CREDO TECHNOLOGY GROUP HOLDING LTD Management’s Report of Financial Condition and Results of Operations (Form 10-K)

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." For a discussion and analysis of our financial
condition and results of operations for our fiscal year ended April 30, 2020,
and a comparison of our fiscal years ended April 20, 2021 and 2020, see the
section titled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in our prospectus dated January 26, 2022. Our historical
results are not necessarily indicative of the results that may be expected for
any period in the future.

Overview

Credo is an innovator in providing secure, high-speed connectivity solutions
that deliver improved power and cost efficiency as data rates and corresponding
bandwidth requirements increase exponentially throughout the data infrastructure
market. Our connectivity solutions are optimized for optical and electrical
Ethernet applications, including the emerging 100G, 200G, 400G and 800G port
markets. Our products are based on our proprietary SerDes and DSP technology.
Our product families include ICs, AECs and SerDes Chiplets. Our IP solutions
primarily are comprised of SerDes IP development and licensing.

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 disrupt competition in existing
markets, lead the way into emerging markets, and innovate to create new market
opportunities. While many others in the data infrastructure industry struggle to
meet customers' increasing performance and energy efficiency requirements, we
continue to innovate to deliver groundbreaking solutions. A recent example is
the announcement of our HiWire Switch cable and open-source implementation with
Microsoft that helps realize Microsoft's vision for a network-managed dual-ToR
architecture, overcoming complex and slow legacy enterprise approaches,
simplifying deployment, and improving connection reliability in the datacenter.

The multi-billion dollar data infrastructure market that we serve is driven
largely by hyperscalers, HPC and 5G infrastructure. 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 billions of end-point users.


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Since our creation in 2008, we have achieved several important milestones:

•From 2008 to 2012, we developed our proprietary, low-power, mixed-signal SerDes
architecture which could scale from 25Gbps/lane to 50Gbps/lane and ultimately to
100Gbps/lane.

•In 2013, we began commercializing our core SerDes technology by providing connectivity solutions for electrical and optical links in data centers.

•In 2014, we signed our first product contract with non-recurring engineering services (NRE) as well as our first IP license agreement.

•In 2016, we began production shipments of our Line Card PHY products.

•In 2017, we developed a 3.2 Tbps chip for 12.8 Tbps high-bandwidth switches. This chiplet included 64 lanes of 50 Gbps SerDes and was built in 28 nm using TSMC’s Chip-on-Wafer-on-Substrate (CoWoS) packaging technology.

• In 2018, we created AEC, a new category of data center system products, starting with developing 400G CDD solutions up to seven meters long.

• In 2019, we developed new DSP SerDes architectures optimizing performance and power trade-offs for 400G and 800G solutions targeting Line Card PHYPAM4 and AEC optical DSPs.

•In 2020, we demonstrated the industry's first 40Gbs PAM3 SerDes in silicon. In
addition, we engineered breakthrough Line Card PHYs and Optical PAM4 DSPs with
leading performance and power for 50G/lane and 100G/lane solutions.

•In 2021, we launched new AEC solutions targeting ToR-to-NIC connections. Our
solutions enabled dual-ToR server racks to seamlessly "switch" data traffic to
the redundant ToR if a ToR port failed.

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We design, market and sell both product 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 product or
license the IP into the broader market.


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During fiscal 2022 and 2021, we generated $106.5 million and $58.7 million in
total revenue, respectively. Product sales and product engineering services
revenue comprised 77% and 63% of our total revenue in fiscal 2022 and 2021,
respectively, and IP license and IP license engineering services revenue
represented 23% and 37% of our total revenue in fiscal 2022 and 2021,
respectively. Geographically, 36% and 75% of our total revenue in fiscal 2022
and 2021, respectively, was generated from customers in North America, and 64%
and 25% of our total revenue in fiscal 2022 and 2021, respectively, was
generated from customers in the rest of the world, primarily in Asia. During
fiscal 2022 and 2021, we generated $22.2 million and $27.5 million in net loss,
respectively.

We derive the substantial majority of our revenue from a limited number of
customers, and 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.

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.
In addition to product sales and IP license revenue, we also generated revenue
from providing engineering services as part of our product and license
arrangements with certain customers. Product sales and product engineering
services revenue comprised 77% and 63% of our total revenue in fiscal 2022 and
2021, respectively, and IP license and IP license engineering services revenue
represented 23% and 37% of our total revenue in fiscal 2022 and 2021,
respectively. Over time, we expect to generate an increased proportion of our
revenue from sales of our products. We expect to see a long-term benefit from
improvements in our operating leverage as our business continues to gain scale.

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.

Composition of revenues and associated gross margins

We are a product-focused business with a strong foundation in IP and, as such,
our customers engage with us through the purchase of our products or the
licensing of our IP. In some instances, customers will engage us to develop
tailored products or IP licenses to meet their specific application
requirements. We charge these customers incremental fees for this tailored
development which are in addition to product sales or IP license revenue, and we
recognize these additional fees as product engineering or IP license engineering
services revenue.

By providing tailored engineering services to our customers, we believe we
strengthen our customer relationships, enable additional sales and establish
ourselves for potential long-term revenue opportunities from associated product
sales or IP license revenue.


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A summary of our revenue and associated gross margin by these revenue sources
for fiscal 2022 and 2021 is presented below (in thousands, except percentages):

                                                            Year Ended April 30,
                                                            2022            2021
Revenue:
Product sales                                           $   73,721       $ 27,477
Product engineering services                                 7,741          9,579

Total product sales and product engineering services 81,462 37,056 IP license

                                                  23,309         

17,273

IP license engineering services                              1,706          

4,368

Total IP license and IP license engineering services        25,015         21,641
Total revenue                                           $  106,477       $ 58,697

Gross margin:
Product sales                                                 45.6  %        41.5  %
Product engineering services                                  75.2  %        66.9  %
Total product sales and product engineering services          48.4  %        48.1  %
IP license                                                   100.0  %       100.0  %
IP license engineering services                               72.9  %        73.0  %
Total IP license and IP license engineering services          98.2  %        94.5  %
Total gross margin                                            60.1  %        65.2  %

Over time, we expect our revenue from product sales and IP licensing to become a greater proportion of total revenue compared to engineering services.

We incur certain costs associated with introducing new products to market which
impact the gross margin associated with product sales. Over time, as revenue
from our product sales increases, we expect these product introduction costs to
decrease as a percentage of product sales revenue resulting in a higher gross
margin on product sales revenue.

Factors affecting our performance

Our results of operations and financial condition have been and will continue to be influenced by a number of factors, including the following:

Design wins with new and existing customers

Our solutions enable our end customers to differentiate their product offerings
and position themselves to meet the demands of increasingly advanced networks.
We work closely with our end customers to understand their product roadmaps and
strategies and help them develop new products. Our goal is to develop solutions
that support their product roadmap and development. If an end customer has
tested our product, verified that it meets their requirements and the customer
has informed us that the end customer intends to have our customer build it into
their product, we consider it a design win. We consider design wins important to
our future success. The selection process is typically lengthy and may require
us to incur significant design and development expenditures in pursuit of a
design win with no assurance that our solutions will be selected. In addition,
some design wins result in significant revenue and some do not, and the timing
of such revenue is difficult to predict as it depends on the success of the end
customer's product that uses our solutions. Thus, some design wins result in
orders and significant revenue shortly after the design win is awarded and other
design wins do not result in significant orders and revenue for several months
or longer after the initial design win (if at all). As a result, the degree to
which we are successful in achieving design wins and the speed and level at
which end customers ramp


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the volume production of the products in which our product is designed will impact our success and financial results in future periods.

Customer demand and pipeline

Demand for our products is dependent on conditions in the markets in which our
customers operate, which are subject to cyclicality and competitive conditions.
We believe our relationships with the end customers of our products and the
long-term implications of decisions to adopt our solutions, provide us with
valuable visibility into customer demand. Furthermore, our customers generally
provide us with periodic forecasts of their requirements. This provides an
opportunity for us to monitor and refine our business operations and plans. The
majority of our product sales are made pursuant to standard purchase orders.
Changes in customer forecasts or the timing of orders from customers expose us
to the risks of inventory shortages or excess inventory. Cancellations of orders
could result in the loss of anticipated sales without allowing us sufficient
time to reduce and manage our operating expenses.

Product pricing and gross margins

Our revenue is also impacted by changes in the number and average selling prices
of our products. Our products are typically characterized by a life cycle that
begins with higher average selling prices and lower volumes, followed by broader
market adoption, leading to higher volumes, and average selling prices lower
than initial levels. Our product gross margins will be affected by the extent to
which these declines are paired with improvements in manufacturing yields and
lower wafer, assembly and test costs that offset some of the margin reduction
that results from lower average selling prices as well as the extent to which we
introduce new products with higher initial average selling prices and achieve
market acceptance. Our gross margins may also be affected by changes in the
price of silicon wafers, copper cables, printed circuit boards (PCBs), testing
costs and commodities, and the extent to which we are able to offset any
increases in our costs through increases prices to our customers, productivity
actions or other means. In August 2021, TSMC, on which we rely as the foundry
for all our semiconductor products, began informing its customers that it plans
to increase the prices of its most advanced chips by roughly 10% and its less
advanced chips by up to 20%, effective in late 2021 or early 2022 as a result of
a global supply shortage that began in 2020. If we are unable to offset the
increased costs associated with this price increase through pricing increases on
our products, our gross margins may decrease. Our product gross margins may also
fluctuate from period to period as a result of changes in average selling prices
due to new product introductions or existing product transitions into larger
scale commercial volumes and manufacturing costs as well as our product and
customer mix.

Product adoption

We develop and sell state-of-the-art connectivity solutions for digital infrastructures that aim to replace existing solutions and support our customers’ future applications and needs. Our success depends on our customers’ adoption of our new technology and the preference of our solutions over competing offerings or other current or future technologies.

Technology development

We operate in industries characterized by rapidly changing technologies,
industry standards and technological obsolescence. We work closely with our
customers to understand their product roadmaps and strategies to forecast their
future needs. This helps inform our technology roadmap and development
priorities. We also monitor forecasts by industry analysts and the adoption
curve of technology as well as potential competing forces which could hinder
adoption of our solutions. Our revenue growth is dependent on our ability to
continually develop and introduce new products to meet the changing technology
and performance requirements of our customers, diversify our revenue base and
generate new revenue to replace, or build upon, the success of previously
introduced products which may be rapidly maturing. As a result, our revenue is
impacted, to a more significant extent, by product life cycles for a variety of
products and to a much lesser extent, if any, by any single product. In order to
remain competitive, we have made, and expect to continue to make, significant
expenses in research and


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development, and our research and development expenses in a particular period
may be significantly impacted by specific product or engineering initiatives
that we undertake to maintain our competitiveness and expand our product
portfolio. If we fail to anticipate or respond appropriately to new developments
in technology, or to timely develop competitive new or enhanced products or
technologies, our revenue could decrease and we could lose design wins to our
competitors.

Industry trends and cyclicality

We continue to evaluate trends within the industry that affect our business
performance. We design and develop high-speed connectivity solutions that
deliver improved power and cost efficiency for the data infrastructure market.
This market is driven by hyperscalers, HPC and 5G infrastructure. Accordingly,
our revenue and business performance are influenced by the deployment and timing
of broader market adoption of next generation technologies in data centers,
particularly by hyperscalers, and in the HPC and 5G markets. The semiconductor
industry is cyclical and is characterized by rapid technological change,
evolving standards, product obsolescence, price erosion, and fluctuations in
product supply and demand. Any prolonged or significant downturn in our industry
generally could adversely affect our business and reduce demand for our products
and otherwise harm our financial condition and results of operations.

Impact of COVID-19

The ongoing COVID-19 pandemic has significantly impacted global economic
activity and caused business disruption worldwide. It has prompted governments
and businesses to take unprecedented measures, including restrictions on travel,
temporary business closures, quarantines and shelter-in-place orders.

Since the onset of the pandemic in March 2020, most of our employees have
transitioned to remote work, and we have temporarily prohibited most business
travel. We have complied with the recommendations of government health agencies
in each jurisdiction in which we operate throughout the pandemic. We formed a
task force to track the spread of COVID-19 and other relevant metrics to stay
informed and took several precautions to operate safely.

We are very proud of the response of our employees, suppliers and customers to
the demands of the pandemic. Our collective response meant that the impact to
our business was significantly mitigated, and we believe the overall impact was
relatively limited as a result. However, there has inevitably been some impact
on our end customers - potentially delaying or scaling down purchasing decisions
- that may have reduced our sales. Stay at home orders may have reduced our
ability to most effectively market and sell our products and solutions while our
research and development functions may have been impacted from being off-site.

Over the longer term, we may see some positive impacts on our business as a
result of the COVID-19 pandemic. We believe the COVID-19 pandemic accelerated
requirements for increased bandwidth and lower latency, reduced power, and
heightened the need for effective security as previously centralized work,
school, and entertainment connections have disseminated across myriad end-point
users.

While we are optimistic that the global pandemic response will continue to support improving conditions, we are actively monitoring the impact of the COVID-19 pandemic on our financial condition, liquidity, operations, customers, suppliers, our industry and our workforce.

The extent and nature of the impact of the COVID-19 pandemic on our business and
financial performance will be influenced by a variety of factors, including the
duration and spread of the pandemic, as well as future spikes of COVID-19
infections or the emergence of additional COVID-19 variants that may result in
additional preventative and mitigative measures. These factors may affect the
timing and magnitude of demand from customers and the availability of portions
of the supply chain, logistical services and component supply and may have a
material net negative impact on our business and


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financial results. For additional information regarding the potential impact of
the COVID-19 pandemic on our business, see "Risk Factors-Risks Related to Our
Business-The ongoing COVID-19 pandemic has disrupted and will likely continue to
disrupt normal business activity and may adversely impact our operations and
financial results."

Customer Warrant

On December 28, 2021, we issued a warrant to Amazon.com NV Investment Holdings
LLC (Holder) to purchase an aggregate of up to 4,080,000 of our ordinary shares
at an exercise price of $10.74 per share (the Customer Warrant). The exercise
period of the Customer Warrant is through the seventh anniversary of the issue
date. Upon issuance of the Customer Warrant, 40,000 of the shares issuable upon
exercise of the Customer Warrant vested immediately and the remainder of the
shares issuable will vest in tranches over the contract term based on the amount
of global payments by Holder and its affiliates to us, up to $201.0 million in
aggregate payments.

Upon a change of control of us (including certain transfers of 50% or more of
the voting power in the Company to a new person or group) in which the
consideration to be received by our then existing shareholders consists solely
of cash, the Customer Warrant, to the extent vested, will be deemed
automatically net exercised immediately before the consummation of such change
of control, and the remaining unvested shares under the Customer Warrant will
thereafter automatically terminate. Upon a change of control of us in which the
consideration to be received by our then existing shareholders consists of
securities or other non-cash consideration, then we will cause the acquiring,
surviving, or successor party to assume the obligations of the Customer Warrant,
and the Customer Warrant will thereafter be exercisable for the same securities
or other non-cash consideration that a holder of our ordinary shares would have
been entitled to receive in connection with such transaction if such holder held
the same number of shares as were purchasable under the Customer Warrant if the
Customer Warrant had been exercised in full immediately before the consummation
of such change of control, subject to further adjustment from time to time in
accordance with the provisions of the Customer Warrant.

The Customer Warrant is accounted for as an equity instrument. When management
determines that it is probable that a tranche of the Customer 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.

Components of our operating results

Revenue

Our revenues consist of sale of our products, licensing of our IP and providing
product engineering and IP license engineering services. Product sales primarily
consists of shipment of our ICs and AEC products. IP license revenue includes
fees from licensing of our SerDes IP and related support and royalties. Product
engineering and IP license engineering services revenue consists of engineering
fees associated with integration of our technology solutions into our customers'
products and IP, respectively. Our customers are primarily OEMs who design and
manufacture end market devices for the communications and enterprise networks
markets. Our revenue is driven by various trends in these markets. Our revenue
is also impacted by changes in the number and average selling prices of our IC
products.

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. Where an arrangement includes multiple performance
obligations, the transaction price is allocated to these on a relative
standalone selling price (SSP) basis. We determine the SSP based on an
observable standalone selling price when it is available, as well as other
factors, including the price charged to customers and our overall pricing
objectives, while maximizing observable inputs. Our policy is to record revenue
net of


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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.

Product Sales - 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 do not allow returns, other than returns due to warranty
issues. 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.

IP License Revenue - Our licensing revenue consists of a perpetual license,
support and maintenance, and royalties. Our license arrangements do not
typically grant the customer the right to terminate for convenience and where
such rights exist, termination is prospective, with no refund of fees already
paid by the customer. In connection with the license arrangements, we offer
support and maintenance to assist customers in bringing up and qualifying the
final product. Revenue from customer support is deferred and earned over the
support period, which is typically one year.

In certain cases, we also charge licensees royalties related to the distribution
or sale of products that use our technologies. Such royalties are reported to us
on a quarterly basis. We estimate the sales-based royalties earned each quarter
primarily based on our customers' reporting of sales activity incurred in that
quarter. We recognize the estimated royalty revenue when it is probable that
reversal of such amounts will not occur. Any differences between actual
royalties owed by a customer and the quarterly estimates are recognized when
updated information becomes available.

Product Engineering and IP License Engineering Services Revenue - Some product
and IP license revenue contracts includes non-recurring engineering services
deliverables. We recognize revenue from these agreements over time as services
are provided or at a 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. We believe the input method, based on time spent by our engineers,
best depicts the efforts expended to transfer services to the customers.

Certain contracts may include multiple performance obligations for which we
allocate revenue to each performance obligation based on relative SSP. We
determine SSPs based on observable evidence. When SSPs are not directly
observable, we use the adjusted market assessment approach or residual approach,
if applicable. We also consider the constraint on estimates of variable
consideration when estimating the total transaction price. We record liabilities
for amounts that are collected in advance of the satisfaction of performance
obligations under deferred revenue.

Revenue cost

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 stock-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. Costs of revenue includes cost of product sales revenue, cost of product
engineering services revenue and cost of IP license engineering services
revenue. Cost of revenue relating to IP license revenue was not material for
fiscal 2022 and 2021.


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Research and development costs

Research and development expenses include costs incurred in carrying out research and development activities and include salaries, stock-based compensation, employee benefits, occupancy costs, engineering mask costs of pre-production, overhead and prototype wafers, packaging and testing costs. Research and development costs are expensed as incurred.

We believe that continued investment in our products is important to our future growth and, therefore, we expect our research and development expenditures to continue to increase in absolute dollars.

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 & entertainment costs.

We expect selling expenses to increase in absolute dollars as we increase our sales and marketing staff and continue to increase our engagement with customers.

General and administrative expenses primarily include personnel costs, including salaries, benefits and stock-based compensation, related to corporate, finance, legal and human resources functions, professional fees contractors and professional services, audit and compliance costs, insurance costs and corporate overhead. including allocated facility expenses.

We expect general and administrative expenses to increase in absolute dollars as
we grow our operations and incur additional expenses associated with operating
as a public company. These expenses as a result of operating as a public company
include expenses necessary to comply with the rules and regulations applicable
to companies listed on a national securities exchange and related compliance and
reporting obligations pursuant to the rules and regulations of the SEC, as well
as higher expenses for general and director and officer insurance, investor
relations and other professional services.

Depreciation charges

Impairment charges mainly consist of depreciation of property, plant and equipment for assets that are no longer in service.

Other income and expenses, net

Other income and expense, net, primarily includes interest income from significant financing items related to IP license revenue contracts, and foreign exchange gains and losses.

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. 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.

We account for uncertain tax positions in accordance with ASC 740­10, Accounting
for Uncertainty in Income Taxes. We recognize the tax effects of an uncertain
tax position only if it 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.


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Operating results

Completed exercises April 30, 2022 and 2021

The following table sets out information from our consolidated statements of earnings expressed as a percentage of total revenue:

                                                         Year Ended April 30,
                                                          2022               2021
Revenue:
Product sales                                                   69.2  %      46.8  %
Product engineering services                                     7.3  %      16.4  %
IP license                                                      21.9  %      29.4  %
IP license engineering services                                  1.6  %       7.4  %
Total revenue                                                  100.0  %     100.0  %
Cost of revenue:
Cost of product sales revenue                                   37.6  %      27.4  %
Cost of product engineering services revenue                     1.8  %       5.4  %
Cost of IP license engineering services revenue                  0.5  %       2.0  %
Total cost of revenue                                           39.9  %      34.8  %
Gross margin                                                    60.1  %      65.2  %
Operating expenses:
Research and development                                        45.0  %      59.4  %
Selling, general and administrative                             32.8  %      48.8  %
Impairment charges                                               2.9  %         -  %
Total operating expenses                                        80.7  %     108.2  %
Operating loss                                                 (20.6) %     (43.0) %
Other income (expense), net                                     (0.2) %      (0.1) %
Loss before income taxes                                       (20.8) %     (43.1) %
Provision for income taxes                                         -  %       3.8  %
Net loss                                                       (20.8) %     (46.9) %

Comparison of completed exercises April 30, 2022 and 2021

Revenue

                                           Year Ended April 30,
                                            2022                 2021        % Change
                                           (in thousands, except percentages)
Product sales                     $         73,721            $ 27,477        168.3  %
Product engineering services                 7,741               9,579        (19.2) %
IP license                                  23,309              17,273         34.9  %
IP license engineering services              1,706               4,368        (60.9) %
Total revenue                     $        106,477            $ 58,697         81.4  %


Revenue for fiscal 2022 increased by $47.8 million primarily due to increases in
product sales and IP license revenues, which increased by $46.2 million and $6.0
million, respectively, offset by decreases in product and IP license engineering
services revenues of $1.8 million and $2.7 million, respectively.


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The increase in product sales revenue was primarily due to an increase in the
number of IC units sold and revenue relating to AEC cables that were introduced
in fiscal 2021. The number of IC units sold increased by 118% in the year ended
April 30, 2022. Revenue from product sales comprised 69% and 47% of our total
revenue in fiscal 2022 and 2021, respectively. The increase in IP license
revenue was driven by additional IP licenses delivered to customers.

Cost of Revenue

                                                            Year Ended April 30,
                                                          2022                   2021                 % Change
                                                                  (in thousands, except percentages)
Cost of product sales revenue                     $      40,082              $   16,071                     149.4  %
Cost of product engineering services revenue              1,918                   3,168                     (39.5) %
Cost of IP license engineering services revenue             462                   1,180                     (60.8) %
Total cost of revenue                             $      42,462              $   20,419                     108.0  %

Cost of product sales increased by $24.0 million in fiscal 2022, primarily due to higher product sales in the same period, resulting in higher product sales revenue, as noted above.

Gross profit and gross margin

                        Year Ended April 30,
                     2022                    2021         % Change
                        (in thousands, except percentages)
Gross profit   $      64,015              $ 38,278          67.2  %
Gross margin            60.1   %              65.2  %


Gross margin decreased by 5.1 percentage points in fiscal 2022 primarily driven
by an increase in our product sales revenue as a percentage of overall revenue
as noted above. Product sales gross margin increased by 4.1 percentage points in
fiscal 2022 primarily from our product sales business gaining scale. We expect
to see an additional long-term benefit from improvements in our operating
leverage as our business continues to gain scale.

Research and Development

                                    Year Ended April 30,
                                 2022                    2021         % Change
                                    (in thousands, except percentages)
Research and development   $      47,949              $ 34,845          37.6  %
% of total revenue                  45.0   %              59.4  %


Research and development expense for fiscal 2022 increased by $13.1 million
compared to fiscal 2021. The increase was due primarily to a $9.1 million
increase in personnel costs as a result of new hires for product development, a
$3.1 million increase in design activities and higher engineering activities
relating to testing and laboratory supplies for new product development and a
$1.6 million decrease in allocation of research and development expense to costs
of engineering services due to less engineering hours incurred relating to
non-recurring engineering service revenue arrangements, which was offset by a
$2.7 million decrease in share-based compensation expense driven by a one-time
share repurchase transaction from employees in fiscal 2021.


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Selling, general and administrative expenses

                                                Year Ended April 30,
                                             2022                    2021         % Change
                                                (in thousands, except percentages)
Selling, general and administrative    $      34,900              $ 28,667          21.7  %
% of total revenue                              32.8   %              48.8  %


Selling, general and administrative expense for fiscal 2022 increased by $6.2
million compared to the same period in fiscal 2021. The increase was due
primarily to a $3.8 million increase in personnel costs as a result of higher
selling, general and administrative headcount, a $2.4 million increase in
professional services spending and general increases in selling, general and
administrative expense as we built out our public company infrastructure, which
was offset by a $2.0 million decrease in share-based compensation expense driven
by a one-time share repurchase transaction from employees in fiscal 2021.

Impairment Charges

                            Year Ended April 30,
                           2022                   2021      % Change
                            (in thousands, except percentages)
Impairment charges   $      3,134                $ -         100.0  %
% of total revenue            2.9   %              -  %

The impairment charges incurred during the 2022 financial year were mainly related to an impairment of property, plant and equipment that did not reach production qualification.

Provision (benefit) for income taxes

                                              Year Ended April 30,
                                            2022                  2021        % Change
                                              (in thousands, except percentages)
Provision (benefit) for income taxes   $      (37)             $ 2,215        (101.7) %
% of total revenue                              -   %              3.8  %


Provision (benefit) for income taxes in fiscal 2022 decreased by $2.3 million.
The decrease was due to the one-time charge in fiscal 2021 relating to the
initial establishment of valuation allowance associated with U.S. research and
development credits and the increase in the U.S. deferred tax benefits
associated with stock-based compensation in fiscal 2022, which were offset by an
increase in withholding taxes in foreign jurisdictions in fiscal 2022.

Cash and capital resources

Our activities consist primarily of selling our products, licensing our IP,
providing IP customization services and conducting research and development of
our products and technology. Since our inception through April 30, 2022, our
operations have been financed primarily by the sale of convertible preferred
shares and ordinary shares, and cash generated from our customers. As of April
30, 2022, we had $259.3 million in cash and cash equivalents, and working
capital of $305.7 million. Our principal use of cash is to fund our operations
and invest in research and development to support our growth.

We believe our existing cash and cash equivalents and other components of
working capital will be sufficient to meet our needs for at least the next 12
months. Our future capital requirements will depend on many factors including
our growth rate, the timing and extent of our sales and marketing and research
and development expenditures, and the continuing market acceptance of our
solutions. In the event that


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we need to borrow funds or issue additional equity, we cannot assure you that
any such additional financing will be available on terms acceptable to us, if at
all. If we are unable to raise additional capital when we need it, our business,
results of operations and financial condition would be adversely affected.

The following table summarizes our cash flows for the periods indicated.

                                                Years Ended April 30,
                                                 2022            2021
                                                   (in thousands)

Net cash used in operating activities $(30,832) ($42,361)
Net cash used in investing activities ($17,580) ($6,056)
Net cash provided by financing activities $204,181 $77,888

Cash flows used in operating activities

Net cash used in operating activities was $30.8 million for fiscal 2022. The
cash outflows from operating activities for fiscal 2022 were primarily due to
$22.2 million of net loss and $29.6 million of cash outflows for working capital
purposes, partially offset by $21.0 million of non-cash items. The cash outflows
from working capital for fiscal 2022 were primarily driven by an increase in
accounts receivable, inventories and contract assets, partially offset by an
increase in accounts payable, deferred revenue, and accrued expenses and other
liabilities.

Net cash used in operating activities was $42.4 million for fiscal 2021. The
cash outflows from operating activities for fiscal 2021 were primarily due to
$27.5 million of net loss and $21.3 million of cash outflows from working
capital, partially offset by $6.5 million of non-cash items. The cash outflows
from working capital for fiscal 2021 were primarily driven by increases in
inventories, prepaid and other current assets, and other long-term assets, as
well as a decrease in accrued expenses and other liabilities.

Cash flows used in investing activities

Net cash used in investing activities of $17.6 million and $6.1 million in
fiscal 2022 and 2021, respectively, was attributable to purchases of property
and equipment. Purchases of property and equipment primarily related to mask
sets purchases for new products introduced or in process of being introduced and
laboratory equipment used for research and development purposes.

Cash flow from financing activities

Net cash provided by financing activities of $204.2 million for fiscal 2022 was
primarily attributable to $194.2 million in proceeds from our IPO, net of
underwriting discounts and commissions, and offering costs, $2.7 million in
proceeds from exercises of share options and $7.2 million in proceeds from the
issuance of convertible preferred shares, net of issuance costs.

Net cash provided by financing activities of $77.9 million in fiscal 2021 was
primarily attributable to $1.4 million in proceeds from exercises of share
options and $99.3 million in proceeds from the issuance of convertible preferred
shares, net of issuance costs. This cash inflow was partially offset by $22.9
million in payments for repurchases of ordinary shares.

Critical accounting estimates

We prepare our financial statements in conformity with GAAP. The preparation of
financial statements in accordance with GAAP requires certain estimates,
assumptions and judgments to be made that may affect our consolidated financial
statements. Accounting policies that have a significant impact on our results
are described in Note 2 to our consolidated financial statements included
elsewhere in this filing. The accounting policies discussed in this section are
those that we consider to be the most critical. We consider an accounting policy
to be critical if the policy is subject to a material level of judgment and if
changes in those judgments are reasonably likely to materially impact our
results.


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We base our estimates and judgments on our historical experience, knowledge of
current conditions, and our 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 SSP 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 awards and customer warrant, valuation of ordinary shares and the
realization of tax assets and estimates of tax reserves. Actual results may
differ from those estimates and such differences may be material to the
financial statements.

We continue to monitor and evaluate our critical estimates in light of developments, and as events continue to evolve and additional information becomes available, our estimates may change significantly in future periods.

Revenue recognition

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. Where an arrangement includes multiple performance
obligations, the transaction price is allocated to these on a relative
standalone selling price (SSP) basis. We determine the SSP based on an
observable standalone selling price when it is available, as well as other
factors, including the price charged to customers and our overall pricing
objectives, while maximizing observable inputs. The determination of the SPP for
certain of our IPs requires fair value estimate under income approach, involving
the estimation of future cash flow expected to be generated from the IPs. Our
policy is to record revenue net of any applicable sales, use or excise taxes.

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 do not allow returns, other than returns due to warranty issues. 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 in exchange
for those goods, net of accruals for estimated sales returns and rebates.

We account for the warrant issued to Amazon.com NV Investment Holdings LLC as an
equity instrument, based on the specific terms of the warrant agreement. We
analyze the probability of vesting of each tranche of the warrant based on the
demand forecast from the customer. When we determine 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.

Inventory valuation

We value our 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 our
products in the ordinary course of business, less reasonably predictable costs
of completion, disposal and transportation. We regularly review inventory
quantities on hand and non-cancellable purchase commitments, and record
write-downs for excess and obsolete inventory based primarily on the shipment
history and our estimated forecast of product demand. These factors are impacted
by market and economic conditions, technology changes, new product introductions
and changes in strategic direction. If the future demand for our products is
less favorable than our forecasts, the value of the inventories may be required
to be reduced, which could result in additional expense to us and affect our
results of operations. We do not believe there is a reasonable likelihood that
there will be a material change in the future estimates or assumptions that we
use to calculate our inventory reserve. However, if estimates regarding customer
demand are inaccurate or changes in technology affect demand for certain
products in an unforeseen manner, we may be exposed to losses or gains that
could be material.


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Share-based compensation

Share-based compensation is measured at the grant date, based on the fair value
of the award, and is recognized as expense over the requisite service vesting
period. We amortize share-based compensation expense for time-based awards under
the straight-line attribution method over the vesting period.

The fair value of each restricted stock unit is estimated based on the market
price of the Company's ordinary shares on the date of grant less the expected
dividend yield. We estimate the fair value of share purchase awards on the date
of grant using the Black-Scholes option-pricing model.

Forfeitures are recorded when they occur. Previously recognized expenses are reversed for the portion of awards canceled prior to vesting as cancellations occur.

Valuation of common shares

Prior to our IPO, as there had been no public market for our equity instruments,
the estimated fair value of our ordinary shares was determined by members of our
board of directors, with input from management, as of the grant date,
considering our most recently available independent third-party valuation of our
ordinary shares and our directors' assessment of additional objective and
subjective factors that it believed were relevant and which may have changed
between the effective date of the most recent valuation and the date of the
grant. The independent third-party valuations had generally been performed
quarterly in accordance with the guidance outlined in the AICPA Practice Aid,
Valuation of Privately-Held Company Equity Securities Issued as Compensation
(AICPA's Practice Aid). In conducting the valuations, the independent
third-party valuation specialist considered all objective and subjective factors
that it believed to be relevant for each valuation conducted in accordance with
AICPA's Practice Aid, including management's best estimate of our business
condition, prospects and operating performance at each valuation date.

In valuing our ordinary shares, the fair value of our business was determined
using various valuation methods, including combinations of the income approach
(discounted cash flow method) and the market approach (public company market
multiple method) with input from management. The income approach involves
applying an appropriate risk-adjusted discount rate to projected cash flows
based on forecasted revenue and costs. The market approach estimates value based
on a comparison of the subject company to comparable public companies in a
similar line of business. From the comparable companies, a representative market
value multiple was determined, which was applied to our operating results to
estimate the enterprise value of our company.

Once the enterprise value was determined under the market approach, we derived
the equity value of our company and used the option pricing model to allocate
that value among the various classes of securities to arrive at the fair value
of the ordinary shares.

Following our IPO, we use the public market price to value our equity-based awards. Increases and decreases in the market price of our common stock will increase and decrease the fair value of our equity-based awards granted in future periods.

Recent accounting pronouncements

For more information, see Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Accounting election of the JOBS law

We are an "emerging growth company," as defined in the JOBS Act. The JOBS Act
provides that an "emerging growth company" can take advantage of an extended
transition period for complying with new or revised accounting standards. This
provision allows an "emerging growth company" to delay the adoption of some
accounting standards until those standards would otherwise apply to private


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companies. We have elected to use the extended transition period under the JOBS
Act until the earlier of the date we (i) are no longer an "emerging growth
company" or (ii) affirmatively and irrevocably opt out of the extended
transition period provided in the JOBS Act. As a result, our financial
statements may not be comparable to companies that comply with new or revised
accounting pronouncements as of public company effective dates.

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