Credo Technology Group Holding Ltd — FY2022 Form 10-K
Period: Fiscal year ended April 30, 2022, compared with fiscal 2021. The request metadata says “2021 Q4,” but this filing covers the full fiscal year ended April 30, 2022, not a standalone quarter.
Business context
Credo designs high-speed connectivity products and licenses SerDes intellectual property for data infrastructure, including hyperscale data centers, high-performance computing and 5G. Products include integrated circuits, active electrical cables (AECs) and SerDes chiplets. The company operates a fabless manufacturing model and relies on third parties, including TSMC, for production. It completed its IPO in January 2022.
Key financial results
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $106.5 million | $58.7 million |
| Gross profit / margin | $64.0 million / 60.1% | $38.3 million / 65.2% |
| Operating loss | $22.0 million | $25.2 million |
| Net loss | $22.2 million | $27.5 million |
| Net loss per share, basic and diluted | $0.25 | $0.40 |
| Cash used in operating activities | $30.8 million | $42.4 million |
| Cash used in investing activities | $17.6 million | $6.1 million |
| Cash provided by financing activities | $204.2 million | $77.9 million |
Revenue increased 81.4%. Product sales rose 168.3% to $73.7 million; IP license revenue rose 34.9% to $23.3 million. Product sales were 69% of revenue, up from 47%; IP license revenue was 22%, down from 29%. Product and product-engineering revenue together represented 77% of total revenue, versus 63% in FY2021.
Gross margin fell 5.1 percentage points, principally because product sales became a larger share of revenue. Product-sales gross margin improved to 45.6% from 41.5%, while IP-license revenue carried a 100% gross margin. Research and development expense increased 37.6% to $47.9 million; selling, general and administrative expense increased 21.7% to $34.9 million. Operating expenses included a $3.1 million impairment charge; the filing also reports $4.9 million of total asset impairment, including $1.8 million in cost of product sales.
Liquidity, balance sheet and cash flow
At April 30, 2022, cash and cash equivalents were $259.3 million, working capital was $305.7 million, and total assets were $375.7 million. Total liabilities were $41.5 million. The balance sheet reports no borrowings or other debt balance. Management said existing cash and working capital should cover needs for at least the next 12 months.
Operating cash outflow improved year over year but remained negative; working-capital outflows included increases in receivables, inventory and contract assets. Capital spending was $17.6 million, primarily for product mask sets and R&D laboratory equipment. Financing cash flow included $194.2 million of net IPO proceeds. The filing reports inventory of $27.3 million, up from $7.1 million, and accounts receivable of $29.5 million, up from $13.6 million.
Changes, outlook and material matters
- Growth and mix: Management attributed revenue growth mainly to higher IC unit sales and AEC revenue, as well as additional IP licenses. IC units sold increased 118% year over year.
- Outlook: The filing gives no specific numerical revenue or earnings guidance. Management expects R&D and selling and administrative expenses to increase in absolute dollars, and anticipates longer-term operating-leverage benefits as the business scales.
- Customer concentration: The business depends on a small number of customers, and orders generally lack long-term minimum-purchase commitments. Customer demand, order timing and cancellations can materially affect results.
- Concentration disclosure to reconcile: The business overview identifies four customers at 30%, 18%, 11% and 10% of FY2022 revenue; the customer note shows 30%, 18%, 11% and 10% for its named customers. However, the risk-factor discussion says two customers represented 52% and 14%. These disclosures do not agree.
- Supply and market risks: Credo relies on TSMC for all semiconductor wafer production and on a limited group of assembly, testing and cable suppliers, mostly in Asia. The filing cites supply constraints, potential supplier price increases, geopolitical tensions, COVID-19 disruption, semiconductor cyclicality, competition and lengthy customer design cycles.
- Customer warrant: A warrant issued to Amazon in December 2021 covers up to 4.08 million shares at $10.74 per share, with vesting tied to up to $201 million of customer and affiliate payments. Credo recorded $0.6 million as contra-revenue in FY2022.
- Contract milestones: A September 2021 IP licensing and development contract provides for $43.5 million of cash consideration over an estimated three years, subject to milestones. Credo recognized $11.6 million after the first deliverable; remaining milestone revenue was constrained because of uncertainty and customer dependencies.
- Contingencies and controls: The company reported no material pending litigation or recorded loss contingency. It disclosed a prior export-control matter involving three evaluation boards; BIS closed it with a warning letter in September 2021. Management concluded disclosure controls were effective; the filing contains no auditor attestation on internal control over financial reporting under the new-public-company transition exemption.
Important facts for investors to verify
- Reconcile the inconsistent customer-concentration figures and confirm the current revenue exposure to major customers.
- Assess whether revenue growth and product-margin improvement can continue while product sales become a larger share of revenue.
- Monitor operating cash use, inventory and receivables growth, and the timing and collectability of contract milestone payments.
- Review customer-warrant vesting and its potential dilution, alongside equity compensation and share issuance.
- Evaluate manufacturing dependence, supply availability and pricing, and the effect of geopolitical or regulatory developments on suppliers and customers.