Good afternoon, and welcome to Peraso, Inc.'s Fourth Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode. As a reminder, this conference call is being recorded today, Monday, March 18, 2024. I would now like to turn the call over to the host for today's program, Mr. Jim Sullivan. Please go ahead.

Good afternoon, and thank you for joining today's conference call to discuss Peraso's fourth quarter and full year 2023 financial results. I'm Jim Sullivan, CFO of Peraso, and joining me today is Ron Glibbery, our CEO. Today after the market close, we issued a press release and related Form 8-K, which was filed with the Securities and Exchange Commission. 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 may be accessed through the webcast link on the Investor Relations website. As a reminder, comments made during today's conference call may include forward-looking statements. All statements other than the 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 SEC. 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. With respect to remarks on today's call involving non-GAAP numbers, unless otherwise indicated, referenced amounts exclude stock-based compensation expense, amortization of reported intangible assets, goodwill impairment charges, and the change in fair value of warrant liability. These non-GAAP financial measures, definitions and the reconciliation of the differences between them and comparable GAAP measures are presented in our press release and related Form 8-K, which was filed today with the SEC, which provides additional details. All share and per share amounts disclosed during this call reflect the retroactive impact of 1-for-40 reverse split of our common stock as applicable that became effective aftermarket close on January 2, 2024. 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?

Thank you, Jim. Good afternoon, and welcome to everyone on the phone and webcast. We appreciate you joining us. I want to start with a few brief comments on the fourth quarter and our current outlook. Then, I'll get into more detail and the key management and developments and progress that we've been making since our last conference call. Consistent with our prior expectations, multiple headwinds contributed to lower revenue for the quarter. In our mmWave business, our customer demand reflected the continued impact of the industry-wide inventory correction. Separately, while total order backlog for our memory IC products increased sequentially, revenue was lower in the fourth quarter due to the timing of production and shipment schedules. Since the beginning of the new year, both of these headwinds have begun to moderate. We anticipate revenue growth to resume in the current quarter ending March 31, and also expect double-digit growth for the full year. These growth expectations are based upon two key drivers. First is the overall $12 million of total order backlog for our memory IC products; and second, our new orders we've recently begun receiving for mmWave products targeting fixed wireless access applications, including from our largest customer. Based on this initial return of orders and customer demand, we believe the prolonged inventory correction in fixed wireless is clearing. Turning to Slide 4. I want to provide a brief update on the end of life of our current memory IC products. Since notifying our memory customers of the planned end-of-life in May of 2023, we've received price orders for the last time buys totaling $14 million. We've commenced initial shipments against these orders in the third quarter of 2023, which were largely fulfilled from existing inventory. Shipments against backlog orders slowed in the fourth quarter, primarily due to the manufacturing lead times required by foundry partners to fabricate additional wafers in these memory products. In total, for the second half of 2023, we completed end-of-life shipments of approximately $3.7 million. As of year-end, we had remaining end-of-life order backlog of approximately $10.3 million. We also had an additional $1.8 million of backlog for regular production orders. Based on current manufacturing schedules at our foundry partner, we expect shipments of our memory IC products to ramp again in the first quarter, and we expect to fulfill the majority of the combined remaining backlog over the next 12 months. As previously discussed on our last conference call, we anticipate these collective end-of-life orders and shipments from memory IC products to contribute significant revenue and cash flow throughout 2024. Flipping to Slide 5 and an update on our mmWave business. One of our key strategic initiatives continues to be building a larger and more diversified customer base for Peraso's mmWave technology. Having historically served as a relatively small number of fixed wireless customers in North America, in 2023, we set out to expand our market reach in terms of customers, geographies, and end-market applications. Our team's ongoing engagement efforts are continuing to drive tangible results contributing to a steady funnel of new opportunities and an expanded number of active engagements. Over roughly the past six months or since October, we've increased active engagements from 18 to 25. We continue to put an emphasis on prioritizing the highest quality engagements in terms of both projected economic and anticipated time to market. Today, we believe we have more existing funnel opportunities than are positioned to transition to active hardware evaluation engagements as compared with our last quarterly update. Consistent with the past, we continue to view our engagement pipeline as a leading indicator to measure our progress towards expanded reach and a more diversified business. With that in mind, one additional highlight related to our current active engagements compared with our last quarterly update is that they now comprise a larger number of prospective customers and targeted applications outside of North America. Turning to Slide 6. We believe the value proposition of our 60 gigahertz mmWave solutions for fixed wireless access is continuing to resonate across an expanding number of equipment manufacturers as well as directly with wireless internet service providers. The left side of the slide reflects only a sample of the WISPs that we've identified with 60 gigahertz fixed wireless deployments enabled by Peraso's hardware. The total number of WISP deployments utilizing our technology is difficult to track because we don't have visibility regarding the ultimate end customers. Another way to look at the market traction we're gaining with our 60 gigahertz mmWave solutions is on the right side of the slide, which lists equipment manufacturing WISPs with commercial fixed wireless access products powered by Peraso hardware. In addition to each of them having multiple products using our technology, I want to point out that collectively, they are targeting a mix of rural and urban market applications. Keeping in mind that early tracks for mmWave solutions were primarily in rural fixed wireless applications in North America, this highlights our accelerating expansion into urban market applications as well. Additionally, we are increasingly seeing many of the urban deployments targeting geographies outside of North America. Now looking at Slide 7, it's important to understand part of what is driving the expanded market opportunity in urban applications. Although there are shared challenges and needs between rural and urban fixed wireless applications, mmWave offers a unique value proposition for solving a series of challenges encountered in dense urban environments. Demand for Internet connectivity is ubiquitous; however, many technologies simply weren't designed to perform well in densely concentrated population centers, especially those found in emerging markets such as India, South America, and Africa. In addition to significant upfront infrastructure and deployment costs, Wi-Fi technology struggles with wireless congestion and interference resulting from high numbers of density-connected devices. Another critical consideration in many dense urban environments is electricity, which can often be limited and unreliable in emerging markets. To avoid service interruptions, infrastructure equipment must remain operational for extended periods on alternative sources such as solar and battery power. Leveraging the inherent advantages of mmWave, Peraso technology provides a proven solution to WISPs targeting deployments in dense urban environments. At the core of our solutions, the newest addition to our prospective series mmWave modules, the PRM2144X, incorporates a 128-element phased array antenna that provides high gain and narrow beam width, which coupled with excellent power efficiency, makes it ideal for achieving reliable connectivity in investment environments. Now I'll turn to Slide 8. Building on the positive initial feedback from WISP following our introduction of the PRM2144X. In January, we announced the commercial availability of Peraso’s DUNE platform for fixed wireless access. Designed specifically for dense urban environments, this integrated hardware and software platform provides WISP with a cost-effective turnkey solution. In addition to multi-gigabit connectivity comprising a full suite of capabilities, including dynamic traffic management and adaptive load balancing, Peraso’s DUNE platform employs network isolation to enable co-existing overlapping networks. This feature is critical for successful deployments in dense urban environments. The introduction of this platform was a result of first-hand dialogue with numerous operators to understand the specific deployment challenges they face in these environments. We recently announced our first commercial win utilizing the platform, which is important third-party validation of the solution, and we have commenced proof-of-concept engagements with multiple additional service providers. Shifting to Slide 9, I want to briefly touch on aerospace and defense. Although still a relatively new end market for Peraso, we continue to see expanded opportunities for our mmWave technology in various military defense applications. In addition to mmWave's ability to support multi-gigabit connectivity with low latency, as well as utilize unlicensed unused frequency bands, our advanced integrated antenna technology allows for communication using uniquely narrow and focused beams. Unlike other traditional wireless technologies, this directional beamforming capability makes it more difficult to intercept or even detect sensitive data communications. On our previous conference call, I mentioned having secured our first commercial engagement in this area in the form of a customer-funded proof-of-concept. This initial engagement is progressing well and continues to be in the customer evaluation phase. Over the last several months, we have sourced additional new opportunities for our mmWave solutions and defense applications. We have conservative expectations regarding any material near-term contribution from these opportunities. However, they serve as evidence that defense applications represent an incremental future market opportunity. In closing, with our expanding engagement pipeline for mmWave solutions across an increasingly diverse customer base and market applications, as well as initial indications of renewed customer demand for fixed wireless access, we're very optimistic about the company's outlook for 2024. As we continue to execute on our strategic efforts to grow the customer base from our mmWave products, we believe there is a large opportunity to realize growth over the coming quarters and beyond. With that, I'll turn the call back to Jim to review the fourth quarter and full year financials as well as our revenue expectations for the first quarter of 2024.

Thank you, Ron. Turning now to the fourth quarter and full year results. Total net revenue in the fourth quarter of 2023 was $1.8 million compared with $4.5 million in the prior quarter and $3.9 million during the same quarter a year ago. Full year 2023 total net revenue was $13.7 million compared with $14.9 million in the prior year. Product revenue from the sale of our memory integrated circuits and millimeter-wave antenna solutions in the fourth quarter was $1.5 million compared with $4.3 million in the prior quarter, and $3.8 million in the fourth quarter of 2022. For the full year 2023, product revenue was $12.9 million compared with $14.2 million in the prior year. Royalty and other revenue for the fourth quarter of 2023 was $0.4 million compared with $0.2 million in the prior quarter and $0.1 million in the same quarter a year ago. For the full year 2023, royalty and other revenue was $0.9 million compared with $0.7 million in 2022. GAAP gross margin was negative 147.3% in the fourth quarter, compared with positive 45.4% in the prior quarter and 44.2% in the year-ago quarter. For the full year 2023, GAAP gross margin was 13.6% compared with 40.1% in the prior year. On a non-GAAP basis, excluding amortization of acquired intangible assets, gross margin for the fourth quarter was negative 116.6% compared with positive 58% in the prior quarter and positive 53.4% in the fourth quarter of 2022. For the full year 2023, non-GAAP gross margin was 28% compared with 49.7% in the prior year. The negative gross margin for the fourth quarter of 2023 primarily reflected inventory write-downs for the company's millimeter wave and memory IC products. The inventory write-downs were recorded in accordance with the company's accounting policies. The write-downs for our millimeter wave inventory reflected the application of significant management judgment and estimate in consideration of the industry-wide inventory correction, current order backlog, and short-term sales forecast. Management continues to actively pursue orders for the inventory from both existing and new customers, and based on initial order flow to date, new customer engagements and mid- to long-term sales forecast, the inventory remains saleable. The write-down of our memory inventory represented existing inventory for our Bandwidth Engine 3 product for which expected end-of-life orders have not yet been received to date. GAAP operating expenses for the fourth quarter of 2023 were $5.5 million compared with $5.6 million in the prior quarter and $16.2 million in the fourth quarter of 2022, which included a $9.9 million goodwill impairment charge. For the full year 2023, GAAP operating expenses were $22.5 million compared with $38.3 million in the prior year. Non-GAAP operating expenses, which exclude stock-based compensation, amortization of reported intangible assets, and the goodwill impairment charge incurred in 2022, were $4 million consistent with the prior quarter and compared with $4.8 million in the same quarter a year ago. Non-GAAP operating expenses for the full year 2023 were $16.4 million compared with $22 million in the prior year. Operating expenses on both the GAAP and non-GAAP basis were reduced by non-recurring gains on the 2022 asset license sale, of which $0.4 million and $2.6 million were recognized in 2023 and 2022, respectively. The year-over-year reduction in non-GAAP operating expenses for both the fourth quarter and full year 2023 was attributable to a combination of cost reduction activities initiated in the second half of 2022, as well as incremental cost containment actions including layoffs implemented by the company during the fourth quarter of 2023. GAAP net loss for the fourth quarter of 2023 was $8.9 million or a loss of $12.48 per share compared with a net loss of $0.6 million or $0.87 per share in the prior quarter and a net loss of $14.6 million or a loss of $28.45 per share in the same quarter a year ago. For the full year 2023, GAAP net loss was $16.8 million or a loss of $26 per share compared with a net loss of $32.4 million or $64.41 per share in the prior year. On a non-GAAP basis, net loss for the fourth quarter of 2023 was $6.1 million or a loss of $8.52 per share, which excludes stock-based compensation, amortization of acquired intangibles, a goodwill impairment charge incurred in 2022, and the change in the fair value of warrant liabilities. This compared with a non-GAAP net loss of $1.1 million or $1.56 per share and a net loss of $2.8 million or a loss per share of $5.41 per share in the same quarter a year ago. Full year 2023 non-GAAP net loss was $12.2 million or a loss of $18.90 per share compared with a net loss of $14.7 million or $29.17 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 2023 was approximately 716,000 shares which excludes approximately 45,000 shares of our common stock and exchangeable shares that are currently escrowed. Adjusted EBITDA, which we define as GAAP net income or losses reported, excluding stock-based compensation, amortization of acquired intangibles, impairment of goodwill and changes in the fair value of warrant liabilities, interest expense, depreciation and amortization, and the provision for income taxes was negative $5.9 million in the fourth quarter compared with negative $0.9 million in the prior quarter and negative $2.5 million in the prior year period. For the full year 2023, adjusted EBITDA was negative $11.2 million compared with negative $13.7 million in the prior year. From a balance sheet perspective, as of December 31, 2023, the company had cash and cash equivalents of approximately $1.6 million. We generated cash flow of approximately $0.9 million during the fourth quarter of 2023, which was primarily attributable to proceeds from the end-of-life of our memory IC products. Subsequent to year-end, in February 2024, we completed an underwritten public offering of common stock and warrants, generating net proceeds to the company of approximately $3.4 million. Turning to our outlook. As Ron mentioned, since year-end, we have begun to see indications of improving customer demand and order patterns while also having a solid backlog of non-cancelable purchase orders for our memory IC products. The company currently expects total net revenue for the first quarter of 2024 to be in the range of $2.6 million to $2.9 million. This concludes our prepared remarks, and I'll now turn the call back over to the operator to assist with the Q&A session.

Thank you. We will now start the question-and-answer session. Our first question comes from David Williams with Benchmark. Please go ahead.

Good afternoon. Thank you for the opportunity to ask a question and congratulations on starting to see some positive developments. First, you mentioned the backlog from your larger customer and that inventory issues are beginning to improve, particularly in terms of order flow. I know this has been a challenging area with significant inventory problems in the past, and it seems like those are being resolved. My question is whether you believe this improvement is driven by increased demand, or if it's merely a result of working through existing inventory and returning to more normal levels.

Do you want me to take that, Jim?

Yeah. Why don't you speak to the customer demand, please?

To answer your question, I believe it's a mix of factors. Reflecting back to 2022, lead times extended to over 12 months, which led customers to order more than necessary, contributing to our inventory increase. We're currently working through that excess inventory, but at the same time, we're receiving positive feedback from our lead customer and others indicating strong demand for fixed wireless access. So, it's really a combination of both situations: reducing the 2022 and early 2023 surplus while also responding to ongoing demand from fixed wireless customers.

Okay. James do you have anything you want to add there, sorry.

No. The key point is that at the end of the year, we have our annual audit. Given the corrections, we believe things are clearing up, and other companies are reporting this clarity around the June 30 timeframe. We thought it was wise to reassess the valuation of our inventory and, following our policies, we decided to take some write-downs. We haven't discarded the inventory; we're still actively selling it. However, due to the lack of visibility and in line with conservative accounting practices, we took those write-downs. Looking at the projections, we anticipate a significant increase in the second half compared to the first. We're still working on millimeter wave technology and in early stages with new customers. We've made our first DUNE shipments and are expecting more orders, but initial proofs-of-concept will take longer. Memory end-of-life shipments will ramp up in Q2, continue in Q3, and then decrease in Q4. We expect a strong memory performance in Q2 and Q3, tapering off in Q4, while we anticipate a boost in millimeter wave starting around Q3. Overall, the memory market is becoming more linear over the next two quarters.

Okay. Fantastic. And how long do you think that the typical design cycle is here? Just kind of based on your commentary now, it sounds like you have some turnkey products that should ramp fairly quickly. I know it depends on that customer. But maybe just speak to any kind of indication you received from customers in terms of their design cadence or their rollout cadence.

I'll address that. We have a concrete example. The DUNE order we announced around Christmas was from a customer we engaged with in June 2023, so it took about six months. You were right on point about the speed of this process. The reason for the quick turnaround is that we have four manufacturers now, which has enhanced our ability to produce these products. When we find a WISP or an OEM looking to enter the market rapidly, we have experienced manufacturers ready to get products to market efficiently. Six months was swift, but realistically, a timeline of six to twelve months is achievable for customer engagement to deployment. This marks a significant improvement compared to four years ago when our first customer took two years to onboard, which was excessive. One of the major changes we're seeing as we move into 2024 is a much faster time-to-market for our customers, thanks to our enhanced manufacturing capabilities.

Okay. Thanks for that. And one more for me, if you don't mind. But just kind of wondering do you feel like we're reaching that tipping point for fixed wireless access? I know we've been looking for this for some time, but it feels like we're really starting to gain some momentum here. So one, do you think we're starting to see that tipping point now, and then maybe is there a way to think about maybe your global total addressable market, just given how much more interest are receiving outside North America? Thank you.

That's a good question, Dave. Recently, we attended a trade show focused on super WISPs in Oklahoma City. The positive news is that we had a similar event in Las Vegas in September. Initially, the feedback from customers regarding 60 gig was somewhat lukewarm, but this time the response was significantly more optimistic. Fixed wireless in the U.S. 5G space has seen tremendous growth in the past couple of years. We initially faced challenges as people were getting accustomed to the millimeter wave technology and 60 gigahertz. Now, they're starting to recognize its effectiveness. If you check the chat sites, you'll see that many are now confident that this technology performs well. Historically, we have focused on rural areas, but we anticipate substantial growth in more densely populated urban settings where traditional Wi-Fi solutions struggle with congestion. Based on the feedback we receive at trade shows, people are becoming more accustomed to 60 gigahertz and noticing its growth. Therefore, we remain optimistic about whether we have reached that tipping point.

Great. Thanks again for the help.

Okay. The next question comes from Kevin Liu with K. Liu & Company. Please proceed.

Hey. Good afternoon, guys. First question here. Just wanted to understand in terms of your Q1 guidance. Any help you can give us in terms of the mix of memory IC versus millimeter wave sales anticipated in that guide?

Yeah. It will be predominantly memory, memory IC with the order backlog we have there. Based on where we sit quarter-to-date, you see millimeter wave being kind of flat with where we were to Q4. So still kind of the early ramping. We are seeing the orders turn back on to larger customers that got the initial June order but still see more coming in Q2 and then growing from there.

Understood. And then just on the memory IC side, are you guys still expecting to book additional end-of-life orders or production orders or is the fact remaining backlog you have on fairly set and this is kind of what we should anticipate from here on out?

Certainly, we're basing our guidance on the current backlog, which is at $12 million. That said, the foundry is still processing wafers through September. For the Bandwidth Engine 2, we believe we’ve completed the majority of orders, but additional orders might arise depending on the customers’ transition schedule to the new product and their willingness to stock inventory to manage risks. We are not expecting that as part of our guidance. For the Bandwidth Engine 3, we have a lead customer who is still finalizing their design, and we've kept the order window open for them. We have inventory for the Bandwidth Engine 3, which was part of the write-down due to the absence of orders. While we cannot confirm additional orders, there is potential for that, and we could fulfill them from our existing inventory. For now, we are guiding based on what we have, and any additional orders would be considered a positive development that we would be pleased to report.

It makes a lot of sense. Turning back to the millimeter wave side of the business for a bit, is there an indication of whether the order flow from your larger existing customers will return to historical levels in the near term, or do you anticipate a more gradual increase as you address some of the inventory corrections?

So I can address that, Jim. Kevin, I believe we're seeing a situation that falls somewhere in between. In 2022 and early 2023, demand was likely higher than usual due to stockpiling. As that demand normalizes, I expect we will land somewhere better than 2023, but not quite as strong as 2022. We're observing this trend with our existing customers. A crucial aspect to highlight in our presentation is customer diversification. With Mark Lansford now serving as our Chief Revenue Officer, we've significantly broadened our customer base over the past year. We previously showcased just two customers with their marketplace products, but we have made a deliberate effort to expand our customer base. This was one of our main limitations, and we've now reduced our vulnerability by diversifying our customers. I believe this focus on customer diversification is the key change in our business outlook and backlog.

Understood. And Ron, just on that in terms of the new customers that are coming to market with products now, any sense of how quickly these guys can become more material contributors to your revenue? I just want to understand, as you look at the four-year millimeter wave guidance, whether a big portion of that is still from existing base or whether some of these new opportunities are sizable enough to contribute to that?

I believe that we will consistently demonstrate our progress in every earnings call. As I mentioned earlier, we have guided toward a strategy that focuses on shortening the time to market. To achieve this, we are now working with four manufacturers who are skilled in producing these products. For instance, the DUNE product we announced during Christmas had a time to market that ran from June 2023 to Christmas, which is just over six months. This timeline was expedited because the customer was highly motivated. Realistically, we can expect a timeframe of about nine months moving forward. We are also engaging with a pipeline of customers that we believe will begin to ramp up each quarter this year. Our strategy has two main highlights: diversifying our customer base, which we have accomplished and will continue to pursue, and reducing the time to market.

Okay. Sounds good. Thanks for taking those questions and good luck here in ‘24.

My pleasure, Kevin. Thank you.

Thanks, Kevin.

Okay. We have no further questions in queue. This concludes today's conference, and you may disconnect your lines at this time. Thank you.

Thank you.