01—Abstract
Summary
Summary of the 10-Q filed August 29, 2023. Cited figures are marked; the original filing is the authoritative source.
Credo Technology Group Holding Ltd reported a significant revenue decline of 24.5%a year-over-year for the second quarter of fiscal year 2024, ending July 29, 2023.
Total revenue was $35.1 millionb, 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 millionc, 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.
02—Key points
Key Highlights
- Total 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.
- Product sales revenue declined 14.8% year-over-year, primarily due to reduced demand from a key customer.
- IP license revenue saw a significant decrease of 73.3%, impacted by a large prior-year deal.
- Gross margin remained stable at 59.2%, indicating consistent product profitability.
- Operating expenses, particularly Research & Development (up 35.7%) and Selling, General & Administrative (up 12.0%), increased substantially, leading to a wider net loss.
- Net loss for the quarter was $11.7 million, a significant increase from $0.1 million in the prior year period.
- The 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.
03—One dollar
Follow one dollar
For each $1.00 of revenue in Q1 FY2024, Credo Technology Group Holding lost $0.33.
- Revenue$35.1M100.0%
- Cost of revenue−$14.3M40.8%
- Gross profit$20.8M59.2%
- Operating costs−$35.2M100.2%
- Operating income−$14.4M41.0%
- Interest, other & tax$2.7M7.7%
- Net income−$11.7M33.3%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2024filed August 29, 2023Financial Statements
Q1 FY2024 against Q1 FY2023
| Line item | Q1 FY2024Q1 FY2023 | Change |
|---|---|---|
| Revenue | $35.09M$46.47M | −24.5% |
| Cost of Revenue | $14.30M$18.80M | −23.9% |
| Gross Profit | $20.79M$27.66M | −24.8% |
| R&D Expenses | $22.64M$16.68M | +35.7% |
| SG&A Expenses | $12.54M$11.20M | +12.0% |
| Operating Expenses | $35.18M$27.88M | +26.2% |
| Operating Income | -$14.39M-$218K | −6501.4% |
| Net Income | -$11.70M-$73K | −15923.3% |
| EPS (Basic) | $-0.08— | — |
| EPS (Diluted) | $-0.08— | — |
| Shares Outstanding (Basic) | 149.28M145.08M | +2.9% |
| Shares Outstanding (Diluted) | 149.28M145.08M | +2.9% |
05—Questions
Frequently Asked Questions
What is the primary reason for the significant revenue decline in this quarter?
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.
How is the company managing its expenses given the revenue decrease and widening net loss?
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.
What is the outlook for customer demand, particularly from large customers?
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.
What is the company's liquidity and capital position?
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.
06—Continue