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

Rhea-AI Summary

Credo Technology Group Holding Ltd (NASDAQ: CRDO) reported its third-quarter fiscal results for 2023, showcasing a 6% quarter-over-quarter revenue growth to $54.3 million, with a remarkable 71% year-over-year increase. The company achieved a GAAP gross margin of 58.9% and a non-GAAP net income of $7.5 million. However, the company anticipates a revenue decline in Q4, projecting earnings between $30.0 million and $32.0 million. Management highlighted the focus on expanding their solution portfolio to cater to the growing demand for high-speed connectivity.

Positive

• 71% year-over-year revenue growth to $54.3 million
• GAAP gross margin at 58.9%
• Good cash position with $233 million in cash and short-term investments

Negative

• Projected Q4 revenue decline to $30.0-$32.0 million
• Expected reduction in gross margin to 55.8%-57.8%

SAN JOSE, Calif., March 01, 2023 (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 third quarter of fiscal year 2023, ended January 28, 2023.

Third Quarter of Fiscal Year 2023 Financial Highlights

• Revenue of $54.3 million, grew by 6% quarter over quarter
• GAAP gross margin of 58.9% and non-GAAP gross margin of 59.3%  
• GAAP operating expenses of $34.9 million and non-GAAP operating expenses of $25.7 million
• GAAP net income of $2.8 million and non-GAAP net income of $7.5 million
• GAAP diluted net income per share of $0.02 and non-GAAP diluted net income per share of $0.05
• Ending cash and short-term investment balance of $233.0 million

Management Commentary

Bill Brennan, Credo’s President and Chief Executive Officer, stated, “In the fiscal quarter ended January 28, 2023, Credo achieved revenue of $54.3 million, an increase of 71% year over year and 6% compared to the prior quarter. Going forward, Credo is focused on the large market opportunity afforded us by our differentiated solutions. We remain committed to close customer collaboration, continued innovation, and expansion of our solution portfolio to address the ever-increasing needs for higher bandwidth and more power efficient connectivity solutions.”

Fourth Quarter of Fiscal 2023 Financial Outlook

• Revenue is expected to be between $30.0 million and $32.0 million
• GAAP gross margin is expected to be between 55.8%-57.8% and non-GAAP gross margin is expected to be between 56.0%-58.0%
• GAAP operating expenses are expected to be between $32.8 million and $34.8 million; and non-GAAP operating expenses are expected to be between $26.0 million and $28.0 million
  

Conference Call

Credo will conduct a conference call on Wednesday, March 1, 2023, at 2:00 p.m. Pacific Time to discuss its financial results for the third quarter of fiscal year 2023, ended January 28, 2023. Interested parties may join the conference call by registering online at https://register.vevent.com/register/BI31a81424c15248d480b63743ff62bf5e. 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 their comparable GAAP measures 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 and related 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 non-GAAP diluted weighted average shares outstanding. Non-GAAP adjustment for the number of shares used in the diluted per share calculations excludes the impact of share-based compensation expense expected to be incurred in future periods and not yet recognized in the financial statements, which would otherwise be assumed to be used to repurchase shares under the GAAP treasury stock method.

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												Nine Months Ended
	January 28, 2023				October 29, 2022				January 31, 2022				January 28, 2023				January 31, 2022
Revenue:
Product sales	$	38,033			$	44,349			$	22,706			$	117,645			$	48,423
Product engineering services		3,635				3,750				3,954				8,209				6,628
IP license		11,715				2,084				5,022				24,179				12,194
IP license engineering services		887				1,186				118				2,073				1,706
Total revenue		54,270				51,369				31,800				152,106				68,951
Cost of revenue:
Cost of product sales revenue		21,833				22,658				12,230				62,016				26,436
Cost of product engineering services revenue		228				418				410				746				1,807
Cost of IP license revenue		—				—				—				1,179
Cost of IP license engineering services revenue		222				334				48				556				462
Total cost of revenue		22,283				23,410				12,688				64,497				28,705
Gross profit		31,987				27,959				19,112				87,609				40,246
Operating expenses:
Research and development		20,530				18,158				10,995				55,371				32,488
Selling, general and administrative		11,936				11,540				8,568				34,674				23,393
Impairment charges		2,407				—				—				2,407				—
Total operating expenses		34,873				29,698				19,563				92,452				55,881
Operating loss		(2,886	)			(1,739	)			(451	)			(4,843	)			(15,635	)
Other income (expense), net		2,530				(692	)			(80	)			1,618				(70	)
Loss before income taxes		(356	)			(2,431	)			(531	)			(3,225	)			(15,705	)
Provision (benefit) for income taxes		(3,179	)			929				(387	)			(2,615	)			1,116
Net income (loss)	$	2,823			$	(3,360	)		$	(144	)		$	(610	)		$	(16,821	)
Net income (loss) per share:
Basic	$	0.02			$	(0.02	)		$	—			$	—			$	(0.24	)
Diluted	$	0.02			$	(0.02	)		$	—			$	—			$	(0.24	)
Weighted-average shares used in computing net income (loss) per share:
Basic		146,908				146,012				73,815				146,000				70,439
Diluted		156,519				146,012				73,815				146,000				70,439

Credo Technology Group Holding Ltd Condensed Consolidated Balance Sheets (Unaudited) (In thousands)
		January 28, 2023				April 30, 2022
Assets
Current Assets:
Cash and cash equivalents		$	123,783			$	259,322
Short-term investments			109,228				—
Accounts receivable			43,168				29,524
Inventories			50,315				27,337
Contract assets			19,245				10,071
Prepaid expenses and other current assets			4,282				5,923
Total current assets			350,021				332,177
Property and equipment, net			39,087				21,844
Right of use assets			15,552				16,954
Other non-current assets			12,591				4,714
Total assets		$	417,251			$	375,689
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable		$	21,335			$	8,487
Accrued compensation and benefits			3,369				4,713
Accrued expenses and other current liabilities			15,141				12,063
Deferred revenue			3,537				1,234
Total current liabilities			43,382				26,497
Non-current operating lease liabilities			13,514				14,809
Other non-current liabilities			5,802				220
Total liabilities			62,698				41,526
Shareholders' equity:
Ordinary shares			7				7
Additional paid in capital			445,654				424,562
Accumulated other comprehensive income (loss)			(69	)			23
Accumulated deficit			(91,039	)			(90,429	)
Total shareholders' equity			354,553				334,163
Total liabilities and shareholders' equity		$	417,251			$	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												Nine Months Ended
	January 28, 2023				October 29, 2022				January 31, 2022				January 28, 2023				January 31, 2022
GAAP gross profit	$	31,987			$	27,959			$	19,112			$	87,609			$	40,246
Reconciling items:
Warrant contra revenue		260				247				407				895				407
Share-based compensation		98				149				46				551				180
Total reconciling items:		358				396				453				1,446				587
Non-GAAP gross profit (A)	$	32,345			$	28,355			$	19,565			$	89,055			$	40,833
GAAP gross margin		58.9	%			54.4	%			60.1	%			57.6	%			58.4	%
Non-GAAP gross margin		59.3	%			54.9	%			60.7	%			58.2	%			58.9	%
Total GAAP operating expenses	$	34,873			$	29,698			$	19,563			$	92,452			$	55,881
Reconciling item:
Share-based compensation		(5,071	)			(4,742	)			(1,392	)			(15,055	)			(3,640	)
Impairment and related charges		(4,151	)			—				—				(4,151	)			—
Total reconciling items:		(9,222	)			(4,742	)			(1,392	)			(19,206	)			(3,640	)
Total Non-GAAP operating expenses (B)	$	25,651			$	24,956			$	18,171			$	73,246			$	52,241
GAAP operating loss	$	(2,886	)		$	(1,739	)		$	(451	)		$	(4,843	)		$	(15,635	)
Non-GAAP operating income (loss) (A-B)	$	6,694			$	3,399			$	1,394			$	15,809			$	(11,408	)
GAAP operating loss margin		(5.3	)%			(3.4	)%			(1.4	)%			(3.2	)%			(22.7	)%
Non-GAAP operating income (loss) margin		12.3	%			6.6	%			4.3	%			10.3	%			(16.4	)%
GAAP net income (loss)	$	2,823			$	(3,360	)		$	(144	)		$	(610	)		$	(16,821	)
Reconciling items:
Warrant contra revenue		260				247				407				895				407
Share-based compensation		5,169				4,891				1,438				15,606				3,820
Impairment and related charges		4,151				—				—				4,151				—
Pre-tax total reconciling items		9,580				5,138				1,845				16,501				4,227
Other income tax effects and adjustments		(4,952	)			644				700				(4,732	)			(438	)
Non-GAAP net income (loss)	$	7,451			$	2,422			$	2,401			$	11,159			$	(13,032	)
GAAP weighted average shares - basic		146,908				146,012				73,815				146,000				70,439
GAAP weighted average shares - diluted		156,519				146,012				73,815				146,000				70,439
Non-GAAP adjustment		3,837				12,789				10,373				13,088				—
Non-GAAP weighted average shares - diluted		160,356				158,801				84,187				159,088				70,439
GAAP diluted net income (loss) per share	$	0.02			$	(0.02	)		$	—			$	—			$	(0.24	)
Non-GAAP diluted net income (loss) per share	$	0.05			$	0.02			$	0.03			$	0.07			$	(0.19	)

Credo Technology Group Holding Ltd Reconciliation of GAAP Forward-Looking Estimates to Non-GAAP Forward-Looking Estimates (In millions, except percentages)
		Three Months Ended April 29, 2023
		Low				High
GAAP gross margin			55.8	%			57.8	%
Reconciling items:
Warrant contra revenue			0.1	%			0.1	%
Share-based compensation			0.1	%			0.1	%
Total reconciling items:			0.2	%			0.2	%
Non-GAAP gross margin			56.0	%			58.0	%
Total GAAP operating expenses		$	32.8			$	34.8
Reconciling item:
Share-based compensation			6.8				6.8
Total reconciling items:			6.8				6.8
Total Non-GAAP operating expenses		$	26.0			$	28.0

FAQ

What were Credo Technology's Q3 2023 financial results?

Credo reported $54.3 million in revenue for Q3 2023, representing a 6% growth quarter-over-quarter and a 71% increase year-over-year.

What is the revenue outlook for Credo Technology in Q4 2023?

Credo expects Q4 revenue between $30.0 million and $32.0 million.

How did Credo Technology's gross margin perform in Q3 2023?

The GAAP gross margin was reported at 58.9% for Q3 2023.

What is the net income reported by Credo Technology for Q3 2023?

Credo's non-GAAP net income for Q3 2023 was $7.5 million.

What are the expected operating expenses for Credo Technology in Q4 2023?

Expected GAAP operating expenses are projected to be between $32.8 million and $34.8 million in Q4 2023.