PERASO INC. This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the accompanying condensed
consolidated financial statements and notes included in this report. This
Form 10-Q contains forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, which include, without limitation, statements
about the market for our technology, our strategy, competition, expected
financial performance and capital raising effort., the impacts of COVID-19 on
our business, the effects of the
Overview
We were formerly known as
For accounting purposes, the legal subsidiary, Peraso Tech, has been treated as
the accounting acquirer and we, the legal parent, have been treated as the
accounting acquiree. The transaction has been accounted for as a reverse
acquisition in accordance with Financial Accounting Standards Board Accounting
Standards Codification (ASC) No. 805, Business Combinations. Accordingly, the
financial condition and results of operations discussed herein are a
continuation of Peraso Tech's financial results prior to
Our strategy and primary business objective is to be a profitable, IP-rich, fabless semiconductor company offering integrated circuits (ICs), modules and related non-recurring engineering services. We specialize in the development of mmWave semiconductors, primarily in the 60 GHz spectrum band for 802.11ad/ay compliant devices and in the 28/39 GHz spectrum bands for 5G-compliant devices. We derive our revenue from selling semiconductor devices, as well as modules based on using those mmWave semiconductor devices. We have pioneered a high-volume mmWave production test methodology using standard low cost production test equipment. It has taken us several years to refine performance of this production test methodology, and we believe this places us in a leadership position in addressing operational challenges of delivering mmWave products into high-volume markets. During 2021, we augmented our business model and began selling complete mmWave modules. The primary advantage provided by a module is the silicon and the antenna are integrated into a single device. A differentiating characteristic of mmWave technology is that the radio frequency amplifiers must be as close as possible to the antenna to minimize loss, and, by providing a module, we can guarantee the performance of the amplifier/antenna interface.
We also acquired a memory product line, marketed under the Accelerator Engine name, which includes our Bandwidth Engine IC products, which integrate our proprietary, 1T-SRAM high-density embedded memory and a highly-efficient, serial interface protocol resulting in a monolithic memory IC solution optimized for memory bandwidth and transaction access performance. As we are not developing new memory products, from a product development
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perspective, we continue to leverage our current technologies and core competencies to expand our product offerings without incurring significant additional research and development (R&D) expenses.
We incurred net losses of approximately
COVID-19 and Macroeconomic Factors
The global outbreak of the coronavirus disease 2019 (COVID-19) was declared a
pandemic by the
Since
We believe that as the COVID-19 pandemic evolves, the direct and indirect impacts of the pandemic on global macroeconomic conditions, as well as conditions specific to us, are becoming more difficult to isolate or quantify. In addition, these direct and indirect factors can make it difficult to isolate and quantify the portion of our costs that are a direct result of the pandemic and costs arising from factors that may have been influenced by the pandemic, such as supply chain constraints, rising inflation, and recessionary fears. We expect these factors and their effects on our operations may persist for a longer period, even after the COVID-19 pandemic has subsided. We continue to closely monitor impacts, especially to customer programs and our supply chain. We are working internally and with suppliers on programs (i.e., new production flows, etc.) to allow us to increase our peak throughput to better handle unplanned disruptions to our supply chain. To date, we have not experienced a material impact on our cash flows, liquidity, capital resources, cash requirements, financial position, or results of operations, attributable to the global semiconductor supply chain disruption and inflation. We have experienced increased prices from our suppliers, and, for certain products, we have increased prices to our customers to mitigate the impacts, although to date in 2022 the impacts of these price increases have been minimal. We have and continue to experience longer lead times for certain components used to manufacture our products, and, therefore, and, in response, we have identified second and third sources for certain components used in our module products. Also, we have increased lead times for our customers. We have not experienced any issues over our product quality and product development activities, as we do not rely significantly on outside vendors to manage and perform these activities for us. We currently have not identified any current impacts of the supply chain disruption and inflation that will affect our future results, and it is difficult to differentiate whether higher prices are due to supply chain disruption, inflation or a mix of both.
While we believe that our operations personnel are currently in a position to meet expected customer demand levels in the coming quarters, we recognize that unpredictable events could create difficulties in the months ahead. We may not be able to address these difficulties in a timely manner, which could negatively impact our business, results of operations, financial condition and cash flows.
The continued spread of COVID-19 has also led to disruption and volatility in
the global capital markets. The Russian invasion of
For additional information on risks that could impact our future results, please refer to "Risk Factors" in Part II, Item 1A. of this quarterly report on Form 10-Q.
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Sources of Revenue Product revenue
Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied. The majority of our contracts have a single performance obligation to transfer products. Accordingly, we recognize revenue when title and risk of loss have been transferred to the customer, generally at the time of shipment of products. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products and is generally based upon a negotiated, formula, list or fixed price. We sell our products both directly to customers and through distributors generally under agreements with payment terms typically 60 days or less.
We may record an estimated allowance, at the time of shipment, for future returns and other charges against revenue consistent with the terms of sale.
Royalty and other
Our licensing contracts typically provide for royalties based on the licensee's use of our memory technology in its currently shipping commercial products. We estimate its royalty revenue in the calendar quarter in which the licensee uses the licensed technology. Payments are received in the subsequent quarter. We also generate revenue from licensing our technology. We recognize license fees as revenue at the point of time when the control of the license has been transferred and we have no continuing performance obligations to the customer.
Engineering services revenue
Engineering and development contracts with customers generally contain a single performance obligation that is delivered over time. Revenue is recognized using an output method that is consistent with the satisfaction of the performance obligation as a measure of progress.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations
are based upon our condensed consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in
Reclassifications
We previously classified intangible asset amortization expense related to the developed technology and customer relationships intangibles within research and development expenses (R&D) in our condensed consolidated statements of operations and comprehensive loss. Amortization expense on the developed technology intangible asset is now classified within cost of net revenue, and amortization expense on customer relationships is now classified in selling, general and administrative expenses (SG&A). Prior period amounts have been conformed to the current period presentation. See Note 5 to the condensed consolidated financial statements for a discussion of the reclassifications.
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Results of OperationsNet Revenue June 30, Change 2022 2021 2021 to 2022 (dollar amounts in thousands)
Product -three months ended
Product revenue increased for the three months ended
Product revenue increased for the six months ended
.
June 30, Change
2022 2021 2021 to 2022
(dollar amounts in thousands)
Royalty and other -three months ended
4 % 17 %
Royalty and other -six months ended
5 % 10 %
Royalty and other includes royalty, non-recurring engineering, services and
licenses revenues. The increase in royalty and other revenue for the three and
six months ended
Cost of Net Revenue and Gross Profit
June 30, Change
2022 2021 2021 to 2022
(dollar amounts in thousands)
Cost of net revenue -three months ended
65 % 62 %
Cost of net revenue -six months ended
62 % 59 %
June 30, Change
2022 2021 2021 to 2022
(dollar amounts in thousands)
Gross profit -three months ended
35 % 38 %
Gross profit -six months ended
38 % 41 %
Cost of net revenue is primarily comprised of direct and indirect costs related to the sale of our products, including amortization of intangible assets and depreciation of production-related fixed assets.
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Cost of net revenue increased for the three and six months ended
Gross profit increased for the three and six months ended
Research and Development
June 30, Change
2022 2021 2021 to 2022
(dollar amounts in thousands)
R&D -three months ended $ 5,643 $ 2,892 $ 2,751 95 %
Percentage of total net revenue 132 % 415 %
Research and development -six months ended
145 % 316 %
Our R&D expenses include costs related to the development of our products. We expense R&D costs as they are incurred.
The increase for the three and six months ended
Selling, General and Administrative
June 30, Change
2022 2021 2021 to 2022
(dollar amounts in thousands)
SG&A -three months ended
$ 5,585 $ 3,106 $ 2,479 80 %
Percentage of total net revenue 73 % 173 %
SG&A expenses consist primarily of personnel and related overhead costs for sales, marketing, finance, human resources and general management and amortization of intangible assets.
The increase for the three and six months ended
Interest expense
Interest expense incurred during the six months ended
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Liquidity and Capital Resources; Changes in Financial Condition
Cash Flows
As of
Net cash used in operating activities was
Net cash used in operating activities was
Net cash provided by investing activities of
Net cash used in financing activities for the six months ended
Net cash provided by financing activities for the six months ended
Our future liquidity and capital requirements are expected to vary from quarter-to-quarter, depending on numerous factors, including:
• level of revenue;
• cost, timing and success of technology development efforts;
• inventory levels, as supply chain disruption has required us to maintain
higher inventory levels and place purchase orders with our suppliers
longer into the future, which exposes us to additional inventory risk;
• timing of product shipments, which may be impacted by supply chain
disruptions;
• length of billing and collection cycles, which may be impacted in the
event of a global recession or economic downturn;
• fabrication costs, including mask costs, of our ICs, currently under
development;
• variations in manufacturing yields, material lead time and costs and
other manufacturing risks;
• costs of acquiring other businesses and integrating the acquired
operations; and
• profitability of our business.
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Going Concern - Working Capital
We incurred net losses of approximately
We expect to continue to incur operating losses for the foreseeable future as we continue to secure new customers for and continue to invest in the development of our products, and we expect our cash expenditures to continue to exceed receipts for the foreseeable future, as our revenues will not be sufficient to offset our operating expenses.
We will need to increase revenues substantially beyond levels that we have
attained in the past in order to generate sustainable operating profit and
sufficient cash flows to continue doing business without raising additional
capital from time to time. As a result of our expected operating losses and cash
burn for the foreseeable future and recurring losses from operations, if we are
unable to raise sufficient capital through additional debt or equity
arrangements, there will be uncertainty regarding our ability to maintain
liquidity sufficient to operate our business effectively, which raises
substantial doubt as to our ability to continue as a going concern within one
year from the date of issuance of these condensed consolidated financial
statements. The condensed consolidated financial statements presented in Item 1
of this Report have been prepared assuming that we will continue as a going
concern, and do not include any adjustments that might result from the outcome
of this uncertainty. There can be no assurance that such additional capital,
whether in the form of debt or equity financing, will be sufficient or available
and, if available, that such capital will be offered on terms and conditions
acceptable to us. We are currently seeking additional financing in order to meet
our cash requirements for the foreseeable future. If the Company is unsuccessful
in these efforts, it will need to implement cost reduction strategies, which
could further affect its near- and long-term business plan. These efforts may
include, but are not limited to, reducing headcount and curtailing business
activities. As further discussed in Note 11 to the condensed consolidated
financial statements, in
If we were to raise additional capital through sales of our equity securities, our stockholders would suffer dilution of their equity ownership. If we engage in debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness, prohibit us from paying dividends, repurchasing our stock or making investments, and force us to maintain specified liquidity or other ratios, any of which could harm our business, operating results and financial condition. If we need additional capital and cannot raise it on acceptable terms, we may not be able to, among other things:
• develop or enhance our products;
• continue to expand our product development and sales and marketing
organizations;
• acquire complementary technologies, products or businesses;
• expand operations, in the United States or internationally;
• hire, train and retain employees; or
• respond to competitive pressures or unanticipated working capital
requirements.
Our failure to do any of these things could seriously harm our ability to execute our business strategy and may force us to curtail our existing operations.
Off-Balance Sheet Arrangements
We do not maintain any off-balance sheet arrangements or obligations that are reasonably likely to have a material current or future effect on our financial condition, results of operations, liquidity or capital resources.
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Recent Accounting Pronouncements
See Note 1 to the condensed consolidated financial statements for a discussion of recent accounting policies.
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