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

Rhea-AI Summary

Credo Technology Group Holding Ltd (NASDAQ: CRDO) reported strong Q2 FY23 results, with revenue of $51.4 million, reflecting an 11% quarter-over-quarter growth and a 94% increase year-over-year. The company achieved a GAAP gross margin of 54.4% and a non-GAAP net income of $2.4 million. Looking ahead, management expects Q3 revenue between $54.0 million and $56.0 million, representing a 73% year-over-year increase at the midpoint. Full-year revenue guidance is set to exceed $200 million, signaling continued strong market demand.

Positive

• Revenue grew 11% quarter-over-quarter and 94% year-over-year.
• GAAP gross margin of 54.4% indicates strong profitability.
• Management expects Q3 FY23 revenue between $54.0M and $56.0M.
• Full-year revenue guidance of over $200 million represents more than 88% growth.

Negative

• GAAP net loss of $3.4 million may raise concerns about bottom-line performance.
• Operating expenses increased to $29.7 million.

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
IR@credosemi.com 

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

FAQ

What were Credo Technology's Q2 FY23 financial results?

Credo reported Q2 FY23 revenue of $51.4 million, with an 11% quarter-over-quarter growth and a 94% increase year-over-year.

What is the revenue guidance for Q3 FY23 for CRDO?

For Q3 FY23, Credo expects revenue between $54.0 million and $56.0 million.

What is the full-year revenue outlook for CRDO?

Credo anticipates full-year revenue to exceed $200 million, representing over 88% growth compared to fiscal 2022.

What were the operating expenses for Credo in Q2 FY23?

Credo reported GAAP operating expenses of $29.7 million and non-GAAP operating expenses of $25.0 million in Q2 FY23.