Solid Q1 Results Lend Confidence to Sequential Growth in FY '24

Peraso (PRSO) reported Q1 ‘24 results ahead of our estimates and consensus. Revenue was near the top-end of management’s guidance and above our estimate due to higher end-of-life (EOL) memory IC shipments. Sales of mmWave products also increased sequentially and were approximately in line with our estimate. With memory IC products comprising the bulk of revenue, gross margin was well above our assumption. The higher revenue and gross margin combined with lower operating expenses resulted in both adjusted EBITDA and non-GAAP EPS exceeding our estimates and consensus.

Management’s Q2 revenue guidance reflects another quarter of sequential growth in both memory IC and mmWave products and was above our prior projection. As previously announced, Peraso received an additional $2.9 million in EOL memory IC orders late in Q1, resulting in total backlog of $12.6 million at quarter-end. Shipments against this backlog are expected to rise in Q2 and peak in 2H ’24 before concluding in Q1 ’25. Interestingly, management indicated that another $1 million in EOL orders may potentially be booked this quarter or next. Separately, the company continues to anticipate a recovery in mmWave sales as new customers enter production. In this regard, management noted that five proof-of-concepts are underway for Peraso’s DUNE platform, and volume shipments have commenced to one wireless internet service provider in Africa with a larger order anticipated in Q2. Longer-term, management aspires to capture 25% of the estimated 4 million units shipped annually in the fixed wireless access market, which we believe equates to a $50 million revenue opportunity for Peraso. Worth noting, WeLink Communications recently announced a partnership with the County of Los Angeles to provide internet access to over 275,000 households and small businesses, including 50,000 qualified households that will have access to low-cost internet plans. Considering WeLink has comprised a material portion of Peraso’s revenue at various times in the past, we surmise that Peraso stands to benefit if WeLink’s expansion into Los Angeles proves successful.

We raise our estimates slightly for this year and next, primarily reflecting an uptick in our revenue projections associated with EOL memory IC sales, a corresponding boost to gross margin and a slight downtick in our operating expense assumptions. Between cash currently on the balance sheet and the expected ramp in memory IC sales, we continue to believe the company has sufficient cash to support its operations for the remainder of the year. Our price target remains $4.00 based on an unchanged FY ’24 EV/Sales multiple of 1x.

Exhibit I: Reported Results and Guidance Versus Expectations

Sources: Peraso; K. Liu & Company LLC; FactSet Estimates

Q1 net revenue of $2.8 million (-44.0% Y/Y) was near the high-end of management’s $2.6-$2.9 million guidance and above our $2.6 million estimate. Memory IC sales of $2.4 million comprised much of revenue and accounted for the upside relative to our forecast. Sales of mmWave products rebounded from the lows seen in Q4 and were in line with our projection.

Non-GAAP gross margin of 66.4% was well above our 62.3% assumption due to the upside in memory IC revenue. Total operating expenses were below our estimate, primarily due to lower research and development costs than we projected. Both adjusted EBITDA and non-GAAP EPS of $(1.4) million and $(0.83), respectively, exceeded our estimates of $(1.9) million and $(1.26). Cash and investments at quarter-end totaled $2.4 million.

Management’s Q2 guidance calls for revenue of $3.7-$4.0 million. Prior to revisions, we were projecting $3.5 million in revenue for Q2, while consensus stood at $3.9 million. Reflecting the solid start to the year, an expanding pipeline of mmWave opportunities and a large backlog of EOL memory IC orders, management remains confident in its outlook for strong growth in FY ’24.

Exhibit II: Estimate Revisions

Source: K. Liu & Company LLC

We raise our revenue estimates for FY ‘24 and FY ’25 to reflect the higher backlog of EOL memory IC orders exiting Q1. The higher mix of memory IC revenue boosts our gross margin assumptions slightly, which combined with a modest reduction in our operating expense forecasts results in an increase in our adjusted EBITDA and non-GAAP EPS estimates.

Our report with model and disclosures is available here.

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.