Peraso Inc. — Q3 2023 Form 10-Q Summary
Business context and reporting period
Peraso is a fabless semiconductor company focused on millimeter-wave (mmWave) products and memory ICs, with revenue also from engineering services and technology royalties. This unaudited filing covers the quarter and nine months ended September 30, 2023; financial amounts below are in U.S. dollars unless noted.
Financial performance and position
- Revenue: Q3 revenue was $4.481 million, up 36% from $3.294 million. Nine-month revenue was $11.916 million, up 9% from $10.981 million. Product revenue drove the increases, primarily through memory IC shipments associated with the product end-of-life (EOL) announcement.
- Profitability: Q3 gross profit was $2.036 million, with a 45% gross margin versus 39% a year earlier. Nine-month gross profit was $4.570 million and margin was 38%, versus $4.234 million and 39%. Operating losses were $3.560 million for Q3 and $12.393 million for nine months. Net losses were $0.623 million and $7.857 million, respectively, compared with $4.008 million and $17.805 million in 2022.
- Drivers of net loss: Net loss included noncash gains from changes in warrant fair value of $2.615 million in Q3 and $4.239 million for nine months. Nine-month operating expenses also benefited from a $0.406 million gain related to the Intel license and asset sale holdback.
- Expenses: Nine-month R&D declined 29% to $11.038 million and SG&A declined 29% to $6.331 million, primarily due to cost reductions. Nine-month inventory write-downs were approximately $0.793 million, primarily for mmWave products.
- Cash flow: Operating cash used was $5.627 million for the first nine months, versus $13.419 million in 2022. Investing activities provided $1.007 million and financing provided $3.481 million, including approximately $3.6 million of net equity-offering proceeds. Cash and cash equivalents declined to $0.689 million from $1.828 million at year-end 2022.
- Liquidity and liabilities: Current assets were $10.230 million and current liabilities $3.694 million, giving working capital of approximately $6.5 million. Total liabilities were $5.076 million, including $0.727 million of lease liabilities and $1.003 million of warrant liabilities. The balance sheet reports no conventional borrowings. Accumulated deficit was $157.454 million.
Material changes versus prior comparable period
- Q3 memory IC revenue rose to $3.384 million from $1.748 million; nine-month memory IC revenue rose to $7.181 million from $5.528 million. By contrast, nine-month mmWave antenna-module revenue fell to $1.586 million from $3.139 million.
- Royalty and other revenue declined 6% in Q3 and 11% for nine months, reflecting lower memory royalties and, for the nine-month period, lower mmWave engineering-services revenue.
- Cost reductions lowered R&D and SG&A, while increased memory shipments supported Q3 gross margin. Nine-month gross margin edged down, with increased costs and inventory write-downs among the factors cited.
- Common shares outstanding increased during 2023, including through a June registered direct offering and exercises of pre-funded warrants. The filing reports 25.308 million common shares and 5.106 million exchangeable shares outstanding at September 30.
Outlook, risks, contingencies and unusual items
- Going concern: Management expects continuing operating losses and cash expenditures to exceed receipts for the foreseeable future. The filing states that substantial doubt exists about the company’s ability to continue as a going concern within one year absent additional capital or other measures. Management said September 30 cash plus expected product-sale receipts would fund planned operations into Q1 2024, but also said additional financing or significant spending reductions would be needed before year-end 2023. No assurance is given that financing will be available on acceptable terms.
- Memory IC EOL: TSMC, the sole foundry for Peraso’s memory IC wafers, is discontinuing the relevant process. Peraso cannot transition production to another foundry and has initiated an EOL program. Memory ICs accounted for over 60% of nine-month 2023 revenue. Customers were asked to submit EOL orders by December 22, 2023; shipments were expected to continue at least through December 2024, with timing dependent on orders, supply and customer schedules. The risk section also says EOL orders may extend into 2025.
- Post-period cash receipts and workforce actions: Subsequent to September 30, the company reported collecting approximately $3.7 million in EOL-related proceeds, including $2.2 million of September 30 receivables, $0.4 million from October shipments and $1.1 million in customer deposits. In November 2023, it initiated temporary layoffs affecting 16 Canadian positions and eliminated three full-time-equivalent positions in the U.S. and Canada; if the Canadian employees are not recalled, estimated annual savings are approximately $2.8 million, before severance and related costs.
- Strategic alternatives: In August 2023, Peraso engaged an investment bank to explore alternatives such as a merger or asset sale. No timetable or decision had been set, and there is no assurance the process will result in a transaction.
- Financing, dilution and listing: The June 2023 offering generated approximately $3.6 million net proceeds and included a five-year warrant for up to 5.714 million shares at $0.70. Purchase warrants are liability-classified and remeasured through earnings. Peraso had until January 29, 2024 to regain Nasdaq’s $1.00 minimum bid-price compliance; otherwise, delisting risk remained.
- Commitments and other matters: Non-cancelable purchase orders were approximately $2.3 million for inventory and $3.1 million for CAD software. The company reported no legal proceeding it believed likely to materially adversely affect its financial position or results. Disclosure controls were assessed as effective at September 30, 2023.
Important facts for investors to verify
- Whether EOL customer orders, deposits, supplier deliveries and collections support the expected memory shipments and cash runway.
- Whether Peraso obtains additional financing or completes a strategic transaction, and the resulting terms, dilution or operational changes.
- How the loss of memory IC production affects revenue, gross margin and cash flow after the EOL period.
- Whether the company meets Nasdaq’s minimum bid-price requirement by January 29, 2024.
- The cash impact and timing of inventory and CAD purchase obligations, and whether further inventory write-downs or cost reductions are needed.