Business Overview and History
Presto Automation Inc. (PRST) is a technology company that has undergone a significant transformation in recent years, shifting its focus from its legacy pay-at-table tablet business to the burgeoning drive-thru voice automation market. This strategic pivot, although fraught with challenges, has positioned the company at the forefront of a rapidly evolving industry, poised to capitalize on the growing demand for innovative restaurant technology solutions.
Presto Automation, formerly known as E La Carte, Inc., was incorporated in the state of Delaware in October 2008. Initially focusing exclusively on its Presto Touch pay-at-table solution, the company developed this technology to provide pay-at-table capabilities for casual dining restaurants. In 2018, the company adopted the Presto trade name and began developing its Presto Voice solution to address the needs of drive-thru restaurant operators. This new technology aimed to improve order accuracy, reduce labor costs, and increase revenue through menu upselling, while also providing guests with an improved drive-thru experience.
A significant milestone in the company’s history came in September 2022 when Presto completed a reverse merger with a special purpose acquisition company, Ventoux CCM Acquisition Corp. This transaction resulted in Presto becoming a publicly traded company, with its common stock and warrants listed on the Nasdaq Stock Market. The merger was accounted for as a reverse recapitalization, with Presto being treated as the accounting acquirer.
Throughout its history, Presto has faced various challenges, including building the necessary technology integrations to operate across a fragmented restaurant technology landscape, funding its operations primarily through financing transactions, and incurring recurring operating losses since inception. The company has also had to navigate the complexities of transitioning a portion of its business away from the Presto Touch solution in order to focus its resources on the growth of Presto Voice.
The Presto Voice platform addresses the pressing needs of drive-thru restaurant operators by improving order accuracy, reducing labor costs, and increasing revenue through advanced menu upselling capabilities. While Presto Touch accounted for substantially all of the company’s historical revenues, Presto Voice has begun to contribute an increasingly significant portion, generating 17% and 13% of total revenue for the three and nine months ended March 31, 2024, respectively.
Financial Performance and Liquidity
Presto Automation’s recent financial performance has been marked by both successes and challenges. For the three and nine months ended March 31, 2024, the company reported revenue of $4.5 million and $14.2 million, respectively, compared to $6.6 million and $21.3 million in the same periods of the prior year. This decrease was primarily attributable to the amortization and roll-off of deferred revenue related to legacy Presto Touch contracts, partially offset by the growth in Presto Voice revenue.
The company’s operating expenses for the three and nine months ended March 31, 2024, were $15.5 million and $47.9 million, respectively, compared to $15.0 million and $43.2 million in the same periods of the prior year. The increase in operating expenses was driven by higher general and administrative costs, particularly professional fees related to legal, audit, and public company compliance, which offset reductions in research and development and sales and marketing expenses.
Presto Automation’s liquidity position has faced significant challenges in recent quarters. As of March 31, 2024, the company held $4.2 million in cash and cash equivalents, down from $15.1 million as of June 30, 2023. This decline was largely due to the company’s use of $32.2 million in cash from operating activities during the nine-month period ended March 31, 2024, as it continued to invest in the development and deployment of its Presto Voice solution.
For the fiscal year 2023, Presto reported revenue of $26.14 million, a net loss of $34.48 million, operating cash flow of -$44.53 million, and free cash flow of -$50.42 million. The most recent quarter (Q3 2024) saw revenue of $4.45 million, a net loss of $18.09 million, operating cash flow of -$10.24 million, and free cash flow of -$11.42 million. The year-over-year revenue decrease of 33% was primarily due to the amortization and roll-off of legacy Presto Touch contracts, partially offset by growth in Presto Voice revenue.
Presto’s liquidity ratios highlight the company’s financial challenges, with a current ratio and quick ratio both at 0.11 as of March 31, 2024, indicating very low liquidity. The company has a $55 million credit facility, of which $46.08 million was outstanding as of March 31, 2024. Presto is currently in default on certain covenants under this facility, further complicating its financial situation.
For the fiscal fourth quarter of 2024, Presto expects revenue to be between $1.6 million and $1.9 million, reflecting the ongoing transition in its business model.
Navigating Turbulent Times and Strategic Initiatives
Presto Automation’s current liquidity position raises substantial doubt about its ability to continue as a going concern and to comply with its debt covenants, unless it is able to raise additional capital to meet its near-term obligations. The company has taken several steps to address this challenge, including entering into a forbearance agreement with its lenders, Metropolitan Partners Group, which provides a temporary respite from certain defaults under the company’s credit facility.
In addition, Presto has been actively exploring strategic alternatives for its Presto Touch business, including a potential sale, partial sale, or abandonment of the segment. This move is aimed at allowing the company to focus its resources solely on the development and expansion of its Presto Voice AI solution, which it sees as the key to its long-term success.
Presto’s new leadership, headed by Interim CEO Gee Lefevre, has been spearheading a number of initiatives to drive the company’s transformation. These include enhancing the company’s customer success and support functions, streamlining operations, and implementing cost-saving measures to improve profitability. Lefevre has also outlined a vision for the evolution of Presto Voice’s capabilities, including the introduction of a “Pure AI” feature that eliminates the need for human agents in certain order-taking scenarios.
The company’s product segments include Platform and Transaction. The Platform segment generates revenue from fees charged to customers for access to Presto’s Presto Touch and Presto Voice solutions. During the three and nine months ended March 31, 2024, Presto Voice solutions for drive-thru restaurants contributed $0.80 million and $1.80 million, respectively, accounting for 17% and 13% of total revenue. Presto has an agreement with Hi Auto Ltd. for its Presto Voice solution at Checkers locations, remitting a revenue share ranging from 63% to 65% of gross billings for the periods ended March 31, 2024.
The Transaction segment generates revenue from the delivery and use of premium gaming content by restaurant guests. Transaction revenue is recognized on a gross basis, with commissions paid to restaurants ranging on average between 86% – 100% and 86% – 97% of premium gaming content revenue for the three and nine months ended March 31, 2024, respectively.
Risks and Outlook
Presto Automation’s transition from its legacy Presto Touch business to its Presto Voice AI solution is not without risks. The company faces intense competition in the drive-thru automation market, as well as the challenge of rapidly scaling its Presto Voice deployments to drive revenue growth. Additionally, the company’s liquidity constraints and the potential for further defaults on its debt obligations could severely impact its ability to execute its strategic plan.
In July 2023, Presto received a subpoena from the SEC regarding disclosures related to its AI technology. The company is cooperating with this investigation, the timing and outcome of which is uncertain. Furthermore, the departure of Presto’s CEO in February 2024 and the appointment of an interim CEO add another layer of uncertainty to the company’s leadership and strategic direction.
Despite these challenges, Presto Automation remains cautiously optimistic about its future prospects. The company’s recent commercial wins, including the expansion of existing customer relationships and the signing of new pilot programs with major QSR brands, suggest that there is substantial demand for its Presto Voice solution in the market. Additionally, the company’s investments in product innovation and customer success capabilities could provide it with a competitive edge as it navigates the rapidly evolving restaurant technology landscape.
The restaurant technology market, while still nascent, continues to rapidly develop and evolve in response to challenges faced by restaurant operators, such as increasing labor and other costs. The market for voice AI solutions in the drive-thru segment represents a substantial opportunity, estimated at over $2.5 billion per year in the U.S. alone, with less than 1% of U.S. drive-thrus having adopted such solutions so far. This presents a significant growth potential for Presto if it can successfully navigate its current financial challenges and capitalize on its technological innovations.
Conclusion
Presto Automation is at a critical juncture in its history, as it navigates the transition from its legacy Presto Touch business to its Presto Voice AI solution. While the company’s liquidity challenges and operational complexities present significant hurdles, its strategic pivot, innovative product offerings, and experienced leadership team position it to potentially capitalize on the growing demand for advanced restaurant technology solutions.
The company’s focus on creating a capital structure that will position it for the future, including exploring strategic alternatives for its Presto Touch business, demonstrates its commitment to adapting to market demands. Presto has made progress in expanding its Presto Voice solution to new and existing customers, with active pilots with four major QSR brands and expansion negotiations with seven existing franchise groups. The development of new product capabilities, such as Pure AI, aims to reduce the need for human intervention in the ordering process and could provide a significant competitive advantage.
However, Presto continues to face liquidity challenges and is at risk of defaulting on its credit facility unless it can raise additional capital. The company’s ability to execute on its strategic plan and transition to profitability remains uncertain. As Presto Automation continues to execute its transformation plan, investors will closely monitor the company’s ability to secure additional financing, streamline its operations, and drive sustained growth in its Presto Voice business. The success of these efforts will be crucial in determining whether Presto can overcome its current challenges and emerge as a leader in the restaurant technology industry.
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