10-Q: Presto Automation Reports Q2 2024 Results, Grapples with Liquidity and Strategic Shifts

Sentiment:

Quarterly Report 20 February 2024 5:39 PM

Presto Automation faces liquidity challenges and considers strategic alternatives for its Presto Touch business while focusing on Presto Voice.

Capital raiseThe Company entered into Securities Purchase Agreements with several investors relating to the issuance and sale of an aggregate of $6.0 million principal amount of subordinated notes (the January 2024 Notes).The January 2024 Notes are convertible into 36,000,000 shares of common stock at the option of each holder at an initial conversion price of $0.25 per share.

Worse than expectedThe company's revenue and profitability have declined compared to the previous year.The company is facing severe liquidity challenges and has substantial doubt about its ability to continue as a going concern.The company has received a notice from Nasdaq regarding non-compliance with the minimum bid price requirement.

Summary

Presto Automation Inc. reported its financial results for the quarter ended December 31, 2023, revealing a net loss of $18.1 million.
Total revenue decreased by 33% to $4.9 million compared to $7.4 million in the same quarter of the previous year.
The company is facing severe liquidity challenges and has substantial doubt about its ability to continue as a going concern.
Presto is considering strategic alternatives for its Presto Touch business, including a potential sale or abandonment, to focus on its Presto Voice solution.
The company implemented a reduction in force plan of approximately 17% of its personnel globally to reduce costs.
Presto received a notice from Nasdaq regarding non-compliance with the minimum bid price requirement.
The company entered into a forbearance agreement with its lenders, which was subsequently terminated.
Subsequent to the quarter, Presto raised $6.0 million through the issuance of subordinated notes.
There have been changes in the company's management, including the resignation of the CEO and the appointment of an interim CEO.
The company is cooperating with SEC and DOJ investigations regarding certain aspects of its AI technology.

Sentiment

Score: 3

Explanation: The document presents a concerning financial situation for Presto Automation, with declining revenue, net losses, liquidity challenges, and potential delisting from Nasdaq. While there are some positive aspects, such as the growth of Presto Voice and cost reduction efforts, the overall sentiment is negative due to the significant risks and uncertainties facing the company.

Positives

Presto Voice revenue is increasing, contributing over 10% of total revenue for the three and six months ended December 31, 2023.
The company is taking steps to reduce costs and improve profitability, including a reduction in force plan.
Presto obtained a favorable verdict in the final hearing regarding its case against XAC Automation Corp.
Subsequent to the quarter, Presto raised $6.0 million through the issuance of subordinated notes.

Negatives

Total revenue decreased by 33% to $4.9 million for the quarter ended December 31, 2023.
Platform revenue decreased 47% to $2.2 million.
The company reported a net loss of $18.1 million for the quarter.
Presto is facing severe liquidity challenges and has substantial doubt about its ability to continue as a going concern.
The company received a notice from Nasdaq regarding non-compliance with the minimum bid price requirement.
The company's lenders delivered an activation notice to the company's bank and wired $10.0 million of restricted cash to an account designated by the lenders.
The company is cooperating with SEC and DOJ investigations regarding certain aspects of its AI technology.
The company's forbearance agreement with its lenders was terminated.

Risks

Presto's current liquidity resources raise substantial doubt about its ability to continue as a going concern.
The company's success depends on increasing the number of franchisees using its solution.
Presto's sales cycles can be long and unpredictable.
The company may be adversely affected if it is unable to optimize the number of human agents required to operate its Presto Voice solution.
Unfavorable conditions in the restaurant industry or the global economy could limit Presto's ability to grow its business.
Presto may be subject to securities litigation, which is expensive and could divert management's attention.
The Nasdaq Stock Market LLC (Nasdaq) may delist Prestos securities from trading on its exchange, which could limit investors ability to make transactions in its securities and subject Presto to additional trading restrictions.

Future Outlook

Presto expects to generate operating and net losses for the near term and is focused on enhancing, marketing, and deploying its Presto Voice platform. The company is also considering strategic alternatives for its Presto Touch business.

Management Comments

The company is considering strategic alternatives related to our Presto Touch solution including evaluating whether to engage in a wind-down from Presto Touch, which could include either a sale, partial sale or abandonment in the coming months, and allows us to focus our efforts on our Presto Voice solution.
We project that the net proceeds from our recent capital raise in January 2024, together with our other cash resources and projected revenues, are sufficient for us to sustain our operations through the end of February 2024.

Industry Context

The restaurant technology market is rapidly developing, and Presto is positioning itself to be a leader in this market by focusing on AI and automation solutions. The company faces increasing competition and must continue to innovate to maintain its competitive edge.

Comparison to Industry Standards

The document does not contain enough information to compare Presto's results to global benchmarks.
To perform a comparison, specific data on comparable companies, projects, and results would be needed.
Without this information, it is impossible to assess Presto's performance in the context of global industry standards.

Management Changes

Role	Previous Person	New Person	Effective Date	Reason
CEO	Xavier Casanova	Guillaume Lefevre (Interim)	February 18, 2024	Resignation of previous CEO

Legal Proceedings

The Company is cooperating fully with the SEC and DOJ, including responding to the subpoena and requests for information.
On October 23, 2023, the patent infringement lawsuit for which the Company was named as a co-defendant was dismissed.
In a decision rendered on January 16, 2024 by the Singapore Court of Appeal, the Company obtained a favorable verdict in the final hearing regarding its case against XAC Automation Corp (5490.TWO) (XAC).

Related Party Transactions

On October 10, 2023, the Company entered into the October Purchase Agreement with Presto CA, LLC, pursuant to which the Company agreed to sell 1,500,000 newly issued shares of the Company's common stock, at a purchase price of $2.00 per share for an aggregate purchase price of $3.0 million.
On November 21, 2023, the Company entered into the November Purchase Agreements, one of which was with Zaffran Special Opportunities, LLC, a related party, to which the Company issued 750,000 newly issued shares of the Company's common stock.

Stakeholder Impact

Shareholders face potential dilution and a decline in stock price due to the company's financial challenges and potential delisting from Nasdaq.
Employees may be affected by cost reduction measures, including potential workforce reductions.
Customers may experience disruptions in service or changes in product offerings as the company considers strategic alternatives for its Presto Touch business.
Creditors face the risk of default and potential loss of investment if the company is unable to raise additional capital or comply with debt covenants.

Next Steps

The company is exploring alternatives and is in discussions with potential investors to raise capital.
The company is seeking to mitigate the conditions or events that raise substantial doubt about its ability to continue as a going concern.
The company is considering strategic alternatives for its Presto Touch business, including a potential sale or abandonment.
The company is working to regain compliance with Nasdaq listing requirements.
The company is cooperating with SEC and DOJ investigations regarding certain aspects of its AI technology.

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 2021	The Company obtained a Paycheck Protection Program (PPP) loan in the amount of $2.0 million through the U.S. Small Business Administration.
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 (Asset Purchase Agreement) with CyborgOps, Inc.
June 2022	The Company received a favorable arbitrator ruling from the Singapore International Arbitration Center related to a matter with its third-party subcontractor.
September 21, 2022	Ventoux CCM Acquisition Corp. acquired Legacy Presto via a series of mergers, whereby Legacy Presto became a limited liability company and a wholly owned subsidiary of Ventoux (the Merger).
October 10, 2023	The Company entered into a Securities Purchase Agreement (the October Purchase Agreement) with CA.
October 10, 2023	The Company entered into a Third Amendment to the Credit Agreement (the Third Amendment) with Metropolitan.
October 16, 2023	The October Purchase Agreement closed.
October 17, 2023	The Third Amendment closed.
October 30, 2023	Customer C provided notice of its intent to not renew its contract at the end of the expiration date of December 31, 2023.
November 15, 2023	The Company took additional steps in its ongoing efforts to reduce costs, improve profitability, and streamline operations by implementing a reduction in force plan of approximately 17% of the Company's personnel globally.
November 17, 2023	The Company entered into agreements (the November Purchase Agreements) with a syndicate of investors for the sale of 7,000,000 shares of the Company's common stock in a registered offering that resulted in gross proceeds of $7.0 million.
November 21, 2023	The November Purchase Agreements closed.
December 1, 2023	The Company received notification of Customer As intent to not renew its contract at the end of the expiration date on June 30, 2024.
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.
December 31, 2023	Customer C contract expired.
January 4, 2024	The Company received a notice of default from the Lender.
January 11, 2024	The Lenders delivered an activation notice to the Company's bank and wired $10.0 million of restricted cash to an account designated by the Lenders.
January 16, 2024	The Company obtained a favorable verdict in the final hearing regarding its case against XAC Automation Corp (5490.TWO) (XAC).
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 Forbearance Agreement) with the Agent and the Lenders.
January 28, 2024	Matthew MacDonald was appointed as an independent member of the Board.
January 29, 2024	The Company entered into Securities Purchase Agreements with several investors relating to the issuance and sale of an aggregate of $6.0 million principal amount of subordinated notes (the January 2024 Notes).
January 29, 2024	The Company and Hi Auto amended their agreement to allow for each of Hi Auto and the Company to compete for the Checkers relationship, beginning on May 1, 2024.
January 30, 2024	The Company entered into a Fifth Amendment and Acknowledgment to the Credit Agreement (the Fifth Amendment).
February 1, 2024	The Company received notification of Customer Bs intent to not renew its contract that expires on February 29, 2024.
February 4, 2024	Xavier Casanova tendered his resignation as CEO of the Company, effective immediately.
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 and that the forbearance agreement had terminated.
February 18, 2024	The Board appointed Gee Lefevre as Interim CEO of the Company to fill the previously disclosed vacancy of such position.
February 20, 2024	Sasha Hoffman, a member of our Board and the Compensation Committee of our Board, notified the Company of her intention to resign from the Board and all committees thereof, effective immediately.
February 20, 2024	Ilya Golubovich, a member of our Board and the Audit Committee of our Board, and the chairperson of the Nominating and Corporate Governance Committee of our Board, notified the Company of his intention to resign from the Board and all committees thereof, effective immediately.
February 29, 2024	Customer B contract expires.
June 25, 2024	The Company has a period of 180 calendar days from the date of the December Notice, or until June 25, 2024, to regain compliance with the Bid Price Requirement.
June 30, 2024	Customer A contract expires.
June 30, 2024	Customer C transition extension period ends.
August 5, 2024	The Company has a period of 180 calendar days from the date of the February Notice, or until August 5, 2024, to regain compliance with the MVLS Requirement.

Keywords

Presto Automation, financial results, liquidity, Presto Voice, Presto Touch, revenue, net loss, Nasdaq, going concern, AI, automation, restaurant technology

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