Reports Q2 ’24 Results Consistent with Pre-Announcement

Peraso’s (PRSO) Q2 ‘24 results were generally consistent with the preliminary figures provided in mid-July. As previously announced, revenues exceeded the high-end of management’s original guidance for the quarter driven by strong sequential and Y/Y growth in both end-of-life (EOL) memory IC shipments and mmWave antenna modules. Gross margin also surpassed our assumption, reflecting the favorable mix of memory IC sales as well as improved margins on mmWave product sales. Both research and development and selling, general and administrative expenses tracked our estimates, but the company incurred an additional $2.0 million in charges for severance and software license obligations that were not captured in our model. As a result, both adjusted EBITDA and non-GAAP EPS fell short of our estimates and consensus as reported. Given our view that both charges should be treated as non-recurring in nature and thus excluded from Peraso’s non-GAAP profitability metrics, however, we consider the results a beat top to bottom.

Looking forward, management’s Q3 guidance reflects a flat to slight sequential decline in revenue, falling short of consensus and our prior expectations for growth. While EOL memory IC shipments are expected to remain consistent with Q2 levels, visibility into a more material and sustained ramp in mmWave sales remains limited. That said, we believe the outlook for Q3 may ultimately prove conservative given the potential for additional EOL memory IC bookings, conversion of DUNE proof-of-concepts to production orders, and existing customer WeLink’s expansion into Los Angeles. Moreover, the NTIA has recently indicated that Broadband Equity, Access and Deployment (BEAD) funding may be made available to projects leveraging unlicensed wireless spectrum, acknowledging that fiber buildouts may not be economical in all instances. We believe this represents a significant positive development for Peraso given market adoption of its mmWave products for fixed wireless access and could support strong growth in 2H ’24 and beyond.

Although we are encouraged by the improvement in mmWave sales to date, we trim our revenue estimates slightly for this year and next to reflect a more gradual ramp in the business. Our price target declines in concert from $4.00 to $3.50 based on an unchanged EV/Sales multiple of 1x, which we now roll forward to our FY ’25 projections. We note that our adjusted EBITDA estimates (excluding the charge for software license obligations) improve modestly despite the top line reductions due to an uptick in our gross margin assumptions and slightly lower operating expenses. We continue to believe the company has sufficient cash to support its operations through the remainder of the year, but we surmise management will avail itself of any reasonable opportunities to bolster the balance sheet.

Exhibit I: Reported Results and Guidance Versus Expectations

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

Q2 net revenue of $4.2 million (+76.4% Y/Y) was consistent with the company’s pre-announcement last month and above management’s original guidance for $3.7-$4.0 million. Memory IC sales of $3.4 million accounted for most of the upside relative to our original forecast, but sales of mmWave products also compared favorably with our prior expectations as Peraso shipped its first volume production order to a South African service provider deploying its DUNE platform. The company ended Q2 with $9.1 million in remaining backlog associated with EOL memory IC orders.

Non-GAAP gross margin of 68.8% was well above our 61.3% assumption due to the upside in memory IC revenue and improved margins on mmWave products. Both research and development expenses of $2.6 million and selling, general and administrative expenses of $2.1 million were in line with our estimates of $2.7 million and $2.2 million, respectively. However, Peraso also recorded $2.0 million in expenses related to severance and software license obligations that were not contemplated in our model. While the severance expenses of $0.4 million were excluded from the company’s non-GAAP profitability metrics, the $1.6 million charge for software license obligations was not. As such, reported adjusted EBITDA and non-GAAP EPS results missed our estimates and consensus. Considering the charge corresponds to the accelerated recognition of expenses for previously acquired software licenses that will no longer be fully utilized, we view the expense as non-recurring in nature and would thus exclude it for comparison purposes. On an apples-to-apples basis, adjusted EBITDA would have been $(0.3) million and non-GAAP EPS would have been $(0.20) versus our estimates of $(0.6) million and $(0.29), respectively. Cash and investments at quarter-end totaled $1.9 million.

Management’s Q3 guidance calls for revenue of $3.8-$4.2 million. Prior to revisions, we were projecting $5.0 million in revenue for Q3, while consensus stood at $4.7 million. As guidance implies EOL memory IC shipments will remain consistent with Q2 levels, the shortfall relative to our estimate primarily relates to ongoing lumpiness in mmWave sales.

Exhibit II: Estimate Revisions

Source: K. Liu & Company LLC

We lower our revenue estimates for FY ‘24 and FY ’25 to reflect a pushout in our expectations for sustained sequential growth in mmWave sales. Reflecting an uptick in our gross margin assumptions and slightly lower operating expenses, however, our adjusted EBITDA and non-GAAP EPS estimates increase for this year (when excluding the charge for software license obligations in Q2 ’24) and next.

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.