Good afternoon and welcome to Peraso, Inc.’s Fourth Quarter and Full Year Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, Wednesday, March 22, 2023. I would now like to turn the call over to Peraso’s CFO, Jim Sullivan. Please go ahead.

Thank you. Good afternoon and thank you for joining today’s conference call to discuss Peraso’s fourth quarter and full year 2022 financial results. I am Jim Sullivan, CFO of Peraso. And joining me today is Ron Glibbery, our CEO. This afternoon, we issued a press release and related Form 8-K, which was filed with the SEC. 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 maybe accessed 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. Peraso 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 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 Securities and Exchange Commission. 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. 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 on the Investor Relations section 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 joining today on the phone and via webcast. As outlined in today’s press release, Peraso achieved strong growth for the fourth quarter and full year, highlighted by a number of accomplishments across the business. Both product and total revenue in the fourth quarter were up double-digits sequentially and over 100% year-over-year. Our strong top line growth for the quarter and year was driven by robust demand and higher shipments of our mmWave ICs for fixed wireless access as well as our memory IC products. We also achieved meaningful improvement in our gross margins throughout the year. Reflecting back in 2022, I’m proud of the team’s execution during what was and continues to be a challenging environment for not only the semiconductor industry, but many industries across the globe. All things considered, we had a productive full first year as a combined company following the completed merger transaction with MoSys in late 2021. Our strong year-over-year growth and expanded gross margin for the year are a testament to our differentiated technology and the team’s ability to deliver against customer demand despite wide-reaching supply chain challenges. Total revenue for the full year increased 162% over 2021, and we expanded non-GAAP gross margins to nearly 50%. Product revenue for 2022 grew 189% year-over-year, primarily reflecting the ramp in shipments from our mmWave and memory IC products. We also achieved significant business and product milestones during the year, including the launch of our PERSPECTUS product family for mmWave fixed wireless access and Peraso’s introduction of the world’s most integrated dual-band 5G mmWave beamformer IC. Also notable was the appointment of Mark Lunsford as the company’s first Chief Revenue Officer in support of expanding Peraso’s commercial reach. I would also highlight the strategic Technology License and…

Thank you, Ron. It’s great to be speaking with you all 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, impairments of goodwill, business combination transaction costs and the change in fair value of warrant liability. 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 today with the SEC. Turning now to our fourth quarter and full year 2022 results. Total revenue in the fourth quarter increased to $3.9 million from $3.3 million in the third quarter of 2022 and $1.9 million during the same quarter a year ago. Full year 2022 total revenue increased over 160% to $14.9 million compared with $5.7 million in the prior year. Product revenue from the sale of our integrated circuits and mmWave antenna solutions in the fourth quarter was $3.8 million compared with $3.1 million in the prior quarter and $1.9 million in the fourth quarter of 2021. For the full year 2022, product revenue was $14.2 million compared with $4.9 million in the prior year. The strong year-over-year growth of both fourth quarter and full year 2022 product revenue was primarily attributable to increased demand in shipments of our mmWave antenna product solutions and a full year of revenue contribution from our memory products. Royalty and other revenue comprised non-recurring engineering services and royalty revenues from licenses of our memory technology and was $0.1 million in the fourth quarter and $0.7 million for the full year 2022. GAAP gross margin was 44.2% in the fourth quarter compared with 39.3% in the prior quarter and 30.4% in the year ago quarter. The full…

Thank you. [Operator Instructions] Our first question comes from David Williams with Benchmark Company. Please proceed.

Hey, good afternoon, gentlemen and congrats on the progress. It sounds like there is a lot of really exciting opportunities, and it’s good to see you guys capitalizing on that.

Thanks, Dave.

Yes. So maybe, Ron, first to you, just if you could talk a little bit about what you’re hearing from customers. And you gave some good commentary about your travels at Mobile World Congress and WISPAMERICA. Just can you elaborate a little bit just kind of what you’re hearing, what your customers are excited about and kind of how you think the market is developing overall just kind of based on your discussions with the industry?

Well, to be quite frank, I mean, I would say the most exciting progress right now is on the fixed wireless market in the 60-gig space. And I mean, to that end, I think I was – we were a bit ambiguous in the conversation about engaging with wireless ISPs, for example. But now we’ve actually confirmed three separate meetings where they are coming to our headquarters to sit down with our engineers, and we’re going to map out road maps together. So we really believe that we’re going to become the dominant, if not already, the dominant players in that marketplace. And people traveling here just kind of prove that to me. And I think we’ve got a lot of education to do in terms of making sure that WISP understand that the real benefits. And frankly, the real benefit, Dave, is the bandwidth, right? It’s just really coming down a bandwidth. And people – there is kind of past, I guess, almost expectations about mmWave with regards to range and so on. And I think what people are seeing now that it really, really works, so that was a big takeaway for us over the last few weeks. I think for 5G mmWave, look like it’s kind of as I’ve been predicting over the last year or so, which is okay. So 2022, for sure, was a major, major year for fixed wireless with the carriers let’s face it, but it was really mostly in C-band. But let’s face it over. So, two things came out of that for me. One is well there is really a demand for good internet service, right. So I mean, I think with 2 plus million customer adds, that’s clear. But the other is that I think for the carriers, again, their revenue per bit is far greater on mobile, and we just see this broad shift happening later this year and into 2024, 2-millimeter wave as just part of that overall solution for their network, right. And really as a function of growth in demand, so probably my two big takeaways, we are in the unlicensed WISP market, really, I would say, our goal this year is to absolutely be the dominant player in that market. I think engaging directly with those wireless ISPs, face-to-face to share our respective roadmaps is critical in that regard. And on the carrier front, really that shift over – fixed wireless is clearly an important opportunity for them. The shift – we see that shift over mmWave later this year into 2024. Dave?

Sorry, I was on mute there. My apology.

I thought I lost you, sorry about that.

No. I was talking away and didn’t want to clutter in the background. So, I guess if we kind of think about and I think you mentioned this on the new WiFi standards and the potential for that to be included in the protocol. Can you talk a little bit about that just to help me understand what that means?

It’s kind of late-breaking news. But last week, there was a formal vote at the IEEE to actually study the use of – including 60 gigahertz in the next generation of WiFi. So, it’s by no means like said, but there is now a study group that’s really formally looking at how that people can make that happen. So, I would say there are two driving applications. Again, from a 100,000 foot level. One application is really, the – I guess, historically, 60-gig has been a technology that stays within rooms, a real problem for WiFi is in apartment complexes overlapping networks. I mean you can literally have 100 overlapping networks. So, what better way to solve that problem than with the technology that actually stays in room, so I think that’s one benefit. The other is just AR/VR. I mean VR just demands a lot of bandwidth, but not just bandwidth, uninterrupted bandwidth. And again, this whole concept of interference is really coming in place certainly in the fixed wireless market, but also certainly in the VR market. And that is just, again this concept of overlapping networks causes interference. The other – of course, the other benefit of mmWave technology, certainly, what we do is beamforming and narrow beams that really, again give you a much more secure link for applications such as VR.

Fantastic. And I don’t want to take up too much time here. I just had a couple of other quick ones. Jim, maybe to you real quick on the cash burn, just – you had some collections this quarter. It sounds like you have got some nice cost savings coming in. As I kind of run that through the model, it turns out quite nicely in terms of that profitability or reaching neutral or breakeven. How do you think about the momentum in terms of those cost reductions and how that plays throughout this year? And then as we kind of think about what level our OpEx should be kind of for this year, can you kind of give us a level set there to help out on the modeling side?

Yes. Obviously, on the cash burn, we are in the fourth quarter, collected the tax credits, closed the financing, had an initial collection from that lead customer, albeit the majority of the collections have come here in the first quarter, which greatly helps our cash position. We made really kind of started with reductions in the fourth quarter on expense-wise, fourth quarter of 2022 because we do use a number of consultants, obviously, that provide flexibility and projects, etcetera, and we started kind of leaning back to use. We did eliminate some employee positions in kind of mid-February. It takes a little time with severance payments to get the benefits of that. But we are obviously looking to drive the cash burn much lower than it was in 2022 through a combination of those expense reductions, revenue growth, improved margin on the – particularly on the mmWave projects. And also looking at some NRE transactions, NRE licensed transactions, where we can kind of monetize use of our technology and ideally develop new product customers out of that. From a kind of non – talking about non-GAAP OpEx on a quarterly basis, we have some kind of swings related to any tape-out related activity. But we are looking to hopefully keep that in the kind of $4 million, $4.7 million a quarter range.

Okay. Got it. Very helpful. And then just on the gross margin, it was up nicely on a sequential basis. I am just wondering, was that driven more by the – just the revenue and the scale there, or is there anything structural there that should be a little stickier?

The gross margin was really driven by the memory products for the fourth quarter and the year. I want to say on the quarter, memory was over 50% of the revenue, which was obviously a driver of the margin as well as on the year, memory was over 50%. So, that was a big mover. On the mmWave on the antenna product solutions, we just started shipping those kind of second half of 2021 and obviously started to get into some volume in 2022. Just – it takes kind of more shipping, more volume to get our efficiencies. We bought some equipment, etcetera, to kind of improve our processes, constantly cutting test times around the products. So, that’s kind of a key focus point for 2022.

Okay. Fantastic gentlemen. Thanks so much for the help and best of luck on the quarter.

Thank you. Thank you, David.

Appreciate it.

Okay. The next question is coming from Kevin Liu with K. Liu & Company. Kevin, please proceed.

Hi. Good afternoon guys. Congrats on getting back on track here with your large customer. I wanted to ask, now that they are kind of back on track in terms of payments and collections, curious on the outlook for growth with them as well as your other large customers. Would you expect them to contribute meaningfully at the start of the year, or is that something that takes time to ramp back up in terms of that relationship?

I will go first, or you want to go ahead, Ron.

No, go ahead, Jim.

Yes. I will go first and then you can provide some color. In my model, I basically don’t have them starting to turn back on until the second half of the year just because of the uncertainty. And I kind of put them all in place or plan for the year, whatever a month or so ago. Obviously, we are very pleased to have the payments in and back on track. And there is a lot of discussions and they are certainly very interested in one of our new products. But right now, the number I gave for the second quarter really doesn’t – I am sorry, for the March quarter, I am already looking ahead a quarter, does not include anything from them. So, I am looking at it more towards the second half. And certainly, we will be quite pleased that they could start ordering sooner, but that was our position based on what we know at this time.

Great. That’s helpful. And I know, Jim, you mentioned there was kind of north of 50% of revenue in Q4 coming from memory products. How do you expect that mix shift to evolve kind of moving throughout ‘23 here? And then maybe more specifically, just should we expect a pretty steady improvement in the gross margin here, or are there going to be some puts and takes depending on kind of the ebbs and flows on memory as well as kind of the timing of new customer ramp-ups on the mmWave side?

Sure. So, a couple of points. As I have said on the call, we are still kind of targeting a non-GAAP gross margin in the 50% range. And right now, when you look back at 2022, we had $14.2 million of product revenue and just under 700,000 or so of royalty NRE other. So, kind of looking at on the product side because obviously, NRE transactions are hard to predict. We know we will continue to collect the amount 400,000, 500,000 royalties from our memory licenses, it keeps kind of rolling in until one day, it doesn’t. The NRE deals are always – can improve, should be a big improvement to margin if there is a license component, etcetera. But to your question, I think the first quarter, we will start to see a shift towards a higher percentage of mmWave, particularly with the revenue recognition from that customer and our other business. Possibly, they will be about even. But I think starting with the second quarter, we expect mmWave to take – to be a larger percentage of the quarterly revenue.

Understood. And maybe this is for Ron, but just you talked about a number of opportunities here, whether it’s with the leading WISP, maybe the carrier 5G opportunity towards year-end. What do you think is kind of the most significant potential revenue contributor over the course of fiscal ‘23 here if you had to kind of rank some of these applications that are coming online?

Definitely, the wireless ISPs, I mean it’s just, basically – how can I say, Kevin. I mean that market is vibrant and shipping and starting to – I mean, really like every month shipping more and more mmWave and getting more recognition. So, our focus frankly is on that market in terms of – and when we talk about short-term ROI, that’s where we see the real growth for 2023. On the 5G side of things, we have got a very, very strong product. We have got partnerships. But the market is, I would say, just less certain in terms of predictability. So, we are really predicting very little revenue from 5G in 2023 because from a carrier perspective, we are just – we haven’t seen that transition yet, whereas in the wireless ISP market, we are really starting to see that heavy transition. So, I think to answer your question, for 2023, the wireless size piece is going to be the major source of revenue for us.

Understood. That’s helpful. And then last one for me. Just in terms of the $5 million in annualized cost reductions you guys talked about, I wanted to clarify, Q4 expenses already looked like they were coming down sequentially from Q3. So, was any of this $5 million in cost savings already starting to be realized in the fourth quarter, or are all of these kind of incremental to where we saw you exit the year and headed into this year?

There was some benefit in the fourth quarter. I think as I mentioned in responding to David, we on the mmWave side had judiciously been using consultants to provide flexibility because, obviously, there – when the project is done or you can turn them on, turn them off easier than having full-time equivalent employees. So, we had begun some of those reductions and kind of tightening the belt in the fourth quarter, but we really continued it kind of into the first and then made some employee reductions kind of in February, but there was some contribution. I expect that, obviously, the first quarter will have some – we should be kind of obviously down versus fourth quarter subject to the mix and timing, you get some things like the audit, those fees hit in the first quarter, employment taxes in the U.S. turned back on, etcetera, but certainly looking to be flat to down quarter-over-quarter on a non-GAAP basis.

Alright. That’s all for the time being. I really appreciate you taking questions and good luck.

Thanks a lot Kevin.

Thank you, Kevin.

We have reached the end of the question-and-answer session, and I will now turn the call over to management for closing remarks.

I think that’s about it for today.

Thank you everyone for joining. We appreciate your – thank you. Goodbye.

Thank you. Bye-bye.

This concludes today’s conference and you may disconnect your lines at this time. Thank you for your participation.