock-based compensation expense and one-off discrete tax adjustments that are unrelated to our core operating performance. We no longer maintain valuation allowance for non-GAAP purposes due to our profitability on a non-GAAP basis. For the three months ended September 30, 2025 and 2024, the non-GAAP tax rate was approximately 18% and 15%, respectively. For the nine months ended September 30, 2025 and 2024, the non-GAAP tax rate was approximately 12% and 19%, respectively.

Previous wording

Since our inception, we have financed our operations primarily through proceeds from equity issuances including net proceeds from our IPO, and cash generated from the sale of our products. As of June 30, 2025, our principal sources of liquidity were cash, cash equivalents, and marketable securities of $1,065.1 million. Our principal use of cash is to fund our operations, invest in research and development, fund production equipment capital expenditures, and to support our overall growth.

Current wording

Since our inception, we have financed our operations primarily through proceeds from equity issuances including net proceeds from our IPO, and cash generated from the sale of our products. As of September 30, 2025, our principal sources of liquidity were cash, cash equivalents, and marketable securities of $1,134.4 million. Our principal use of cash is to fund our operations, invest in research and development, fund production equipment capital expenditures, and to support our overall growth.

Previous wording

While we have generated$145.9 million in cash flow from operating activities for the six months ended June 30, 2025, in prior years we generated significant losses from operations and negative cash flows from operating activities as reflected in our accumulated deficit of $125.8 millionas of June 30, 2025. We believe that our current cash, cash equivalents, and marketable securities will be sufficient to fund our operations for at least the next 12 months and beyond. Our future capital requirements, however, will depend on many factors, including our growth rate, the timing and extent of our sales and marketing and research and development expenditures, capital expenditures for production equipment, the continuing market acceptance of our products, and the use of cash to fund potential mergers or acquisitions. In the event that additional financing is required from outside sources, we may seek to raise additional funds through equity, equity-linked arrangements, and debt. If we are unable to raise additional capital when desired and at reasonable rates, our business, results of operations, and financial condition could be adversely affected.

Current wording

While we have generated$224.0 million in cash flow from operating activities for the nine months ended September 30, 2025, in prior years we generated significant losses from operations and negative cash flows from operating activities as reflected in our accumulated deficit of $34.6 millionas of September 30, 2025. We believe that our current cash, cash equivalents, and marketable securities will be sufficient to fund our operations for at least the next 12 months and beyond. Our future capital requirements, however, will depend on many factors, including our growth rate, the timing and extent of our sales and marketing and research and development expenditures, capital expenditures for production equipment, the continuing market acceptance of our products, and the use of cash to fund potential mergers or acquisitions. In the event that additional financing is required from outside sources, we may seek to raise additional funds through equity, equity-linked arrangements, and debt. If we are unable to raise additional capital when desired and at reasonable rates, our business, results of operations, and financial condition could be adversely affected.

Previous wording

Net cash provided by operating activities for the six months ended June 30, 2024 of $33.5 million resulted from non-cash charges of $143.6 million primarily related to $140.8 million in stock-based compensation expense, partially offset by a net loss of $100.5 million and cash used in operating assets and liabilities of $9.6 million. Cash used in operating assets and liabilities during the period was primarily from an increase of $13.9 million in accounts receivable due to higher product sales and the timing of customer payments, a $6.0 million increase in inventory primarily due to build up for anticipated demand, and a $5.4 million increase in prepaid expenses and other assets related to prepaid insurance. The net cash flow used in operating assets and liabilities were partially offset by a $10.9 million increase in accrued expenses and other liabilities primarily due to accrued customer deposits and the timing of payments, and a $5.8 million increase in accounts payable primarily due to the timing of payments.

Current wording

Net cash provided by operating activities for the nine months ended September 30, 2025 was $224.0 million, compared to$97.0 million for the comparable period in 2024. The $127.1 million increase in operating cash inflows was a result of a $282.3 million increase in net income, partially offset by both unfavorable change of $90.9 million from changes in operating assets and liabilities and lower non-cash charges of $64.4 million, primarily due to a $67.7 million decrease in stock-based compensation expense, partially offset by increased warrants contra revenue of $3.1 million. The $90.9 million of unfavorable changes in operating assets and liabilities was predominantly attributable to (i) a $51.8 million increase in the changes of the prepaid expenses and other assets primarily due to a higher income tax receivable from excess of tax benefits related to equity compensation and prepayment for a research and development vendor, (ii) a $44.5 million in unfavorable changes in accounts payables and accrued other liabilities primarily due to the timing of payments, and (iii) a $5.8 million increase in inventory primarily due to build up for anticipated demand. These unfavorable changes were partially offset by favorable changes of $13.0 million in accounts receivable due to higher product sales and the timing of customer payments.

Previous wording

Net cash provided by financing activities for the six months ended June 30, 2024 of $649.2 million was the result of $672.2 million in proceeds from our IPO, net of underwriting discounts and commissions, and $1.9 million in proceeds from exercises of stock options net of repurchases. This was partially offset by $20.1 million in tax withholding related to net share settlement of RSUs that had previously met the time-based vesting condition and for which the liquidity event vesting condition was satisfied in connection with our IPO, and $4.8 million in payments of deferred offering costs.

Current wording

Net cash provided by financing activities for the nine months ended September 30, 2025 was $6.1 million, compared to$650.2 million for the comparable period in 2024. The $644.1 million decrease in cash provided by financing activities was primarily due to a decrease of $667.4 million related to proceeds received from the IPO net of underwriting discounts and commissions and deferred offering costs, partially offset by a $20.1 million increase in tax withholding related to net share settlement of RSUs.