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 ) 74 Consolidated Balance Sheets 78 Consolidated Statements of Operations 79 Consolidated Statements of Comprehensive Income (Loss) 80 Consolidated Statements Shareholders’ Equity 81 Consolidated Statements of Cash Flows 82 Notes to Consolidated Financial Statements 83 72 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 May 3, 2025 and April 27, 2024, the related consolidated statements of operations, comprehensive income (loss), shareholders' equity and cash flows for each of the three years in the period ended May 3, 2025, 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 May 3, 2025 and April 27, 2024, and the results of its operations and its cash flows for each of the three years in the period ended May 3, 2025, 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 May 3, 2025, 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 July 1, 2025 expressed an unqualified opinion thereon. 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 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 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. 73 Inventory Valuation Description of the Matter The Company’s inventories totaled $90.0 million as of May 3, 2025, representing 11.1% of total assets. As explained in Note 2 to the consolidated financial statements, the Company values inventories at the lower of cost 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 net realizable value of 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 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. 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 net realizable value, including the determination of forecasted usage of inventories. Our audit procedures included, among others, evaluating the product demand 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 product demand 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 July 1, 2025 74 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 May 3, 2025, 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 May 3, 2025, 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 the Company as of May 3, 2025 and April 27, 2024, the related consolidated statements of operations, comprehensive income (loss), shareholders' equity and cash flows for each of the three years in the period ended May 3, 2025, and the related notes and our report dated July 1, 2025 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 that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 75 /s/ Ernst & Young LLP San Jose, California July 1, 2025 76 Credo Technology Group Holding Ltd Consolidated Balance Sheets (in thousands, except per share amounts) May 3, 2025 April 27, 2024 Assets Current assets: Cash and cash equivalents $ 236,328 $ 66,942 Short-term investments 195,010 343,061 Accounts receivable 162,144 59,662 Inventories 90,029 25,907 Other current assets 30,023 34,693 Total current assets 713,534 530,265 Property and equipment, net 63,631 43,665 Right of use assets 15,234 13,077 Other non-current assets 16,858 14,925 Total assets $ 809,257 $ 601,932 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 56,158 $ 13,417 Accrued compensation and benefits 16,097 9,000 Other current liabilities 35,456 22,203 Total current liabilities 107,711 44,620 Non-current operating lease liabilities 12,693 11,133 Other non-current liabilities 7,271 5,981 Total liabilities 127,675 61,734 Commitments and contingencies (Note 7) Shareholders' equity: Ordinary shares, $ 0.00005 par value; 1,000,000 shares authorized; 171,169 and 164,305 shares issued and outstanding at May 3, 2025 and April 27, 2024, respectively 8 8 Additional paid in capital 765,173 676,054 Accumulated other comprehensive loss ( 437 ) ( 519 ) Accumulated deficit ( 83,162 ) ( 135,345 ) Total shareholders' equity 681,582 540,198 Total liabilities and shareholders' equity $ 809,257 $ 601,932 The accompanying notes are an integral part of these consolidated financial statements. 77 Credo Technology Group Holding Ltd Consolidated Statements of Operations (in thousands, except per share amounts) Year Ended May 3, 2025 April 27, 2024 April 29, 2023 Revenue: Product sales $ 412,177 $ 145,048 $ 141,475 Product engineering services 12,122 19,898 10,780 IP license 12,476 28,024 31,939 Total revenue 436,775 192,970 184,194 Cost of revenue: Cost of product sales revenue 152,381 70,498 75,143 Cost of product engineering services revenue 1,314 2,225 972 Cost of IP license revenue 171 816 1,885 Total cost of revenue 153,866 73,539 78,000 Gross profit 282,909 119,431 106,194 Operating expenses: Research and development 145,994 95,531 76,774 Selling, general and administrative 98,918 60,193 48,248 Impairment charges 873 765 2,407 Total operating expenses 245,785 156,489 127,429 Operating income (loss) 37,124 ( 37,058 ) ( 21,235 ) Other income, net 17,746 14,313 3,321 Income (loss) before income taxes 54,870 ( 22,745 ) ( 17,914 ) Provision (benefit) for income taxes 2,687 5,624 ( 1,367 ) Net income (loss) $ 52,183 $ ( 28,369 ) $ ( 16,547 ) Net income (loss) per share: Basic $ 0.31 $ ( 0.18 ) $ ( 0.11 ) Diluted $ 0.29 $ ( 0.18 ) $ ( 0.11 ) Weighted-average shares used in computing net income (loss) per share: Basic 167,505 155,091 146,556 Diluted 181,158 155,091 146,556 The accompanying notes are an integral part of these consolidated financial statements. 78 Credo Technology Group Holding Ltd Consolidated Statements of Comprehensive Income (Loss) (in thousands) Year Ended May 3, 2025 April 27, 2024 April 29, 2023 Net income (loss) $ 52,183 $ ( 28,369 ) $ ( 16,547 ) Other comprehensive income (loss): Foreign currency translation income (loss) 82 ( 328 ) ( 214 ) Total comprehensive income (loss) $ 52,265 $ ( 28,697 ) $ ( 16,761 ) The accompanying notes are an integral part of these consolidated financial statements. 79 Credo Technology Group Holding Ltd Consolidated Statements of Shareholders’ Equity (in thousands) Ordinary Shares Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Shareholders’ Equity Number of Shares Amount 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 contra 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 Issuance of common stock in connection with secondary public offering, net of offering costs 10,440 1 173,415 — 173,416 Ordinary shares issued under employee share incentive plans 5,329 — 7,055 — — 7,055 Tax withheld related to RSU settlement ( 115 ) ( 2,158 ) ( 2,158 ) Share-based compensation — — 39,022 — — 39,022 Warrant contra revenue — — 3,925 — — 3,925 Total comprehensive loss — — — ( 328 ) ( 28,369 ) ( 28,697 ) Balances at April 27, 2024 164,305 $ 8 $ 676,054 $ ( 519 ) $ ( 135,345 ) $ 540,198 Ordinary shares issued under employee share incentive plans 7,057 — 7,831 — — 7,831 Tax withheld related to RSU settlement ( 194 ) — ( 9,253 ) — — ( 9,253 ) Share-based compensation — — 77,355 — — 77,355 Warrant contra revenue — — 13,186 — — 13,186 Total comprehensive income — — — 82 52,183 52,265 Balances at May 3, 2025 171,169 $ 8 $ 765,173 $ ( 437 ) $ ( 83,162 ) $ 681,582 The accompanying notes are an integral part of these consolidated financial statements. 80 Credo Technology Group Holding Ltd Consolidated Statements of Cash Flows (in thousands) Year Ended May 3, 2025 April 27, 2024 April 29, 2023 Cash flows from operating activities: Net income (loss) $ 52,183 $ ( 28,369 ) $ ( 16,547 ) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 21,938 13,771 9,514 Share-based compensation 77,355 39,022 23,516 Warrant contra revenue 13,186 3,925 1,220 Write-downs for excess and obsolete inventory 7,952 4,354 5,693 Impairment of assets 873 765 2,407 Changes in operating assets and liabilities Accounts receivable ( 102,482 ) ( 10,121 ) ( 20,017 ) Inventories ( 70,470 ) 15,762 ( 24,379 ) Other current assets 4,596 ( 19,836 ) 2,121 Other non-current assets 2,089 ( 654 ) ( 7,977 ) Accounts payable 41,930 8,806 ( 3,843 ) Accrued compensation and other liabilities 15,933 5,312 3,677 Net cash provided by (used in) operating activities 65,083 32,737 ( 24,615 ) Cash flows from investing activities: Purchases of property and equipment ( 36,061 ) ( 15,652 ) ( 21,713 ) Purchases of short-term investments ( 258,726 ) ( 403,587 ) ( 159,228 ) Maturities of short-term investments 406,777 169,754 50,000 Net cash provided by (used in) investing activities 111,990 ( 249,485 ) ( 130,941 ) Cash flows from financing activities: Proceeds from issuance of ordinary shares in connection with public offering, net of offering costs — 173,431 — Payments on technology license obligations ( 6,306 ) ( 3,052 ) ( 616 ) Proceeds from employee share incentive plans 7,831 7,055 5,501 Tax withheld related to RSU settlement ( 9,253 ) ( 2,158 ) — Net cash provided by (used in) financing activities ( 7,728 ) 175,276 4,885 Effect of exchange rate changes on cash 41 ( 169 ) ( 68 ) Net increase (decrease) in cash and cash equivalents 169,386 ( 41,641 ) ( 150,739 ) Cash and cash equivalents at beginning of the year 66,942 108,583 259,322 Cash and cash equivalents at end of the year $ 236,328 $ 66,942 $ 108,583 Supplemental cash flow information: Income taxes paid $ 1,447 $ 1,054 $ 1,204 Purchases of property and equipment included in accounts payable, accrued expenses and other liabilities $ 8,877 $ 8,287 $ 10,909 The accompanying notes are an integral part of these consolidated financial statements. 81 1. Description of Business and Basis of Presentation Credo Technology Group Holding Ltd was formed as an exempted company 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’s mission is to redefine high-speed connectivity by delivering breakthrough solutions that enable the next generation of AI-driven applications. The Company is committed to enabling faster, more reliable, more energy-efficient, and scalable solutions that support the ever-expanding demands of AI, cloud computing, and hyperscale networks. 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. The Company’s fiscal year is a 52- or 53-week period ending on the Saturday closest to April 30. The additional week in a 53-week year is added to the first quarter, making such quarter consist of 14 weeks. Accordingly, every fifth or sixth fiscal year will have a 53-week period. The fiscal years ended April 27, 2024 (fiscal year 2024) and April 29, 2023 (fiscal year 2023) were both 52-week fiscal years. The fiscal year ended May 3, 2025 (fiscal year 2025) was a 53-week fiscal year. 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 loss or cash flows for any of the periods presented. 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, the realizability 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 new events continue to evolve and additional information becomes available, any 82 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements 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. 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 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 May 3, 2025 or April 27, 2024 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, 83 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements 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. Useful lives by asset category are as follows: Asset Category Useful Life (in years) Computer equipment and software 3 Laboratory equipment 5 Production equipment 2 - 7 Leasehold improvements 5 or remaining lease term Leases The Company determines if an arrangement is a lease at inception. Operating lease right-of-use (ROU) assets and liabilities are recognized at the commencement date of the lease 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 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. 84 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements Revenue Recognition The Company’s revenues consist of sales of its products, licensing of its IP and providing product and IP license engineering services. Product sales consist of shipments 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. The Company also considers the constraint on estimates of variable consideration when estimating the total transaction price. 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 other than the passage of time. The Company recognizes deferred revenue when it has received consideration or an amount of consideration is due from the customer and it has a future obligation to transfer products or services. Product Sales - The Company transacts with customers primarily pursuant to standard purchase orders for delivery of products and generally allows customers to cancel or change purchase orders within limited notice periods prior to the scheduled shipment date. The Company offers standard performance warranties of twelve months after product delivery and offers limited product return rights to certain distributors. The Company recognizes product sales when it transfers control of promised goods in an amount that reflects the consideration to which it expects to be entitled to in exchange for those goods, net of accruals for estimated sales returns and rebates. As of May 3, 2025 and April 27, 2024, the sales returns and rebate reserves were not material. Product Engineering Services Revenue - Some product 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. IP License Revenue - The Company’s IP license revenue consists of perpetual licenses, support and maintenance, engineering services 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. Some IP license revenue contracts also include non-recurring engineering services deliverables, which were not material for any of the periods presented. The Company recognizes revenue from these 85 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements agreements similar to the method described under the caption “Product Engineering Services Revenue” above. 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. 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 and the 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 and cost of IP license revenue. Shipping and Handling Costs Shipping and handling costs incurred for delivery to customers are expensed as incurred and are included in selling, general and administrative 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, and prototype wafer, packaging and test costs. Research and development costs are expensed as incurred. 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 generally amortizes share-based compensation expense under the straight-line attribution method over the vesting period of the share-based award. For performance-based awards, the Company amortizes share-based compensation expense under the graded vesting method over the vesting period of the 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 86 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements its ordinary shares on the date of grant based on the Company’s historical stock price volatility. The Company has not paid and has no current plans 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 the Black-Scholes option pricing model. 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 Income (Loss) Per Share Basic net income (loss) per share is computed using the weighted average number of ordinary shares outstanding during the period. Diluted net income (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 income (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 13. Segment and Geographic Information” for the Company’s revenue by country and location of long-lived assets. Accounting Pronouncement Recently Adopted In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis. This standard is effective for fiscal years beginning after December 15, 2023, 87 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. The Company adopted this guidance in the fourth quarter of fiscal year 2025 on a retrospective basis. The adoption did not have a material impact to the Company’s consolidated financial statements. Refer to ‘Note 13. Segment and Geographic Information’ for further details. Recent Accounting Pronouncements Not Yet Adopted In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) Improvements to Income Tax Disclosures , which requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. This standard is effective for fiscal years beginning after December 15, 2024, and may be applied on a retrospective or prospective basis. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements and disclosures. In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income— Expense Disaggregation Disclosures, which requires disclosure of, in interim and annual reporting periods, additional information about certain expenses in the financial statements. This standard is effective for fiscal years beginning after December 15, 2026, and interim periods beginning after December 15, 2027 and may be applied on a retrospective or prospective basis. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements and disclosures. 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 May 3, 2025 April 27, 2024 Customer A 86 % 53 % Customer B * 23 % Year Ended Revenue May 3, 2025 April 27, 2024 April 29, 2023 Customer A 67 % 39 % 46 % Customer B * 15 % * Customer C * * 13 % Customer D * * 12 % * Less than 10% of total accounts receivable or total revenue. 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. The Company performs ongoing credit evaluations of its customers’ financial conditions and limits the 88 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements 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 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 May 3, 2025 and April 27, 2024. Contract assets are presented within the “Other current assets” caption on the Consolidated Balance Sheet. The Company had a contract asset balance of $ 9.9 million as of May 3, 2025, compared to $ 22.3 million as of April 27, 2024. The decrease in contract assets of $ 12.4 million was primarily driven by IP licensing and engineering services arrangements where certain billing milestones were reached during fiscal 2025 while the criteria for recognition of revenue had previously been met. Deferred revenue is presented within the “Other current liabilities” and “Other non-current liabilities” captions on the Consolidated Balance Sheet. The Company had a deferred revenue balance of $ 1.5 million as of May 3, 2025, compared to $ 4.0 million as of April 27, 2024. The decrease in deferred revenue of $ 2.5 million was primarily due to revenue recognized from a customer advance. During the year ended May 3, 2025, the Company recognized $ 3.9 million of revenue that was included in the deferred revenue balance as of April 27, 2024. During the year ended April 27, 2024, the Company recognized $ 4.1 million of revenue that was included in the deferred revenue balance as of April 29, 2023. 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. 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 $ 4.8 million and the satisfied but unrecognized performance obligations was approximately $ 1.1 million as of May 3, 2025, which the Company expects to recognize over the next fiscal year. The Company applied constraints on the satisfied but unrecognized performance obligations due to uncertainty around the collectability of milestone payments. 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 4.1 million of our ordinary shares at an exercise price of $ 10.74 per share (the “Customer Warrant”). The exercise period of the Warrant is through the seven th anniversary of the issue date. The shares issuable vest in tranches over the contract term based on the amount of global payments by Holder and its affiliates to the Company, up to $ 201.0 million in aggregate payments. A total of 4.1 million and 1.1 million Warrant shares were vested as of May 3, 2025 and April 27, 2024, 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: 89 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements 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 May 3, 2025, April 27, 2024 and April 29, 2023, the Company recognized $ 13.2 million, $ 3.9 million and $ 1.2 million, respectively, as contra revenue within the product sales revenue on the consolidated statements of operations. The contra revenue impact associated with the Warrant has been fully amortized as of May 3, 2025. 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 held to maturity securities 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 tables present the fair value of the financial instruments measured on a recurring basis, or measured at amortized cost which approximates fair value, as of May 3, 2025 and April 27, 2024 (in thousands). 90 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements May 3, 2025 Level 1 Level 2 Level 3 Total Cash equivalents: Money market funds $ 148,036 $ — $ — $ 148,036 Certificates of deposit — $ 65,137 — $ 65,137 Short-term investments: Certificates of deposit — 195,010 — 195,010 Total cash equivalents and short-term investments $ 148,036 $ 260,147 $ — $ 408,183 April 27, 2024 Level 1 Level 2 Level 3 Total Cash equivalents: Money market funds $ 57,175 $ — $ — $ 57,175 Short-term investments: Certificates of deposit — 343,061 — 343,061 Total cash equivalents and short-term investments $ 57,175 $ 343,061 $ — $ 400,236 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 May 3, 2025 and April 27, 2024, there were no unrealized loss or gains associated with the Company’s financial instruments. The interest income recognized during the years ended May 3, 2025, April 27, 2024 and April 29, 2023 was $ 18.8 million, $ 15.3 million and $ 4.7 million, respectively. 6. Supplemental Financial Information Inventories Inventories consisted of the following (in thousands): May 3, 2025 April 27, 2024 Raw materials $ 12,734 $ 9,415 Work in process 24,583 7,470 Finished goods 52,712 9,022 $ 90,029 $ 25,907 91 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements Property and Equipment, Net Property and equipment consisted of the following (in thousands): May 3, 2025 April 27, 2024 Production equipment $ 44,789 $ 27,608 Computer equipment and software 27,901 18,271 Laboratory equipment 21,944 19,840 Leasehold improvements 3,222 2,525 Others 291 534 Construction in progress 9,687 3,616 107,834 72,394 Less: accumulated depreciation and amortization ( 44,203 ) ( 28,729 ) $ 63,631 $ 43,665 Depreciation and amortization expense, excluding the asset impairment charges, for the years ended May 3, 2025, April 27, 2024 and April 29, 2023, was $ 21.9 million, $ 13.8 million, and $ 9.5 million, respectively. Construction in progress and production equipment primarily includes mask set costs capitalized relating to the Company’s products. During the years ended May 3, 2025, April 27, 2024 and April 29, 2023, the Company recorded impairment charges of $ 0.9 million, $ 0.8 million and $ 2.4 million, respectively. Generally, the impairment charges were related to impairment of property and equipment or third-party IP licenses for future products that did not reach production qualification. Other Current Liabilities Accrued expenses and other current liabilities consisted of the following (in thousands): May 3, 2025 April 27, 2024 Accrued expenses $ 12,202 $ 8,832 Accruals relating to inventory purchases 10,164 778 Current payables relating to purchases of property and equipment 8,420 5,950 Current portion of operating lease liabilities 3,342 2,741 Other 1,328 3,902 $ 35,456 $ 22,203 Other Non-current Liabilities Other non-current liabilities consisted of the following (in thousands): May 3, 2025 April 27, 2024 Non-current payables relating to purchases of property and equipment $ 5,762 $ 4,950 Other non-current liabilities 1,509 1,031 $ 7,271 $ 5,981 7. Commitments and Contingencies Non-Cancelable Purchase Obligations Total future non-cancelable purchase obligations as of May 3, 2025 were as follows (in thousands): 92 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements Fiscal Year Purchase Commitments to Manufacturing Vendors Technology License Fees Total 2026 $ 34,675 $ 11,795 $ 46,470 2027 5,013 8,228 13,241 2028 3,800 350 4,150 2029 — 350 350 Total unconditional purchase commitments $ 43,488 $ 20,723 $ 64,211 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 May 3, 2025, the total value of non-cancelable inventory purchase orders payable within the next one year that were committed with the Company’s third-party subcontractors was approximately $ 30.3 million. Such purchase commitments are included in the preceding table. The Company has a manufacturing supply capacity reservation agreement with an assembly subcontractor as of May 3, 2025. Under this arrangement, the Company has paid refundable deposits to the supplier in exchange for reserved manufacturing production capacity over the remaining 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 $ 13.2 million for the fiscal year 2026 through fiscal year 2028 under the capacity reservation agreement. Such purchase commitments are included in the preceding table. In addition, the Company had refundable deposits of $ 8.1 million as of May 3, 2025, of which $ 2.2 million was recorded in other current assets and $ 5.9 million was recorded in other non-current assets on the consolidated balance sheets. 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 generally carry a standard one-year warranty. The Company’s warranty expense has not been material in the periods presented. Indemnifications In the ordinary course of business, the Company 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 May 3, 2025 and April 27, 2024. 93 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements 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. 8. Ordinary Shares The Company filed the Amended and Restated Memorandum of Association with Cayman Islands, which authorized 1,000 million ordinary shares, par value $ 0.00005 per share and 50 million 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. 9. 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 Title 26 U.S. Code Section 422 or Non-qualified 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, 26.0 million 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. 94 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements A summary of information related to share option activity, excluding options early exercised, is as follows: Outstanding Share Options (in millions) Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value (in millions) Balances as of April 30, 2022 11.4 $ 1.94 7.12 $ 103.4 Options exercised and vested ( 2.2 ) $ 1.48 Options canceled/ forfeited ( 0.2 ) $ 3.34 Balances as of April 29, 2023 8.9 $ 2.02 6.22 $ 0.1 Options exercised and vested ( 2.3 ) $ 1.98 Options canceled/ forfeited ( 0.2 ) $ 4.64 Balances as of April 27, 2024 6.4 $ 1.97 5.30 $ 106.5 Options exercised and vested ( 2.9 ) $ 1.64 Options canceled/ forfeited — $ 4.58 Balances as of May 3, 2025 3.5 $ 2.23 4.79 $ 162.8 Vested or expected to vest as of May 3, 2025 3.5 $ 2.23 4.79 $ 162.8 Exercisable as of May 3, 2025 3.5 $ 2.21 4.78 $ 161.6 During the years ended May 3, 2025, April 27, 2024 and April 29, 2023, the total intrinsic value of options exercised was $ 130.5 million, $ 36.2 million and $ 22.2 million, respectively. The weighted-average grant date fair value of options vested was $ 1.64 , $ 1.52 and $ 1.41 per share for the years ended May 3, 2025, April 27, 2024 and April 29, 2023, respectively. The total grant date fair value of share options that vested was $ 6.8 million, $ 13.3 million and $ 15.6 million as of May 3, 2025,April 27, 2024 and April 29, 2023, respectively. As of May 3, 2025, the total unrecognized compensation cost was $ 0.1 million related to share options, which are expected to be recognized over a weighted-average period of 0.21 years. 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 19.9 million ordinary shares reserved for issuance. Awards granted under the 2021 Plan may include, but are not limited to, options, time-based restricted share units (RSUs) and performance-based restricted share units (PSUs). RSU and PSU awards are denominated in 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 May 3, 2025 allowed cash settlement. Awards under the 2021 Plan generally vest over 4 years. As of May 3, 2025, 18.9 million shares remained available for future issuance under the 2021 Plan. 95 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements A summary of time-based RSU activity is as follows: Number of shares (in millions) Weighted-Average Grant Date Fair Value Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value (in millions) Balances as of 4/30/2022 4.1 $ 10.26 1.65 $ 45.6 Granted 5.5 $ 12.34 Vested ( 1.4 ) $ 10.17 Canceled/ forfeited ( 0.4 ) $ 10.80 Balances as of 4/29/2023 7.8 $ 11.66 1.65 $ 63.2 Granted 5.4 $ 20.08 Vested ( 2.6 ) $ 11.98 Canceled/ forfeited ( 0.4 ) $ 11.49 Balances as of 4/27/2024 10.1 $ 16.11 1.52 $ 188.2 Granted 3.9 $ 59.10 Vested ( 4.0 ) $ 15.53 Canceled/ forfeited ( 0.6 ) $ 20.05 Balances as of 5/03/2025 9.5 $ 33.88 1.39 $ 458.1 Expected to vest as of May 03, 2025 9.5 $ 33.88 1.39 $ 458.1 As of May 3, 2025, unamortized compensation expense related to RSUs was $ 318.6 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 2.66 years. During fiscal year 2025, the Company granted 0.2 million PSUs to certain named executive officers which will be eligible to become earned between 0 % and 200 % of target levels based on the Company’s achievement of specified revenue goals for the fiscal year ending May 2, 2026. At the end of such fiscal year, the Compensation Committee will measure the achievement of such goals and determine the number of Refresh PSUs that have become earned based on performance (the Achievement PSUs). The Achievement PSUs will then be subject to a service-based vesting requirement over an additional three-year period, with 25 % on the number of Achievement PSUs vesting on each of June 10, 2026, June 10, 2027, June 10, 2028 and June 10, 2029. In the event of a termination of service due to an executive’s death or disability, any unvested PSUs will vest in full as of the date of termination with respect to the number of Achievement PSUs (or target PSUs, if the number of Achievement PSUs has not yet been determined). As of May 3, 2025, the PSUs remain unvested and there were no cancellations/forfeitures. The weighted-average grant date fair value of the PSUs was $ 43.70 with a weighted-average remaining contractual term of 2.5 years and aggregate intrinsic value of $ 10.1 million As of May 3, 2025, unamortized compensation expense related to PSUs was $ 17.1 million. Employee Stock Purchase Plan In January 2022, the Company adopted the Employee Stock Purchase Plan (ESPP). Under the ESPP, a total of 3.8 million shares have been authorized for the grant of shares and participants can purchase the Company’s ordinary shares using payroll deductions, which may not exceed 15 % of their 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. 96 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements During the years ended May 3, 2025, April 27, 2024 and April 29, 2023, 0.2 million, 0.3 million and 0.2 million shares were issued under the ESPP, respectively. As of May 3, 2025, 6.0 million shares remained available for future issuance under the ESPP. The following weighted-average assumptions to calculate the fair value of ordinary shares to be issued under the ESPP on the date of grant using the Black-Scholes option pricing model in the periods presented: Year Ended May 3, 2025 April 27, 2024 April 29, 2023 Grant date fair value 10.51 6.04 4.27 Expected volatility 74.99 % 56.13 % 34.00 % Expected term (in years) 1.18 1.33 0.93 Risk-free interest rate 4.74 % 3.40 % 1.54 % Expected dividend yield — % — % — % Summary of Share-based Compensation Expense The following table summarizes share-based compensation cost included in the consolidated statements of operations (in thousands). Year Ended May 3, 2025 April 27, 2024 April 29, 2023 Cost of revenue $ 1,194 $ 1,131 $ 634 Research and development 41,930 21,359 13,326 Selling, general and administrative 34,231 16,532 9,556 $ 77,355 $ 39,022 $ 23,516 10. Leases 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 1 year and 6 years. Operating leases are included in right of use assets, other current liabilities, and non-current operating lease liabilities on the Company’s consolidated balance sheets. The Company does not have any finance leases. Lease expense and supplemental cash flow information are as follows (in thousands): Year Ended May 3, 2025 April 27, 2024 Operating lease expenses $ 4,186 $ 3,855 Cash paid for amounts included in the measurement of operating lease liabilities $ 3,961 $ 3,495 Right-of-use assets obtained in exchange for lease obligation $ 5,178 $ 978 97 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements The aggregate future lease payments for operating leases as of May 3, 2025 are as follows (in thousands): Fiscal Year Operating leases 2026 $ 4,092 2027 3,515 2028 3,496 2029 3,425 2030 2,824 Thereafter 1,199 Total lease payments 18,551 Less: Interest 2,516 Present value of lease liabilities $ 16,035 As of May 3, 2025, the weighted average remaining lease term for the Company's operating leases was 4.97 years and the weighted average discount rate used to determine the present value of the Company's operating leases was approximately 6.34 %. 11. Income Taxes Income (loss) before provision (benefit) for income taxes consists of the following (in thousands): Year Ended May 3, 2025 April 27, 2024 April 29, 2023 United States $ 13,795 $ 8,611 $ 4,469 International 41,075 ( 31,356 ) ( 22,383 ) $ 54,870 $ ( 22,745 ) $ ( 17,914 ) The components of income tax expense (benefit) are summarized as follows (in thousands): Year Ended May 3, 2025 April 27, 2024 April 29, 2023 Current Federal $ — $ 2 $ ( 24 ) State 12 3 2 International 2,253 1,484 762 Total current tax expense 2,265 1,489 740 Deferred Federal — 3,092 ( 2,005 ) State — 359 ( 218 ) International 423 684 116 Total deferred tax expense (benefit) 423 4,135 ( 2,107 ) Total tax expense (benefit) $ 2,687 $ 5,624 $ ( 1,367 ) 98 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements The tax effects of significant items comprising the Company’s deferred taxes are as follows (in thousands): May 3, 2025 April 27, 2024 Deferred tax assets: Accrued expense $ 1,904 $ 1,063 Net operating losses 28,557 4,443 Research and development credits 35,641 15,990 Share compensation 3,667 2,310 Lease liability 3,063 3,154 Intangibles 141 157 Others 11 — Total deferred tax assets 72,984 27,117 Deferred tax liabilities Property and equipment basis ( 1,963 ) ( 1,774 ) Right of use assets ( 2,890 ) ( 2,980 ) Others — ( 8 ) Total deferred tax liabilities ( 4,853 ) ( 4,762 ) Valuation allowance ( 69,456 ) ( 23,258 ) Net deferred taxes $ ( 1,325 ) $ ( 903 ) 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. As of May 3, 2025, the Company recorded $ 69.5 million of valuation allowance. In fiscal year 2025, the valuation allowance increased by $ 46.2 million. The Company continues to maintain a full valuation allowance on its U.S. net deferred tax assets. The Company will continue to assess the future realization of its deferred tax assets in each applicable jurisdiction and adjust the valuation allowance accordingly. As of May 3, 2025, the Company had U.S. federal and state net operating loss carryforwards of approximately $ 130.7 million and $ 15.4 million, respectively. The U.S. federal net operating loss carryforwards can be carried forward indefinitely. The state net operating loss carryforwards will begin to expire in fiscal 2043. As of May 3, 2025, the Company had U.S. federal and state research credits of $ 29.2 million and $ 19.0 million, respectively. The federal research credits will begin to expire in 2039. The state research credits have no expiration date. As of May 3, 2025, the Company had no foreign tax credit carryover. Internal Revenue Code Section 382 limits the use of net operating loss and tax credit carryforwards in certain situations where changes occur in the stock ownership of a company. In the event that we had a change of ownership, utilization of the net operating loss and tax credit carryforwards may be restricted. A summary activity of the valuation allowance is as follows (in thousands): May 3, 2025 April 27, 2024 April 29, 2023 Beginning valuation allowance $ 23,258 $ 9,306 $ 5,170 Additions 46,197 13,952 4,136 Ending valuation allowance $ 69,456 $ 23,258 $ 9,306 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 $ 47.1 million as of May 3, 2025. The Company intends to reinvest these earnings indefinitely. The Company consists of a Cayman Islands parent holding company with various international and U.S. subsidiaries. The applicable statutory rate in Cayman Islands is zero for the Company for the years 99 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements ended May 3, 2025, April 27, 2024 and April 29, 2023. 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 May 3, 2025, April 27, 2024 and April 29, 2023 is applied as follows: Year Ended May 3, 2025 April 27, 2024 April 29, 2023 Statutory federal tax expense rate 21 % 21 % 21 % State tax, net of federal benefit — % ( 2 ) % 1 % Research tax credits ( 24 ) % 20 % 14 % Share compensation ( 53 ) % 24 % 18 % Other — % ( 1 ) % 1 % Foreign rate differential ( 12 ) % ( 34 ) % ( 32 ) % Change in valuation allowance 72 % ( 49 ) % ( 15 ) % Withholding taxes 1 % ( 4 ) % ( 1 ) % Effective tax rate 5 % ( 25 ) % 8 % A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands): May 3, 2025 April 27, 2024 Beginning gross unrecognized tax benefits $ 4,574 $ 2,865 Additions for tax positions taken in the current year 5,196 1,988 Subtractions for tax positions taken in the prior year ( 278 ) ( 210 ) Lapses in statute of limitations ( 52 ) ( 69 ) Ending gross unrecognized tax benefits $ 9,440 $ 4,574 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 May 3, 2025 and April 29, 2024 were potential benefits of $ 9.4 million and $ 4.6 million, respectively, which if recognized, would potentially 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. 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 May 3, 2025, April 29, 2024 and April 29, 2023, the Company’s current tax provision was not impacted by interest and penalties. The Company files U.S. federal and state and non-U.S. income tax returns with varying statutes of limitations. The Company’s tax returns continue to remain subject to examination by U.S. federal authorities for the years ended April 30, 2022 through 2024 and by state authorities for the years ended April 30, 2021 through 2024. For the Company’s international subsidiaries, the tax years that remain open to examination vary based on the year that each entity began operating. 100 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements 12. Net Income (Loss) Per Share Net income (loss) per share was determined as follows for the years presented (in thousands, except per share amounts): Year Ended May 3, 2025 April 27, 2024 April 29, 2023 Numerator: Net income (loss) $ 52,183 $ ( 28,369 ) $ ( 16,547 ) Denominator: Weighted-average shares outstanding used in basic calculation 167,505 155,091 146,556 Effect of dilutive shares Share-based compensation awards 10,611 — — Customer Warrant 3,042 — — Weighted-average shares outstanding used in diluted calculation 181,158 155,091 146,556 Net income (loss) per share attributable to ordinary shareholders Basic $ 0.31 $ ( 0.18 ) $ ( 0.11 ) Diluted $ 0.29 $ ( 0.18 ) $ ( 0.11 ) 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 May 3, 2025, April 27, 2024 and April 29, 2023 : Year Ended May 3, 2025 April 27, 2024 April 29, 2023 Share-based compensation awards 3,349 16,777 15,194 Customer Warrant — 4,080 4,080 3,349 20,857 19,274 13. Segment and Geographic Information As discussed in “Note 2. Significant Accounting Policies,” the Company operates in one reportable segment. The CODM uses net income or loss for the purposes of making operating decisions, allocating resources and evaluating financial performance. The measure of segment assets is reported on the consolidated balance sheet as total assets, although the CODM does not evaluate asset information for 101 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements purposes of allocating resources or evaluating performance. The table below provides information about the Company’s revenue, significant segment expenses and other segment expenses (in thousands): Year Ended May 3, 2025 April 27, 2024 April 29, 2023 Revenue $ 436,775 $ 192,970 $ 184,193 Less: Cost of revenue 153,866 73,538 78,000 Personnel related expenses 95,269 69,630 59,089 Share-based compensation 76,160 37,890 22,883 Other segment items* 59,297 40,281 40,768 Net income (loss) $ 52,183 $ ( 28,369 ) $ ( 16,547 ) *Other segment items primarily include lease expenses, external professional services expenses, depreciation and amortization, interest income and tax provision (benefit). 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 engineering services, which may differ from the end customer’s principal offices (in thousands): Year Ended May 3, 2025 April 27, 2024 April 29, 2023 Hong Kong $ 243,727 $ 70,162 $ 9,646 United States 65,097 49,569 44,253 Mainland China 80,055 28,264 96,935 Taiwan 3,624 21,286 5,363 Rest of World 44,272 23,689 27,997 $ 436,775 $ 192,970 $ 184,194 The following table presents long-lived assets information based on the physical location of the assets by geographic region (in thousands): May 3, 2025 April 27, 2024 Property and equipment, net: Taiwan $ 38,501 $ 24,874 United States 12,793 11,150 Hong Kong 8,047 5,208 Mainland China 4,290 2,433 $ 63,631 $ 43,665 102 Credo Technology Group Holding Ltd Notes to Consolidated Financial Statements Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.