Presto Automation (PRST US) – When There Are No Operators to Track
Dear Reader,
I must start by apologizing (again) for a sabbatical from posting. Andrew Walker was kind enough to give me a shout out in one of his (excellent) Yet Another Value Blog posts and I went on to reward new subscribers with no content for months. Deeply sorry.
For The Uninitiated
While there are dozens of tools available to enable the qualitative and quantitative analysis of THE BUSINESS of a potential investment, at OpTrack.io I believe there is an unmet need for analysis of THE PEOPLE that drive the outcomes of these businesses. I hope you find it helpful. If you do, please subscribe and share it far and wide. It would mean the world to me.
Presto Automation Business Overview
The tradition of OpTrack.io is to not spend a lot of time on the actual business and this won’t be an exception. If you want to do some reading about the business I highly recommend an excellent write up by Gausty Winds over at his Substack.
For the sake of time, here is a summary of the business and KPIs that I think will help you get oriented pretty quickly:
-
The company came public via a SPAC (we have a dim view of SPACs around here)
-
The company sells tablets to restaurants for menus, ordering, and entertaining kids with games and the like (so, an expensive QR code)
-
Importantly, this company is NOT like or with a (potential) multi-decade growth story enabling payments, online ordering, etc.
-
-
Revenue has declined sequentially for three straight quarters
-
The company generates a gross profit so small you can safely round it to $0
-
At the end of Q1, the company had ~$30mm of cash, ~$60mm of debt, and burns ~$10mm/quarter in FCF.
-
The company has since raised a $9.5mm PIPE which offsets approx. Q2 cash burn, which means the balance sheet at the end of Q2 probably looks similar to Q1
-
In summary, this looks like a very troubled business where (oversimplified) math would say they run out of cash in ~6 months and they will have to continually diluted shareholders to keep the story going.
PRST People Overview
This is somewhat of a different post than usual. In my prior posts I would tell you who the current management team is, give you a summary of their track records, and then make a call as to whether or not it was a management team you would want to bet against or not.
This post is a bit different, because what I would point you to here is the lack of meaningful leadership at all.
Ashish Gupta, PRST Principal Financial Officer
Prior to Gausty Wind’s post on Substack, the CFO of the company resigned in January of 2023. His resignation indicated he would leave by quarter-end as he was taking another job.
Since then, at the end of the March the company extended Mr. Gupta’s consulting agreement to retain his services as “Principal Financial Officer” through May 15th. Then in May, they extended it again through the end of July. For the second extension he got paid $50k/mo and 250k RSUs, which at the time were worth $700,000. Not bad for two months work!
There are a few things about this that don’t seem quite right:
-
Mr. Gupta allegedly left for another job but his LinkedIn does not show him as having a new role
-
He also seems to have many months to stick around and be the rent-a-CFO for PRST
-
-
His compensation for the second extension of his services as PFO seems egregious ($600k cash comp annualized + $350k of RSUs time-vested over 2 months + $350k of RSUs with performance vesting — and the RSUs are a real number, not annualized!)
-
Why can’t the company just find a decent replacement CFO?
None of these things paint a very promising picture of the company’s prospects.
Rajat Suri and Krishna Gupta, PRST former CEO and new Interim CEO, Respectively
In March of 2023 it was announced that PRST’s long-time CEO, Rajat Suri, had resigned. This was presumably not long-foreseen as the company had no replacement at the ready and the company’s Chairman stepped up to be Interim CEO as the company looked for a replacement.
As of today, July 6th 2023, they have still not found a replacement for Rajat. Also not a good sign.
Krishna Gupta, the new Interim CEO, seems like quite the character.
To my knowledge, he hasn’t had a meaningful senior executive/operating role at a company outside of being a board member of private technology companies about which we have little-to-no information. Long ago it appears he started his career at McKinsey (lol) and JP Morgan. His day job is being a venture capitalist as Founder and CEO of REMUS Capital
PRST’s stock was trading terribly leading up to April 17th 2023. On that day >200% of the total shares outstanding turned over on the back of AI-oriented announcements from the company.
Not long after the stock started to take off, Krishna retweeted a Twitter account posting a 5-minute candle chart of his own stock. I like to believe that most CEO’s I know who are focused on creating long-term shareholder value aren’t paying attention to the 5-minute candle charts.
He would disagree with me. His answer is here, presented with no comment:
Miscellaneous Other Red Flags:
-
PRST has massive customer concentration with >60% of revenue coming from a single customer and >95% of revenue coming from three customers – there is “head shot” risk here
-
The AI product that forms the basis of the company’s recent share price run generates almost no revenue and is just white labeling or reselling another vendor’s product
-
In April, PRST paid the holder of their term loan $200k in cash and gave them 400k warrants with a strike of $0.01 to amend covenants and payment provisions on the term loan
-
In May PRST issued 4.8mm shares at $2/share via a PIPE (at the time the stock was $2.50/share) and simultaneously issued their lenders an additional 2.5mm warrants struck at $0.01 to eliminate $1mm of PIK interest and make a second amendment to the credit agreement
-
Borrow costs are crazy on this one right now at ~175% on IBKR. I would normally shy away from high borrow costs but I expect that cost to continue to trend down as it has been as the float opens up.
Putting This All Together
PRST has a net debt balance sheet, low gross cash position, burns cash consistently, and does not appear to be able to grow its way out of the problem. From here on out, the company will need to continually raise additional equity and make further payments to lenders to prevent a technical default.
The company must do this with no full-time CEO or CFO. In addition, the Interim CEO has no operating background and seems to spend a lot of time courting retail traders on Twitter.
Sooner or later this cycle of continuous capital raising and warrant issuance will open up the float and the stock will collapse.
This is a (lack of any real) management team that we think you can feel pretty good betting against. We expect the lenders and scalpers to continue to monetize the inflated market cap until it pops. If the company brings in new management with good track records and a credible story, I would re-evaluate.
Disclaimer: Please remember this post should not be taken as investing advice and please consult a licensed financial advisor before making any investment decisions. The OpTrack team did its best to present everything above in a factually accurate way, but there is always room for error in biographical data on executives and market data. There may be mistakes of omission or commission in the above – if you find one – please reach out to OpTrack@OpTrack.io so that we can correct it.
