Good afternoon, and welcome to Peraso Inc.'s Fourth Quarter 2024 Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference call is being recorded today, Wednesday, March 19th, 2025. I would now like to turn the call over to your host for today's conference call, Mr. Jim Sullivan. Please go ahead.

Good afternoon, and thank you for joining today's conference call to discuss Peraso's fourth quarter and full year 2024 financial results. I'm Jim Sullivan, CFO of Peraso and joining me today is Ron Glibbery, our CEO. Today, after the market closed, 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 may be accessed through the webcast link on the Investor Relations 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 in reliance on forward-looking statements. These statements include, without limitation, any projections of revenue, margins, expenses, non-GAAP gross margin, non-GAAP gross profit, 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 SEC. 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. 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, severance costs and the change in fair value of warrant liabilities. These non-GAAP financial measures, definitions and the reconciliation of the differences between them and comparable GAAP measures are presented in our press release and related Form 8-K, 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 page of our website. Now, I would like to turn the call over to our Ron. Ron?

Thank you, Jim. Good afternoon, and welcome to everyone on the phone and webcast. We appreciate you taking the time and joining us on today's conference call. We closed out 2024 with continued progress across several of our key business initiatives. Fourth quarter revenue was within our expected range and represented 100% growth year-over-year as we continued to execute on end-of-life segments of our memory IC products. Favorable product links continue to expand gross margins, and we also realize further benefits from our previous cost reduction actions and ongoing efforts to drive higher operational efficiencies. In fact, fourth quarter operating expenses decreased 20% year-over-year, even with revenue doubling from fourth quarter of 2023. Taken together, we delivered significant improvement in our overall operating performance for the quarter and the full year. More importantly, we recently began seeing renewed and growing momentum of our mmWave technology, including increasing production orders from our lead customers. Turning to Slide 4, I want to provide a brief status update on the end-of-life of our memory IC products. During the fourth quarter, we completed $3.4 million in shipments against remaining backlog, bringing total memory IC product shipments for the full year of 2024 to approximately $12.9 million. As previously outlined and anticipated, these end-of-life orders have been significant contributors to our financial performance over the last several quarters, as we work past the inventory correction impacting several of our fixed wireless access customers. At year-end, our remaining backlog of memory IC purchase orders was approximately $2.3 million. We will complete shipments and fulfillment of these final orders during March. Flipping to Slide 5, we have worked aggressively over the past year to establish a growing and more diversified customer base for our mmWave-based solutions. In addition to broadening our existing penetration of the fixed wireless…

Thank you, Ron. Turning now to the results for the fourth quarter and full year of 2024. Total net revenue for the fourth quarter was $3.7 million compared with $3.8 million for the prior quarter and $1.8 million for the fourth quarter of 2023. Full year 2024 total net revenue was $14.6 million compared with $13.7 million for the prior year. Product revenue from the sale of our memory integrated circuits and millimeter wave products in the fourth quarter was $3.7 million compared with $3.8 million in the prior quarter and $1.5 million in the fourth quarter of 2023. For the full year 2024, product revenue was $14.2 million compared with $12.9 million in the prior year. The increases in product revenues for the fourth quarter and full year 2024 compared with the comparable periods of 2023 were attributable to increased shipments of our memory IT products to fulfill end-of-life orders. Royalty and other revenue for the full year 2024 was $0.3 million compared with $0.9 million in 2023. The decreases in royalty and other revenues were primarily the result of a reduction in memory royalties, attributable to the foundries end of life of the process, combined with a decrease in nonrecurring engineering services related to our millimeter wave technology. GAAP gross margin increased to 56.3% in the fourth quarter from 47% in the prior quarter and negative 147.3% in the year ago quarter. For the full year 2024, GAAP gross margin was 51.7% compared with 13.6% in the prior year. On a non-GAAP basis, gross margin for the fourth quarter was 71.6% compared with 61.7% in the prior quarter and compared with negative 116.6% in the fourth quarter of 2023. For the full year 2024, non-GAAP gross margin was 67.2% compared with 28% for the prior year. The increases…

At this time we will be conducting a question and answer session. [Operator Instructions] Our first question comes from David Williams with Benchmark. Please proceed.

Hey, good afternoon, gentlemen. Thanks for taking the question and congrats on the progress here all around the formats and the new orders there.

Thanks, David.

Thanks, David.

I've got a couple of questions here. But I think one of the first one for me is really on the order that you received this quarter, $3.6 million and you talked about that being fulfilled through 2025. Is there a way we should think about that? Is it fairly linear throughout the year? Or do you have any indication on whether that's a 2Q or 3Q? Just kind of how do you think that revenue plays in this year?

It's reasonably linear with really a little weighted to the second half only because of our ability to ship it. Does that make sense? The customer wants it linear, and we're trying to make it linear as possible. But yes, it's going to be a little back like -- but I'm not talking September, October, I'm talking July, August, right, in terms of when I say second half. So yes, it's -- that's how I would look at it.

Okay. Great. And then just kind of as you start to get through this inventory issue and you've got the CPO coming in, how do you think that your other customers are trending and looking at your inventory, it's in pretty good position relative. I guess you seem fairly optimistic just about those orders, but are there other things in the pipeline that you would expect to see this year in terms of order that should come in?

Definitely, yes. I mean we had a couple of years ago, David, just to recap, we had a couple of primary issues and one was the inventory situation. The other one is really concentration of customers. We had two -- basically two customers, I would say, two years ago, we've done to put a lot of effort into actually increasing our customer base. So we've probably got, I don't know, we call it 5 times of customers now that we're leveraging over, which makes them much, much less depending on any particular customer. So I think the two things are coming into play, which we're optimistic about 2025, which is: A, the inventory crisis seems to be -- well, we know it is over certainly based on this order; and two, we've got a much more diverse customer base. Not to mention the fact, by the way, is when we move into the military, we are going to be shipping our first volume of military components in Q2. So obviously, that kind of fits into the overall expansion of our customer base, but that's more of an application expansion as well. So I think all of those factors are helping us out this year.

Fantastic. And then maybe on that, the comps of the military side, you listed quite a few applications there. So I guess I'm curious, are you seeing development or seeing engagement on each of those applications or those are just areas that you think you could potentially benefit from or applications you can work in?

Yes, that's a good question. I mean I would say, broadly, that was all of the potential applications. Probably we're focused on maybe a third of those today materially in terms of just literally working with customers on some of those. And I think we've said in the past, for example, the first application, we actually are -- we have revenue from this concept of just very simple kind of phone to come the tactical link, right, if you will -- tactical but secure link. So very, very simple, but undetectable by the enemy, which is obviously the key here. We've got some -- there's -- we're doing some experiments with some of our customers on drone applications, for example. So that's one of the applications we excited now on the drone. In the case of the drones, for example, we can transmit high-speed video. You can imagine a drone flying over a battlefield and the video gets -- in high resolution gets transmitted back to a receiver and not -- again, not detectable by the enemy. Those are some of the obvious applications. We're actually doing some applications that are actually confidential, classified. I can't share today, so pretty fascinating stuff that the military is using our technology for. So hopefully, at a later date, I can share those. So there's even some that we're doing that are not on that list that we showed in our slide presentation.

Okay. And then maybe just one more on the product side there. Just kind of thinking about the AI trends and this intelligent edge and the real move to push AI to the edge. How do you think you can get to pick from that? It seems like there's a lot of areas that need to have connectivity that necessarily can't have fiber [indiscernible] today. Are you seeing people start to talk about that or seeing applications develop kind of around that or maybe more smart cities type applications, but really for AI at the edge.

Where we're seeing that specifically is in an enterprise environment. So for example, really with people's kind of -- let's say, an AI-enabled laptop. So in that case, they need to get data on and off their network very quickly. As you know, our chips can do this at several gigabits per second. So really today, we're seeing literally pending applications for AI support. And so as we all know, the real issue for -- one of the main issues for AI is actually the data rates. And so because of our large data rates in an office environment and in the enterprise environment, we help solve that problem. So I would say our first instantiation of that concept is an enterprise environment.

Great. Thanks so much for the time. I’ll jump back in queue. Thanks, everyone.

Our pleasure, David.

[Operator Instructions] The next question comes from Kevin Lu with K. Liu & Company. Please proceed.

Hi. Good afternoon, guys. And let me add my congratulations on the results and outlook here.

Thanks, Kevin. Good to talk to you.

First question I had here was just it looks like your millimeter wave sales start to ramp again here in the first quarter, but with some of the large orders on FWA and then also the upsized military order, any indication you can give us in terms of how material that starts to scale kind of in Q2 and beyond? Or any sort of indication where you think what sort of run rate you can reach for millimeter wave later in the year?

I'll defer to Jim on that one. He's more -- he's closer to the numbers. But Jim, do you want to tackle that?

Sure. Yes, obviously, we're pleased to basically with the first -- the guidance for the first quarter, you can -- and Ron's comment, you can obviously tell where we're going to do as much more in the first quarter as we did all of last year. We've been trying to keep the message that we'd like to keep kind of revenue kind of flat as we make this transition, recognizing that the first quarter we expect to -- I think we've got one shipment that may have even gone in the last day or so, complete the memory shipments and move on from there that we're trying to keep revenues kind of flat year-over-year. There is some lumpiness from quarter-to-quarter. And as Ron mentioned, with the new large order, which will ship between Q2 and Q4 of this year, more back-end loaded to the second half of the year. We're in the process now of using inventory we have on hand and then placing new orders. So we expect a good increase year-over-year.

Yes. No, certainly, if you guys are able to hold revenue flat given the runoff of the memory business, that would be pretty impressive for millimeter wave. And Jim, while I have you on the line, maybe if you could talk about where you expect gross margin to normalize once the bulk of the sales are all millimeter wave, and you no longer have that benefit from memory?

Yes. Obviously, the memory in -- particularly in the last couple of quarters had popped pretty high in the high 60s, low 70s as we cleared out the last of the shipments the challenge had been over the last few quarters in millimeter wave with the stops and starts and the lower revenue levels kind of getting to a steady production state. We're looking -- we're not -- we don't achieve the margins we have on the memory. We've always said our corporate target is a 50% gross margin. It's going to take us some time to get there. We'd like to see the margins initially kind of in the 40% range. One of the things with the new order, there are some moving pieces there as to which specific devices the customer will take. And one of the aspects is we have a fair amount of inventory. As you may recall, we recorded a large inventory write-down in fourth quarter of calendar 2023, recognizing a write-down is not the same as scrapping the inventory. So we have a fair amount of inventory, and we'll see some benefit to the margins here over the next couple of quarters as we -- to the extent we are able to ship written down inventory. But as we kind of get the production flow going and can get now to a steady state and actually I can just tell you yesterday our COO and I was signing the purchase orders to get production for this new customer order that Ron talked about as well as other expected orders, I think we'll see that margin improvement in the second half of the year. So hopefully, I answered your question there. It's just some moving pieces right now on this order, as Ron said, on timing. And again, there is some question as to which devices will end up shipping.

Got it. No, that's helpful. And then maybe going back to Ron, just on the military side of things. You guys got the first meaningful customer in a production, I would say, fairly quickly. With the ones you have in the pipeline today, do you expect that some of those could convert to production by the end of this year? Or are these more so kind of 2026 events?

I classify them more 2026. I mean generally, the military does move a bit slow, but obviously, for us, it's a long-term investment. So we were thrilled with this first engagement. It's a very, very pressing application needs to get to market as soon as possible. It's going to save people's lives. So it's -- so we need to move very quickly. And so that's been a real winner for us, very out of the norm, I think, generally for military applications. I would say generally, the rest of the opportunities are kind of in the traditional time scale, if you will. But it should be -- we should start to see the revenue early 2026, but luckily for this first application, we moved very, very quickly, less than a year.

Understood. And if I could sneak just one more in on BEAD. You had the highlight of the number of applications coming in, in March of 2025. Are you expecting BEAD to start to contribute more so this year? Or is that also more of a 2026 event?

As Jim said, this is a bit of a moving target. The -- right now, I would say the appetite in Washington to move BEAD is very aggressive. So we probably should've spend more time talking about that. So certainly, we're thrilled with this initiative to move towards tech-neutral. Obviously, it's very biased towards fiber. Now those days are over. I think the new administration say, no, we just want everybody to get high-speed broadband. So that's the -- we don't care how they get it, right? Whatever is the best way to provide that. But part of this now and if you kind of do a little bit of research, what you'll find is that the administration is also trying to accelerate BEAD. So we're hoping that we start to see the effect of that this year, of course, right? We're obviously almost thinking some of these orders are related to that a little bit. That's pure conjecture, frankly. But we're really hoping that BEAD starts to show those effects this year. Based on, I think, administration's desire to get high-speed Internet out to the masses, everybody in America has high-speed Internet. So that's where we're really counting on ASAP.

All right. Great. Thank you so much for taking the questions.

My pleasure, Kevin.

This concludes today's conference, and you may disconnect your lines at this time.

Thank you, everyone.

Thank you for your participation.