Credo Technology Group Holding Ltd

Previous 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.

Current wording

At Credo, our mission is to redefine high-speed connectivity by delivering breakthrough solutions that enable the next generation of AI-driven applications. We are committed to enabling faster, more reliable, more energy-efficient, and scalable solutions that support the ever-expanding demands of AI, cloud computing, and hyperscale networks. 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

During the three and six months ended November 2, 2024, we generated $72.0 million and $131.7 million in total revenue, respectively, and during the three and six months ended October 28, 2023, we generated $44.0 million and $79.1 million in total revenue, respectively. Product sales and product engineering services revenue comprised 95.9% of our total revenue in both the three and six months ended November 2, 2024 and 83.3% and 87.2% in the three and six months ended October 28, 2023, respectively, and IP license revenue represented 4.1% of our total revenue in both the three and six months ended November 2, 2024 and 16.7% and 12.8% in the three and six months ended October 28, 2023, respectively. During the three and six months ended November 2, 2024, we generated $4.2 million and $13.8 million in net losses, respectively, and during the three and six months ended October 28, 2023, we generated $6.6 million and $18.3 million in net losses, respectively.

Current wording

During the three and nine months ended February 1, 2025, we generated $135.0 million and $266.8 million in total revenue, respectively, and during the three and nine months ended January 27, 2024, we generated $53.1 million and $132.2 million in total revenue, respectively. Product sales and product engineering services revenue comprised 97.8% and 96.9% of our total revenue in the three and nine months ended February 1, 2025 and 97.6% and 91.4% in the three and nine months ended January 27, 2024, respectively. IP license revenue represented 2.2% and 3.1% of our total revenue in the three and nine months ended February 1, 2025 and 2.4% and 8.6% in the three and nine months ended January 27, 2024, respectively. During the three and nine months ended February 1, 2025, we generated $29.4 million and $15.6 million in net income, respectively, and during the three and nine months ended January 27, 2024, we generated $0.4 million net income and $17.9 million in net losses, respectively.

Previous wording

Comparison of Three and Six Months Ended November 2, 2024 and October 28, 2023

Current wording

Comparison of Three and Nine Months Ended February 1, 2025 and January 27, 2024

Previous wording

Total revenue for the three months ended November 2, 2024 increased by $28.0 million, compared to the same period in fiscal year 2024, primarily due to an increase in product sales revenue of $30.2 million and product engineering services revenue of $2.2 million. This was offset by a decrease in IP license revenue of $4.4 million.

Current wording

Total revenue for the three months ended February 1, 2025 increased by $81.9 million, compared to the same period in fiscal year 2024, primarily due to an increase in product sales revenue of $89.4 million and IP license revenue of $1.7 million. This was offset by a decrease in product engineering services revenue of $9.2 million.

Previous wording

The increase in product sales revenue for the three months ended November 2, 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 and Optical products which contributed over 95% of the increase in product sales revenue, compared to the same period in fiscal year 2024. The sales increase was primarily driven by new design wins and increased diversification of our customer base across the product lines.

Current wording

The increase in product sales revenue for the three months ended February 1, 2025, 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 to a hyper-scaler customer which contributed over 95% of the increase in product sales revenue, compared to the same period in fiscal year 2024.

Previous wording

The increase in product engineering services revenue for the three months ended November 2, 2024, compared to the same period in fiscal year 2024, was primarily due to an increase in engineering time of 156% spent in our product engineering services arrangements.

Current wording

The decrease in product engineering services revenue for the three months ended February 1, 2025, compared to the same period in fiscal year 2024, was primarily due to completion of certain product engineering services arrangements resulting in a decrease in engineering time of 87%.

Previous wording

Total revenue for the six months ended November 2, 2024 increased by $28.0 million, compared to the same period in fiscal year 2024, primarily due to an increase in product sales revenue of $30.2 million and product engineering services revenue of $2.2 million. This was offset by a decrease in IP license revenue of $4.4 million.

Current wording

Total revenue for the nine months ended February 1, 2025 increased by $134.6 million, compared to the same period in fiscal year 2024, primarily due to an increase in product sales revenue of $143.4 million offset by a decrease in product engineering services revenue of $5.8 million and IP license revenue of $3.1 million.

Previous wording

The increase in product sales revenue for the six months ended November 2, 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 and Optical products which contributed over 95% of the increase in product sales revenue. The sales increase was primarily driven by new design wins and increased diversification of our customer base across the product lines.

Current wording

The increase in product sales revenue for the nine months ended February 1, 2025, compared to the same period in fiscal year 2024, was primarily due to a significant increase in the volume of unit shipments of AEC and Optical products which contributed over 95% of the increase in product sales revenue. The sales increase was primarily driven by new design wins and increased diversification of our customer base across the product lines.

Previous wording

The increase in product engineering services revenue for the six months ended November 2, 2024, compared to the same period in fiscal year 2024, was primarily due to an increase in engineering time of 134% spent in our product engineering services arrangements.

Current wording

The decrease in product engineering services revenue for the nine months ended February 1, 2025, compared to the same period in fiscal year 2024, was primarily due to the completion of certain product engineering services arrangements resulting in a decrease in engineering time of 47%.

Previous wording

The decrease in IP license revenue for the six months ended November 2, 2024, compared to the same period in fiscal year 2024, was primarily due to fewer contracts entered into in the period as compared to the same period in fiscal year 2024.

Current wording

The decrease in IP license revenue for the nine months ended February 1, 2025, compared to the same period in fiscal year 2024, was primarily due to fewer contracts entered into in the period as compared to the same period in fiscal year 2024.

Previous wording

Cost of revenue for the three months ended November 2, 2024 increased by $8.6 million compared to the same period in fiscal year 2024, primarily due to an increase in cost of product sales revenue of $8.5 million. The increase was primarily due to the increased shipments of AEC products noted above.

Current wording

Cost of revenue for the three months ended February 1, 2025 increased by $28.6 million compared to the same period in fiscal year 2024, primarily due to an increase in cost of product sales revenue of $29.9 million. The increase was primarily due to the increased shipments of AEC products noted above.

Previous wording

Cost of revenue for the six months ended November 2, 2024 increased by $16.7 million compared to the same period in fiscal year 2024, primarily due to an increase in cost of product sales revenue of $16.6 million. The increase was primarily due to the increased shipments of AEC products noted above.

Current wording

Cost of revenue for the nine months ended February 1, 2025 increased by $45.3 million compared to the same period in fiscal year 2024, primarily due to an increase in cost of product sales revenue of $46.5 million. The increase was primarily due to the increased shipments of AEC products noted above.

Previous wording

Gross margin in the three months ended November 2, 2024 increased by 3.9 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 10.5 percentage points for the three months ended November 2, 2024, compared to the same period in the prior year, driven primarily by the increased shipments of higher gross margin AEC products, partially offset by a $2.0 million increase of write-downs for excess and obsolete inventory.

Current wording

Gross margin in the three months ended February 1, 2025 increased by 2.2 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 9.6 percentage points for the three months ended February 1, 2025, compared to the same period in the prior year, driven primarily by the increased shipments of higher gross margin AEC products, partially offset by a $2.2 million increase of write-downs for excess and obsolete inventory.

Previous wording

Gross margin in the six months ended November 2, 2024 increased by 3.6 percentage points compared to the same period in fiscal year 20244, primarily driven by the improved economies of scale in our product sales. Our product sales gross margin increased by 8.2 percentage points for the six months ended November 2, 2024, compared to the same period in the prior fiscal year, driven primarily by the increase shipments of higher gross margin AEC products, partially offset by a $1.5 million increase of write-downs for excess and obsolete inventory.

Current wording

Gross margin in the nine months ended February 1, 2025 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 9.1 percentage points for the nine months ended February 1, 2025, compared to the same period in the prior fiscal year, driven primarily by the increase shipments of higher gross margin AEC products, partially offset by a $3.7 million increase of write-downs for excess and obsolete inventory.

Previous wording

Research and development expense for the three months ended November 2, 2024 increased by $10.0 million compared to the same period in fiscal year 2024. The increase was due primarily to a $3.7 million increase in share-based compensation expense driven by increased amortization expense from new equity awards granted to employees, a $2.6 million increase in personnel costs as a result of new hires for product development, a $2.3 million increase in design activities and higher engineering activities relating to testing and laboratory supplies for new product development, and a $1.0 million increase in depreciation expense associated with increase in R&D equipment.

Current wording

Research and development expense for the three months ended February 1, 2025 increased by $12.0 million compared to the same period in fiscal year 2024. The increase was due primarily to a $3.6 million increase in share-based compensation expense driven by increased amortization expense from new equity awards granted to employees, a $3.2 million increase in personnel costs as a result of new hires for product development, a $3.1 million increase in design activities and higher engineering activities relating to testing and laboratory supplies for new product development and a $0.9 million increase in depreciation expense associated with increase in R&D equipment.

Previous wording

Research and development expense for the six months ended November 2, 2024 increased by $17.8 million compared to the same period in fiscal year 2023. The increase was due primarily to an $8.2 million increase in share-based compensation expense driven by increased amortization expense from new equity awards granted to employees, a $5.7 million increase in personnel costs as a result of new hires for product development, a $1.8 million increase in design activities and higher engineering activities relating to testing and laboratory supplies for new product development and a $1.7 million increase in depreciation expense driven by increased computer equipment and software, and laboratory equipment utilized in research and development activities.

Current wording

Research and development expense for the nine months ended February 1, 2025 increased by $29.8 million compared to the same period in fiscal year 2023. The increase was due primarily to an $11.9 million increase in share-based compensation expense driven by increased amortization expense from new equity awards granted to employees, an $8.3 million increase in personnel costs as a result of new hires for product development, a $6.4 million increase in design activities and higher engineering activities relating to testing and laboratory supplies for new product development and a $2.6 million increase in depreciation expense driven by increased computer equipment and software, and laboratory equipment utilized in research and development activities.

Previous wording

Selling, general and administrative expense for the three months ended November 2, 2024 increased by $8.9 million compared to the same period in fiscal year 2024. The increase was primarily due to a $4.7 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, a $0.7 million increase in external consultation fees relating to general and administrative expenses, and a $0.5 million increase in logistic expenses related to selling activities.

Current wording

Selling, general and administrative expense for the three months ended February 1, 2025 increased by $9.2 million compared to the same period in fiscal year 2024. The increase was primarily due to a $4.3 million increase in share-based compensation expense driven by increased amortization expense from new equity awards granted to employees, a $2.3 million increase in personnel costs as a result of higher selling, general and administrative headcount, a $1.5 million increase in external consultation fees relating to general and administrative expenses, a $0.4 million increase in depreciation and software license expense driven by increased computer equipment and software utilized in selling, general and administrative activities and a $0.2 million increase in logistic expenses related to selling activities.

Previous wording

Selling, general and administrative expense for the six months ended November 2, 2024 increased by $17.7 million compared to the same period in fiscal year 2023. The increase was primarily due to an $8.9 million increase in share-based compensation expense driven by increased amortization expense from new equity awards granted to employees, a $4.0 million increase in personnel expenses from new hires, a $2.8 million increase in external consultation fees relating to general and administrative expenses, and a $0.5 million increase in logistic expenses related to selling activities.

Current wording

Selling, general and administrative expense for the nine months ended February 1, 2025 increased by $26.9 million compared to the same period in fiscal year 2023. The increase was primarily due to a $13.1 million increase in share-based compensation expense driven by increased amortization expense from new equity awards granted to employees, a $6.2 million increase in personnel expenses from new hires, a $4.3 million increase in external consultation fees relating to general and administrative expenses, a $0.9 million increase in depreciation and software license expense driven by increased computer equipment and software utilized in selling, general and administrative activities, a $0.8 million increase in logistic expenses related to selling activities, a $0.7 million increase in general building management expenses due to increased headcount and a $0.3 million increase in tradeshow expenses driven by increased tradeshow participation.

Previous wording

Provision for income taxes for the six months ended November 2, 2024 increased by $1.0 million, compared to the same period in fiscal year 2024. The fluctuation was primarily due to the tax benefit of share-based compensation expense being offset by a full valuation allowance on deferred tax assets in the U.S. entity in fiscal year 2025.

Current wording

Provision for income taxes for the three and nine months ended February 1, 2025 increased by $2.8 million and $3.8 million, respectively, compared to the same period in fiscal year 2024. The fluctuation was primarily due to the tax benefit of share-based compensation expense being offset by a full valuation allowance on deferred tax assets in the U.S. entity in fiscal year 2025.

Previous 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 November 2, 2024 and April 27, 2024, we had $239.2 million and $66.9 million in cash and cash equivalents, respectively, and working capital of $488.6 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.

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 February 1, 2025 and April 27, 2024, we had $299.2 million and $66.9 million in cash and cash equivalents, respectively, and working capital of $538.4 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

Net cash provided by operating activities was $3.0 million for the six months ended November 2, 2024. The cash inflows from operating activities for the six months ended November 2, 2024 were primarily due to $50.6 million of non-cash items, partially offset by $33.7 million of cash outflows for working capital purposes and $13.8 million in net loss. The cash outflows from working capital for the six months ended November 2, 2024 were primarily driven by (a) an increase in accounts receivable of $22.1 million primarily due to large billings from customers not due yet in the six months ended November 2, 2024; (b) an increase in inventory of $12.6 million to support unfulfilled backlog and related new product ramps; and (c) a decrease in deferred revenue of $2.0 million due to the satisfaction of performance obligations over the passage of time.

Current wording

Net cash provided by operating activities was $7.3 million for the nine months ended February 1, 2025. The cash inflows from operating activities for the nine months ended February 1, 2025 were primarily due to $15.6 million in net income and $81.3 million of non-cash items, partially offset by $89.6 million of cash outflows for working capital purposes. The cash outflows from working capital for the nine months ended February 1, 2025 were primarily driven by (a) an increase in accounts receivable of $97.5 million primarily due to large billings from customers not due yet in the nine months ended February 1, 2025 and (b) an increase in inventory of $31.7 million to support unfulfilled backlog and related new product ramps. These cash outflows were offset by cash inflows relating to (a) an increase in accounts payable of $22.3 million and (b) an increase in accrued expenses of $13.0 million, both relating to increased inventory purchases.

Previous wording

The cash inflows from working capital for the six months ended October 28, 2023 were primarily driven by (a) an decrease in accounts receivable of $16.8 million primarily due to collection of large customer invoices in the fiscal quarter ended October 28, 2023; (b) an decrease in inventory of $9.6 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 $5.6 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 $4.6 million primarily relating to payments of refundable deposits for a manufacturing supply capacity reservation agreement.

Current 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 fiscal quarter 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; (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.

Previous wording

Net cash provided by investing activities of $171.5 million in the six months ended November 2, 2024 was primarily attributable to maturities of certificates of deposit for $313.1 million, offset by purchases of the same for $113.7 million and purchases of property and equipment of $27.8 million. Purchases of property and equipment primarily related to mask set costs capitalized relating to the Company’s products already introduced or to be introduced, and third-party IP licenses and computer equipment and software used for research and development purposes.

Current wording

Net cash provided by investing activities of $230.7 million in the nine months ended February 1, 2025 was primarily attributable to maturities of certificates of deposit for $376.8 million, offset by purchases of the same for $113.7 million and purchases of property and equipment of $32.4 million. Purchases of property and equipment primarily related to mask set costs capitalized relating to the Company’s products already introduced or to be introduced, and third-party IP licenses and computer equipment and software used for research and development purposes.

Previous wording

Net cash used in investing activities of $9.7 million in the six months ended October 28, 2023 was attributable to purchases of property and equipment of $7.4 million and net outflow from certificates of deposit of $2.3 million from maturities of certificates of deposit for $109.2 million and purchases of the same for $111.5 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.

Current 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.

Previous wording

Net cash used in financing activities of $2.4 million for the six months ended November 2, 2024 was primarily attributable to $4.6 million in payments for long-term technology license obligations and $2.3 million tax withheld related to RSU settlement, offset by $4.4 million in proceeds from exercises of employee share options.

Current wording

Net cash used in financing activities of $5.8 million for the nine months ended February 1, 2025 was primarily attributable to $5.4 million in payments for long-term technology license obligations and $7.2 million tax withheld related to RSU settlement, offset by $6.8 million in proceeds from exercises of employee share options.

Previous wording

Net cash provided by financing activities of $0.7 million for the six months ended October 28, 2023 was solely attributable to $3.7 million in proceeds from exercises of employee share options and issuances 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 $175.3 million for the nine months ended January 27, 2024 was solely attributable to $4.7 million in proceeds from exercises of employee share options and issuances of shares under the ESPP offset by $3.1 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 six months ended November 2, 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.

Current wording

There have been no material changes to our critical accounting estimates during the three and nine months ended February 1, 2025, 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.