Peraso Inc. (NASDAQ:PRSO) Q4 2022 Earnings Call Transcript

Peraso Inc. (NASDAQ:PRSO) Q4 2022 Earnings Call Transcript March 24, 2023

Operator: Good afternoon and welcome to Peraso, Inc.’s Fourth Quarter and Full Year Financial Results Conference Call. As a reminder, this conference is being recorded today, Wednesday, March 22, 2023. I would now like to turn the call over to Peraso’s CFO, Jim Sullivan. Please go ahead.

Jim Sullivan: Thank you. Good afternoon and thank you for joining today’s conference call to discuss Peraso’s fourth quarter and full year 2022 financial results. I am Jim Sullivan, CFO of Peraso. And joining me today is Ron Glibbery, our CEO. This afternoon, we issued a press release and related Form 8-K, which was filed with the SEC. The press release and Form 8-K are available on Peraso’s website at www.perasoinc.com under the Investor Relations section. There is also a slide presentation that we will be using in conjunction with today’s call that maybe accessed through the webcast link on the IR website. As a reminder, comments made during today’s conference call may include forward-looking statements. All statements other than statements of historical fact could be deemed as forward-looking.

Peraso advises caution and reliance on forward-looking statements. These statements include, without limitation, any projections of revenue, margins, expenses, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, adjusted EBITDA, non-GAAP net loss, cash flows or other financial items, including anticipated cost savings. Also any statements concerning the expected development, performance and market share or competitive performance of our products or technologies, all forward-looking statements are based on information available to Peraso on the date hereof. These statements involve known and unknown risks, uncertainties and other factors that may cause Peraso’s actual results to differ materially from those implied by the forward-looking statements, including unexpected changes in the company’s business.

More detailed information about these risk factors and additional risk factors are set forth in Peraso’s public filings with the Securities and Exchange Commission. Peraso expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Additionally, the company’s press release and management statements during this conference call will include discussions of certain measures and financial information in terms of GAAP and non-GAAP. Included in the company’s press release are definitions and reconciliations of GAAP to non-GAAP items, which provide additional details. For those of you unable to listen to the entire call at this time, a recording will be available on the Investor Relations section of our website.

Now I would like to turn the call over to our CEO, Ron Glibbery, for his prepared remarks. Ron?

Ron Glibbery: Thank you, Jim. Good afternoon, and welcome to everyone joining today on the phone and via webcast. As outlined in today’s press release, Peraso achieved strong growth for the fourth quarter and full year, highlighted by a number of accomplishments across the business. Both product and total revenue in the fourth quarter were up double-digits sequentially and over 100% year-over-year. Our strong top line growth for the quarter and year was driven by robust demand and higher shipments of our mmWave ICs for fixed wireless access as well as our memory IC products. We also achieved meaningful improvement in our gross margins throughout the year. Reflecting back in 2022, I’m proud of the team’s execution during what was and continues to be a challenging environment for not only the semiconductor industry, but many industries across the globe.

All things considered, we had a productive full first year as a combined company following the completed merger transaction with MoSys in late 2021. Our strong year-over-year growth and expanded gross margin for the year are a testament to our differentiated technology and the team’s ability to deliver against customer demand despite wide-reaching supply chain challenges. Total revenue for the full year increased 162% over 2021, and we expanded non-GAAP gross margins to nearly 50%. Product revenue for 2022 grew 189% year-over-year, primarily reflecting the ramp in shipments from our mmWave and memory IC products. We also achieved significant business and product milestones during the year, including the launch of our PERSPECTUS product family for mmWave fixed wireless access and Peraso’s introduction of the world’s most integrated dual-band 5G mmWave beamformer IC.

Also notable was the appointment of Mark Lunsford as the company’s first Chief Revenue Officer in support of expanding Peraso’s commercial reach. I would also highlight the strategic Technology License and Patent Agreement that we entered into with Intel Corporation, which added non-dilutive cash to the balance sheet, while also contributing to a reduction in operating expenses. Shifting to an update on our primary target market. We’ve been very pleased with the increase in validation and growth of the fixed wireless access market over the past year. In fact, this growth accelerated in 2022 as fixed wireless access continued to capture a growing share of the broadband market. According to a recent report published by Leichtman Research Group, fixed wireless services represented 90% of all broadband net adds in 2022.

Together, T-Mobile and Verizon added nearly 3.2 million fixed wireless subscribers in 2022, which compared to approximately 720,000 net adds in 2021, representing year-over-year growth of more than 300%. To put these numbers in context, the longer-term market potential of T-Mobile’s home Internet and Verizon’s 5G fixed wireless service, are currently available to more than 40 million and roughly 30 million homes, respectively. The growing market momentum is derived from fixed wireless access being a natural extension of 5G deployments as carriers and service providers seek to maximize available bandwidth capacity while also delivering faster and lower latency connectivity to their customers. As I discussed on previous calls, there continues to be increased recognition across the industry, the mmWave technology will be required to address the challenges of continuously growing demand for wireless bandwidth.

In addition to the fundamental benefits of mmWave technology, including incremental wireless bandwidth, fast multi-gigabit access speeds and low latency, service providers are also recognizing its ability to address uniquely challenging use cases such as high congestion environments. One high-profile example of this was a State Farm Stadium in February for the Super Bowl, where there were nearly 68,000 fans in attendance. For those of us that have attended large menu sporting events or concerts in recent years, you’ve likely experienced the frustration of either limited or effectively no wireless connectivity due to the density of the crowd. Specifically to the Super Bowl, an estimated 60% of the fans were Verizon customers, and they collectively used 47 terabytes of data, which was a 57% increase over Super Bowl 2022.

Although Verizon acknowledged deployed supplemental C-band spectrum to bolster their service, Verizon’s VP of Device Technology named mmWave as the star of the show in terms of enabling the staggering demand and data traffic. The Super Bowl is only one example, however, where there continues to be a growing number of similar proof points that further emphasize the need for mmWave technology, which remains at the core of Peraso’s solution for both licensed 5G and unlicensed 60 GHz spectrum. For a broader perspective on markets, I want to share several takeaways from following my recent attendance of Mobile World Congress in Barcelona as well as from our team’s participation in WISPAMERICA earlier this month. At a high level, one of the most striking observations is that mmWave has made significant strides in terms of acceptance for really accepting the exponential wireless demand in the carrier market.

Specific to our own beamformer solution, it was clear based on our conversations and serving other vendors at the show that we offer the most highly integrated dual-brand device in the market. To that end, we engaged in multiple productive discussions relating to addressing the 5G consumer premise equipment, or CPE and help €“ Peraso’s 5G mmWave solution can enable more cost-effective and equipment as well as 5G mmWave deployments. We should remember that the cost of the CP equipment is the crucial aspect of the SaaS of mmWave in 5G fixed wireless access. In terms of carrier acceptance of mmWave technology, we believe mmWave will be eventually the go-to technology for 5G fixed wireless access. One of the industry analysts we spoke to indicated that the revenue per bit for mobile users in the carrier market is 20x the revenue per bit of fixed wireless access, which we expect will inevitably make mmWave the go-to solution for fixed wireless access in the carrier market.

Over the last year, we further substantiated our technology leadership through expanded customer orders and design wins as well as growing traction for both mmWave IC and integrated antenna solutions for fixed wireless access. After meeting with a number of the leading players at WISPAMERICA, I’m even more convinced that Peraso is establishing itself as a leading go-to mmWave vendor for wireless ISPs. In fact, we are now evaluating multiple requests and have accepted multiple requests for direct engagement to align on respective product road maps with certain wireless ISPs. Another prominent takeaway was the recognition and one of the primary benefits of mmWave is minimal network interference. More specifically, industry participants are acknowledging that WiFi-based connectivity is becoming increasingly difficult due to the scale to use €“ from signal interference generated by the surging number of connected WiFi devices.

Photo by Campaign Creators on Unsplash

Actually, recognition of this issue in a commercial setting was recently provided by a mmWave equipment supplier named Intracom, who announced the deployment of 300,000 mmWave subscribers in Italy, where they specifically cited immunity to interference as the primary benefit of their system. Finally, while acknowledging the current macroeconomic conditions and associated uncertainty, we remain optimistic about our compelling value proposition in the marketplace and ability to drive continued growth in 2023. We’re particularly encouraged by expanding opportunities in the fixed wireless market, both domestically and abroad as we further positioned Peraso to be a leading supplier of mmWave solutions across the licensed and unlicensed segments of the market.

Our main focus in 2023 is to further capitalize on our existing leadership position in 60 GHz, while also advancing a select targeted development projects with key perspective customers and partners. Intermediate term, over the next 12 to 18 months, we aim to leverage our current momentum in the wireless ISP market to penetrate the emerging mmWave opportunity in the carrier market, which is anticipated to ramp later in 2023 and into the first half of 2024. As part of our recently implemented cost reduction initiatives, we’re emphasizing development projects with near-term path to achieving return on investment, even though we continue to closely monitor potential longer-term opportunities. These include next-generation mmWave applications such as AR/VR connectivity as well as the industry’s formal evaluation of incorporating 60 GHz in future standards such as WiFi 8.

In closing, I am pleased with the momentum and expanding engagements that we’ve secured in 2022 and are extending into 2023 as we aim to build upon the strong first full year of combined operations. The recent actions we have taken to streamline the organization and reduce operating expenses position us to achieve improved operating results as we drive continued top line growth over the coming year. With that, I’ll turn the call back to Jim to review the fourth quarter and full year financials and provide our outlook for first quarter of 2023. Jim?

Jim Sullivan: Thank you, Ron. It’s great to be speaking with you all today. During my comments, I will make several references to non-GAAP numbers. Unless otherwise indicated, referenced amounts exclude stock-based compensation expense, amortization of reported intangible assets, impairments of goodwill, business combination transaction costs and the change in fair value of warrant liability. These non-GAAP financial measures and the reconciliation of the differences between them and comparable GAAP measures are presented in our press release and related current report on Form 8-K, which was filed today with the SEC. Turning now to our fourth quarter and full year 2022 results. Total revenue in the fourth quarter increased to $3.9 million from $3.3 million in the third quarter of 2022 and $1.9 million during the same quarter a year ago.

Full year 2022 total revenue increased over 160% to $14.9 million compared with $5.7 million in the prior year. Product revenue from the sale of our integrated circuits and mmWave antenna solutions in the fourth quarter was $3.8 million compared with $3.1 million in the prior quarter and $1.9 million in the fourth quarter of 2021. For the full year 2022, product revenue was $14.2 million compared with $4.9 million in the prior year. The strong year-over-year growth of both fourth quarter and full year 2022 product revenue was primarily attributable to increased demand in shipments of our mmWave antenna product solutions and a full year of revenue contribution from our memory products. Royalty and other revenue comprised non-recurring engineering services and royalty revenues from licenses of our memory technology and was $0.1 million in the fourth quarter and $0.7 million for the full year 2022.

GAAP gross margin was 44.2% in the fourth quarter compared with 39.3% in the prior quarter and 30.4% in the year ago quarter. The full year 2022 GAAP gross margin was 40% compared with 42.4% in the prior year. On a non-GAAP basis, excluding amortization of acquired intangible assets, gross margin for the fourth quarter was 53.4% compared with 50.2% in the prior quarter and 30.4% in the fourth quarter of 2021. The sequential and year-over-year improvement in gross margin for the fourth quarter was primarily the result of increased shipments of the company’s memory IC products. As a reminder, the fourth quarter of 2021 included only 2 weeks of revenue contribution from our memory products following the closing of the business combination with MoSys, Inc., whereas the fourth quarter of 2022 reflected a full quarter of contribution from memory products.

For the full year 2022, non-GAAP gross margin was 49.7%. Non-GAAP product gross margin expanded to 52.6% in the fourth quarter compared with 46.3% in the prior quarter and 31.4% in the fourth quarter of 2021. For the full year 2022, non-GAAP product gross margin expanded to 47.3% from 33.3% in the prior year. The improvement in product gross margins for the fourth quarter and for full year 2022 was primarily due to the revenue contribution from memory IC products as well as increased shipments of our mmWave solutions. As reflected by our fourth quarter and full year results, we made considerable progress on driving expanded gross margin in 2022. For 2023, we continue to target a corporate non-GAAP gross margin of approximately 50% through a combination of anticipated revenue growth and benefits from increased scale and reduced production costs and our mmWave antenna product solutions as well as the ongoing contribution from sales of our higher-margin memory IC products.

GAAP operating expenses for the fourth quarter of 2022 were $16.2 million, which included a $9.9 million non-cash charge for the impairment of goodwill. This compared with $5.3 million in the prior quarter, which included a $2.6 million reduction associated with a gain related to a license and asset sale and $5.3 million in the fourth quarter of 2021. The $9.9 million non-cash charge for the impairment of goodwill in the fourth quarter of 2022 was determined by performing an impairment test, of which a key factor is the price of the company’s common stock and resultant market capitalization. For the full year 2022, GAAP operating expenses were $38.3 million compared with $18.5 million in the prior year. Total operating expenses for the fourth quarter of 2022 on a non-GAAP basis, which excludes stock-based compensation, amortization of reported intangible assets and the aforementioned goodwill impairment charge were $4.8 million compared with $3.7 million in the prior quarter and $3.7 million in the same quarter a year ago.

Full year 2022 operating expenses on a non-GAAP basis were $22 million compared with $12.3 million in the prior year. In February 2023, we announced that we had implemented cost-reduction initiatives to reduce operating losses and streamline operations as we further emphasize shorter-term market opportunities. We expect to decrease our operating expenses by approximately $5 million on an annualized basis, primarily from lower headcount and targeted reductions in expenses for certain longer-term research and development projects. To date, these initiatives remain on track, and we have begun to realize the cost reduction benefits. GAAP net loss for the fourth quarter of 2022 was $14.6 million or a loss of $0.71 per share compared with a net loss of $4 million or $0.20 per share in the prior quarter and compared with net income of $2.5 million or $0.28 per diluted share in the same quarter a year ago.

The full year 2022 GAAP net loss was $32.4 million or a loss of $1.61 per share compared with a net loss of $10.9 million or $1.86 per share in 2021. On a non-GAAP basis, net loss for the fourth quarter of 2022 was $2.8 million or a loss of $0.13 per share which exclude the stock-based compensation, amortization of acquired intangibles, the change in fair value of warrant liability and the goodwill impairment charge. This compared with a non-GAAP net loss of $2 million or $0.10 per share in the prior quarter and a net loss of $3.9 million or a loss per share of $0.51 in the same quarter a year ago. The full year 2022 non-GAAP net loss was $14.7 million or a loss of $0.73 per share compared with a net loss of $12.8 million or $2.19 per share in the prior year.

The weighted average number of basic and diluted shares outstanding for purposes of calculating both GAAP and non-GAAP EPS for the fourth quarter of 2022 was 20.5 million shares, which excludes 1.8 million shares of our common stock and exchangeable shares that are escrowed pursuant to the terms of an escrow agreement related to the December 2021 business combination and is subject to earn-out based on achievement of certain stock price targets. Adjusted EBITDA, which we define as GAAP net income or loss as reported, excluding stock-based compensation, amortization of reported intangibles, change in fair value of warrant liability, goodwill impairment charges, interest expense, depreciation and amortization and the provision for income taxes was negative $2.5 million in the fourth quarter of 2022 compared with negative $1.8 million in the prior quarter and negative $2.8 million in the prior year period.

For the full year 2022, adjusted EBITDA was negative $13.7 million compared with negative $8.8 million in the prior year. From a balance sheet perspective, during the fourth quarter of 2022, we collected approximately $1 million of refundable Canadian tax credits. In addition, to date, since September 30, 2022, we have collected approximately $2.5 million from a lead customer. Approximately $1.5 million represented the accounts receivable at September 30, 2022, and the additional approximately $1 million related to shipments in September 2022, for which the company had deferred revenue recognition. The company expects to recognize the $1 million of revenue related to these shipments in the quarter ending March 31, 2023. As of today, the company has no past due amounts from this customer.

At December 31, 2022, we had 23,376,466 shares of common stock and exchangeable shares outstanding. This amount includes the 1.8 million shares subject to escrow as noted previously. Turning to our business outlook. We’ve entered the new year with a healthy order backlog from customers and a robust pipeline of new engagement opportunities, which we believe positions us for continued growth in 2023. Specific to the first quarter of 2023, the company expects total net revenue to be in the range of $4.7 million to $5 million, which, at the midpoint, would represent sequential growth of approximately 25% and year-over-year growth of more than 40%. This concludes our prepared remarks, and we will now open the call to questions. Operator, please initiate the Q&A session.

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Q&A Session

Operator: Thank you. Our first question comes from David Williams with Benchmark Company. Please proceed.

David Williams: Hey, good afternoon, gentlemen and congrats on the progress. It sounds like there is a lot of really exciting opportunities, and it’s good to see you guys capitalizing on that.

Ron Glibbery: Thanks, Dave.

David Williams: Yes. So maybe, Ron, first to you, just if you could talk a little bit about what you’re hearing from customers. And you gave some good commentary about your travels at Mobile World Congress and WISPAMERICA. Just can you elaborate a little bit just kind of what you’re hearing, what your customers are excited about and kind of how you think the market is developing overall just kind of based on your discussions with the industry?

Ron Glibbery: Well, to be quite frank, I mean, I would say the most exciting progress right now is on the fixed wireless market in the 60-gig space. And I mean, to that end, I think I was €“ we were a bit ambiguous in the conversation about engaging with wireless ISPs, for example. But now we’ve actually confirmed three separate meetings where they are coming to our headquarters to sit down with our engineers, and we’re going to map out road maps together. So we really believe that we’re going to become the dominant, if not already, the dominant players in that marketplace. And people traveling here just kind of prove that to me. And I think we’ve got a lot of education to do in terms of making sure that WISP understand that the real benefits.

And frankly, the real benefit, Dave, is the bandwidth, right? It’s just really coming down a bandwidth. And people €“ there is kind of past, I guess, almost expectations about mmWave with regards to range and so on. And I think what people are seeing now that it really, really works, so that was a big takeaway for us over the last few weeks. I think for 5G mmWave, look like it’s kind of as I’ve been predicting over the last year or so, which is okay. So 2022, for sure, was a major, major year for fixed wireless with the carriers let’s face it, but it was really mostly in C-band. But let’s face it over. So, two things came out of that for me. One is well there is really a demand for good internet service, right. So I mean, I think with 2 plus million customer adds, that’s clear.

But the other is that I think for the carriers, again, their revenue per bit is far greater on mobile, and we just see this broad shift happening later this year and into 2024, 2-millimeter wave as just part of that overall solution for their network, right. And really as a function of growth in demand, so probably my two big takeaways, we are in the unlicensed WISP market, really, I would say, our goal this year is to absolutely be the dominant player in that market. I think engaging directly with those wireless ISPs, face-to-face to share our respective roadmaps is critical in that regard. And on the carrier front, really that shift over €“ fixed wireless is clearly an important opportunity for them. The shift €“ we see that shift over mmWave later this year into 2024.

Dave?