Credo Technology Group Holding Ltd Reports Second Quarter of Fiscal Year 2023 Financial Results

SAN JOSE, Calif., Nov. 30, 2022 (GLOBE NEWSWIRE) — Credo Technology Group Holding Ltd (NASDAQ: CRDO), an innovator in providing secure, high-speed connectivity solutions that deliver improved power and cost efficiency as data rates and corresponding bandwidth requirements increase throughout the data infrastructure market, today reported financial results for the second quarter of fiscal year 2023, ended October 29, 2022.

Q2 FY23 Financial Highlights

Revenue of $51.4 million, grew by 11% quarter over quarter
GAAP gross margin of 54.4% and non-GAAP gross margin of 54.9%
GAAP operating expenses of $29.7 million and non-GAAP operating expenses of $25.0 million
GAAP net loss of $3.4 million and non-GAAP net income of $2.4 million
GAAP net loss per share of $0.02 and non-GAAP diluted net income per share of $0.02
Ending cash and short-term investment balance of $240.5 million

Management Commentary

Bill Brennan, Credo’s President and Chief Executive Officer, stated, “In the fiscal quarter ended October 29, 2022, Credo achieved record revenue of $51.4 million, an increase of 94% year over year and 11% compared to the prior quarter. Due to our current solutions in production, near and mid-term opportunities we are deeply engaged in, and longer-term opportunities in emerging markets, we remain highly optimistic about our future prospects. In our fiscal 2023 we continue to expect we will achieve at least $200 million in revenue for the full fiscal year, representing more than 88% growth compared to fiscal 2022.”

Third Quarter of Fiscal 2023 Financial Outlook

Revenue is expected to be between $54.0 million to $56.0 million, up 73% year over year at the midpoint
GAAP gross margin is expected to be between 58.7%-60.7% and non-GAAP gross margin is expected to be between 59.0%-61.0%
GAAP operating expenses are expected to be between $30.2 million to $32.2 million and non-GAAP operating expenses are expected to be between $25.0 million to $27.0 million

Conference Call

Credo will conduct a conference call on Wednesday, November 30, 2022, at 2:00 p.m. Pacific Time to discuss its financial results for the second quarter of fiscal year 2023, ended October 29, 2022. Interested parties may join the conference call beginning at 2:00 p.m. Pacific Time on Wednesday, November 30, 2022 by registering online at

https://register.vevent.com/register/BI1d1f0013511b41ae81b23e6d96eb6728

. After registering, a confirmation will be sent through email, including dial-in details and unique conference call codes for entry. It is recommended that participants register and dial in for the call at least 10 minutes before the start of the call. A live webcast of the conference call will be available on Credo’s Investor Relations website at

http://investors.credosemi.com/

. A replay of the webcast will be available via the web at

http://investors.credosemi.com/

.

Discussion

of Non-GAAP Financial Measures

This press release contains references to the non-GAAP financial measures of non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income (loss), non-GAAP operating income (loss) margin, non-GAAP net income (loss) and non-GAAP diluted net income (loss) per share. Reconciliation of these non-GAAP measures to its comparable GAAP measure is included below. This non-GAAP information should not be construed as an alternative to the reported results determined in accordance with GAAP.

Non-GAAP financial measures exclude the effect of share-based compensation expenses, warrant contra revenue, asset impairment charges (if applicable), and the related tax effect adjustment to the provision for income taxes.

Credo uses a full-year non-GAAP tax rate to compute the non-GAAP tax provision. This full-year non-GAAP tax rate is based on Credo’s annual GAAP income, adjusted to exclude non-GAAP items, as well as the effects of significant non-recurring and period specific tax items which vary in size and frequency. Credo’s non-GAAP tax rate is determined on an annual basis and may be adjusted during the year to take into account events that may materially affect the non-GAAP tax rate such as tax law changes, significant changes in Credo’s geographic mix of revenue and expenses, or changes to Credo’s corporate structure.

GAAP diluted net income (loss) per share is calculated using basic weighted average shares outstanding when there is a GAAP net loss, and calculated using diluted weighted average shares outstanding when there is a GAAP net income. Non-GAAP diluted net income per share is calculated using diluted weighted average shares outstanding.

Credo believes that the presentation of non-GAAP financial measures provides important supplemental information to management and investors regarding financial and business trends relating to Credo’s financial condition and results of operations. While Credo uses non-GAAP financial measures as a tool to enhance its understanding of certain aspects of its financial performance, Credo does not consider these measures to be a substitute for, or superior to, financial measures calculated in accordance with GAAP. Consistent with this approach, Credo believes that disclosing non-GAAP financial measures to the readers of its financial statements provides such readers with useful supplemental data that, while not a substitute for GAAP financial measures, allows for greater transparency in the review of its financial and operational performance.

Externally, management believes that investors may find Credo’s non-GAAP financial measures useful in their assessment of Credo’s operating performance and the valuation of Credo. Internally, Credo’s non-GAAP financial measures are used in the following areas:

Management’s evaluation of Credo’s operating performance;
Management’s establishment of internal operating budgets; and
Management’s performance comparisons with internal forecasts and targeted business models.

Non-GAAP financial measures have limitations in that they do not reflect all of the costs associated with the operations of Credo’s business as determined in accordance with GAAP. As a result, you should not consider these measures in isolation or as a substitute for analysis of Credo’s results as reported under GAAP. The exclusion of the above items from our GAAP financial metrics does not necessarily mean that these costs are unusual or infrequent.

Forward-Looking Statements under the Private Securities Litigation Reform Act of 1995

This press release contains forward-looking statements within the meaning of the federal securities laws that involve risks and uncertainties. All statements other than statements of historical fact could be deemed forward-looking statements, including, but not limited to any statements regarding: launches of new or expansion of existing products or services, technology developments and innovation; our plans, strategies or objectives with respect to future operations; future financial results; expectations regarding the markets and industries in which Credo conducts business; and assumptions underlying any of the foregoing. Words such as “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “seeks,” “estimates,” “can,” “may,” “will,” “would,” “outlook,” “forecast,” “targets” and similar expressions may identify such forward-looking statements. These statements are not guarantees of results and should not be considered as an indication of future activity or future performance. Forward-looking statements are predictions, projections and other statements about future events that are based on current expectations and assumptions and, as a result, are subject to risks and uncertainties. Actual events or results may differ materially from those described in this press release due to a number of risks and uncertainties. Readers are encouraged to review risk factors and all other disclosures appearing in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission (SEC) on June 8, 2022, as well as Credo’s other filings with the SEC, for further information on risks and uncertainties that could affect Credo’s business, financial condition and results of operation. Copies of these filings are available from the SEC, the Company’s website or the Company’s investor relations department. Forward-looking statements speak only as of the date they are made. Credo assumes no obligation to update or revise any forward-looking statements as a result of new information, future events or otherwise, except as required by law. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date herein.

About Credo

Our mission is to deliver high-speed solutions to break bandwidth barriers on every wired connection in the data infrastructure market. Credo is an innovator in providing secure, high-speed connectivity solutions that deliver improved power and cost efficiency as data rates and corresponding bandwidth requirements increase exponentially throughout the data infrastructure market. Our innovations ease system bandwidth bottlenecks while simultaneously improving on power, security and reliability. Our connectivity solutions are optimized for optical and electrical Ethernet applications, including the emerging 100G (or Gigabits per second), 200G, 400G and 800G port markets. Our products are based on our proprietary Serializer/Deserializer (SerDes) and Digital Signal Processor (DSP) technologies. Our product families include integrated circuits (ICs), Active Electrical Cables (AECs) and SerDes Chiplets. Our intellectual property (IP) solutions consist primarily of SerDes IP licensing.

Investor Relations Contact:

Dan O’Neil

[email protected]

Credo Technology Group Holding Ltd

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except per share amounts)

	Three Months Ended									Six Months Ended
	October 29, 2022			July 30, 2022			October 31, 2021			October 29, 2022			October 31, 2021
Revenue:
Product sales	$	44,349		$	35,263		$	18,454		$	79,612		$	25,717
Product engineering services		3,750			824			1,355			4,574			2,674
IP license		2,084			10,380			6,142			12,464			7,172
IP license engineering services		1,186			—			476			1,186			1,588
Total revenue		51,369			46,467			26,427			97,836			37,151
Cost of revenue:
Cost of product sales revenue		22,658			17,525			9,849			40,183			14,206
Cost of product engineering services revenue		418			100			532			518			1,397
Cost of IP license revenue		—			1,179			—			1,179			—
Cost of IP license engineering services revenue		334			—			92			334			414
Total cost of revenue		23,410			18,804			10,473			42,214			16,017
Gross profit		27,959			27,663			15,954			55,622			21,134
Operating expenses:
Research and development		18,158			16,683			11,800			34,841			21,493
Selling, general and administrative		11,540			11,198			7,708			22,738			14,825
Total operating expenses		29,698			27,881			19,508			57,579			36,318
Operating loss		(1,739	)		(218	)		(3,554	)		(1,957	)		(15,184	)
Other expense, net		(692	)		(220	)		55			(912	)		10
Loss before income taxes		(2,431	)		(438	)		(3,499	)		(2,869	)		(15,174	)
Provision (benefit) for income taxes		929			(365	)		601			564			1,503
Net loss	$	(3,360	)	$	(73	)	$	(4,100	)	$	(3,433	)	$	(16,677	)
Net loss per share:
Basic and diluted	$	(0.02	)	$	—		$	(0.06	)	$	(0.02	)	$	(0.24	)
Weighted-average shares used in computing net loss per share:
Basic and diluted		146,012			145,077			69,094			145,545			68,751

Credo Technology Group Holding Ltd

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands)

	October 29, 2022			April 30, 2022
Assets
Current Assets:
Cash and cash equivalents	$	190,542		$	259,322
Short-term investments		50,000			—
Accounts receivable		51,768			29,524
Inventories		47,829			27,337
Contract assets		6,434			10,071
Prepaid expenses and other current assets		3,234			5,923
Total current assets		349,807			332,177
Property and equipment, net		40,664			21,844
Right of use assets		16,132			16,954
Other non-current assets		7,429			4,714
Total assets	$	414,032		$	375,689
Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable	$	23,273		$	8,487
Accrued compensation and benefits		5,373			4,713
Accrued expenses and other current liabilities		19,447			12,063
Deferred revenue		1,389			1,234
Total current liabilities		49,482			26,497
Non-current operating lease liabilities		14,081			14,809
Other non-current liabilities		6,365			220
Total liabilities		69,928			41,526
Shareholders’ equity:
Ordinary shares		7			7
Additional paid in capital		438,352			424,562
Accumulated other comprehensive income		(393	)		23
Accumulated deficit		(93,862	)		(90,429	)
Total shareholders’ equity		344,104			334,163
Total liabilities and shareholders’ equity	$	414,032		$	375,689

Credo Technology Group Holding Ltd

Reconciliations from GAAP to Non-GAAP (Unaudited)

(In thousands, except percentages and per share amounts)

	Three Months Ended									Six Months Ended
	October 29, 2022			July 30, 2022			October 31, 2021			October 29, 2022			October 31, 2021
GAAP gross profit	$	27,959		$	27,663		$	15,954		$	55,622		$	21,134
Reconciling items:
Warrant contra revenue		247			388			—			635			—
Share-based compensation		149			304			47			453			134
Total reconciling items:		396			692			47			1,088			134
Non-GAAP gross profit (A)	$	28,355		$	28,355		$	16,001		$	56,710		$	21,268

GAAP gross margin		54.4	%		59.5	%		60.4	%		56.9	%		56.9	%
Non-GAAP gross margin		54.9	%		60.5	%		60.5	%		57.6	%		57.2	%

Total GAAP operating expenses	$	29,698		$	27,881		$	19,508		$	57,579		$	36,318
Reconciling item:
Share-based compensation		(4,742	)		(5,242	)		(1,260	)		(9,984	)		(2,248	)
Total reconciling items:		(4,742	)		(5,242	)		(1,260	)		(9,984	)		(2,248	)
Total Non-GAAP operating expenses (B)	$	24,956		$	22,639		$	18,248		$	47,595		$	34,070

GAAP operating loss	$	(1,739	)	$	(218	)	$	(3,554	)	$	(1,957	)	$	(5,184	)
Non-GAAP operating income (loss) (A-B)	$	3,399		$	5,716		$	(2,247	)	$	9,115		$	(12,802	)

GAAP operating loss margin	(3.4		)%	(0.5		)%	(13.4		)%	(2.0		)%	(40.9		)%
Non-GAAP operating income (loss) margin		6.6	%		12.3	%	(8.5		)%		9.3	%	(34.5		)%

GAAP net loss	$	(3,360	)	$	(73	)	$	(4,100	)	$	(3,433	)	$	(16,677	)
Reconciling items:
Warrant contra revenue		247			388			—			635			—
Share-based compensation		4,891			5,546			1,307			10,437			2,382
Pre-tax total reconciling items		5,138			5,934			1,307			11,072			2,382
Other income tax effects and adjustments		644			(424	)		(521	)		220			(1,138	)
Non-GAAP net income/(loss)	$	2,422		$	5,437		$	(3,314	)	$	7,859		$	(15,433	)

GAAP weighted average shares – basic		146,012			145,077			69,094			145,545			68,751
GAAP weighted average shares – diluted		146,012			145,077			69,094			145,545			68,751
Non-GAAP adjustment		12,789			13,256			—			13,073			—
Non-GAAP weighted average shares – diluted		158,801			158,333			69,094			158,617			68,751

GAAP diluted net loss per share	$	(0.02	)	$	—		$	(0.06	)	$	(0.02	)	$	(0.24	)
Non-GAAP diluted net income/(loss) per share	$	0.02		$	0.03		$	(0.05	)	$	0.05		$	(0.22	)

Credo Technology Group Holding Ltd

Reconciliation of GAAP Forward-Looking Estimates to Non-GAAP Forward-Looking Estimates

(In millions, except percentages)

	Three Months Ended January 28, 2023
	Low			High

GAAP gross margin		58.7	%		60.7	%
Reconciling items:
Warrant contra revenue		0.2	%		0.2	%
Share-based compensation		0.1	%		0.1	%
Total reconciling items:		0.3	%		0.3	%
Non-GAAP gross margin		59.0	%		61.0	%


Total GAAP operating expenses	$	30.2		$	32.2
Reconciling item:
Share-based compensation		5.2			5.2
Total reconciling items:		5.2			5.2
Total Non-GAAP operating expenses	$	25.0		$	27.0