Credo Technology Group Holding Ltd

Previous 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.

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 and PCIE applications, including the 100G (or Gigabits per second), 200G, 400G, 800G and emerging 1.6T (or Terabits per second) Ethernet markets and the 32G PCIe5 and upcoming 64G PCIe6 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

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.

Current wording

We design, market and sell product, software 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 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 of 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:

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

We are a product-focused business with a strong foundation in IP, pioneering comprehensive connectivity solutions that deliver bandwidth, scalability and end-to-end signal integrity for next-generation platforms. We also develop IP solutions to address the specific and complex needs of our customers. We earn revenue from these IP solutions primarily through licensing fees and royalties. In addition to product sales and IP license revenue, we also generate revenue from providing engineering services as part of our product and license arrangements with certain customers. Over time, we expect to generate an increased proportion of our revenue from sales of our products. We expect to see a long-term benefit from improvements in our operating leverage as our business continues to gain scale.

Current wording

We are a product-focused business with a strong foundation in IP, pioneering comprehensive connectivity solutions that deliver bandwidth, scalability and end-to-end signal integrity for next-generation platforms. We also develop IP solutions to address the specific and complex needs of our customers. We earn revenue from these IP solutions primarily through licensing fees and royalties. Over time, we expect to generate an increased proportion of our revenue from sales of our products. We expect to see a long-term benefit from improvements in our operating leverage as our business continues to gain scale.

Previous 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.

Current wording

Three Months Ended August 2, 2025 and August 3, 2024

Previous wording

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

Current wording

Comparison of Three Months Ended August 2, 2025 and August 3, 2024

Previous 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.

Current wording

The increase in product sales revenue for the three months ended August 2, 2025, compared to the same period in fiscal year 2025, was primarily due to a significant increase in the volume of unit shipments of AEC products which contributed over 95% of the increase in product sales revenue. The AEC sales increase was primarily driven by the ramp-up of our AEC solutions at two of our hyperscale data center customers during the three months ended August 2, 2025.

Previous wording

The increase in IP license revenue for the three months ended February 1, 2025, compared to the same period in fiscal year 2024, was primarily due to increased royalty revenue in which the royalty component of an existing agreement had begun.

Current wording

The increase in IP license revenue for the three months ended August 2, 2025, compared to the same period in fiscal year 2025, was primarily due to sales of IP licenses to a new customer.

Previous 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.

Current wording

Cost of revenue for the three months ended August 2, 2025 increased by $50.3 million, compared to the same period in fiscal year 2025, primarily due to increased shipments of AEC products noted above. The cost of IP license revenue was not material in the periods presented.

Previous 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.

Current wording

Gross margin in the three months ended August 2, 2025 increased by 5.0 percentage points compared to the same period in fiscal year 2025, primarily driven by the improved economies of scale in our product sales.

Previous 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.

Current wording

Research and development expense for the three months ended August 2, 2025 increased by $22.0 million compared to the same period in fiscal year 2025. The increase was due primarily to a $10.1 million increase in share-based compensation expense driven by increased amortization expense from new equity awards granted to employees, a $3.5 million increase in personnel costs as a result of new hires for product development and a $6.8 million increase in higher engineering activities relating to testing and laboratory supplies for new product development.

Previous 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.

Current wording

Selling, general and administrative expense for the three months ended August 2, 2025 increased by $15.9 million compared to the same period in fiscal year 2025. The increase was primarily due to a $8.8 million increase in share-based compensation expense driven by increased amortization expense from new equity awards granted to employees, $2.9 million increase in personnel costs as a result of higher selling, general and administrative headcount, and a $3.1 million increase in external consultation fees relating to general and administrative expenses.

Previous 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.

Current wording

Provision for income taxes for the three months ended August 2, 2025 increased by $0.7 million, compared to the same period in fiscal year 2025. The increase was primarily driven by higher pre-tax income generated in tax-paying jurisdictions in the three months ended August 2, 2025 as compared to the same period 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 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.

Current wording

Our activities consist primarily of selling our products, licensing our IP, providing product services, and conducting research and development of our products and technology. As of August 2, 2025 and May 3, 2025, we had $219.6 million and $236.3 million in cash and cash equivalents, respectively, and working capital of $695.2 million and $605.8 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

Cash Flows Provided by Operating Activities

Current wording

Cash Flows Provided by (Used in) Operating Activities

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 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.

Current wording

Net cash provided by operating activities was $54.2 million for the three months ended August 2, 2025. The cash inflows from operating activities for the three months ended August 2, 2025 were primarily due to net income of $63.4 million adjusted for the following non-cash items: share-based compensation expense of $35.5 million, depreciation and amortization of $5.5 million and other non-cash items of $2.0 million. This was offset by $49.2 million of cash outflows from working capital for the three months ended August 2, 2025, which was primarily driven by (a) an increase in accounts receivable of $19.1 million primarily due to increased sales in the three months ended August 2, 2025 compared to three months ended August 3, 2024; (b) an increase in inventory of $27.5 million to support unfulfilled backlog and related new product ramps and (c) an increase in accounts payable of $9.0 million due to timing of payment for purchases of property and equipment.

Previous 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.

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 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 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 $67.8 million in the three months ended August 2, 2025 was primarily attributable to purchases of certificates of deposit for $115.0 million and purchases of property and equipment of $2.8 million, offset by maturities of certificates of deposit for $50.0 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 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.

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 purchases 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 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.

Current wording

Net cash used in financing activities of $3.0 million for the three months ended August 2, 2025 was primarily attributable to $3.9 million in payments for long-term technology license obligations, offset by $0.9 million in proceeds from exercises of employee share options and the issuance of shares under the ESPP net of tax withheld for RSU settlement.

Previous 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.

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 issuances 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

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.

Current wording

There have been no material changes to our critical accounting estimates during the three months ended August 2, 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 May 3, 2025. 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.