Presto Automation, Inc. (NASDAQ:PRST) Q1 2024 Earnings Call Transcript

Presto Automation, Inc. (NASDAQ:PRST) Q1 2024 Earnings Call Transcript November 23, 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.

A traveler having a delicious meal at a local restaurant with a view of the city.

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: First, a recap of the plans I laid out in our last earnings call and new progress we've made in delivering against those aims. Second, an update on the business achievements over the last quarter as well as the market opportunity available to us. And finally, an overview of our plans and ambitions for the year ahead. It is incredibly important to me that we deliver against the targets and ambitions that we communicated to our customers and investors.

So when I last spoke to you a month ago, I outlined my robust plan for the business, which had 3 key goals: scale the Presto Voice business in a sustainable way; continue to engage with the customer base of leading restaurant brands and their guests; and focus on reducing our operating expenses and cash burn. And I am proud to say that we've already started delivering against all 3 of these. Let me first talk about scaling Presto Voice. As I mentioned before, we've seen a step change in the scaling of our voice business over the previous quarter. So far this quarter, the sales team led by our brilliant Chief Revenue Officer, Justin Foster, has signed 4 new franchisees with a total of 365 locations when fully expanded. We've also signed one major corporate pilot with over 2,000 global locations where Presto is the sole lender.

This progress indicates the size of the revenue opportunity within our existing customer base and the pace at which we will be able to add to our pipeline of future deployments. Once more, our speed of deployment at new location has increased significantly in the past few months. Under the leadership of my fantastic colleague Keith Kravcik [ph], the operations team has accelerated the pace of new store deployments in a materially meaningful way. We are now deploying a new store every business day, and we expect this pace to accelerate further in the months ahead. A lot of the success has come from the significant reduction in the lead time to installation and the introduction of new hardware. Just recently, we successfully went live with a new franchisee inside 16 business days.

Previously, it has taken us months to get from signature to go live. The combination of the progress we've made in both sales and deployments has contributed to the fact that our Voice product is now live in over 400 locations across the United States, with a healthy pipeline of new deployments currently being executed on. So now let me turn to reducing operating expenses. While we aggressively pursue the substantial market opportunity available to us, it is also essential that we ensure the business is run in an efficient and strategic manner. We're dedicated to ensuring that your investments in Presto are carefully deployed to deliver maximum shareholder value. With this in mind, over the past 2 months, we have executed on a clear and rigorous reduction in our operating expenses, while at the same time delivered accelerated growth as outlined above.

As a result, we've now reduced our global full-time employee base by approximately 17%. This initiative, along with other cost-saving measures, we reduced expenditures by around $0.4 million per month, rising to approximately $1.2 million per month in the middle of calendar 2024. These reductions will not impact our scaling of Presto Voice. Now let me turn to the business and market opportunity and provide you with further details on why. we're so excited about this opportunity for Presto Voice. There are about 130,000 drive through quick service restaurants in the United States. Approximately 56 million people in the U.S. and Canada visit drive through daily. With the average American spending $1,000 and $200 annually at the drive through lane.

These QSR restaurants are and will continue to be a core part of American culture. However, while robust and growing, the QSR industry faces a myriad of operating challenges, including increasing labor costs, which have historically accounted for 30% of sales in restaurants. The other major challenges the industry faces are the need to generate higher average order values through upsell. And we need to achieve higher efficiency in drive through to enhance the guest experience and increase revenues. Presto Voice solved its challenges and drives ROI for our customers through labor optimization additional revenue through upsell and precision in accurate order taking. The combination of these customer benefits and the sheer scale of the North American QSR market are the core reasons why the addressable market for Presto Voice is estimated to be in excess of $3 billion annually.

Of that $3 billion, we estimate that our current approachable revenue opportunity is over $100 million annually. That estimate represents the total revenue from locations of restaurants groups with which we have a master service or plant agreement and where we do not have yet deployed Presto Voice. The core of this is that it demonstrates both the success of our sales team to date but also the exceptional near-term defined revenue opportunity, which exists in this market for us to target. Capturing this opportunity will be made possible for our market-leading technology, which comprehensively addresses the key challenges of restaurant operators and seamlessly integrates into the restaurants' existing technology stack. Turning to our plans for 2024.

We're seeking to accelerate our rollout of Presto Voice across locations that are both expandable and approachable through existing agreements with both restaurant groups and franchisees. Our goal for 2024 is to be deployed at over 1,200 drive through locations, growing to more than 2,600 by the end of 2025. What gives me great confidence in this growth strategy is the acute need of the QSR industry, the quality of our technology solutions and the continued support of our investors. With that, I would like to hand it over to our Interim Chief Financial Officer, Nathan Cook, to review our financial performance for Q1 2024.

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.

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