Peraso Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Peraso is a fabless semiconductor company selling mmWave ICs and antenna modules, memory ICs, engineering services, and technology licenses. Unless stated otherwise, amounts below are in U.S. dollars; financial statement amounts are in millions.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net revenue | $5.033 | $3.403 |
| Gross profit / margin | $1.927 / 38% | $1.455 / 43% |
| Operating loss | $(3.796) | $(6.736) |
| Net loss | $(3.148) | $(6.754) |
| Net loss per share, basic and diluted | $(0.15) | $(0.34) |
| Cash used in operating activities | $(1.414) | $(5.740) |
Revenue rose 48%, largely reflecting higher product shipments and recognition of about $1.1 million of revenue previously deferred. Product revenue was $4.888 million; mmWave IC revenue increased $0.991 million year over year, while memory IC revenue increased $0.273 million. Gross margin declined as mmWave products, which carry lower margins than memory products, made up a greater share of shipments. The net loss improved partly due to lower operating expenses and a $0.658 million favorable change in the fair value of the warrant liability.
Research and development expense fell 29% to $3.887 million and SG&A fell 17% to $2.242 million, reflecting cost reductions, lower headcount and consulting costs, and lower memory-related R&D. The company also recorded a $0.406 million gain, net of costs, from Intel’s payment of the holdback under its technology license and asset sale agreement.
At March 31, cash and cash equivalents were $0.805 million and short-term investments were $0.587 million, totaling $1.392 million. Working capital was approximately $6.3 million. Current assets were $9.868 million and current liabilities were $3.553 million. The balance sheet reported $0.983 million of lease liabilities and a $1.421 million warrant liability; it did not list conventional borrowings. Cash declined from $1.828 million at year-end 2022. Operating cash use improved from the prior-year quarter, but remained significant.
Outlook, risks, and other material items
- Going concern: Peraso reported recurring losses, an accumulated deficit of $152.7 million, and expects operating losses and cash expenditures to exceed receipts for the foreseeable future. Management states that substantial doubt exists about its ability to continue as a going concern within one year absent additional capital. It was seeking financing; availability and acceptable terms were not assured. Potential further cost reductions could include headcount cuts and curtailed activities.
- Memory product end-of-life: TSMC, the sole foundry for Peraso’s memory IC wafers, is discontinuing the required process. Peraso initiated an end-of-life program and expects customer orders in 2023 to be fulfilled during 2024, with no memory product shipments expected after December 31, 2024. Memory products represented over 40% of Q1 2023 revenue and over 50% of 2022 revenue. The company is not positioned to transition production to another foundry.
- Management outlook: Peraso expected mmWave sales volume and revenue to increase over the remainder of 2023 versus 2022, while memory sales were expected to decline. It expected R&D and SG&A reductions during 2023 and cited annualized cost reductions of approximately $5 million. These are expectations, not assurances.
- Customer and operating concentration: Four customers represented 86% of Q1 revenue; three customers represented 77% of accounts receivable at quarter-end. Supply-chain disruptions, inventory exposure, customer payment timing, manufacturing yields, and access to capital were identified as risks.
- Financing and dilution: The company reported approximately $2.1 million of net proceeds from a November 2022 registered direct offering. In April 2023, a holder exercised warrants for 1.15 million common shares at $0.01 per share, after the reporting date.
- Contingencies and controls: Peraso reported no legal proceeding it believed likely to materially adversely affect its financial position or results, and no material indemnification amounts. Management concluded disclosure controls were effective as of March 31, 2023.
Important facts for investors to verify
- Whether Peraso can secure financing on workable terms and fund operations through the going-concern assessment period.
- Whether expected mmWave growth and cost reductions can offset declining memory revenue and lower gross margins.
- Customer order and deposit levels, fulfillment timing, and supplier availability for the memory product end-of-life plan.
- The extent of customer concentration, receivable collections, and inventory obsolescence risk.
- Potential dilution from outstanding equity awards and warrants, including the April 2023 warrant exercise.