01—Abstract
Summary
Summary of the 10-K filed June 23, 2023. Cited figures are marked; the original filing is the authoritative source.
Credo Technology Group (CRDO) reported fiscal 2023 (52 weeks ended April 29, 2023) total revenue of $184.2 milliona, up 73% from $106.5 million in fiscal 2022, driven mainly by a 92% jump in product sales, which were largely AEC (Active Electrical Cable) shipments ramping at its first hyperscale customer.
Gross margin compressed to 57.7% from 60.1% because of the mix shift toward lower-margin product sales, while operating expenses rose as R&D grew 60% to $76.8 millionb and SG&A rose 38% to $48.2 million, including higher share-based compensation. The net loss narrowed to $16.5 million from $22.2 million, and the company is approaching breakeven on an operating basis (operating loss of $21.2 million, or 11.5% of revenue, versus 20.6% a year earlier). Concentration risk is the dominant issue for investors.
Three customers accounted for 46%c, 13% and 12% of fiscal 2023 revenue, and the top 10 represented about 90%. In February 2023 the largest customer cut its demand forecast for certain products, which management said will substantially weigh on revenue and results for fiscal 2024. Customers buy on purchase orders with no long-term volume commitments, and the company relies on TSMC as its sole wafer foundry.
The balance sheet remains solid, with $217.8 milliond in cash and short-term investments and $297.2 million of working capital, although cash and cash equivalents fell to $108.6 million after $159.2 million was moved into certificates of deposit and $21.7 million went to capital spending. The company is also growing its IP and product pipeline, with 100G-per-lane AEC and 1.6T opportunities, AEC engagements expanded to all seven leading hyperscalers, and management pointing to AI/ML infrastructure as a significant growth driver. Investors should weigh that upside against the customer concentration, the reduced near-term outlook from the largest customer, a rising inventory balance ($46.0 million, up 68%), and PRC/Taiwan geopolitical exposure, since 53% of revenue came from mainland China.
02—Key points
Key Highlights
- Revenue rose 73% to $184.2M in fiscal 2023, led by a 92% increase in product sales ($141.5M), mainly from AEC cable volume at a major hyperscale customer.
- Gross margin declined to 57.7% from 60.1% as lower-margin product sales grew to 83% of revenue, though product-sales gross margin improved to 46.9% from 45.6%.
- Net loss narrowed to $16.5M (-$0.11 per share) from $22.2M (-$0.25 per share), and operating loss improved to 11.5% of revenue from 20.6%.
- Extreme customer concentration: three customers were 46%, 13% and 12% of revenue, and the top 10 were about 90%; the largest customer cut its demand forecast in February 2023, which will weigh on fiscal 2024 revenue.
- Strong liquidity: $217.8M in cash and short-term investments and $297.2M in working capital, with the company stating current resources should suffice for at least 12 months.
- R&D spending grew 60% to $76.8M (41.7% of revenue), and the company reported 353 engineers, with AEC engagements expanded to all seven leading hyperscalers.
- Notable risks include fabless dependence on TSMC, no long-term purchase commitments, and 53% of revenue from mainland China alongside PRC regulatory, currency and Taiwan geopolitical exposure.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2023, Credo Technology Group Holding lost $0.09.
- Revenue$184.2M100.0%
- Cost of revenue−$78.0M42.3%
- Gross profit$106.2M57.7%
- Operating costs−$127.4M69.2%
- Operating income−$21.2M11.5%
- Interest, other & tax$4.7M2.5%
- Net income−$16.5M9.0%
04—Financials
Financial Highlights
Figures from 10-KFY2023filed June 23, 2023Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Revenue | $184.19M$106.48M | +73.0% |
| Cost of Revenue | $78.00M$42.46M | +83.7% |
| Gross Profit | $106.19M$64.02M | +65.9% |
| R&D Expenses | $76.77M$47.95M | +60.1% |
| SG&A Expenses | $48.25M$34.90M | +38.2% |
| Operating Expenses | $127.43M$85.98M | +48.2% |
| Operating Income | -$21.23M-$21.97M | +3.3% |
| Net Income | -$16.55M-$22.18M | +25.4% |
| EPS (Basic) | $-0.11$-0.25 | +56.0% |
| EPS (Diluted) | $-0.11$-0.25 | +56.0% |
| Shares Outstanding (Basic) | 146.56M88.40M | +65.8% |
| Shares Outstanding (Diluted) | 146.56M88.40M | +65.8% |
05—Questions
Frequently Asked Questions
How much revenue did Credo generate in fiscal 2023, and what drove the growth?
Total revenue was $184.2 million, up 73% from $106.5 million. Product sales increased $67.8 million (to $141.5 million), mostly due to higher AEC cable unit shipments as a major hyperscale customer ramped its AEC program. IP license revenue also rose 26% to $29.4 million, aided by high-dollar IP deliveries to one customer.
Is Credo close to profitability, and how are margins trending?
The company is narrowing losses but remains unprofitable. The net loss was $16.5 million versus $22.2 million a year earlier, and the operating loss fell to 11.5% of revenue from 20.6%. Gross margin fell to 57.7% from 60.1% because product sales, which carry lower margins, became a larger share of revenue. Management expects long-term operating leverage as scale improves.
What is the biggest risk for investors?
Customer concentration. Three customers accounted for 72% of fiscal 2023 revenue, and the largest customer reduced its demand forecast in February 2023 for reasons the company says are unrelated to its performance. That reduction is expected to have a substantial negative effect on fiscal 2024 revenue. Customers can also cancel or change purchase orders with limited notice, and the company has no long-term volume commitments.
How strong is Credo's balance sheet and cash position?
Credo had $108.6 million in cash and cash equivalents and $109.2 million in short-term certificates of deposit, for about $217.8 million in total liquid resources, plus $297.2 million in working capital and no debt on the balance sheet. Cash used in operations was $24.6 million, and the company spent $21.7 million on property and equipment, largely mask sets for new products. Management believes current resources will be sufficient for at least the next 12 months.
What is the company's exposure to China and Taiwan?
Mainland China generated 53% of fiscal 2023 revenue, and about 4% of assets are held there. Hong Kong accounted for 5% of revenue and 25% of assets. The company relies on TSMC in Taiwan as its sole wafer foundry, so political tension between Taiwan and mainland China, PRC regulatory changes, export controls and currency restrictions could materially affect operations and the share price.
06—Continue