Presto Automation, Inc.
Q1 2024 Earnings Call Transcript

Published: 23 Nov 2023

[Operator:]

Hello, and welcome to Presto Automation’s First Quarter 2024 Earnings Call. [Operator Instructions] I would now like to hand the conference over to [Gi Luvere] you may begin.

[Unidentified Company Representative:]

Thank you. Good afternoon, everyone. I would like to welcome all of you to the Presto Automation Fiscal First Quarter 2024 Earnings Conference Call. Today's call will include recorded comments from our Chairman, Krishna Gupta; our Chief Executive Officer, Xavier Casanova; and our Interim Chief Financial Officer, Nathan Cook. After the recorded comments, we will open the call for questions. A replay of this call will be made available and information to access the replay is listed in today's press release. Before we begin, I would like to remind everyone that during today's call, we will be making forward-looking statements regarding future events and financial performance, including our guidance for fiscal second quarter 2024. These forward-looking statements are subject to known and unknown risks and uncertainties. Presto cautions that these statements are not guarantees of future performance. We encourage you to review our most recent reports or any applicable filings for a complete discussion of these factors and other risks that may affect our future results or the market price of our stock. Finally, we are not obligating ourselves to revise our results or these forward-looking statements in light of our new information or events. Also, during today's call, we will refer to certain non-GAAP financial measures. Reconciliations of non-GAAP to GAAP measures and certain additional information are included in today's press release. This press release can be viewed and downloaded from our website. And with that, we'll begin by turning the call over to our Chairman, Krishna Gupta.

[Krishna Gupta:]

I'm speaking to you today not only as the Chairman of Presto but also as its founding investor and, of course, its former CEO. I've seen this company go through many phases of change and growth. However, I have greater conviction in Presto today than I've ever had before. And the proof is in the pudding. Last week, I led a Remus Capital-affiliated syndicate of investors to make a further $7 million investment in Presto, all in common stock. Why did I do that? It's clear to me that AI and automation technology is gaining significant traction among restaurant operators, and I speak to them all the time. It's also clear to me that we are rapidly accelerating our commercial progress at Presto to extend our market leadership position. And for me, that's most visibly shown by the $17 million number we cite as immediate revenue opportunity in franchisees or brands that we have already signed but not yet installed. So I've said it before, and I'll say it again, I believe Presto is one of the most immediately actionable and scalable vertical applications of AI today, even though I know it will take some time to reflect in the numbers. The market for automated solutions in the restaurant industry is shifting from a lead adopter to a fast follower one, which gives me incredible optimism and energy. As part of our investment, I brought on a couple of entrepreneurial operators to the Board in a way that further aligns us towards growth and maximizing shareholder value. I want to turn my attention to our CEO, Xavier, whom I've worked with over the past 4 months since his appointment as CEO. I've watched Xavier on the management team, the product, the business approach, to ensure that we are ideally positioned to capture the immediate opportunity in front of us that I alluded to earlier. I look forward to working in partnership with him to execute our plans at lightning speed and ultimately deliver maximum value for our shareholders. With that, it's my great pleasure to introduce our CEO and my friend, Xavier Casanova.

[Xavier Casanova:]

Thank you, Krishna, and thanks to everyone for joining our fiscal first quarter earnings call. Even that I have been previous is the Chief Operating Officer of Presto, I know this business well. I have directly witnessed the improvements that our REI and automation solutions make to our customers' businesses and their guests spending experiences. These experiences energize and impower me as CEO as we look ahead over both the near and long term. I echo Krishna's view that this is an incredibly exciting time for Presto. The market opportunity for Presto Voice is enormous, and we have every intention of leveraging our market-leading products to take advantage of this opportunity. The key theme of the last quarter has been momentum. We've delivered a game-changing shift in sales, deployments and technology advancements in a systematic manner, which sets us up to deliver on our ambitions of 2024. I will provide further detail on all 3 of these as I provide my business overview. Over the next few minutes, I intend to cover the following

[Nathan Cook:]

Thank you, Xavier. And once again, thank you, everyone, for joining us today. It is a pleasure to speak with you today as the Interim Chief Financial Officer of Presto Automation. I joined the team last month, and I look forward to building on the strong trajectory Presto is on and helping to scale the business. Today, I will walk you through our fiscal first quarter results and then cover our guidance for fiscal second quarter of 2024. I will talk about certain results on a non-GAAP basis. And we show a reconciliation to GAAP measures in our recent press release, which is available in the Investor Relations section of our website at presto.com. For the fiscal first quarter of 2024, we reported revenue of $4.9 million, which is in line with the previous guidance of $4.8 million to $5 million. Breaking out revenue. Platform revenue decreased to $2.1 million as compared to $4.8 million from -- for the prior year comparison. The decrease is primarily attributable to lack of upgrades to the Presto Flex by certain franchisee customers with the corresponding lack of hardware revenue that would be associated with those contracts. It should be noted that this decline was expected and factored into the previous guidance. Transaction revenue decreased to $2.8 million in Q1 as compared to $3 million for Q1 of fiscal '23. This is primarily attributable to contract terminations by certain franchisee customers of existing enterprise and small business customers, partially offset by increases in pricing for our gaming fees. This decline was also expected and factored into the previous guidance. Q1 fiscal '24 operating expenses were $13.5 million compared to $14.7 million for Q1 in the prior year, down primarily from a decrease in salaries and employee benefits expenses as a result of a decrease in headcount. And as previously mentioned by Xavier, we have taken strategic steps over the past year as well as in just the past week to reduce operating expenses and our cash burn. This is part of our goal to get the business to profitability, combined with Voice fuel growth. We will continue to focus on closely managing our head count and vendor costs along with the streamlining of our operations to allow us to maximize the rollout of new voice AI locations. On an adjusted EBITDA basis, for the quarter, we had a loss of $8.8 million compared to a loss of $8.9 million in the same quarter last year. And lastly, now I'd like to finish with our guidance for our second quarter of fiscal 2024. We expect fiscal second quarter 2024 revenue to be between $4.8 million and $5 million. That concludes our prepared remarks. Thank you all for joining us today, and we look forward to continuing the dialogue as we move forward through the remainder of fiscal 2024. With that, Xavier, Krishna and I are ready to take questions. Operator, please open up the lines for any questions.

[Operator:]

[Operator Instructions] Our first question comes from the line of Mike Latimore with Northland Capital Markets.

[Mike Latimore:]

All right. Great. It's great to see the deployment acceleration there. Can you just elaborate a little bit more on why that's occurring? How much -- is it -- do you have to develop more resources to do this? Or is it more from your customer side? And if it further accelerates, what are some of the drivers of that?

[Xavier Casanova:]

Yes, I'll take that question. Thanks for your question, Mike. So I think the speed of deployment is something that we've been focusing on for quite some time now. But finally, we're I think, benefiting from all these efforts in speeding up the deployment and how many locations we can deploy on a weekly basis. And it's really the result of, I think, 3 key initiatives

[Mike Latimore:]

Great. And then I think the other plan is to improve automation by -- over time, but I think getting it up to 50% by June of '24. I guess what gives you confidence in being able to improve the automation? Is it just internal R&D? Or is it just having more interactions on your platform for training models? Or like how do you get confidence in the further automation here?

[Xavier Casanova:]

Again, I think it boils down to 3 things. So first of all, our investments in AI are again paying off. We learned a lot over the last 18 months in building our AI NLU and integrating that with the human-in-the-loop component of our solution, and that is paying off. I would say the other thing is the accumulation of data that we use also as a way to train the AI even further and make it more and more efficient over time. And then I would say also the experience that we have with our systems are currently processing orders live on a limited basis autonomously. And so we think that we will be able to increase the accuracy over time up to the level you mentioned and also make the solution scalable to the other locations that we have deployed.

[Mike Latimore:]

Great. And then just last one. I think you mentioned being at 1,200-plus stores by the end of '24. I just wanted to confirm you mentioned that. And then does that equate to $25 million or so of ARR? Or how should we think about the ARR level, store level?

[Xavier Casanova:]

Yes. So the 1,200 number is the target number for the number of installed locations for Presto Voice by the end of 2024. We're quite focused on that and relatively confident we'll hit that number based on the traction that we are seeing. We have a few things that are helping us especially here in California and these new laws that are increasing the minimum wage and putting a lot of pressure on these operators to adopt technology to further automate their drive-through. And then I'll say that when it comes to revenue projections, we do not share forecasts for the year. The numbers for the company are basically up to you. We will do everything we can to target 1,200 locations and then 2,600 by the end of 2025.

[Operator:]

Our next question comes from the line of Brian Dobson with Chardan Capital Markets.

[Brian Dobson:]

So you undertook a significant workforce reduction as you raised capital. Did your investors dictate that you take that action before they committed that capital?

[Xavier Casanova:]

No, no, they didn't. So these changes, these operational reductions in operational costs are very thoughtful step the management team took to really align the business with the future growth and our future needs. We're focused on Presto Voice. This is our future. We continue to invest in more R&D, more deployment processes and really prepare the business for 2024 and 2025, which is going to -- these two are going to be big years for us.

[Brian Dobson:]

Yes, excellent. And I certainly agree that Voice is the future of the company. And I guess, to that point, do you think that you could give us a little bit of color on the level of human intervention in your voice AI product and how you expect that, that might change over the next year? And also, do you have -- as you see it now, do you have the capital necessary to continue to improve that product?

[Xavier Casanova:]

Yes. Good question. So as you know, our solution uses a hybrid of AI automation and then human-in-the-loop to deliver the maximum accuracy in terms of taking orders at the drive-through. And this is important because our customers really value the accuracy of our solution and then the speed of service. This is really important for them, and it's important for us. So over the last 18 months, we've been investing in bringing more and more AI to do the automation end-to-end and take orders autonomously. At this time, less than 30% of the orders are taken autonomously by the AI. But this is something that's improving, and we are targeting about a 60 -- actually a 50% automation rate autonomously, I think by the end of the second quarter, calendar quarter for 2024. And this portion is going to keep increasing over time as the AI gets better and also as we're more efficient in allocating those human resources to work with the AI.

[Brian Dobson:]

Yes. And how do you expect margin to change as you are either scaling back on your human intervention resources or you're simply not needing to grow those as you add new restaurants?

[Xavier Casanova:]

Yes. So we're expecting margins to improve as the need for humans is less and less. And there's 2 levels of margin improvement One is the efficient allocation of those human resources, right? You want to be efficient in using labor that is not too expensive, but also allocating resources properly across a wide range of stores. That's one. And then the second one is you want to use the AI to take more and more orders autonomously and then, over time, and I think we calculate this internally something that we'll achieve within the next 2 years. Over time, reach traditional gross margins that you expect from a company in our space.

[Brian Dobson:]

And then do you think you could give us an update on client renewals within the Touch business, and how you feel about that unit as you're heading into year-end, your lender agreement?

[Xavier Casanova:]

Yes. So as you probably saw from our previous filings, we have 3 main customers on the Touch side. One of them, the contract ends on December 31 of this year, 2023, calendar 2023. This customer has asked for an extension until the end of March of 2024. Then we have another client whose contract is coming for renewal at the end of February of 2024 calendar. And then finally, a third client that's also extended until June of 2024. We have a pilot for our Flex hardware for that last client. We also have a -- like I said, 2 or 3 clients that have already asked for extensions. For us, the important thing right now is to focus on Voice, focus the company on Voice. And really decide how to -- what path to take to maximize shareholders value on the Touch side. And so we're considering a number of options. We still have not adopted a specific alternative. What we know is that 2024 is going to be the year of Presto Voice, and that's really how we're thinking about resource allocation at this time.

[Brian Dobson:]

Right. Your agreement with Metropolitan Partners will require you to wind down that business if you don't get all 3 of them to renew by the end of the year, right?

[Krishna Gupta:]

Yes. So if I can just jump in for a second there. I mean I think our agreement with Metropolitan requires us to have a plan to sort of address the Touch business. I think everyone understands that the limited resources at the company, we need to make some choices and invest in Voice. But I think we are ultra-focused, and I think Metropolitan is in agreement here that we want to maximize value for shareholders. And there's a lot of different paths of doing that. We have a great product in Flex. So we have a product that I've spent a lot of time talking to customers with that really want the product. And so how can we sort of enable that value proposition to flourish in a way that maximizes shareholder value without distracting us or taking away resources from Presto Voice, is a question of strategy and corporate finance. And it's something that we're walking through and working through right now. But it is a sort of joint sort of strategy that we've developed with the Board as well as with Metropolitan.

[Brian Dobson:]

Yes, very good. And how long will you have to develop that plan if that third client doesn't renew by year-end?

[Krishna Gupta:]

I think we are -- I believe there's no time like the present. We have very high conviction in what we need to do, both at Voice and at Touch, and we are in the process of executing against that, and I'm sure you'll hear more from us soon.

[Operator:]

[Operator Instructions] I'm showing no further questions in the queue. I would now like to turn the call back over to [Gi] for closing remarks.

[Unidentified Company Representative:]

Thank you very much. So that concludes the Presto Automation Fiscal First Quarter 2024 Earnings Conference Call. Thank you all for your participation, and we would encourage you to please do refer to our latest press release for further details. Many thanks and good evening.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.