Credo Technology Group Holding Ltd Reports Third Quarter of Fiscal Year 2024 Financial Results
- Strong revenue growth of 20% quarter over quarter in Q3 FY 2024.
- GAAP gross margin of 61.4% and non-GAAP gross margin of 62.2%.
- GAAP net income of $0.4 million and non-GAAP net income of $6.3 million.
- Ending cash balance of $409.1 million.
- Positive outlook for Q4 FY 2024 with revenue expected between $59.0 million and $62.0 million.
- None.
Insights
The reported revenue growth of 20% quarter over quarter for Credo Technology Group Holding Ltd. is a strong indicator of the company's current market position and operational efficiency. This uptick in revenue may be attributed to the increased demand for high-speed and energy-efficient connectivity solutions, which aligns with the broader industry's shift towards more data-intensive applications and infrastructure. The reported GAAP gross margin of 61.4% and non-GAAP gross margin of 62.2% are also significant, as they suggest that Credo is maintaining profitability while scaling up operations, a positive sign for investors.
However, the relatively small GAAP net income of $0.4 million compared to the non-GAAP net income of $6.3 million raises questions about the non-operational expenses and adjustments being made. Investors should scrutinize the reconciliations between GAAP and non-GAAP figures to understand the underlying expenses that may be one-time or non-cash in nature. The substantial cash and short-term investment balance of $409.1 million provides the company with a solid liquidity position to fund future growth or weather economic downturns.
From a market perspective, Credo's success can be partially attributed to their SerDes technology, which is critical for high-speed data transmission. As the data infrastructure market continues to evolve with the advent of technologies such as 5G and the Internet of Things (IoT), the demand for sophisticated connectivity solutions like those provided by Credo is expected to grow. Credo's customer-centric approach and diversification strategy, as mentioned by their CEO, could be a key differentiator in the competitive landscape, potentially leading to increased market share and customer loyalty.
The provided financial outlook for the fourth quarter, with expected revenue between $59.0 million and $62.0 million and further improvements in gross margins, indicates management's confidence in the company's continued growth trajectory. This forward-looking statement could influence market sentiment and investor expectations, potentially impacting the company's stock price in the near term.
It is crucial to note that non-GAAP financial measures, while providing a supplementary perspective on a company's financial health, are not standardized. Credo's use of non-GAAP measures to exclude items like share-based compensation expenses and asset impairment charges can offer a more refined view of operational performance. Yet, investors and analysts should approach these figures with caution, as different companies may have varying methods of calculating non-GAAP measures.
The disclosure of these non-GAAP measures must comply with the regulations set by the Securities and Exchange Commission (SEC) to ensure transparency and comparability. The reconciliation of non-GAAP to GAAP measures, as provided by Credo, is a regulatory requirement and serves to mitigate the risk of misinterpretation of the company’s financial results.
SAN JOSE, Calif., Feb. 27, 2024 (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 2024, ended January 27, 2024.
Third Quarter of Fiscal Year 2024 Financial Highlights
- Revenue of
$53.1 million , grew by20% quarter over quarter - GAAP gross margin of
61.4% and non-GAAP gross margin of62.2% - GAAP operating expenses of
$38.5 million and non-GAAP operating expenses of$30.6 million - GAAP net income of
$0.4 million and non-GAAP net income of$6.3 million - GAAP diluted net income per share of
$0.00 and non-GAAP diluted net income per share of$0.04 - Ending cash, cash equivalents and short-term investment balance of
$409.1 million
Management Commentary
Bill Brennan, Credo’s President and Chief Executive Officer, stated, “In the third fiscal quarter ended January 27, 2024, Credo achieved revenue of
Fourth Quarter of Fiscal 2024 Financial Outlook
- Revenue is expected to be between
$59.0 million and$62.0 million - GAAP gross margin is expected to be between
63.2% and65.2% , and non-GAAP gross margin is expected to be between64.0% and66.0% - GAAP operating expenses are expected to be between
$44.0 million and$46.0 million , and non-GAAP operating expenses are expected to be between$33.0 million and$35.0 million
Conference Call
Credo will conduct a conference call on Wednesday, February 27, 2024, at 2:00 p.m. Pacific Time to discuss its financial results for the third quarter of fiscal year 2024, ended January 27, 2024. Interested parties may join the conference call by registering online at https://register.vevent.com/register/BI800fd75a70294200baa08d4f263c3ce5. After registering, a confirmation will be sent through email, including dial-in details and a unique conference call code 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. Reconciliations of these non-GAAP measures to their comparable GAAP measures are included below. This non-GAAP information should not be construed as an alternative to the reported results determined in accordance with GAAP. The non-GAAP financial measures that Credo presents may not be comparable to similarly titled measures of other companies and other companies may not calculate such measures in the same manner as we do.
Non-GAAP financial measures exclude the effect of share-based compensation expenses, asset impairment and related charges (if applicable), and the related tax effect adjustments 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 net income (loss), 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 GAAP basic weighted-average shares outstanding when there is a GAAP net loss, and calculated using GAAP diluted weighted-average shares outstanding when there is a GAAP net income. Non-GAAP diluted net income (loss) per share is calculated using GAAP basic weighted-average shares outstanding when there is a non-GAAP net loss, and calculated using non-GAAP diluted weighted-average shares outstanding when there is a non-GAAP net income. Non-GAAP adjustment for the number of shares used in the diluted net income (loss) per share calculations excludes the impact of share-based compensation expenses 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. 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, or their negatives, 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 that may cause actual events or results to differ materially from those described in this press release. Readers are encouraged to review risk factors and all other disclosures appearing in Credo’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission (SEC) on June 23, 2023, 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, Credo’s website or Credo’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 100G (or Gigabits per second), 200G, 400G, 800G and emerging 1.6T (or Terabits per second) 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 27, 2024 | October 28, 2023 | January 28, 2023 | January 27, 2024 | January 28, 2023 | |||||||||||||||
| Revenue: | |||||||||||||||||||
| Product sales | $ | 39,975 | $ | 34,247 | $ | 38,033 | $ | 104,250 | $ | 117,645 | |||||||||
| Product engineering services | 11,830 | 2,434 | 3,635 | 16,557 | 8,209 | ||||||||||||||
| IP license | 1,253 | 7,354 | 12,602 | 11,381 | 26,252 | ||||||||||||||
| Total revenue | 53,058 | 44,035 | 54,270 | 132,188 | 152,106 | ||||||||||||||
| Cost of revenue: | |||||||||||||||||||
| Cost of product sales revenue | 18,912 | 17,346 | 21,833 | 50,126 | 62,016 | ||||||||||||||
| Cost of product engineering services revenue | 1,471 | 171 | 228 | 1,935 | 746 | ||||||||||||||
| Cost of IP license revenue | 117 | 401 | 222 | 662 | 1,735 | ||||||||||||||
| Total cost of revenue | 20,500 | 17,918 | 22,283 | 52,723 | 64,497 | ||||||||||||||
| Gross profit | 32,558 | 26,117 | 31,987 | 79,465 | 87,609 | ||||||||||||||
| Operating expenses: | |||||||||||||||||||
| Research and development | 24,236 | 21,736 | 20,530 | 68,610 | 55,371 | ||||||||||||||
| Selling, general and administrative | 14,233 | 13,256 | 11,936 | 40,032 | 34,674 | ||||||||||||||
| Impairment charges | — | — | 2,407 | — | 2,407 | ||||||||||||||
| Total operating expenses | 38,469 | 34,992 | 34,873 | 108,642 | 92,452 | ||||||||||||||
| Operating loss | (5,911 | ) | (8,875 | ) | (2,886 | ) | (29,177 | ) | (4,843 | ) | |||||||||
| Other income, net | 4,291 | 2,702 | 2,530 | 9,150 | 1,618 | ||||||||||||||
| Loss before income taxes | (1,620 | ) | (6,173 | ) | (356 | ) | (20,027 | ) | (3,225 | ) | |||||||||
| Provision (benefit) for income taxes | (2,048 | ) | 450 | (3,179 | ) | (2,135 | ) | (2,615 | ) | ||||||||||
| Net income (loss) | $ | 428 | $ | (6,623 | ) | $ | 2,823 | $ | (17,892 | ) | $ | (610 | ) | ||||||
| Net income (loss) per share: | |||||||||||||||||||
| Basic | $ | — | $ | (0.04 | ) | $ | 0.02 | $ | (0.12 | ) | $ | — | |||||||
| Diluted | $ | — | $ | (0.04 | ) | $ | 0.02 | $ | (0.12 | ) | $ | — | |||||||
| Weighted-average shares used in computing net income (loss) per share: | |||||||||||||||||||
| Basic | 157,155 | 150,232 | 146,908 | 152,063 | 146,000 | ||||||||||||||
| Diluted | 167,160 | 150,232 | 156,519 | 152,063 | 146,000 | ||||||||||||||
| Credo Technology Group Holding Ltd Condensed Consolidated Balance Sheets (Unaudited) (In thousands) | |||||||
| January 27, 2024 | April 29, 2023 | ||||||
| Assets | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 96,073 | $ | 108,583 | |||
| Short-term investments | 313,061 | 109,228 | |||||
| Accounts receivable | 44,760 | 49,541 | |||||
| Inventories | 31,507 | 46,023 | |||||
| Contract assets | 17,909 | 9,445 | |||||
| Prepaid expenses and other current assets | 8,133 | 5,412 | |||||
| Total current assets | 511,443 | 328,232 | |||||
| Property and equipment, net | 44,899 | 40,222 | |||||
| Right of use assets | 13,634 | 14,860 | |||||
| Other non-current assets | 22,490 | 13,975 | |||||
| Total assets | $ | 592,466 | $ | 397,289 | |||
| Liabilities and Shareholders' Equity | |||||||
| Current liabilities: | |||||||
| Accounts payable | $ | 10,294 | $ | 6,067 | |||
| Accrued compensation and benefits | 6,913 | 6,471 | |||||
| Accrued expenses and other current liabilities | 18,268 | 14,454 | |||||
| Deferred revenue | 4,722 | 4,040 | |||||
| Total current liabilities | 40,197 | 31,032 | |||||
| Non-current operating lease liabilities | 11,601 | 12,869 | |||||
| Other non-current liabilities | 6,701 | 5,753 | |||||
| Total liabilities | 58,499 | 49,654 | |||||
| Shareholders' equity: | |||||||
| Ordinary shares | 8 | 7 | |||||
| Additional paid in capital | 659,162 | 454,795 | |||||
| Accumulated other comprehensive loss | (335 | ) | (191 | ) | |||
| Accumulated deficit | (124,868 | ) | (106,976 | ) | |||
| Total shareholders' equity | 533,967 | 347,635 | |||||
| Total liabilities and shareholders' equity | $ | 592,466 | $ | 397,289 | |||
| 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 27, 2024 | October 28, 2023 | January 28, 2023 | January 27, 2024 | January 28, 2023 | |||||||||||||||
| GAAP gross profit | $ | 32,558 | $ | 26,117 | $ | 31,987 | $ | 79,465 | $ | 87,609 | |||||||||
| Reconciling item: | |||||||||||||||||||
| Share-based compensation | 458 | 250 | 98 | 897 | 551 | ||||||||||||||
| Total reconciling item: | 458 | 250 | 98 | 897 | 551 | ||||||||||||||
| Non-GAAP gross profit (A) | $ | 33,016 | $ | 26,367 | $ | 32,085 | $ | 80,362 | $ | 88,160 | |||||||||
| GAAP gross margin | 61.4 | % | 59.3 | % | 58.9 | % | 60.1 | % | 57.6 | % | |||||||||
| Non-GAAP gross margin | 62.2 | % | 59.9 | % | 59.1 | % | 60.8 | % | 58.0 | % | |||||||||
| Total GAAP operating expenses | $ | 38,469 | $ | 34,992 | $ | 34,873 | $ | 108,642 | $ | 92,452 | |||||||||
| Reconciling item: | |||||||||||||||||||
| Share-based compensation | (7,874 | ) | (7,894 | ) | (5,071 | ) | (23,547 | ) | (15,055 | ) | |||||||||
| Impairment charges | — | — | (4,151 | ) | — | (4,151 | ) | ||||||||||||
| Total reconciling item: | (7,874 | ) | (7,894 | ) | (9,222 | ) | (23,547 | ) | (19,206 | ) | |||||||||
| Total Non-GAAP operating expenses (B) | $ | 30,595 | $ | 27,098 | $ | 25,651 | $ | 85,095 | $ | 73,246 | |||||||||
| GAAP operating loss | $ | (5,911 | ) | $ | (8,875 | ) | $ | (2,886 | ) | $ | (29,177 | ) | $ | (4,843 | ) | ||||
| Non-GAAP operating income (loss) (A-B) | $ | 2,421 | $ | (731 | ) | $ | 6,434 | $ | (4,733 | ) | $ | 14,914 | |||||||
| GAAP operating loss margin | (11.1 | )% | (20.2 | )% | (5.3 | )% | (22.1 | )% | (3.2 | )% | |||||||||
| Non-GAAP operating income (loss) margin | 4.6 | % | (1.7 | )% | 11.9 | % | (3.6 | )% | 9.8 | % | |||||||||
| GAAP net income (loss) | $ | 428 | $ | (6,623 | ) | $ | 2,823 | $ | (17,892 | ) | $ | (610 | ) | ||||||
| Reconciling items: | |||||||||||||||||||
| Share-based compensation | 8,332 | 8,144 | 5,169 | 24,444 | 15,606 | ||||||||||||||
| Impairment charges | — | — | 4,151 | — | 4,151 | ||||||||||||||
| Pre-tax total reconciling item | 8,332 | 8,144 | 9,320 | 24,444 | 19,757 | ||||||||||||||
| Other income tax effects and adjustments | (2,438 | ) | (358 | ) | (4,952 | ) | (3,788 | ) | (4,732 | ) | |||||||||
| Non-GAAP net income | $ | 6,322 | $ | 1,163 | $ | 7,191 | $ | 2,764 | $ | 14,415 | |||||||||
| GAAP weighted-average shares - basic | 157,155 | 150,232 | 146,908 | 152,063 | 146,000 | ||||||||||||||
| GAAP weighted-average shares - diluted | 167,160 | 150,232 | 156,519 | 152,063 | 146,000 | ||||||||||||||
| Non-GAAP adjustment | 4,218 | 14,664 | 3,837 | 14,567 | 13,088 | ||||||||||||||
| Non-GAAP weighted-average shares - diluted | 171,378 | 164,896 | 160,356 | 166,630 | 159,088 | ||||||||||||||
| GAAP diluted net income (loss) per share | $ | — | $ | (0.04 | ) | $ | 0.02 | $ | (0.12 | ) | $ | — | |||||||
| Non-GAAP diluted net income per share | $ | 0.04 | $ | 0.01 | $ | 0.04 | $ | 0.02 | $ | 0.09 | |||||||||
| Credo Technology Group Holding Ltd Reconciliation of GAAP Forward-Looking Estimates to Non-GAAP Forward-Looking Estimates (In millions, except percentages) | |||||||
| Outlook for Three Months Ended April 27, 2024 | |||||||
| Low | High | ||||||
| GAAP gross margin | 63.2 | % | 65.2 | % | |||
| Reconciling item: | |||||||
| Share-based compensation | 0.8 | % | 0.8 | % | |||
| Total reconciling item: | 0.8 | % | 0.8 | % | |||
| Non-GAAP gross margin | 64.0 | % | 66.0 | % | |||
| Total GAAP operating expenses | $ | 44.0 | $ | 46.0 | |||
| Reconciling item: | |||||||
| Share-based compensation | 11.0 | 11.0 | |||||
| Total reconciling item: | 11.0 | 11.0 | |||||
| Total Non-GAAP operating expenses | $ | 33.0 | $ | 35.0 | |||
FAQ
What was Credo Technology Group Holding Ltd's revenue for Q3 FY 2024?
What were the GAAP and non-GAAP gross margins for Credo in Q3 FY 2024?
What was the GAAP net income reported by Credo in Q3 FY 2024?
What was the ending cash balance for Credo in Q3 FY 2024?
What is the financial outlook provided by Credo for Q4 FY 2024?
