What changed in this filing

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Item 1. Financial Statements

2023-03-02 compared with 2022-12-01 · 276 added, 177 removed, 589 unchanged (43% of the section changed)

3 unchanged sentences

(unaudited, in thousands, except per share amounts)

October 29, 2022 April 30, 2022

January 28, 2023 April 30, 2022

Current Assets:

24 unchanged sentences

1,000,000 shares authorized;

146,486 shares issued and outstanding at October 29, 2022;

147,430 shares issued and outstanding at January 28, 2023;

and 1,000,000 shares authorized;

9 unchanged sentences

(unaudited, in thousands, except per share amounts)

Three Months Ended Six Months Ended

October 29, 2022 October 31, 2021 October 29, 2022 October 31, 2021

Three Months Ended Nine Months Ended

January 28, 2023 January 31, 2022 January 28, 2023 January 31, 2022

Product sales $ 38,033 $ 22,706 $ 117,645 $ 48,423

13 unchanged sentences

Selling, general and administrative 11,936 8,568 34,674 23,393

Impairment charges 2,407 — 2,407 —

Total operating expenses 34,873 19,563 92,452 55,881

2 unchanged sentences

Loss before income taxes ( 356 ) ( 531 ) ( 3,225 ) ( 15,705 )

Provision for income taxes 929 601 564 1,503

Net loss $ ( 3,360 ) $ ( 4,100 ) $ ( 3,433 ) $ ( 16,677 )

Net loss per share:

Basic and diluted $ ( 0.02 ) $ ( 0.06 ) $ ( 0.02 ) $ ( 0.24 )

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:

Basic and diluted 146,012 69,094 145,545 68,751

Basic 146,908 73,815 146,000 70,439

Diluted 156,519 73,815 146,000 70,439

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Credo Technology Group Holding Ltd

Condensed Consolidated Statements of Comprehensive Loss

Condensed Consolidated Statements of Comprehensive Income (Loss)

(unaudited, in thousands)

Three Months Ended Six Months Ended

October 29, 2022 October 31, 2021 October 29, 2022 October 31, 2021

Net loss $ ( 3,360 ) $ ( 4,100 ) $ ( 3,433 ) $ ( 16,677 )

Three Months Ended Nine Months Ended

January 28, 2023 January 31, 2022 January 28, 2023 January 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 loss $ ( 3,680 ) $ ( 4,068 ) $ ( 3,849 ) $ ( 16,650 )

Total comprehensive income (loss) $ 3,147 $ ( 376 ) $ ( 702 ) $ ( 17,026 )

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

19 unchanged sentences

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

Convertible Preferred Shares Ordinary Shares Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Shareholders’ Equity (Deficit)

Number of Shares Amount Number of Shares Amount

Balances at April 30, 2021 50,809 $ 197,965 68,282 $ 3 $ 12,592 $ 227 $ ( 68,253 ) $ ( 55,431 )

11 unchanged sentences

Balances at October 29, 2022 52,060 $ 205,210 69,503 $ 3 $ 16,022 $ 254 $ ( 84,930 ) $ ( 68,651 )

Conversion of preferred shares into ordinary shares ( 52,060 ) ( 205,210 ) 52,060 3 205,207 — — 205,210

Issuance of common stock in connection with initial public offering, net of offering costs, underwriting discounts and commissions — — 18,384 1 166,593 — — 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.

2 unchanged sentences

(unaudited, in thousands)

Six Months Ended

October 29, 2022 October 31, 2021

Nine Months Ended

January 28, 2023 January 31, 2022

Cash flows from operating activities:

Net loss $ ( 3,433 ) $ ( 16,677 )

Adjustments to reconcile net loss to net cash used in operating activities:

Net income (loss) $ ( 610 ) $ ( 16,821 )

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Depreciation and amortization 6,533 3,262

2 unchanged sentences

Write-downs for excess and obsolete inventory 3,087 1,256

Impairment of assets 2,407 —

Changes in operating assets and liabilities:

13 unchanged sentences

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 plans 4,595 1,936

7 unchanged sentences

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.

14 unchanged sentences

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S.

generally accepted accounting principles (“U.S.

GAAP”) have been condensed or omitted as permitted by the SEC.

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.

4 unchanged sentences

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 ends on January 28, 2023.

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.

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 six months ended October 29, 2022 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.

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

10 unchanged sentences

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

Credo Technology Group Holding Ltd

Notes to Unaudited Condensed Consolidated Financial Statements

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

10 unchanged sentences

Accounting Pronouncement Recently Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

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.

14 unchanged sentences

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 customers have recently bought the Company’s products.

These variations are expected to continue in the foreseeable future.

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 Receivable October 29, 2022 April 30, 2022

Accounts Receivable January 28, 2023 April 30, 2022

Customer A 69 % *

2 unchanged sentences

Customer D * 14 %

Three months ended Six months ended

Revenue October 29, 2022 October 31, 2021 October 29, 2022 October 31, 2021

Three months ended Nine months ended

Revenue January 28, 2023 January 31, 2022 January 28, 2023 January 31, 2022

Customer A 52 % * 46 % *

Customer B * 22 % * 15 %

Customer C * 40 % * 33 %

1 unchanged sentence

Customer E 20 % * 14 % *

Customer F * * * 13 %

* Less than 10% of total accounts receivable or total revenue.

1 unchanged sentence

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 Ended Six Months Ended

October 29, 2022 October 31, 2021 October 29, 2022 October 31, 2021

Three Months Ended Nine Months Ended

January 28, 2023 January 31, 2022 January 28, 2023 January 31, 2022

Mainland China $ 29,233 $ 14,729 $ 83,412 $ 24,065

1 unchanged sentence

Hong Kong 1,583 3,277 8,636 6,257

Mexico 2,611 1,329 4,135 3,881

Taiwan 2,934 94 3,001 1,725

Singapore — 2,380 4,150 7,342

2 unchanged sentences

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 October 29, 2022 and April 30, 2022.

During the three months ended October 29, 2022, the Company recognized $ 1.8 million of revenue that was included in the deferred revenue balance as of July 30, 2022.

During the three months ended October 31, 2021, the Company recognized $ 2.1 million of revenue that was included in the deferred revenue balance as of July 31, 2021.

During the six months ended October 29, 2022, the Company recognized $ 1.0 million of revenue that was included in the deferred revenue balance as of April 30, 2022.

During the six months ended October 31, 2021, the Company recognized $ 3.9 million of revenue that was included in the deferred revenue balance as of April 30, 2021.

During six months ended October 29, 2022, the decrease in contract assets of $ 3.6 million was primarily due to IP licensing and engineering services arrangements where certain billing milestones had been reached.

During six months ended October 29, 2022, the change to deferred revenue balance was not material.

Remaining Performance Obligations

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.

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 $ 11.4 million and the satisfied but unrecognized performance obligations was approximately $ 20.2 million as of October 29, 2022, which the Company expects to recognize over the next year.

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 October 29, 2022, we had billed $ 22.2 million and recognized revenue amounting to $ 21.8 million upon delivery of certain milestones of the contract.

We have applied constraints on certain remaining milestones due to significant uncertainty relating to the delivery of those milestones as of October 29, 2022 associated with dependency on actions by the customer.

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.

3 unchanged sentences

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.

No other tranches were vested as of October 29, 2022.

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.

6 unchanged sentences

Fair value per ordinary share $ 10.74

During the three and six months ended October 29, 2022, the Company recognized $ 0.2 million and $ 0.6 million, respectively, as contra revenue within the product sales revenue on the condensed consolidated statements of operations.

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.

Fair Value Measurements

9 unchanged sentences

The certificates of deposit are valued using Level 2 inputs.

Pricing sources may include industry standard data providers, security master files from large financial institutions, and other third -party sources used to determine a daily market value.

Pricing sources may include industry standard data providers,

Credo Technology Group Holding Ltd

Notes to Unaudited Condensed Consolidated Financial Statements

The following table present the fair value of the financial instruments measured on a recurring basis as of October 29, 2022 (in thousands).

October 29, 2022

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 1 Level 2 Level 3 Total

Cash equivalents:

Certificates of deposit $ — $ 9,226 $ — $ 9,226

Money market funds $ 112,338 $ — $ — $ 112,338

3 unchanged sentences

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 October 29, 2022, there were no unrealized loss or gains associated with the Company’s financial instruments.

As of January 28, 2023, there were no unrealized loss or gains associated with the Company’s financial instruments.

Supplemental Financial Information

Inventories consisted of the following (in thousands):

October 29, 2022 April 30, 2022

January 28, 2023 April 30, 2022

Raw materials $ 18,745 $ 11,610

4 unchanged sentences

Property and equipment consisted of the following (in thousands):

October 29, 2022 April 30, 2022

January 28, 2023 April 30, 2022

Computer equipment and software $ 14,106 $ 1,736

7 unchanged sentences

$ 39,087 $ 21,844

Depreciation and amortization expense for the three months ended October 29, 2022 and October 31, 2021 was $ 2.6 million and $ 1.1 million, respectively.

Depreciation and amortization expense for the six months ended October 29, 2022 and October 31, 2021 was $ 4.3 million and $ 2.0 million, respectively.

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

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):

October 29, 2022 April 30, 2022

January 28, 2023 April 30, 2022

Accrued expenses $ 7,851 $ 8,372

5 unchanged sentences

Other non-current liabilities consisted of the following (in thousands):

October 29, 2022 April 30, 2022

January 28, 2023 April 30, 2022

Non-current payables relating to purchases of property and equipment $ 5,537 $ —

3 unchanged sentences

Non-cancelable Purchase Obligations

Total future non-cancelable purchase obligations as of October 29, 2022 are as follows (in thousands):

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

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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 October 29, 2022, 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 $ 6.2 million.

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.

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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 remainder of fiscal 2023 through fiscal 2028 under the capacity reservation agreement.

Such purchase commitments are included in the preceding table.

In addition, refundable deposits payable under this arrangement are $ 5.4 million during the remainder of fiscal 2023 and $ 3.4 million in fiscal 2024.

The Company currently estimates that it has made purchase level commitments of at least $ 35.5 million for the fiscal 2024 through fiscal 2028

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

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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 October 29, 2022 and April 30, 2022.

Accordingly, the Company has no liabilities recorded for these agreements as of January 28, 2023 and April 30, 2022.

Legal Proceedings

3 unchanged sentences

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 the unaudited condensed consolidated financial statements, the Company was not subject to any litigation.

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.

1 unchanged sentence

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 fiscal 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 share 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.

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:

6 unchanged sentences

52,060 52,060 $ 206,174

The rights, privileges, and preferences of the Series A, Series B, Series C, Series D, and Series D+ convertible 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 share 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 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 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

Credo Technology Group Holding Ltd

Notes to Unaudited Condensed Consolidated Financial Statements

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 Series A, B, C, D and D+ convertible preferred share 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.

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.

4 unchanged sentences

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 convertible preferred shares were entitled to the number of votes equal to the number of ordinary shares into which such convertible preferred shares could be converted on the record date.

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.

The Company leases office space, domestically and internationally, under operating leases.

The Company’s leases have remaining lease terms generally between one year and nine years .

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.

1 unchanged sentence

Lease expense and supplemental cash flow information are as follows (in thousands):

Three Months Ended Six Months Ended

October 29, 2022 October 31, 2021 October 29, 2022 October 31, 2021

Three Months Ended Nine Months Ended

January 28, 2023 January 31, 2022 January 28, 2023 January 31, 2022

Operating lease expenses $ 935 $ 709 $ 2,715 $ 2,064

3 unchanged sentences

Notes to Unaudited Condensed Consolidated Financial Statements

The aggregate future lease payments for operating leases as of October 29, 2022 are as follows (in thousands):

The aggregate future lease payments for operating leases as of January 28, 2023 are as follows (in thousands):

Fiscal Year Operating leases

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Present value of lease liabilities $ 16,189

As of October 29, 2022, the weighted average remaining lease term for the Company's operating leases is 7.15 years and the weighted average discount rate used to determine the present value of the Company's operating leases is 5.81 %.

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 %.

Share Incentive Plan

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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 October 29, 2022, 168,390 shares from share option early exercises remained subject to the Company’s repurchase rights.

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.

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Restricted Stock Unit (“RSU”) Awards

A summary of information related to RSU activity during the six months ended October 29, 2022 is as follows:

A summary of information related to RSU activity during the nine months ended January 28, 2023 is as follows:

RSUs Outstanding

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Canceled/ forfeited ( 313,001 ) $ 10.62

Balances and expected to vest as of October 29, 2022 3,873,038 $ 10.92 1.53 $ 53,138

Balances and expected to vest as of January 28, 2023 8,105,077 $ 11.63 1.82 $ 140,299

Share Option Awards

A summary of information related to share option activity during the six months ended October 29, 2022 is as follows:

A summary of information related to share option activity during the nine months ended January 28, 2023 is as follows:

Credo Technology Group Holding Ltd

5 unchanged sentences

Options canceled/ forfeited ( 195,670 ) $ 3.20

Balance and expected to vest as of October 29, 2022 10,348,238 $ 1.95 6.66 $ 121,814

Exercisable as of October 29, 2022 10,179,848 $ 1.95 6.66 $ 119,833

Balance and expected to vest as of January 28, 2023 9,708,536 $ 1.96 6.48 $ 149,072

Exercisable as of January 28, 2023 9,580,756 $ 1.96 6.48 $ 147,110

Employee Stock Purchase Plan (“ESPP”)

During the six months ended October 29, 2022, 154,053 shares were issued under the ESPP.

No shares were issued during the three months ended October 29, 2022 under the ESPP.

During the three and nine months ended January 28, 2023, 92,607 shares and 246,660 shares, respectively, were issued under the ESPP.

Summary of Share-Based Compensation Expense

The following table summarizes share-based compensation expense included in the unaudited condensed consolidated statements of operations (in thousands):

Three Months Ended Six Months Ended

October 29, 2022 October 31, 2021 October 29, 2022 October 31, 2021

Three Months Ended Nine Months Ended

January 28, 2023 January 31, 2022 January 28, 2023 January 31, 2022

Cost of revenue $ 98 $ 46 $ 551 $ 180

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The Company’s quarterly tax provision, and estimate of its annual effective tax rate, is subject to variation due to several factors, including variability in accurately predicting our pre-tax income or loss and the mix of jurisdictions to which they relate, intercompany transactions, changes in tax laws, the applicability of special tax regimes, changes in how we do business, and discrete items.

Provisions for income taxes for the three and six months ended October 29, 2022 and October 31, 2021 were as follows (in thousands except percentages):

Three Months Ended Six Months Ended

October 29, 2022 October 31, 2021 % Change October 29, 2022 October 31, 2021 % Change

Provision for income taxes $ 929 $ 601 54.6 % $ 564 $ 1,503 ( 62.5 ) %

Provision (benefit) for income taxes for the three and nine months ended January 28, 2023 and January 31, 2022 was as follows (in thousands except percentages):

Three Months Ended Nine Months Ended

January 28, 2023 January 31, 2022 % Change January 28, 2023 January 31, 2022 % Change

Provision (benefit) for income taxes $ ( 3,179 ) $ ( 387 ) 721.4 % $ ( 2,615 ) $ 1,116 ( 334.3 ) %

Effective tax rate 893 % 73 % 81 % ( 7 ) %

Our effective tax rate for the three months ended October 29, 2022 differs from the same period in the prior year primarily due to an increase in estimated annual tax provision based on the estimated annual effective tax rate, offset by an increase in stock based compensation deductions.

Our effective tax rate for the six months ended October 29, 2022 differs from the same period in the prior year primarily due to an increase in stock based compensation deductions.

During the three and six months ended October 29, 2022, there were no material changes to the total amount of unrecognized tax benefits and we do not expect any significant changes in the next 12 months.

Our effective tax rate for the three and nine months ended January 28, 2023 differs from the same periods in the prior year primarily due to an increase in tax benefit of share-based compensation.

During the three and nine months ended January 28, 2023, there were no material changes to the total amount of unrecognized tax benefits and we do not expect any significant changes in the next 12 months.

Net Income (Loss) Per Share

The Company reports both basic net income (loss) per share, which is based on the weighted-average number of shares of common stock outstanding during the period, and diluted net income (loss) per share, which is based on the

Credo Technology Group Holding Ltd

Notes to Unaudited Condensed Consolidated Financial Statements

Net Loss Per Share

The Company reports both basic net loss per share, which is based on the weighted-average number of common stock outstanding during the period, and diluted net loss per share, which is based on the weighted-average number of common stock outstanding and potentially dilutive shares outstanding during the period.

Net loss per share was determined as follows (in thousands, except per share amounts):

Three months ended Six Months Ended

October 29, 2022 October 31, 2021 October 29, 2022 October 31, 2021

Net loss $ ( 3,360 ) $ ( 4,100 ) $ ( 3,433 ) $ ( 16,677 )

Weighted-average shares outstanding used in basic and diluted calculation 146,012 69,094 145,545 68,751

Basic and diluted net loss per share $ ( 0.02 ) $ ( 0.06 ) $ ( 0.02 ) $ ( 0.24 )

The following potentially dilutive securities outstanding (in thousands) have been excluded from the computations of diluted weighted average shares outstanding for the three and six months ended October 29, 2022 and October 31, 2021 because such securities have an anti-dilutive impact due to losses reported:

Three Months Ended Six Months Ended

October 29, 2022 October 31, 2021 October 29, 2022 October 31, 2021

weighted-average number of shares of common stock outstanding and potentially dilutive shares outstanding during the period.

Net income (loss) per share was determined as follows (in thousands, except per share amounts):

Three months ended Nine Months Ended

January 28, 2023 January 31, 2022 January 28, 2023 January 31, 2022

Net income (loss) $ 2,823 $ ( 144 ) $ ( 610 ) $ ( 16,821 )

Weighted-average shares - basic 146,908 73,815 146,000 70,439

Effect of dilutive shares:

Options 8,218 — — —

RSUs 1,374 — — —

Customer warrants 13 — — —

Weighted-average shares - diluted 156,519 73,815 146,000 70,439

Net income (loss) per share:

Basic $ 0.02 $ — $ — $ ( 0.24 )

Diluted $ 0.02 $ — $ — $ ( 0.24 )

Potential dilutive securities include dilutive ordinary shares from share-based awards attributable to the assumed exercise of stock options, restricted stock units and employee stock purchase plan shares using the treasury stock method.

Under the treasury stock method, potential ordinary shares outstanding are not included in the computation of diluted net income per share if their effect is anti-dilutive.

The following potentially dilutive securities outstanding (in thousands) have been excluded from the computations of diluted weighted average shares outstanding for the three and nine months ended January 28, 2023 and January 31, 2022:

Three Months Ended Nine Months Ended

January 28, 2023 January 31, 2022 January 28, 2023 January 31, 2022

Options and RSAs 1,796 9,081 10,421 8,078

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Customer warrants 4,067 2 4,080 1

Convertible preferred shares — 52,026 — 52,026

Underwriters’ option to purchase additional ordinary shares — 39 — 13

9,247 9,157 18,683 8,103

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Once developed, these tailored solutions can generally be broadly leveraged across our portfolio and we are able to sell the product or license the IP into the broader market.

During the three months ended October 29, 2022 and October 31, 2021, we generated $51.4 million and $26.4 million in total revenue, respectively.

Product sales and product engineering services revenue comprised 94% and 75% of our total revenue in the three months ended October 29, 2022 and October 31, 2021, respectively, and IP license and IP license engineering services revenue represented 6% and 25% of our total revenue in the three months ended October 29, 2022 and October 31, 2021, respectively.

During the three months ended October 29, 2022 and October 31, 2021, we generated $3.4 million and $4.1 million in net loss, respectively.

During the three months ended January 28, 2023 and January 31, 2022, we generated $54.3 million and $31.8 million in total revenue, respectively.

Product sales and product engineering services revenue comprised 77% and 84% of our total revenue in the three months ended January 28, 2023 and January 31, 2022, respectively, and IP license and IP license engineering services revenue represented 23% and 16% of our total revenue in the three months ended January 28, 2023 and January 31, 2022, respectively.

During the three months ended January 28, 2023 and January 31, 2022, we generated $2.8 million in net income and $0.1 million in net loss, respectively.

We derive the substantial majority of our revenue from a limited number of customers, and we anticipate we will continue to derive a significant portion of our revenue from a limited number of customers for the foreseeable future.

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By providing tailored engineering services to our customers, we believe we strengthen our customer relationships, enable additional sales and establish ourselves for potential long-term revenue opportunities from associated product sales or IP license revenue.

A summary of our revenue and associated gross margin by these revenue sources for the three and six months ended October 29, 2022 and October 31, 2021, respectively, is presented below (in thousands, except percentages):

Three Months Ended Six Months Ended

October 29, 2022 October 31, 2021 October 29, 2022 October 31, 2021

A summary of our revenue and associated gross margin by these revenue sources for the three and nine months ended January 28, 2023 and January 31, 2022, respectively, is presented below (in thousands, except percentages):

Three Months Ended Nine Months Ended

January 28, 2023 January 31, 2022 January 28, 2023 January 31, 2022

Product sales $ 38,033 $ 22,706 $ 117,645 $ 48,423

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Customer Demand and Pipeline

Demand for our products is dependent on conditions in the markets in which our customers operate, which are subject to cyclicality and competitive conditions.

Demand for our products is dependent on conditions in the markets in which our customers operate, which are subject to cyclicality and competitive conditions, among other factors.

We believe our relationships with the end customers of our products and the long-term implications of decisions to adopt our solutions provide us with valuable visibility into customer demand.

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The majority of our product sales are made pursuant to standard purchase orders.

Changes in customer forecasts or the timing of orders from customers expose us to the risks of inventory shortages or excess inventory.

Changes in customer forecasts or the timing of orders from customers expose us to the risks of inventory shortages or excess inventory, as well as fluctuations in our results of operations.

For example, on February 14, 2023, we announced that our largest customer has reduced its demand forecast for certain Credo products for reasons we understand are unrelated to our performance.

Although we do not expect our market share with the customer will be affected, we expect that the customer’s reduced demand forecast will have a substantial negative impact on our revenue and results of operations for our fiscal fourth quarter ending April 29, 2023 and our fiscal year ending April 27, 2024.

Cancellations of orders could result in the loss of anticipated sales without allowing us sufficient time to reduce and manage our operating expenses.

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Our gross margins may also be affected by changes in the price of silicon wafers, copper cables, printed circuit boards (PCBs), testing costs and commodities, and the extent to which we are able to offset any increases in our costs through increases prices to our customers, productivity actions or other means.

In August 2021, TSMC, on which we rely as the foundry for all our semiconductor products, began informing its customers that it plans to increase the prices of its most advanced chips by roughly 10% and its less advanced chips by up to 20%, effective in late 2021 or early 2022 as a result of a global supply shortage that began in 2020.

If we are unable to offset the increased costs associated with this price increase through pricing increases on our products, our gross margins may decrease.

Our product gross margins may also fluctuate from period to period as a result of changes in average selling prices

due to new product introductions or existing product transitions into larger scale commercial volumes and manufacturing costs as well as our product and customer mix.

Our product gross margins may also fluctuate from period to period as a result of changes

in average selling prices due to new product introductions or existing product transitions into larger scale commercial volumes and manufacturing costs as well as our product and customer mix.

Product Adoption

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Any prolonged or significant downturn in our industry generally could adversely affect our business and reduce demand for our products and otherwise harm our financial condition and results of operations.

Macroeconomic Environment

Our industry is subject to uncertainty as a result of the recent macroeconomic environment, which has been characterized by rising interest rates and inflation, geopolitical instability, continuing risk from the COVID-19 pandemic and public health measures related to it, and supply chain uncertainty.

These factors are causing companies across the semiconductor industry to reduce spending and tighten inventory controls, which could negatively impact our business, financial condition, and results of operations.

We continue to monitor the impact of COVID-19 on our business.

The extent and nature of the impact of the COVID-19 pandemic on our business and financial performance will be influenced by a variety of factors, including the duration and spread of the pandemic, as well as future spikes of COVID-19 infections or the emergence of additional COVID-19 variants that may result in additional preventative and mitigative measures.

infections or the emergence of additional COVID-19 variants that may result in additional preventative and mitigative measures.

These factors may affect the timing and magnitude of demand from customers and the availability of portions of the supply chain, logistical services and component supply and may have a material net negative impact on our business and financial results.

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Results of Operations

Three and Six Months Ended October 29, 2022 and October 31, 2021

Three and Nine Months Ended January 28, 2023 and January 31, 2022

The following table sets forth information derived from our unaudited consolidated statements of operations expressed as a percentage of total revenue:

Three Months Ended Six Months Ended

October 29, 2022 October 31, 2021 October 29, 2022 October 31, 2021

Three Months Ended Nine Months Ended

January 28, 2023 January 31, 2022 January 28, 2023 January 31, 2022

Product sales 70.1 % 71.4 % 77.3 % 70.2 %

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Selling, general and administrative 22.0 % 26.9 % 22.8 % 33.9 %

Impairment charges 4.4 % — % 1.6 % — %

Total operating expenses 64.2 % 61.5 % 60.8 % 81.1 %

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Loss before income taxes (0.7) % (1.7) % (2.1) % (22.8) %

Provision for income taxes 1.8 % 2.3 % 0.6 % 4.0 %

Net loss (6.5) % (15.5) % (3.5) % (44.9) %

Comparison of Three and Six Months Ended October 29, 2022 and October 31, 2021

Provision (benefit) for income taxes (5.9) % (1.2) % (1.7) % 1.6 %

Net income (loss) 5.2 % (0.5) % (0.4) % (24.4) %

Comparison of Three and Nine Months Ended January 28, 2023 and January 31, 2022

Three Months Ended

Six Months Ended

October 29, 2022 October 31, 2021 % Change October 29, 2022 October 31, 2021 % Change

Nine Months Ended

January 28, 2023 January 31, 2022 % Change January 28, 2023 January 31, 2022 % Change

(in thousands, except percentages)

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Total revenue $ 54,270 $ 31,800 70.7 % $ 152,106 $ 68,951 120.6 %

Total revenue for the three months ended October 29, 2022 increased by $24.9 million, compared to the same period in fiscal 2022, primarily due to an increase in product sales revenue of $25.9 million.

Total revenue for the six months ended October 29, 2022 increased by $60.7 million, compared to the same period in fiscal 2022, primarily due to increases in product sales revenue of $53.9 million and IP license revenue of $5.3 million.

The increase in product sales was primarily due to an increase in the unit shipments of AEC cables that were introduced in fiscal 2021.

The increase in six months ended October 29, 2022 IP license revenue was driven by a high-

dollar IP license delivered to a customer that resulted in revenue recognition of $9.0 million during the six months ended October 29, 2022.

Total revenue for the three months ended January 28, 2023 increased by $22.5 million, compared to the same period in fiscal 2022, primarily due to an increase in product sales revenue of $15.3 million and an increase in IP license revenue of $6.7 million.

Total revenue for the nine months ended January 28, 2023 increased by $83.2 million, compared to the same period in fiscal 2022, primarily due to increases in product sales revenue of $69.2 million and IP license revenue of $12.0 million.

The increase in product sales for the three and nine months ended January 28, 2023 was primarily due to an increase in the volume of unit shipments of AEC cables, which contributed more than 90% of the increase in product sales revenue, compared to the same periods in fiscal 2022.

The AEC sales increase was primarily driven by the fact that we introduced the AEC product category in fiscal 2021 and we began ramping our AEC solutions at our first hyperscale data center customer this year.

The increase in IP license revenue for the three and nine months ended January 28, 2023 was driven by high-dollar IP licenses delivered to a customer that resulted in revenue recognition of $10.1 million during the three months ended January 28, 2023 and $19.1 million during the nine months ended January 28, 2023.

Cost of Revenue

Three Months Ended

Six Months Ended

October 29, 2022 October 31, 2021 % Change October 29, 2022 October 31, 2021 % Change

Nine Months Ended

January 28, 2023 January 31, 2022 % Change January 28, 2023 January 31, 2022 % Change

(in thousands, except percentages)

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Total cost of revenue $ 22,283 $ 12,688 75.6 % $ 64,497 $ 28,705 124.7 %

Cost of product sales revenue increased by $12.8 million in the three months ended October 29, 2022 and $26.0 million in the six months ended October 29, 2022, compared to the same periods in fiscal 2022, primarily due to increased product sales during the same period as discussed above.

Cost of IP license revenue in the six months ended October 29, 2022 related to costs incurred for delivery of a milestone during the quarter on an IP licensing and development contract entered into with a customer in September 2021 (refer to note 4 of our unaudited condensed consolidated financial statements for details).

Cost of product sales revenue increased by $9.6 million in the three months ended January 28, 2023 and $35.6 million in the nine months ended January 28, 2023, compared to the same periods in fiscal 2022, primarily due to increased product sales during the same period as discussed above.

Cost of IP license revenue in the nine months ended January 28, 2023 related to costs incurred for delivery of a milestone during the first quarter of fiscal year 2023 on an IP licensing and development contract entered into with a customer in September 2021 (refer to note 4 of our unaudited condensed consolidated financial statements for details).

Gross Profit and Gross Margin

Three Months Ended

Six Months Ended

October 29, 2022 October 31, 2021 % Change October 29, 2022 October 31, 2021 % Change

Nine Months Ended

January 28, 2023 January 31, 2022 % Change January 28, 2023 January 31, 2022 % Change

(in thousands, except percentages)

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Gross margin 58.9 % 60.1 % 57.6 % 58.4 %

Gross margin decreased by 6 percentage points in the three months ended October 29, 2022, compared to the same period in fiscal 2022, primarily driven by the increase of our product sales revenue in the product mix as our product sales business has lower gross margin compared to our IP business.

Gross margin for the six months ended October 29, 2022 was consistent with the same period in fiscal 2022.

Gross margin decreased by 1 percentage point in the three months ended January 28, 2023, compared to the same period in fiscal 2022, primarily driven by a $1.4 million increase of write-downs for excess and obsolete inventory.

This was partially offset by the revenue mix shift between IP license revenue and product sales revenue between the periods.

Gross margin for the nine months ended January 28, 2023 stayed relatively flat compared to the same period in fiscal 2022.

Research and Development

Three Months Ended

Six Months Ended

October 29, 2022 October 31, 2021 % Change October 29, 2022 October 31, 2021 % Change

Nine Months Ended

January 28, 2023 January 31, 2022 % Change January 28, 2023 January 31, 2022 % Change

(in thousands, except percentages)

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% of total revenue 37.8 % 34.6 % 36.4 % 47.2 %

Research and development expense for the three months ended October 29, 2022 increased by $6.4 million compared to the same period in fiscal 2022.

The increase was due primarily to a $2.8 million increase in personnel costs as a result of new hires for product development, a $2.1 million increase in share-based compensation expense driven by increased amortization expense from new equity awards granted to employees, and a $1.1 million increase in depreciation expense driven by increased computer equipment and software, and laboratory equipment utilized in R&D activities.

Research and development expense for the six months ended October 29, 2022 increased by $13.3 million compared to the same period in fiscal 2022.

The increase was due primarily to a $5.9 million increase in personnel costs as a result of new hires for product development, a $4.5 million increase in share-based compensation expense

driven by increased amortization expense from new equity awards granted to employees, a $1.3 million increase in depreciation expense driven by increased computer equipment and software, and laboratory equipment utilized in R&D activities, a $0.9 million increase in IT and facilities costs, and a $0.7 million decrease in allocation of R&D expense to costs of engineering services due to less engineering hours incurred that was associated to non-recurring engineering service revenue arrangements.

Research and development expense for the three months ended January 28, 2023 increased by $9.5 million compared to the same period in fiscal 2022.

The increase was due primarily to a $1.8 million increase in personnel costs as a result of new hires for product development, a $2.3 million increase in share-based compensation expense driven by increased amortization expense from new equity awards granted to employees, a $3.2 million increase in design activities and higher engineering activities relating to testing and laboratory supplies for new product development, a $1.1 million increase in depreciation expense driven by increased computer equipment and software, and laboratory equipment utilized in R&D activities, and a $0.5 million increase in IT and facilities costs.

Research and development expense for the nine months ended January 28, 2023 increased by $22.9 million compared to the same period in fiscal 2022.

The increase was due primarily to a $7.6 million increase in personnel costs as a result of new hires for product development, a $6.8 million increase in share-based compensation expense driven by increased amortization expense from new equity awards granted to employees, a $2.9 million increase in design activities and higher engineering activities relating to testing and laboratory supplies for new product development, a $2.4 million increase in depreciation expense driven by increased computer equipment and software, and laboratory equipment utilized in R&D activities, a $1.5 million increase in IT and facilities costs, and a $0.8 million decrease in allocation of R&D expense to costs of engineering services due to less engineering hours incurred that was associated to non-recurring engineering service revenue arrangements.

Selling, General and Administrative

Three Months Ended

Six Months Ended

October 29, 2022 October 31, 2021 % Change October 29, 2022 October 31, 2021 % Change

Nine Months Ended

January 28, 2023 January 31, 2022 % Change January 28, 2023 January 31, 2022 % Change

(in thousands, except percentages)

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% of total revenue 22.0 % 26.9 % 22.8 % 33.9 %

Selling, general and administrative expense for the three months ended October 29, 2022 increased by $3.8 million compared to the same period in fiscal 2022.

The increase was due primarily to a $0.9 million increase in personnel costs as a result of higher selling, general and administrative headcount, a $0.5 million increase in professional services spending, a $0.7 million increase in director and officer insurance cost as a result of being a public company, and a $1.4 million increase in share-based compensation expense driven by increased amortization expense from new equity awards granted to employees.

Selling, general and administrative expense for the six months ended October 29, 2022 increased by $7.9 million compared to the same period in fiscal 2022.

The increase was due primarily to a $1.8 million increase in personnel costs as a result of higher selling, general and administrative headcount, a $1.2 million increase in professional services spending, a $1.3 million increase in director and officer insurance cost as a result of being a public company, and a $3.3 million increase in share-based compensation expense driven by increased amortization expense from new equity awards granted to employees.

Provision for Income Taxes

Selling, general and administrative expense for the three months ended January 28, 2023 increased by $3.4 million compared to the same period in fiscal 2022.

The increase was due primarily to a $0.7 million increase in personnel costs as a result of higher selling, general and administrative headcount, a $0.5 million increase in facility related costs, a $0.7 million increase in director and officer insurance cost as a result of being a public company and a $1.3 million increase in share-based compensation expense driven by increased amortization expense from new equity awards granted to employees.

Selling, general and administrative expense for the nine months ended January 28, 2023 increased by $11.3 million compared to the same period in fiscal 2022.

The increase was due primarily to a $2.5 million increase in personnel costs as a result of higher selling, general and administrative headcount, a $1.0 million increase in professional services spending, a $1.2 million increase in facility related costs, a $1.9 million increase in director and officer insurance cost as a result of being a public company and a $4.6 million increase in share-based compensation expense driven by increased amortization expense from new equity awards granted to employees.

Impairment Charges

Three Months Ended

Six Months Ended

October 29, 2022 October 31, 2021 % Change October 29, 2022 October 31, 2021 % Change

Nine Months Ended

January 28, 2023 January 31, 2022 % Change January 28, 2023 January 31, 2022 % Change

(in thousands, except percentages)

Provision for income taxes $ 929 $ 601 54.6 % $ 564 $ 1,503 (62.5) %

Impairment charges

$ 2,407 $ — N/A $ 2,407 $ — N/A

% of total revenue 22.0 % 26.9 % 22.8 % 33.9 %

Provision for income taxes for the three months ended October 29, 2022 increased by $0.3 million compared to the same period in fiscal 2022.

The fluctuation was primarily due to an increase in the estimated annual tax expense based on the estimated annual effective tax rate, offset by an increase in stock based compensation deductions.

Provision for income taxes for the six months ended October 29, 2022 decreased by $0.9 million compared to the same period in fiscal 2022.

The fluctuation was primarily due to an increase in stock based compensation deductions.

Impairment charges incurred in the three and nine months ended January 28, 2023 were primarily related to an impairment on property and equipment that did not reach production qualification.

Provision (Benefit) for Income Taxes

Three Months Ended

Nine Months Ended

January 28, 2023 January 31, 2022 % Change January 28, 2023 January 31, 2022 % Change

(in thousands, except percentages)

Provision (benefit) for income taxes $ (3,179) $ (387) 721.4 % $ (2,615) $ 1,116 (334.3) %

% of total revenue (5.9) % (1.2) % (1.7) % 1.6 %

Benefit for income taxes for the three and nine months ended January 28, 2023 increased by $2.8 million and $3.7 million, respectively, compared to the same periods in fiscal 2022.

The fluctuation was primarily due to an increase in tax benefit of share-based compensation.

Liquidity and Capital Resources

Our activities consist primarily of selling our products, licensing our IP, providing IP customization services and conducting research and development of our products and technology.

Since our inception through October 29, 2022, our operations have been financed primarily by net proceeds from our initial public offering, the sale of convertible preferred shares and ordinary shares prior to our initial public offering, and cash generated from our customers.

As of October 29, 2022 and April 30, 2022, we had $190.5 million and $259.3 million in cash and cash equivalents, respectively, and working capital of $300.3 million and $305.7 million, respectively.

Since our inception through January 28, 2023, our operations have been financed primarily by net proceeds from our initial public offering, the sale of convertible preferred shares and ordinary shares prior to our initial public offering, and cash generated from our customers.

As of January 28, 2023 and April 30, 2022, we had $123.8 million and $259.3 million in cash and cash equivalents, respectively, and working capital of $306.6 million and $305.7 million, respectively.

Our principal use of cash is to fund our operations and invest in research and development to support our growth.

See also Note 7 to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a further discussion of our cash requirements under non-cancelable purchase obligations.

We believe our existing cash and cash equivalents and other components of working capital will be sufficient to meet our needs for at least the next 12 months.

1 unchanged sentence

In the event that we need to borrow funds or issue additional equity, we cannot assure you that any such additional financing will be available on terms acceptable to us, if at all.

unable to raise additional capital when we need it, our business, results of operations and financial condition would be adversely affected.

If we are unable to raise additional capital when we need it, our business, results of operations and financial condition would be adversely affected.

The following table summarizes our cash flows for the periods indicated.

Six Months Ended

October 29, 2022 October 31, 2021

Nine Months Ended

January 28, 2023 January 31, 2022

(in thousands)

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Cash Flows Used in Operating Activities

Net cash used in operating activities was $10.5 million for the six months ended October 29, 2022.

The cash outflows from operating activities for the six months ended October 29, 2022 were primarily due to $3.4 million of net loss and $23.5 million of cash outflows for working capital purposes, partially offset by $16.4 million of non-cash items.

The cash outflows from working capital for the six months ended October 29, 2022 were primarily driven by an increase in accounts receivable and inventories, partially offset by an increase in accounts payable, and accrued expenses and other liabilities.

Net cash used in operating activities was $34.9 million for the six months ended October 31, 2021.

The cash outflows from operating activities for the six months ended October 31, 2021 were primarily due to $16.7 million of net loss and $23.3 million of cash outflows for working capital purposes, partially offset by $5.1 million of non-cash items.

The cash outflows from working capital for the six months ended October 31, 2021 were primarily driven by an increase in accounts receivable and inventories, partially offset by an increase in accounts payable, and accrued expenses and other liabilities.

Net cash used in operating activities was $12.8 million for the nine months ended January 28, 2023.

The cash outflows from operating activities for the nine months ended January 28, 2023 were primarily due to $40.7 million of cash outflows for working capital purposes, partially offset by $28.5 million of non-cash items.

The cash outflows from working capital for the nine months ended January 28, 2023 were primarily driven by (a) an increase in accounts receivable of $13.6 million primarily due to increased sales in the fiscal quarter ended January 28, 2023 compared to the fiscal quarter ended April 30, 2022, and timing of collection;

(b) an increase in inventory of $26.1 million to support unfulfilled backlog and related new product ramps;

(c) an increase in contract assets of $9.2 million 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;

and (d) an increase in other non-current assets of $5.6 million primarily due to refundable deposit payments for manufacturing commitments and an increase in deferred tax assets position.

These cash outflows were offset by cash inflow relating to increase in accounts payable of $11.7 million due to amounts payable relating to increased purchases of inventory.

Net cash used in operating activities was $33.2 million for the nine months ended January 31, 2022.

The cash outflows from operating activities for the nine months ended January 31, 2022 were primarily due to $16.8 million of net loss and $25.1 million of cash outflows for working capital purposes, partially offset by $8.7 million of non-cash

The cash outflows from working capital for the nine months ended January 31, 2022 were primarily driven by (a) an increase in accounts receivable of $8.0 million due to increased sales in the fiscal quarter ended January 31, 2022 compared to the fiscal quarter ended April 30, 2021, and timing of collection;

(b) an increase in inventory of $20.3 million to better support unfulfilled backlog and related new product ramps;

(c) and an increase in contract assets of $5.2 million primarily driven by certain IP licensing and engineering services arrangements where certain billing milestones had not yet been reached, but the criteria for revenue had been met.

This was offset by increases in accounts payable of $3.2 million and accrued expenses, compensation and other liabilities of $5.9 million due to amounts payable relating to increased purchases of inventory to support growing demand for our products.

Cash Flows Used in Investing Activities

Net cash used in investing activities of $60.9 million in the six months ended October 29, 2022 was attributable to purchases of property and equipment of $10.9 million and investment in a certificate of deposit of $50.0 million.

Net cash used in investing activities of $127.0 million in the nine months ended January 28, 2023 was attributable to purchases of property and equipment of $17.8 million and investment in certificates of deposit of $109.2 million.

Purchases of property and equipment primarily related to mask sets purchases for new products introduced or in process of being introduced, and computer equipment and software used for research and development purposes.

Net cash used in investing activities of $5.0 million in the six months ended October 31, 2021 was attributable to purchases of property and equipment, including third-party licenses.

Net cash used in investing activities of $7.9 million in the nine months ended January 31, 2022 was attributable to purchases of property and equipment, including third-party licenses.

Cash Flows from Financing Activities

Net cash provided by financing activities of $2.7 million for the six months ended October 29, 2022 was solely attributable to $2.7 million in proceeds from exercises of employee share options and the issuance of shares under the ESPP.

Net cash provided by financing activities of $7.2 million for the six months ended October 31, 2021 was primarily attributable to $0.9 million in proceeds from exercises of employee share options and $7.2 million in proceeds from the issuance of convertible preferred shares, net of issuance costs.

This cash inflow was partially offset by $0.9 million in payments for IPO offering cost.

Net cash provided by financing activities of $4.3 million for the nine months ended January 28, 2023 was primarily attributable to $4.6 million in proceeds from exercises of employee share options and the issuance of shares under the ESPP.

Net cash provided by financing activities of $178.0 million for the nine months ended January 31, 2022 was primarily attributable to $168.8 million in proceeds from IPO, net of underwriting discounts and commissions, and offering costs, $1.9 million in proceeds from exercises of employee share options and $7.2 million in proceeds from the issuance of convertible preferred shares, net of issuance costs.

Critical Accounting Estimates

There have been no material changes to our critical accounting estimates during the three and six months ended October 29, 2022, as compared to those disclosed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended April 30, 2022.

There have been no material changes to our critical accounting estimates during the three and nine months ended January 28, 2023, as compared to those disclosed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended April 30, 2022.

In the current macroeconomic environment affected by COVID-19, our estimates could require increased judgment and carry a higher degree of variability and volatility.

9 unchanged sentences

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What changed 10-Q

Item 1. Financial Statements