Peraso Inc. Q3 FY2024 earnings call

• Revenue in the quarter was within expectations with improved operating performance. Operating expenses decreased almost 20% year-over-year due to cost reductions. - Shipments of end-of-life memory IC products increased sequentially to ~$3.7 million in Q3 with a remaining backlog of ~$5.7 million. - Millimeter-wave pipeline has 82 customer engagements, 23 active engagements in hardware evaluation or advanced design, and 9 prior design engagements converted to in-production wins. - Recent wins include SAF TEHNIKA's FreeMile 60 radio using Peraso's modules, Miliwave's MWC-932 product, and initial purchase order for HVR Technology in South Korea. - DUNE millimeter-wave platform for dense urban applications has seen traction with wins in Africa and Kenya. - Millimeter-wave technology for tactical defense has secured an initial purchase order with initial shipments expected in Q1 2025. - BEAD program update makes fixed wireless access using millimeter bands eligible for funding, potentially accelerating market opportunities.

Total net revenue in the third quarter of 2024 was $3.8 million. Product revenue from memory integrated circuits and millimeter wave products was $3.8 million. Royalty and other revenue was $30,000. GAAP gross margin decreased to 47% from 55.5% in the prior quarter and 45.4% in the year-ago quarter. Non-GAAP gross margin was 61.7% compared to 68.8% prior quarter and 58% year-ago. GAAP operating expenses were $4.5 million, while non-GAAP operating expenses were $3.3 million. GAAP net loss was $2.7 million or $0.98 per share.

• Fourth quarter 2024 total net revenue expected to be in the range of $3.6 million to $4 million. - Q1 2025 expected to be the inflection point for design wins to translate into shipments as backlog is present late Q4 and into Q1.

• Broader macro environment and prolonged inventory adjustments remain ongoing challenges. - Risks related to forward-looking statements including unknown risks, uncertainties, and factors that may cause actual results to differ from implied statements.

Q: Hey, good afternoon, gentlemen and thanks for taking my questions. Maybe first, Ron, it sounds like you've got a lot of traction here and congratulations on the design wins that you've announced. When do you think we should start seeing maybe an inflection coming on the revenue side? Just trying to get a sense of when these design wins could turn into deployment and then eventually revenue?

A: Well, thanks, good question David and for listening in today. I appreciate that. So obviously, from our perspective, the sooner the better. We think -- we know for sure there's now backlog late Q4 and into Q1. So we think Q1 is realistically when it's really going to -- we're going to start to really see that inflection point. We -- as we said in my remarks, like we have worked through -- we're working through the inventory issues and so on, just kind of general macro issues. But I would continue to stress like from our perspective, the design win activity is very strong, and we're really -- we're more than optimistic that by Q1, we're going to start to see those shipments start to resume because we were starting to see that backlog. So that's kind of the thinking from our side.

Q: Okay. Perfect. Thanks so much for that color. It sounds like maybe that the inventory is largely at least getting worked through. Are you seeing that in your North America, maybe your largest customer from their inventory as well? Or is most of this maybe the positive more from outside of that largest customer.

A: I would say both. And just to kind of rewind a little bit, Dave, when we -- obviously, over the last few quarters, we were really caught by our customer concentration -- with a couple of customers. We've worked so hard over the last two years to really fix that problem. We've got 100 -- not really, I'd say, in the order of 100 customer engagements. It's actually, from my perspective, quite remarkable. So what we're going to start to see -- we are already start some green shoots in Q4 with existing customers and start to see the new customers come online in Q1. So it's really a combination of both, I would say. So -- and again, like starting to see that volume. But definitely -- I mean, one stat that I'll throw out that I think is quite remarkable that I was kind of updated after kind of recently is -- part of our design win process is what we call Eval kits [ph] where customers buy Eval kits -- kind of try things out testing. We sold 28 of those in the third quarter and -- or in the -- I'm sorry, the second quarter. No, it was actually the third quarter, and it was actually the most we ever sold in our history. So every single quarter, not only have we seen the design wins going up and the customer case has gone up. But people are actually really testing their stuff out early. So I'm really thrilled with, again, the traction we're seeing on that front, and we're really optimistic that by Q1, we're going to start to see those orders start to come in.

Q: Hi. Hey, just two questions.

A: Hi, Jon. Thank you.

Q: One, is any – is BEAD money being spent right now on the fiber side? Or is it like in permitting stage and stuff like that?

A: I think it's still early, would be my assessment. I mean the BEAD process is reasonably onerous. It takes matching funds. I think the application process is quite onerous. So I think the funds are starting to trickle out but it's probably more of a longer-term process in 2025 and 2026 Obviously, from our perspective -- sorry, the only thing I wanted to say is from our perspective, the only -- I mean, the change we're really hoping to see is to go from a really a very fiber-centric approach to a tech-neutral approach that includes our technology.

Q: So are you seeing anybody -- any of the risk like starting to like ask for them money?

A: Well, I mean, we were at a WISP, so called Wispapalooza about a month ago in Las Vegas. And definitely, people are circling around. I don't recall anyone saying to us specifically, they've applied. But I think they are in the background starting to apply for sure because it's a significant amount of money. So I would say, if I had to handicap it, maybe 10% of the customers we see in that marketplace would have been starting to apply. But I think in general, people really want to see how things are going to shake out, and we're starting to see that now.

Q: And then my other question is, can you elaborate on the size at all of that military contract and when you might start like actually shipping to that customer?

A: Well, in terms of the size, I think the most -- first of all, I mean, I would have to say that it's a highly sensitive contract. I think in terms of the size, probably the most I could say right now, John, is that it's material to our business. It's not like a smaller portion of our business. So it would be a material contract for the company. We're hoping to be shipping in volume in Q2 next year. So just to clarify that point, I mean, we are getting -- I mean, again, on the whole military discussion, I think a lot of the 28 evaluation kits that we shipped out are to military people, particularly a lot of it is drones. And I think as everyone knows, in the Ukraine war in the Middle East, drones are playing a very significant role. And so the whole concept of Stealth high-speed communications is a big part of that value proposition we bring to the party. But generally, I think one of the knocks against militaries, it takes long. But I think what we have to keep in mind for our business is that there are ongoing wars that people want solutions now. So we expect to be shipping in volume right now if all goes well, and it is going well by Q2 next year.