Presto Automation Inc. (PRST)·Q2 2023 Earnings Summary

Executive Summary

• Q2 FY2023 revenue was $7.4M, down 4% YoY, with diluted EPS of $(0.33); ARR was $29M (would have been $32M absent an accounting treatment on a specific customer contract). Gross profit was near breakeven as legacy touch COGS and a voice-related accounting adjustment weighed on margins .
• Management signed Del Taco as the second enterprise Voice AI customer (≈$10M ARR opportunity) and expanded installed Voice AI locations to ~300; AI voice cash collections rose 50% QoQ, highlighting traction despite headline revenue decline .
• Guidance pivoted: Q1 guided FY23 revenue to $33–$35M; at Q2, management indicated FY23 revenue of $28–$30M on the call (normalized for accounting adjustments), and the press release guided FY23 ARR to $28–$30M; by Q3, revenue guidance was revised to $26–$28M as the accounting impact persisted .
• Stock reaction catalysts: evidence of rapid enterprise rollout (Del Taco) and pilots across brands representing 15,000 drive‑thrus (~$200M ARR potential) vs. near‑term margin drag and operating expense rationalization (targeting ~30% OpEx cuts by end of the following quarter) .

What Went Well and What Went Wrong

• What Went Well

  • Landed Del Taco as second enterprise drive‑thru Voice AI customer (≈$10M ARR opportunity); installed Voice AI locations at 300; pilots span chains with 15,000 drive‑thrus ($200M ARR potential) .
  • AI voice customer cash collections increased 50% QoQ; transaction revenue rose 25% YoY in Q2 on successful pricing of gaming fees .
  • Management initiated cost actions to reduce OpEx by ~30% by end of the following quarter and rationalize headcount/vendors to accelerate path to profitability .

• What Went Wrong

  • Total revenue declined 4% YoY to $7.4M; gross profit compressed due to a voice‑related accounting adjustment and higher amortization of deferred COGS in legacy touch (freight, installation, COVID replacement) .
  • Adjusted EBITDA loss widened to $(10.3)M vs. $(4.7)M YoY; OpEx rose to $13.6M (vs. $7.6M) on public company costs, higher stock‑based compensation (including merger‑related), headcount, and insurance/software/travel .
  • FY23 outlook reset from revenue guidance ($33–$35M in Q1) to ARR guidance ($28–$30M) in Q2 and a lower revenue outlook on the call ($28–$30M), reflecting accounting impacts and delayed revenue recognition .

Financial Results

Segment revenue breakdown:

KPIs and operating indicators:

Drivers and context:

• Q2 YoY revenue decline (4%) driven by lower platform revenue and accounting treatment of a specific customer contract; transaction revenue benefited from pricing .
• Gross profit pressure tied to voice accounting items and accelerated deferred COGS amortization in legacy touch (freight/installation/COVID equipment) .
• Higher OpEx from public company costs, stock‑based comp (including merger‑related earn‑out), headcount to support AI growth, and insurance/software/travel .

Guidance Changes

Management clarified that the revisions primarily reflect GAAP accounting treatment of a specific voice contract; changes were characterized as non‑cash and not material to commercial operations .

Earnings Call Themes & Trends

Note: Q-2 (pre‑public period) not available in these sources; trend reflects Q1→Q2 evolution.

Management Commentary

• Strategic messages

  • “We are pleased to announce that Presto has continued to expand our drive‑thru Voice A.I. solution with the signing of Del Taco, a deal that offers a $10M ARR opportunity… approximately 300 drive‑thru locations now implemented… pilots in QSR chains with 15,000 drive‑thrus (~$200M ARR opportunity)” (Rajat Suri) .
  • “AI voice customer cash collections also increased 50% sequentially… gross profit was lower… due to the voice‑related accounting adjustment… and higher COGS deferred expense amortization from our legacy touch business” (Ashish Gupta) .
  • “We are taking actions to cut operating expenses by 30% by the end of the current quarter… to get the business to profitability combined with voice‑fueled growth” (Ashish Gupta) .

• Notable quotes

  • “There is now mainstream interest in artificial intelligence… We have been leveraging GPT‑3 in some of our AI solutions for a while now” (Rajat Suri) .
  • “The ROI was so compelling, both on the labor redeployment side and also on the upselling side” (Rajat Suri, on Del Taco) .
  • “We expect legacy accelerated COGS expense to bleed through our P&L by the end of fiscal 2023. Following this, we expect margins to expand…” (Ashish Gupta) .

Q&A Highlights

• Del Taco rollout cadence: Corporate stores (≈25–35%) typically move faster than franchisees; Checkers reached ≈35–40% deployment in a year; company expects faster execution over time with strong franchisee pull where ROI is maintained .
• Guidance framework: Shift away from sales projections; guide based on signed logos/bookings; bridge for accounting adjustments of ~$3–$4.5M for FY23 at Q2 (and later $4–$5M by Q3) .
• Cost actions: Broad‑based headcount/vendor rationalization across functions and line items; focus on operating leverage in mature legacy touch business .
• Demand environment: Labor remains a top priority for QSRs; upsell and consistency increasingly valued; AI helps rapidly push promotions (LTOs) system‑wide vs. human retraining .

Estimates Context

• We attempted to retrieve S&P Global consensus for Q2 FY2023 (EPS and revenue), but the S&P mapping for PRST was unavailable in our feed at this time; therefore, we cannot provide a definitive “vs. estimates” comparison for this quarter. We will update when SPGI mapping is enabled for PRST [GetEstimates error].

Key Takeaways for Investors

• Voice AI commercialization is advancing: Del Taco enterprise win (~$10M ARR), 300 installed sites, and pilots spanning 15,000 drive‑thrus ($200M ARR potential) provide line‑of‑sight to multi‑year ARR expansion if pilots convert and rollouts sustain .
• Near‑term P&L is constrained by accounting and legacy COGS amortization; management expects these pressures to abate by FY23 year‑end, with margin expansion as Voice rollouts scale .
• Revenue mix is shifting: Transaction revenue benefitted from pricing (gaming) while platform revenue declined; sustained Voice rollout is needed to re‑accelerate total revenue growth .
• Operating discipline is intensifying: ~30% OpEx reduction targeted by end of the following quarter supports a path toward profitability around ~$100M ARR (management’s target) .
• Guidance reset is largely accounting‑driven: Investors should focus on contracted pipeline conversion and AI cash collections rather than GAAP revenue timing alone; continued disclosures on ARR and rollout cadence are critical checkpoints .
• Trading setup: Positive catalysts include additional enterprise MSAs, faster franchisee adoption, and proof of upsell ROI; risks center on revenue recognition timing, legacy touch amortization, and execution on cost reductions .

Supporting detail and disclosures:

• Q2 FY2023 8‑K and press release: revenue $7.4M (−4% YoY), ARR $29M (would be $32M absent accounting), Del Taco (~$10M ARR), ~300 Voice AI sites, adjusted EBITDA $(10.3)M; FY23 ARR guide $28–$30M .
• Q2 FY2023 earnings call: AI collections +50% QoQ; gross margin drag from accounting and legacy touch COGS; OpEx actions (≈30% cuts); call FY23 revenue outlook $28–$30M normalized for accounting .
• Trend context: Q1 FY2023 revenue $7.8M; ARR $31.1M; adjusted EBITDA $(8.9)M; Q3 FY2023 revenue $6.6M; ARR $26.4M; adjusted EBITDA $(9.3)M; FY23 revenue guide later revised to $26–$28M .