0001807794-25-000021
SEC filingCredo delivered a transformative quarter with revenue surging 273.6% YoY to $223.1M, driven by hyperscale AEC product ramps, swinging to a $63.4M net profit.
Credo Technology Group Holding Ltd reported exceptional financial results for the first quarter of fiscal year 2026, ended August 2, 2025. The company's performance was defined by a massive acceleration in product revenue, leading to a swing from a prior-year operating loss to substantial profitability.
Total revenue was $223.1 million, an increase of 273.6% compared to $59.7 million in the same period of fiscal year 2025. This growth was overwhelmingly driven by product sales revenue, which surged 278.6% to $217.1 million. The primary catalyst was a significant increase in the volume of unit shipments of Active Electrical Cable (AEC) products, which contributed over 95% of the product sales increase. This ramp was fueled by deployments at two hyperscale data center customers. IP license revenue also grew, increasing 151.8% to $6.0 million, due to sales to a new customer.
Gross profit followed revenue growth, increasing 303.3% to $150.4 million. Gross margin expanded by 500 basis points to 67.4%, up from 62.4% in the prior-year quarter. Management attributed this improvement to better economies of scale in product sales.
Operating expenses rose 73.2% to $89.6 million, driven by a $22.0 million increase in research and development (R&D) and a $15.9 million increase in selling, general and administrative (SG&A) expenses. A significant component of this increase was a $18.9 million rise in share-based compensation expense, which totaled $35.5 million for the quarter. Despite the increase in operating expenses, the company generated operating income of $60.7 million, a dramatic turnaround from an operating loss of $14.5 million in the prior-year quarter. The operating margin reached 27.2%.
Other income, net, was $3.9 million, down from $5.5 million in the prior year. After a provision for income taxes of $1.3 million, net income was $63.4 million, compared to a net loss of $9.5 million in the same quarter last year. Diluted earnings per share (EPS) was $0.34, based on 184.6 million diluted shares, compared to a loss per share of $0.06 a year ago.
As of August 2, 2025, Credo's balance sheet remained robust. Total assets were $905.2 million, up from $809.3 million at the end of fiscal 2025 on May 3, 2025. The company held $219.6 million in cash and cash equivalents and $260.0 million in short-term investments, for a total of $479.6 million in liquid assets. This compares to $236.3 million in cash and $195.0 million in short-term investments at the prior fiscal year-end.
Working capital increased to $695.2 million from $605.8 million at the end of the prior fiscal year. Key drivers of the change in working capital included a $27.5 million increase in inventories to support new product ramps and a $19.1 million increase in accounts receivable due to higher sales volume. Total liabilities were $123.8 million, slightly down from $127.7 million. The company has no debt, and management believes existing cash and investments are sufficient to meet its needs for at least the next 12 months.
For the three months ended August 2, 2025, net cash provided by operating activities was $54.2 million, a significant improvement from $7.2 million used in operations in the prior-year period. The strong operating cash flow was primarily driven by net income of $63.4 million, adjusted for significant non-cash charges including $35.5 million in share-based compensation and $5.5 million in depreciation and amortization. These inflows were partially offset by a $49.2 million investment in working capital, mainly to fund inventory and accounts receivable growth.
Net cash used in investing activities was $67.8 million, driven by $115.0 million in purchases of short-term investments (certificates of deposit), partially offset by $50.0 million in maturities. Capital expenditures (capex) were $2.8 million, or 1.3% of revenue, primarily for third-party IP licenses and computer equipment for R&D.
Net cash used in financing activities was $3.0 million, mainly due to $3.9 million in payments for technology license obligations, partially offset by $0.9 million in net proceeds from employee equity plans.
Management's discussion highlights the successful ramp of AEC solutions at two hyperscale customers as the primary growth driver. The company's mission is focused on enabling next-generation AI-driven applications, and its connectivity solutions are optimized for high-speed Ethernet markets, including the emerging 1.6T market.
Credo employs a fabless business model and a two-pronged sales strategy targeting both end-users and their suppliers. The company anticipates that it will continue to derive a significant portion of its revenue from a limited number of customers for the foreseeable future, though it expects customer concentration to decrease as its products are more widely adopted. No specific quantitative financial guidance for future periods was provided in the filing.
Key risks include high customer concentration, with two end customers representing 35% and 33% of total revenue, and significant non-cancelable purchase obligations totaling $57.0 million, which could pose a risk if demand weakens. The company also noted that the current macroeconomic environment requires increased judgment and carries a higher degree of variability and volatility for its estimates.
Revenue is disaggregated geographically, with 37% from North America and 63% from the rest of the world, primarily Asia. Product sales revenue comprised 97.3% of total revenue. Customer concentration is significant; based on contracting entities, Customer A accounted for 50% of revenue, and Customer B accounted for 35%. Based on end customer profile, Customer B and Customer C accounted for 35% and 33% of revenue, respectively.
Share-based compensation expense was a substantial $35.5 million, allocated as $0.4 million to cost of revenue, $19.2 million to R&D, and $15.9 million to SG&A. This represents a significant increase from $16.6 million in the prior-year quarter, driven by new equity awards.
As of August 2, 2025, the company had a contract asset balance of $10.8 million and deferred revenue of $3.1 million. The contracted but unsatisfied performance obligation was approximately $3.4 million. A warrant issued to a customer for up to 4.1 million ordinary shares at an exercise price of $10.74 per share remained fully vested and unexercised.
On the legal and regulatory front, the company noted the enactment of the One Big Beautiful Bill Act (OBBBA) in the U.S. on July 4, 2025, but does not currently expect it to have a material impact on its effective tax rate. Two officers adopted Rule 10b5-1 trading plans during the quarter.