Presto Automation (US:PRST)2023-11-20 22:08PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Presto Automation Inc. reported $4.9 million revenue and $5.4 million net income for Q1 FY2024, with significant liquidity and going concern issues Condensed Consolidated Balance Sheets As of September 30, 2023, total assets decreased to $34.1 million due to reduced cash, while liabilities decreased and stockholders' deficit improved Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Jun 30, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $3,285 | $15,143 | | Total current assets | $18,157 | $31,066 | | Total assets | $34,140 | $46,687 | | Term loans, current | $53,088 | $50,639 | | Warrant liabilities | $4,842 | $25,867 | | Total liabilities | $70,213 | $91,914 | | Total stockholders' deficit | $(36,073) | $(45,227) | Condensed Consolidated Statements of Operations and Comprehensive Income For Q1 FY2024, total revenue decreased 37% to $4.9 million, resulting in a $13.3 million operating loss and $5.4 million net income Consolidated Statement of Operations (in thousands) | Metric | Q1 FY24 (ended Sep 30, 2023) | Q1 FY23 (ended Sep 30, 2022) | | :--- | :--- | :--- | | Total Revenue | $4,885 | $7,779 | | Gross Profit | $203 | $552 | | Loss from Operations | $(13,265) | $(14,159) | | Change in fair value of warrants | $21,025 | $59,822 | | Net Income | $5,372 | $34,789 | | Diluted EPS | $0.08 | $0.86 | Condensed Statements of Cash Flows Net cash used in operating activities was $10.5 million for Q1 FY2024, resulting in a $11.9 million net cash decrease, primarily due to reduced financing Summary of Cash Flows (in thousands) | Cash Flow Activity | Q1 FY24 (ended Sep 30, 2023) | Q1 FY23 (ended Sep 30, 2022) | | :--- | :--- | :--- | | Net cash used in operating activities | $(10,525) | $(11,156) | | Net cash used in investing activities | $(1,281) | $(1,374) | | Net cash (used in) provided by financing activities | $(52) | $68,762 | | Net (decrease) increase in cash | $(11,858) | $56,232 | Notes to Condensed Consolidated Financial Statements Notes disclose a going concern warning, strategic review of Presto Touch, significant customer concentration, and ongoing SEC/DOJ investigation - The company's financial statements have been prepared on a going concern basis, but substantial doubt exists about its ability to continue as a going concern due to recurring operating losses and the need for additional capital3841 - The company is considering strategic alternatives for its Presto Touch solution, which could include a sale, partial sale, or abandonment of the business46168 - Three major customers accounted for 90% of revenue in the quarter, with one customer (Customer C, 23% of revenue) providing notice of intent not to renew its contract past March 31, 20244344 - The company was not in compliance with its maximum net leverage ratio covenant as of September 30, 2023, but received a waiver subsequent to the quarter's end as part of the Third Amendment to its Credit Agreement117173 - In July 2023, the company received subpoenas from the SEC and a request for information from the DOJ regarding a formal investigation into disclosures about its AI technology138 - Subsequent to the quarter end, the company raised approximately $7.0 million in a registered offering in November 2023 and $3.0 million in a private placement in October 2023164182 - On November 15, 2023, the company implemented a reduction in force affecting approximately 17% of its global personnel as part of a cost savings initiative169 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the strategic shift to Presto Voice, a 37% revenue decrease to $4.9 million, liquidity challenges, and mitigating actions including capital raises and cost reductions - The company's strategic focus is on its proprietary AI technology platform, Presto Voice, while it is considering strategic alternatives for its legacy Presto Touch solution, including a potential sale, partial sale, or abandonment188192 Revenue by Type (in thousands) | Revenue Type | Q1 FY24 (ended Sep 30, 2023) | Q1 FY23 (ended Sep 30, 2022) | Change (%) | | :--- | :--- | :--- | :--- | | Platform | $2,066 | $4,820 | (57)% | | Transaction | $2,819 | $2,959 | (5)% | | Total Revenue | $4,885 | $7,779 | (37)% | - The 57% decrease in Platform revenue is primarily attributed to the amortization and roll-off of deferred revenue related to legacy Touch contracts234 - General and Administrative expenses increased 19% to $7.1 million, primarily due to a $1.5 million increase in professional fees for legal, audit, and public company compliance244 - The company has implemented a cost reduction plan, including a 17% reduction in force, which is expected to yield cumulative monthly cost savings of up to $1.2 million within 8 months203 Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Line Item | Q1 FY24 (ended Sep 30, 2023) | Q1 FY23 (ended Sep 30, 2022) | | :--- | :--- | :--- | | Net income | $5,372 | $34,789 | | Adjustments | (14,171) | (43,680) | | Adjusted EBITDA | $(8,799) | $(8,891) | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces significant market risks including high customer concentration, vendor concentration, and financial institution risk from uninsured cash deposits - The company has significant credit risk due to customer concentration, with three customers representing 90% of revenue for the quarter ended September 30, 2023337 - Customer C, which accounted for 23% of revenue in the quarter, provided notice of its intent not to renew its contract, with a transition period extending to March 31, 2024338 - The company is exposed to vendor concentration risk by purchasing its next-generation Presto Touch tablets from a single supplier339 - As of September 30, 2023, the company had $12.8 million in cash deposits that exceeded FDIC insurance limits, posing a risk in the event of a financial institution failure342 Item 4. Controls and Procedures Disclosure controls and procedures were ineffective as of September 30, 2023, due to four material weaknesses in internal control over financial reporting, with remediation underway - The principal executive and financial officers concluded that disclosure controls and procedures were not effective as of September 30, 2023343 - The ineffectiveness is due to four material weaknesses: (1) ineffective control environment and risk assessment, (2) inadequate controls for complex accounting, (3) ineffective controls over the financial closing process, and (4) inadequate internal accounting records347 - Management is in the early stages of remediation, which includes hiring additional accounting resources, engaging a third-party consulting firm, and designing and implementing new control processes349351 PART II. OTHER INFORMATION Item 1. Legal Proceedings Key legal matters include a patent lawsuit dismissal, a pending arbitration appeal, a legal demand from former employees, and an ongoing SEC/DOJ investigation - A patent infringement lawsuit brought by Valyant AI, Inc. against the company and Hi Auto, Inc. was dismissed on October 23, 2023134 - The company is cooperating with an ongoing formal investigation by the SEC and a preliminary inquiry from the DOJ regarding disclosures about its AI technology138 Item 1A. Risk Factors Material risk factors include the inability to realize benefits from Presto Touch wind-down, Nasdaq delisting risk, and significant future stockholder dilution - The company may be unable to realize the expected benefits from its strategic evaluation of the Presto Touch business, which could involve a sale, partial sale, or abandonment354 - The company faces a risk of its common stock being delisted from Nasdaq for failing to meet the minimum $1.00 bid price requirement, which could adversely affect stock price and liquidity355 - Anti-dilution protections granted to investors in recent capital raises have been triggered, requiring the issuance of additional shares and creating a risk of significant future dilution for other stockholders357360361 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None362 Item 6. Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including CEO/CFO certifications and XBRL data files