Q3 2024 Peraso Inc Earnings Call
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James Sullivan, David Williams, Kevin Liu, Jon Hickman, Ronald Glibbery, David Williams, Kevin Liu, Jon Hickman, Ronald Glibbery,
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Speaker Change: Good afternoon, and welcome to Pirasso Inc.'s third quarter 2024 conference call. At this time, all participants are in a listen-only mode.
Speaker Change: If anyone needs assistance at any time during the conference call, please press the star key followed by the zero on your touchtone phone.
Speaker Change: As a reminder, this conference call is being recorded today, Tuesday, November 12, 2024.
Speaker Change: I would now like to turn the call over to your host for today's conference call, Mr. Jim Sullivan. Please go ahead.
Speaker Change: Good afternoon and thank you for joining today's conference call to discuss Praso's third quarter 2024 financial results. I'm Jim Sullivan, CFO of Praso and joining me today is Ron Glibbery, our CEO.
Speaker Change: Today, after the market closed, we issued a press release and related Form 8K which was filed with the SEC.
Speaker Change: The press release and form 8K are available on Proraso's website at www.prorasoinc.com under the investor relations section.
Speaker Change: 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.
Speaker Change: 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.
Proraso advises caution and reliance on forward-looking statements.
Speaker Change: 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.
Speaker Change: Also, any statements concerning the expected development, performance, and market share or competitive performance of our products or technologies.
Speaker Change: All forward-looking statements are based on information available to PRASA on the date hereof.
Speaker Change: These statements involve known and unknown risks, uncertainties, and other factors that may cause process actual results to differ materially from those implied by the forward-looking statements, including unexpected changes in the company's business.
Speaker Change: More detailed information about these risk factors and additional risk factors are set forth in process public filings with the SEC.
Speaker Change: Purraso 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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 8K, which provide additional details.
Speaker Change: 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 CEO, Ron Glibbery, for his prepared remarks. Ron?
Ron Glibbery: Thank you, Jim. Good afternoon and welcome to everyone on the phone and webcast. We appreciate you taking the time to join us today for our third quarter call. Revenue in the quarter was within our range of expectations, with overall results being highlighted by meaningful improvement in our operating performance.
Ron Glibbery: We began to see the benefit of our previous and ongoing actions to reduce costs and increase efficiencies, resulting in operating expenses decreasing almost 20% year-over-year.
Ron Glibbery: Although the broader macro environment and prolonged inventory adjustments remain ongoing challenges, we continue to make notable progress during the quarter to advance existing customer engagements towards new design wins for our mmWave solutions.
Ron Glibbery: Much of this recent activity has predominantly focused with our targeted markets of fixed wireless access and tactical military communications, which I will expand on in more detail as part of today's call.
Ron Glibbery: Turning to slide 4, we continue to ship significant quantities of our end-of-life memory IC products.
Ron Glibbery: Third quarter shipments increased sequentially to approximately $3.7 million from $3.4 million in the second quarter.
Ron Glibbery: We ended the third quarter with a total remaining purchase order backlog of approximately $5.7 million. We remain on schedule to fulfill the total remaining backlog of memory I.C. orders by the end of the first quarter of 2025.
Ron Glibbery: As previously discussed, these shipments against remaining backlog will continue to contribute meaningful revenue and cash flow, as we work further to expand our mmWave design, wind pipeline, and continue to support customer ramps for mmWave products.
Ron Glibbery: These include recently announced customer wins in Africa, Asia, and other areas around the globe that can benefit from our millimeter wave technologies for high reliability and low latency multi-gigabit wireless connectivity.
Ron Glibbery: Starting with a few key takeaways from our current pipeline. First, we have consistently increased the number of new funnel opportunities to 82 customer engagements and we currently have 23 active engagements that are either undergoing hardware evaluation or at advanced design and engineering stages.
Ron Glibbery: To date, we have successfully converted nine prior design engagements to in-production wins commercialized by customers. As a reminder, once a program converts to full production, we no longer include it as part of our current active pipeline.
to briefly highlight a couple of our recently announced wins.
Ron Glibbery: In early November, SAF Technica released its Free Mile 60 radio, which provides fixed wireless access, or FWA, services using Peraza's Prospectus millimeter wave modules with X670 chipset.
Ron Glibbery: Utilizing the unlicensed 68 Hz band and incorporating beamforming coverage and optional antenna kits for enhanced directionality, this radio leverages the power of our Prospectus platform and is expected to be deployed in fixed wireless networks in Europe and North America.
Speaker Change: In another recent win, Millowave announces MWC-932 product at Wispapalooza, adding to its existing Airpath-60 product line.
Speaker Change: This new product utilizes Paraza's prospective millimeter modules and X2720 chipset.
Speaker Change: The MWC-932 provides a wireless Ethernet bridge for applications that require multi-gigabit throughput and utilizes the unlicensed 60 GHz band to overcome the frequently encountered interference from Wi-Fi, while also providing a robust link at distances up to 5 kilometers.
Speaker Change: Lastly, we also recently announced an initial purchase order for our newly integrated High Velocity Roaming, or HVR, technology for applications in South Korea.
Speaker Change: More specifically, this unique application is expected to leverage Peraza's middle-of-the-wave technology to enhance high-speed internet connectivity on moving trains and subways.
Speaker Change: Turning to slide six, I want to review the recent traction with our unique DUNE millimeter-wave platform for dense urban applications.
Speaker Change: The DUNE platform implements intelligent media access control features which, along with the Perspective series of mmWave modules, enables wireless Internet Service Providers, or WISPs, to deploy low-cost, low-power, long-range, point-to-multipoint fixed wireless solutions in dense networking environments.
Speaker Change: These advantages are particularly crucial in regions such as Africa, where reliable low-power connectivity is essential for economic growth and social development, particularly as this market is heavily reliant on battery backup systems due to frequent power outages.
Speaker Change: Just last month, we announced a $1.4 million dollar follow-on purchase order from a South African WISP for our DUNE solution.
Speaker Change: This additional order for Peraza's innovative millimeter-wave-enabled solution builds on an initial production order secured and shipped in the first half of 2024.
Speaker Change: We believe the rapid growth of Internet users in Africa presents a huge opportunity to bridge the digital divide, and this recent follow-on order is another early indication of this market's future potential.
Speaker Change: In addition to South Africa, we are actively seeking to partner with World Wide with a goal of delivering high quality wireless connectivity that empowers individuals and businesses alike.
Speaker Change: As further evidence, we also recently announced another dune order from a WISP in Kenya.
Speaker Change: With an estimated 22.7 million internet users in Kenya, Peraza believes the potential impact of this project could be substantial.
Speaker Change: Finally, we are also engaged with several other prospective customers targeting future deployments in dense urban environments.
Speaker Change: and have made multiple shipments of DUNE proof-of-concepts in support of trials and ongoing evaluations with other WISPs in Africa.
Speaker Change: Moreover, the members of the PRAZA team are currently participating in the ongoing 2024 Africa Tech Festival in Cape Town, South Africa.
Speaker Change: They are there this week to promote the capabilities of our mmWave products and technology and also collaborate with leading experts in the telecom industry. This includes exchanging insights, fostering new connections, and advocating for the adoption of mmWave fixed wireless solutions in densely populated areas across the continent.
Speaker Change: Turning to slide 7, we also continue to focus on expanded opportunities for our millimeter wave technology in tactical defense and military applications. With the growing demand for stealth communication platforms used on the battlefield, we believe PRAZA's 60 gigahertz millimeter wave technology is uniquely poised to meet the rigorous demands of the military and modern defense markets.
Speaker Change: Our technology ensures secure, high-speed transfer in challenging battlefield environments, while simultaneously avoiding any potential interference with the license spectrum.
Speaker Change: As a recent proof point, we secured an initial purchase order from a military customer for our prospective module products. Again, our proprietary narrow beam forming technology is ideally suited for battlefield applications.
Speaker Change: This particular configuration is intended to enhance situational awareness and communications for deployed soldiers engaged in combat operations. We currently anticipate initial shipments in fulfillment of this order during the first quarter of 2025.
Speaker Change: Moving to slide 8, I wanted to take a moment to highlight other emerging developments that we believe could contribute to expanded customer adoption and market opportunities from our millinery wave solutions.
Speaker Change: Although we've discussed BEAD on previous calls, new information continues to be made available to influence the potential strategic direction of service providers and the technology solutions deployed.
Speaker Change: As a brief reminder, the U.S. government's BEAD program is a significant initiative meant to improve access to high-speed Internet by providing total grants up to $42 billion to fund infrastructure and adoption programs.
Speaker Change: The head of the National Telecommunications and Information Administration, or NTIA, which is a government agency that oversees the BEAD program, recently provided formally updated guidance that makes high-speed Internet using unlicensed spectrum fixed wireless access, including the millimeter-length bands, eligible for program funding.
Speaker Change: Now that WISPs are eligible for funding, we believe the superior value proposition and significant cost advantages, when compared to the cost and disruption of trenching fiber, will lead to middle-of-the-way fixed wireless access playing a key role in bringing high-speed broadband access across America.
Speaker Change: New engagements with customers and partners supported by BEAT program funding would increase and potentially significantly accelerate the market opportunities for our millimeter wave technology, and we are continuing to closely monitor all related new developments.
Speaker Change: In closing, I remain pleased with the progress that we continue to make across our business, especially on expanding our sales funnel and more diversified geographies and applications.
Speaker Change: We remain focused on advancing and converting existing customer engagements into production orders for our mmWave products, and we also expect that our ongoing shipments to fulfill the remaining backlog orders for our end-of-life memory IC products will continue to contribute meaningful revenue and cash flow through early next year.
Speaker Change: Taking together, we continue to anticipate total revenue for the second half of 2024 to increase over the first half of the year, as well as represent double-digit growth over the comparable prior year period.
Speaker Change: With that, I'll turn the call back to Jim to review the third quarter financials as well as our revenue outlook for the fourth quarter of 2024.
Jim Sullivan: Thank you, Ron. Turning to the results for the third quarter of 2024, total net revenue was 3.8 million dollars compared with 4.2 million dollars for the prior quarter and 4.5 million dollars for the third quarter of 2023.
Jim Sullivan: Product revenue from the sale of our memory integrated circuits and millimeter wave products in the third quarter was 3.8 million dollars compared with 4.1 million dollars in the prior quarter and 4.3 million dollars in the third quarter of 2023.
Jim Sullivan: Royalty and other revenue for the third quarter of 2024 was $30,000 compared with 0.1 million dollars in the prior quarter and compared with 0.2 million dollars in the same quarter a year ago.
Jim Sullivan: Gap gross margin decreased to 47% in the third quarter from 55.5% in the prior quarter and 45.4% in the year-ago quarter.
Jim Sullivan: On a non-GAAP basis, which excludes amortization of acquired intangible assets, gross margin for the third quarter was 61.7%, compared with 68.8% in the prior quarter and compared with 58% in the third quarter of 2023.
Jim Sullivan: The sequential decrease in both GAAP and non-GAAP gross margin was primarily attributable to a $0.3 million write-down of millimeter wave inventory as well as lower royalty and other revenue.
Jim Sullivan: GAAP operating expenses for the third quarter of 2024 were 4.5 million dollars compared with 6.8 million dollars in the prior quarter and 5.6 million dollars in the third quarter of 2023.
Jim Sullivan: Non-GAAP operating expenses, which exclude stock-based compensation, amortization of intangible assets, and severance costs, were 3.3 million dollars in the third quarter compared with 4.9 million dollars in the prior quarter and 4 million dollars in the third quarter of 2023.
Jim Sullivan: The year-over-year decrease in third-quarter operating expenses on a gap and non-gap basis was primarily attributable to a combination of previously implemented cost reductions and the company's ongoing cost containment initiatives.
Jim Sullivan: Gap net loss for the third quarter of 2024 was $2.7 million, or a loss of $0.98 per share, compared with a net loss of $4.4 million, or $1.88 per share in the prior quarter, and compared with a net loss of $0.6 million, or $0.87 per share in the same quarter a year ago.
Speaker Change: Net loss for the third quarter of 2024 was $0.9 million, or a loss of $0.34 per share.
Speaker Change: This compared with a non-GAAP net loss of $2.1 million, or a loss of 88 cents per share in the prior quarter, and a net loss of $1.1 million, or a loss per share of $1.56 per share, in the same quarter a year ago.
Speaker Change: The weighted average number of basic and diluted shares outstanding for purposes of calculating both GAAP and non-GAAP EPS for the third quarter of 2024 was approximately 2.8 million shares.
Speaker Change: Adjusted EBITDA, which we define as gap net income or loss as reported, excluding stock-based compensation, amortization of acquired intangibles, severance costs, change in fair value of warrant liabilities, interest expense, depreciation and amortization, and the provision for income taxes.
Speaker Change: was negative $0.8 million in the third quarter compared with negative $1.9 million in the prior quarter and negative $0.9 million in the prior year period.
Speaker Change: As of September 30, 2024, we had $1.3 million of cash in equivalents, representing a cash burn of approximately $0.6 million.
Speaker Change: from the prior quarter. As recently announced, subsequent to the end of the third quarter, the company entered into inducement offer letter agreements with certain holders of Series B warrants of the company for the holders to purchase 2,246,030 shares of the company's common stock.
Speaker Change: The holders exercised their Series B warrants for cash at a reduced exercise price $1.30 per share and in consideration, the company issued them new common stock purchase warrants.
Speaker Change: These exercise series B warrants resulted in aggregate gross proceeds to the company of approximately $2.9 million.
Speaker Change: Please see the Form 8K the company filed on November 5th with the Securities and Exchange Commission for a detailed description of the offering.
Speaker Change: Immediately following the closing of this offering, the company had 3,517,144 shares of common stock and exchangeable shares outstanding.
Speaker Change: which excludes an additional 1,759,790 shares of common stock that were not issued at the closing of the offering and are held in abeyance pending receipt of issuance instructions from the warrant holders although the company received payment for such abeyance shares at the closing.
Speaker Change: Now turning to our outlook, as Ron highlighted in his remarks, we have a diverse pipeline of customer engagements to utilize Parasa's millimeter wave solutions in multiple target markets, including fixed wireless access, tactical military communication, and transportation applications.
Speaker Change: Our team remains focused on converting these opportunities into design wins and new production orders for our millimeter wave products.
Speaker Change: Additionally, we continue to have a meaningful backlog of non-cancellable purchase orders for our end-of-life memory IC products.
Speaker Change: This concludes our prepared remarks, and I'll now turn the call back over to the operator to assist with the Q&A session.
operator
Speaker Change: Thank you. The floor is now open for questions. If you wish to join the queue to ask a question at this time, please press star 1 on your telephone keypad.
Speaker Change: Should you wish to remove yourself from cue, you may press star 2.
Speaker Change: We do ask if listening on speakerphone today that you pick up your handset while asking your question to provide optimal sound quality Once again, that'll be star one on your keypad at this time If you wish to join the queue to ask a question, please hold a moment while we pull for questions
Speaker Change: And the first question today is coming from David Williams from Benchmark.
David, your line is live. Please go ahead.
Hey, good afternoon gentlemen and thanks for taking my questions.
Dope.
Speaker Change: Maybe first, Ron, it sounds like you've got a lot of traction here and congratulations on the...
the son wins the Cuba now.
Speaker Change: When do you think we should start seeing maybe an inflection coming on the revenue side? Just trying to get a sense of when.
and George H.W. Bush.
Speaker Change: Well, thanks for the question, David, and for listening in today. I appreciate that.
Speaker Change: Obviously, from our perspective, the sooner the better. We know for sure there's no backlog late Q4 and into Q1.
Speaker Change: Q1 is realistically when it's really going to start to we're going to start to really see that that inflection point you know we as we said in my remarks like we have you know worked through we're working through the inventory issues and and so on this kind of general macro issues but
Speaker Change: I would continue to stress, like, from our perspective, you know, the design-win activity is very strong, and we're really, we're more than optimistic that by Q1 we're going to start to see those, those...
Speaker Change: Those shipments start to resume because we were starting to see that backlog. So that's kind of the thinking from our side
Speaker Change: Okay, perfect. Thanks so much for that color. It sounds like maybe that the inventory is largely at least getting worked through. Are you seeing that in your North American, maybe your largest customer, from their inventory as well? Or is most of this, maybe the positive, more from outside of that largest customer?
Speaker Change: I would say both, and you know, just to kind of rewind a little bit, Dave, you know, when we, obviously, over the last few quarters, we were really caught by our customer concentration.
Speaker Change: with a couple of customers. We've worked so hard over the last two years to really fix that problem. We've got 100, really, I'd say in the order of 100 customer engagements. It's actually, from my perspective, quite remarkable.
Speaker Change: So, what we're going to start to see, we are going to start some green shoots in Q4 with existing customers and start to see the new customers come online in Q1. So, it's really a combination of both, I would say.
Speaker Change: So, you know, and again, like starting to see that volume, but definitely, you know, I mean, one stat that I'll throw out that I that I think is quite remarkable that I was kind of updated after, you know, kind of recently is
Speaker Change: you know, part of our design process is what we call eval kits where, you know, customers buy, you know, an eval kit and kind of, you know, try things out, test things.
Speaker Change: You know, we sold 28 of those in the third quarter and, or in the, I'm sorry, the second quarter.
Speaker Change: No, it was actually the third quarter, and it was actually the most we ever sold in our history. So every single quarter, not only are we seeing the design wins going up and the customer engagement is going up, but people are actually really testing this stuff out thoroughly. So I'm really thrilled with, again, the traction we're seeing on that front, and we're really optimistic that by Q1, we're going to start to see those orders start to come in.
Great, yeah, it's certainly good to see the traction there.
Speaker Change: I guess if you're thinking about your WISP deployment and the lift there.
Speaker Change: How heavy a lift is it for these WISPs to deploy the Fixed Wireless Access? And are you seeing it more from existing providers in the marketplace? Are these startups that are coming in that are looking to get involved in the Fixed Wireless Access?
Speaker Change: or just any color there on that customer and what those look like.
attorney in terms of your design engagement.
Well, um, I would say...
Speaker Change: somewhere above 95% of the WISPs we deal with are experienced.
Speaker Change: And, you know, I would beat the drum on the same problem, which is we solved the congestion problem on WISC. And so the problem with congestion is with existing 5 gig and even now 6 gig solutions.
Speaker Change: is it can only support so much, you know, customer density in the marketplace.
and we solved that problem.
Speaker Change: These are experienced WISPs who are actually ripping out their 5GIG systems because they just can't support the density. So, you know, I'm really trying to think if there's anybody new on the market, but I can't really think of any. They're all very experienced WISPs that really get the advantage we bring to the marketplace with millimeter-weight.
Speaker Change: yeah and just one more if I may and do you think we'll see that that kind of transition from the 5g over to 60 gig with the North American market just kind of given the success they've had there and the congestion issues that are clearly going to be an issue at some point
Speaker Change: you know absolutely I think like the the announcement in Los Angeles of a 60 gigahertz solution is really the bellwether there and you know that there's absolutely solving the density problem in the urban market and again I would say
You know so so so I think in North America
Speaker Change: So the beauty of what we bring to the marketplace is what we refer to as fiber-like performance. So now even our customers are cutting up to two gigabit per second, which is exactly like fiber.
Speaker Change: And I think a point that I'd like to actually kind of expand on a little bit is this whole defunding.
Speaker Change: Of course, the $42 billion of BEAD funding was really fiber-oriented, and I really believe – and don't quote me on this – but I really believe that with the change of administration, you're going to start to see a much more tech-neutral world.
Speaker Change: stance from the administration because basically, as opposed to kind of an architect of a fiber-only approach,
Speaker Change: you're going to start to see in North America, whatever solves the problem, best approach. And of course, what we bring to the party, besides solving the congestion problem, is the fact that we can reach one or two gigabit speeds like fiber. So those are two real benefits that we bring to this marketplace, especially in North America.
Speaker Change: Great, thanks so much for the help and best of luck to you in the fourth quarter.
Thanks. Thanks Dave.
Speaker Change: Thank you. Your next question is coming from John Hickman from Ladenburg-Volman. John, your line is live. Please go ahead.
Hi, hey, just two questions. One is... Sure, Jonathan.
Speaker Change: Is bean money being spent right now on the fiber side?
or is it to like...
permitting stage and stuff like that.
Speaker Change: I think it's still early would be my assessment I mean the bead process is reasonably onerous it takes you know matching funds I think the application process is quite onerous so I think you know I think the funds are starting to trickle out
Speaker Change: but it's probably more of a longer-term process in 2025 and 2026. You know, obviously from our perspective, sorry, the only thing I wanted to say is from our perspective, the only, you know, I mean, the change we're really hoping to see is to go from a really, a very fiber-centric approach to a tech-neutral approach that includes our technology.
So, are you seeing anybody, any of the WISCs, like...
starting to like ask for that money?
Speaker Change: But, you know, I think, you know, they are, you know, in the background starting to apply for sure because it's a significant amount of money. So, so I would say, you know,
Speaker Change: If I had to handicap it, maybe 10% of the customers we see in that marketplace have been starting to apply, but I think in general, people really want to see how things are going to shake out, and we're starting to see that now.
I'll come back.
Speaker Change: And then my other question is, can you elaborate on the size at all of that military contract?
and when you might start, like, actually shipping.
to that customer.
Well...
You know in terms of the size
Speaker Change: I think the most, first of all, I mean, I would have to say that it's a highly sensitive contract.
Speaker Change: I think in terms of the size, probably the most I can say right now, John, is that it's material to our business. It's not like a small portion of our business, so it would be a material contract for the company.
Speaker Change: We're hoping this should be shipping in volume in Q2 next year.
So...
Speaker Change: So, just to clarify that point, I mean, we are getting, I mean, again, the whole military discussion.
Speaker Change: You know, I think a lot of the 28, you know, evaluation kits that we shipped out are to military people, particularly a lot of it is drones.
Speaker Change: And I think, as everyone knows, in the Ukrainian war in the Middle East, drones are playing a very significant role.
Speaker Change: And so, you know, the whole concept of stealth high-speed communications is a big part of that value proposition we bring to the party, but, you know, generally I think, you know, one of the knocks against military is it takes long, but I think what we have to keep in mind for...
Speaker Change: for our business is that there are ongoing wars that people want solutions now. So we expect to be shipping in volume right now. If all goes well, and it is going well by Q2 next year.
Okay, thanks.
My pleasure
Speaker Change: Thank you. I show there are no further questions in queue at this time. That will conclude today's conference call. Thank you for your participation. You may now disconnect.