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Presto Automation Inc. (PRST)·Q3 2023 Earnings Summary

Executive Summary

  • Q3 FY2023 revenue was $6.607M, down 12.0% YoY, and ARR was $26.4M (-12% YoY); adjusted EBITDA loss widened to $(9.270)M, driven by legacy contract amortization and a non-cash accounting adjustment on a specific Voice customer contract .
  • Management revised FY2023 revenue guidance to $26–$28M, citing the non-cash accounting treatment; total impact of this GAAP adjustment is expected to be $4–$5M for FY2023, mitigating starting FY2024 as rollouts expand with Del Taco and CKE logos .
  • Transaction revenue grew 44% YoY in Q3 to $3.519M due to pricing actions; gross profit compressed as legacy Touch COGS amortization and residual COVID equipment replacement flowed through Q3 .
  • Strategic momentum: expanded CKE partnership for Voice AI nationwide and collaboration with OpenAI; management emphasized upsell-driven ROI that can match or exceed labor savings, increasing market momentum for Voice AI deployments .

What Went Well and What Went Wrong

What Went Well

  • Voice AI commercial traction: expanded CKE partnership to automate voice ordering at participating drive-thrus nationwide; collaboration with OpenAI to enhance Voice assistant innovation . “We believe this is an inflection point for the drive-thru automation market… We are the market leader in this segment and are investing meaningfully behind it” — Krishna Gupta, Interim CEO .
  • Pricing-driven growth: transaction revenue increased 44% YoY to $3.519M, establishing a higher run-rate with limited seasonality, per management commentary .
  • Cost discipline initiatives: Phase 1 headcount/vendor rationalization completed by March with Phase 2 to finish by quarter-end to lower the FY2024 cost base .

What Went Wrong

  • Revenue and ARR decline: total revenue fell 12% YoY to $6.607M and ARR declined 12% YoY to $26.4M, reflecting amortization of legacy contracts and accounting treatment on a specific Voice contract .
  • Margin pressure: gross profit decreased to $0.489M (from $1.013M), with higher COGS from legacy Touch, freight and installation costs, and residual COVID equipment replacement; adjusted EBITDA loss widened to $(9.270)M .
  • Elevated OpEx: operating expenses rose to $15.031M vs $8.990M prior year, including $4.396M in stock-based compensation and higher legal/accounting/public company compliance costs and recruiting fees .

Financial Results

Headline Financials vs prior year and prior quarter

MetricQ3 2022Q2 2023Q3 2023
Total Revenue ($USD Millions)$7.534 $7.352 $6.607
Gross Profit ($USD Millions)$1.013 $0.009 $0.489
Total Operating Expenses ($USD Millions)$8.990 $13.615 $15.031
Net Income (Loss) ($USD Millions)$8.954 $(17.029) $(15.680)
Adjusted EBITDA ($USD Millions)$(7.090) $(10.262) $(9.270)
Diluted EPS ($USD)$(0.23) $(0.33) $(0.30)

Segment Revenue

Segment Revenue ($USD Millions)Q3 2022Q2 2023Q3 2023
Platform$5.083 $4.131 $3.088
Transaction$2.451 $3.221 $3.519
Total$7.534 $7.352 $6.607

KPIs

KPIQ1 2023Q2 2023Q3 2023
ARR ($USD Millions)$31.1 $29.0 $26.4

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)FY2023$33–$35 (Q1 FY2023) $26–$28 (Q3 FY2023) Lowered
Non-cash GAAP accounting adjustment (Voice contract)FY2023N/A$4–$5 impact (FY2023 total) New disclosure
ARR ($USD Millions)FY2023$28–$30 (Q2 FY2023) Not updated in Q3N/A

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
AI/technology initiativesLeveraging GPT-3; Voice AI scaling; ~300 drive-thru locations; pilots across chains with ~15,000 drive-thrus; $200M ARR opportunity; Del Taco signed Collaboration with OpenAI; expanded CKE Voice AI rollout; AI is “immediately actionable” Strengthening commercialization and ecosystem partnerships
Product performance/ROIVoice AI rollout momentum; customer cash collections +50% QoQ (Q2) Upsell engine delivering equal or greater ROI vs labor savings; pricing drove 44% YoY transaction revenue growth ROI narrative shifting to upsell-driven growth
Margins/costsAdjusted EBITDA loss; legacy Touch COGS and repairs impacting margins (Q2) Gross profit lower due to accounting adjustment and elevated legacy COGS; margins expected to expand with Voice rollouts Near-term pressure, medium-term improvement expected
Supply chain/COVID residualsHardware repairs and COVID-related damages (Q2) Higher freight/installation and residual equipment replacement impacting COGS Residual effects tapering by FY2023 year-end
Regulatory/legalN/AArbitration award ~$11.3M affirmed; not recognized pending appeal and realizability criteria Potential future upside; timing uncertain
OpEx disciplineInitiated expense rationalization (Q2) Phase 1 completed; Phase 2 to finish by quarter-end; lower FY2024 cost base targeted Cost reduction progressing

Management Commentary

  • “We believe this is an inflection point for the drive-thru automation market… We are the market leader in this segment and are investing meaningfully behind it.” — Krishna Gupta, Interim CEO .
  • “Our revenue decline in the quarter is due to the amortization of legacy contracts, but we are looking to upgrade our customers to our new product and expect to see the financial benefits from our new partnership in the future.” — Krishna Gupta .
  • “Transaction revenue increased 44%… due to a successful increase in pricing… Gross profit was lower… due to… higher COGS deferred expense amortization from our legacy touch business… We expect legacy accelerated COGS expenses to bleed through… by the end of fiscal ’23… Following this, we expect margins to expand over time…” — Ashish Gupta, PFO .
  • “We have started to take specific steps to reduce OpEx and cash burn… Phase 2 rationalization… will complete by the end of the current quarter…” — Ashish Gupta .

Q&A Highlights

  • Pipeline and conversion timeline: multiple pilots underway; MSAs conversion viewed on a calendar-year 2023 timeline .
  • ROI drivers: upsell potential is equal or greater than labor savings; AI-driven upsell improves check size more effectively than human operators .
  • Transactions trajectory: management expects transactions to hold steady without notable seasonality; pricing increase should sustain the run-rate .

Estimates Context

  • S&P Global consensus estimates for PRST were unavailable at the time of analysis due to missing CIQ mapping; therefore, we cannot provide beat/miss vs consensus for Q3 FY2023 or forward periods (S&P Global consensus unavailable).
  • Given unavailable consensus, investors should anchor on management’s revised FY2023 revenue guidance ($26–$28M) and qualitative margin trajectory commentary for near-term expectations .

Key Takeaways for Investors

  • Revenue/ARR reset: FY2023 revenue guidance cut to $26–$28M from $33–$35M; ARR trending down as accounting treatment defers Voice revenue recognition — focus shifts to commercial rollout cadence and contract accounting normalization in FY2024 .
  • Margin inflection potential post-FY2023: legacy Touch COGS amortization and residual COVID equipment impacts expected to taper by FY2023 year-end; margins should improve as Voice pilots convert to broader deployments .
  • Upsell-driven thesis: Voice AI upsell capabilities are emerging as a core ROI driver, potentially boosting average check and revenue per store beyond labor savings .
  • Strategic partnerships as catalysts: OpenAI collaboration and CKE national participation expand ecosystem credibility; watch for additional MSAs and store rollouts as near-term stock reaction catalysts .
  • Cost structure actions: Phase 1/2 rationalization to lower FY2024 OpEx baseline; track progress to narrow adjusted EBITDA losses .
  • Legal/arbitration optionality: ~$11.3M award affirmed but not recognized; if realized, could provide non-operational upside, albeit timing uncertain .
  • Trading implications: Near-term sentiment hinges on visibility into Voice deployments and accounting normalization; medium-term thesis depends on sustained upsell economics, store rollout velocity, and successful cost takeout .