Credo Technology Group Holding Ltd
For the period ended Aug 3, 2024. Filed Sep 5, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Aug 3, 2024 · Filed Sep 5, 2024
CRDO$120.51+7.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-01-27; filed 2024-02-28.
0001628280-24-007677
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-08-03; filed 2024-09-05.
0001628280-24-039562
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 90 previous paragraphs and 49 current paragraphs.
22 unchanged; 22 reworded; 4 added; 46 removed; 0 previous and 1 current paragraphs rearranged.
Tables are not compared: 11 previous and 9 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (4)
Current report
Total revenue for the three months ended August 3, 2024 increased by $24.6 million, compared to the same period in fiscal year 2024, primarily due to an increase in product sales revenue of $23.8 million and product engineering services revenue of $1.2 million. IP license revenue was relatively consistent between the comparative periods.
Current report
The increase in product engineering services revenue for the three months ended August 3, 2024, compared to the same period in fiscal year 2024, was primarily due to an increase in engineering time of 110% spent in our product engineering services arrangements.
Current report
Cost of revenue for the three months ended August 3, 2024 increased by $8.1 million, compared to the same period in fiscal year 2024, primarily due to an increase in cost of product sales revenue of $8.0 million. The increase was primarily due to the increased shipments of AEC products noted above.
Current report
Provision (Benefit) for Income Taxes
Removed paragraphs (46)
Previous report
Our mission is to deliver high-speed solutions to break bandwidth barriers on every wired connection in the data infrastructure market.
Previous report
Since our founding in 2008, we have achieved many significant milestones:
Previous report
•From 2008 to 2012, we developed our proprietary, low-power, mixed-signal SerDes architecture which could scale from 25Gbps/lane to 50Gbps/lane and ultimately to 100Gbps/lane.
Previous report
•In 2013, we began commercializing our core SerDes technology by providing connectivity solutions for the electrical and optical links in data centers.
Previous report
•In 2014, we signed our first product contract with Non-Recurring Engineering (NRE) services as well as our first IP licensing contract.
Previous report
•In 2016, we commenced production shipments of our Line Card PHY products.
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•In 2017, we developed a 3.2Tbps chiplet for high bandwidth 12.8Tbps switches. This chiplet included 64 lanes of 50Gbps SerDes and was built in 28nm using Chip-on-Wafer-on-Substrate (CoWoS) packaging technology from TSMC.
Previous report
•In 2018, we created AECs, a new category of data center system products, beginning with developing 400G DDC solutions up to seven meters in length.
Previous report
•In 2019, we developed new DSP SerDes architectures optimizing the performance and power trade-offs for 400G and 800G solutions targeting Line Card PHYs, Optical PAM4 DSPs and AECs.
Previous report
•In 2020, we demonstrated the industry’s first 40Gbs PAM3 SerDes in silicon. In addition, we engineered breakthrough Line Card PHYs and Optical PAM4 DSPs with leading performance and power for 50G/lane and 100G/lane solutions.
Previous report
•In 2021, we launched new AEC solutions targeting ToR-to-Network Interface Card (NIC) connections. Our solutions enabled dual-ToR server racks to seamlessly “switch” data traffic to the redundant ToR if a ToR port failed.
Previous report
•In 2022, we released our 112G/lane AEC products including 400G, 800G and 1.6T varieties and expanded our AEC engagement to a second major hyperscaler, who awarded us with its next generation NIC-TOR AEC program and completed qualification.
Previous report
• In 2023, we expanded our AEC engagements to include all seven of the leading hyperscalers in the world, with additional program awards and qualifications.
Previous report
Revenue Mix and Associated Gross Margins
Previous report
A summary of our revenue and associated gross margin by revenue sources for the three and nine months ended January 27, 2024 and January 28, 2023 is presented below (in thousands, except percentages):
Previous report
Factors Affecting Our Performance
Previous report
Our results of operations and financial condition have been, and will continue to be, affected by a number of factors, including the following:
Previous report
Design Wins With New and Existing Customers
Previous report
Our solutions enable our end customers to differentiate their product offerings and position themselves to meet the demands of increasingly advanced networks. We work closely with our end customers to understand their product roadmaps and strategies and help them develop new products. Our goal is to develop solutions that support their product roadmap and development. If an end customer has tested our product, verified that it meets their requirements and the customer has informed us that the end customer intends to have our customer build it into their product, we consider it a design win. We consider design wins important to our future success. The selection process is typically lengthy and may require us to incur significant design and development expenditures in pursuit of a design win with no assurance that our solutions will be selected. In addition, some design wins result in significant revenue and some do not, and the timing of such revenue is difficult to predict as it depends on the success of the end customer’s product that uses our solutions. Thus, some design wins result in orders and significant revenue shortly after the design win is awarded and other design wins do not result in significant orders and revenue for several months or longer after the initial design win (if at all). As a result, the degree to which we are successful in achieving design wins and the speed and level at which end customers ramp volume production of the products into which our product is designed will impact our success and financial results in future periods.
Previous report
Customer Demand and Pipeline
Previous report
Demand for our products is dependent on conditions in the markets in which our customers operate, which are subject to cyclicality and competitive conditions, among other factors. We believe our relationships with the end customers of our products and the long-term implications of decisions to adopt our solutions provide us with valuable visibility into customer demand. Furthermore, our customers generally provide us with periodic forecasts of their requirements. This provides an opportunity for us to monitor and refine our business operations and plans. The majority of our product sales are made pursuant to standard purchase orders. Changes in customer forecasts or the timing of orders from customers expose us to the risks of inventory shortages or excess inventory, as well as fluctuations in our results of operations. For example, on February 14, 2023, we announced that our largest customer reduced its demand forecast for certain Credo products for reasons we understand were unrelated to our performance. Although we do not expect our market share with the customer will be affected, the customer’s reduced demand forecast will have a substantial negative impact on our revenue and results of operations for our fiscal year ending April 27, 2024. Cancellations of orders could result in the loss of anticipated sales without allowing us sufficient time to reduce and manage our operating expenses.
Previous report
Pricing and Product Gross Margins
Previous report
Our revenue is also impacted by changes in the number and average selling prices of our products. Our products are typically characterized by a life cycle that begins with higher average selling prices and lower volumes, followed by broader market adoption, leading to higher volumes, and average selling prices lower than initial levels. Our product gross margins will be affected by the extent to which these declines are paired with improvements in manufacturing yields and lower wafer, assembly and test costs that offset some of the margin reduction that results from lower average selling prices as well as the extent to which we introduce new products with higher initial average selling prices and achieve market acceptance. Our gross margins may also be affected by changes in the price of silicon wafers, copper cables, printed circuit boards (PCBs), testing costs and commodities, and the extent to which we are able to offset any increases in our costs through increases prices to our customers, productivity actions or other means. Our product gross margins may also fluctuate from period to period as a result of changes in average selling prices due to new product introductions or existing product transitions into larger scale commercial volumes and manufacturing costs as well as our product and customer mix.
Previous report
Product Adoption
Previous report
We develop and sell leading-edge connectivity solutions for digital infrastructure which are intended to replace existing legacy solutions and support our customers’ future applications and needs. Our success is dependent on customers adopting our new technology and preferring our solutions over competing offerings or other current or future technologies.
Previous report
Technology Development
Previous report
We operate in industries characterized by rapidly changing technologies, industry standards and technological obsolescence. We work closely with our customers to understand their product roadmaps and strategies to forecast their future needs. This helps inform our technology roadmap and development priorities. We also monitor forecasts by industry analysts and the adoption curve of technology as well as potential competing forces which could hinder adoption of our solutions. Our revenue growth is dependent on our ability to continually develop and introduce new products to meet the changing technology and performance requirements of our customers, diversify our revenue base and generate new revenue to replace, or build upon, the success of previously introduced products which may be rapidly maturing. As a result, our revenue is impacted, to a more significant extent, by product life cycles for a variety of products and to a much lesser extent, if any, by any single product. In order to remain competitive, we have made, and expect to continue to make, significant expenses in research and development, and our research and development expenses in a particular period may be significantly impacted by specific product or engineering initiatives that we undertake to maintain our competitiveness and expand our product portfolio. If we fail to anticipate or respond appropriately to new developments in technology, or to timely develop competitive new or enhanced products or technologies, our revenue could decrease and we could lose design wins to our competitors.
Previous report
Industry Trends and Cyclicality
Previous report
We continue to evaluate trends within the industry that affect our business performance. We design and develop high-speed connectivity solutions that deliver improved power and cost efficiency for the data infrastructure market. This market is driven by hyperscalers, HPC and 5G infrastructure. Accordingly, our revenue and business performance are influenced by the deployment and timing of broader market adoption of next generation technologies in data centers, particularly by hyperscalers, and in the HPC and 5G markets. The semiconductor industry is cyclical and is characterized by rapid technological change, evolving standards, product obsolescence, price erosion, and fluctuations in product supply and demand. Any prolonged or significant downturn in our industry generally could adversely affect our business and reduce demand for our products and otherwise harm our financial condition and results of operations.
Previous report
Macroeconomic Environment
Previous report
Our industry is subject to uncertainty as a result of the recent macroeconomic environment, which has been characterized by rising interest rates and inflation, geopolitical instability, continuing risk from the COVID-19 pandemic and public health measures related to it, and supply chain uncertainty. These factors have caused, and are continuing to cause, companies across the semiconductor industry to reduce spending and tighten inventory controls, which could negatively impact our business, financial condition, and results of operations.
Previous report
Three and Nine Months Ended January 27, 2024 and January 28, 2023
Previous report
The decrease in product sales revenue for the nine months ended January 27, 2024, compared to the same periods in fiscal year 2023, was primarily due to a decrease in the volume of unit shipments of AEC cables. The reduction of AEC cable shipments was primarily due to reduced demand by one of our largest customers.
Previous report
The increase in product engineering services revenue for the three and nine months ended January 27, 2024, compared to the same periods in fiscal year 2023, was primarily due to a non-recurring engineering services arrangement where we recognized $10.0 million and $10.7 million for the three and nine months ended January 27, 2024, respectively.
Previous report
The decrease in IP license revenue for the three and nine months ended January 27, 2024, compared to the same periods in fiscal year 2023, was driven by the timing of an IP license delivered to a customer, which resulted in revenue recognition of $10.9 million and $21.1 million during the three and nine months ended January 28, 2023, respectively.
Previous report
Cost of product sales revenue decreased by $2.9 million in the three months ended January 27, 2024, compared to the same period in fiscal year 2023, primarily due to $2.0 million write-downs for excess and obsolete inventory recorded in the three months ended January 28, 2023 and improved overall product gross margins.
Previous report
Cost of product sales revenue decreased by $11.9 million in the nine months ended January 27, 2024, compared to the same period in fiscal year 2023, primarily due to decreased product sales during the same period as discussed above and $3.1 million in write-downs for excess and obsolete inventory recorded in the nine months ended January 28, 2023.
Previous report
Cost of product engineering services revenue increased by $1.2 million for both the three and nine months ended January 27, 2024, compared to the same periods in fiscal year 2023, primarily due to the ramp-up of engineering services performed under a non-recurring engineering services arrangement entered into in fiscal year 2024.
Previous report
Cost of IP license revenue remained consistent for the three months ended January 27, 2024 and decreased by $1.1 million in the nine months ended January 27, 2024, compared to the same period in fiscal year 2023. The decrease in the nine months ended January 27, 2024 was primarily due to costs incurred for delivery of a milestone during the nine months ended January 28, 2023 on an IP licensing and development contract entered into with a customer in September 2021. See Note 4 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.
Previous report
Research and development expense for the nine months ended January 27, 2024 increased by $13.2 million compared to the same period in fiscal year 2023. The increase was due primarily to a $5.6 million increase in personnel costs as a result of new hires for product development, a $5.4 million increase in share-based compensation expense driven by increased amortization expense from new equity awards granted to employees, and a $2.4 million increase in design activities and higher engineering activities relating to testing and laboratory supplies for new product development.
Showing the first 40 of 46 passages. Open the source sections for the rest.
Reworded paragraphs (22)
Previous wording
Credo is an innovator in providing secure, high-speed connectivity solutions that deliver improved power and cost efficiency as data rates and corresponding bandwidth requirements increase exponentially throughout the data infrastructure market. Our innovations ease system bandwidth bottlenecks while simultaneously improving on power, security and reliability. Our connectivity solutions are optimized for optical and electrical Ethernet applications, including the 100G, 200G, 400G, 800G and emerging 1.6T (or Terabits per second) markets. Our products are based on our proprietary Serializer/Deserializer (SerDes) and Digital Signal Processor (DSP) technology. Our product families include integrated circuits (ICs), Active Electrical Cables (AECs) and SerDes Chiplets. Our IP solutions primarily are comprised of SerDes IP development and licensing.
Current wording
Credo provides innovative, secure, high-speed and power-efficient connectivity solutions. Our solutions target the data infrastructure market, where bandwidth requirements are increasing exponentially, driven by the accelerating deployment of leading edge Artificial Intelligence infrastructure and applications. Our connectivity solutions are optimized for optical and electrical Ethernet applications, including the 100G (or Gigabits per second), 200G, 400G, 800G and emerging 1.6T (or Terabits per second) markets. Our products are based on our Serializer/Deserializer (SerDes) and Digital Signal Processor (DSP) technologies. Our product families include integrated circuits (ICs), Active Electrical Cables (AECs) and SerDes Chiplets. Our intellectual property (IP) solutions consist primarily of SerDes IP licensing.
Previous wording
Data generation has increased dramatically over the past ten years, creating new and complicated challenges in both circuit and system design. Our proprietary SerDes and DSP technologies enable us to achieve similar performance to leading competitors’ products but in a lower cost, more highly available legacy node (n-1 advantage). Beyond power and performance, Credo continues to innovate to solve customers’ system level requirements. We partner with Microsoft on our HiWire Switch AEC and open-source implementation that helps realize Microsoft’s vision for a highly reliable network-managed dual-Top-of-Rack (ToR) architecture (a network architecture design in which computing equipment located within the same or an adjacent rack are, for redundancy, connected to two in-rack network switches, which are, in turn, connected to aggregation switches via fiber optic cables), overcoming complex and slow legacy enterprise approaches, simplifying deployment and improving connection reliability in the data center.
Current wording
Data generation has increased dramatically over the past ten years, creating new and complicated challenges in both circuit and system design. Our proprietary SerDes and DSP technologies enable us to achieve similar performance to leading competitors’ products but at a lower cost and more highly available legacy node (n-1 advantage). Beyond power and performance, Credo continues to innovate to address customers’ system level requirements. We partner with Microsoft on our HiWire Switch AEC and open-source implementation that helps realize Microsoft’s vision for a highly reliable network-managed dual-Top-of-Rack (ToR) architecture (a network architecture design in which computing equipment located within the same or an adjacent rack are, for redundancy, connected to two in-rack network switches, which are, in turn, connected to aggregation switches via fiber optic cables), overcome complex and slow legacy enterprise approaches, simplify deployment and improve connection reliability in the data center.
Previous wording
The multi-billion dollar data infrastructure market that we serve is driven largely by hyperscale data centers (hyperscalers), as well as general compute, Artificial Intelligence and Machine Learning (AI/ML) infrastructure, multi-service operators (MSOs) and mobile network operators (MNOs). The demands for increased bandwidth, improved power and cost efficiency and heightened security have simultaneously and dramatically expanded as work, education and entertainment have rapidly digitized across myriad end-point users.
Current wording
The multibillion-dollar data infrastructure market that we serve is driven largely by hyperscale data centers (hyperscalers), as well as general compute, AI/ML infrastructure, multi-service operators (MSOs), and mobile network operators (MNOs). The demands for increased bandwidth, improved power and cost efficiency and heightened security have simultaneously and dramatically expanded as work, education and entertainment have rapidly digitized across myriad endpoint users.
Previous wording
We design, market and sell both product and IP solutions. We help define industry conventions and standards within the markets we target by collaborating with technology leaders and standards bodies. We contract with a variety of manufacturing partners to build our products based on our proprietary SerDes and DSP technologies. We develop standard solutions we can sell broadly to our end markets and also develop tailored solutions designed to address specific customer needs. Once developed, these tailored solutions can generally be broadly leveraged across our portfolio and we are able to sell the product or license the IP into the broader market.
Current wording
We design, market and sell both product and IP solutions. We help define industry conventions and standards within the markets we target by collaborating with technology leaders and standards bodies. We contract with a variety of manufacturing partners to build our products based on our proprietary SerDes and DSP technologies. We develop standard solutions we can sell broadly to our end markets and also develop tailored solutions designed to address specific customer needs. Once developed, these tailored solutions can generally be broadly leveraged across our portfolio and we are able to sell the part or license the IP to the broader market.
Previous wording
We generated $53.1 million and $132.2 million in total revenue in the three and nine months ended January 27, 2024, respectively, and $54.3 million and $152.1 million in total revenue in the three and nine months ended January 28, 2023, respectively. Product sales and product engineering services revenue comprised 97.6% and 91.4% of our total revenue in the three and nine months ended January 27, 2024, respectively, and 76.8% and 82.7% of our total revenue in the three and nine months ended January 28, 2023, respectively. IP license revenue represented 2.4% and 8.6% of our total revenue in the three and nine months ended January 27, 2024, respectively, and 23.2% and 17.3% of our total revenue in the three and nine months ended January 28, 2023, respectively. We generated $0.4 million in net income and $17.9 million in net loss, during the three and nine months ended January 27, 2024, respectively, and $2.8 million in net income and $0.6 million in net loss during the three and nine months ended January 28, 2023, respectively.
Current wording
During the three months ended August 3, 2024 and July 29, 2023, we generated $59.7 million and $35.1 million in total revenue, respectively. Product sales and product engineering services revenue comprised 96.0% and 92.0% of our total revenue in the three months ended August 3, 2024 and July 29, 2023, respectively, and IP license revenue represented 4.0% and 8.0% of our total revenue in the three months ended August 3, 2024 and July 29, 2023, respectively. During the three months ended August 3, 2024 and July 29, 2023, we generated $9.5 million in net loss and $11.7 million in net loss, respectively.
Previous wording
We sell our products to hyperscalers, original equipment manufacturers (OEMs), original design manufacturers (ODMs) and optical module manufacturers, as well as to companies in the enterprise and high performance computing (HPC) markets. We work closely and have engagements with industry-leading companies across these segments. Historically, a relatively small number customers have accounted for a significant portion of our revenue. We report revenue by customer in our financial statement disclosure based on the contracting parties who place purchase orders or sign revenue contracts with us. See Note 3 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. However, certain of our end customers have their contract manufacturing partners place orders with us. As a result, the contract manufacturers, rather than the end customers, are reported as our customers for financial reporting purposes. As a supplement to our financial statement footnote disclosure, and to provide further insight into our end customer concentration, the following table summarizes our revenue by customer as a percentage of total revenue based on end customer profile, rather than based on the contracting parties who place purchase orders or sign revenue contracts with us:
Current wording
We sell our products to hyperscalers, original equipment manufacturers (OEMs), original design manufacturers (ODMs) and optical module manufacturers, as well as to companies in the enterprise and HPC markets. We work closely and have engagements with industry-leading companies across these segments. A relatively small number customers have historically accounted for and continue to account for a significant portion of our revenue. We report revenue by customer in our financial statement disclosure based on the contracting parties who place purchase orders or sign revenue contracts with us. See Note 3 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. However, certain of our end customers have their contract manufacturing partners place orders with us. As a result, the contract manufacturers, rather than the end customers, are reported as our customers for financial reporting purposes. As a supplement to our financial statement footnote disclosure, and to provide further insight into our end customer concentration, the following table summarizes our revenue by customer as a percentage of total revenue based on end customer profile, rather than based on the contracting parties who place purchase orders or sign revenue contracts with us:
Previous wording
Total revenue for the three months ended January 27, 2024 decreased by $1.2 million, compared to the same period in fiscal year 2023, primarily due to a decrease in IP license revenue of $11.3 million, partially offset by an increase in product sales revenue of $1.9 million and product engineering services revenue of $8.2 million. Total revenue for the nine months ended January 27, 2024 decreased by $19.9 million, compared to the same period in fiscal year 2023, primarily due to a decrease in product sales revenue of $13.4 million and a decrease in IP license revenue of $14.9 million, partially offset by an increase in product engineering services revenue of $8.3 million.
Current wording
Three Months Ended August 3, 2024 and July 29, 2023
Previous wording
Comparison of Three and Nine Months Ended January 27, 2024 and January 28, 2023
Current wording
Comparison of Three Months Ended August 3, 2024 and July 29, 2023
Previous wording
The increase in product sales revenue for the three months ended January 27, 2024, compared to the same periods in fiscal year 2023, was primarily due to a significant increase in the volume of unit shipments of Optical products.
Current wording
The increase in product sales revenue for the three months ended August 3, 2024, compared to the same period in fiscal year 2024, was primarily due to a significant increase in the volume of unit shipments of AEC products which contributed over 90% of the increase in product sales revenue. The AEC sales increase was primarily driven by the ramp-up of our AEC solutions at our second hyperscale data center customer this fiscal quarter.
Previous wording
Gross margin in the three and nine months ended January 27, 2024 increased by 2.4% and 2.5%, respectively, compared to the same periods in fiscal year 2023, primarily driven by the increase in our product engineering services revenue in our revenue mix as our product engineering services business has higher gross margin compared to our product sales business. Additionally, as our product sales business continued to gain scale, product sales gross margin increased by 10% for the three months ended January 27, 2024 and 5% for the nine months ended January 27, 2024, compared to the same periods in the prior year.
Current wording
Gross margin in the three months ended August 3, 2024 increased by 3.2 percentage points compared to the same period in fiscal year 2024, primarily driven by the improved economies of scale in our product sales. Our product sales gross margin increased by 5.5 percentage points for the three months ended August 3, 2024, compared to the same period in the prior year.
Previous wording
Research and development expense for the three months ended January 27, 2024 increased by $3.7 million compared to the same period in fiscal year 2023. The increase was due primarily to a $3.0 million increase in personnel costs as a result of new hires for product development and a $1.7 million increase in share-based compensation expense driven by increased amortization expense from new equity awards granted to employees, offset by a $0.9 million increase in R&D expenses allocated out to cost of product engineering services as a result of the increase in engineering services performed.
Current wording
Research and development expense for the three months ended August 3, 2024 increased by $7.8 million compared to the same period in fiscal year 2024. The increase was due primarily to a $4.5 million increase in share-based compensation expense driven by increased amortization expense from new equity awards granted to employees, a $2.5 million increase in personnel costs as a result of new hires for product development and a $0.7 million increase in depreciation expense associated with increase in R&D equipment.
Previous wording
Selling, general and administrative expense for the three months ended January 27, 2024 increased by $2.3 million compared to the same period in fiscal year 2023. The increase was primarily due to a $1.5 million increase in personnel costs and a $1.2 million increase in share-based compensation expense driven by increased amortization expense from new equity awards granted to employees.
Current wording
Selling, general and administrative expense for the three months ended August 3, 2024 increased by $8.8 million compared to the same period in fiscal year 2024. The increase was primarily due to a $4.1 million increase in share-based compensation expense driven by increased amortization expense from new equity awards granted to employees, $2.0 million increase in personnel costs as a result of higher selling, general and administrative headcount, and a $2.0 million increase in external consultation fees relating to general and administrative expenses.
Previous wording
Benefit for income taxes for the three months ended January 27, 2024 decreased by $1.1 million, compared to the same period in fiscal year 2023. The fluctuation was primarily due to excluding zero rate jurisdictions from our annual effective tax rate calculation and an increase in tax benefit of share-based compensation.
Current wording
Provision for income taxes for the three months ended August 3, 2024 increased by $1.2 million, compared to the same period in fiscal year 2024. The fluctuation was primarily due to the tax benefit of share-based compensation being offset by a full valuation allowance in the U.S. entity.
Previous wording
Since our inception through January 27, 2024, our operations have been financed primarily by net proceeds from our initial public offering, net proceeds from our follow-on public offering completed in December 2023, the sale of convertible preferred shares and ordinary shares prior to our initial public offering and cash generated from our customers. As of January 27, 2024 and April 29, 2023, we had $96.1 million and $108.6 million in cash and cash equivalents, respectively, and working capital of $471.2 million and $297.2 million, respectively. Our principal use of cash is to fund our operations and invest in research and development to support our growth. See Note 7 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a further discussion of our cash requirements under non-cancelable purchase obligations.
Current wording
Our activities consist primarily of selling our products, licensing our IP, providing product and IP engineering services, and conducting research and development of our products and technology. As of August 3, 2024 and April 27, 2024, we had $103.9 million and $66.9 million in cash and cash equivalents, respectively, and working capital of $472.9 million and $485.6 million, respectively. Our principal use of cash is to fund our operations and invest in research and development to support our growth. See Note 7 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a further discussion of our cash requirements under non-cancelable purchase obligations.
Previous wording
We believe our existing cash and cash equivalents and other components of working capital will be sufficient to meet our needs for at least the next 12 months. Our future capital requirements will depend on many factors including our growth rate, the timing and extent of our sales and marketing and research and development expenditures and the continuing market acceptance of our solutions. In the event that we need to borrow funds or issue additional equity, we cannot assure you that any such additional financing will be available on terms acceptable to us, if at all. If we are unable to raise additional capital when we need it, our business, results of operations and financial condition would be adversely affected.
Current wording
We believe our existing cash and cash equivalents and other components of working capital will be sufficient to meet our needs for at least the next 12 months and in the longer term. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of our sales and marketing and research and development expenditures, customer demand and the continuing market acceptance of our solutions. In the event that we need to borrow funds or issue additional equity, we cannot be assured that any such additional financing will be available on terms acceptable to us, if at all. If we are unable to raise additional capital when we need it, our business, results of operations and financial condition would be adversely affected.
Previous wording
Net cash used in operating activities was $12.8 million for the nine months ended January 28, 2023. The cash outflows from operating activities for the nine months ended January 28, 2023 were primarily due to $40.7 million of cash outflows for working capital purposes, partially offset by $28.5 million of non-cash items. The cash outflows from working capital for the nine months ended January 28, 2023 were primarily driven by (a) an increase in accounts receivable of $13.6 million primarily due to increased sales in the fiscal quarter ended January 28, 2023 compared to the fiscal quarter ended April 30, 2022, and timing of collection; (b) an increase in inventory of $26.1 million to support unfulfilled backlog and related new product ramps; (c) an increase in contract assets of $9.2 million primarily driven by an IP licensing and engineering services arrangement where certain billing milestones had not yet been reached, but the criteria for revenue had been met; and (d) an increase in other non-current assets of $5.6 million primarily due to refundable deposit payments for manufacturing commitments and an increase in deferred tax assets position. These cash outflows were offset by cash inflow relating to increase in accounts payable of $11.7 million due to amounts payable relating to increased purchases of inventory.
Current wording
Net cash used in operating activities was $7.2 million for the three months ended August 3, 2024. The cash outflows from operating activities for the three months ended August 3, 2024 were primarily due to $21.5 million of cash outflows for working capital purposes and $9.5 million in net loss, partially offset by $23.8 million of non-cash items. The cash outflows from working capital for the three months ended August 3, 2024 were primarily driven by (a) an increase in accounts receivable of $12.2 million primarily due to large billings from customers not due yet in the three months ended August 3, 2024; (b) an increase in inventory of $5.4 million to support unfulfilled backlog and related new product ramps; (c) a decrease in accrued expenses, compensation and other liabilities of $3.7 million due to ESPP purchase and final billing payment made for one of our technology license obligations and (d) an increase in contract assets of $2.8 million due to certain product engineering services and IP licensing arrangements where certain billing milestones were not met prior to the timing of revenue recognition. These cash outflows were offset by cash inflows relating to an increase in accounts payable of $5.8 million due to amounts payable relating to increased external consultation fees associated with general and administrative and outside research & development services.
Previous wording
Net cash provided by operating activities was $28.6 million for the nine months ended January 27, 2024. The cash inflows from operating activities for the nine months ended January 27, 2024 were primarily due to $9.5 million of cash inflows for working capital purposes and $37.0 million of non-cash items, partially offset by $17.9 million in net loss. The cash inflows from working capital for the nine months ended January 27, 2024 were primarily driven by (a) a decrease in accounts receivable of $4.8 million primarily due to collection of large customer invoices in the nine months ended January 27, 2024; (b) a decrease in inventory of $13.8 million primarily driven by tightened production management and increased product sales compared to the fiscal quarter ended April 29, 2023; and (c) an increase in accounts payable of $5.3 million due to amounts payable relating to increased research and development spending. These cash inflows were offset by cash outflows relating to an increase in other non-current assets of $7.4 million primarily relating to payments of refundable deposits for a manufacturing supply capacity reservation agreement; and an increase in contract assets of $8.5 million primarily relating to a product engineering services arrangement where certain billing milestones have not been reached prior to the timing of revenue recognition.
Current wording
Net cash provided by operating activities was $24.6 million for the three months ended July 29, 2023. The cash inflows from operating activities for the three months ended July 29, 2023 were primarily due to $24.8 million of cash inflows for working capital purposes and $11.5 million of non-cash items, partially offset by $11.7 million in net loss. The cash inflows from working capital for the three months ended July 29, 2023 were primarily driven by (a) an decrease in accounts receivable of $21.6 million primarily due to collection of large customer invoices in the fiscal quarter ended July 29, 2023; (b) an decrease in inventory of $5.0 million primarily driven by tightened production management and increased product sales compared to the fiscal quarter ended April 29, 2023; (c) an increase in accounts payable of $2.5 million due to amounts payable relating to increased research and development spending. These cash inflows were offset by cash outflows relating to an increase in other non-current assets of $2.5 million primarily relating to payments of refundable deposits for a manufacturing supply capacity reservation agreement.
Previous wording
Net cash used in investing activities of $127.0 million in the nine months ended January 28, 2023 was attributable to purchases of property and equipment of $17.8 million and investment in a certificate of deposit of $109.2 million . Purchases of property and equipment primarily related to mask sets purchases for new products introduced or in process of being introduced, and computer equipment and software used for research and development purposes.
Current wording
Net cash provided by investing activities of $42.5 million in the three months ended August 3, 2024 was primarily attributable to maturities of certificates of deposit for $162.1 million, offset by purchase of the same for $113.7 million and purchases of property and equipment of $5.9 million. Purchases of property and equipment primarily related to third-party IP licenses and computer equipment and software used for research and development purposes.
Previous wording
Net cash used in investing activities of $216.3 million in the nine months ended January 27, 2024 was attributable to purchases of property and equipment of $12.5 million and net outflow from certificates of deposit of $203.8 million from maturities of certificates of deposit for $169.8 million and purchases of the same for $373.6 million. Purchases of property and equipment primarily related to mask sets purchases for new products introduced or in process of being introduced, and computer equipment and software used for research and development purposes.
Current wording
Net cash used in investing activities of $6.6 million in the three months ended July 29, 2023 was attributable to purchases of property and equipment of $5.3 million and net outflow from certificates of deposit of $1.3 million from maturities of certificates of deposit for $59.2 million and purchases of the same for $60.5 million . Purchases of property and equipment primarily related to mask sets purchases for new products introduced or in process of being introduced, and computer equipment and software used for research and development purposes.
Previous wording
Net cash provided by financing activities of $175.3 million for the nine months ended January 27, 2024 was primarily attributable to $173.6 million in proceeds from issuance of ordinary shares in connection our follow-on public offering, net of underwriter discounts and offering costs, $4.7 million in proceeds from exercises of employee share options and the issuance of shares under the ESPP, offset by $3.1 million in payments for long-term technology license obligations.
Current wording
Net cash provided by financing activities of $1.6 million for the three months ended August 3, 2024 was primarily attributable to $2.4 million in proceeds from exercises of employee share options and the issuance of shares under the ESPP net of tax withheld for RSU settlement, offset by $0.8 million in payments for long-term technology license obligations.
Previous wording
Net cash provided by financing activities of $4.3 million for the nine months ended January 28, 2023 was solely attributable to $4.6 million in proceeds from exercises of employee share options and issuances of shares under the ESPP.
Current wording
Net cash provided by financing activities of $0.5 million for the three months ended July 29, 2023 was solely attributable to $3.4 million in proceeds from exercises of employee share options and issuances of shares under the ESPP offset by $2.7 million in payments for long-term technology license obligations.
Previous wording
There have been no material changes to our critical accounting estimates during the three and nine months ended January 27, 2024, as compared to those disclosed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended April 29, 2023. In the current macroeconomic environment, our estimates could require increased judgment and carry a higher degree of variability and volatility. We continue to monitor and assess our estimates in light of developments, and as events continue to evolve and additional information becomes available, our estimates may change materially in future periods.
Current wording
There have been no material changes to our critical accounting estimates during the three months ended August 3, 2024, as compared to those disclosed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended April 27, 2024. In the current macroeconomic environment, our estimates could require increased judgment and carry a higher degree of variability and volatility. We continue to monitor and assess our estimates in light of developments, and as events continue to evolve and additional information becomes available, our estimates may change materially in future periods.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
Cash Flows Provided by (Used in) Investing Activities