Peraso Q3 2024 Earnings Call Transcript

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Provided by Quartr
November 12, 2024

Key Takeaways

  • Negative Sentiment: Despite a 20% reduction in operating expenses, Q3 net revenue fell to $3.8 M from $4.5 M a year ago, resulting in a GAAP net loss of $2.7 M.
  • Positive Sentiment: The company’s memory IC backlog grew to $5.7 M with $3.7 M shipped in Q3, on track for full fulfillment by Q1 2025 to bolster revenue and cash flow.
  • Positive Sentiment: Paraso expanded its millimeter-wave pipeline to 82 funnel opportunities, with 23 active design engagements and nine wins now in production across fixed wireless access and military markets.
  • Positive Sentiment: Follow-on orders underscore traction in emerging markets, including a $1.4 M Dune platform order from a South African WISP and additional deployments in Kenya to enhance urban connectivity.
  • Positive Sentiment: Inclusion of unlicensed spectrum fixed wireless access in the U.S. BEAD program funding could significantly accelerate millimeter-wave adoption and drive future growth.
AI Generated. May Contain Errors.
Earnings Conference Call
Peraso Q3 2024
00:00 / 00:00

There are 5 speakers on the call.

Operator

afternoon, and welcome to Pareso Inc. Third Quarter 2024 Conference Call. At this time, all participants are in a listen only mode. As a reminder, this conference call is being recorded today, Tuesday, November 12, 2024. I would now like to turn the call over to your host for today's conference call, Mr.

Operator

Jim Sullivan. Please go ahead.

Speaker 1

Good afternoon. Thank you for joining today's conference call to discuss Parasto's Q3 2024 financial results. I'm Jim Sullivan, CFO of Parasto, and joining me today is Ron Glibory, our CEO. Today, after the market closed, we issued a press release and related Form 8 ks, which was filed with the SEC. The press release and Form 8 ks are available on Paraso's website at www.parasoinc.com under the Investor Relations section.

Speaker 1

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. Proraso 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.

Speaker 1

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 Pareto on the date hereof. These statements involve known and unknown risks, uncertainties and other factors that may cause Parasto'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 Pareto's public filings with the SEC. Pareto 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 1

Additionally, the company's press release and management's 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 ks, 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,

Speaker 2

I

Speaker 1

would like to turn the call over to our CEO, Ron Klabury for his prepared remarks. Ron?

Speaker 2

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 Q3 call. Revenue in the quarter was within our range of expectations with overall results being highlighted by meaningful improvement in our operating performance. 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.

Speaker 2

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 millimeter wave solutions. 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. Turning to Slide 4, we continue to ship significant quantities of our end of life memory IC products. 3rd quarter shipments increased sequentially to approximately $3,700,000 from $3,400,000 in the 2nd quarter. We ended the Q3 with a total remaining purchase order backlog of approximately $5,700,000 We remain on schedule to fulfill the total remaining backlog of memory IC orders by the end of the Q1 of 2025.

Speaker 2

As previously discussed, these shipments against remaining backlog will continue to contribute meaningful revenue and cash flow as we work further to expand our millimeter wave design win pipeline and continue to support customer ramps of our millimeter wave products. Next on Slide 5, we are continuing to cultivate a robust and growing pipeline of opportunities for our millimeter wave solutions. As discussed on past earnings calls, our sales efforts and engagements have been focused on expanding market reach across diverse geographies and end market applications. 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. Starting with a few key takeaways from our current pipeline.

Speaker 2

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. To date, we have successfully converted 9 prior design engagements to in production wins commercialized by its 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, in early November, SAF Technica released its FreeMile 60 radio, which provides fixed wireless access or FWA services using Paraasos Prospectus millimeter wave modules with X670 chipset. Utilizing the unlicensed 60 gigahertz 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 2

In another recent win, MillerWave announced its MWC 932 product at WISFLAPALOOZA adding to its existing AirPass 6B product line. This new product utilizes Pirasys prospective millimeter wave modules and X2720 chipset. The MWC 932 provides a wireless Ethernet bridge for applications that require multi gigabit throughput and utilizes the unlicensed 60 gigahertz band to overcome the frequently encountered interference from Wi Fi, while also providing a robust link at distances up to 5 kilometers. Lastly, we also recently announced an initial purchase order for our newly integrated high velocity roaming or HVR technology for applications in South Korea. More specifically, this unique application is expected to leverage Paraza's millimeter wave technology to enhance high speed Internet connectivity on moving trains and subways.

Speaker 2

Turning to Slide 6, I want to review the recent traction with our unique Dune millimeter wave platform for dense urban applications. The Dune platform implements intelligent media access control features, which along with the perspective series of millimeter wave modules, enables wireless Internet service providers or WISP to deploy low cost, low power, long range, point to multipoint fixed wireless solutions in dense networking environments. 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. Just last month, we announced $1,400,000 follow on purchase order from a South African WISP for our DUNE solution. This additional order for Pirazzo's innovative millimeter wave enabled solution builds on initial production order secured and shipped in the first half of twenty twenty four.

Speaker 2

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. In addition to South Africa, we are actively seeking to partner with WIS Worldwide with a goal of delivering high quality wireless connectivity that empowers individuals and businesses alike. As further evidence, we also recently announced another Dune order from a Wisp in Kenya. As this Wisp replaces its existing technology with Parrazzo's Dune system, the customer expects to significantly improve the quality of Internet services across its existing network. With an estimated 22,700,000 Internet users in Kenya, Paraza believes the potential impact of this project could be substantial.

Speaker 2

Finally, we are also engaged with several other prospective customers targeting future deployments in dense urban environments and have made multiple shipments of DUNE proof of concepts in support of trials and ongoing evaluations with other WIFs in Africa. Moreover, the members of the Pirazzo team are currently participating in the ongoing 2024 Africa Tech Festival in Cape Town, South Africa. They are there this week to promote the capabilities of our millimeter wave 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 millimeter wave fixed wireless solutions in densely populated areas across the continent. Turning to Slide 7, we also continue to focus on expanded opportunities for our millimin wave technology in tactical defense and military applications.

Speaker 2

With the growing demand for stealth communication platforms used on the battlefield, we believe Prozza 60 gigahertz millimeter technology is uniquely poised to meet the rigorous demands of the military and modern defense markets. Our technology ensures secure, high speed transfer and challenging battlefield environments, while simultaneously avoiding any potential interference with the license spectrum. As a recent proof point, we secured initial purchase order from a military customer for our prospective module products. Again, our proprietary narrow beamforming technology is ideally suited for battlefield applications. This particular configuration is intended to enhance situational awareness and communications for deployed soldiers engaged in combat operations.

Speaker 2

We currently anticipate initial shipments and fulfillment of this order during the Q1 of 2025. Based on a rapid expansion of recent engagement activity, we fully expect to announce additional wins leveraging our millimeter technology for mission critical tactical communication applications over the coming year. 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 millimeter wave solutions. 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. As a brief reminder, the U.

Speaker 2

S. Government's BEED program is a significant initiative meant to improve access to high speed Internet by providing total grants up to $42,000,000,000 to fund infrastructure and adoption programs. The Head of the National Telecommunications and Information Administration or NTIA, which is a government agency that oversees the BEED program recently provided formally updated guidance that makes high speed Internet using unlicensed spectrum fixed wireless access, including the millimeter wave bands eligible for program funding. Now that WIFs 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 millimeter wave fixed wireless access playing a key role in bringing high speed broadband access across America. New engagements with customers and partners supported by BEED 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 2

In closing, I remain pleased with the progress that we continue to make across our business, especially on expanding our sales funnel in more diversified geographies and applications. We remain focused on advancing and converting existing customer engagements into production orders for our millimeter wave 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. Taken together, we continue to anticipate total revenue for the second half of twenty twenty four to increase over the first half of the year as well as represent double digit growth over the comparable prior year period. With that, I'll turn the call back to Jim to review the Q3 financials as well as our revenue outlook for the Q4 of 2024.

Speaker 1

Thank you, Ron. Turning to the results for the Q3 of 2024. Total net revenue was $3,800,000 compared with $4,200,000 for the prior quarter and $4,500,000 for the Q3 of 2023. Product

Speaker 2

revenue from

Speaker 1

the sale of our memory integrated circuits and millimeter wave products in the Q3 was $3,800,000 compared with $4,100,000 in the prior quarter and $4,300,000 in the Q3 of 2023. Royalty and other revenue for the Q3 of 2024 was $30,000 compared with $100,000 in the prior quarter and compared with $200,000 in the same quarter a year ago. GAAP gross margin decreased to 47% in the 3rd quarter from 55.5% in the prior quarter and 45.4% in the year ago quarter. On a non GAAP basis, which excludes amortization of acquired intangible assets, gross margin for the Q3 was 61.7% compared with 68.8% in the prior quarter and compared with 58% in the Q3 of 2023. The sequential decrease in both GAAP and non GAAP gross margin was primarily attributable to a $300,000 write down of millimeter wave inventory as well as lower royalty and other revenue.

Speaker 1

GAAP operating expenses for the Q3 of 2024 were $4,500,000 compared with $6,800,000 in the prior quarter and $5,600,000 in the Q3 of 2023. Non GAAP operating expenses, which exclude stock based compensation, amortization of intangible assets and severance costs were $3,300,000 in the 3rd quarter compared with $4,900,000 in the prior quarter and $4,000,000 in the Q3 of 2023. The year over year decrease in 3rd quarter operating expenses on a GAAP and non GAAP basis was primarily attributable to a combination of previously implemented cost reductions and the company's ongoing cost containment initiatives. GAAP net loss for the Q3 of 2024 was $2,700,000 or loss of $0.98 per share compared with a net loss of $4,400,000 or $1.88 per share in the prior quarter and compared with a net loss of $600,000 or $0.87 per share in the same quarter a year ago. On a non GAAP basis, which excludes stock based compensation, amortization of acquired intangibles and severance costs, net loss for the Q3 of 2024 was $900,000 or a loss of $0.34 per share.

Speaker 1

This compared with a non GAAP net loss of $2,100,000 or a loss of $0.88 per share in the prior quarter and a net loss of $1,100,000 or a loss per share of $1.56 per share in the same quarter a year ago. The weighted average number of basic and diluted shares outstanding for purposes of calculating both GAAP and non GAAP EPS for the Q3 of 2024 was approximately 2,800,000 shares. Adjusted EBITDA, which we define as GAAP net income or losses 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, was negative $800,000 in the 3rd quarter compared with negative $1,900,000 in the prior quarter and negative $900,000 in the prior year period. As of September 30, 2024, we had $1,300,000 of cash and equivalents, representing a cash burn of approximately $600,000 from the prior quarter. As recently announced, subsequent to the end of Q3, 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 1

The holders exercised their Series B warrants for cash at a reduced exercise price of $1.30 per share. And in consideration the company issued them new common stock purchase warrants. These exercise Series B warrants resulted in aggregate gross proceeds to the company of approximately $2,900,000 Please see the Form 8 ks the company filed on November 5 with the Securities and Exchange Commission for a detailed description of the offering. Immediately following the closing of this offering, the company had 3,517,144 of common stock and exchangeable shares outstanding, 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. Now turning to our outlook.

Speaker 1

As Ron highlighted in his remarks, we have a diverse pipeline of customer engagements to utilize Pirasas millimeter wave solutions in multiple target markets, including fixed wireless access, tactical military communication and transportation applications. Our team remains focused on converting these opportunities into design wins and new production orders for our millimeter wave products. Additionally, we continue to have a meaningful backlog of non cancelable purchase orders for our end of life memory IC products. For the Q4 of 2024, the company currently expects total net revenue to be in the range of $3,600,000 to $4,000,000 This concludes our prepared remarks. And I'll now turn the call back over to the operator to assist with the Q and A session.

Speaker 1

Operator?

Operator

Thank you. The floor is now open for questions. And the first question today is coming from David Williams from Benchmark. David, your line is live. Please go ahead.

Speaker 3

Hey, good afternoon, gentlemen, and thanks for taking my questions. So maybe first, Ron, it sounds like you've got a lot of traction here and congratulations on the design wins that you've announced. When do you think we should start seeing maybe an inflection coming on the revenue side? Just

Operator

trying to

Speaker 3

get a sense of when these design wins could turn into deployments and then eventually revenue?

Speaker 2

Well, thanks for the question, David, for listening in today. I appreciate that. So obviously, from our perspective, the sooner the better. We think we know for sure there's no backlog late Q4 and into Q1. So we think Q1 is realistically when it's really going to start to we're going to start to really see that inflection point.

Speaker 2

As we said in my remarks, like we have worked through we're working through the inventory issues and so on, this kind of general macro issues. But I would continue to stress like from our perspective, the design win activity is very strong and we're really we're not more than optimistic that by Q1, we're going to start to see those shipments start to resume because we were starting to see that backlog. So that's kind of the thinking from our side.

Speaker 3

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 America, 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 2

I would say both. And just to kind of rewind a little bit, Dave, when we obviously, over the last few quarters, we were really caught by our customer concentration with a couple of customers. We've worked so hard over the last 2 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 2

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. So and again, like starting to see that volume, but definitely, I mean, one stat that I'll throw out that I think is quite remarkable that I was kind of updated after kind of recently is part of our design win process is what we call eval kits where customers buy an eval kit and kind of try things out, testing. We sold 28 of those in the Q3 and or in the I'm sorry, the Q2. No, it was actually the Q3 and it was actually the most we ever sold in our history.

Speaker 2

So every single quarter, not only are we seeing the design wins going up and the customer engagement 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.

Speaker 3

Great. Yes, it's certainly good to see the traction there. I guess if you're thinking about kind of your WISP deployment and the lift there, How heavy a lift is it for these WISPs to deploy to 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 3

Or just any color there on that customers and what those look like in terms of your design engagement?

Speaker 2

Well, I would say somewhere above 95% of the list we deal with are experienced. And I would beat the drum on the same problem, which is we solved the congestion problem on WIS. And so the problem with congestion is with existing 5 gig and even now 6 gig solutions is they can only support so much customer density in the marketplace and we solve that problem. So these are experienced wisps who are actually ripping out their 5 gig systems because they just can't support the density. So I'm really trying to think if there's anybody new on the market, but I don't really I can't really think of it new.

Speaker 2

They're all very experienced with that. They really get the advantage we bring to the marketplace with millimeter wave.

Speaker 3

Yes, yes. And just one more, if I may. And do you think we'll see that kind of transition from the 5 gs over to 60 gig, with the North American market, just kind of given the success they've had there and the congestion issues are clearly going to be an issue at some point?

Speaker 2

No, absolutely. I think like the announcement in Los Angeles of a 60 gigahertz solution is really the bellwether there and that is absolutely solving the density problem in the urban market. And again, I would say, so I think in North America, 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 2 gigabit per second, which is exactly like fiber. I think the point that I'd like to actually kind of expand on a little bit is this whole beep funding.

Speaker 2

Of course, the $42,000,000,000 of beep funding is really was really fiber oriented. And I really believe and I mean, don't call 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 stance from the administration. Because basically, as opposed to kind of architect a fiber only approach, 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 1 or 2 gigabit speeds like fiber. So that's those are 2 real benefits that we bring to this marketplace, especially in North America.

Speaker 3

Great. Thanks so much for the help and best of luck to you in the Q4.

Speaker 2

Thanks. Thanks, Dave.

Operator

Thank you. Your next question is coming from Jon Hickman from Ladenburg Thalmann. John, your line is live. Please go ahead.

Speaker 4

Hi. Hey, just two questions.

Speaker 2

Sure, Jon. Thank

Speaker 4

you. One is, is any is BEE money being spent right now

Operator

on the fiber side? Or is

Speaker 4

it still like in the permitting stage and stuff like that?

Speaker 2

I think it's still early, would be my assessment. The bead process is reasonably onerous. It takes matching funds and I think the application process is quite onerous. So I think the funds are starting to trickle out, but it's probably more of a longer term process in 2025 and 2026. Obviously, from our perspective sorry, the only thing I wanted to say is from our perspective, the only I mean, the change we're really hoping to see is to go from a really a very fiber centric approach to a technical approach that includes our technology.

Speaker 4

So are you seeing anybody any of the WISC like starting to like ask for that money?

Speaker 2

Well, I mean, we were at a show called Whispapalooza about a month ago in Las Vegas. And definitely people are circling around. I don't recall anyone saying to us specifically they've applied. But I think they are in the background starting to apply for sure because it's a significant amount of money. So I would say if I had to handicap it, maybe 10% of the customers we see in that marketplace have been starting to apply.

Speaker 2

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.

Operator

Okay.

Speaker 4

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,

Speaker 2

in terms of the size, I think the most first of all, I mean, I would have to say that it's a highly sensitive contract. I think in terms of the size, probably the most I could say right now, John, is that it's material to our business. It's not like a smaller portion of our business. So it would be a material contract for the company. We're hoping to be shipping volume in Q2 next year.

Speaker 2

So just to clarify that point, I mean, we are getting, I mean, again, on the whole military discussion, I think a lot of the 28 evaluation kits that we shipped out are to military people, particularly a lot of it is drones. And I think as everyone knows in the Ukraine war in the Middle East, drones are playing a very significant role. And so the whole concept of stealth high speed communications is a big part of that value proposition we bring to the party. But generally, I think one of the knocks against military is it takes long. But I think what we have to keep in mind for our business is that there are ongoing wars that people want solutions now.

Speaker 2

So we expect to be shipping in volume right now, if all goes well and it is going well by Q2 next year.

Speaker 4

Okay. Thanks.

Speaker 2

My pleasure.

Operator

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.

Speaker 2

Thank you.

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