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Credo Technology (CRDO) - 2023 Q4 - Annual Report
CRDOCredo Technology (CRDO)2023-06-22 16:00
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Currency and Dividend Risks - The company's PRC subsidiaries generate revenue in Renminbi, which is not freely convertible, potentially limiting their ability to pay dividends due to currency exchange restrictions and a withholding tax rate of up to 10% on dividends payable to non-PRC resident enterprises[407] - The company is subject to foreign exchange control systems that could prevent it from obtaining sufficient foreign currencies to satisfy demands, potentially impacting its ability to pay dividends in foreign currencies[382] - The company does not intend to pay cash dividends on its ordinary shares for the foreseeable future, and any future dividends will depend on various factors, including business prospects and financial condition[463] - The company's cumulative undistributed earnings subject to withholding taxes were 12.3millionasofApril29,2023,withtheintentiontoreinvesttheseearningsindefinitely[866]PoliticalandLegalRisks−Thecompanyfacespotentialpolitical,legal,andeconomicinstabilityinHongKong,whichcouldadverselyaffectitsbusinessandresultsofoperations[377][379]−ThecompanymayfacechallengesinenforcingU.S.courtjudgmentsintheCaymanIslands,whereitisincorporated,duetodifferencesinlegalsystems[452]−Thecompany′sintellectualpropertyrightsmaybechallengedorinvalidated,anditmayfacedifficultiesinenforcingtheserightsinjurisdictionswithweaklegalprotections[415]−ThecompanymaybesubjecttocybersecurityreviewrequirementsunderPRClaws,andviolationscouldresultinadministrativepenalties,includingfinesandservicesuspension[398]−ThecompanyissubjecttocybersecurityreviewsinChinaifitprocessespersonalinformationofoveronemillionusersandseeksforeignstockexchangelistings[446]OperationalandFinancialRisks−Thecompanyreliesondividendsandotherdistributionsfromitssubsidiariestofundcashandfinancingrequirements,butthereisnoassurancethatsubsidiarieswillbeabletomakesuchpayments[380]−Thecompany’soperationscouldbedisruptedbynaturaldisasters,poweroutages,orgeopoliticalevents,particularlyasitsheadquartersandkeysuppliersarelocatedinactiveearthquakezones[473]−Thecompany’ssuccessdependsonretainingkeypersonnel,includingexecutiveofficersandengineeringteams,asitlackslong−termemploymentagreementswiththem[471]−Thecompany’ssharepricemaybevolatileduetofactorssuchaschangesincustomerdemand,productlifecycles,andeconomicconditions[458]−Thecompanymayissueequityorequity−linkedsecuritiesforacquisitions,potentiallydilutingshareholderownership[470]RegulatoryandComplianceRisks−Thecompanyfacesrisksrelatedtoexportcontrolregulations,includingpotentialviolationsofU.S.exportcontrollaws,whichcouldresultincriminalprosecutionoradministrativesanctions[368]−Thecompanyoperatesinmultiplecountriesandissubjecttoanti−corruptionlaws,suchastheU.S.ForeignCorruptPracticesAct,andanyviolationscouldresultinsubstantialfinesandpenalties[372]−Compliancewithdataprivacylaws,includingGDPRandCCPA,couldresultinregulatoryfinesofupto12.3 million as of April 29, 2023, with the intention to reinvest these earnings indefinitely[866] Political and Legal Risks - The company faces potential political, legal, and economic instability in Hong Kong, which could adversely affect its business and results of operations[377][379] - The company may face challenges in enforcing U.S. court judgments in the Cayman Islands, where it is incorporated, due to differences in legal systems[452] - The company's intellectual property rights may be challenged or invalidated, and it may face difficulties in enforcing these rights in jurisdictions with weak legal protections[415] - The company may be subject to cybersecurity review requirements under PRC laws, and violations could result in administrative penalties, including fines and service suspension[398] - The company is subject to cybersecurity reviews in China if it processes personal information of over one million users and seeks foreign stock exchange listings[446] Operational and Financial Risks - The company relies on dividends and other distributions from its subsidiaries to fund cash and financing requirements, but there is no assurance that subsidiaries will be able to make such payments[380] - The company’s operations could be disrupted by natural disasters, power outages, or geopolitical events, particularly as its headquarters and key suppliers are located in active earthquake zones[473] - The company’s success depends on retaining key personnel, including executive officers and engineering teams, as it lacks long-term employment agreements with them[471] - The company’s share price may be volatile due to factors such as changes in customer demand, product life cycles, and economic conditions[458] - The company may issue equity or equity-linked securities for acquisitions, potentially diluting shareholder ownership[470] Regulatory and Compliance Risks - The company faces risks related to export control regulations, including potential violations of U.S. export control laws, which could result in criminal prosecution or administrative sanctions[368] - The company operates in multiple countries and is subject to anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act, and any violations could result in substantial fines and penalties[372] - Compliance with data privacy laws, including GDPR and CCPA, could result in regulatory fines of up to 2,500 per violation and 7,500forwillfulviolations,increasingcompliancecosts[445]ShareholderandCorporateGovernanceRisks−Thecompanyhastheabilitytoissue50,000,000preferredsharesandadditionalordinaryshareswithoutshareholderapproval,whichcouldimpedeacquisitionattemptsorchangesincontrol[443]−Anti−takeoverprovisions,suchastheissuanceof"blankcheck"preferredshares,maydiscourageacquisitions,potentiallylimitingshareholderopportunitiestosellsharesatapremium[464][465]−AsofApril29,2023,thecompanyhad148,651,394outstandingordinaryshares,withwarrantsandoptionscoveringanadditional20,748,004shares,allpotentiallytradableinthepublicmarket[483]TaxandFinancialReporting−Thecompany′stotalcurrenttaxexpensefortheyearendedApril29,2023,was7,500 for willful violations, increasing compliance costs[445] Shareholder and Corporate Governance Risks - The company has the ability to issue 50,000,000 preferred shares and additional ordinary shares without shareholder approval, which could impede acquisition attempts or changes in control[443] - Anti-takeover provisions, such as the issuance of "blank check" preferred shares, may discourage acquisitions, potentially limiting shareholder opportunities to sell shares at a premium[464][465] - As of April 29, 2023, the company had 148,651,394 outstanding ordinary shares, with warrants and options covering an additional 20,748,004 shares, all potentially tradable in the public market[483] Tax and Financial Reporting - The company's total current tax expense for the year ended April 29, 2023, was 740,000, with a total deferred tax benefit of 2.107million[864]−Thecompany′stotaltaxexpense(benefit)fortheyearendedApril29,2023,was2.107 million[864] - The company's total tax expense (benefit) for the year ended April 29, 2023, was (1.367) million[864] - Unrecognized tax benefits as of April 29, 2023, were 2.9million,which,ifrecognized,wouldaffecttheeffectivetaxrate[867]−Thecompany′sunrecognizedtaxbenefitsasofApril30,2022,were2.9 million, which, if recognized, would affect the effective tax rate[867] - The company's unrecognized tax benefits as of April 30, 2022, were 1.8 million[867] - The company recognized 1.2millionofrevenueintheyearendedApril29,2023,thatwasincludedinthedeferredrevenuebalanceasofApril30,2022[783]LeasingandFacilities−Thecompany′stotalleasedfacilitiesasofApril29,2023,amountto182,281squarefeet,withtheUnitedStatesaccountingfor89,727squarefeet,MainlandChinafor66,929squarefeet,Taiwanfor18,537squarefeet,andHongKongfor7,088squarefeet[478]−Totalleasepaymentsforoperatingleasesareprojectedat1.2 million of revenue in the year ended April 29, 2023, that was included in the deferred revenue balance as of April 30, 2022[783] Leasing and Facilities - The company's total leased facilities as of April 29, 2023, amount to 182,281 square feet, with the United States accounting for 89,727 square feet, Mainland China for 66,929 square feet, Taiwan for 18,537 square feet, and Hong Kong for 7,088 square feet[478] - Total lease payments for operating leases are projected at 18.815 million, with a present value of lease liabilities at 15.5million[862]−Thecompany′sleaseshaveremainingtermsgenerallybetweenoneyearandeightyears,withnofinanceleases[860]−Thecompany′soperatingleaseexpensesforfiscalyear2024areprojectedat15.5 million[862] - The company's leases have remaining terms generally between one year and eight years, with no finance leases[860] - The company's operating lease expenses for fiscal year 2024 are projected at 3.456 million[862] Intellectual Property and Trade Secrets - The company's trade secrets and proprietary information are at risk of misappropriation, particularly in the semiconductor industry, which experiences high employee turnover[418]