Credo Technology Group Holding Ltd 10-K

Item 8. Financial Statements and Supplementary Data CREDO TECHNOLOGY GROUP HOLDING LTD CONSOLIDATED FINANCIAL STATEMENTS Content Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 82 Consolidated Balance Sheets 86 Consolidated Statements of Operations 87 Consolidated Statements of Comprehensive Loss 88 Consolidated Statements of Convertible Preferred Shares and Shareholders’ Equity (Deficit) 89 Consolidated Statements of Cash Flows 91 Notes to Consolidated Financial Statements 92 81 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Credo Technology Group Holding Ltd Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Credo Technology Group Holding Ltd (the Company) as of April 29, 2023 and April 30, 2022, the related consolidated statements of operations, comprehensive loss, convertible preferred shares and shareholders' equity (deficit) and cash flows for each of the three years in the period ended April 29, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at April 29, 2023 and April 30, 2022, and the results of its operations and its cash flows for each of the three years in the period ended April 29, 2023, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of April 29, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated June 22, 2023 expressed an unqualified opinion thereon. Adoption of ASU No. 2016-02 As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases in the year ended April 30, 2022 due to the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), and the related amendment. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates. 82 Inventory Valuation Description of the Matter The Company’s inventories totaled $46.0 million as of April 29, 2023, representing 11.6% of total assets. As explained in Note 2 to the consolidated financial statements, the Company values inventories at the lower of standard cost (which approximates actual cost determined on a first-in first-out basis) and net realizable value in each reporting period. Excess and obsolete inventory is written down to its estimated net realizable value if less than cost. Auditing management’s estimates for excess and obsolete inventory involved subjective auditor judgment because management’s assessment of whether a write down is required and the measurement of any excess of cost over net realizable value is judgmental and considers a number of qualitative factors that are affected by market and economic conditions outside the Company’s control. In particular, the excess and obsolete inventory calculations are sensitive to significant assumptions, including demand for the Company’s products, which considers adjustments to sales forecasts for specific product considerations, including but not limited to new product launches and expected industry sales growth. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company's excess and obsolete inventory write-down process. This included controls over management’s assessment of inventory valuation, including the determination of forecasted usage of inventories. Our audit procedures included, among others, evaluating the significant assumptions stated above and testing the completeness and accuracy of the underlying data used in management’s excess and obsolete inventory valuation assessment. We evaluated inventory levels compared to forecasted product demand, historical sales and specific product considerations. We also assessed the historical accuracy of management’s estimates and performed sensitivity analyses over the significant assumptions to evaluate the changes in the excess and obsolete inventory estimates that would result from changes in the underlying assumptions. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2018. San Jose, California June 22, 2023 83 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Credo Technology Group Holding Ltd Opinion on Internal Control Over Financial Reporting We have audited Credo Technology Group Holding Ltd’s internal control over financial reporting as of April 29, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Credo Technology Group Holding Ltd (the Company) maintained, in all material respects, effective internal control over financial reporting as of April 29, 2023, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Credo Technology Group Holding Ltd (the Company) as of April 29, 2023 and April 30, 2022, the related consolidated statements of operations, comprehensive loss, convertible preferred shares and shareholders' equity (deficit) and cash flows for each of the three years in the period ended April 29, 2023, and the related notes and our report dated June 22, 2023 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk 84 that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP San Jose, California June 22, 2023 85 Credo Technology Group Holding Ltd Consolidated Balance Sheets (in thousands, except per share amounts) April 29, 2023 April 30, 2022 Assets Current Assets: Cash and cash equivalents $ 108,583 $ 259,322 Short-term investments 109,228 — Accounts receivable 49,541 29,524 Inventories 46,023 27,337 Contract assets 9,445 10,071 Prepaid expenses and other current assets 5,412 5,923 Total current assets 328,232 332,177 Property and equipment, net 40,222 21,844 Right of use assets 14,860 16,954 Other non-current assets 13,975 4,714 Total assets $ 397,289 $ 375,689 Liabilities and Shareholders' Equity Current Liabilities: Accounts payable $ 6,067 $ 8,487 Accrued compensation and benefits 6,471 4,713 Accrued expenses and other current liabilities 14,454 12,063 Deferred revenue 4,040 1,234 Total current liabilities 31,032 26,497 Non-current operating lease liabilities 12,869 14,809 Other non-current liabilities 5,753 220 Total liabilities 49,654 41,526 Commitments and contingencies (Note 7) Shareholders' equity: Convertible preferred shares, $ 0.00005 par value; 50,000 shares authorized; no shares issued and outstanding at April 29, 2023 and April 30, 2022 — — Ordinary shares, $ 0.00005 par value; 1,000,000 shares authorized; 148,651 and 144,755 shares issued and outstanding at April 29, 2023 and April 30, 2022, respectively 7 7 Additional paid in capital 454,795 424,562 Accumulated other comprehensive income (loss) ( 191 ) 23 Accumulated deficit ( 106,976 ) ( 90,429 ) Total shareholders' equity 347,635 334,163 Total liabilities and shareholders' equity $ 397,289 $ 375,689 The accompanying notes are an integral part of these consolidated financial statements. 86 Credo Technology Group Holding Ltd Consolidated Statements of Operations (in thousands, except per share amounts) Year Ended April 29, 2023 April 30, 2022 April 30, 2021 Revenue: Product sales $ 141,475 $ 73,721 $ 27,477 Product engineering services 10,780 7,741 9,579 IP license 29,444 23,309 17,273 IP license engineering services 2,495 1,706 4,368 Total revenue 184,194 106,477 58,697 Cost of revenue: Cost of product sales revenue 75,143 40,082 16,071 Cost of product engineering services revenue 972 1,918 3,168 Cost of IP license revenue 1,179 — — Cost of IP license engineering services revenue 706 462 1,180 Total cost of revenue 78,000 42,462 20,419 Gross profit 106,194 64,015 38,278 Operating expenses: Research and development 76,774 47,949 34,845 Selling, general and administrative 48,248 34,900 28,667 Impairment charges 2,407 3,134 — Total operating expenses 127,429 85,983 63,512 Operating loss ( 21,235 ) ( 21,968 ) ( 25,234 ) Other income (expense), net 3,321 ( 245 ) ( 62 ) Loss before income taxes ( 17,914 ) ( 22,213 ) ( 25,296 ) Provision (benefit) for income taxes ( 1,367 ) ( 37 ) 2,215 Net loss $ ( 16,547 ) $ ( 22,176 ) $ ( 27,511 ) Net loss per share: Basic and diluted $ ( 0.11 ) $ ( 0.25 ) $ ( 0.40 ) Weighted-average shares used in computing net loss per share: Basic and diluted 146,556 88,398 69,099 The accompanying notes are an integral part of these consolidated financial statements. 87 Credo Technology Group Holding Ltd Consolidated Statements of Comprehensive Loss (in thousands) Year Ended April 29, 2023 April 30, 2022 April 30, 2021 Net loss $ ( 16,547 ) $ ( 22,176 ) $ ( 27,511 ) Other comprehensive income (loss): Foreign currency translation gain (loss) ( 214 ) ( 204 ) 378 Total comprehensive loss $ ( 16,761 ) $ ( 22,380 ) $ ( 27,133 ) The accompanying notes are an integral part of these consolidated financial statements. 88 Credo Technology Group Holding Ltd Consolidated Statements of Convertible Preferred Shares and Shareholders’ Equity (Deficit) (in thousands, except share amounts) 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, 2020 32,245 $ 98,617 72,545 $ 4 $ 9,506 $ ( 151 ) $ ( 18,767 ) $ ( 9,408 ) Issuance of Series D convertible preferred shares, net of issuance costs 9,934 49,465 — — — — — — Issuance of Series D+ convertible preferred shares, net of issuance costs 8,630 49,883 — — — — — — Ordinary shares issued under employee share incentive plans — — 2,613 — 1,448 — — 1,448 Repurchase of ordinary shares — — ( 6,876 ) ( 1 ) ( 932 ) — ( 21,975 ) ( 22,908 ) Share-based compensation — — — — 2,570 — — 2,570 Total comprehensive gain (loss) — — — — — 378 ( 27,511 ) ( 27,133 ) Balances at April 30, 2021 50,809 $ 197,965 68,282 $ 3 $ 12,592 $ 227 $ ( 68,253 ) $ ( 55,431 ) Issuance of Series D+ convertible preferred shares, net of issuance costs 1,251 7,245 — — — — — — Conversion of preferred shares into ordinary shares ( 52,060 ) ( 205,210 ) 52,060 3 205,207 — — 205,210 Issuance of ordinary shares in connection with initial public offering, net of offering costs, underwriting discounts and commissions — — 21,384 1 194,204 — — 194,205 Ordinary shares issued under employee share incentive plans — — 3,029 — 2,731 — — 2,731 Share-based compensation — — — — 9,188 — — 9,188 89 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 Warrant contra revenue — — — — 640 — — 640 Total comprehensive loss — — — — — ( 204 ) ( 22,176 ) ( 22,380 ) Balances at April 30, 2022 — $ — 144,755 $ 7 $ 424,562 $ 23 $ ( 90,429 ) $ 334,163 Ordinary shares issued under employee share incentive plans — — 3,896 — 5,497 — — 5,497 Share-based compensation — — — — 23,516 — — 23,516 Warrant contract revenue — — — — 1,220 — — 1,220 Total comprehensive loss — — — — — ( 214 ) ( 16,547 ) ( 16,761 ) Balances at April 29, 2023 — $ — 148,651 $ 7 $ 454,795 $ ( 191 ) $ ( 106,976 ) $ 347,635 The accompanying notes are an integral part of these consolidated financial statements. 90 Credo Technology Group Holding Ltd Consolidated Statements of Cash Flows (in thousands) Year Ended April 29, 2023 April 30, 2022 April 30, 2021 Cash flows from operating activities: Net loss $ ( 16,547 ) $ ( 22,176 ) $ ( 27,511 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 9,514 4,793 2,218 Share-based compensation 23,516 9,188 2,570 Warrant contra revenue 1,220 640 — Write-downs for excess and obsolete inventory 5,693 1,444 1,673 Impairment of assets 2,407 4,887 — Changes in operating assets and liabilities Accounts receivable ( 20,017 ) ( 15,879 ) 682 Inventories ( 24,379 ) ( 21,677 ) ( 6,502 ) Contract assets 1,609 ( 4,673 ) ( 2,648 ) Prepaid and other current assets 512 2,808 ( 7,016 ) Other non-current assets ( 7,977 ) ( 1,654 ) ( 1,528 ) Accounts payable ( 3,843 ) 4,748 1,336 Accrued expenses, compensation and other liabilities 491 9,601 ( 7,006 ) Deferred revenue 3,186 ( 2,882 ) 1,371 Net cash used in operating activities ( 24,615 ) ( 30,832 ) ( 42,361 ) Cash flows from investing activities: Purchases of property and equipment ( 21,713 ) ( 17,580 ) ( 6,056 ) Purchases of short-term investments ( 159,228 ) — — Maturities of short-term investments 50,000 — — Net cash used in investing activities ( 130,941 ) ( 17,580 ) ( 6,056 ) Cash flows from financing activities: Proceeds from issuance of ordinary shares upon initial public offering, net of underwriter discounts and offering costs — 194,205 — Payments on technology license obligations ( 616 ) — — Proceeds from employee share incentive plans 5,501 2,731 1,448 Proceeds from issuance of convertible preferred shares, net of issuance costs — 7,245 99,348 Payments for repurchase of ordinary shares — — ( 22,908 ) Net cash provided by financing activities 4,885 204,181 77,888 Effect of exchange rate changes on cash ( 68 ) ( 204 ) 378 Net increase (decrease) in cash and cash equivalents ( 150,739 ) 155,565 29,849 Cash and cash equivalents at beginning of the year 259,322 103,757 73,908 Cash and cash equivalents at end of the year $ 108,583 $ 259,322 $ 103,757 Supplemental cash flow information: Income taxes paid $ ( 1,204 ) $ ( 427 ) $ ( 1,219 ) Purchase of property and equipment included in accounts payable, accrued expenses and other liabilities $ 10,909 $ 168 $ 19 Conversion of convertible preferred shares into ordinary shares upon initial public offering $ — $ 205,210 $ — The accompanying notes are an integral part of these consolidated financial statements. 91 Credo Technology Group Holding Ltd Notes to 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 100G, 200G, 400G, 800G and emerging 1.6T 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 These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The consolidated financial statements include the results of Credo Technology Group Holding Ltd and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. 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. Accordingly, every fifth or sixth fiscal year will have a 53-week period. Our fiscal year ended 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. Reclassifications 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 (loss) or cash flows for any of the periods presented. Initial Public Offering On January 31, 2022, the Company completed an initial public offering (the “IPO”) of 20,000,000 of its ordinary shares, par value $ 0.00005 per share (the “Shares”), at a public offering price of $ 10.00 per share. The Company sold 18,383,800 Shares and certain existing shareholders sold an aggregate of 1,616,200 Shares. The Company received net proceeds of $ 171.9 million after deducting underwriting discounts and commissions. Immediately prior to the Closing, all of the Company’s outstanding 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”) automatically converted into 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. In connection with the IPO, the underwriters were granted a 30-day option to purchase from the Company up to an additional 3,000,000 of the Company’s ordinary shares at the public offering price, less underwriting discounts and commissions. On February 7, 2022, the underwriters exercised the option to purchase additional shares in full, which purchase closed on February 10, 2022. The Company received net proceeds of $ 28.1 million after deducting underwriting discounts and commissions. The Company 92 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements incurred total IPO offering costs of $ 5.7 million, which were recorded as a reduction in additional paid-in capital as of April 30, 2022. 2. Significant Accounting Policies Use of Estimates The preparation of these consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s 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 and customer warrant, valuation of ordinary shares, the realization of tax assets and estimates of tax reserves, impairment of long-lived assets, 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. As of the date of issuance of these consolidated financial statements, the Company is not aware of any specific event or circumstance related to the pandemic that would require management to update the significant estimates and assumptions used in the preparation of the consolidated financial statements . As new events continue to evolve and additional information becomes available, any changes to these estimates and assumptions will be recognized in the consolidated financial statements as soon as they become known. Foreign Currency All of the Company’s subsidiaries use U.S. dollars as their functional currency, except for its entities located in Taiwan and mainland China. The functional currencies of these entities are their respective local currency. Foreign currency assets and liabilities are remeasured into the functional currencies at the end-of-period exchange rates except for non-monetary assets and liabilities, which are remeasured at historical exchange rates. Revenue and expenses are remeasured at the exchange rates in effect during the period the transactions occurred, except for those expenses related to balance sheet amounts, which are remeasured at historical exchange rates. Gains or losses from foreign currency transactions are included in the consolidated statements of operations as part of ‘other income (expense), net’. Translation gains and losses are recorded in accumulated other comprehensive income as a component of shareholders' equity (deficit). 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 certificates of deposit with original maturity dates between three and twelve months. The classification of our short-term investments is determined at the time of purchase, and such determination is reevaluated at each balance sheet date. Our short-term investments include certificates of deposit, which are classified as held-to-maturity. These investments are recorded at amortized cost 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 93 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements 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. Accounts Receivable Accounts receivable are recorded at the invoiced amount, net of allowance for credit losses. The Company performs periodic credit evaluations of its customers’ financial condition and does not require collateral from them. The Company assesses the collectability by reviewing accounts receivable on a customer-by-customer basis. To manage credit risk, management performs ongoing credit evaluations of the customers’ financial condition, monitors payment performance, and assesses current economic conditions, as well as reasonable and supportable forecasts of future economic conditions, that may affect collectability of the outstanding receivables. Management does not believe that an allowance for credit losses is needed as of April 29, 2023 or April 30, 2022 based on review of credit worthiness of the customers and their payment histories. Inventory The Company values its inventory, which includes raw materials, assembly and test, and other manufacturing costs, at the lower of cost and net realizable value. Cost is computed using standard cost, which approximates actual cost, on a first-in, first-out basis. Net realizable value is the estimated selling price of the Company’s products in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The Company regularly reviews inventory quantities on hand and records write-downs for excess and obsolete inventory based primarily on the shipment history and its estimated forecast of product demand. These factors are impacted by market and economic conditions, technology changes, new product introductions and changes in strategic direction. If the future demand for the Company’s services and products is less favorable than the Company’s forecasts, the value of the inventories may be required to be reduced, which could result in additional expense to the Company and affect its results of operations. Once inventory is written down, its new value is maintained until it is sold, scrapped, or written down for further valuation losses. Property and Equipment, Net Property and equipment are stated at cost, net of accumulated depreciation and amortization. Additions, improvements and major renewals are capitalized, and maintenance, repairs and minor renewals are expensed as incurred. Assets are held in construction in progress until placed in service, upon which date, the Company begins to depreciate these assets. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the consolidated statements of income in the period realized. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the assets. Useful lives by asset category are as follows: Asset Category Useful Life (in years) Computer equipment and software 3 Furniture and fixtures 3 Laboratory equipment 5 Production equipment 5 Transportation equipment 4 Leases The Company determines if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Operating lease ROU assets also include any initial direct costs and 94 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements prepayments less lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. As the Company's leases do not provide an implicit rate, the Company uses its collateralized incremental borrowing rate based on the information available at the lease commencement date, including lease term, in determining the present value of lease payments. Lease expense for these leases is recognized on a straight line basis over the lease term. Impairment of Long-lived Assets The Company assesses the impairment of long-lived assets, which consist primarily of property and equipment, whenever events or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable. Events or changes in circumstances that may indicate that an asset is impaired include significant decreases in the market value of an asset, significant underperformance relative to expected historical or projected future results of operations, a change in the extent or manner in which an asset is utilized, significant declines in the estimated fair value of the overall Company for a sustained period, shifts in technology, loss of key management or personnel, changes in the Company’s operating model or strategy and competitive forces. If events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and the expected undiscounted future cash flows attributable to the asset are less than the carrying amount of the asset, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded. Fair value is determined based on the present value of estimated expected future cash flows using a discount rate commensurate with the risk involved, quoted market prices or appraised values, depending on the nature of the asset. 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 the Company’s IP requires fair value estimate under income approach, involving the estimation of future cash flow expected to be generated from the IP. 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. 95 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements 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. As of April 29, 2023 and April 30, 2022, the sales returns and rebate reserves were not material. 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 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. Customer Warrant The Company accounts for the warrant issued to Amazon.com NV Investment Holdings LLC as an equity instrument, based on the specific terms of the warrant agreement. When management determines that it is probable that a tranche of the warrant will vest and we recognize the related revenue, the grant date fair value of the associated tranche will be recognized in shareholders’ equity (deficit) and the 96 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements underlying expense will be amortized as a reduction of revenue in proportion to the amount of related revenue recognized. Cost of Revenue Cost of revenue includes cost of materials, including wafers processed by third-party foundries, cost associated with packaging and assembly, testing and shipping, cost of personnel, including share-based compensation, depreciation of equipment associated with manufacturing support, logistics and quality assurance, warranty cost, amortization of intellectual property purchased from third-parties, write-down of inventories, and amortization and impairment of production equipment no longer in use. Cost of revenue includes cost of product sales revenue, cost of product engineering services revenue, cost of IP license revenue, and cost of IP license engineering services revenue. Shipping and Handling Costs Shipping and handling costs incurred for delivery to customers are expensed as incurred and are included in selling and marketing expenses in the Company’s Consolidated Statements of Operations. Research and Development Research and development expenses consist of costs incurred in performing research and development activities and includes salaries, share-based compensation, employee benefits, occupancy costs, pre-production engineering mask costs, overhead costs and prototype wafer, packaging and test costs. Research and development costs are expensed as incurred. Convertible Preferred Shares The Company recorded all shares of convertible preferred shares at their respective fair values less issuance costs on the dates of issuance. Prior to fiscal 2022, the convertible preferred shares were recorded outside of shareholders’ equity (deficit) because, in the event of certain liquidation events considered not solely within the Company’s control, such as a change in control event and sale of all or substantially all of the Company’s assets, the convertible preferred shares would have become redeemable at the option of the holders. Share-Based Compensation The Company records compensation expense in connection with share-based awards granted to employees and non-employees in accordance with guidance related to share-based payments. This guidance requires that all share-based compensation be recognized as an expense in the consolidated financial statements and that such cost be measured at the fair value of the award. The Company amortizes share-based compensation expense under the straight-line attribution method over the vesting period of the share-based award. The Company has elected to use the Black-Scholes option pricing model to determine the fair value of ordinary share options on the dates of grant. Calculating the fair value of share options using the Black-Scholes model requires inputs and assumptions, including the fair value of the Company’s ordinary shares, the expected term of share options and share price volatility. The Company estimates the expected life of options granted based on the simplified method. The Company estimates the volatility of its ordinary shares on the date of grant based on the average historical share price volatility of comparable publicly traded companies in the Company’s industry group. The Company has not paid and does not expect to pay dividends. The Company accounts for forfeitures as they occur. The fair value of each restricted share unit is estimated based on the market price of the Company’s ordinary share on the date of grant. The fair value of each share issued under the Company’s employee share purchase plan is estimated based on Black-Scholes option pricing model. Prior to the IPO, the absence of an active market for the Company’s ordinary shares required its board of directors, the members of which the Company believed had extensive business, finance and 97 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements venture capital experience, to determine the fair value of its ordinary shares for purposes of granting options and for calculating share-based compensation expense for the periods presented. The Company obtained contemporaneous third-party valuations to assist the board of directors in determining fair value. These contemporaneous third-party valuations used the methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. All options granted were intended to be exercisable at a price per share not less than the fair value of the shares underlying those options on their respective dates of grant. Income Taxes The Company is subject to income taxes in the United States and certain foreign jurisdictions. Significant judgment is required in determining the Company’s provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws. The Company uses the asset and liability method to account for income taxes. Current income tax expense or benefit represents the amount of income taxes expected to be payable or refundable for the current year. Under this method, deferred income tax assets and liabilities are determined based on differences between the financial statement reporting and tax bases of assets and liabilities and net operating loss and credit carryforward. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company accounts for uncertain tax positions in accordance with ASC 740‑10, Accounting for Uncertainty in Income Taxes . The Company recognizes the tax effects of an uncertain tax position only if such position is more likely than not to be sustained based solely on its technical merits as of the reporting date and only in an amount more likely than not to be sustained upon review by the tax authorities. Interest and penalties related to uncertain tax positions are classified in the consolidated financial statements as income tax expense. Net Loss Per Share Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted average number of ordinary and potentially dilutive shares outstanding during the period using the treasury stock method. Under the treasury stock method, the effect of equity awards outstanding is not included in the computation of diluted net loss per share for periods when their effect is anti-dilutive. Segment Information Operating segments are identified as components of an enterprise about which discrete financial information is available for evaluation by the chief operating decision-maker (“CODM”) in deciding resource allocation and assessing performance. The Company’s Chief Executive Officer is its CODM. The Company’s CODM reviews financial information presented on a consolidated basis for the purposes of making operating decisions, allocating resources and evaluating financial performance. Consequently, the Company has determined it operates and manages its business in one operating and one reportable segment. See “Note 14 — Segment and Geographic Information” for the Company’s revenue by country and location of long-lived assets. 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 98 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements cost and complexity of its application. This new guidance was 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. 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 is 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 2023. The Company adopted this guidance during the year ended April 29, 2023 prospectively, and the impact on its consolidated financial statements was not material. 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 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 April 29, 2023 April 30, 2022 Customer A** 54 % * Customer B** * 52 % Customer C * 14 % Customer D 22 % * Year Ended Revenue April 29, 2023 April 30, 2022 April 30, 2021 Customer A** 46 % * * Customer B** * 30 % 32 % Customer C 13 % 18 % * Customer D 12 % 11 % * Customer E * 10 % * Customer F * * 10 % Customer G * * 12 % * Less than 10% of total accounts receivable or total revenue. ** Both customers A and B were distributors who sold the Company’s products to the same end customer. The Company believes that the concentration of credit risk in its trade receivables is substantially mitigated by the high level of credit worthiness of its customers and the relatively short collection terms. 99 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements The Company performs ongoing credit evaluations of its customers’ financial conditions and limits the amount of credit extended when deemed necessary based upon payment history and the customer’s current credit worthiness, but generally require no collateral. The Company operates in markets that are highly competitive and rapidly changing. Significant technological changes, shifting customer needs, the emergence of competitive products with new capabilities, general economic conditions worldwide, the ability to safeguard patents and other intellectual property in a rapidly evolving market and reliance on assembly and test subcontractors, third-party wafer fabricators and other factors could affect the Company’s financial results. The Company currently outsources all of its integrated circuit manufacturing to Taiwan Semiconductor Manufacturing Company Limited with the remaining assembly and testing processes outsourced to other subcontractors primarily in Asia. Any disruption of or interference with the Company’s access to the goods or services from these subcontractors would impact the Company’s operations. 4. Revenue Recognition 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 April 29, 2023 and April 30, 2022. During the year ended April 29, 2023, the Company recognized $ 1.2 million of revenue that was included in the deferred revenue balance as of April 30, 2022. During the year ended April 30, 2022, the Company recognized $ 4.0 million of revenue that was included in the deferred revenue balance as of April 30, 2021. During the year ended April 30, 2021, the Company recognized $ 4.5 million of revenue that was included in the deferred revenue balance as of April 30, 2020. During the year ended April 29, 2023, the decrease in contract assets of $ 1.6 million was primarily driven by IP licensing and engineering services arrangements where certain billing milestones were reached during fiscal 2023 while the criteria for revenue had previously been met. During the year ended April 29, 2023, the increase in deferred revenue of $ 3.2 million was primarily due to customer advances related to product support services. 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 $ 9.2 million and the satisfied but unrecognized performance obligation was approximately $ 10.1 million as of April 29, 2023, which the Company expects to recognize over the next fiscal year. The amounts stated above include amounts relating to an IP licensing and development contract we entered into with a customer in its fiscal year ended April 30, 2022 (“fiscal year 2022”), for a total cash consideration of $ 43.5 million, which is receivable over an estimated period of three years upon meeting certain contractual milestones. As of April 29, 2023, we had billed $ 33.1 million and recognized revenue amounting to $ 33.2 million upon delivery of the deliverables which were consistent with the meeting of the first three milestones. We have applied constraint on a remaining milestone due to significant uncertainty relating to the delivery of the milestone as of April 29, 2023 associated with dependency on actions by the customer. The constraints will be re-evaluated at each future reporting period. Customer Warrant During fiscal year 2022, 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 100 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements $ 10.74 per share (the “Customer Warrant”). The exercise period of the Warrant is through the seven th 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 $ 201.0 million in aggregate payments. A total of 80,000 and 40,000 Warrant shares were vested as of April 29, 2023 and April 30, 2022, respectively. 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 volatility 40.00 % Weighted-average expected term (in years) 7 Risk-free interest rate 1.41 % Dividend yield — % Fair value per ordinary share $ 10.74 During the fiscal years ended April 29, 2023 and April 30, 2022, the Company recognized $ 1.2 million and $ 0.6 million, respectively, as contra revenue within the product sales revenue on the 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, security master files from large financial institutions, and other third -party sources used to determine a daily market value. The following table presents the fair value of the financial instruments measured on a recurring basis as of April 29, 2023 (in thousands). 101 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements April 29, 2023 Level 1 Level 2 Level 3 Total Cash equivalents: Money market funds $ 99,119 $ — $ — $ 99,119 Short-term investments: Certificate of deposit — 109,228 — 109,228 Total cash equivalents and short-term investments $ 99,119 $ 109,228 $ — $ 208,347 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 April 29, 2023, there were no unrealized loss or gains associated with the Company’s financial instruments. The interest income recognized during the year ended April 29, 2023 was $ 4.7 million. 6. Supplemental Financial Information Inventories Inventories consisted of the following (in thousands): April 29, 2023 April 30, 2022 Raw materials $ 17,456 $ 11,610 Work in process 7,200 10,352 Finished goods 21,367 5,375 $ 46,023 $ 27,337 Property and Equipment, Net Property and equipment consisted of the following (in thousands): April 29, 2023 April 30, 2022 Computer equipment and software $ 13,942 $ 1,736 Laboratory equipment 15,577 9,521 Production equipment 19,783 15,502 Leasehold improvements 2,005 1,465 Others 632 524 Construction in progress 6,300 2,932 58,238 31,680 Less: accumulated depreciation and amortization ( 18,017 ) ( 9,836 ) $ 40,222 $ 21,844 Depreciation and amortization expense, excluding the assets impairment charges, for the years ended April 29, 2023, April 30, 2022 and April 30, 2021, was $ 9.5 million, $ 4.8 million, and $ 2.2 million, respectively. Construction in progress and production equipment primarily includes mask set costs capitalized relating to the Company’s new products to be introduced or yet to be in production. During the year ended April 29, 2023, the Company recorded $ 2.4 million impairment charges primarily related to the impairment on property and equipment. Impairment charges were presented under operating expenses in the consolidated statements of operations for equipment that did not reach production qualification. During the year ended April 30, 2022, the Company recorded $ 4.9 million 102 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements impairment charges primarily related to the impairment on property and equipment. Impairment charges of $ 1.8 million were presented as part of cost of product sales revenue in the consolidated statements of operations as it related to a production equipment no longer in service and impairment charges of $ 3.1 million were presented under operating expenses in the consolidated statements of operations for equipment that did not reach production qualification. There were no impairment charges of long-lived assets for the year ended April 30, 2021. Other Non-current Assets Other non-current assets consisted of the following (in thousands): April 29, 2023 April 30, 2022 Refundable deposits $ 5,180 $ — Other non-current assets 8,795 4,714 $ 13,975 $ 4,714 Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following (in thousands): April 29, 2023 April 30, 2022 Accrued expenses $ 6,595 $ 8,372 Current payables relating to purchases of property and equipment 4,269 — Current portion of operating lease liabilities 2,630 2,379 Income tax payable 960 1,312 $ 14,454 $ 12,063 Other non-current Liabilities Other non-current liabilities consisted of the following (in thousands): April 29, 2023 April 30, 2022 Non-current payables relating to purchases of property and equipment $ 5,049 $ — Non-current deferred revenue 380 — Other non-current liabilities 324 220 $ 5,753 $ 220 7. Commitments and Contingencies Non-Cancelable Purchase Obligations Total future non-cancelable purchase obligations as of April 29, 2023 were as follows (in thousands): Fiscal Year Purchase Commitments to Manufacturing Vendors Technology License Fees 2024 $ 9,134 $ 5,177 2025 6,763 5,432 2026 8,131 350 2027 9,282 350 Thereafter 7,319 700 Total unconditional purchase commitments $ 40,629 $ 12,009 103 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements 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 April 29, 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 $ 5.1 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 fiscal year April 29, 2023 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 year 2024 through fiscal year 2028 under the capacity reservation agreement. Such purchase commitments are included in the preceding table. In addition, refundable deposits of $ 5.4 million were paid as of April 29, 2023, and refundable deposits payable under this arrangement is $ 3.4 million in fiscal year 2024. Warranty Obligations The Company has contractual commitments to various customers, which could require the Company to incur costs to repair an epidemic defect with respect to its products outside of the normal warranty period if such defect were to occur. The Company’s products 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 may provide 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 April 29, 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 the 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. 104 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements 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, 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. A summary of the preferred shares prior to the conversion into ordinary shares consisted of the following: Series Shares Authorized Shares Issued and Outstanding Per Share Liquidation Preference Aggregate Liquidation Preference (in thousands) Series A 8,313 8,313 $ 1.00 $ 8,313 Series B 8,593 8,593 2.10 18,000 Series C 5,245 5,245 4.29 22,500 Series D 20,028 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 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 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. 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. 105 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements 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 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. 9. Ordinary Shares In connection with the consummation of the IPO, the Company filed the Amended and Restated Memorandum of Association with Cayman Islands, which authorized 1,000,000,000 ordinary shares, par value $ 0.00005 per share and 50,000,000 convertible preferred shares. Each ordinary share is entitled to one vote per share. The holders of ordinary shares are also entitled to receive dividends whenever funds are legally available and when declared by the Company’s board of directors, subject to the prior rights of holders of all other classes of shares outstanding. 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 Award” or “RSA”). In addition, the Company allows early exercise for unvested ordinary share options under its 2015 Stock Plan (as defined in Note 10 to the consolidated financial statements). 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 April 29, 2023, 98,631 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 RSA and 426,120 from share option early exercises, remain subject to the Company’s repurchase rights. These shares are excluded from ordinary shares outstanding. Share Repurchase Transaction In July 2020, the Company offered to purchase up to an aggregate of 8,032,128 of its ordinary shares and options from certain ordinary shareholders, primarily initial investors, founders and current employees of the Company, at a cash price of $ 4.98 per share. The transaction was completed in August 2020. The total ordinary shares and options the Company repurchased was 6,875,822 at a total purchase price of $ 34.2 million. The excess of the repurchase price over the fair value of ordinary shares and options, which were originally issued to founders and current employees, was recorded as share-based compensation expense of $ 11.3 million for the year ended April 30, 2021. For the excess of the fair value of ordinary shares and options over the par value of shares, the Company allocated the amount to both accumulated deficit and additional paid in capital. The portion allocated to additional paid in capital was determined by applying a percentage, determined by dividing the number of shares repurchased by the number of shares issued and outstanding immediately prior to the share repurchase, to the balance of additional paid in capital as of the date of share repurchase. In connection with the transaction, $ 0.9 million was allocated to additional paid in capital and $ 22.0 million was allocated to accumulated deficit. 106 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements 10. Share Incentive Plan 2015 Stock Plan The Company adopted the 2015 Stock Plan (the “2015 Plan”) in February 2015. The 2015 Plan was an equity incentive program under which employees of the Company or its subsidiary corporations (including officers), non-employee members of the Company’s board of directors, and consultants to the Company or its subsidiary corporations were offered an opportunity to acquire the Company’s ordinary shares. The 2015 Plan provided both for the direct award or sale of ordinary shares (“RSAs”) and for the grant of options to purchase ordinary shares. Options granted under the 2015 Plan were Incentive Stock Options (“ISOs”) intended to qualify under Code Section 422 or Nonstatutory Stock Options (“NSOs”) which were not intended to so qualify. Only employees, outside directors and consultants of either the Company or a subsidiary of the Company, were eligible for the grant of NSO or the direct award or sale of ordinary shares. Only employees of either the Company or of a subsidiary of the Company, were eligible for the grant of ISOs. As of January 27, 2022, the 2015 Plan has ceased to be available for grants of new awards. Prior to the aforementioned cessation of the 2015 Plan for new grants and as of April 30, 2022, 26,000,000 ordinary shares were authorized for issuance under the 2015 Plan. Options under the 2015 Plan may be granted for periods of up to ten years and at prices no less than 100% of the estimated fair value of the shares on the date of grant as determined by the Company’s board of Directors. Both RSAs and options granted generally vest over four years and vest at a rate of 25 % upon the first anniversary of the issuance date and 1/48th per month thereafter. A summary of information related to share option activity, excluding options early exercised, is as follows: Options Outstanding Outstanding Share Options Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value (in thousands) Balances as of April 30, 2021 14,120,179 $ 1.57 7.87 $ 62,613 Options granted 701,500 $ 6.11 Options exercised and vested ( 2,924,410 ) $ 1.04 Options canceled/ forfeited ( 536,524 ) $ 3.18 Balances as of April 30, 2022 11,360,745 $ 1.94 7.12 $ 103,412 Options exercised and vested ( 2,246,253 ) $ 1.48 Options canceled/ forfeited ( 244,837 ) $ 3.34 Balances as of April 29, 2023 8,869,655 $ 2.02 6.22 $ 53,993 Vested or expected to vest as of April 29, 2023 8,869,655 $ 2.02 6.22 $ 53,993 Exercisable as of April 29, 2023 8,771,024 $ 2.02 6.22 $ 53,393 During the years ended April 29, 2023, 2022 and 2021, the total intrinsic value of options exercised, including options early exercised, was $ 22.2 million, $ 28.4 million and $ 4.7 million, respectively. The weighted-average grant date fair value of options vested was $ 1.41 , $ 1.36 and $ 0.65 per share for the year ended April 29, 2023, April 30, 2022 and April 30, 2021, respectively. The total grant date fair value of share options that vested was $ 15.6 million, $ 4.5 million and $ 2.1 million as of April 29, 2023, 2022 and 2021, respectively. As of April 29, 2023, the total unrecognized compensation cost was $ 5.4 million related to share options, which are expected to be recognized over a weighted-average period of 1.48 years. 107 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements The Company estimated the fair value of share options using the Black-Scholes option-pricing model. The fair value of employee share options is being amortized on a straight-line basis over the requisite service period of the awards. The fair values of the employee share options granted in the years presented were estimated using the following weighted-average assumptions: Year Ended April 30, 2022 April 30, 2021 Expected volatility 41.29 % - 42.31 % 40.12 % - 42.84 % Weighted-average expected term (in years) 5.96 5.97 Risk-free interest rate 0.69 % - 1.23 % 0.32 % - 1.19 % Dividend yield — % — % Weighted-average grant date fair value per share $ 6.26 $ 1.86 2021 Long-Term Incentive Plan In December 2021, the Company adopted the 2021 long-term incentive plan (the “2021 Plan”). Upon the adoption, the 2021 Plan had 19,907,421 ordinary shares reserved for issuance. Awards granted under the 2021 Plan may include, but are not limited to, options and restricted share units (“RSU”). Options granted under the 2021 Plan generally have a term of 10 years and generally must be issued at prices equal to the fair market value of the share on the date of grant. RSU awards are denominated in shares of ordinary shares, but may be settled in cash or shares upon vesting, as determined by the Company at the time of grant. None of the awards granted under the 2021 Plan as of April 29, 2023 allowed cash settlement. Awards under the 2021 Plan generally vest over 4 years. A summary of RSU activity is as follows: Number of shares Weighted-Average Grant Date Fair Value Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value (in thousands) Balances as of 4/30/2021 — — — — Granted 4,176,250 $ 10.25 Vested ( 12,499 ) $ 10.00 Canceled/ forfeited ( 30,000 ) $ 10.00 Balances as of 4/30/2022 4,133,751 $ 10.26 1.65 $ 45,637 Granted 5,473,980 $ 12.34 Vested ( 1,395,774 ) $ 10.17 Canceled/ forfeited ( 413,608 ) $ 10.80 Balances as of 4/29/2023 7,798,349 $ 11.66 1.65 $ 63,245 Expected to vest as of April 29, 2023 7,798,349 $ 11.66 1.65 $ 63,245 As of April 29, 2023, 18,864,769 shares remained available for future issuance under the 2021 Plan. As of April 29, 2023, unamortized compensation expense related to RSUs was $ 82.8 million. The unamortized compensation expense for RSUs will be amortized on a straight-line basis and is expected to be recognized over a weighted-average period of 3.25 years. Employee Stock Purchase Plan In January 2022, the Company adopted the Employee Stock Purchase Plan (“ESPP”). Under the ESPP, a total of 3,800,508 shares have been authorized for the grant of options and participants can purchase the Company’s ordinary shares using payroll deductions, which may not exceed 15 % of their 108 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements total cash compensation. Pursuant to the terms of the ESPP, the “look-back” period for the share purchase price is 24 months. Offering and purchase periods begin on January 1 and July 1 of each year. Participants will be granted the right to purchase ordinary shares at a price per share that is 85 % of the lesser of the fair market value of the shares at (i) the participant’s entry date into the two-year offering period or (ii) the end of each six-month purchase period within the offering period. During the year ended April 29, 2023, 246,660 shares were issued under the ESPP. No shares were issued during the year ended April 30, 2022. As of April 29, 2023, 3,553,848 shares remained available for future issuance under the ESPP. The following weighted-average assumptions were used for the year ended April 30, 2022 to calculate the fair value of ordinary share to be issued under the ESPP on the date of grant using the Black-Scholes option pricing model: Year Ended April 29, 2023 April 30, 2022 Estimated fair value 4.27 4.56 Expected volatility 34.00 % 33.00 % Expected term (in years) 0.93 1.17 Risk-free interest rate 1.54 % 1.41 % Expected dividend yield — % — % Share-Based Compensation Associated with Awards to Employees The following table summarizes share-based compensation cost included in the consolidated statements of operations (in thousands). Year Ended April 29, 2023 April 30, 2022 April 30, 2021 Cost of revenue $ 634 $ 220 $ 183 Research and development 13,326 5,021 7,737 Selling, general and administrative 9,556 3,947 5,986 $ 23,516 $ 9,188 $ 13,906 11. Leases Effective May 1, 2021, the Company adopted the new lease accounting standard using the modified retrospective approach. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows the Company to carry forward the historical lease classification. The Company elected to apply the short-term lease measurement and recognition exemption in which right-of-use assets (“ROU”) and lease liabilities are not recognized for short-term leases. Adoption of this standard resulted in the recording of operating lease ROU assets of $ 4.0 million and corresponding operating lease liabilities of $ 4.0 million. The standard did not materially affect the consolidated statements of operations and had no impact on cash flows. The Company determines if an arrangement is a lease at inception. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Operating lease ROU assets also include any initial direct costs and prepayments less lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. As the rate implicit in each lease is not readily determinable, the Company uses its collateralized incremental borrowing rate based on the information available at the lease commencement date, including lease term, in determining the present value of 109 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements lease payments. Lease expense for these leases is recognized on a straight line basis over the lease term. The Company's leases include office space located in the United States and other international locations, which are all classified as 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 consolidated balance sheets. The Company does not have any finance leases. During the year ended April 30, 2022, the Company entered into a sublease agreement whereby the Company will lease an office space located in San Jose, California (the “HQ Lease”). The office space serves as the Company’s corporate headquarters and includes engineering, marketing and administrative functions. The HQ Lease has a term of 103 months from the contract commencement date in April 2022. The ROU assets and operating lease liabilities associated with the HQ Lease as of April 29, 2023 were $ 12.4 million and $ 13.1 million, respectively. Lease expense and supplemental cash flow information are as follows (in thousands): Year Ended April 29, 2023 April 30, 2022 Operating lease expenses $ 3,640 $ 3,017 Cash paid for amounts included in the measurement of operating lease liabilities $ 3,172 $ 2,588 Right-of-use assets obtained in exchange for lease obligation $ 649 $ 15,543 The aggregate future lease payments for operating leases as of April 29, 2023 are as follows (in thousands): Fiscal Year Operating leases 2024 $ 3,456 2025 2,819 2026 2,346 2027 2,215 2028 2,194 Thereafter 5,785 Total lease payments 18,815 Less: Interest 3,315 Present value of lease liabilities $ 15,500 As of April 29, 2023, the weighted average remaining lease term for the Company's operating leases was 6.73 years and the weighted average discount rate used to determine the present value of the Company's operating leases was approximately 5.80 %. 110 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements 12. Income Taxes Income (loss) before provision (benefit) for income taxes consists of the following (in thousands): Year Ended April 29, 2023 April 30, 2022 April 30, 2021 United States $ 4,469 $ 2,512 $ 2,011 International ( 22,383 ) ( 24,725 ) ( 27,307 ) $ ( 17,914 ) $ ( 22,213 ) $ ( 25,296 ) The components of income tax expense (benefit) are summarized as follows (in thousands): Year Ended April 29, 2023 April 30, 2022 April 30, 2021 Current Federal $ ( 24 ) $ 224 $ 274 State 2 ( 25 ) 28 International 762 1,292 544 Total current tax expense 740 1,491 846 Deferred Federal ( 2,005 ) ( 1,163 ) 1,219 State ( 218 ) ( 142 ) 6 International 116 ( 223 ) 144 Total deferred tax benefit ( 2,107 ) ( 1,528 ) 1,369 Total tax expense (benefit) $ ( 1,367 ) $ ( 37 ) $ 2,215 The tax effects of significant items comprising the Company’s deferred taxes are as follows (in thousands): April 29, 2023 April 30, 2022 Deferred tax assets: Accrued expense $ 941 $ 1,114 Net operating losses 1,284 125 Research and development credits 9,401 5,299 Share compensation 1,907 868 Lease liability 3,487 3,900 Others 5 3 Total deferred tax assets 17,025 11,309 Deferred tax liabilities Property and equipment basis ( 1,132 ) ( 1,162 ) Right of use assets ( 3,353 ) ( 3,842 ) Total deferred tax liabilities ( 4,485 ) ( 5,004 ) Valuation allowance ( 9,306 ) ( 5,170 ) Net deferred taxes $ 3,234 $ 1,135 A valuation allowance is established when the Company believes that it is more likely than not that some portion of its deferred tax assets will not be realized. The valuation allowance increased by $ 4.1 million in fiscal year 2023. As of April 29, 2023, the Company had U.S. federal and state net 111 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements operating loss of approximately $ 4.9 million and $ 1.4 million, respectively. The U.S. federal net operating loss can be carried forward indefinitely. The state net operating loss carryforwards will begin to expire in fiscal 2043. As of April 29, 2023, the Company had US federal and state research credits of $ 7.0 million and $ 6.3 million, respectively. The federal research credits will begin to expire in 2039. The state research credits have no expiration date. As it is not more likely than not that the Company will be able to utilize the federal and state research credits, the Company recorded $ 9.3 million of valuation allowance. As of April 29, 2023, the Company had no foreign tax credit carryover. Foreign earnings may be subject to withholding taxes in local jurisdictions if they are distributed. The amount of cumulative undistributed earnings that are permanently reinvested that could be subject to withholding taxes were $ 12.3 million as of April 29, 2023. The Company intends to reinvest these earnings indefinitely. The Company consists of a Cayman parent holding company with various international and U.S. subsidiaries. The applicable statutory rate in Cayman is zero for the Company for the years ended April 29, 2023, April 30, 2022 and April 30, 2021. For purposes of the reconciliation between the provision for income taxes at the statutory rate and the effective tax rate, a U.S. statutory tax rate of 21% for the years ended April 29, 2023, April 30, 2022 and April 30, 2021 is applied as follows: Year Ended April 29, 2023 April 30, 2022 April 30, 2021 Statutory federal tax expense rate 21 % 21 % 21 % State tax, net of federal benefit 1 % 1 % — % Research tax credits 14 % 4 % 3 % Share compensation 18 % 7 % — % Other 1 % 1 % 1 % Foreign rate differential ( 32 ) % ( 26 ) % ( 25 ) % Change in valuation allowance ( 15 ) % ( 4 ) % ( 8 ) % Withholding taxes ( 1 ) % ( 4 ) % ( 2 ) % Effective tax rate 8 % — % ( 10 ) % A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands): April 29, 2023 April 30, 2022 Beginning gross unrecognized tax benefits $ 1,844 $ 1,234 Additions for tax positions taken in the current year 1,081 616 Subtractions for tax positions taken in the prior year ( 60 ) ( 6 ) Ending gross unrecognized tax benefits $ 2,865 $ 1,844 The Company recognizes the tax effects of an uncertain tax position only if it is more likely than not to be sustained based solely on such position’s technical merits as of the reporting date and only in an amount more likely than not to be sustained upon review by the tax authorities. Included in the balance of unrecognized tax benefits as of April 29, 2023 and April 30, 2022 were potential benefits of $ 2.9 million and $ 1.8 million, respectively, which if recognized, would affect the effective tax rate. If the unrecognized tax benefits were recognized, it would result in additional deferred tax assets, which are expected to require a full valuation allowance based on the Company’s current valuation allowance position. Unrecognized tax benefits are not expected to significantly increase or decrease within the next 12 months. 112 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. For the years ended April 29, 2023, April 30, 2022 and April 30, 2021, the Company’s current tax provision was not impacted by interest and penalties. The Company files U.S. state and foreign jurisdictions income tax returns with varying statutes of limitations. The Company does not have any tax years under income tax examination by taxing authorities. The Company’s tax returns continue to remain subject to examination by U.S. federal authorities for the years ended April 30, 2019 through 2022 and by state authorities for the years ended April 30, 2018 through 2022. For the Company’s international subsidiaries, the tax years that remain open to examination vary based on the year that each entity began operating. 13. Net Loss Per Share Net loss per share was determined as follows for the years presented (in thousands, except per share amounts): Year Ended April 29, 2023 April 30, 2022 April 30, 2021 Numerator: Net loss $ ( 16,547 ) $ ( 22,176 ) $ ( 27,511 ) Denominator: Weighted-average shares outstanding used in basic and diluted calculation 146,556 88,398 69,099 Net loss per share attributable to ordinary shareholders Basic and diluted $ ( 0.11 ) $ ( 0.25 ) $ ( 0.40 ) Potential dilutive securities include dilutive ordinary shares from share-based awards attributable to the assumed exercise of share options, restricted share 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 loss per share if their effect is anti-dilutive. The following potentially dilutive securities outstanding have been excluded from the computations of diluted weighted average shares outstanding for the years ended April 29, 2023, April 30, 2022 and April 30, April 30, 2021 because such securities have an anti-dilutive impact due to losses reported: Year Ended April 29, 2023 April 30, 2022 April 30, 2021 Options and RSAs 10,081 10,766 10,309 RSUs 4,985 870 — ESPP 128 — — Customer warrant 4,080 1,386 — Convertible preferred shares — — 44,803 19,274 13,022 55,112 113 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements 14. Segment and Geographic Information As discussed in “Note 2 — Significant Accounting Policies,” the Company operates in one reportable segment. The following table summarizes revenue disaggregated by primary geographical market based on destination of shipment for products, and location of contracting entity for IP and engineer services, which may differ from the end customer’s principal offices (in thousands): Year Ended April 29, 2023 April 30, 2022 April 30, 2021 United States $ 44,253 $ 27,696 $ 35,655 Mainland China 96,935 37,699 363 Mexico 13,097 10,140 8,118 Hong Kong 9,646 11,696 4,492 Rest of World 20,263 19,246 10,069 $ 184,194 $ 106,477 $ 58,697 The following table presents long-lived assets information based on the physical location of the assets by geographic region (in thousands): April 29, 2023 April 30, 2022 Property and equipment, net: United States $ 8,791 $ 4,266 Taiwan 14,625 12,787 Mainland China 2,657 2,593 Hong Kong 14,149 2,238 $ 40,222 $ 21,844 114 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None.