Reports Solid Finish to FY '22

Peraso (PRSO) reported solid Q4 ’22 results. Consistent with the company’s mid-February preannouncement, revenue was in line with management’s guidance and Street expectations. Gross margin exceeded our assumption due to a higher mix of memory IC products, while operating expenses (excluding a non-cash goodwill impairment charge) were below our projection as Peraso implemented cost reduction initiatives. Both adjusted EBITDA and non-GAAP EPS therefore beat our estimates and consensus. More importantly, management indicated that the company has collected $2.5 million from WeLink Communications and no longer has any aged receivables outstanding from this large customer. Recall that revenue in Q3 had been impacted by delays in the collection of these receivables; the previously deferred revenue will now be recognized in Q1 ’23 as the majority of the collections occurred subsequent to year-end.

As for the outlook, management’s Q1 revenue guidance was short of our prior estimate and just shy of the consensus forecast. We note that no incremental revenue from WeLink is anticipated in the near-term, but new volume shipments could resume in 2H ‘23. Moreover, interest in Peraso’s mmWave products remains high among wireless ISPs, which we expect to drive further gains with existing customers and result in new design wins as the year progresses. All told, we continue to anticipate strong sequential growth this year and next, but have pared our revenue projections slightly to reflect a more gradual ramp. After factoring in significant savings from the company’s recent cost reduction initiatives, however, we now project lower losses in FY ’23 and slightly higher levels of profitability in FY ’24 despite the revenue haircut.

Peraso remains a compelling play on the growth of fixed wireless access services, in our opinion. Between the collections from its large customer and cost actions taken, we are hopeful that the company can avoid another capital raise until market conditions improve. In the interim, our price target declines from $2.75 to $2.00 based on an unchanged FY ’23 EV/Sales multiple of 3x and an uptick in our assumptions for dilution from any potential equity raise later this year. Although not reflected in our model at present, management has previously indicated that there are active discussions underway with potential customers and partners for non-recurring engineering services and other technology licensing agreements. Should any of these ultimately come to fruition, that could provide Peraso with additional sources of non-dilutive capital, thereby easing the overhang from current liquidity concerns and resulting in greater upside than implied in our price target.

Exhibit I: Reported Results and Guidance Versus Expectations

Sources: Peraso, K. Liu & Company LLC; FactSet Estimates

Net revenue totaled $3.9 million (+108.5% Y/Y) in Q4, in line with management’s guidance for $3.8-$4.1 million and our estimate of $3.9 million. Sales of memory IC products comprised over half of revenue in the quarter, resulting in a favorable revenue mix from a gross margin perspective. More specifically, gross margin on a non-GAAP basis was 53.4%, exceeding our assumption of 51.3%.

Excluding a $9.9 million goodwill impairment charge, total operating expenses of $6.3 million compared favorably with our $7.4 million estimate. Operating expenses declined meaningfully from the prior quarter as management began to implement cost reduction initiatives now expected to yield $5 million in annualized savings. These actions included the reduced usage of consultants and the cessation of projects not expected to generate returns for some time. Reflecting the upside in gross margin and lower levels of operating expenses, both adjusted EBITDA of $(2.4) million and non-GAAP EPS of $(0.14) beat our estimates of $(3.3) million and $(0.17), respectively.

Cash at the end of Q4 totaled $2.9 million. Per management, the company has collected $2.5 million in aged receivables from one of its largest customers, most of which was received in the current quarter.

For Q1, management’s guidance calls for net revenue of $4.7-$5.0 million. Prior to revisions, we were projecting $5.7 million in net revenue, while consensus stood at $5.2 million. Management also continues to target a non-GAAP gross margin of approximately 50% in FY ’23.

Exhibit II: Estimate Revisions

Source: K. Liu & Company LLC

We reduce our revenue estimates for this year and next to reflect a more gradual ramp in mmWave product sales. However, a slight uptick in our gross margin assumptions coupled with significantly lower operating expense estimates resulted in our adjusted EBITDA projections increasing from $(8.3) million and $3.4 million in FY ’23 and FY ’24, respectively, to $(5.1) million and $5.4 million. Our non-GAAP EPS estimates also rise in concert from $(0.40) and $0.10 to $(0.26) and $0.18.

Our report with model and disclosures is available here.

Disclosure(s):

K. Liu & Company LLC (“the firm”) receives or intends to seek compensation from the companies covered in its research reports. The firm has received compensation from Peraso Inc. (PRSO) in the past 12 months for “Sponsored Research.”

Sponsored Research produced by the firm is paid for by the subject company in the form of an initial retainer and a recurring monthly fee. The analysis and recommendations in our Sponsored Research reports are derived from the same process and methodologies utilized in all of our research reports whether sponsored or not. The subject company does not review any aspect of our Sponsored Research reports prior to publication.