Good afternoon, and welcome to Peraso Inc.'s Second Quarter 2024 Conference Call. At this time, all participants are in a listen-only mode. As a reminder, this conference call is being recorded today, Monday, August 12, 2024. I would now like to turn the call over to your host for today's conference call, Mr. Jim Sullivan. Please go ahead.

Good afternoon, and thank you for joining today's conference call to discuss Peraso's second 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 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 webpage. 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 in 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, severance costs, 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 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 taking the time to join us today. Jumping right in, we're very pleased by our continued progress during the second quarter. As reported in today's press release, total revenue of $4.2 million exceeded the high end of our original guidance and represented growth over 50% sequentially and more than 70% year-over-year. Strong growth was driven by increased shipments of our end-of-life memory IC products, coupled with revenue contribution from a new volume production order for our millimeter-wave antenna modules. Gross margin also expanded. And although reported operating expenses were up slightly due to certain charges incurred during the quarter, we continued to closely manage expenses in support of improving operating results and reducing our cash burn. Turning to Slide 4, I want to briefly highlight the status of the end-of-life with our memory IC products. As anticipated, second quarter shipments against our backlog increased sequentially to approximately $3.4 million compared to $2.4 million in the prior quarter. Net of the most recent $2.9 million end-of-life purchase order that we received at the end of Q1, we ended the second quarter with total remaining purchase order backlog of approximately $9.1 million. We currently expect third quarter shipments of our IC memory products to be comparable to shipments in the second quarter. Additionally, there have been no significant changes to our original timeline for completing the end-of-life of our memory IC products, and we are on schedule to fulfill the total remaining backlog by the end of the first quarter of 2025. As discussed on previous calls, these shipments against remaining backlog will continue to contribute meaningful revenue and cash flow over the next few quarters as we work aggressively to further expand and ramp customers for our millimeter-wave products. Next on Slide 5, this is an updated snapshot of our global engagement pipeline for new RF millimeter-wave business as of the end of July. As a reminder, for those who might be newer to our story, Peraso has been a leading innovator of millimeter-wave technology for more than a decade. We have a multiyear track record of commercial shipments, and our technology has been field-proven extensively. Until more recently, our millimeter-wave business was exclusively focused on serving a small number of strategic fixed wireless access customers. Over roughly the last year and a half, we have put in place a growth strategy with the goal of establishing a larger and more diversified customer base for our millimeter-wave business. We initially set out to achieve this objective primarily focused on the rapidly growing fixed wireless access market in North America; however, our current efforts and engagements are now equally focused on expanding market reach across diverse geographies and end market applications. We first introduced this pipeline slide in early 2023, and we believe it continues to represent a helpful leading indicator of our progress, not only in terms of customer diversification, but also the expanding growth potential of our millimeter-wave business. To highlight a few of the key takeaways from this year-to-date view of the pipeline: first, taking the top number that represents new funnel opportunities and combining it with those across the four progressive stages of active engagement, our pipeline comprised 95 total engagements at the end of July. For context, we are consistently pruning our account of funnel opportunities if either activity on an engagement stalls or we choose not to pursue it for commercial reasons. Additionally, once a program engagement converts to being in production, we no longer include it as part of our current pipeline. Even after accounting for both sides of these variables, our current number of total engagements is up more than 25% compared to this time last year. Turning to Slide 6, as briefly mentioned in my opening remarks, during the quarter, we secured and shipped the first volume production order for our DUNE platform. First introduced earlier this year, DUNE is our dense urban network environment platform solution for fixed wireless access. We specifically designed the solution to overcome the challenges associated with delivering reliable and high-speed network access in densely populated areas such as urban neighborhoods. This new volume production order for our millimeter-wave antenna modules was from a South African service provider that is leveraging Peraso's DUNE platform solution for its initial deployment. It would be difficult to imagine a better form of commercial validation for our DUNE platform and its unique ability to deliver gigabit speed fixed wireless access in dense urban environment applications. As a newly established service provider in the region, we anticipate their first initial deployment will take at least several months; however, we do expect additional incremental orders from this customer as they progress on extending their deployment in the coming quarters. In addition to this lead customer, we are currently engaged with several other prospective customers targeting future deployments in dense urban environments. This includes our shipment of DUNE proof-of-concepts to multiple WISPs in Africa with whom we are supporting ongoing evaluations. We also continue to believe that millimeter-wave technology solutions uniquely position us to potentially participate in planned North American deployments announced by one of our long-time WISP customers. As such, we remain very optimistic about the recent commercial validation and strong expressed interest in our DUNE platform, which we believe represents the leading commercially-proven fixed wireless solution for dense urban environments. Moving to Slide 7, I want to take a moment to highlight the recent emerging development that we believe could potentially encourage expanded customer adoption and market opportunities for our millimeter-wave solutions. For those not already familiar, BEAD is a federal grant program funded through the United States Department of Commerce. BEAD stands for Broadband, Equity, Access, and Deployment, and the program was established with the purpose of allocating $42.45 billion in direct support of broadening access to high-speed Internet. Although a majority of the program's funding was initially thought to be prioritized for Internet delivered over fiber optic cable, the head of NTIA, which is the agency that oversees the BEAD program, very recently stated the agency is planning to provide further guidance on the types of Internet delivery that are eligible for potential funding. More specifically, the NTIA has anticipated providing guidance that makes funding eligible for the deployment of high-speed Internet using unlicensed spectrum fixed wireless access, including millimeter-wave bands. I would emphasize that this anticipated new guidance from the NTIA has yet to be formally announced. However, to the extent that Internet access delivered via unlicensed fixed wireless access does become eligible for funding, this would likely motivate and benefit a large number of WISP deployments across America, which in turn could potentially result in significant expanded market opportunity for Peraso. In closing, we're encouraged by the continued customer ramp of our millimeter-wave solutions during the second quarter. We aim to gain further traction in the coming quarters as we remain focused on advancing and converting existing customer engagements into production orders for our millimeter-wave products and platform solutions. We also expect our ongoing shipment to fulfill remaining backlog orders for our end-of-life memory IC products will continue to contribute meaningful revenue and cash flow throughout the early next year. Taken together, we anticipate total revenue for the second half of 2024 to increase over the first half of the year, while also representing revenue growth year-over-year. With that, I'll turn the call back to Jim to review the second quarter financials as well as our revenue outlook for the third quarter of 2024. Over to you, Jim.

Thank you, Ron. Turning to the results for the second quarter of 2024, total net revenue increased to $4.2 million, which was above the high end of our original guidance range. This compared with revenue of $2.8 million in the prior quarter and $2.4 million for the second quarter of 2023. Product revenue from the sale of our memory integrated circuits and millimeter-wave products in the second quarter was $4.1 million compared with $2.7 million in the prior quarter and $2.2 million in the second quarter of 2023. Royalty and other revenue for the second quarter of 2024 was $0.1 million, consistent with the prior quarter and compared with $0.2 million in the same quarter a year ago. GAAP gross margin increased to 55.5% in the second quarter from 46.4% in the prior quarter and 25.3% in the year-ago quarter. On a non-GAAP basis, excluding amortization of acquired intangible assets, gross margin increased to 68.8% for the second quarter from 66.4% in the prior quarter and compared with 45.9% in the second quarter of 2023. The sequential and year-over-year improvement in gross margin for the second quarter was primarily attributable to increased revenue contribution from shipments of our end-of-life memory IC products. GAAP operating expenses for the second quarter of 2024 were $6.8 million compared with $4.9 million in the prior quarter and $5.6 million in the second quarter of 2023. Operating expenses for the second quarter of 2024 included severance expenses of $0.4 million, which will be paid over the next 13 months as the company completes the temporary layoff initiated in November 2023, and $1.6 million charges for software license obligations, which will be paid over the next five quarters. Non-GAAP operating expenses, which exclude stock-based compensation, amortization of intangible assets, and severance costs, were $4.9 million in the second quarter of 2024 compared with $3.4 million in the prior quarter and $4.1 million in the second quarter of 2023. The increase in second quarter 2024 operating expenses on a GAAP and non-GAAP basis was primarily driven by $1.6 million of charges for software license obligations recorded during the second quarter of 2024. GAAP net loss for the second quarter of 2024 was $4.4 million or a loss of $1.88 per share compared with a net loss of $2 million or $1.07 per share in the prior quarter and a net loss of $4.1 million or $6.68 per share in the same quarter a year ago. On a non-GAAP basis, net loss for the second quarter of 2024 was $2.1 million or a loss of $0.88 per share, which excluded stock-based compensation, amortization of acquired intangibles, severance costs, and the change in fair value of warrant liabilities. This compared with a non-GAAP net loss of $1.6 million or a loss of $0.83 per share in the prior quarter and a net loss of $3 million or a loss per share of $4.93 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 second quarter of 2024 was approximately 2.4 million shares. Adjusted EBITDA, which we define as GAAP net income or loss as reported, excluding stock-based compensation, amortization of acquired intangibles, severance costs, change in fair value of warrant liabilities, interest expense, depreciation and amortization, and the provision for income taxes, was negative $1.9 million in the second quarter compared with a negative $1.4 million in the prior quarter and negative $2.8 million in the prior-year period. As of June 30, 2024, we had $1.9 million of cash, representing a decrease of approximately $0.6 million during the second quarter of 2024. Turning to our outlook. As Ron discussed, we continue to cultivate a growing pipeline of customer engagements for our millimeter-wave solutions and we are working to convert a number of these opportunities into new production orders over the coming quarters. Looking at the second half of 2024, we continue to have a significant remaining backlog of non-cancelable purchase orders for our end-of-life memory IC products. Specific to the third quarter of 2024, the company currently expects total net revenue to be in the range of $3.8 million to $4.2 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. First question comes from David Williams with Benchmark. Please proceed.

Hey, good afternoon, gentlemen. Thanks for taking my question here. I guess maybe first, Ron, thanks for all the color on the business. And one of the things I think is really interesting is just the expansion in your engagement pipeline. Can you talk a little bit about that, just the diversity of customers there? And you spoke a little bit about it, but can you give us a little more color on what you're seeing there and how you think that develops, I guess, over the next several quarters? Are you seeing increased activity or the same? Just any color there that would help us understand your customers or potential customers would be helpful, I think.

Thanks, Dave. It's great to talk to you. From my viewpoint, we're certainly pleased with our revenue and margin for the quarter, but what really motivates me is the strong momentum in our millimeter-wave design activities. I'm very optimistic about that. There are a couple of important points to highlight. First, regarding our fixed wireless business, as operators become more familiar with millimeter-wave and recognize the advantages we offer, such as high performance and the ability to operate effectively in dense environments, we see new opportunities almost weekly. This area is rapidly growing, and fixed wireless is a significant topic in broadband communications, particularly in the U.S. and globally. I'm excited about our design activities in fixed wireless access, driven by gigabit performance and our capability in challenging environments. Another encouraging area is our progress in defense and military applications, particularly the concept of low probability of detection. As discussed in past calls, recent conflicts in Ukraine and the Middle East have highlighted the challenges related to detecting conventional radio signals. Our phased-array technology enables us to create pencil beams, making detection difficult for adversaries. This aspect is becoming increasingly critical in military applications. We didn't delve into it during the slide presentation, but beyond fixed wireless, our military and defense applications present significant growth potential, with increasing design activity. While we hope to see revenue growth, we believe strong design activity is indicative of future success. I hope this provides some valuable insights.

Yeah, very helpful. Thanks for all that insight. The other thing I wanted to ask about was you had a press release out earlier that was about custom IP for Wi-Fi 8 and future IEEE standards. Just kind of curious how you think about that and what that all entails? Is that a capital expense or is it development? How do we think about the Wi-Fi 8 opportunity and development?

That's an excellent question, and I appreciate you bringing it up since we hadn't mentioned it. Essentially, the IEEE has decided to incorporate 60 gigahertz and 45 to 71 gigahertz into next-generation Wi-Fi standards. Typically, Wi-Fi aligns with IEEE standards. From our viewpoint, we have two options: we could invest in developing chips ourselves and take them to market, or we could collaborate with existing companies. Currently, we are leaning more towards collaboration. To be honest, we are primarily focused on fixed wireless and military applications right now. We believe we can play a significant role in consumer electronics, and while that market is expected to grow substantially, it's still a few years out. However, we are strategically positioned to partner with larger players in that sector. The opportunities are vast, but it is a bit early to make predictions. What I can say is that our capability to develop technology for this area is quite exceptional. We view the IEEE's support for 60 gigahertz in future generations as a fantastic update.

Okay. Very good. Regarding the DUNE platform that you launched this quarter, it seems like there is significant interest. How quickly can they deploy it? Also, what do you estimate the size of that market to be? Currently, you're working with one player, but it appears to be a substantial opportunity in that region. Do you have any insights on how quickly they can roll it out and how soon this could generate revenue?

The good news is that the boxes are ready, and several ODMs are building the devices for that market. Recently, this topic was discussed, and what's interesting is that promoting this among service providers is crucial so they can purchase the boxes. The main limitation is how quickly the service providers will actually deploy, rather than waiting for design wins or hardware readiness. There is hardware deploying right now. Manufacturers are recognizing the success of 60 gigahertz, and at least four or five are committed to producing products, enabling them to enter the market quickly. Our role is to ensure that service providers understand the advantages of 60 gig and can expedite their go-to-market strategies. The key factor is how swiftly they can roll out and deploy. Fortunately, we're not held back by hardware delays; it is readily available from multiple vendors. The focus is on how rapidly service providers, both globally and in the U.S., can start deploying this technology without the need to wait for hardware, as they can quickly order from one or more manufacturers.

Okay. And just one last one, if I may.

Sure.

You mentioned the BEAD funding earlier, which appears to be a significant opportunity over time due to its scale. You also referenced RDOF and the potential inclusion of fixed wireless access. How large of an opportunity do you think fixed wireless access could represent for deployment in North America? Is there a way to estimate what that opportunity might be?

That's a good question. In North America, there are about 100 million homes, and we estimate that around 20 million of those could benefit from wireless technology access. So, that's the figure I'm considering. My rough estimate suggests that around 20% of homes in certain regions would significantly gain from this technology. I'm also very encouraged by the latest update from the NTIA regarding BEAD funding. While this is not officially committed yet, it was positively indicated by the Head of NTIA, and we anticipate more information within the next two to three weeks. It's a significant development because it's clear that while fiber is a beneficial technology, providing fiber to every American with a budget of $42 billion is not feasible. They've acknowledged the critical role of unlicensed wireless technology in delivering high-speed broadband to all Americans.

Perfect. Thanks for the color and best of luck on the quarter, gentlemen.

Thank you, Dave.

Thanks, Dave.

The next question is from Jon Hickman with Ladenburg. Please proceed.

Hello. Ron, can you hear me?

I sure can, Jon.

Okay, great. So, I have a couple of questions. Jim, could you tell us out of the $4.1 million, how much was millimeter-wave?

The revenue breakdown was approximately 80% memory and 20% millimeter-wave for the quarter.

80/20. Okay. And then, is there seasonality in the summer here?

Is that to me, Jon, or Jim?

From either one, and I don't care.

I can take that. We haven't observed any seasonality in broadband. At least from the broadband perspective, I would say there's no real seasonality. As mentioned in the press release and on the slides, we are currently going through an inventory correction, which is the larger issue. But in terms of seasonality, we haven't identified any trends over the years regarding any specific quarter being better or worse.

Okay. So, regarding the BEAD, do you expect to hear more from them in the next two to three weeks?

Yes. Last week, the Head of the NTIA mentioned that they plan to include unlicensed wireless in the BEAD funding. This represents a significant policy shift for us and is very encouraging. Initially, BEAD was intended to be technology neutral, meaning that it didn't matter how broadband was delivered as long as it reached people. However, when it got to the NTIA, they leaned towards fiber as the primary solution. States pushed back, arguing that while fiber is excellent, it is too costly for the current budget. They emphasized the need to incorporate all technologies, which aligns with the original goal of the initiative. Our millimeter-wave technology offers fiber-like speeds, delivering a gigabit with low latency. We are pleased to see this change in NTIA's approach by recognizing unlicensed wireless as a viable option.

Okay. That sounds good. So, when they speak again, do you think they're going to say they're going to allocate part of that original budget to fixed wireless?

Absolutely. Well, I mean, this is certainly their position, yes. Completely, I'm expecting that. It would be a major step back if they changed their mind at this point. It was pretty well documented.

Okay. So, they'll actually put a figure on like a percentage?

We believe that the market will ultimately determine the best approach. I'm not certain there will be any limitations. The market will decide what works best. It's important to remember that one of the advantages of unlicensed fixed wireless is its cost-effectiveness in deployment, combined with the fact that it allows for rapid implementation. We can avoid the time-consuming process of trenching for fiber, enabling quick deployment. Therefore, we are confident that the market will reach a conclusion. From a cost perspective, millimeter-wave fixed wireless is an excellent solution.

So, how do you want to estimate if this goes the way you're saying, when could the market start using those funds?

Oh, I think the second half of this year will be absolutely significant.

Oh, this year?

For sure, yeah.

Okay. So, if I were a broadband supplier and I wanted to undertake a project, would I submit it to BEAD for financing after completing the project?

Yes. You can include in your plan, millimeter-wave fixed wireless for sure.

Yeah, but then okay. And then, does BEAD reimburse the provider? Like...

Effectively, it's subsidized. I'd have to, like, research exactly what the mechanics are, Jon, but I mean, ultimately, the BEAD underwrites the deployment for sure, right? It's essentially underwrites the deployment of those deployments.

Okay. And then, can you elaborate any more on the military side? Like, are you shipping products to military or are people trying it out? Where are you in that process?

We previously announced a proof of concept deal and have additional commercial engagements that I can discuss broadly. The military context is highly confidential, but I can reveal some key features we provide. We utilize phased-array technology to create pencil beams, making detection in the battlefield difficult. Additionally, 60 GHz technology is generally unlicensed in most areas, meaning the military can operate without interfering with licensed cellular frequencies. This unlicensed status is crucial for military operations. Our technology also absorbs a certain level of oxygen, limiting the enemy's ability to detect our signals over distances. Overall, this creates a very stealthy technology, which is becoming increasingly important for military value propositions. We often discuss these deployments on a per-soldier basis, indicating extensive volume potential beyond what we currently see in fixed wireless applications. The military and defense sector is proving to be a significant growth opportunity for us.

Okay. Just one more question for Jim.

Sure.

So, the software license and severance, that's an accrual that you're taking, so there will not be further expenses for those items going forward?

Yes. The severance obligation, which is just over $400,000, will be paid out over a 13-month period starting July 1, 2024. This obligation stems from the resolution of the temporary layoff initiated in November 2023 in Canada, when those positions were removed from the payroll. Regarding the software obligations, there are still some licenses that will incur expenses moving forward, with a total expense of $1.6 million and approximately $1.55 million in cash expected to be paid over the next five quarters. While there will continue to be some license expenses reflected in the profit and loss statement, I do not anticipate any additional accelerated charges associated with these items moving forward.

Okay. That's it for me. Thanks.

Thanks, Jon.

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

Hi, good afternoon. Ron, just wanted to start on the DUNE platform as well. You mentioned during your script that you have the large WISP provider in North America that could also start deploying that. Wondering if you could put some parameters around when that could start and kind of the size of that opportunity in North America. And then, going back to your progress in Africa, just wondering how quickly you could expand from kind of this first customer to the next one.

In North America, we have confirmed our participation with the supplier, though we're not disclosing the specific portion of the program. As announced last quarter, we have a deployment in Los Angeles with 280,000 subscribers. We didn’t mention it again this time because we covered it before, but the ability to deploy in dense urban areas is critical. The main challenge with traditional unlicensed wireless is congestion, which limits every customer we work with due to the interference from conventional Wi-Fi signals. Los Angeles represents our current deployment in North America, and we are optimistic about additional opportunities. Regarding Africa, we have at least eight trials in progress beyond the one previously discussed. We are hopeful to present some firm purchase orders from these deployments in the next call. Ultimately, there are two key factors at play: the competitive pricing of millimeter-wave technology and our capability to address density issues, as traditional wireless Wi-Fi faces significant congestion challenges. Our beam-forming technology effectively resolves these issues. We continue to observe growth each quarter, so stay tuned.

That's good to hear. And maybe just on the millimeter-wave inventory correction, can you talk about what you're hearing from your largest customers there? Do you feel like they've digested through most of that and you could see where there's ramp-up here in the second half? Or do you think it's still a couple of quarters away before they're kind of at normal level?

Yes, they are somewhat reserved in what they share, but I can say that one important metric is their extensive sell-through. One of the main ways we gauge user satisfaction is through online provider chat groups, and the feedback we receive is largely positive. Regarding specific timing, we hope to see a turnaround later in the fourth quarter or early in the first quarter. It could happen sooner or later, but customers are somewhat hesitant to provide exact timing. What we do know is that their sales are increasing, which is promising. This indicates that the inventory correction is not due to a slowdown in sales. We feel optimistic about sales ramping up, but the timing remains uncertain. We're hopeful for progress later this year.

Got it. And just one follow-on on the Wi-Fi 8 comments you guys made earlier.

Sure.

Are there any specific kind of investments within R&D or other parts of your cost structure that you'll need to invest in to support that? Or do you see opportunities for say NRE deals or other types of partnerships where you could limit your own investment dollars?

I believe we have the best millimeter-wave RF team in the world. That said, we see this as a revenue-generating opportunity in the short term. We will not allocate capital resources for specific product development. As Jim pointed out, we are funding the EDA tools necessary for chip development, which we would have to do regardless. From our view, our initial involvement with Wi-Fi 8 over the next few years will be about generating revenue rather than incurring expenses. That's our perspective on how Wi-Fi 8 will unfold for us in the coming years. Beyond that, we'll have to wait and see, but for now, we see a revenue-generating opportunity.

Great. Thanks for taking the questions, and good luck during the third quarter.

Yeah, my pleasure, Kevin. Thank you.

Thanks, Kevin.

I show there are no further questions in queue at this time. That will conclude today's conference call. Thank you for your participation, and you may now disconnect. Thank you.

Thank you.

Thank you, gentlemen.