10-QPeriod: Q1 FY2023

Credo Technology Group Holding Ltd Quarterly Report for Q1 Ended Jul 30, 2022

Filed September 1, 2022For Securities:CRDO

Summary

Credo Technology Group Holding Ltd (CRDO) reported a significant surge in revenue for the three months ended July 30, 2022, reaching $46.5 million, a 333.3% increase year-over-year, driven primarily by a substantial rise in product sales and a notable increase in IP license revenue. Despite this top-line growth, the company reported a net loss of $73,000 for the quarter, a substantial improvement from the $12.6 million net loss in the prior year period. The company's gross margin also saw significant improvement, expanding to 59.5% from 48.3% in the prior year, benefiting from increased scale in product sales and higher-margin IP license revenue. Operating expenses, particularly in Research and Development and Selling, General & Administrative, increased year-over-year, contributing to the near break-even net loss. The company maintained a strong cash position with $243.8 million in cash and cash equivalents, although net cash used in operating activities was significant at $12.2 million, largely due to working capital changes. Investors should monitor the company's ability to translate its strong revenue growth and improved gross margins into sustainable profitability, while also keeping an eye on the increasing operating expenses and cash burn from operations.

Financial Highlights

45 data points
Beta

Revenue

$46.47M

59.5% Gross Margin

Net Income

-$73K

-0.2% Net Margin

EPS (Diluted)

$0.00

Total Assets

$405.65M

Cash & Equivalents

$243.78M

Free Cash Flow

-$17.48M

Financial Statements
Beta
Revenue$46.47M
Cost of Revenue$18.80M
Gross Profit$27.66M
R&D Expenses$16.68M
SG&A Expenses$11.20M
Operating Expenses$27.88M
Operating Income-$218K
Net Income-$73K
Shares Outstanding (Basic)145.08M
Shares Outstanding (Diluted)145.08M

Key Highlights

  • 1Revenue significantly increased by 333.3% to $46.5 million for the three months ended July 30, 2022, compared to $10.7 million in the prior year period.
  • 2Product sales revenue saw a substantial increase of 385.5% to $35.3 million, and IP license revenue grew by 907.8% to $10.4 million.
  • 3Net loss improved dramatically to $73,000 from $12.6 million in the prior year, indicating progress towards profitability.
  • 4Gross margin expanded significantly to 59.5% from 48.3%, driven by improved operating leverage and a higher contribution from IP license revenue.
  • 5Research and Development expenses increased by 72.1% to $16.7 million, and SG&A expenses rose by 57.3% to $11.2 million, reflecting investments in growth and public company costs.
  • 6The company maintained a healthy cash balance of $243.8 million as of July 30, 2022.
  • 7Net cash used in operating activities was $12.2 million, a substantial outflow driven by working capital changes, particularly increases in accounts receivable and inventories.

Frequently Asked Questions

The primary driver of Credo's revenue growth is a substantial increase in product sales, up 385.5% year-over-year, largely attributed to higher unit shipments of Active Electrical Cables (AECs). Additionally, a significant boost came from IP license revenue, which grew by 907.8%, primarily due to a high-dollar IP license recognized in the quarter.

While revenue and gross margins improved significantly, Credo's net loss of $73,000 is primarily due to increased operating expenses. Research and Development expenses rose 72.1% and Selling, General & Administrative (SG&A) expenses increased by 57.3% compared to the prior year. These increases are attributed to higher personnel costs, increased share-based compensation, and for SG&A, costs associated with being a public company.

Credo maintained a strong cash position, with $243.8 million in cash and cash equivalents as of July 30, 2022. However, the company used $12.2 million in net cash for operating activities during the quarter. This outflow was driven by working capital needs, specifically increases in accounts receivable and inventories, which offset the positive contributions from non-cash items and changes in other working capital accounts.

The significant improvement in gross margin to 59.5% from 48.3% is a key positive indicator. This expansion is driven by the increasing scale of the company's product sales business, leading to better operating leverage, and a favorable shift in revenue mix towards higher-margin IP license revenue.