Presto Automation (PRST) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited Q1 2023 financials show improved liquidity and reduced deficit post-merger, with a widened net loss and going concern doubt Condensed Consolidated Balance Sheets The balance sheet as of March 31, 2023, shows improved cash and stockholders' deficit, driven by reduced liabilities post-merger Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2023 | June 30, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $26,978 | $3,017 | | Total current assets | $35,203 | $14,554 | | Total assets | $48,610 | $30,536 | | Liabilities & Stockholders' Deficit | | | | Total current liabilities | $66,669 | $146,609 | | Total liabilities | $70,842 | $152,995 | | Total stockholders' deficit | ($22,232) | ($122,459) | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Q1 2023 operations show decreased revenue to $6.6 million and a widened operating loss of ($14.5) million, driven by increased expenses Statement of Operations Summary (in thousands) | Metric | Three Months Ended Mar 31, 2023 | Three Months Ended Mar 31, 2022 | | :--- | :--- | :--- | | Total revenue | $6,607 | $7,534 | | Gross profit | $489 | $1,013 | | Loss from operations | ($14,542) | ($7,977) | | Net income (loss) | ($15,680) | $8,954 | | Net loss per share, basic | ($0.30) | $0.33 | Condensed Statements of Cash Flows For the nine months ended March 31, 2023, operating activities used $35.7 million, while financing provided $65.5 million, leading to a $24.0 million net cash increase Cash Flow Summary for Nine Months Ended March 31 (in thousands) | Cash Flow Category | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($35,719) | ($38,415) | | Net cash used in investing activities | ($5,813) | ($1,463) | | Net cash provided by financing activities | $65,493 | $13,367 | | Net increase (decrease) in cash | $23,961 | ($26,511) | Notes to Condensed Consolidated Financial Statements Notes detail the September 2022 merger, going concern doubt, significant customer concentration, new debt, and legal proceedings - The merger with Ventoux CCM Acquisition Corp. on September 21, 2022, is accounted for as a reverse recapitalization, with Legacy Presto as the accounting acquirer. The transaction provided net proceeds of approximately $49.8 million from the Trust and PIPE investment[22][25][34] - Management has concluded that substantial doubt exists about the Company's ability to continue as a going concern due to recurring operating losses and the need for additional capital to fund operations and meet obligations[55] - The company has significant customer concentration risk. For the nine months ended March 31, 2023, three customers (Customer A, B, and C) accounted for 61%, 21%, and 15% of revenues, respectively, totaling 97%[57] - In connection with the merger, the company entered into a new Credit Agreement for $55.0 million in term loans and repaid prior term loans from Horizon and Lago[129][143][146] - The company received a favorable arbitration ruling in June 2022, affirmed in March 2023, awarding approximately $11.3 million in damages from a third-party subcontractor. However, no gain has been recognized as the award has not yet met the criteria to be considered realizable[160] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's business, Q3 2023 revenue decline, increased operating loss, going concern doubt, and key performance indicators Results of Operations For the nine months ended March 31, 2023, total revenue decreased 5% to $21.3 million, while operating expenses surged 79% to $43.2 million Revenue Comparison for Nine Months Ended March 31 (in thousands) | Revenue Stream | 2023 | 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Platform | $11,617 | $14,754 | $(3,137) | (21)% | | Transaction | $9,699 | $7,705 | $1,994 | 26% | | Total revenue | $21,316 | $22,459 | $(1,143) | (5)% | Operating Expenses Comparison for Nine Months Ended March 31 (in thousands) | Expense Category | 2023 | 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and development | $16,877 | $11,733 | $5,144 | 44% | | Sales and marketing | $6,753 | $4,791 | $1,962 | 41% | | General and administrative | $19,608 | $7,110 | $12,498 | 176% | | Total operating expenses | $43,238 | $24,216 | $19,022 | 79% | - The decrease in Platform revenue was primarily due to contract terminations by a limited number of franchisees of existing enterprise customers[275] - The increase in G&A expenses was driven by higher stock-based compensation ($6.0M), increased legal and accounting fees ($4.4M) partly related to the merger, and higher salary expenses ($1.2M)[294] Liquidity and Capital Resources As of March 31, 2023, the company had $27.0 million in cash, but recurring losses and an accumulated deficit raise substantial doubt about its going concern - The company's financial condition raises substantial doubt about its ability to continue as a going concern within one year, as it requires additional funding to sustain operations[309] Key Liquidity Metrics (in millions) | Metric | March 31, 2023 | | :--- | :--- | | Cash and cash equivalents | $27.0 | | Accumulated deficit | ($198.7) | | Operating loss (9 months) | ($42.3) | | Net cash from financing (9 months) | $65.5 | Key Performance Indicator Net revenue retention is the primary KPI, measuring the company's ability to retain and grow revenue from existing customers - Net revenue retention was 94% for the nine months ended March 31, 2023, down from 102% for the same period in 2022, primarily due to contract terminations[231] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks including significant customer concentration, financial institution risk from uninsured cash, and low interest rate risk - The company faces significant credit risk from customer concentration, with three customers accounting for 96% of revenue in Q3 2023 and 97% for the nine-month period[395] - The company has $26.5 million in cash deposits that exceed FDIC insurance limits, posing a risk in the event of a financial institution failure[399] - Interest rate risk is limited as the company's main borrowings under the Credit Agreement are at a fixed rate[393] Item 4. Controls and Procedures As of March 31, 2023, disclosure controls were ineffective due to material weaknesses in internal control over financial reporting, with remediation ongoing - The principal executive and financial officers concluded that disclosure controls and procedures were not effective as of March 31, 2023, due to material weaknesses in internal control[400] - Material weaknesses identified include deficiencies in the control environment, accounting for complex transactions, the financial closing process, and maintenance of accounting records[402][407] - Remediation initiatives are in the early stages and include designing a risk assessment process, hiring experienced personnel, and implementing enhanced review controls[406][408] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is a co-defendant in a patent infringement lawsuit and awaits an appeal outcome on a favorable $11.3 million arbitration ruling - The company is a co-defendant in a patent infringement lawsuit brought by Valyant AI, Inc. regarding a speech-based ordering system. The case is currently stayed pending a validity challenge of the patent[159] Item 1A. Risk Factors No material changes to the company's risk factors were reported during the quarter ended March 31, 2023 - During the quarter ended March 31, 2023, there were no material changes in the company's risk factors as previously disclosed[411] Other Part II Items No unregistered sales of equity securities, defaults upon senior securities, or other material information were reported under relevant Part II items - The company reported no activity for Item 2 (Unregistered Sales of Equity Securities), Item 3 (Defaults Upon Senior Securities), and Item 5 (Other Information). Item 4 (Mine Safety Disclosures) was not applicable[412][413][415]