Peraso Inc.

Good afternoon and welcome to Perazzo Inc's third quarter 2023 conference call. At this time, all participants are in a listen-only mode. If anyone needs assistance at any time during the conference call, please press the star key followed by the zero on your touchtone phone. As a reminder, this conference call is being recorded today, Monday, November 13th, 2023. I would now like to turn the call over to the host for today's program, Mr. Jim Sullivan. Please go ahead.

Thank you, Operator. Good afternoon, and thank you all for joining today's conference call to discuss Perasso's third quarter 2023 financial results. I'm Jim Sullivan, CFO of Perasso, and joining me today is Ron Glibury, our CEO. Today, after the market closed, 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 through the webcast link on the 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 gross profit, non-GAAP gross margin, non-GAAP operating expenses, adjusted EBITDA, non-GAAP 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 PRASO on the date hereof. These statements involve known and unknown risks, uncertainties, and other factors that may cause Perasso'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 Perasso's public filings with the SEC. Perasso expressly disclaims any obligation to 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 moral liability. These non-GAAP financial measures, definitions, and the reconciliation of the differences between them and comparable gap measures are presented in our press release and related Form 8K, which was filed today with the SEC, which provides additional details. For those of you who are unable to listen to the entire call at this time, the 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 Glibury, for his prepared remarks. Ron?

Thank you, Jim. Good afternoon and welcome. We appreciate you joining us on today's call. I'm pleased to report that our third quarter financial results marked a significant improvement over the prior quarter, with total revenue increasing 87% sequentially and 36% year-over-year. Although our MMOA business continued to reflect lower customer demand due to the ongoing industry inventory correction, during the quarter we commercially commenced initial statements against the large order backlog associated with the end of library and memory IC products. This increased revenue contribution from our higher margin memory IC products combined with a sequential increase in sales of our MMOA products drove solid gross profit expansion as well as improvement in our bottom line results. Looking at slide four, I want to begin with an update on the end of life of our memory IC products, giving a significant positive contribution to our third quarter results. As a reminder, in May of this year, we notified our memory customers of the end of life after learning that our family partner would be discontinuing the manufacturing process used to fabricate wafers for these products. The response from customers thus far has been very strong. To date, we received purchase orders for last time buyers from multiple customers totaling $11.3 million. We commenced initial shipments in the third quarter resulting in revenue of $3.1 million, with the majority of these initial order shipments being fulfilled from existing inventory. Our remaining backlog of these end-of-life orders was approximately $8.2 million at quarter end, and we also have an additional $2.5 million of backlog associated with production orders. Based on current manufacturing schedules at our foundry partner, we expect to complete shipments in fulfillment of all outstanding backlog by the second half of 2024. The deadline for customers to place final purchase orders for end-of-life products is late December of this year. and we continue to expect total EOL orders to amount between $15 to $20 million. Importantly, these collective end-of-life orders and shipments are anticipated to contribute meaningful revenue and cash flow over the next several quarters as we continue to focus on expanding the customer base for our MMOA products. Turning to slide five and an update on our MMOA business, with demand from our largest existing customers continuing to be impacted by the ongoing industry inventory correction, A large portion of our team's energy and efforts have been centered around our engagement pipeline. Since August, we have increased the combined number of engagements from 80 to 87, primarily reflecting the series of additional new funnel opportunities. The number of active engagements as of October remained about the same. However, I want to highlight this is in part reflective of our recent decision to place a small number of previous engagements on hold, and therefore we exclude them from these metrics. As we continue to source and evaluate new potential opportunities, we are putting an even greater emphasis on prioritizing the highest quality engagements in terms of both projected economic value and anticipated time to market. We are also diligently allocating our design and engineering resources, coupled with enhancing workflow efficiencies in support of maximizing our expected near-term return on investment. As stated in the past, we view our overall pipeline as a leading indicator of progress toward a more diversified customer base, and I continue to be encouraged by our expanding number of high-quality active engagements. Within our MMWave business, I'd like to highlight one of the new markets we're seeing activity in, which is aerospace and defense. MMWave provides some distinct advantages over traditional wireless technologies. MMWave delivers the standard benefits, including high data rates and low latency. However, as compared to traditional radio signals that radiate in all directions, Perazzo is able to create very narrow focus beams that are more difficult to detect. mmWave provides an inherently stealthy protocol, low probability of interception, low probability of detection, and anti-jamming, all of which are quite desirable for military communications. To these ends, we recently secured our first commercial engagement for the use of our mmWave technology for military communications. We are in a customer-funded proof-of-concept stage now and would like to be shipping in volume in the second half of 2024. In the meantime, we've engaged on other defense-oriented opportunities, and we hope to be speaking to those on future conference calls. Moving to slide seven, there continues to be strong evidence for accelerating market adoption of 60 GHz fixed wireless access. In the past two months, members of Perazzo's team have participated in three wireless industry trade shows, all of which feature recognition of the growing momentum around 60 gigahertz and millimeter wave solutions for fixed wireless access applications. In September, we had multiple business development and product executives attend Mobile World Congress in Las Vegas, where they showcased Perazzo's latest MM wave solutions for fixed wireless access and customer-premise equipment. Also in September, Perazzo's Senior Director of Product Marketing, Dr. Nadine Hatto, was invited to participate on a Q&A panel at Wi-Fi World Congress in North America. In addition to be joined on the panel by representatives from AirVine and Cambium Networks, Dr. Haddo's participation served as a great opportunity to elevate awareness of the multi-gigabit performance of Peraza's MMWave solutions for 60 gigahertz fixed wireless access applications. More recently, our team hosted meetings with current and prospective customers and partners at Wispapalooza show in Las Vegas. Perazzo also participated in a vendor spotlight session, which provided a unique opportunity to highlight the growing number of 60 gigahertz unlicensed wireless deployments utilizing our solutions to enable multi-gigabit connectivity. Separately, also notable at Wispapalooza was Ubiquity's significant presence, given they are the leading fixed wireless access equipment vendor. Sorry. to enable multi-gigabit connectivity. Separately, also notable at Wispalooza was Ubiquity's significant presence given they are the leading fixed wireless access equipment vendor to the Wisp market. In fact, Ubiquity showcased seven different 60 gigahertz products at its boot, including its newest Wave Pro point-to-point 60 gigahertz radio that enables speeds of up to 3.2 gigabits per second. This increase in commercial availability of products that support multi-gigabit connectivity makes 60 gigahertz a reliable and lower-cost competitive alternative to fiber. Turning to slide eight, I want to briefly discuss another new emerging market opportunity that we're seeing and how NMWave solves the challenges faced by other technologies in dense urban environments. Take, for example, the densely concentrated centers found in emerging markets such as India, Southeast Asia, and parts of Africa. There is rapidly growing demand for internet connectivity in these areas. However, the population density presents a unique set of technology challenges. First, the costs associated with deploying and then also physically securing infrastructure make fiber uneconomical and unrealistic in many of these markets. Additionally, the sheer number and density of connections contribute to significant wireless congestion interference, exceeding the capable tolerances that are suitable for Wi-Fi. Lastly, these emerging geographies frequently have less reliable electricity service, making it important for deployed equipment to sustain operation on low power sources such as solar and battery power. Inherently, mmWave provides a solution to each of these challenges. Its beamforming capability minimizes and overcomes the density of wireless connection points, enabling more reliable and high bandwidth service. mmWave solutions can also be implemented with much lower upfront costs, making deployments more economical for service providers. Additionally, the higher power efficiency of mmWave solutions enables longer operation on temporary power sources, resulting in reduced service interruptions. During the third quarter, we formally introduced the Perazzo PRM2144X as the latest addition to our prospective series of MMWave modules. Utilizing our X720 60 gigahertz chipset, the new PRM2144X incorporates 128 element phased array antenna that provides high gain and narrow beam width, making it an ideal solution for delivering reliable connectivity in dense urban environments. Looking at slide 9, I wanted to share this updated overview of the WISPs that are currently utilizing Peraza-enabled hardware today as part of the 60 GHz deployments. To date, we've identified over 25 WISPs spanning 14 states in the U.S. and at least four WISPs in Canada. Additionally, we've recently confirmed more than one planned 60 GHz deployment utilizing our technology outside of North America. We view this growing list of WISP deployments as further validation of both the growing market traction for 60 GHz technology as well as Perazzo's leading position in 60 gigahertz MM wave solutions for fixed wireless access. As demonstrated on the right side of the slide, the overall trend and outlook continue to be favorable for fixed wireless access market. In addition to third-party research forecasting the sustained growth with subscribers over the next several years, the U.S. Federal Communications Commission, or FCC, recently published a notice of inquiry advocating for an increase to the standard minimum benchmark for fixed broadband As a first step, the FCC has proposed an increase from an existing 25 three megabits per second benchmark to 120 megabits per second. Moreover, they are also soliciting comment on a potential longer-term goal of one gigabit per second, 500 megabits per second in the future. We believe this and other going support for gigabit connectivity will serve as strong drivers for expanded adoption of an M-Wave fixed wireless access.