Reports Q4 '23 Results In Line with Pre-Announcement
Peraso’s (PRSO) Q4 ‘23 results were largely consistent with the company’s late January pre-announcement. Revenue was near the high-end of the preannounced range and a tick above our estimate with memory IC sales comprising the bulk of sales. The lone surprise was a $3.0 million inventory write-down, which negatively affected comparisons with our gross margin, adjusted EBITDA and non-GAAP EPS estimates as management did not exclude the charge from its non-GAAP reconciliations. Excluding the non-cash item, these metrics would have been just shy of our estimates. More importantly, much of the inventory remains sellable and could result in significantly higher gross margin later this year if mmWave sales rebound as anticipated.
Looking forward, management guided for sequential growth in Q1 and FY ’24, which in turn should yield double digit growth for the year. Per management, the inventory correction headwinds experienced over the past year have begun to abate, and Peraso has received new orders for its mmWave products, including from its largest customer. Additionally, the company has over $12.0 million in backlog related to its end-of-life memory IC products, much of which will be shipped in FY ’24. Although revenue in Q1 starts off lower than we previously projected, we still expect run-rate sales at year-end to match our prior expectations. Thus, we reduce our revenue estimate slightly for this year, while maintaining our sales projection for next year. Our adjusted EBITDA estimates decline for this year and next due to a modest uptick in our operating expense assumptions, while our non-GAAP EPS estimates increase as the losses are spread over a higher outstanding share count following the company’s capital raise last month. As noted earlier, the sale of inventory previously written-down is likely to produce upside relative to our estimates for FY ’24.
Recall that we previously derived our price target for Peraso based on a FY ’23 EV/Sales multiple of 1x, which included an assumption that the company would raise at least $4.0 million through the issuance of approximately 848 thousand shares as contemplated in its amended S-1 filed in January. Although the company did indeed raise gross proceeds of $4.2 million in February, the dilution was far greater than we originally anticipated. Ultimately, Peraso issued nearly 2.0 million common shares and pre-funded warrants along with Series A and Series B warrants, each of which allow for the purchase of up to 3,974,520 shares of common stock at an exercise price of $2.25 per share. After including the impact of the capital raise and applying the same 1x EV/Sales multiple to our revised FY ’24 estimates, our price target declines from $12.00 to $4.00.
Exhibit I: Reported Results and Guidance Versus Expectations
Sources: Peraso; K. Liu & Company LLC; FactSet Estimates
Q4 net revenue of $1.8 million (-52.9% Y/Y) was in line with management’s January pre-announcement of $1.6-$1.9 million and ahead of our $1.7 million estimate. Memory IC sales of $1.2 million comprised the majority of revenue, while mmWave sales remained under pressure due to the inventory correction headwinds seen through FY ’23.
Non-GAAP gross margin of -116.6% was well below our 61.2% assumption, but the variance was primarily due to an inventory write-down of $3.0 million. Excluding this non-cash item, non-GAAP gross margin would have been 47.2%. Total operating expenses were consistent with our estimate. As management opted not to exclude the inventory charge from adjusted EBITDA and non-GAAP EPS, both metrics were well below our estimate. On an apples-to-apples basis, however, adjusted EBITDA would have been $2.9 million versus our $2.4 million projection.
Cash and investments at quarter-end totaled $1.6 million. Subsequently, the company raised $3.4 million in net proceeds from the issuance of 562,200 shares of common stock, pre-funded warrants to purchase up to 1,424,760 shares of common stock, Series A warrants to purchase up to 3,974,520 shares of common stock and Series B warrants to purchase up to 3,974,520 shares of common stock.
For Q1, management’s guidance calls for revenue of $2.6-$2.9 million. Additionally, management expects revenue in FY ’24 to grow double-digits, implying at least $15.1 million in revenue. Prior to revisions, we were projecting $3.3 million in revenue for Q1 and $19.0 million in revenue for FY ‘24. Management’s guidance reflects expectations for mmWave sales to rebound as the year progresses and for much of the remaining $12.0 million in end-of-life memory IC backlog to be shipped over the next 12 to 15 months.
Exhibit II: Estimate Revisions
Source: K. Liu & Company LLC
We lower our revenue estimates for Q1 and FY ’24 to reflect a more gradual rebound in mmWave sales than we previously assumed. We note, however, that our revenue projection exiting the year is essentially unchanged as is our prior FY ’25 estimate. Reflecting a slight haircut to our gross margin assumptions and a modest increase in our operating expense estimates, our adjusted EBITDA estimates decline for this year and next. That said, we surmise that there is considerable upside to our gross margin expectations for this year as much of the projected mmWave sales may be associated with inventory that has already been written down.
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Disclosure(s):
K. Liu & Company LLC (“the firm”) receives or intends to seek compensation from the companies covered in its research reports. The firm has received compensation from Peraso Inc. (PRSO) in the past 12 months for “Sponsored Research.”
Sponsored Research produced by the firm is paid for by the subject company in the form of an initial retainer and a recurring monthly fee. The analysis and recommendations in our Sponsored Research reports are derived from the same process and methodologies utilized in all of our research reports whether sponsored or not. The subject company does not review any aspect of our Sponsored Research reports prior to publication.