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Credo Technology (CRDO) - 2024 Q2 - Quarterly Report
CRDOCredo Technology (CRDO)2023-11-29 16:00
Transcript

Cash and Cash Equivalents - Cash and cash equivalents increased to 128,986thousandasofOctober28,2023,comparedto128,986 thousand as of October 28, 2023, compared to 108,583 thousand as of April 29, 2023[28] - As of October 28, 2023, the company had 129.0millionincashandcashequivalents,anincreasefrom129.0 million in cash and cash equivalents, an increase from 108.6 million as of April 29, 2023[71] - Cash and cash equivalents at the end of the period were 128.99million,downfrom128.99 million, down from 190.54 million at the end of the same period in 2022[36] Accounts Receivable - Accounts receivable decreased to 32,723thousandasofOctober28,2023,from32,723 thousand as of October 28, 2023, from 49,541 thousand as of April 29, 2023[28] - Accounts receivable for Customer A decreased from 54% to 44% from April 29, 2023, to October 28, 2023, while Customer B and Customer C accounted for less than 10% of total accounts receivable[105][106] - Net cash provided by operating activities was 29.6millionforthesixmonthsendedOctober28,2023,drivenbya29.6 million for the six months ended October 28, 2023, driven by a 16.8 million decrease in accounts receivable and a 9.6milliondecreaseininventory[74]Inventories−Inventoriesdecreasedto9.6 million decrease in inventory[74] Inventories - Inventories decreased to 35,761 thousand as of October 28, 2023, from 46,023thousandasofApril29,2023[28]−Inventorylevelsdecreasedfrom46,023 thousand as of April 29, 2023[28] - Inventory levels decreased from 46.023 million on April 29, 2023, to 35.761milliononOctober28,2023,withfinishedgoodsinventorydroppingfrom35.761 million on October 28, 2023, with finished goods inventory dropping from 21.367 million to 12.605million[116]NetLossandComprehensiveLoss−NetlossforthethreemonthsendedOctober28,2023,was12.605 million[116] Net Loss and Comprehensive Loss - Net loss for the three months ended October 28, 2023, was 6,623 thousand, compared to a net loss of 3,360thousandforthesameperiodin2022[31]−TotalcomprehensivelossforthesixmonthsendedOctober28,2023,was3,360 thousand for the same period in 2022[31] - Total comprehensive loss for the six months ended October 28, 2023, was 18,705 thousand, compared to 3,849thousandforthesameperiodin2022[31]−NetlossforthesixmonthsendedOctober28,2023was3,849 thousand for the same period in 2022[31] - Net loss for the six months ended October 28, 2023 was 18.32 million, compared to a net loss of 3.43millionforthesameperiodin2022[50]−Netlossof3.43 million for the same period in 2022[50] - Net loss of 6.6 million and 18.3millionforthethreeandsixmonthsendedOctober28,2023,respectively[190]Revenue−TotalrevenueforthesixmonthsendedOctober28,2023was18.3 million for the three and six months ended October 28, 2023, respectively[190] Revenue - Total revenue for the six months ended October 28, 2023 was 79.13 million, a decrease from 97.84millioninthesameperiodin2022[50]−ProductsalesrevenueforthesixmonthsendedOctober28,2023was97.84 million in the same period in 2022[50] - Product sales revenue for the six months ended October 28, 2023 was 64.28 million, down from 79.61millioninthesameperiodin2022[50]−IPlicenserevenueforthesixmonthsendedOctober28,2023was79.61 million in the same period in 2022[50] - IP license revenue for the six months ended October 28, 2023 was 10.13 million, compared to 13.65millioninthesameperiodin2022[50]−RevenueforthesixmonthsendedOctober28,2023,was13.65 million in the same period in 2022[50] - Revenue for the six months ended October 28, 2023, was 79.13 million, a decrease from 97.84millioninthesameperiodin2022[176]−ProductsalesforthesixmonthsendedOctober28,2023,were97.84 million in the same period in 2022[176] - Product sales for the six months ended October 28, 2023, were 64.275 million, down from 79.612millioninthesameperiodin2022[176]−IPlicenserevenueforthesixmonthsendedOctober28,2023,was79.612 million in the same period in 2022[176] - IP license revenue for the six months ended October 28, 2023, was 10.128 million, compared to 13.65millioninthesameperiodin2022[176]−Generated13.65 million in the same period in 2022[176] - Generated 44.0 million and 79.1millionintotalrevenueforthethreeandsixmonthsendedOctober28,2023,respectively[190]−Productsalesandproductengineeringservicesrevenuecomprised83.379.1 million in total revenue for the three and six months ended October 28, 2023, respectively[190] - Product sales and product engineering services revenue comprised 83.3% and 87.2% of total revenue for the three and six months ended October 28, 2023, respectively[190] Research and Development Expenses - Research and development expenses increased to 44.37 million for the six months ended October 28, 2023, up from 34.84millioninthesameperiodin2022[50]−ResearchanddevelopmentexpensesforthethreemonthsendedOctober28,2023,were34.84 million in the same period in 2022[50] - Research and development expenses for the three months ended October 28, 2023, were 4,664 thousand, up from 2,756thousandintheprioryear[163]−Researchanddevelopmentexpenseincreasedby2,756 thousand in the prior year[163] - Research and development expense increased by 9.5 million for the six months ended October 28, 2023, compared to the same period in fiscal year 2023[208] Operating Activities and Cash Flow - Net cash provided by operating activities was 29.62millionforthesixmonthsendedOctober28,2023,comparedtonetcashusedinoperatingactivitiesof29.62 million for the six months ended October 28, 2023, compared to net cash used in operating activities of 10.46 million in the same period in 2022[36] - Net cash provided by operating activities was 29.6millionforthesixmonthsendedOctober28,2023,drivenbya29.6 million for the six months ended October 28, 2023, driven by a 16.8 million decrease in accounts receivable and a 9.6milliondecreaseininventory[74]−Thecompany′scashinflowsfromoperatingactivitieswerepartiallyoffsetbyan9.6 million decrease in inventory[74] - The company's cash inflows from operating activities were partially offset by an 18.3 million net loss for the six months ended October 28, 2023[74] Total Assets and Liabilities - Total assets increased to 405,805thousandasofOctober28,2023,from405,805 thousand as of October 28, 2023, from 397,289 thousand as of April 29, 2023[28] - Total liabilities increased to 56,257thousandasofOctober28,2023,from56,257 thousand as of October 28, 2023, from 49,654 thousand as of April 29, 2023[28] - Shareholders' equity increased to 349,548thousandasofOctober28,2023,from349,548 thousand as of October 28, 2023, from 347,635 thousand as of April 29, 2023[34] - Non-current liabilities increased to 7,412thousandasofOctober28,2023,from7,412 thousand as of October 28, 2023, from 5,753 thousand as of April 29, 2023[152] Foreign Currency and Share-Based Compensation - Foreign currency translation loss for the three months ended October 28, 2023, was 223thousand,comparedto223 thousand, compared to 320 thousand for the same period in 2022[31] - Share-based compensation expense for the three months ended October 28, 2023, was 8,144thousand[34]ProductandMarketFocus−Thecompany′sproductsareoptimizedforopticalandelectricalEthernetapplications,includingthe100G,200G,400G,800G,andemerging1.6Tportmarkets[58]−Thecompany′sSerDestechnologyhasscaledfrom25Gbps/laneto100Gbps/lanesinceitsfoundingin2008[168]−In2021,thecompanylaunchednewAECsolutionstargetingToR−to−NICconnections,enablingdual−ToRserverrackstoswitchdatatrafficseamlessly[169]−Released112G/laneAECproductsincluding400G,800G,and1.6Tvarietiesin2022,expandingAECengagementtoasecondmajorhyperscaler[189]RevenueRecognitionandIPLicensing−Thecompany′sIPlicenserevenueconsistsofperpetuallicenses,supportandmaintenance,engineeringservices,androyalties[44]−Thecompanyrecognizesrevenueupontransferofcontrolofpromisedgoodsandservices,withtransactionpriceallocatedtomultipleperformanceobligationsonarelativestandalonesellingpricebasis[64]−IPlicenserevenueisrecognizedatthepointofIPdelivery,withcustomersupportrevenuedeferredandrecognizedratablyoverthesupportperiod,typicallyoneyear[70]CustomerConcentrationandRevenueDistribution−Thecompany′srevenueishighlyconcentrated,withasignificantportionderivedfromalimitednumberofcustomers[171]−CustomerEaccountedfor158,144 thousand[34] Product and Market Focus - The company's products are optimized for optical and electrical Ethernet applications, including the 100G, 200G, 400G, 800G, and emerging 1.6T port markets[58] - The company's SerDes technology has scaled from 25Gbps/lane to 100Gbps/lane since its founding in 2008[168] - In 2021, the company launched new AEC solutions targeting ToR-to-NIC connections, enabling dual-ToR server racks to switch data traffic seamlessly[169] - Released 112G/lane AEC products including 400G, 800G, and 1.6T varieties in 2022, expanding AEC engagement to a second major hyperscaler[189] Revenue Recognition and IP Licensing - The company's IP license revenue consists of perpetual licenses, support and maintenance, engineering services, and royalties[44] - The company recognizes revenue upon transfer of control of promised goods and services, with transaction price allocated to multiple performance obligations on a relative standalone selling price basis[64] - IP license revenue is recognized at the point of IP delivery, with customer support revenue deferred and recognized ratably over the support period, typically one year[70] Customer Concentration and Revenue Distribution - The company's revenue is highly concentrated, with a significant portion derived from a limited number of customers[171] - Customer E accounted for 15% of revenue for the three and six months ended October 28, 2023[191] - Customer X accounted for 29% and 34% of revenue for the three and six months ended October 28, 2023, respectively[191] - Revenue concentration for Customer A decreased from 44% in October 2022 to 29% in October 2023, while Customer E's share remained stable at 15%[122] Gross Margin and Cost of Revenue - Gross margin for the six months ended October 28, 2023, was 59.3%, compared to 56.9% in the same period in 2022[176] - Gross margin increased to 59.3% for the six months ended October 28, 2023, compared to 56.9% in the same period in fiscal year 2023[206] - The company's cost of revenue for the three months ended October 28, 2023, was 250 thousand, compared to 149thousandforthesameperiodintheprioryear[163]Selling,General,andAdministrativeExpenses−Selling,general,andadministrativeexpensesforthethreemonthsendedOctober28,2023,were149 thousand for the same period in the prior year[163] Selling, General, and Administrative Expenses - Selling, general, and administrative expenses for the three months ended October 28, 2023, were 3,230 thousand, compared to 1,986thousandintheprioryear[163]−Selling,generalandadministrativeexpenseincreasedby1,986 thousand in the prior year[163] - Selling, general and administrative expense increased by 1.7 million for the three months ended October 28, 2023, compared to the same period in fiscal year 2023[209] Deferred Revenue and Contract Assets - Deferred revenue increased by 0.7millionduringthesixmonthsendedOctober28,2023,duetobillingmilestonesbeingmetpriortorevenuerecognition[109]−Contractassetsincreasedby0.7 million during the six months ended October 28, 2023, due to billing milestones being met prior to revenue recognition[109] - Contract assets increased by 2.6 million during the six months ended October 28, 2023, driven by IP licensing and product engineering services arrangements[125] Future Commitments and Obligations - Total future non-cancelable purchase obligations as of October 28, 2023, are 32,691thousandformanufacturingcommitmentsand32,691 thousand for manufacturing commitments and 11,399 thousand for technology license fees[153] - The company has purchase level commitments of at least 25.3millionfortheremainderoffiscalyear2024throughfiscalyear2028underamanufacturingsupplycapacityreservationagreement[154]−Totalrefundabledepositspaidunderthecapacityreservationagreementamountedto25.3 million for the remainder of fiscal year 2024 through fiscal year 2028 under a manufacturing supply capacity reservation agreement[154] - Total refundable deposits paid under the capacity reservation agreement amounted to 8.8 million as of October 28, 2023[154] Interest Income and Depreciation - Interest income recognized for the six months ended October 28, 2023, was 5.5million,comparedto5.5 million, compared to 2.9 million for the three months ended the same date[114] - Depreciation and amortization expense for the six months ended October 28, 2023, was 6.6million,upfrom6.6 million, up from 4.3 million for the same period in 2022[117] Effective Tax Rate - The company's effective tax rate for the three months ended October 28, 2023, differed from the prior year due to excluding zero-rate jurisdictions and a decrease in tax benefits from share-based compensation[148] - The company's effective tax rate for the six months ended October 28, 2023, was 0%, compared to -20% in the same period in 2022[183] Property and Equipment - Total property and equipment as of October 28, 2023, amounted to 44,971thousand,comparedto44,971 thousand, compared to 40,222 thousand as of April 29, 2023[150] Working Capital - The company's working capital was 291.1millionasofOctober28,2023,slightlydownfrom291.1 million as of October 28, 2023, slightly down from 297.2 million as of April 29, 2023[71] Share Issuance and ESPP - The company issued 204,761 shares under the ESPP during the six months ended October 28, 2023, compared to 154,053 shares in the prior year[162] Customer Warrant - As of October 28, 2023, 80,000 shares issuable upon exercise of the Customer Warrant were vested, with the remaining shares vesting based on global payments up to 201million[110]GeographicRevenueDistribution−TotalrevenueforMainlandChinadecreasedfrom201 million[110] Geographic Revenue Distribution - Total revenue for Mainland China decreased from 31.423 million in October 2022 to 5.425millioninOctober2023,whiletheUnitedStatessawanincreasefrom5.425 million in October 2023, while the United States saw an increase from 6.422 million to $7.837 million over the same period[107] Risk Factors - The company's cash deposits exceed insured limits, and short-term investments are subject to counterparty risk[104] Future Revenue Expectations - The company expects to generate an increased proportion of revenue from product sales over time, leveraging improvements in operating leverage as the business scales[174] Decrease in Product Sales Revenue - Decrease in product sales revenue for the three and six months ended October 28, 2023, primarily due to reduced demand for AEC cables from a major customer[201]