10-Q: Presto Automation Inc. Reports Q3 2024 Results Amid Liquidity Concerns and Strategic Shift

Sentiment:

Quarterly Report 20 May 2024 6:31 PM

Presto Automation Inc.'s Q3 2024 results reveal a strategic shift towards Presto Voice amid liquidity challenges and wind-down of Presto Touch.

Capital raiseThe company is actively seeking additional financing to meet its obligations.The company has entered into a forbearance agreement with its lenders, contingent on raising additional capital.The company has issued subordinated convertible notes and a secured promissory note to raise capital.

Worse than expectedThe company's revenue decreased by 33% year-over-year.The company's net loss increased compared to the same period last year.The company is facing severe liquidity challenges and has substantial doubt about its ability to continue as a going concern.

Summary

Presto Automation Inc. reported a net loss of $18.1 million for the three months ended March 31, 2024, compared to a net loss of $15.7 million for the same period in 2023.
Revenue decreased by 33% to $4.5 million, driven by declines in both Platform and Transaction revenue.
The company is winding down its Presto Touch solution to focus on Presto Voice, which accounted for 17% of total revenue in Q3 2024.
Operating expenses increased slightly to $15.5 million, with a significant rise in general and administrative expenses.
The company faces severe liquidity challenges and has substantial doubt about its ability to continue as a going concern.
Presto is actively seeking additional financing to meet its obligations and has entered into a forbearance agreement with its lenders.
The company has been notified of non-compliance with Nasdaq listing rules regarding minimum bid price and market value of listed securities.
The company has been notified of non-compliance with Nasdaq listing rules regarding minimum market value of publicly held securities.
The company has been notified of non-compliance with Nasdaq listing rules regarding minimum market value of listed securities.

Sentiment

Score: 3

Explanation: The document presents a concerning financial situation with declining revenue, increasing losses, and liquidity challenges. The company's ability to continue as a going concern is in doubt, and it faces significant risks and uncertainties.

Positives

Presto Voice revenue is growing and accounted for 17% of total revenue in Q3 2024.
The company is actively seeking additional financing to address its liquidity challenges.
The company obtained a favorable verdict in the final hearing regarding its case against XAC.

Negatives

Q3 2024 revenue decreased 33% year-over-year.
Net loss for Q3 2024 was $18.1 million, compared to $15.7 million in Q3 2023.
The company is winding down its Presto Touch solution, which will adversely impact revenue in the short term.
The company faces severe liquidity challenges and has substantial doubt about its ability to continue as a going concern.
The company has been notified of non-compliance with Nasdaq listing rules regarding minimum bid price, market value of listed securities and market value of publicly held securities.
The company has identified material weaknesses in its internal controls over financial reporting.

Risks

The company's limited operating history and dependence on key individuals pose risks.
Long sales cycles and competition from alternative products and larger companies could impact growth.
The need for additional financing to fund operations and reduce the number of human agents for Presto Voice presents challenges.
Unfavorable conditions in the restaurant industry or the global economy could limit growth.
Fluctuations in quarterly results and failure to meet expectations could lead to a decline in stock price.
The company's ability to use net operating loss carryforwards may be limited.
Turmoil in the banking industry could negatively impact financing and result in a loss of deposits.
The company may be subject to securities litigation, which is expensive and could divert management's attention.
The company is subject to legal proceedings and government investigations which are costly and time-consuming to defend and may adversely affect its business, financial position, and results of operations.

Future Outlook

The company expects to continue to generate operating and net losses for the near term and is focused on enhancing, marketing, and deploying its Presto Voice technology.

Industry Context

The company operates in the restaurant technology industry, which is rapidly evolving in response to challenges faced by restaurant operators, including increasing labor costs and the growing demand for drive-thru services.

Comparison to Industry Standards

The document does not provide enough information to make a detailed comparison to industry standards.
Without specific data on competitors' growth rates, profitability, and key metrics, it is difficult to assess Presto Automation's performance relative to its peers.
Comparable companies in the restaurant technology space include Toast, Olo, and PAR Technology, but a thorough analysis would require a deeper dive into their respective financial results and business models.

Legal Proceedings

In February 2022, the Company was added as a co-defendant in a patent infringement lawsuit in the U.S. District Court for the district of Delaware that was brought against Hi Auto, Inc. by Valyant AI, Inc. (Valyant) in December 2021, alleging infringement of Valyants patent relating to a speech-based/natural language order process system.
In June 2022, the Company received a favorable arbitrator ruling from the Singapore International Arbitration Center related to a matter with its third-party subcontractor, XAC Automation Corp (XAC) and was awarded approximately $11.3 million in damages related to the Companys loss on infrequent product repairs and to cover its legal expenses.
During fiscal year 2023, the Company received a legal demand with certain former employees who were part of its May 2022 acquisition of Cyborg Ops, Inc.
In July 2023, the Company and certain of its current and former executive officers received notices of preservation and subpoenas from the staff of the SEC stating that the SEC had commenced a formal investigation into disclosures that the Company had made regarding certain aspects of its AI technology.

Related Party Transactions

On March 21, 2024, the Company entered into a secured promissory note in the principal amount of $4.0 million with CA, a related party affiliated with Cleveland Avenue, LLC (Cleveland Avenue) and Keith Kravcik, a director of the Company.
On March 1, 2024 the Company issued the March 2024 Convertible Note in the principal amount of $960,000 in consideration for a cash investment of $960,000 from Remus Capital, a related party affiliated with Krishna Gupta, a director of the Company.
On January 29, 2024, in connection with the January 2024 Offering, the Company entered into a securities purchase agreement with Remus Capital for the issuance and sale of $2.7 million of the January 2024 Convertible Notes.
On November 21, 2023, the Company entered into the November Purchase Agreements, one of which was with Zaffran Special Opportunities, LLC, a related party, affiliated with Krishna Gupta , to which the Company issued 750,000 newly issued shares of the Companys common stock.
On October 10, 2023, the Company entered into the October Purchase Agreement with CA, pursuant to which the Company agreed to sell 1,500,000 newly issued shares of the Companys common stock, at a purchase price of $2.00 per share for an aggregate purchase price of $3.0 million.

Stakeholder Impact

Shareholders face significant dilution due to the issuance of additional shares and warrants.
Employees may be affected by cost reduction plans and potential restructuring.
Customers may experience disruptions due to the wind-down of Presto Touch and potential changes in service offerings.
Suppliers and creditors face increased risk due to the company's liquidity challenges and potential default on debt obligations.

Next Steps

The company is focused on enhancing, marketing, and deploying its Presto Voice technology.
The company is seeking additional financing to meet its obligations.
The company is working to regain compliance with Nasdaq listing rules.

Key Dates

Date	Description
October 2008	E La Carte, Inc. (Legacy Presto) was incorporated in the State of Delaware.
December 30, 2020	Ventouxs initial public offering occurred.
March 4, 2021	The Company entered into a loan agreement (the Horizon Loan) with Horizon Technology Finance Corporation.
March 11, 2022	The Company entered into a loan agreement (the Lago Loan) with Lago Innovation Fund I & II, LLC.
May 23, 2022	The Company entered into an Asset Purchase Agreement with CyborgOps, Inc.
September 21, 2022	Ventoux acquired Legacy Presto via a series of mergers, and Ventoux was renamed Presto Automation Inc.
October 10, 2023	The Company entered into a Third Amendment to the Credit Agreement.
November 15, 2023	The Company implemented a reduction in force plan of approximately 17% of the Companys personnel globally.
November 17, 2023	The Company entered into agreements (the November Purchase Agreements) with a syndicate of investors (the November Purchasers) for the sale of 7,000,000 shares of the Companys common stock in a registered offering that resulted in gross proceeds of $7.0 million (the November 2023 Offering).
December 28, 2023	The Company received a notice from Nasdaq stating that the Company is not in compliance with the requirement to maintain a minimum closing bid price of $1.00 per share.
January 4, 2024	The Company received a notice of default from the Lender.
January 11, 2024	The Companys Lenders delivered an activation notice to the Companys bank resulting in the wiring of $10.0 million of the Companys restricted cash to the Lenders.
January 17, 2024	The Company entered into a non-binding memorandum of understanding (MoU) with respect to the formation of a new company (the Joint Venture) for the purposes of the creation of and joint investment (the Transaction) in the business-to-business tablet touchscreen and tabletop ordering and restaurant services platform business currently owned by the Company (the Touch Business).
January 22, 2024	The Company entered into a Forbearance Agreement and Fourth Amendment to Credit Agreement (the January Forbearance Agreement) with the Agent, the Lenders and certain significant stockholders of the Company.
January 29, 2024	The Company entered into securities purchase agreements for the issuance and sale of subordinated convertible notes with several investors for an aggregate cash proceeds of $6.0 million principal amount.
January 30, 2024	The Company entered into the Fifth Amendment to Credit Agreement and Acknowledgment (the Fifth Amendment) with the Agent, the Lenders and certain significant stockholders of the Company.
February 6, 2024	The Company received a notice from Nasdaq stating that the Company is not in compliance with the requirement to maintain a minimum Market Value of Listed Securities (MVLS) of $50 million.
February 17, 2024	The Company received notice from the Agent and the Lenders of two events of default under the Credit Agreement.
February 23, 2024	The Company received a notice from Nasdaq stating that the Company is not in compliance with the requirement to maintain a minimum Market Value of Publicly Held Securities (MVPHS) of $15 million.
February 26, 2024	The stockholders of the Company approved an amendment to the second amended and restated certificate of incorporation of the Company which increased the number of authorized shares of common stock of the Company from 180,000,000 shares to 100,000,000,000 shares.
February 29, 2024	The Company entered into securities purchase agreements (the February Purchase Agreement) with several investors (the February Purchasers) relating to the issuance and sale of an aggregate of 8,533,000 shares of common stock, (the February Offering) for aggregate gross proceeds to the Company of $2.1 million.
March 1, 2024	The Company entered into a Forbearance Agreement and Sixth Amendment to Credit Agreement (the March Forbearance Agreement) with the Agent, the Lenders and certain significant stockholders of the Company.
March 1, 2024	The Company issued to Remus Capital a subordinated convertible note in the principal amount of $1.0 million (the March 2024 Convertible Note) in consideration for a cash investment of $960,000 from Remus Capital.
March 14, 2024	The Companys board of directors approved and the Company commenced a reduction in force affecting 24 corporate roles, or 18% of the Companys workforce.
March 14, 2024	The Company entered into securities purchase agreements (the March Purchase Agreement) with several investors (the March Purchasers) relating to the issuance and sale of an aggregate of 4,800,000 shares of common stock, (the March Offering) for aggregate gross proceeds to the Company of $1.2 million.
March 21, 2024	The Company entered into a Seventh Amendment (the Seventh Amendment) to the Credit Agreement with the Agent for the Lenders.
March 21, 2024	The Company issued to CA a secured promissory note in the principal amount of $4.0 million (the CA Note).
May 15, 2024	The forbearance period with respect to defaults under the Credit Agreement expires.
May 16, 2024	The Company entered into a Cooperation Agreement (the Cooperation Agreement) with the Lenders, and certain significant stockholders where the Lenders agreed they will not exercise remedies for certain continuing events of default under the Credit Agreement, under the following conditions (the May Forbearance).
May 16, 2024	The Company issued to Remus Capital, a related party, a subordinated convertible note in the principal amount of $1.5 million (the May 2024 Convertible Note) in consideration for a cash investment of $1.5 million.
May 20, 2024	The Company sold 10,892,851 shares in newly issued common stock in a registered direct offering (the May Offering) for $0.14 per share or an aggregate amount of proceeds of $1.5 million.
June 25, 2024	Deadline for the Company to regain compliance with the Bid Price Requirement.
June 30, 2024	Expiration date of Customers A and C contracts.
August 5, 2024	Deadline for the Company to regain compliance with the MLVS Requirement.
August 21, 2024	Deadline for the Company to regain compliance with the MVPHS Requirement.

Keywords

Presto Automation, financial results, liquidity, Presto Voice, Presto Touch, going concern, Nasdaq, debt, capital raise, AI, restaurant technology

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