Good afternoon, and welcome to Peraso Inc.'s First Quarter 2024 Conference Call. This conference call is being recorded today, Monday, May 13, 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 first quarter 2024 financial results. I'm Jim Sullivan, CFO of Peraso; and joining me today is Ron Glibbery, our CEO. Today, after the market closed, we issued a press release and related Form 8-K, which was filed with the SEC, and 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 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, margin, 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 and 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 and the change in fair value of warrant liabilities. 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 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 page of our website. Now I'd 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 first quarter and our current outlook, then I'll get into more detail on the key developments and progress we've been making since our last conference call. First quarter revenue increased sequentially and was above the midpoint of our guidance as customer demand for mmWave products improved and we had increased shipments of our memory IC products in fulfillment of our backlog and end-of-life orders. Combined with positive market indicators, we began to see our mmWave business; we're increasingly confident in our expectation for 2024 to be a year of solid growth for Peraso. Turning to Slide 4. I want to provide a brief update on the end-of-life of our memory IC products. Shipments against backlog orders increased to $2.4 million in the first quarter. We also received an additional $2.9 million end-of-life order late in the quarter, which increased our total remaining purchase order backlog to approximately $12.6 million at March 31, 2024. We anticipate shipments of our memory IC products to increase sequentially in the second quarter, and we expect to fulfill the total remaining backlog by the end of the first quarter of 2025. Collectively, these shipments will contribute meaningful revenue and cash flow in support of the continued execution of our growth initiative to expand our mmWave customer base. Flipping to Slide 5. As I've stated in the past, one of our key strategic initiatives continues to be building a larger and more diversified customer base for our mmWave business. And again, we're approaching this both from a geographical perspective and in terms of end market applications. Although it's been a relatively short period since our last earnings call, we continue to make progress on culminating new engagements, while advancing existing opportunities in the sales funnel. A number of these new engagements continue to be targeted outside of North America to further expand Peraso's global reach. I'll discuss a few of our most recent successes and secured design wins in the next few slides. Turning to Slide 6. I want to profile one of Peraso's more notable recent design wins. In April, we announced Panasonic's adoption of our X710 mmWave chipset in its newly introduced 60 gigahertz WLAN solution. This was a significant win for our team, and it serves as further validation of our leading mmWave technology. Panasonic's wireless LAN solution achieves high-speed, low-latency communications that are equivalent to wired LAN performance over distances of hundreds of meters. The solution is easy to install and operate, thanks to its use of unlicensed, interference-free 60 gigahertz band, coupled together with Peraso's narrow beam directional antenna control. As I've discussed on previous calls, the 60 gigahertz unlicensed band provides extensive RF spectrum, which is ideal for fixed wireless applications delivering multi-gigabit data service. Now looking at Slide 7. As further proof points of our focused efforts and initial success towards diversification, I want to briefly highlight some of our examples of our recent activity. First, Peraso's mmWave solutions are now a key enabler of a 60 gigahertz rating for high-speed train-to-station communications for a Chinese rail system. More specifically, our partner Jaguar Wave is deploying a 60-gigahertz mmWave radio system that utilizes Peraso's X720 chipset to provide up to 2 gigabits per second for high-speed data communications as trains approach 1 kilometer of a station. Separately, we have now shipped proof of concepts of our new DUNE platform to multiple WISP providers targeting deployments across Africa. Additionally, Miliwave, a South Korean equipment manufacturer, recently announced a new fixed wireless product line using Peraso's X720 chipset. Lastly, we also continue to gain traction in defense applications with the introduction of our new mmWave solutions for battlefield communication, which I'll expand on in a minute. Collectively, these examples demonstrate the progress we continue to make, expanding our market reach both geographically and by application. Turning to Slide 8. I wanted to go a layer deeper on DUNE, our Dense Urban Network Environment platform for fixed wireless access that we launched earlier this year. DUNE addresses the network access problems experienced in small and urban neighborhoods where conventional connectivity solutions are too costly, physically impractical or saturated. Many technologies simply weren't designed to work well in densely concentrated population centers, especially those found in emerging markets such as India, South America, and Africa. As previously mentioned, in recent months, we have shipped proof of concepts to multiple WISPs in Africa. Peraso's DUNE platform originated from our firsthand engagement with numerous WISPs and equipment suppliers to understand the specific deployment challenges they face in these environments. In addition to significant upfront infrastructure and deployment costs, WiFi technology, for example, struggles with the wireless congestion and interference resulting from a high number of connected devices. Moreover, electricity can often be limited and less reliable in these emerging markets. In order to avoid service interruptions, infrastructure equipment must be able to remain operational for extended periods or utilize alternative power sources such as solar and battery. Having said that, I want to emphasize the need for dense urban environment solutions is not exclusive to emerging markets. DUNE's benefits and the challenges that it solves are equally relevant in other geographies, including here in North America. As one prominent example and potential use case, Los Angeles County has announced plans to deploy its own high-speed wireless broadband service targeted at serving low-income residents. Los Angeles recently contracted a well-known WISP to lead the project, which is expected to leverage a 60 gigahertz millimeter wave fixed wireless solution to deliver 2 gigabits per second wireless connectivity to qualifying residents for as low as $25 per month. Regardless of this geography, these types of urban fixed wireless deployments are exactly what DUNE was designed to enable. Broadly speaking, we are very encouraged by the initial positive feedback of our DUNE platform, and we expect further engagements and expansions of these opportunities in the coming quarters. Shifting to Slide 9. I wanted to briefly touch on our recent success in the aerospace and defense sector as we believe it's a market that is ideally suited for mmWave technology solutions. Our advanced integrated antenna technology allows for communications using unique, narrow, and focused beams, which make it more difficult to intercept and even detect sensitive data communications. In March, we released our PRM2136 platform for stealthy and tactical communication. This platform solution offers support for high bandwidth, low latency applications using unlicensed mmWave spectrum and guarantees a reliable high throughput connection between users. All of Peraso's 60 gigahertz modules enable multi-gigabit data transfer rates, which can be mission-critical in military operations that require sharing data in real time. Additionally, the PRM2136 incorporates our proprietary adaptive beamforming and narrow pencil beam capabilities that allow for highly directional communications, which are inherently stealthy and lower probability of interception and detection. Acknowledging that it takes some additional time to cultivate and realize material revenue in the market due to typically longer evaluation and design-in cycles, it's clear that mmWave dispense applications represent an incremental market opportunity with significant potential. 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 feel highly confident in the company's outlook for strong growth in 2024. Additionally, we expect the backlog of our EOL shipment IC products to provide meaningful revenue and cash flow to improve our financial position and outlook. As we continue to execute on our strategic initiatives to expand the customer base for our mmWave products, we believe there is a large opportunity to realize significant growth over the coming years. With that, I'll turn the call back to Jim to review the first quarter financials as well as our revenue expectation for the second quarter of 2024.

Thank you, Ron. Turning to the results for the first quarter of 2024. Total net revenue was $2.8 million and above the midpoint of our guidance compared with $1.8 million in the prior quarter and $5 million during the same quarter a year ago. Product revenue from the sale of our memory integrated circuits and millimeter wave integrated circuits and antenna modules in the first quarter was $2.7 million compared with $1.5 million in the prior quarter and $4.9 million in the first quarter of 2023. Royalty and other revenue for the first quarter of 2024 was $0.1 million compared with $0.4 million in the prior quarter and $0.1 million in the same quarter a year ago. GAAP gross margin increased to 46.4% in the first quarter compared with a negative 147.3% in the prior quarter, which reflected the impact of $3 million of inventory write-downs and a gross margin of 38.3% in the year-ago quarter. On a non-GAAP basis, excluding amortization of acquired intangible assets, gross margin for the first quarter was 66.4% compared with negative 116.6% in the prior quarter, which again reflected the previously mentioned inventory write-down and a non-GAAP gross margin of 45.4% in the first quarter of 2023. The improvement in gross margin for the first quarter of 2024 was attributable to increased revenue contribution from memory IC products. GAAP operating expenses for the first quarter of 2024 were $4.9 million compared with $5.5 million in the prior quarter, which included $0.2 million of asset write-downs and $5.7 million in the first quarter of 2023. Non-GAAP operating expenses, which exclude stock-based compensation and amortization of the tangible assets, were $3.5 million compared with $4 million in the prior quarter and $4.3 million in the same quarter a year ago. The sequential and year-over-year reduction in first quarter operating expenses were the result of previously implemented cost reductions and cost containment actions taken by the company beginning in the second half of 2022. GAAP net loss for the first quarter of 2024 was $2 million or a loss of $1.07 per share compared with a net loss of $8.9 million or $12.48 per share in the prior quarter and a net loss of $3.1 million or $5.54 per share in the same quarter a year ago. On a non-GAAP basis, net loss for the first quarter of 2024 was $1.6 million or a loss of $0.83 per share, which excluded stock-based compensation, amortization of acquired intangibles, and the change in fair value of warrant liabilities. This compared with a non-GAAP net loss of $6.1 million or a loss of $8.52 per share in the prior quarter and a net loss of $2 million or a loss per share of $3.49 per share in the same quarter a year ago. The weighted average number of basic and diluted shares outstanding for purposes of calculating both GAAP and non-GAAP EPS for the first quarter of 2024 was approximately 1.9 million shares, which excludes approximately 45,000 shares of our common stock and exchangeable shares that are currently in escrow. Adjusted EBITDA, which we define as GAAP net income or loss as reported, excluding stock-based compensation, amortization of acquired intangibles, change in fair value of warrant liabilities, interest expense, depreciation and amortization, and the provision for income taxes was negative $1.4 million in the first quarter compared with negative $5.9 million in the prior quarter and negative $1.8 million in the prior year period. From an equity perspective, in February, we completed an underwritten public offering of common stock and warrants, generating net proceeds of approximately $3.4 million. As of today, May 13, 2024, the company has 2,690,236 shares of common stock and exchangeable shares outstanding. In addition, as of today, 116,190 pre-funded warrants with an exercise price of $0.001 per share remained outstanding from the public offering completed in February 2024. Turning to our outlook. As Ron discussed, we have begun gaining traction on multiple new customer engagements for our millimeter wave solutions, which we expect to incrementally ramp throughout the year. We also have a significant remaining backlog of noncancelable purchase orders for our end-of-life memory IC products. The company currently expects total net revenue for the second quarter of 2024 to be in the range of $3.7 million to $4 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.

The first question today is from David Williams from Benchmark.

Congrats on the progress here. It's really great to see the development on the millimeter wave side and the memory side. So congrats. Yes. So I guess, Ron, maybe first, if you think about the magnitude of demand that's being generated within millimeter wave and kind of the proof of concepts that you're shipping through today and maybe what you have coming up the pipeline, what do you think the volumes could look like as you get ramped here? Just trying to think about maybe not even this year, but maybe more so for next year, what should we think about those volumes looking like?

Thank you, Dave. According to third-party research, the overall market for fixed wireless is around 4 million units a year, and we're aiming to capture at least 25% of that. Our goal is to achieve a quarter of the market share in unlicensed fixed wireless, which is the key metric we're focusing on. This is primarily based on market research and provides us with clear targets for the next 12 to 18 months. I hope that clarifies your question.

No, it actually does. If I look across the landscape, there doesn't seem to be a lot of competitors, at least domestically. What are you seeing in terms of your competition in these other markets as we think about Africa and India? Are there any others out there that you might be competing with locally?

In the 60 gigahertz space, we are establishing a dominant position. What reassures me is that as we gain more wins, we become stronger because people grow more comfortable with both the technology and the company. The Panasonic design win highlights this; Panasonic, a conservative and traditional Japanese company, choosing to go to market with our technology demonstrates their confidence in us. It took time to build their trust in our technology and the company. From a competitive standpoint, you will see that we are the leading player in 60 gigahertz technology every quarter. Additionally, over the past year, compared to competitors in the 5 and 6 gigahertz space, we have had success in regions like Africa. We are now seeing 60 gigahertz technology making its mark in Los Angeles, particularly in densely populated urban environments. This shows that 60 gigahertz is a superior technology to traditional Wi-Fi in such areas due to its capability to manage high density. Therefore, in both the 60 gigahertz market and the broader unlicensed market, we are really solidifying a dominant position.

And just one last one here, if I may, and then I'll jump back in the queue. But just kind of wondering if you could talk through your go-to-market strategy? It seems like you have a lot of shots on goal here that have developed here fairly quickly, especially thinking about the aerospace and defense, and that's historically been a challenging market to penetrate. But just kind of curious how you're thinking about your go-to-market strategy, how that's developing? And maybe what other opportunities are out there today that may be as an investor we're not yet seeing?

We've been discussing fixed wireless technology, particularly gigabit broadband internet, which is currently our main focus. The military sector has been a key factor in our growth over the past couple of years due to conflicts that have highlighted the limitations of traditional wireless technologies, making them easier to target. The advantages of millimeter wave technology lie in its focused transmissions, which provide stealth capabilities in those environments. We've always had an interest in military applications, but now we're witnessing significant design wins due to specific regional conflicts. Moreover, another area contributing to our growth is in consumer electronics, particularly in high-performance video and wireless video. The challenge we address there is network congestion, as nearly every location has Wi-Fi, leading to a crowded environment. Traditional Wi-Fi struggles with mission-critical applications like video, so we're seeing good progress in this segment. I believe high-performance video in consumer electronics will represent a crucial area for us in the next 12 to 18 months.

The next question is coming from Kevin Liu from K. Liu & Company.

Good to see the sequential improvement in the business here. Maybe just starting on the millimeter wave side, can you talk about kind of the inventory levels you think still persist in your largest customers? Has that largely been absorbed and you're now capable of seeing sequential improvement there? Or is there still some sort of overhang that you have to get through?

Yes. There has been a significant inventory buildup, but we are definitely noticing signs of improvement. We're beginning to receive some orders. We believe that this momentum will carry into the late third quarter and into the fourth quarter of this year, based on our observations and feedback from our customers. The positive aspect is that our longstanding customers are actually performing well despite the inventory situation, sharing that they are experiencing strong sales. We anticipate this will benefit us in the second half of '24. Additionally, the sales of 60 gig from our customers are reportedly improving significantly, which gives us hope for transitioning out of inventory and into new orders later this year.

And I mean you alluded to one of your customers winning a deal in L.A. County. I mean, would you assume that's kind of incremental to your business this year? Or is that product that they may have had already that they can ship as they start to ramp up against that engagement?

Well, I mean, that customer is actually, there's really no public information on who the chip supplier is for that deal. But from a speculation perspective, I would say certainly later this year and very much so into 2025.

And then maybe just one for Jim. But looking at the gross margin, that improved quite a bit. I know you guys pointed to the memory side of the business there. So I wanted to understand how sustainable the gross margin is as we go into Q2 and the back half of the year given you'll continue to see a high mix of memory sales there?

Yes, thank you for the question, Kevin. Our gross margin profile will definitely benefit from that. Our corporate target is 50% and higher. The memory segment typically operates in the high 60s and sometimes reaches the 70s. This will help maintain our margins as we aim for higher levels moving into 2024. We expect to complete the memory shipments by the first quarter of 2025, while also anticipating a continued ramp-up in our millimeter wave business. The millimeter wave side has faced some challenges due to interruptions related to inventory corrections and inconsistent production flows, making it difficult to surpass the 50% margin level. Nonetheless, we are working towards that goal and have the advantage of the memory segment to support us over the next year.

And then just lastly, with the ramp-up that you guys will have on the memory business as well as just the improvements on the millimeter wave, I'm just curious if we should expect you guys to start to build more inventory here or if the current inventory levels you have on the balance sheet should be able to sustain your current business or revenue levels?

Yes, we should be able to maintain our current position with what we have. There was a slight increase on March 31 compared to December 31, which was entirely related to memory. We have a considerable amount of millimeter wave inventory, some of which is at different stages of production and requires further development. On the memory front, we need to order more wafers, with the exact quantity depending on yields and other factors. We made a couple of wafer purchases in the first quarter, and we've already completed one this May, with another likely on the way. To meet those orders, we will certainly be increasing our memory production. For the millimeter wave, we produce based on specific orders from new customers.

And we did have a follow-up come in from David Williams from Benchmark.

I felt like I should have asked Jim a question earlier. I just want to come back and get one in. As we consider the cash flow related to memory, do you expect some of that to be more back-end loaded into the first quarter, or will it be more linear throughout the year?

I believe it will remain fairly consistent for the remainder of 2024, followed by a decline in the first quarter of 2025. Currently, we've received a new order in late March for $2.88 million. I estimate that 25% to 30% of this order will be shipped in the fourth quarter, while the remainder, or at least the equivalent dollar value, will be shipped in the first quarter. Therefore, I anticipate steady performance in the memory segment over the next three quarters, leading to a decrease in Q1. As of now, we are projecting a downturn in the first quarter of 2025, depending on the receipt of additional orders that are still pending.

Do you believe there is a good or moderate chance for additional EOL orders?

I believe there is a good chance of at least $1 million in orders. Currently, the foundry does not require the orders until the end of August or September, so we have some time. Additionally, we received a large order in March. The customer is ensuring their design is confirmed, and I'm optimistic that order will materialize. Specifically, I'm quite hopeful about the order for our Bandwidth Engine 3 product, for which we have sufficient inventory to meet the demand. I'm pleased because this means I won't need to build or purchase anything; we'll just need to complete a buildup. However, we'll have to wait and see since we still have time.

And the next question is coming from Jon Hickman from Ladenburg.

I might have missed this, and maybe you didn't even say it, but did you break down the product revenue between millimeter wave and memory?

We did not provide that breakdown. We typically include that information in the tables of the 10-Q, which we are planning to file likely after the market closes or before it opens tomorrow. In the first quarter, we generated approximately $2.68 million in product revenue, with around $2.38 billion of that coming from memory and the remaining $300,000 or so from millimeter wave IC modules.

And then could you give us an idea on the millimeter wave side kind of current number of customers you've shipped to recently and what the pipeline looks like as far as numbers of different WISPs or separate customers?

Yes. I think in the first quarter, we shipped to around 8 to 10 customers at different purchase levels, but none of them were significant based on the revenue number I provided. Looking ahead, I expect we'll continue in that range.

Yes.

We recently made an initial shipment to one of the new DUNE customers and are planning a larger one for June. Would you say that's an accurate description, Ron?

I think we've got 5 DUNE customers that proof of concept. So we expect to be shipping those in the second half. So there's 5 additional there, right? So yes, I mean we hope to grow from 8 to 10, maybe from 10 to 15 in the second half. But yes, I mean, I think we're obviously trying to diversify that customer base for sure.

And then the L.A. thing that you mentioned, is that an RFP? Or did you win that business?

Just to clarify, we can't disclose everything, Jon, but it is publicly available information if you want to find it. It's quite visible. What we don't know is that the ISP uses different vendors. However, one confirmed piece of public information is that it's a 60 gigahertz design win. We believe that the significance of this is that the advantage of 60 gigahertz technology is particularly beneficial in urban environments. It's capable of serving areas with a high density of residents, which analysts estimate to be around 280,000. The main benefit of our 60 gigahertz technology lies in its effectiveness in these dense urban areas due to its beamforming capabilities. This is an important point to emphasize regarding that program. It's worth noting that it is not ERP, but it has indeed been awarded.

It's been awarded.

Yes.

So I have to do some digging. And then on the military side, is the technology mobile? Like can I put this on a truck and go from one battlefield to the next or 1 mile away and set a backup?

The use case we've discussed involves soldiers connecting to their Humvees. Typically, the range is about 100 to 200 meters, as soldiers won't be too far from their vehicles. The Humvee likely connects back to the network through a satellite link. There is a lot of information stored on the Humvee's server, such as maps of the area. Our technology, with its 1 gigabit links, enables quick downloads of these maps to the soldiers' mobile devices. While soldiers can move around, they generally stay within about 200 meters of their Humvee, which describes the application we've outlined.

Are you currently shipping to Panasonic, or is that something that will happen in the future?

No, we're shipping to them. Yes, absolutely. We've been working on this for several years, and these guys are very careful. But we are actually shipping, and that is in full production.

There were no other questions in queue at this time, and this does conclude today's conference. Thank you for your participation. You may disconnect your lines at this time.