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spk03: I would now like to turn the call over to Parasso CFO, Jim Sullivan. Please go ahead.
spk02: Good afternoon, and thank you for joining today's conference call to discuss Perasso's first quarter 2022 financial results. I'm Jim Sullivan, CFO of Perasso, and joining me today is Ron Glibury, our CEO. This afternoon, we issued a press release and related Form 8K, which was filed with the SEC. The press release and Form 8K are available on Perasso's website at www.perassoinc.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 our IR website. As a reminder, comments made during today's conference call may include forward-looking statements. All statements other than statements of historical fact could be deemed as forward-looking. PRASO advises caution and reliance on forward-looking statements. These statements include, without limitation, any projections of revenue, margins, expenses, non-GAAP operating expenses, adjusted EBITDA, non-GAAP net income or loss, cash flows, or other financial items. Also, any statements concerning the expected development, performance, market share, or competitive performance relating to our products or technologies. All forward-looking statements are based on information available to PRASO on the date hereof. These statements involve known and unknown risks, uncertainties, and other factors that may cause PRASO's actual results to differ materially from those implied by the forward-looking statement, including unexpected changes in the company's business. More detailed information about these risk factors and additional risk factors are set forth in PRASO's public filings with the SEC. PRASO expressly disclaims any obligation to update or alter its forward-looking statements. whether as a result of new information, future events, or otherwise, except as required by applicable law. Additionally, the company's press release and management statements during this conference call will include discussions of certain measures and financial information in terms of GAAP and non-GAAP. Included in the company's press release are definitions and reconciliations of GAAP to non-GAAP items, which provide additional details. For those of you unable to listen to the entire call at this time, a recording will be available in the investor relations section of Paras' website. Now I would like to turn the call over to our CEO, Ron Glibury, for his prepared remarks. Ron?
spk00: Thank you, Jim. Good afternoon and welcome to everyone joining us over the phone and via webcast. I look forward to providing an update on our business and highlighting a few of the milestones that we've achieved since our last conference call. With the first full quarter of combined operations completed following the close of the transaction between Peraza and MOSIS in December, I'm very pleased with the team's execution and our results. Significant integration activity has been completed, and we continue to evaluate potential cost synergies to maximize overall operational efficiencies. In terms of our results, revenue in the quarter increased over 200% year over year, and we continue to experience increased adoption of our millimeter wave solutions for fixed wireless access. Before getting into more detail on our progress during the quarter, let me first provide a brief overview of the company for those that may still be new to the story. Although new to the public markets, Perazzo has been in the millimeter wave business for over 12 years and has been an industry leader in the development of 5G millimeter wave silicon and modules. 5G millimeter wave is a revolutionary cellular technology providing access to significant additional bandwidth and capacity and frequency bands between 24 and 100 gigahertz. Once deemed impossible by skeptics, 5G millimeter wave is now embraced by the wireless ecosystem as a critical enabling technology that continues to gain momentum globally. What differentiates us from other companies that talk about millimeter wave technology is that our high-performance phased array solutions have been field proven, and we've been shipping in volume for several years. In fact, today, our 60 gigahertz products are shipping to multiple tier one customers, and we have a growing pipeline of design wins. and ongoing engagements with additional Tier 1 customers that span multiple end-user market applications. The overall demand for wireless bandwidth is growing exponentially. On our previous call, I highlighted several of the macro trends driving this growth, such as one, the increasing number of connected users' devices on global networks, and two, the profound bandwidth consumption from video applications and streaming, especially with the expanding availability of HD and 4K content. This is driving significant growth of wireless Internet revenue, with the number of users expected to double every five years. Today, there are approximately 6.7 million wireless ISP subscribers in the U.S., and that number is forecast to reach 12.7 million subscribers in 2025. Significant investments are being made in this market. Multiple wireless ISP companies have raised hundreds of millions of dollars to support this expansion. There's also tailwind from the U.S. government funding to promote universal broadband access, highlighted by the rural digital opportunity funds allocation of more than $20 billion to build out broadband networks. Peraza has an established leadership position in the fixed wireless access market with field-proven technology proving achieving 10x performance advantages. Additionally, our customer-deployed solutions provide connectivity at distances approaching 30 kilometers nearly 10 times farther than their competitive offerings. In Q1 2022, we took a major step to extend our leadership in this market with the introduction of our Prospectus product family of millimeter-wave modules for the fixed wireless market. Perazzo's Prospectus FWA modules enable rapid development of low-cost network equipment, which we believe solidifies our position as the premier supplier of millimeter-wave silicon to the wireless ISP ecosystem. In addition to multi-gigabit access, our integrated prospectus modules feature enhanced software that enables point-to-multipoint capability that supports up to 32 endpoints, which significantly improved the total cost of our new customer acquisition for wireless internet service providers. Today, we have existing engagement with six wireless access customers, and we identified three additional customer opportunities in the first quarter of 2020-2022. We expect our pipeline of engagements to continue to grow throughout 2022. Another key market dynamic is the emerging role of fixed wireless access in rollout of 5G by global carriers. Deloitte Global recently issued a report that predicts the number of fixed wireless connections will grow from roughly 60 million in 2020 to over 88 million in 2022, and then nearly doubled to 160 million connections by 2026. 5G fixed wireless access is expected to represent almost 7% of the total in 2022, growing to 39% in 2026. Many network operators worldwide view 5G fixed wireless as a way to expand revenue opportunities and help monetize investments in 5G and wireless spectrum. In fact, fixed wireless access is emerging as one of the leading use cases for 5G. For example, leading U.S. mobile carriers like Verizon and T-Mobile as well as a number of cable carriers, are looking at ways to combine C-band and millimeter wave to potentially exceed gigabit connectivity, with millimeter wave providing significant new upload capability. Verizon alone has stated that it expects to have 4 to 5 million fixed wireless subscribers by 2025. As further evidence of the growing momentum, fixed wireless access represented more than half of broadband net additions in the first quarter of 2022 across the top six providers in the U.S., Recognizing the substantial SAM expansion opportunity, earlier this month, we introduced our 5G millimeter wave beamformer IC, initially targeting customer premise equipment in the 5G carrier market. In addition to being Perazzo's first 5G millimeter wave product, we believe that our solution is the world's most highly integrated 5G beamformer, which include Perazzo's advanced 5G antenna technology. This provides support for frequency bands from 24 to 43 gigahertz, and optimized architecture that integrates 16 dual polarized antenna elements. This Perazzo patented and optimized architecture with our dual polarized 5G millimeter wave antenna technology enables 32 dual band channels to provide uniquely superior performance in a single device that's more cost effective for carriers to deploy. Third party research forecast that the market for end devices, which includes CPE, hotspots, laptops, and tablets, could be over 180 million units in 2023 and grow to 316 million units by 2026. The introduction of our 5G millimeter wave product now allows us to target the end device market, further expanding Peraza's TAM by an estimated 1.5 billion in 2025. Bringing all this together, we believe that millimeter wave technology is fundamental to providing the necessary bandwidth capacity for future generations of connectivity. and Perrazzo is well positioned to capitalize on the secular growth trend. With our expanding product portfolio, highlighted by the recent introduction of the 5G beamformer product and our prospectus modules, we now have a broader portfolio of integrated millimeter wave solutions that span both the licensed and the unlicensed spectrum for the fixed wireless access market. As we continue to extend our leadership and momentum in the wireless ISP market to the 5G carrier market, We believe our new beamformer product will establish new price performance benchmarks for 5G mmWave fixed wireless access. We anticipate increased adoption across both markets and growing product volume shipments in support of new customers' engagements and design needs throughout 2020-22 and beyond. With that, I'd like to hand the call back to our CFO, Jim Sullivan.
spk02: Thank you, Ron, and good afternoon, everyone. It's great to be speaking with you again today. During my comments, I will make several references to non-GAAP numbers. Unless otherwise indicated, referenced amounts exclude stock-based compensation expense, amortization of reported intangible assets arising from acquired assets, and interest expense. These non-GAAP financial measures and the reconciliation of the differences between them and comparable GAAP measures are presented in our press release and related current report on Form 8-K, which was filed with the SEC today and can be found at the investor relations section of our website or on the SEC's website at www.sec.gov. Now for our first quarter 2022 results. Total revenue equaled $3.4 million compared with $1.9 million in the fourth quarter of 2021 and $1.1 million during the same quarter a year ago. Product revenue from the sale of our integrated circuits and modules was $3.2 million compared with $1.9 million in the prior quarter and $1.1 million in the first quarter of the prior year. The year-over-year growth was driven by shipments of our millimeter wave modules, which we began shipping in the second quarter of 2021 and a full quarter of shipments of our memory ICs. License and other revenue for the first quarter of 2022 was $0.2 million. License and other revenue primarily consists of NRE services provided to millimeter wave customers, and royalties related to our memory technology. Gross margin was 53.3% in the first quarter compared with 30.4% in the prior quarter and 43.8% in the year-ago quarter. The sequential increase in gross margin in the first quarter selected more favorable product mix and, to a lesser extent, the previously referenced contribution from license and other revenue. Product gross margin was 50.4% in the first quarter compared with 31.4% in the prior quarter and 41.1% in the first quarter of 2021. The sequential and year-over-year increase in product gross margin primarily reflected increased margin contribution from memory IC products, which generally carry margins exceeding 60%. As we progress throughout 2022, our corporate gross margin target approximates 50% plus, as we expect revenue growth will contribute to higher levels of scale and enable us to capture additional cost reductions on our millimeter wave modules, while also realizing benefits from anticipated sales of our memory IC products. That said, we continue to deal with cost increases in our supply chain, which continue to challenge the industry. Gap operating expenses for the first quarter were $8.4 million, compared with $5.3 million in the prior quarter and $4.1 million in the year-ago period. The sequential increase in operating expenses in the first quarter was primarily due to the inclusion of a full quarter of expenses from our memory product operations, formerly MOSIS, and $0.6 million of expense for the purchase of the mass set for our new 5G beamformer IC. These increases were partially offset by a reduction in transaction costs incurred in the fourth quarter of 2021, related to the business combination between Parasso and Moses. Total operating expenses for the first quarter of 2022 on a non-GAAP basis, which includes stock-based compensation and amortization of reported intangible assets, were $6.7 million, compared with $3.7 million in the prior quarter and $2.9 million in the same quarter a year ago. On a GAAP basis, net loss for the first quarter of 2022 was $6.8 million, or loss of $0.34 per share, compared with net income of $2.5 million, or $0.28 per diluted share of the prior quarter, and a net loss of $4.2 million, or loss per share of $0.79 in the same quarter a year ago. The net income in the fourth quarter of 2021 was attributable to a gain for the change in fair value of warrants that were exercised in the fourth quarter of 2021. On a non-GAAP basis, net loss for the first quarter of 2022 was $5.1 million, or a loss of 25 cents per share, which excluded stock-based compensation and amortization of reported intangibles. This compared with a non-GAAP net loss of $3.9 million, or a loss per share of 70 cents in the prior quarter, and a net loss of $3 million, or a loss per share of 57 cents 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 2022 was 19.8 million shares, which excluded 1.8 million shares of our common stock and exchangeable shares that are escrowed pursuant to the terms of an escrow agreement and subject to an earn-out based on achievements of certain stock price targets. Adjusted EBITDA for the first quarter of 2022 was negative $4.3 million, compared with negative $2.8 million in the prior quarter and negative $2.2 million in the prior year period. The decrease in adjusted EBITDA was primarily due to the higher operating expenses in the quarter. Adjusted EBITDA is defined as gap net income or losses reported, excluding stock-based compensation, amortization of reported intangibles, interest expense, depreciation and amortization, and provision for income taxes. Turning briefly to the balance sheet, as of March 31, 2022, our cash and investments balance was $12.2 million, compared with $18.1 million at December 31, 2021. The burn of $5.9 million for the first quarter of 2022 was primarily attributable to our negative EBITDA of $4.3 million. Payments of $1.1 million of transaction costs incurred in the quarter ended December 31, 2021, relating to the business combination between Prasso and Moses. and a $0.7 million increase in inventory, partially offset by increased collections of accounts receivable. We have been building inventory in support of our expected revenue growth during 2022, as well as to address the supply chain challenges that continue to impact the industry. As we are a sole source supplier to our customers, we need to carry adequate inventory to ensure we do not impact our customers' ability to ship. We have entered the second quarter with a strong backlog, as well as increasing customer engagements, and expect continued growth in the coming quarters and for the remainder of the year. The company expects total net revenue for the second quarter of 2022 to be in the range of $3.9 million to $4.1 million. This concludes our prepared remarks, and we will now open the call to questions. Operator, please initiate the Q&A session.
spk03: Certainly. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Please hold while we poll for questions. Your first question is coming from David Williams from Benchmark. Your line is live.
spk04: Thanks so much. Appreciate you letting me ask a question, and congrats on the progress and the quarter. Definitely making some nice headway here. Thanks, David. Yeah, maybe, Ron, firstly, as you kind of think about just the attractions you've received on the recently introduced Wave B former, excuse me, the Beam former IC, but what do you think that adds in terms of incremental market opportunity? And then can you maybe talk about some just the engagements that you're having now? How has the traction been, and what do you think that can mean for the business for this year?
spk00: Thanks, David. Thanks for the comments. Well, certainly we feel that our existing millimeter wave opportunities are growing. We expect to see continued growth. I think Jim shared our Q2 forecast. So we're feeling very good about our existing business. uh and frankly speaking i think that's just going to get better as we as we've introduced the prospectus line of of modules that uh that we released earlier in the quarter if you can take a look at that you'll see that we really will become the dominant player in in that existing market and of course the 5g is is the next generation i mean we really have introduced what we we believe is the most integrated 5G beamformer for that market in the market. So we don't expect to see 5G revenue this year. We expect that to be the existing business, albeit growth. But we do expect to see good growth from the 5G business moving forward in 2023. Okay, fantastic.
spk04: And then maybe if you think about your product roadmap, Obviously, the beamformer is a very nice add to that portfolio, but what do you think in terms of that growth or the additional components or maybe adjacent opportunities? Just think about the portfolio. How do you think that trends? Are there other things in the pipeline you think will give you increased scale and size in terms of market? And then maybe what do those type of products look like?
spk00: Well, if you look at the presentation that we did earlier, What's very important to keep in mind about our 5G product is that it's a scalable architecture. First of all, it actually supports a dual band in the 5G space. So that's actually very important. It's the 28 and 39 gig band. And so for carriers, particularly in the US, the ability to support both those bands simultaneously in one piece of silicon really leads to a new really price point, price performance point in that market. So our plan moving forward, Dave, is to start with this, but really to scale it down to not just the fixed wireless market, but really a broad range of products, including laptops, tablets, and hotspots in that 5G space. I think over the next three years, you're going to see real growth from Prazo, not just with this existing process being formed, but with a whole family of products using that same architecture that we scale to a variety of products in the 5G space.
spk04: Thanks so much for the color there. And maybe just a couple more here for you, if you don't mind.
spk00: Sure, of course.
spk04: As you kind of think about the macro environment and the CapEx spending cycles, how do you think your business performs through the cycle? And do you think you have maybe a little better isolation from the consumer volatility, just kind of in your current business, just given where your end markets are in your typical customer base?
spk00: Well, I mean, one thing we're seeing very, very consistently is use of wireless spectrum is on a growth path. Really, and I think this is well documented, that the mobility, the spectrum, and the capacity of the mobile networks is in you know or the usage is increasing at exponential rate so that's what we're tapping into is that use of wireless uh of wireless spectrum and so we see that today with our existing products uh and we see that trend continuing over the next really for the foreseeable future i mean that's really what our business is all about is really addressing that what we what we see is exponential growth in the use of of the mobile spectrum
spk04: And Jim, maybe one for you real quick on the gross margin side. Just kind of thinking about the more favorable mix and the components pricing and the different things that go into the gross margin. How should we think about that longer term? You talked about your longer term margin being that 50-something percent, but how do you think that trends? And I guess this quarter, how much of that was from pricing and how much was simply just from that mix shift?
spk02: You know, this quarter, it was primarily driven by the mixed shift. We had, you know, meaningful contribution from our, you know, our memory ICs that, you know, have 60% plus, you know, gross margins. You know, that's a legacy business. We have, you know, existing customers who are, you know, pleased with the backlog and visibility there. And, you know, we had put through some, you know, some price increases last year like everyone is doing. So we're, you know, benefiting those, you know, from those now. You know, on the, you know, we talked about, I think, in the fourth quarter call with regard to the modules. You know, we're still, you know, we've just been shipping those products less than a year and working on margin improvements with scale. You know, we just need scale there. And we have a pretty comprehensive plan to, you know, bring those further up. But, you know, frankly, we were quite pleased with the, you know, where the margins came out this quarter. And, you know, hopefully here the next couple of quarters kind of keep it in the, you know, in the low 50s. You know, we may have some dips. And, of course, we always benefit, you know, from the license and other, whether it's, you know, performing NRE services for our new millimeter wave customers as we work to get them, you know, towards production. And then, you know, some small royalties that come in from our memory side. But, you know, we're optimistic we can kind of keep the 50% plus, you know, margins here and, you know, drive them higher in 23%.
spk04: And one last one if I can. Just on the design pipeline, can you talk a little bit about the engagements that you mentioned on the call, but maybe walk us through any of the engagements and kind of where you're seeing that strength and maybe just any color around that pipeline would be helpful.
spk01: Oh, Jim, you want me to take that? Yeah, that's probably best you on the design pipeline.
spk00: Yeah, so for the engagements, I mean, we – I think one thing I would just say right up front is that our customers are pretty strict with their confidentiality as much as they can, but what we're seeing is engagements with really people or companies, wireless carriers or equipment makers in the fixed wireless ecosystem. And so we continue to grow those engagements, and I think Actually, Dave, with our prospectus announcement, I mean, a technology that was very important for us to introduce in Q1 was point-to-multipoint. I mean, that's really a game-changer for the company. And so the support of point-to-multipoint, i.e., going from one access point to multiple endpoints, completely changes the economics of that space for us. So we're really starting to see, again, growth in our engagements, and we absolutely believe that will continue to grow throughout every quarter, you know, this year and into 2023. But really the point-to-point, the successful introduction of that point-to-point technology was critical for us.
spk04: Thanks again for the time, and, you know, it's great to see the progress.
spk01: Thank you very much. Thank you for your time as well.
spk03: Thank you, ladies and gentlemen. This concludes our Q&A session and our conference call. Thank you for attending today's presentation. You may now disconnect.
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