10-QPeriod: Q1 FY2024

Credo Technology Group Holding Ltd Quarterly Report for Q1 Ended Jul 29, 2023

Filed August 29, 2023For Securities:CRDO

Summary

Credo Technology Group Holding Ltd reported a significant revenue decline of 24.5% year-over-year for the second quarter of fiscal year 2024, ending July 29, 2023. Total revenue was $35.1 million, down from $46.5 million in the prior year period. This decrease was primarily driven by a substantial 73.3% drop in IP license revenue, largely due to a large one-time license delivered in the prior year, and a 14.8% decrease in product sales, attributed to a demand forecast reduction by a major customer. Despite the revenue challenges, gross margin remained stable at 59.2%. However, operating expenses increased significantly, leading to a wider net loss of $11.7 million, compared to a nominal loss of $0.1 million in the same period last year. The company is investing heavily in Research & Development, with expenses increasing by 35.7% year-over-year, reflecting a strategic focus on future product development.

Financial Highlights

46 data points
Beta

Revenue

$35.09M

59.2% Gross Margin

Net Income

-$11.70M

-33.3% Net Margin

EPS (Diluted)

$-0.08

Total Assets

$395.70M

Cash & Equivalents

$127.05M

Free Cash Flow

$19.30M

Financial Statements
Beta
Revenue$35.09M
Cost of Revenue$14.30M
Gross Profit$20.79M
R&D Expenses$22.64M
SG&A Expenses$12.54M
Operating Expenses$35.18M
Operating Income-$14.39M
Net Income-$11.70M
EPS (Basic)$-0.08
EPS (Diluted)$-0.08
Shares Outstanding (Basic)149.28M
Shares Outstanding (Diluted)149.28M

Key Highlights

  • 1Total revenue decreased by 24.5% to $35.1 million for the three months ended July 29, 2023, compared to $46.5 million in the prior year period.
  • 2Product sales revenue declined 14.8% year-over-year, primarily due to reduced demand from a key customer.
  • 3IP license revenue saw a significant decrease of 73.3%, impacted by a large prior-year deal.
  • 4Gross margin remained stable at 59.2%, indicating consistent product profitability.
  • 5Operating expenses, particularly Research & Development (up 35.7%) and Selling, General & Administrative (up 12.0%), increased substantially, leading to a wider net loss.
  • 6Net loss for the quarter was $11.7 million, a significant increase from $0.1 million in the prior year period.
  • 7The company generated positive operating cash flow of $24.6 million, a substantial improvement from negative $12.2 million in the prior year, driven by favorable working capital changes, particularly a decrease in accounts receivable.

Frequently Asked Questions

The primary reasons for the revenue decline were a substantial decrease in IP license revenue, due to a large, non-recurring IP license delivered in the prior year's comparable quarter, and a decrease in product sales. The reduction in product sales was largely attributed to a demand forecast reduction by one of Credo's largest customers.

While revenue decreased, the company significantly increased its investment in Research & Development by 35.7%, indicating a strategic focus on future growth and innovation. Selling, General, and Administrative expenses also increased by 12.0%. Despite the increased operating expenses leading to a wider net loss, the company achieved positive operating cash flow of $24.6 million, demonstrating improved working capital management.

The company noted a significant demand forecast reduction from one of its largest customers, which negatively impacted product sales. While historically a small number of customers account for a significant portion of revenue, Credo aims to diversify its customer base over time. The company continues to engage with hyperscalers and other key players in the data infrastructure market.

Credo Technology Group Holding Ltd ended the quarter with $127.0 million in cash and cash equivalents, an increase from $108.6 million at the end of the previous quarter. The company believes its existing cash and working capital are sufficient to meet its needs for at least the next 12 months, and it generated positive operating cash flow during the period.