Credo Technology Group Holding Ltd (CRDO)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended May 3, 2025 included in the Company’s Annual Report on Form 10-K for the fiscal year ended May 3, 2025. Some of the information contained in this discussion and analysis includes forward-looking statements that involve risks and uncertainties as described under the heading “Special Note Regarding Forward-Looking Statements” of this Quarterly Report on Form 10-Q.

Overview

At Credo, our mission is to transform connectivity at scale through fast, reliable and energy-efficient system solutions. The Company’s high-speed copper and optical interconnect products deliver industry-leading power and performance at up to 1.6T to meet the ever-expanding data infrastructure demands of AI. The Company’s product portfolio includes ZeroFlap (ZF) Active Electrical Cables (AECs) and ZF optical transceivers, OmniConnect memory solutions and a suite of retimers and DSPs for optical and copper Ethernet and PCIe, all leveraging the PILOT diagnostic and analytics software platform. The Company innovations enable our customers to connect the systems that connect the world.

Data generation has increased dramatically over the past ten years, creating new and complicated challenges in both circuit and system design. Our proprietary SerDes and DSP technologies enable us to achieve similar performance to leading competitors’ products but at a lower cost and more highly available legacy node (n-1 advantage). Beyond power and performance, Credo continues to innovate to address customers’ system level requirements. We partner with Microsoft on our HiWire Switch AEC and open-source implementation that helps realize Microsoft’s vision for a highly reliable network-managed dual-Top-of-Rack (ToR) architecture (a network architecture design in which computing equipment located within the same or an adjacent rack are, for redundancy, connected to two in-rack network switches, which are, in turn, connected to aggregation switches via fiber optic cables), overcome complex and slow legacy enterprise approaches, simplify deployment and improve connection reliability in the data center.

The multibillion-dollar data infrastructure market that we serve is driven largely by hyperscale data centers (hyperscalers), as well as general compute, AI/ML infrastructure, multi-service operators (MSOs) and mobile network operators (MNOs). The demands for increased bandwidth, improved power and cost efficiency and heightened security have simultaneously and dramatically expanded as work, education and entertainment have rapidly digitized across myriad endpoint users.

We design, market and sell product, software and IP solutions. We help define industry conventions and standards within the markets we target by collaborating with technology leaders and standards bodies. We contract with a variety of manufacturing partners to build our products based on our proprietary SerDes and DSP technologies. We develop standard solutions we can sell broadly to our end markets and also develop tailored solutions designed to address specific customer needs. Once developed, these tailored solutions can generally be broadly leveraged across our portfolio and we are able to sell the part or license the IP to the broader market.

During the three and nine months ended January 31, 2026, we generated $407.0 million and $898.1 million in revenue, respectively, and during the three and nine months ended February 1, 2025, we generated $135.0 million and $266.8 million in revenue, respectively. During the three and nine months ended January 31, 2026, we generated $157.1 million and $303.2 million in net income, respectively, and during the three and nine months ended February 1, 2025, we generated $29.4 million and $15.6 million in net income, respectively.

We derive the substantial majority of our revenue from a limited number of customers. We anticipate we will continue to derive a significant portion of our revenue from a limited number of customers for the foreseeable future. We expect that as our products are more widely adopted and as our number of customers increase, customer concentration will decrease.

We sell our products to hyperscalers, original equipment manufacturers (OEMs), original design manufacturers (ODMs) and optical module manufacturers, as well as to companies in the enterprise and HPC markets. We work closely and have engagements with industry-leading companies across these segments. A relatively small number of customers have historically accounted for and continue to account for a significant portion of our revenue. We report revenue by customer in our financial statement disclosure based on the contracting parties who place purchase orders

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or sign revenue contracts with us. See Note 3 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. However, certain of our end customers have their contract manufacturing partners place orders with us. As a result, the contract manufacturers, rather than the end customers, are reported as our customers for financial reporting purposes. As a supplement to our financial statement footnote disclosure and to provide further insight into our end customer concentration, the following table summarizes our revenue by customer as a percentage of revenue based on end customer profile, rather than based on the contracting parties who place purchase orders or sign revenue contracts with us:

* Less than 10% of total revenue.

Our Business Model

We are a product-focused business with a strong foundation in IP, pioneering comprehensive connectivity solutions that deliver bandwidth, scalability and end-to-end signal integrity for next-generation platforms. We also develop IP solutions to address the specific and complex needs of our customers. We earn revenue from these IP solutions primarily through licensing fees and royalties.

We utilize a fabless business model, working with a network of third parties to manufacture, assemble and test our connectivity products. This approach allows us to focus our engineering and design resources on our core competencies and to control our fixed costs and capital expenditures.

We employ a two-pronged sales strategy targeting both the end users of our products, as well as the suppliers of our end users. By engaging directly with the end user, we are able to better understand the needs of our customers and cater our solutions to their most pressing connectivity requirements.

This strategy has enabled us to become the preferred vendor to a number of our customers who, in turn, in some cases, require their suppliers, OEMs, ODMs and optical module manufacturers to utilize our solutions.

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Results of Operations

Three and Nine Months Ended January 31, 2026 and February 1, 2025

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

Comparison of Three and Nine Months Ended January 31, 2026 and February 1, 2025

Revenue

Revenue for the three and nine months ended January 31, 2026 increased by $272.0 million and $631.4 million respectively, compared to the same period in fiscal year 2025. The increase in revenue for the three and nine months ended January 31, 2026, compared to the same periods in fiscal year 2025, was primarily due to a significant increase in the volume of unit shipments of AEC products. The sales increase was primarily driven by the ramp-up of our AEC solutions at our hyperscale data center customers during the three and nine months ended January 31, 2026.

Cost of Revenue

Cost of revenue for the three and nine months ended January 31, 2026 increased by $79.1 million and $189.8 million, respectively, compared to the same periods in fiscal year 2025, primarily due to the increased shipments of AEC products noted above.

Gross Profit and Gross Margin

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Gross margin in the three and nine months ended January 31, 2026 increased by 4.9 and 4.7 percentage points, respectively, compared to the same periods in fiscal year 2025, primarily driven by the improved economies of scale in our revenue.

Research and Development

Research and development expense for the three months ended J

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in those forward-looking statements. Factors that could cause or contribute to such differences include those identified below and those discussed in the section titled “Risk Factors.”

A discussion regarding our financial condition and our results of operations for the fiscal year ended May 2, 2026 compared to the fiscal year ended May 3, 2025 is presented below. A discussion regarding our results of operations for the fiscal year ended May 3, 2025 compared to the fiscal year ended April 27, 2024 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended May 3, 2025, filed with the SEC on July 2, 2025.

Overview

At Credo, our mission is to transform connectivity at scale through fast, reliable and energy-efficient system solutions. The Company’s highspeed copper and optical interconnect products deliver industry-leading power and performance at up to 1.6T to meet the ever-expanding data infrastructure demands of AI. The Company’s product portfolio includes ZeroFlap (ZF) Active Electrical Cables (AECs) and ZF optical transceivers, OmniConnect memory solutions and a suite of retimers and Digital Signal Processors (DSPs) for optical and copper Ethernet and PCIe, all leveraging the PILOT diagnostic and analytics software platform. Our innovations enable our customers to connect the systems that connect the world.

Our connectivity solutions are optimized for optical and electrical Ethernet, PCIe and emerging UALink, ESUN and SUE applications, ranging in speeds from 32G (or Gigabits per second per lane) to 200G. Our products are based on our own optimized Serializer/Deserializer (SerDes) and DSP technologies. Our product families include integrated circuits (ICs), Active Electrical Cables (AECs) and SerDes Chiplets. Our intellectual property (IP) solutions consist primarily of SerDes IP licensing.

Artificial Intelligence (AI) has bred a new generation of data centers over the past 5 years that depend much more heavily on high speed, reliable communications for Front End, Scale Out, Scale Up and emerging Scale In Networks. Our proprietary SerDes and DSP technologies enable us to achieve similar performance to leading competitors’ products but at a lower cost and more highly available legacy node (n-1 advantage). Beyond power and performance, Credo continues to innovate to address customers’ system level requirements. We partnered with Oracle to develop our ZeroFlap Optics that helps address the reliability issues known as Link Flap which plague commodity options in AI data centers enabling faster AI cluster turn on and time to first revenue.

The multibillion-dollar data infrastructure market that we serve is driven largely by hyperscale data centers (hyperscalers) and emerging NeoClouds building AI/Machine Learning (ML) Infrastructure as well as general compute and data centers. The demands for increased bandwidth, better reliability and improved power efficiency have grown as AI model sizes have increased from billions to trillions of parameters and the workload has expanded from training to inference.

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We design, market and sell both product, software and IP solutions. We help define industry conventions and standards within the markets we target by collaborating with technology leaders and standards bodies. We contract with a variety of manufacturing partners to build our products based on our proprietary SerDes and DSP technologies. We develop standard solutions we can sell broadly to our end markets and also develop tailored solutions designed to address specific customer needs. Once developed, these tailored solutions can generally be broadly leveraged across our portfolio and we are able to sell the part or license the IP to the broader market.

During fiscal 2026 and 2025, we generated $1.3 billion and $436.8 million in total revenue, respectively. Geographically, 58% and 15% of our total revenue in fiscal 2026 and 2025 was generated from customers in North America, and 42% and 85% of our total revenue in fiscal 2026 and 2025 was generated from customers in the rest of the world, primarily in Asia. During fiscal 2026 and 2025, we generated $472.3 million and $52.2 million of net income, respectively.

We derive the substantial majority of our revenue from a limited number of customers. We anticipate we will continue to derive a significant portion of our revenue from a limited number of customers for the foreseeable future. We expect that as our products are more widely adopted and as our number of customers increase, customer concentration will decrease.

We sell our products to hyperscalers, Neoclouds, original equipment manufacturers (OEMs), original design manufacturers (ODMs), contract manufacturers (CM) and optical module manufacturers, as well as to companies in the enterprise and HPC markets. We work closely and have engagements with industry-leading companies across these segments. A relatively small number customers have historically accounted for and continue to account for a significant portion of our revenue. We report revenue by customer in our financial statement disclosure based on the contracting parties who place purchase orders or sign revenue contracts with us. See Note 3 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. However, certain of our end customers have their contract manufacturing partners place orders with us. As a result, the contract manufacturers, rather than the end customers, are reported as our customers for financial reporting purposes. As a supplement to our financial statement footnote disclosure, and to provide further insight into our end customer concentration, the following table summarizes our revenue by customer as a percentage of total revenue based on end customer profile, rather than based on the contracting parties who place purchase orders or sign revenue contracts with us:

* Less than 10% of total revenue.

Our Business Model

We are a product-focused business with a strong foundation in IP, pioneering comprehensive connectivity solutions that deliver bandwidth, scalability and end-to-end signal integrity for next-generation platforms.

We utilize a fabless business model, working with a network of third parties to manufacture, assemble and test our connectivity products. This approach allows us to focus our engineering and design resources on our core competencies and to control our fixed costs and capital expenditures.

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We employ a two-pronged sales strategy targeting both the end users of our products, as well as the suppliers of our end users. By engaging directly with the end user, we are able to better understand the needs of our customers and cater our solutions to their most pressing connectivity requirements.

This strategy has enabled us to become the preferred vendor to a number of our customers who, in turn, in some cases, require their suppliers, OEMs, ODMs, CMs and optical module manufacturers to utilize our solutions.

Components of Our Operating Results

Revenue

Our revenues primarily consist of shipments of our AEC and ICs products. Our customers are primarily hyperscalers, NeoClouds and other cloud infrastructure providers. Our revenue is driven by various trends in these markets.

We recognize revenue upon transfer of control of promised goods and services in an amount that reflects the consideration we expect to receive in exchange for those goods and services. Our policy is to record revenue net of any applicable sales, use or excise taxes. Changes in our contract assets and contract liabilities primarily result from the timing difference between our performance and the customer’s payment. We fulfill our obligations under a contract with a customer by transferring products or services in exchange for consideration from the customer. We recognize a contract asset when we transfer 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. We recognize deferred revenue when we have received consideration or an amount of consideration is due from the customer and we have a future obligation to transfer products or services.

We transact with customers primarily pursuant to standard purchase orders for delivery of products and generally allow customers to cancel or change purchase orders within limited notice periods prior to the scheduled shipment date. We offer standard performance warranties of twelve months after product delivery and offer limited product return rights to certain distributors. We recognize product sales when we transfer control of promised goods in an amount that reflects the consideration to which we expect to be entitled to in exchange for those goods, net of accruals for estimated sales returns and rebates.

Cost of Revenue

Cost of revenue includes cost of materials, such as 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 of production mask costs.

Research and Development Expenses

Research and development expenses consist of costs incurred in performing research and development activities and includes salaries, share-based compensation, employee benefits, occupancy costs, pre-production engineering mask costs, overhead costs and prototype wafer, packaging and test costs. Research and development costs are expensed as incurred.

We believe that continued investments in our products are important to our future growth and, as a result, we expect our research and development expenses to continue to increase in absolute dollars.

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Selling, General and Administrative Expenses

Selling expenses consist of personnel costs including salaries, benefits and share-based compensation expense, field application engineering support, samples to customers, shipping costs and travel and entertainment costs.

General and administrative expenses consist primarily of personnel costs including salaries, benefits and share-based compensation, related to corporate, finance, legal and human resource functions, contractor and professional services fees, audit and compliance expenses, insurance costs, acquisition and integration-related expenses and general corporate expenses including allocated facilities expenses.

Other Income and Expense, Net

Other income and expense, net consists primarily of interest income from cash and cash equivalents and short-term investments and interest expense relating to certain purchases of computer equipment and software.

Provision 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. The Company uses the asset and liability method to account for income taxes. Under this method, deferred income tax asse

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