Credo Technology Group Holding LtdCRDO
Credo Technology Group Holding Ltd Income Taxes Disclosure
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) | |||||||||||
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
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.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Jul 2, 2025 | Showing above |
| 2024 | Jun 24, 2024 | |
| 2023 | Jun 23, 2023 | |
| 2022 | Jun 8, 2022 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.