Company Overview
Presto Automation, a leading provider of AI-driven solutions for the quick-service restaurant (QSR) industry, has positioned itself at the forefront of the rapidly evolving drive-thru automation landscape. With its innovative Presto Voice platform, the company is revolutionizing the way customers interact with their favorite fast-food establishments, delivering enhanced efficiency, increased revenue, and a seamless dining experience.
History and Evolution
Founded in 2008 as E La Carte, Inc. in San Carlos, California, Presto Automation has undergone a transformative journey, evolving from a provider of pay-at-table tablet solutions to a strategic focus on voice AI technology for the drive-thru market. Initially, the company focused exclusively on developing its Presto Touch pay-at-table tablet solution for casual dining restaurants. By 2018, E La Carte, Inc. had adopted Presto as its trade name and began developing its Presto Voice solution, an AI-driven system for automating and enhancing the drive-thru ordering experience at quick service restaurants (QSRs).
Over the years, Presto shipped over 277,000 Presto Touch tablets to three of the largest casual dining chains in the United States. The Presto Touch solution allowed restaurant guests to order, pay, and access entertainment at their table through a tablet device. This product accounted for substantially all of Presto's historical revenues. However, the company's strategic shift to focus on Presto Voice has proven to be a prescient move as the industry grapples with labor shortages and the growing demand for automation.
In September 2022, Presto completed a merger with Ventoux CCM Acquisition Corp., a special purpose acquisition company (SPAC). Through this business combination, Presto became a public company, listed on the Nasdaq stock exchange under the ticker symbol PRST. Following the merger, Presto made the strategic decision to wind down its legacy Presto Touch business in order to focus all of its resources on growing the Presto Voice AI solution for drive-thru restaurants.
Presto Voice: A Game-Changing Solution
Presto's drive-thru voice AI solution, Presto Voice, has gained significant traction in the market, with the company reporting that it accounted for 13% of its total revenue during the nine months ended March 31, 2024. This growth is a testament to the value proposition Presto Voice offers to its QSR customers, who are facing increasing labor costs and the need to enhance the customer experience.
Financials
The company's financial performance, while challenged in recent quarters, reflects the broader industry headwinds and the decision to prioritize the development and deployment of Presto Voice. During the nine months ended March 31, 2024, Presto reported revenue of $14.23 million, a decrease of 33% compared to the same period in the prior year. This decline was primarily attributable to the amortization and roll-off of deferred revenue related to legacy Presto Touch contracts, which the company has been actively winding down.
For the most recent fiscal year 2023, Presto reported annual revenue of $26.14 million, with a net loss of $34.48 million. The company's annual operating cash flow stood at -$44.53 million, while free cash flow was -$50.42 million, indicating significant cash burn as the company invests in its strategic pivot.
In the most recent quarter (Q3 2024), Presto's revenue was $4.45 million, representing a 33% year-over-year decrease. The net loss for the quarter widened to $18.10 million. The company's focus on Presto Voice has yielded promising results, with the platform contributing 17% of total revenue during this period. This represents a significant increase compared to the prior-year period, where Presto Voice accounted for an immaterial portion of the company's total revenue.
Looking ahead to Q4 2024, Presto has provided revenue guidance in the range of $1.6 million to $1.9 million, reflecting the ongoing transition in its business model.
Liquidity
Presto's strategic shift has not been without its challenges. The company has faced severe liquidity constraints, which have resulted in the need to secure additional financing and enter into a forbearance agreement with its lender, Metropolitan Partners Group. This liquidity crunch has placed significant pressure on the company's operations, with Presto reporting a net loss of $30.78 million for the nine months ended March 31, 2024.
As of March 31, 2024, Presto had $4.24 million in cash and cash equivalents, with a debt-to-equity ratio of -1.08. The company's current ratio and quick ratio both stood at 0.11, indicating significant liquidity challenges. Presto has a credit facility with Metropolitan Partners Group, with an outstanding balance of $46.08 million as of March 31, 2024. The credit facility contains certain financial covenants, and the company has entered into a forbearance agreement with the lender.
Strategic Focus and Innovation
Despite these headwinds, Presto's management team, led by interim CEO Gee Lefevre, has demonstrated a steadfast commitment to the Presto Voice solution, recognizing its potential to drive long-term growth and profitability. The company has made significant strides in enhancing the capabilities of Presto Voice, including the introduction of its "Pure AI" feature, which eliminates the need for human intervention in the order-taking process.
Presto's Pure AI technology has shown promising results, with the company reporting that at its initial test location, the AI efficiency increased from around 50% to 80%. This advancement represents a significant milestone in the company's efforts to improve its margins and reach profitability more quickly, as the gradual elimination of human-in-the-loop processes allows Presto to optimize its cost structure.
Customer Expansion and Market Opportunities
Furthermore, Presto has demonstrated its ability to expand its customer base, with the company currently engaged in active expansion negotiations with seven franchise groups, representing nearly 500 total locations and approximately $10 million in annual recurring revenue (ARR). The company has also made inroads with new customers, successfully piloting Presto Voice with four well-known QSR brands, collectively representing 1,300 locations and approximately $25 million in ARR.
Presto's commitment to innovation is further evident in its recent launch of a Spanish language ordering feature for Presto Voice. This new capability allows drive-thru customers to easily place orders in Spanish, with the flexibility to transition between English and Spanish as needed. The successful pilot of this feature in Southern California underscores Presto's dedication to providing an inclusive and seamless experience for all customers.
Product Segments and Business Overview
Presto Automation operates in two main product segments: Platform and Transaction. The Platform segment generates revenue from fees charged to customers to access Presto's solutions, including Presto Touch and Presto Voice. During the three and nine months ended March 31, 2024, Presto Voice contributed $0.80 million and $1.80 million in revenue, accounting for 17% and 13% of total revenue respectively.
The Transaction segment generates revenue from the delivery and use of premium gaming content by restaurant guests. Transaction revenue decreased 36% to $2.26 million for the three months ended March 31, 2024, and decreased 20% to $7.80 million for the nine months ended March 31, 2024, compared to the prior year periods.
Presto has agreements in place with some of the largest restaurant chains in the United States, including Carl's Jr., Hardee's, and Wienerschnitzel for its Presto Voice solution, as well as Applebee's and Chili's for its Presto Touch offering. However, two of Presto's largest customers have decided not to renew their Presto Touch contracts, which expire or were extended to June 30, 2024. As a result, Presto is winding down its Presto Touch business to allow for dedicated focus on its Presto Voice solution.
Industry Trends and Challenges
The restaurant technology market continues to rapidly develop and evolve in response to the challenges faced by restaurant operators and the productivity enhancements available through technological advances. The market for Presto Voice AI is expected to further develop and evolve as the restaurant technology market continues to grow, thereby increasing the demand for Presto's solution.
However, Presto faces significant challenges, including ongoing investigations by the SEC and DOJ regarding disclosures the company made about certain aspects of its AI technology. These investigations have led to increased expenses related to legal, accounting, and other professional services.
Future Outlook and Challenges
Looking ahead, Presto's future success will hinge on its ability to navigate the ongoing liquidity challenges, secure additional financing, and continue executing on its strategic priorities. The company's recent agreement with Metropolitan Partners Group to explore the transfer of its debt position to a new lender represents a critical step in this process, as it aims to streamline its capital structure and improve its financial flexibility.
Furthermore, Presto's commitment to developing its technology roadmap, including the advancement of its Pure AI and Spanish language capabilities, positions the company well to capitalize on the growing demand for drive-thru automation solutions in the QSR industry. As labor shortages and the need for increased efficiency continue to drive the adoption of AI-powered technologies, Presto's Presto Voice platform stands to benefit significantly.
Conclusion
In conclusion, Presto Automation's journey from a pay-at-table tablet provider to a leading voice AI solutions company for the drive-thru market is a testament to its agility and foresight. Despite the current liquidity challenges and ongoing regulatory investigations, the company's focus on innovation, customer expansion, and the continued development of its Presto Voice platform suggests a promising future, as it strives to streamline the drive-thru experience and unlock new avenues for growth and profitability. The success of this strategic pivot will be crucial in determining Presto's ability to overcome its current financial hurdles and establish itself as a dominant player in the rapidly evolving restaurant technology landscape.