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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 28, 2023
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File Number: 001-41249
Credo Technology Group Holding Ltd
(Exact name of registrant as specified in its charter)
Cayman IslandsN/A
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
c/o Maples Corporate Services, Limited,
PO Box 309, Ugland House
Grand Cayman, KY1-1104, Cayman Islands
N/A
(Address of principal executive offices)(Zip Code)
(408) 664-9329
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Ordinary shares, par value $0.00005 per shareCRDOThe Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  ☐ 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filerAccelerated filer
Non-accelerated filer  ☒ Smaller reporting company
Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes  ☐    No 

The registrant had 147,988,038 ordinary shares outstanding as of February 21, 2023.



Table of Contents
Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 6.
2


Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains statements relating to our expectations, projections, beliefs, and prospects, which are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify these statements by forward-looking words such as “believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “might”, “plan,” “expect,” “predict,” “could,” “potentially” or the negative of these terms or similar expressions. You should read these statements carefully because they may relate to future expectations around growth, strategy and anticipated trends in our business, contain projections of future results of operations or financial condition or state other “forward-looking” information. These statements are only predictions based on our current expectations, estimates, assumptions, and projections about future events and are applicable only as of the dates of such statements. These forward-looking statements are subject to certain risks and uncertainties that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein, and those discussed in the section titled “Risk Factors” of our Forms 10-K and 10-Q and other reports we file with the U.S. Securities and Exchange Commission (SEC), including in our Annual Report on Form 10-K for the fiscal year ended April 30, 2022. Factors that could cause actual results to differ materially from those predicted include, but are not limited to:
risks related to the impact of the COVID-19 pandemic and armed conflict, war, terrorism and other geopolitical conflicts on our business, suppliers and customers;
risks related to customer demand and product life cycles;
risks related to the receipt, reduction or cancellation of, or changes in the forecasts or timing of, orders by customers;
risks related to the gain or loss of one or more significant customers;
risks related to changes in orders or purchasing patterns from one or more of our major customers;
risks related to delays in completing sales due to our lengthy sales cycle, which often includes a substantial customer evaluation and approval process;
risks related to market acceptance of our products and our customers’ products;
risks related to our ability to develop, introduce and market new products and technologies on a timely basis;
risks related to the timing and extent of product development costs;
risks related to new product announcements and introductions by us or our competitors;
risks related to our research and development costs and related new product expenditures and our ability to achieve cost reductions in a timely or predictable manner; and
risks related to seasonality and fluctuations in sales by product manufacturers that incorporate our technology into their products.
The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. Except as may be required by law, we assume no obligation to update these forward-looking statements or the reasons that results could differ from these forward-looking statements. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or will occur.
3


PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Credo Technology Group Holding Ltd
Condensed Consolidated Balance Sheets
(unaudited, in thousands, except per share amounts)
January 28, 2023April 30, 2022
Assets
Current Assets:
Cash and cash equivalents$123,783 $259,322 
Short-term investments109,228  
Accounts receivable43,168 29,524 
Inventories50,315 27,337 
Contract assets19,245 10,071 
Prepaid expenses and other current assets4,282 5,923 
Total current assets 350,021 332,177 
Property and equipment, net39,087 21,844 
Right of use assets15,552 16,954 
Other non-current assets12,591 4,714 
Total assets $417,251 $375,689 
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable$21,335 $8,487 
Accrued compensation and benefits3,369 4,713 
Accrued expenses and other current liabilities15,141 12,063 
Deferred revenue3,537 1,234 
Total current liabilities 43,382 26,497 
Non-current operating lease liabilities13,514 14,809 
Other non-current liabilities5,802 220 
Total liabilities 62,698 41,526 
Commitments and contingencies (Note 7)
Shareholders' equity:
Ordinary shares, $0.00005 par value; 1,000,000 shares authorized; 147,430 shares issued and outstanding at January 28, 2023; and 1,000,000 shares authorized; 144,755 shares issued and outstanding at April 30, 2022
77
Additional paid in capital445,654 424,562 
Accumulated other comprehensive income (loss)(69)23 
Accumulated deficit(91,039)(90,429)
Total shareholders' equity354,553 334,163 
Total liabilities and shareholders' equity$417,251 $375,689 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4


Credo Technology Group Holding Ltd
Condensed Consolidated Statements of Operations
(unaudited, in thousands, except per share amounts)
Three Months EndedNine Months Ended
January 28, 2023January 31, 2022January 28, 2023January 31, 2022
Revenue:
Product sales$38,033 $22,706 $117,645 $48,423 
Product engineering services3,635 3,954 8,209 6,628 
IP license11,715 5,022 24,179 12,194 
IP license engineering services887 118 2,073 1,706 
Total revenue54,270 31,800 152,106 68,951 
Cost of revenue:
Cost of product sales revenue21,833 12,230 62,016 26,436 
Cost of product engineering services revenue228 410 746 1,807 
Cost of IP license revenue  1,179 
Cost of IP license engineering services revenue222 48 556 462 
Total cost of revenue22,283 12,688 64,497 28,705 
Gross profit31,987 19,112 87,609 40,246 
Operating expenses:
Research and development20,530 10,995 55,371 32,488 
Selling, general and administrative11,936 8,568 34,674 23,393 
Impairment charges2,407  2,407  
Total operating expenses34,873 19,563 92,452 55,881 
Operating loss(2,886)(451)(4,843)(15,635)
Other income (expense), net2,530 (80)1,618 (70)
Loss before income taxes(356)(531)(3,225)(15,705)
Provision (benefit) for income taxes(3,179)(387)(2,615)1,116 
Net income (loss)$2,823 $(144)$(610)$(16,821)
Net income (loss) per share:
Basic$0.02 $ $ $(0.24)
Diluted$0.02 $ $ $(0.24)
Weighted-average shares:
Basic146,908 73,815 146,000 70,439 
Diluted156,519 73,815 146,000 70,439 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5


Credo Technology Group Holding Ltd
Condensed Consolidated Statements of Comprehensive Income (Loss)
(unaudited, in thousands)
Three Months EndedNine Months Ended
January 28, 2023January 31, 2022January 28, 2023January 31, 2022
Net income (loss)$2,823 $(144)$(610)$(16,821)
Other comprehensive gain (loss):
Foreign currency translation gain (loss)324 (232)(92)(205)
Total comprehensive income (loss)$3,147 $(376)$(702)$(17,026)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6


Credo Technology Group Holding Ltd
Condensed Consolidated Statements of Convertible Preferred Shares and Shareholders’ Equity (Deficit)
(unaudited, in thousands)
Convertible Preferred SharesOrdinary SharesAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal Shareholders’ Equity (Deficit)
Number of SharesAmountNumber of SharesAmount
Balances at April 30, 2022$ 144,755$7 $424,562 $23 $(90,429)$334,163 
Ordinary shares issued under equity incentive plans
— 589— 1,977 — — 1,977 
Share-based compensation
— — 5,546 — — 5,546 
Warrant contra revenue— — 388 — — 388 
Total comprehensive loss— — — (96)(73)(169)
Balances at July 30, 2022$ 145,344$7 $432,473 $(73)$(90,502)$341,905 
Ordinary shares issued under equity incentive plans
— 1,142— 741 — — 741 
Share-based compensation
— — 4,891 — — 4,891 
Warrant contra revenue— — 247 — — 247 
Total comprehensive loss— — — (320)(3,360)(3,680)
Balances at October 29, 2022$ 146,486$7 $438,352 $(393)$(93,862)$344,104 
Ordinary shares issued under equity incentive plans
— 944— 1,873 — — 1,873 
Share-based compensation
— — 5,169 — — 5,169 
Warrant contra revenue— — 260 — — 260 
Total comprehensive income— — — 324 2,823 3,147 
Balances at January 28, 2023$ 147,430$7 $445,654 $(69)$(91,039)$354,553 

7



Convertible Preferred SharesOrdinary SharesAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal Shareholders’ Equity (Deficit)
Number of SharesAmountNumber of SharesAmount
Balances at April 30, 202150,809$197,965 68,282$3 $12,592 $227 $(68,253)$(55,431)
Issuance of Series D+ convertible preferred shares, net of issuance costs1,2517,245 — — — — — 
Ordinary shares issued under equity incentive plans
— 554— 461 — — 461 
Share-based compensation— — 1,075 — — 1,075 
Total comprehensive loss— — — (5)(12,577)(12,582)
Balances at July 31, 202152,060$205,210 68,836$3 $14,128 $222 $(80,830)$(66,477)
Ordinary shares issued under equity incentive plans
— — 667— 587 — — 587 
Share-based compensation
— — — 1,307 — — 1,307 
Total comprehensive loss— — — — 32 (4,100)(4,068)
Balances at October 29, 202252,060 $205,210 69,503$3 $16,022 $254 $(84,930)$(68,651)
Conversion of preferred shares into ordinary shares(52,060)(205,210)52,0603 205,207 — — 205,210 
Issuance of common stock in connection with initial public offering, net of offering costs, underwriting discounts and commissions— — 18,3841 166,593 — — 166,594 
Ordinary shares issued under employee share plan— — 1,073— 1,067 — — 1,067 
Share-based compensation— — — 1,438 — — 1,438 
Warrant contra revenue— — — 407 — — 407 
Total comprehensive loss— — — — (232)(144)(376)
Balances at January 31, 2022 $ 141,020$7 $390,734 $22 $(85,074)$305,689 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8


Credo Technology Group Holding Ltd
Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands)
Nine Months Ended
January 28, 2023January 31, 2022
Cash flows from operating activities:
Net income (loss)$(610)$(16,821)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization6,533 3,262 
Share-based compensation15,606 3,820 
Warrant contra revenue895 407 
Write-downs for excess and obsolete inventory3,087 1,256 
Impairment of assets2,407  
Changes in operating assets and liabilities:
Accounts receivable(13,644)(8,049)
Inventories(26,065)(20,274)
Contract assets(9,185)(5,239)
Prepaid and other current assets1,642 (585)
Other non-current assets(5,598)(2,164)
Accounts payable11,703 3,245 
Accrued expenses, compensation and other liabilities(1,850)5,890 
Deferred revenue2,303 2,060 
Net cash used in operating activities (12,776)(33,192)
Cash flows from investing activities:
Purchases of property and equipment(17,815)(7,932)
Purchases of short-term investments(109,228) 
Net cash used in investing activities (127,043)(7,932)
Cash flows from financing activities:
Proceeds from issuance of ordinary share upon initial public offering, net of underwriter discounts 171,889 
Payments for IPO offering costs (3,056)
Payments on technology license obligations(308) 
Proceeds from employee share incentive plans4,595 1,936 
Proceeds from issuance of convertible preferred shares, net of issuance costs 7,245 
Net cash provided by financing activities4,287 178,014 
Effect of exchange rate changes on cash(7)(118)
Net decrease in cash and cash equivalents(135,539)136,772 
Cash and cash equivalents at beginning of the period259,322 103,757 
Cash and cash equivalents at end of the period$123,783 $240,529 
Supplemental cash flow information:
Purchase of property and equipment included in accounts payable, accrued expenses and other liabilities$10,789 $200 
Conversion of convertible preferred share into ordinary share upon initial public offering$ $205,210 
Deferred offering costs included in accounts payable and accrued expenses$ $2,239 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
9

Credo Technology Group Holding Ltd
Notes to Unaudited Condensed Consolidated Financial Statements
1. Description of Business and Basis of Presentation
Credo Technology Group Holding Ltd was formed under the laws of the Cayman Islands in September 2014. Credo Technology Group Holding Ltd directly owns Credo Technology Group Ltd., which owns, directly and indirectly, all of the shares of its subsidiaries in mainland China, Hong Kong, and the United States (“U.S.”). References to the “Company” in these notes refer to Credo Technology Group Holding Ltd and its subsidiaries on a consolidated basis, unless otherwise specified.
The Company is an innovator in providing secure, high-speed connectivity solutions that deliver improved power and cost efficiency. The Company’s connectivity solutions are optimized for optical and electrical Ethernet applications, including the emerging 100G, 200G, 400G and 800G markets. The Company’s products are based on its Serializer/Deserializer (“SerDes”) and Digital Signal Processor (“DSP”) technologies. The Company’s product families include integrated circuits (“ICs”), Active Electrical Cables (“AECs”) and SerDes Chiplets. The Company’s intellectual property (“IP”) solutions consist primarily of SerDes IP licensing.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements are presented in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted as permitted by the SEC. These unaudited condensed consolidated financial statements and related notes should be read in conjunction with the Company’s fiscal year 2022 audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2022. The unaudited condensed consolidated financial statements include all adjustments, including normal recurring adjustments and other adjustments, that are considered necessary for fair presentation of the Company’s financial position and results of operations. All inter-company accounts and transactions have been eliminated. Operating results for the periods presented herein are not necessarily indicative of the results that may be expected for the entire year.
Effective May 1, 2022, the Company changed its fiscal year to a 52- or 53-week period ending on the Saturday closest to April 30. Our fiscal year ending April 29, 2023 (“fiscal year 2023”) is a 52-week fiscal year. The first quarter of our fiscal year 2023 ended on July 30, 2022, the second quarter ended on October 29, 2022 and the third quarter ended on January 28, 2023.
2. Significant Accounting Policies
The Company believes that other than the adoption of new accounting pronouncements and the accounting policies as described below, there have been no significant changes during the three and nine months ended January 28, 2023 to the items disclosed in Note 2, “Significant Accounting Policies,” included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2022.
Use of Estimates
The preparation of these condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s condensed consolidated financial statements and accompanying notes.
The Company bases its estimates and judgments on historical experience, knowledge of current conditions and beliefs of what could occur in the future, given the available information. Estimates are used for, but not limited to, write-down for excess and obsolete inventories, the standalone selling price for each distinct performance obligation included in customer contracts with multiple performance obligations, variable consideration from revenue contracts, determination of the fair value of share-based awards, ordinary shares and a customer warrant, realization of tax assets and estimates of tax reserves, and incremental borrowing rate used in the Company’s operating lease calculations. Actual results may differ from those estimates and such differences may be material to the financial statements. In the current macroeconomic environment affected by COVID-19, these estimates require increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, these estimates may change materially in future periods.
Reclassifications
10

Credo Technology Group Holding Ltd
Notes to Unaudited Condensed Consolidated Financial Statements
Certain prior period balances were reclassified to conform to the current period’s presentation. None of these reclassifications had an impact on reported net income or cash flows for any of the periods presented.
Revenue Recognition
The Company’s revenues consist of sale of its products, licensing of its IP and providing product and IP license engineering services. Product sales consists of shipment of its ICs and AEC products. IP license revenue includes fees from licensing of the Company’s SerDes IP and related support and royalties. Product and IP license engineering services revenue consists of engineering fees associated with integration of the Company’s technology solutions into its customers’ products and IP, respectively. The Company’s customers are primarily original equipment manufacturers who design and manufacture end market devices for the communications and enterprise networks markets. The Company’s revenue is driven by various trends in these markets. The Company’s revenue is also impacted by changes in the number and average selling prices of its IC products.
The Company recognizes revenue upon transfer of control of promised goods and services in an amount that reflects the consideration it expects to receive in exchange for those goods and services. Where an arrangement includes multiple performance obligations, the transaction price is allocated to these on a relative standalone selling price (“SSP”) basis. The Company determines the SSP based on an observable standalone selling price when it is available, as well as other factors, including the price charged to customers and the Company’s overall pricing objectives, while maximizing observable inputs. The determination of the SPP for certain of our IPs requires fair value estimate under income approach, involving the estimation of future cash flow expected to be generated from the IPs. The Company’s policy is to record revenue net of any applicable sales, use or excise taxes. Changes in the Company’s contract assets and contract liabilities primarily result from the timing difference between the Company’s performance and the customer’s payment. The Company fulfills its obligations under a contract with a customer by transferring products or services in exchange for consideration from the customer. The Company recognizes a contract asset when it transfers products or services to a customer and the right to consideration is conditional on something other than the passage of time. Accounts receivable are recorded when the customer has been billed or the right to consideration is unconditional. The Company recognizes deferred revenue when it has received consideration or an amount of consideration is due from the customer and it has a future obligation to transfer products or services.
Product Sales - The Company transacts with customers primarily pursuant to standard purchase orders for delivery of products and generally allows customers to cancel or change purchase orders within limited notice periods prior to the scheduled shipment date. The Company offers standard performance warranties of twelve months after product delivery and offers limited product return rights to certain distributors. The Company recognizes product sales when it transfers control of promised goods in an amount that reflects the consideration to which it expects to be entitled to in exchange for those goods, net of accruals for estimated sales returns and rebates.
IP License Revenue - The Company’s IP license revenue consists of perpetual licenses, support and maintenance, and royalties. The Company enters into perpetual semiconductor IP license agreements, that have a fixed fee, whereby licensees pay a fixed fee for the right to incorporate the Company’s IP technologies into the licensee’s products. The IP license agreements do not typically grant the customer the right to terminate for convenience. Where such rights exist, termination is prospective, with no refund of fees already paid by the customer.
IP revenue recognition is dependent on the nature and terms of each agreement. The Company recognizes license revenue at the point of time of the delivery of the IP. In connection with the license arrangements, the Company offers support to assist customers in qualifying their final product. Revenue from customer support is deferred and recognized ratably over the support period, which is typically one year.
In certain cases, the Company also charges licensees royalties related to the distribution or sale of products that use its technologies. Such royalties are reported to us on a quarterly basis. The Company estimates the sales-based royalties earned each quarter primarily based on its customers’ reporting of sales activity incurred in that quarter. The Company recognizes the estimated royalty revenue when it is probable that reversal of such amounts will not occur. Any differences between actual royalties owed by a customer and the quarterly estimates are recognized when updated information becomes available.
Product and IP License Engineering Services Revenue - Some product and IP revenue contracts include non-recurring engineering services deliverables. The Company recognizes revenue from these agreements over time as services are provided or at point in time upon completion and acceptance by the customer of contract deliverables, depending on the terms of the arrangement. Revenue is deferred for any amounts billed or received prior to delivery of
11

Credo Technology Group Holding Ltd
Notes to Unaudited Condensed Consolidated Financial Statements
services. The Company believes the input method, based on time spent by its engineers, best depicts the efforts expended to transfer services to the customers.
Certain contracts may include multiple performance obligations for which the Company allocates revenue to each performance obligation based on relative SSP. The Company determines SSPs based on observable evidence. When SSPs are not directly observable, the Company uses the adjusted market assessment approach or residual approach, if applicable. The Company also considers the constraint on estimates of variable consideration when estimating the total transaction price. The Company records liabilities for amounts that are collected in advance of the satisfaction of performance obligations under deferred revenue.
Cash, Cash Equivalents and Short-term Investments
Cash and cash equivalents are highly liquid investments with insignificant interest rate risk and maturities of three months or less at the time of acquisition. Cash and cash equivalents consist primarily of cash balances in the Company’s bank checking and savings accounts, and government and institutional money market funds.
Investments not considered cash equivalents and with maturities of one year or less from the consolidated balance sheet date are classified as short-term investments. Short-term investments consist of a certificate of deposit with original maturity date between three and twelve months.
The classification of our investments in marketable debt securities is determined at the time of purchase, and such determination is reevaluated at each balance sheet date. Marketable debt securities are classified as available-for-sale. These investments are considered impaired when a decline in fair value is judged to be other-than-temporary. We consult with our investment managers and consider available quantitative and qualitative evidence in evaluating potential impairment of our investments on a quarterly basis. If the cost of an individual investment exceeds its fair value, we evaluate, among other factors, general market conditions, the duration and extent to which the fair value is less than cost, and our intent and ability to hold the investment. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established.
Accounting Pronouncement Recently Adopted
In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by eliminating some exceptions to the general approach in Topic 740 in order to reduce cost and complexity of its application. This new guidance is effective for the Company for its fiscal year beginning May 1, 2022. The Company adopted this guidance on May 1, 2022 prospectively, and the impact on its consolidated financial statements was not material.
Recent Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected, with further clarifications made more recently. For trade receivables, loans and other financial instruments, the Company will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. Credit losses relating to available-for-sale debt securities are required to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. This guidance is effective for the Company for its fiscal year beginning April 30, 2023 and interim periods within its fiscal year beginning April 28, 2024. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial statements.
3. Concentrations
Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short term investments and accounts receivable. Cash is placed in major financial institutions around the world. The Company’s cash deposits exceed insured limits. Short-term investments are subject to counterparty risk up to the amount presented on the balance sheet.
Historically, a relatively small number of customers have accounted for a significant portion of the Company’s revenue. The particular customers which account for revenue concentration have varied from period-to-period as a result of the addition of new contracts, completion of existing contracts, and the volumes and prices at which the
12

Credo Technology Group Holding Ltd
Notes to Unaudited Condensed Consolidated Financial Statements
customers have recently bought the Company’s products. These variations are expected to continue in the foreseeable future.
The following table summarizes the significant customers’ accounts receivable and revenue as a percentage of total accounts receivable and total revenue, respectively:
Accounts ReceivableJanuary 28, 2023April 30, 2022
Customer A69 %*
Customer B12 %*
Customer C*52 %
Customer D*14 %
Three months endedNine months ended
RevenueJanuary 28, 2023January 31, 2022January 28, 2023January 31, 2022
Customer A52 %*46 %*
Customer C*40 %*33 %
Customer D*22 %11 %18 %
Customer E20 %*14 %*
Customer F***13 %
* Less than 10% of total accounts receivable or total revenue.
4. Revenue Recognition
The following table summarizes revenue disaggregated by primary geographical market based on destination of shipment and location of contracting entity, which may differ from the customer’s principal offices (in thousands):
Three Months EndedNine Months Ended
January 28, 2023January 31, 2022January 28, 2023January 31, 2022
Mainland China$29,233 $14,729 $83,412 $24,065 
United States16,513 5,924 35,001 18,999 
Hong Kong1,583 3,277 8,636 6,257 
Singapore 2,380 4,150 7,342 
Rest of World6,941 5,490 20,907 12,288 
$54,270 $31,800 $152,106 $68,951 
Contract Balances
The contract assets are primarily related to the Company’s fixed fee IP licensing arrangements and rights to consideration for performance obligations delivered but not billed as of January 28, 2023 and April 30, 2022.
During the three months ended January 28, 2023, the Company recognized $1.1 million of revenue that was included in the deferred revenue balance as of October 29, 2022. During the three months ended January 31, 2022, the Company recognized $0.3 million of revenue that was included in the deferred revenue balance as of October 31, 2021.
During the nine months ended January 28, 2023, the Company recognized $1.1 million of revenue that was included in the deferred revenue balance as of April 30, 2022. During the nine months ended January 31, 2022, the Company recognized $4.0 million of revenue that was included in the deferred revenue balance as of April 30, 2021.
During the nine months ended January 28, 2023, the increase in contract assets of $9.2 million was primarily driven by an IP licensing and engineering services arrangement where certain billing milestones had not yet been reached, but the criteria for revenue had been met. During the nine months ended January 28, 2023, the increase in deferred revenue of $2.3 million was primarily driven by a product engineering services arrangement where certain billing milestones had been reached prior to the timing of revenue recognition.
13

Credo Technology Group Holding Ltd
Notes to Unaudited Condensed Consolidated Financial Statements
Remaining Performance Obligations
Revenue allocated to remaining performance obligations represents the transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods. The contracted but unsatisfied performance obligation was approximately $11.7 million and the satisfied but unrecognized performance obligations was approximately $10.1 million as of January 28, 2023, which the Company expects to recognize over the next year. The amounts stated above include amounts relating to an IP licensing and development contract we entered into with a customer in September 2021, for total cash consideration of $43.5 million, which is receivable over an estimated period of three years upon meeting certain contractual milestones. As of January 28, 2023, we had billed $22.2 million and recognized revenue amounting to $32.7 million upon delivery of certain milestones of the contract. We have applied constraints on a remaining milestone due to significant uncertainty relating to the delivery of the milestone as of January 28, 2023 associated with dependency on actions by the customer. The constraints will be re-evaluated at each future reporting period.
Customer Warrant
On December 28, 2021, the Company issued a warrant to Amazon.com NV Investment Holdings LLC (“Holder”) to purchase an aggregate of up to 4,080,000 of our ordinary shares at an exercise price of $10.74 per share (the “Warrant”). The exercise period of the Warrant is through the seventh anniversary of the issue date. Upon issuance of the Warrant, 40,000 of the shares issuable upon exercise of the Warrant vested immediately and the remainder of the shares issuable will vest in tranches over the contract term based on the amount of global payments by Holder and its affiliates to us, up to $201 million in aggregate payments. A total of 80,000 Warrant shares were vested as of January 28, 2023.
The grant date fair value of the Warrant share was determined at $4.65 per share using the Black-Scholes option pricing model. The grant date fair value of the Warrant share was estimated using the following assumptions:
At Grant Date
Expected volatility40.00%
Weighted-average expected term (in years)7.00
Risk-free interest rate1.41%
Dividend yield%
Fair value per ordinary share$10.74
During the three and nine months ended January 28, 2023, the Company recognized $0.3 million and $0.9 million, respectively, as contra revenue within the product sales revenue on the condensed consolidated statements of operations.
5. Fair Value Measurements
Fair value is an exit price representing the amount that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1 - Observable inputs that reflect quoted prices for identical assets or liabilities in active markets.
Level 2 - Other inputs that are directly or indirectly observable in the marketplace.
Level 3 - Unobservable inputs that are supported by little or no market activity.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The Company measures the fair value of money market funds using Level 1 inputs. The Company’s certificates of deposit are classified as a held-to-maturity security as the Company intends to hold until their maturity dates. The certificates of deposit are valued using Level 2 inputs. Pricing sources may include industry standard data providers,
14

Credo Technology Group Holding Ltd
Notes to Unaudited Condensed Consolidated Financial Statements
security master files from large financial institutions, and other third-party sources used to determine a daily market value.
The following table present the fair value of the financial instruments measured on a recurring basis as of January 28, 2023 (in thousands).
January 28, 2023
Level 1Level 2Level 3Total
Cash equivalents:
Money market funds$112,338 $ $ $112,338 
Short-term investments:
Certificate of deposit 109,228  109,228 
Total cash equivalents and short-term investments$112,338 $109,228 $ $221,566 
The carrying amount of the Company’s financial instruments, including cash equivalents, short-term investments, accounts receivable and accounts payable, approximate their respective fair values because of their short maturities. As of January 28, 2023, there were no unrealized loss or gains associated with the Company’s financial instruments.
6. Supplemental Financial Information
Inventories
Inventories consisted of the following (in thousands):
January 28, 2023April 30, 2022
Raw materials$18,745 $11,610 
Work in process10,337 10,352 
Finished goods21,233 5,375 

$50,315 $27,337 
Property and Equipment, Net
Property and equipment consisted of the following (in thousands):
January 28, 2023April 30, 2022
Computer equipment and software$14,106 $1,736 
Laboratory equipment12,310 9,521 
Production equipment16,176 15,502 
Leasehold improvements1,681 1,465 
Others633 524 
Construction in progress9,610 2,932 
54,516 31,680 
Less: accumulated depreciation and amortization(15,429)(9,836)
$39,087 $21,844 
Depreciation and amortization expense for the three months ended January 28, 2023 and January 31, 2022 was $2.3 million and $1.3 million, respectively. Depreciation and amortization expense for the nine months ended January 28, 2023 and January 31, 2022 was $6.5 million and $3.3 million, respectively. Computer equipment and software primarily includes electronic design automation software relating to the Company’s R&D design of future products and intellectual properties. Construction in progress and production equipment primarily includes mask set costs capitalized relating to the Company’s new products already introduced or to be introduced.
During the three months ended January 28, 2023, the Company recorded $2.4 million impairment charges primarily related to an impairment on property and equipment. The impairment charges were presented under
15

Credo Technology Group Holding Ltd
Notes to Unaudited Condensed Consolidated Financial Statements
operating expenses in the condensed consolidated statements of operations for equipment and related assets that did not reach production qualification.
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
January 28, 2023April 30, 2022
Accrued expenses$7,851 $8,372 
Current payables relating to purchases of property and equipment3,940  
Current portion of operating lease liabilities2,676 2,379 
Income tax payable674 1,312 

$15,141 $12,063 
Other non-current Liabilities
Other non-current liabilities consisted of the following (in thousands):
January 28, 2023April 30, 2022
Non-current payables relating to purchases of property and equipment$5,537 $ 
Deferred tax liabilities265 220 

$5,802 $220 
7. Commitments and Contingencies
Non-cancelable Purchase Obligations
Total future non-cancelable purchase obligations as of January 28, 2023 are as follows (in thousands):
Fiscal Year Purchase Commitments to Manufacturing Vendors Technology License Fees
Remainder of 2023$863 $1,893 
20245,423 5,177 
20256,763 5,432 
20268,131 350 
20279,282 350 
Thereafter7,319 700 
Total unconditional purchase commitments$37,781 $13,902 
Technology license fees include the liabilities under agreements for technology licenses between the Company and various vendors.
Under the Company’s manufacturing relationships with its foundry partners, cancellation of outstanding purchase orders is allowed but requires payment of all costs and expenses incurred through the date of cancellation.
As of January 28, 2023, the total value of non-cancelable purchase orders payable within the next one year that were committed with the Company’s third party subcontractors was approximately $2.2 million. Such purchase commitments are included in the preceding table.
The Company entered into a manufacturing supply capacity reservation agreement with an assembly subcontractor during the current fiscal year due to the current global supply shortage environment. Under this arrangement, the Company agreed to pay refundable deposits to the supplier in exchange for reserved manufacturing production capacity over the term of the agreement, which approximates five years. In addition, the Company committed to certain purchase levels that were in line with the capacity reserved. If the Company does not meet the purchase level commitment, the agreement requires the Company to pay a fee equal to the difference between the actual purchase and the purchase commitment, up to the value of refundable deposits made. The Company currently estimates that it has made purchase level commitments of at least $35.5 million for the fiscal 2024 through fiscal 2028
16

Credo Technology Group Holding Ltd
Notes to Unaudited Condensed Consolidated Financial Statements
under the capacity reservation agreement. Such purchase commitments are included in the preceding table. In addition, refundable deposits of $2.0 million were paid as of January 28, 2023, and refundable deposits payable under this arrangement are $3.4 million during the remainder of fiscal 2023 and $3.4 million in fiscal 2024.
Warranty Obligations
The Company’s products generally carry a standard one-year warranty. The Company’s warranty expense has not been material in the periods presented.
Indemnifications
In the ordinary course of business, the Company has made certain indemnifications of varying scope and terms to customers, vendors, lessors, investors, directors, officers, employees and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements, services to be provided by the Company or from intellectual property infringement claims made by third parties. These indemnifications may survive termination of the underlying agreement and the maximum potential amount of future payments the Company could be required to make under these indemnification provisions may not be subject to maximum loss clauses. The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnifications. Accordingly, the Company has no liabilities recorded for these agreements as of January 28, 2023 and April 30, 2022.
Legal Proceedings
From time to time, the Company may be a party to various litigation claims in the normal course of business. Legal fees and other costs associated with such actions are expensed as incurred. The Company assesses, in conjunction with legal counsel, the need to record a liability for litigation and contingencies. Accrual estimates are recorded when and if it is determined that such a liability for litigation and contingencies are both probable and reasonably estimable. As of the date of issuance of these unaudited condensed consolidated financial statements, the Company was not subject to any litigation. No accruals for loss contingencies or recognition of actual losses have been recorded in any of the periods presented.

8. Convertible Preferred Shares
The Company had previously issued Series A convertible preferred shares, Series B convertible preferred shares, Series C convertible preferred shares, Series D convertible preferred shares and Series D+ convertible preferred shares (collectively, the “Preferred Shares”).
Immediately prior to the completion of the IPO during the quarter ended January 31, 2022, all of the then outstanding 52,059,826 shares of the Company’s convertible Preferred Shares were automatically converted into an aggregate 52,059,826 shares of ordinary shares on a one-for-one basis, and such Preferred Shares were cancelled, retired and eliminated from the shares that the Company is authorized to issue and shall not be reissued by the Company.
A summary of the Preferred Shares prior to the conversion into ordinary shares consisted of the following:
SeriesShares AuthorizedShares Issued and OutstandingPer Share Liquidation PreferenceAggregate Liquidation Preference (in thousands)
Series A8,313 8,313 $1.00 $8,313 
Series B8,593 8,593 2.10 18,000 
Series C5,245 5,245 4.29 22,500 
Series D20,028 20,028 4.99 100,000 
Series D+9,881 9,881 5.81 57,361 
52,060 52,060 $206,174 
The rights, privileges, and preferences of each of the Preferred Shares were as follows:
Conversion Rights - Each Preferred Share was convertible, at the option of the holder, at any time, and without the payment of any additional consideration, into such number of fully paid ordinary shares as was determined by dividing the applicable original issue price for each such series of Preferred Shares by the applicable conversion price in effect at the time of the conversion. The conversion price per share for each series of Preferred Share shall initially
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Credo Technology Group Holding Ltd
Notes to Unaudited Condensed Consolidated Financial Statements
be equal to the original issue price of such series, which means $1.00 per share for Series A, $2.10 per share for Series B, $4.29 per share for Series C, $4.99 per share for Series D and $5.81 per share for Series D+. The conversion price shall be subject to adjustment in order to adjust the number of ordinary shares into which the Preferred Shares are convertible.
Each share of each series of Preferred Shares automatically converted into the number of ordinary shares at the conversion rate at the time in effect upon the closing of a public offering of ordinary shares which results in at least $25.0 million of proceeds to the Company at a per share price not less than $9.99 or with the vote or written consent of the holders of a majority of the then outstanding Preferred Shares, voting as a separate class, to convert their Preferred Shares at the then effective Conversion Price.
Dividends - The holders of Preferred Shares were entitled to receive noncumulative dividends when and if declared by the Company’s board of directors. The holders of Preferred Shares were entitled to receive dividends prior and in preference to any payment of any dividend on ordinary shares in an amount equal to 8% of the original issue price per share of such Preferred Share. After payment of such dividends, any additional dividends shall be distributed among all holders of ordinary shares and Preferred Shares in proportion to the number of ordinary shares that would be held by each such holder if all Preferred Shares were converted to ordinary shares at the then effective conversion rate. No dividends had been declared by the board of directors from inception through the date of conversion into ordinary shares.
Liquidation Rights - In the event of any sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company or the exclusive license of all or substantially all of the Company’s intellectual property used in generating all or substantially all of the Company’s revenues, reorganization, consolidation, acquisition, merger, liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the holders of Preferred Shares shall be entitled to receive in preference to the holders of ordinary shares, an amount per share equal to the liquidation preference, plus any declared but unpaid dividends. After payment of the liquidation preference to holders of Preferred Shares, the remaining assets of the Company were available for distribution on a pro rata basis to the holders of ordinary shares.
Voting Rights - The holders of the Preferred Shares were entitled to the number of votes equal to the number of ordinary shares into which such Preferred Shares could be converted on the record date.
9. Leases
The Company leases office space, domestically and internationally, under operating leases. The Company’s leases have remaining lease terms generally between one year and eight years. Operating leases are included in right of use assets, accrued expenses and other current liabilities, and non-current operating lease liabilities on the Company’s unaudited condensed consolidated balance sheets. The Company does not have any finance leases.
Lease expense and supplemental cash flow information are as follows (in thousands):
Three Months EndedNine Months Ended
January 28, 2023January 31, 2022January 28, 2023January 31, 2022
Operating lease expenses$935 $709 $2,715 $2,064 
Cash paid for amounts included in the measurement of operating lease liabilities$767 $697 $2,312 $2,068 
Right-of-use assets obtained in exchange for lease obligation$ $1,154 $649 $1,413 
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Credo Technology Group Holding Ltd
Notes to Unaudited Condensed Consolidated Financial Statements
The aggregate future lease payments for operating leases as of January 28, 2023 are as follows (in thousands):
Fiscal YearOperating leases
Remainder of 2023$838 
20243,312 
20252,903 
20262,355 
20272,222 
Thereafter7,796 
Total lease payments19,426 
Less: Interest 3,237 
Present value of lease liabilities$16,189 
As of January 28, 2023, the weighted average remaining lease term for the Company's operating leases is 6.94 years and the weighted average discount rate used to determine the present value of the Company's operating leases is 5.81%.

10. Share Incentive Plan
Share Issuances Subject to Repurchase
The Company has issued ordinary shares to certain employees that are subject to vesting periods pursuant to the respective share purchase agreements (“Restricted Share Awards” or “RSAs”). In addition, the Company allows early exercise for unvested ordinary share options granted under its 2015 Stock Plan. In regard to the ordinary shares purchased, but not vested, the Company has the right to repurchase shares at the original issue price in the event of termination of services. As of January 28, 2023, 127,780 shares from share option early exercises remained subject to the Company’s repurchase rights. As of April 30, 2022, 442,787 such ordinary shares, consisting of 16,667 shares from RSAs and 426,120 from share option early exercises, remained subject to the Company’s repurchase rights. These shares are excluded from ordinary shares outstanding.
Restricted Stock Unit (“RSU”) Awards
A summary of information related to RSU activity during the nine months ended January 28, 2023 is as follows:
RSUs Outstanding
Number of SharesWeighted-Average Grant Date Fair ValueWeighted-Average Remaining Contractual TermAggregate Intrinsic Value (in thousands)
Balances as of April 30, 20224,133,751$10.26
Granted5,239,480$12.36
Vested(955,153)$10.05
Canceled/ forfeited(313,001)$10.62
Balances and expected to vest as of January 28, 20238,105,077$11.631.82$140,299 
Share Option Awards
A summary of information related to share option activity during the nine months ended January 28, 2023 is as follows:
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Credo Technology Group Holding Ltd
Notes to Unaudited Condensed Consolidated Financial Statements
Options Outstanding
Outstanding Share OptionsWeighted-Average Exercise PriceWeighted-Average Remaining Contractual TermAggregate Intrinsic Value (in thousands)
Balance as of April 30, 202211,360,745$1.94
Options exercised and vested(1,456,539)$1.70
Options canceled/ forfeited(195,670)$3.20
Balance and expected to vest as of January 28, 20239,708,536$1.966.48$149,072 
Exercisable as of January 28, 20239,580,756$