Q2 2023 Presto Automation Inc Earnings Call
Greetings and welcome to Pretzels second quarter 23 earnings call. At this time, all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host quake, we've come Lee.
Of investors relations, Sir you may begin.
Thank you good afternoon, everyone and thanks for joining US today. My name is Chris would come and I'm Vice President of Investor Relations here at Presto I'm pleased to be joined on today's call by Presto, founder and CEO Raj theory, and CFO Ashish Gupta.
Just as an announcement the filing and the press release have both been issued so they should hit the wire at any minute.
So with that please note that on today's call management will refer to adjusted EBITDA, which is a non-GAAP financial measure while the company believes this non-GAAP financial measure provides useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial instrument information.
Presented in accordance with GAAP you are directed to our press release for a reconciliation of such measures to GAAP before we get them. Please note that some of our remarks on this call will be forward looking therefore, please refer to the cautionary statement in today's press release for additional details about these remarks. Please note that these forward looking statements made during this conference call speak only as of.
Today, please refer to today's press release and filings with the SEC with the SEC for a discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today now I will turn it over to Raj theory, founder and CEO of Presto go ahead Rex. Thank.
Thank you, Chris and thank you everyone for joining us today for our fiscal second quarter earnings call.
2023 has brought a lot of exciting new developments for Cresta automation.
On the macroeconomic side, thanks to charge your P T and opening I. There is now mainstream interest in artificial intelligence and everyone can see what we all have known that presto for many years that AI is a transformational technology that will dramatically increase productivity.
Wide variety of applications and industries.
Presto actually has been developing AI applications since 2018, and this leverage at GPT three for several of these applications. One of our early investors in 2014 was Sam Altman to CEO of opening up.
We've always believed in the power of AI to enhance traditional industries I take great pride in our position not just as a market leader for drive through voice AI, but also a technology leader.
Large language models helped to make sense of the intricacies of human speech and are here to stay we believe several of our other cutting edge products currently under development well gain mainstream adoption over the next few years.
In addition, labor issues have have recently improved but AI in the drive thru sector has shown benefits beyond solving labor challenges those are drive those at the drive thru wanting food and those taking the order have seen that upsell have greatly increased with voice AI assistance.
The food ordering gas when given a choice will often opt into additional choices, although they're never pressure to do so.
On the microeconomic front Presto started 2023 with a major customer announcements deciding of another enterprise voice AI contract with a national rollout will adult tackle the second largest Mexican fast food chain nationwide.
Total opportunity at 600 stores is worth over $10 million in annual recurring revenue to Presto.
Additionally, del Taco was owned by Jack in the box, which has another 2200 stores and shares the same visionary management team that chose to sign Boise eye with us.
And we have begun conversations as.
As well with though with this group.
The del Taco win represents the rapid growth of the voice AI market Presto has grown its installed base and voice here.
Cash collections by 50% sequentially quarter over quarter, and now has over 300 locations implemented.
Our rollout with checkers had been so successful that they recently named as supplier of the year and their innovation efforts voice Ci for Presto has represented over 30% of our customer cash collections the past quarter.
The combination of interest and AI.
Operational efficiencies and del Taco announcement has led to a spike of interest and Presto is voice solutions.
We have signed it begun to implement promising pilots with several new brands that we hope to convert to Msas during calendar 2023. The logos. We currently have partnerships with.
And live pilots.
They represent 15000 drive throughs totaling over $200 million in potential error or a fully expanded.
We are progressing to late stages with several of these customers and we hope to have more partnership announcements in 2023.
Our legacy touch business continues across all primary logos, albeit with contracted revenue organically declining as existing contracts maturing.
And legacy deferred revenue being fully amortized.
<unk> revenue was up 25% versus prior year Q2.
Several of our enterprise partners are now in the process of testing a world class pass the flex product, which operate to six different modes, including tabletop kiosk handheld curbside and drive through line Buster.
These cups customers upgrade to Presto flex, we expect to see an uptick in platform revenue.
Most of our customers have also renewed existing contracts to the end of 2023.
Finally presto.
<unk> also taken steps to streamline our operations.
And reduce our recurring operating burn by rationalizing head count and vendor spend this enables us to operate more efficiently on our path to profitability, which we hope to achieve at around 100 million a R. R.
We had a higher than normal cash burn last quarter, but we expect this to normalize at a much lower level going forward as one off expenses from our public transition are resolved.
And now I'd like to Uh Huh.
And it over to Ashish Gupta, our CFO .
Thank you Raj.
Once again, thank you everyone for joining us today.
I'd like to start by walking through the highlights of our current quarter ending December 31 2022.
GAAP revenue was $7 4 million.
Down 4% from prior year Q2.
This reflects a 29 million E R R run rate transfer.
Transaction revenue increased 25% to $3 2 million versus prior year Q2.
Due to a successful increase in pricing for our gaming fees.
Here are would have been $32 million in total.
But for the accounting treatment related to a specific customer contract that precluded the recognition of certain revenues related to the contract.
Yeah, I voice customer cash collections also increased 50% sequentially versus the prior quarter.
Gross profit was lower versus prior year, both due to the voice related accounting adjustment, we just mentioned.
As well as higher Cogs deferred expansion amortization from our legacy touch business.
This was due to increases in freight and installation costs and the residual impacts of COVID-19 related equipment replacement.
We expect legacy accelerated Cogs expense to bleed, who our P&L by the end of fiscal 'twenty three.
Following this we expect margins to expand over time as we convert voice pilots into system wide rollout and our AI enabled solution gets fully trained.
Q2 fiscal 'twenty, three Opex was $13 6 million versus $7 6 million for Q2 in the prior year.
This includes normal operating expenses as well as the impact of trailing items from the merger.
As such adjusted EBITDA for the quarter was a loss of $10 million as compared to a loss of $5 million in the same quarter last year.
This opex increase of 6 million primarily represents.
2 million higher legal and accounting fees and temporary service expenses of which <unk> 8 million were ancillary professional public company related compliance service fees.
A 2 million increase in stock based compensation, which included.
Merger related expenses of.
1.3 million was related to higher head count year over year.
Order to enable our AI platform growth.
And a point 7 million increase in public company insurance software spend and resumed travel coming out of Kobe.
Both during Q2 and as we operate the business going forward, we have started to take specific steps to reduce opex and Brian .
This is part of a specific goal to get the business to profitability combined with voice fueled growth.
We have initiated a head count and vendor rationalization process.
Along with a detailed exercise to achieve cost synergies across all functions.
We're taking actions to cut operating expenses by 30% by the end of the current quarter and.
And manage the business with a continued focus on our cost structure.
We're also beginning to analyze areas of the business that are more mature like a legacy touch business and where we should expect to achieve operating leverage.
We expect fiscal 'twenty, three revenue ending June to be between $28 million to $30 million.
This guidance is normalized for certain accounting adjustments that'd be discussed earlier.
The total of which is expected to be.
In the range of three to four 5 million for the year.
In closing you would like to reiterate that what continues to excite us about the growth opportunity in front of US is that our customers are large global enterprises, and our technology is mission critical to them and sticky, especially with our voice product.
With that we're going to turn it back over to the operator for questions. Thank you everyone.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove yourself from the question queue.
Participants using speaker equipment, it may be necessary to be Catherine has said before pressing the star keys, one moment, please while we pull for questions.
Okay.
Our first question comes from Brian Dobson Chardan capital marks markets. Please go ahead.
Alright, thanks, very much for taking my question.
So I guess first just kicking it off let's talk a little bit about about del Taco.
Do you think you can give us a little bit more color about how you see the rollout taking shape there over the next call. It 12 to 18 months.
What have you learned in that process.
It can help you with the I guess current late stage contracts that you mentioned that are currently in negotiation.
Yeah. Thanks, Brian I appreciate the question.
And a lot from the del Taco experience as we have with checkers before that.
Mostly what we learned is like what do we need to do do what do we need to demonstrate in a pilot to.
Prove the ROI to the to the operators and to the brand and I think we've got it down to a science on that front I mean, you know with del Taco.
We were able to show that value just within a couple of months all of installing the product and the ROI was so compelling both on the labor redeployment side and also on the Upselling side that.
I think for them it was not a difficult decision to decide to expand this to the rest of their stores.
A large amount of details to get right and that you know it sounds easy, but no. We have a very professional team on the project side on engineering, and QA and product that all work well together account management.
It's it's a machine that we've built here over many many years.
To execute on this and we have a number of internal kpis that we measure and we will report on on a daily or weekly basis.
We have communication channels and Escalations.
This has many years of work of building the machine internally and we previously had the success.
Our tabletop product and we kind of just re implemented a lot of those processes and the team.
Voice AI and that's what's leading to the success.
So I think that answers the second part of your question can you repeat the first part again.
Okay.
Sure. The first part of the question was as Youre thinking about del Taco.
How do you envision the store rollout over the next 12 to 18 months.
Should we expect a similar trajectory to previous Master service agreements or you know do you expect a different kind of ramp here.
Yeah. That's a great question. So look there's a couple of key factors there right. One is how many corporate stores or Brad have versus franchisee.
And del Tacos case, I think there.
Yeah.
They have a large number of corporate stores, maybe you know anywhere from 25% to 35%.
They did announce they're going to re franchise some stores, but as it turned out they are not going to re franchise as much as originally anticipated. So I think they'll end up around 25% is kind of what the latest we've heard as you know.
Those stores the corporate stores, obviously go very fast in general the franchisees take a bit longer.
Checkers, it's been a year now into the contract with <unk>.
We've deployed now I think 35% to 40% of their installed base with a 300 or so stores out of 850 that they have.
So I would say that as a floor for how fast we can go I think we can go a lot faster with with better execution and also with a brand that's willing to go fast and open this up to their franchisees.
Over time, we're just going to get better and better at this you know for every new brand that we go live with.
Theres a whole franchisee education component of this.
You need you need a.
Our sales team that's used to talking to franchisees and of course, you need to deliver a great product I think.
If you deliver great product franchisees will be all over you to deploy this and so we do anticipate that we can we can go pretty fast assuming we can maintain that ROI.
With the with all of our in stocks because you know again, it's found money for these but these patches and they're actually pulling for the it's a pull from them. It's not like you have to push it to them and.
Our greatest advocates within every system.
Yeah. Thanks.
That's excellent color I suppose.
We're thinking about the guidance range for reported or call it $20 million to $30 million.
How much of that stems from from del Taco and is there a portion of that.
He is in call it blue sky or yet to be announced or contracts that you think that you'll be able to announce during the course of the year.
Yeah, Brian Gary.
A very pertinent question so.
As we had mentioned also in our last earnings call for the first fiscal quarter, we do not bake in any kind of forecast into our forecast guidance any kind of sales projections.
The way, we do our kind of a forecasting and guidance right. It's all based on signed.
Customer contracts and logos.
And.
Part of your question about how much of del Taco.
I would say very little sense right I mean.
For at least the fiscal.
We're not quantifying that number but just given the.
We're just getting started with del Taco now so the majority of the.
Revenue upside from del Taco would be in next year's guidance.
Yeah and is that just a function of the ramp or could there be.
I suppose material upside.
To that guidance outlook as those del Tacos are included or is that really more of a 2020 for that.
Yes, I mean, we we hope that there is some upside right and that's but we're not projecting.
Along those lines.
Yes excellent.
And I suppose I'll I'll I'll hop back in the queue and let someone else go. Thank you.
Thanks, Brian .
Yeah.
Next question comes from somebody.
Jeffrey Please go ahead.
Alright, great. So maybe a few questions.
You mentioned lowering the cash burn and taken at taking action across the organization could you maybe give us.
More specific examples like where should we think about.
As it and in terms of using technology to lower cost as they've been headcount reductions if so.
Kind of what were the main functional areas and and how should we think about that being factored into the companys forward looking outlook.
Yeah Yeah.
So happy to I mean.
You know at the macro right it's across the board, we're looking practically right under every rock and I mean, it's it covers the gamut off.
Looking at it both from a line item perspective, and also a functional perspective right kind of looking at the cross section of how we look at the business and where spend is so for every function right across every line item. We're looking at head count head count efficiency headcount rationalizations, and we're doing it right on a product line base.
So basically and as we had mentioned earlier and also in there in their earnings call right kind of look.
Touch being more.
Focused on getting operating leverage and efficiencies from touch.
And then there's the head count component there is the vendor component and then even then at the macro right. We're also then looking at shaving off the top.
A certain percentage just across all vendors right and being more efficient.
From a unit cost basis.
So it's.
It did.
Literally it's looking at all aspects of the business.
No silver bullet.
Understood and then maybe just.
Just one more numbers question and then I'll switch.
Here's but I think last quarter the company given our revenue outlook I think I just heard a R. R.
In the prepared remarks today I'm just curious how should we think about that prior 33 $35 billion revenue outlook.
That you'd given in should we not use that anymore.
As a framework for the revenue side for the outlook.
Yeah. So that's right I mean, I think and that's what I tried to mention in my prepared remarks by noting the revised guidance, but then also calling out with for consideration and quantifying the impact of the accounting changes.
Right and providing kind of that.
Great job thoughts right as to as to what that impact potentially.
It will be for the entire fiscal which is in the range of three to $4 5 million.
Great and then maybe Raj for you if we step back down.
The downside is ideal.
It's big news and you mentioned the engagement with other prospects.
Power how are your conversations with our end customers Guy yesterday.
Maybe to give us any indication of like how deal cycles are trending or maybe where you were asked US solutions are in terms of priority is just as we think about.
Our spend will map from customers did two different solutions for the rest of the year.
Yeah look I mean, our.
The customers that were installed in live with are very excited about the solution and seeing good value from it and there is again as I mentioned pulled from the franchisees to adopt it and deploy it to their stores. So we're seeing you know.
Similar sentiment I would say, it's at del Taco and checklist with other brands. There is nothing out there that that's dramatically different and so it's for US It's a case of rinse and repeat.
There and in terms of priorities.
Customers also.
Labor is still top of mind for all of our customers.
I mean, there's I think I read a stat. The other day, there's over 10 million jobs still unfilled in the U S. It's not easy to find people and even when you find people they tend to be pretty high turnover and and sometimes a quality can be left and desired.
What we're hearing from our customers and so this is a high priority for every brand that we talked to you know to have this.
How does an AI solution in place to help with labor redeployment as well as boosting sales I mean, there is no CEO in the country of a curious art Shane and I will tell you. They don't want to improve sales and you know the fact that they I never forgets to up sell and upsell is better than a human.
It is a big deal as well the third big thing that we're starting to see is that.
Brands really care about AI, because it helps them.
Liver consistent experience and it helps with their overall our brand promise and so if they can deliver for example, if a brand has a new L. T O. They can push it out to the AI within hours, but to retrain all of their stuff. It takes a long long time, you know unlike a limited time offer so that's another big benefit for these brands and so.
We're what we're hearing from our customers the customers that are piloting with us and and serious about it that this is one of their top initiative top three initiatives for the year and so.
That's why we're excited about where we're <unk>.
All in all this talk about chat GPT and all these things that only helps us and the talk of every executive team in the country.
Or are they gonna be leveraging AI to grow their business.
Great. Thank you.
Thank you.
Okay.
Thank you if you would like to ask a question at this time. Please press star one on your telephone keypad. Please hold while we poll for any additional questions.
Yeah.
Yeah.
Not seeing any further questions at this time I'd like to pass the floor back to management for concluding remarks.
Alright, well thank you everyone for.
Attending the call firstly in closing I'd like to take the opportunity to thank our team of presto needs for their commitment over the last quarter and say how proud I am of what we've been able to achieve such a short time as we pioneer a new exciting frontier of AI for traditional industries.
There is so much more to come from this fantastic group, which especially I'd like to thank Ashish Gupta forced all of his contributions to the company for the past three and a half years. He's been an instrumental part of our success and a great thought partner for me. Thank you Ashish for everything you've done as CFO . Thank you Raj it's been a pleasure as partnership thank you.
Thank you again, everyone for attending our earnings call Happy Valentine's Day.
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