Credo Technology (CRDO) - 2026 Q1 - Quarterly Report

Special Note Regarding Forward-looking Statements This section warns that forward-looking statements are subject to risks and uncertainties, and actual results may differ materially - This section highlights that the report contains forward-looking statements subject to risks and uncertainties, and actual results may differ materially. It advises against undue reliance on these statements and notes no obligation to update them[8][9][10] PART I—FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements This section presents the company's unaudited condensed consolidated financial statements and accompanying detailed notes Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and shareholders' equity at specific dates | Metric | August 2, 2025 (in thousands) | May 3, 2025 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :---------------------------- | :------------------------- | :-------------------- | :--------- | | Total Assets | $905,175 | $809,257 | $95,918 | 11.85% | | Total Current Assets | $803,609 | $713,534 | $90,075 | 12.62% | | Cash and cash equivalents | $219,636 | $236,328 | $(16,692) | -7.06% | | Short-term investments | $260,010 | $195,010 | $65,000 | 33.33% | | Accounts receivable | $181,203 | $162,144 | $19,059 | 11.75% | | Inventories | $116,677 | $90,029 | $26,648 | 29.60% | | Total Liabilities | $123,794 | $127,675 | $(3,881) | -3.04% | | Total Shareholders' Equity | $781,381 | $681,582 | $99,799 | 14.64% | Condensed Consolidated Statements of Operations This section details the company's revenues, expenses, and net income or loss over specific periods | Metric | Three Months Ended August 2, 2025 (in thousands) | Three Months Ended August 3, 2024 (in thousands) | % Change | | :-------------------------- | :--------------------------------------------- | :--------------------------------------------- | :--------- | | Total Revenue | $223,074 | $59,714 | 273.6% | | Product Sales Revenue | $217,059 | $57,325 | 278.6% | | IP License Revenue | $6,015 | $2,389 | 151.8% | | Gross Profit | $150,368 | $37,283 | 303.3% | | Operating Income (Loss) | $60,742 | $(14,451) | N/A | | Net Income (Loss) | $63,399 | $(9,540) | N/A | | Basic EPS | $0.37 | $(0.06) | N/A | | Diluted EPS | $0.34 | $(0.06) | N/A | Condensed Consolidated Statements of Comprehensive Income (Loss) This section presents net income or loss and other comprehensive income or loss components for specific periods | Metric | Three Months Ended August 2, 2025 (in thousands) | Three Months Ended August 3, 2024 (in thousands) | | :-------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net income (loss) | $63,399 | $(9,540) | | Foreign currency translation gain | $9 | $144 | | Total comprehensive income (loss) | $63,408 | $(9,396) | Condensed Consolidated Statements of Shareholders' Equity This section outlines changes in shareholders' equity, including share issuance and comprehensive income, over specific periods | Metric | Balances at August 2, 2025 (in thousands) | Balances at May 3, 2025 (in thousands) | | :-------------------------- | :---------------------------------------- | :------------------------------------- | | Total Shareholders' Equity | $781,381 | $681,582 | | Ordinary shares issued under equity incentive plans | $4,648 | N/A | | Share-based compensation | $35,455 | N/A | | Total comprehensive income | $63,408 | N/A | Condensed Consolidated Statements of Cash Flows This section reports cash inflows and outflows from operating, investing, and financing activities for specific periods | Cash Flow Activity | Three Months Ended August 2, 2025 (in thousands) | Three Months Ended August 3, 2024 (in thousands) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net cash provided by (used in) operating activities | $54,168 | $(7,236) | | Net cash provided by (used in) investing activities | $(67,821) | $42,482 | | Net cash provided by (used in) financing activities | $(2,970) | $1,604 | | Net increase (decrease) in cash and cash equivalents | $(16,692) | $36,958 | | Cash and cash equivalents at end of the period | $219,636 | $103,900 | Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed disclosures and explanations for the unaudited condensed consolidated financial statements 1. Description of Business and Basis of Presentation This note describes the company's business, its focus on high-speed connectivity solutions, and the basis of financial statement presentation - Credo Technology Group Holding Ltd, formed in 2014, focuses on high-speed connectivity solutions for AI-driven applications, cloud computing, and hyperscale networks. Its products include ICs, AECs, and SerDes Chiplets, with IP solutions primarily from SerDes IP licensing. The financial statements are prepared under US GAAP for interim periods[29][30][31] 2. Significant Accounting Policies This note outlines the critical accounting estimates and assumptions used in preparing the financial statements and recent accounting pronouncements - The preparation of financial statements requires management to make estimates and assumptions, particularly for inventory write-downs, revenue recognition, tax assets, and long-lived asset impairment. Recent accounting pronouncements (ASU 2023-09, ASU 2024-03, ASU 2025-05) are being evaluated for their impact[33][34][36] 3. Concentrations This note details concentrations of credit risk in cash, investments, and accounts receivable, and significant customer revenue concentrations - The company faces credit risk concentrations in cash, short-term investments, and accounts receivable. A small number of customers consistently account for a significant portion of revenue and accounts receivable[39][40] | Metric | August 2, 2025 | May 3, 2025 | | :---------------- | :------------- | :---------- | | Customer A (A/R) | 68 % | 86 % | | Customer B (A/R) | 21 % | * | | Customer A (Revenue) | 50 % | 56 % | | Customer B (Revenue) | 35 % | * | * Less than 10% of total accounts receivable or total revenue. 4. Revenue Recognition This note explains the company's revenue recognition policies, contract assets, deferred revenue, and remaining performance obligations | Geography | Three Months Ended August 2, 2025 (in thousands) | Three Months Ended August 3, 2024 (in thousands) | | :---------- | :--------------------------------------------- | :--------------------------------------------- | | Hong Kong | $74,885 | $29,272 | | United States | $82,828 | $10,800 | | Mainland China | $51,781 | $9,748 | | Rest of World | $13,580 | $9,894 | | Total | $223,074 | $59,714 | - Contract asset balance increased by $0.9 million to $10.8 million as of August 2, 2025, primarily from IP license revenue where billing milestones were not met. Deferred revenue balance increased by $1.6 million to $3.1 million due to an advance from a customer. Remaining performance obligations were approximately $3.4 million contracted but unsatisfied and $0.7 million satisfied but unrecognized[45][46][48] 5. Fair Value Measurements This note describes the fair value hierarchy used for financial instruments and details cash equivalents and short-term investments - The company measures financial instruments using a three-tier fair value hierarchy, with money market funds classified as Level 1 and certificates of deposit as Level 2. Total cash equivalents and short-term investments increased by $61.6 million to $469.8 million as of August 2, 2025[51][53][55] | Category | August 2, 2025 (in thousands) | May 3, 2025 (in thousands) | | :-------------------------------- | :---------------------------- | :------------------------- | | Money market funds (Level 1) | $149,424 | $148,036 | | Certificates of deposit (Level 2) | $320,360 | $260,147 | | Total cash equivalents and short-term investments | $469,784 | $408,183 | 6. Supplemental Financial Information This note provides additional details on inventories, property and equipment, depreciation, and other current and non-current liabilities | Inventories (in thousands) | August 2, 2025 | May 3, 2025 | | :------------------------- | :------------- | :---------- | | Raw materials | $16,065 | $12,734 | | Work in process | $28,746 | $24,583 | | Finished goods | $71,866 | $52,712 | | Total | $116,677 | $90,029 | | Property and Equipment, Net (in thousands) | August 2, 2025 | May 3, 2025 | | :--------------------------------------- | :------------- | :---------- | | Production equipment | $45,208 | $44,789 | | Computer equipment and software | $29,044 | $27,901 | | Laboratory equipment | $24,117 | $21,944 | | Construction in progress | $16,611 | $9,687 | | Total, Net | $69,444 | $63,631 | - Depreciation and amortization expense was $5.5 million for the three months ended August 2, 2025, up from $4.2 million in the prior year. Other current liabilities increased to $40.3 million, while other non-current liabilities decreased to $3.1 million[57][58][59] 7. Commitments and Contingencies This note discloses the company's purchase commitments, technology license fees, manufacturing agreements, and warranty obligations | Fiscal Year | Purchase Commitments to Manufacturing Vendors (in thousands) | Technology License Fees (in thousands) | Total (in thousands) | | :------------------ | :------------------------------------------------------- | :------------------------------------- | :------------------- | | Remainder of 2026 | $32,397 | $5,913 | $38,310 | | 2027 | $6,400 | $6,700 | $13,100 | | 2028 | $4,851 | $350 | $5,201 | | 2029 | — | $350 | $350 | | Total | $43,648 | $13,313 | $56,961 | - The company has approximately $28.1 million in non-cancelable purchase orders payable within the next year. A manufacturing supply capacity reservation agreement includes commitments of at least $15.5 million for FY26-FY29, with $7.9 million in refundable deposits. Warranty obligations and legal proceedings are not material[63][64][65] 8. Leases This note details the company's operating lease obligations, weighted-average lease term, discount rate, and lease expenses | Fiscal Year | Operating Leases (in thousands) | | :---------- | :------------------------------ | | 2026 | $3,056 | | 2027 | $3,590 | | 2028 | $3,573 | | 2029 | $3,512 | | 2030 | $2,913 | | Thereafter | $1,252 | | Total lease payments | $17,896 | | Less: Interest | $(2,288) | | Present value of lease liabilities | $15,608 | - The weighted-average remaining lease term for operating leases was 4.8 years, and the weighted-average discount rate was 6.4% as of August 2, 2025. Operating lease expenses for the three months ended August 2, 2025, were $1.145 million[69] 9. Share Incentive Plan This note provides information on outstanding RSUs, PSUs, and share options, along with share-based compensation expense - As of August 2, 2025, 9.2 million RSUs were outstanding (weighted average grant date fair value $38.16), 1.0 million PSUs were outstanding (weighted average grant date fair value $59.27), and 2.8 million share options were outstanding (weighted average exercise price $2.20)[70][71][72] | Share-based Compensation Expense (in thousands) | Three Months Ended August 2, 2025 | Three Months Ended August 3, 2024 | | :---------------------------------------------- | :-------------------------------- | :-------------------------------- | | Cost of revenue | $356 | $281 | | Research and development | $19,158 | $9,170 | | Selling, general and administrative | $15,941 | $7,189 | | Total | $35,455 | $16,640 | 10. Income Taxes This note details the provision for income taxes, effective tax rate, and factors influencing tax expense, including unrecognized tax benefits | Metric | Three Months Ended August 2, 2025 | Three Months Ended August 3, 2024 | % Change | | :---------------------- | :-------------------------------- | :-------------------------------- | :------- | | Provision for income taxes | $1,289 | $622 | 107.2% | | Effective tax rate | 2 % | (7)% | 9 % | - The increase in tax provision was primarily driven by higher pre-tax income generated in tax-paying jurisdictions. No material changes to unrecognized tax benefits are expected in the next 12 months, and the OBBBA is not expected to have a material impact[76][77][79] 11. Net Income (Loss) Per Share This note explains the calculation of basic and diluted net income per share, including weighted-average shares outstanding and dilutive securities | Metric | Three Months Ended August 2, 2025 | Three Months Ended August 3, 2024 | | :---------- | :-------------------------------- | :-------------------------------- | | Basic EPS | $0.37 | $(0.06) | | Diluted EPS | $0.34 | $(0.06) | - Weighted-average shares outstanding used in basic calculation increased to 171,927 thousand. Dilutive securities were included in the diluted EPS calculation for the current period but excluded in the prior period due to their anti-dilutive effect[80] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial performance, condition, business model, operational results, liquidity, and critical accounting estimates Overview This section provides an overview of Credo's mission, high-speed connectivity solutions, product offerings, and key financial highlights for the period - Credo's mission is to redefine high-speed connectivity for AI-driven applications, cloud computing, and hyperscale networks, offering solutions optimized for various Ethernet and PCIe markets. Products are based on proprietary SerDes and DSP technologies, including ICs, AECs, and SerDes Chiplets, with IP solutions primarily from SerDes IP licensing[82][83] | Metric | Three Months Ended August 2, 2025 (in millions) | Three Months Ended August 3, 2024 (in millions) | | :------------ | :-------------------------------------------- | :-------------------------------------------- | | Total Revenue | $223.1 | $59.7 | | Net Income (Loss) | $63.4 | $(9.5) | - Product sales revenue comprised 97.3% of total revenue in Q1 FY26, up from 96.0% in Q1 FY25. A significant portion of revenue is derived from a limited number of customers, a trend expected to continue[86][87] Our Business Model This section describes Credo's product-focused, fabless business model, proprietary IP, sales strategy, and revenue concentration by customer - Credo operates a product-focused, fabless business model, leveraging its proprietary IP to deliver comprehensive connectivity solutions. The company aims to increase product sales revenue over time and expects improved operating leverage as it scales. A two-pronged sales strategy targets both end-users and their suppliers[89][90][91] | Revenue by End Customer Profile (Three Months Ended August 2, 2025) | | :------------------ | :------------- | | Customer B | 35 % | | Customer C | 33 % | | Customer D | 20 % | Results of Operations This section analyzes the company's financial performance, including revenue, cost of revenue, gross profit, and operating expenses | Metric (% of Total Revenue) | Three Months Ended August 2, 2025 | Three Months Ended August 3, 2024 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Product sales revenue | 97.3 % | 96.0 % | | IP license revenue | 2.7 % | 4.0 % | | Total revenue | 100.0 % | 100.0 % | | Cost of revenue | 32.6 % | 37.6 % | | Gross margin | 67.4 % | 62.4 % | | Research and development | 23.5 % | 50.9 % | | Selling, general and administrative | 16.7 % | 35.7 % | | Total operating expenses | 40.2 % | 86.6 % | | Operating income (loss) | 27.2 % | (24.2)% | | Net income (loss) | 28.4 % | (16.0)% | Revenue This section analyzes the significant increase in total revenue, driven primarily by product sales and IP license revenue - Total revenue surged by 273.6% to $223.1 million for the three months ended August 2, 2025, primarily driven by a 278.6% increase in product sales revenue, largely due to higher unit shipments of AEC products to hyperscale data center customers. IP license revenue also saw a significant increase of 151.8% from a new customer[95][96][97] Cost of Revenue This section discusses the increase in cost of revenue, primarily attributed to higher product shipments aligning with sales growth - Cost of revenue increased by 224.1% to $72.7 million for the three months ended August 2, 2025, primarily due to the significant increase in AEC product shipments, aligning with the substantial growth in product sales[98][99] Gross Profit and Gross Margin This section analyzes the increase in gross profit and improvement in gross margin, reflecting enhanced economies of scale - Gross profit increased by 303.3% to $150.4 million, and gross margin improved by 5.0 percentage points to 67.4% for the three months ended August 2, 2025, reflecting improved economies of scale in product sales[100] Research and Development This section details the increase in R&D expense, driven by share-based compensation, personnel costs, and new product development - Research and development expense increased by 72.5% to $52.4 million for the three months ended August 2, 2025, driven by a $10.1 million increase in share-based compensation, a $3.5 million increase in personnel costs, and a $6.8 million increase in engineering activities for new product development[101] Selling, General and Administrative This section discusses the increase in SG&A expense, primarily due to share-based compensation, personnel costs, and external consultation fees - Selling, general and administrative expense increased by 74.3% to $37.2 million for the three months ended August 2, 2025, primarily due to an $8.8 million increase in share-based compensation, a $2.9 million increase in personnel costs, and a $3.1 million increase in external consultation fees[102] Provision for Income Taxes This section explains the increase in income tax provision, primarily due to higher pre-tax income in tax-paying jurisdictions - The provision for income taxes increased by 107.2% to $1.3 million for the three months ended August 2, 2025, primarily due to higher pre-tax income generated in tax-paying jurisdictions compared to the prior year[103][104] Liquidity and Capital Resources This section assesses the company's cash position, working capital, sufficiency of capital resources, and cash flow activities - As of August 2, 2025, the company had $219.6 million in cash and cash equivalents and $695.2 million in working capital. Management believes existing capital resources are sufficient for at least the next 12 months and the longer term, with primary cash uses being operations and R&D[105][106] | Cash Flow Activity | Three Months Ended August 2, 2025 (in thousands) | Three Months Ended August 3, 2024 (in thousands) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net cash provided by (used in) operating activities | $54,168 | $(7,236) | | Net cash provided by (used in) investing activities | $(67,821) | $42,482 | | Net cash provided by (used in) financing activities | $(2,970) | $1,604 | - Operating cash flow improved due to net income, offset by increases in accounts receivable and inventory. Investing cash flow was used due to purchases of short-term investments and property/equipment. Financing cash flow was used due to payments on technology license obligations, partially offset by employee share incentive plans[109][112][114] Critical Accounting Estimates This section notes no material changes to critical accounting estimates but highlights increased judgment due to the macroeconomic environment - There have been no material changes to the company's critical accounting estimates during the three months ended August 2, 2025. However, the current macroeconomic environment requires increased judgment and carries a higher degree of variability and volatility for these estimates[116] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states there were no material changes to market risk disclosures compared to the prior annual report - No material changes to market risk assessment as of August 2, 2025. Refer to Item 7A of the FY25 10-K for market risk discussion[117] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and procedures and reports no material changes in internal control over financial reporting - Disclosure controls and procedures were effective at the reasonable assurance level as of August 2, 2025. No material changes in internal control over financial reporting occurred during the quarter ended August 2, 2025. Control systems provide reasonable, not absolute, assurance due to inherent limitations and resource constraints[119][120][122] PART II—OTHER INFORMATION This part provides additional information on legal proceedings, risk factors, other disclosures, and exhibits Item 1. Legal Proceedings This section states the company is not involved in any material litigation and has not recorded accruals for loss contingencies - Not a party to any litigation with a material adverse effect. Legal fees and costs are expensed as incurred. No accruals for loss contingencies recorded[124][67] Item 1A. Risk Factors This section states there have been no material changes to the risk factors previously disclosed in the company's annual report - No material changes to risk factors as of the date of this 10-Q. Refer to Part I, Item 1A of the FY25 10-K for detailed risk factors[125] Item 5. Other Information This section discloses Rule 10b5-1 Trading Plans adopted by the Chief Financial Officer and Chief Operating Officer for ordinary share sales - CFO Daniel Fleming adopted a Rule 10b5-1 Trading Plan on June 19, 2025, for up to 105,000 ordinary shares between Oct 8, 2025, and Sep 30, 2026. COO Yat Tung (Job) Lam adopted a Rule 10b5-1 Trading Plan on July 2, 2025, for up to 600,000 shares held by Zhan (BVI) Co Ltd and 30,000 shares held by Evelyn Job and April Foundation, between Oct 1, 2025 / Oct 15, 2025 and Oct 8, 2026[126][127] Item 6. Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer, and various Inline XBRL documents - Includes certifications (31.1, 31.2, 32.1, 32.2) from CEO and CFO. Includes Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[128] Signatures This section contains the required signatures of the registrant's authorized officers, certifying the filing of the report - This section contains the required signatures of the registrant's authorized officers, specifically the President and Chief Executive Officer, and the Chief Financial Officer, certifying the filing of the report on September 4, 2025[131]