Earnings Transcript for PRST - Q4 Fiscal Year 2023

Operator: Good day, and thank you for standing by. Welcome to the Presto Automation Inc. Fourth Quarter and Full-Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Adam Rogers, Vice President of Investor Relations.

Adam Rogers: Thank you, and good afternoon, everyone. I'd like to welcome all of you to the Presto Automation fiscal fourth quarter and full-year 2023 earnings conference call. I'm Adam Rogers, Head of Investor Relations here at Presto. Today's call will include comments from our Chief Executive Officer, Xavier Casanova and our Chief Accounting Officer, Stanley Mbugua. Xavier and Stanley are joined on the line today by Dan Mosher, President of Presto Automation. After our prepared comments, we will open the call for questions. A replay of this call will be made available and information to access the replay is listed in today's press release. Before we begin, I'd like to remind everyone that during today's call, we will be making forward-looking statements regarding future events and financial performance, including guidance for our fiscal first quarter 2024. These forward-looking statements are subject to known and unknown risks and uncertainties. Presto cautions that these statements are not guarantees of future performance. We encourage you to review our most recent reports or any applicable filings for a complete discussion of these factors and other risks that may affect our future results or the market price of our stock. Finally, we are not obligating ourselves to revise our results or these forward-looking statements in light of new information or future events. Also during today's call, we will refer to certain non-GAAP financial measures. Reconciliations of non-GAAP to GAAP measures and certain additional information are included in today's earnings press release, which can be viewed and downloaded from our website. And with that, we'll begin by turning the call over to our new CEO, Xavier Casanova.

Xavier Casanova: Thank you, Adam, and thanks, everyone, for joining our fiscal fourth quarter and full-year 2023 earnings call. I am pleased to be speaking to you today as the new CEO of Presto. I joined Presto in 2022 as Chief Product Officer to develop and drive the company's innovative solutions. The thing that struck me immediately was a significant opportunity that Presto had in the dynamic and growing restaurant technology sector. In March, I was asked to become Chief Operating Officer. In this role, I have seen and heard firsthand, the improvements that our AI and automation solutions make to our customers' businesses and their guest spending experiences. Those experiences show me clearly that Presto Automation is one of the most immediately actionable and scalable applications of AI today. These were also among the main reasons I was delighted to accept the opportunity to lead Presto as CEO in its new phase of development and growth. As CEO, I intend to tap into my 25 years of experience in founding and building successful enterprise software companies. My knowledge of this business, including how our solutions are deployed and their applications for our customers, alongside my experience in developing high-growth profitable businesses will be invaluable for the months and years ahead. I lead Presto's experienced a diverse executive leadership team and benefit from having a truly engaged Board of Directors. Collectively, we are committed to harnessing Presto's technology solutions to aggressively pursue the significant market opportunity available to us. While clear operational and commercial challenges exist, as they do for many other early-stage AI firms, we have a robust plan to

Stanley Mbugua: Thank you, Xavier, and once again, thank you, everyone, for joining us today. It is a pleasure speaking to you today as the Chief Accounting Officer of Presto Automation. I joined the team earlier this year, and I look forward to building on the strong trajectory Presto is on and helping to scale the business. Today, I will walk you through our fiscal fourth quarter and full-year 2023 results and then cover our guidance for fiscal first quarter of 2024. I will talk about certain results on a non-GAAP basis. We show a reconciliation to GAAP measures in our recent press release, which is available in the Investor Relations section of our website at presto.com. For the fiscal fourth quarter of 2023, we reported revenue of $4.8 million, down 38.9% compared to fiscal fourth quarter of 2022. Transaction revenue increased by 23.4% to $3.2 million compared to fiscal fourth quarter of 2022 due to a successful increase in pricing for our gaming fees. Full-year 2023 revenue was in line with our guidance at $26.1 million compared to $30.4 million in full-year 2022, a 14.1% decrease mainly due to contract terminations and expirations, a decrease in hardware revenue and certain renewals and lower prices. Transaction revenue was $12.9 million, up 25.3% from last year, driven by increases in pricing for gaming fees. For the fiscal fourth quarter of 2023, OpEx was $13.7 million compared to $9.6 million for fiscal fourth quarter of 2022. This was primarily driven by the impact of additional costs associated with being a newly public company. Full-year 2023 OpEx was $56.9 million, compared to $33.8 million in full-year 2022. The increase was primarily due to three reasons

Operator: Thank you. [Operator Instructions] Our first question comes from Brian Dobson with Chardan Capital Markets. You may proceed.

Brian Dobson: Hi. Thanks very much for taking my question. So thanks for the revenue guidance for the coming quarter, but I was wondering if you could elaborate on your outlook for potential restaurant additions in the coming year, what the tone at business has been perhaps or what you're hearing in the market in terms of the shift toward automation?

Xavier Casanova: Yes. Thanks for your question. So for Presto Voice, we actually have a pretty strong pipeline of several brands that are currently piloting or have signed pilot agreements, in addition to others that we're actively engaging with. And for Presto Touch, we're at this moment, actively seeking renewals from our current customers to the new hardware, which is called Presto Flex.

Brian Dobson: Thanks for that color. Do you think that you could elaborate on the margin enhancement that a restauranteur could expect from implementing your AI product as it stands now? And you mentioned enhancing that product through further software development. Where would you like to get that margin enhancement for the restaurateur?

Xavier Casanova: You mean for the restaurant, right? Yes.

Brian Dobson: Yes, that's correct.

Xavier Casanova: On Presto Voice, the value prop of our product is basically labor savings for the restaurant because you now have someone who used to take orders at the drive-thru who can be redeployed to other areas of the restaurant and do other things. The second thing is through our upsell engine, we are able to deliver more consistent upsells and the acceptance rate of those upsells is higher than a human. So that's on the drive-thru side. And then on the Touch side, we're helping restaurants with our Touch product pay-at-table essentially save on labor because you no longer require the payment processing to happen with the server involved, but the guests can do that at the table. So overall, and this is a Presto theme, our core mission is to make the restaurants more profitable and enhance the customer experience.

Brian Dobson: Thanks. And then just finally, you had focused on – or you had mentioned your focus on reducing operating expenses since joining the company. Which areas, in particular, are you looking at cutting?

Xavier Casanova: I think we're looking at it across the board. I mean, there's always room for efficiencies when you grow a business like Presto in two different products. So we're looking at efficiencies in engineering, in support, in account management sales, everywhere where we can bring more streamlining of operations.

Brian Dobson: All right. Thanks very much.

Operator: Thank you. [Operator Instructions] Our next question comes from Mike Latimore with Northland Capital Markets. You may proceed.

Michael Latimore: Thanks very much. Yes, congratulations on the new roles and positions here. First question just around the Voice business, voice AI business. You talked about a $70 million pipeline there. Can you just elaborate a little bit on what might be some of the catalysts to realize that value and what's sort of in your control versus what does the customer have to do? And how much do you have to rely on the customer to have to realize that full value?

Xavier Casanova: Yes. So the $70 million is essentially an aggregate number that captures the expected revenue if fully expanded across franchisees that have either signed an MSA with us or piloting our technology. When we signed an MSA or a pilot agreement with the franchisee, there's a series of steps that need to take place before we're actually fully rolled out. And sometimes, it includes a pilot for demonstrating the technology will work for the franchisee, realizing the labor savings, validating the upsells and all of that. Other times, we are actually able to sign MSAs with franchisees directly for deploying the technology across their entire store fleet. And that was the case, for example, with StarCorp, which was announced in September with 58 locations that were signed with us. So in the case of StarCorp, they're making a commitment to Presto with their 58 locations, it's an exclusive agreement to Presto to deploy the technology across their fleet of stores.

Michael Latimore: Okay. Great. And then in terms of just the voice AI price per store, has that been relatively consistent over the last year? Or are you seeing any variability just kind of pricing here?

Xavier Casanova: So in terms of the pricing for the voice AI technology, it's been quite consistent, but you should know that it's early in the market, right? So we're still figuring out what is the best way to enable this type of technology for drive-thru of all sizes. So I'll give you an example. The needs of a drive-thru that's open 24/7 are not the same needs as customers that are open only 12 hours a day. And so we're fairly consistent in our pricing policy at the time. But it's early in the market. And the other thing that I'll say is that in April of 2024, we have this new law in California that basically increases the minimum wage for staff members in the drive-thru. And we expect actually to be a to be a big help to Presto because the cost of running the drive-thru is going to go up dramatically on the labor side, and that's going to help Presto with these customers.

Michael Latimore: Yes. Makes sense. And then just last on the technology front. Maybe can you just elaborate a little bit on, say, the unique technology needs of a QSR versus, say a, standard enterprise call center that also has some voice recognition capabilities. What's the kind of unique complexity with QSRs? And then what are some couple advancements you'd like to see over the next year here?

Xavier Casanova: Yes, good question. So I think the first thing that is different in our world in the drive-thru voice AI world is that we are working with the menu and customers that show up, guests that show up at the speaker box are there to essentially place their order as quickly as possible and get their food – make their payment, get their food and then move on. I would say that the important things for a restaurant operator are, number one, making sure that the orders are taken accurately with our voice AI system, but also that they're processed much quicker than with humans, right, and more consistently. And in that sense, the scope of our solution is very narrow, but it's also very – the expectations for accuracy are much higher than in the other verticals.

Michael Latimore: Got it. And then as you look out over the next year, what would be kind of a key tech enhancement or two you'd like to see?

Xavier Casanova: I think for us, there's a – so we have a 24-months road map with all the things that we want to build for the drive-thru and we're quite excited about it. I think when it comes to the next few months, what matters the most to restaurant operators are basically fighting this increasing cost that they see with this high inflation environment, right? And also making sure that while we do that, we actually deliver a high level of accuracy and a high throughput in the drive-thru. And so that – to execute on that is more complex than the way it sounds. There's a lot of little things that you have to do to match the intent of a guest to a menu item, right? Or there's like sophistication that needs to happen to make sure that the upsell that we propose to guests as they show to the speaker box is actually the right upsell and leads to a high conversion. So in aggregate, I think we will win, so to speak, in the drive-thru if we're able to do – to basically meet the needs of these drive-thru operators, more accuracy, speed of service and also more consistency in the upsell that we can offer through the system.

Michael Latimore: Okay. Great. That makes sense.

Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.