Presto Automation To Gain Momentum From New Businesses Despite Dull Outlook, Says Analyst - Presto Automation (NASDAQ:PRST)

Chardan Capital analyst Brian Dobson reiterates a Neutral rating on the shares of Presto Automation Inc PRST with a price target of $4.25.
The analyst noted that the company's 2QFY23 results were mixed. PRST missed the Street, and its revised ARR (annual recurring revenue) guidance calls for a year-over-year decline, noted the analyst.
The company lowered its ARR guidance to $28 million to $30 million from $33 million to $35 million. The reduction is the result of a change in accounting treatment.
The analyst believes that PRST issued warrants to a client, which are now being treated as a cost of revenue.
The analyst believes the warrant grant does not impact reported F2023 results and should be fully expensed this fiscal year.
The management announced a $15 million cost reduction program, bringing its outlook more in line with the analyst's view.
2QFY23 operating expense was $13.6 million, about 34% higher than expected, and management is using that higher run-rate as a starting point for its expense reduction goal.
Savings will likely come from headcount and vendor reductions, remarked the analyst.
Management indicated that it is in advanced contract negotiations with several potential clients and expects to announce a new agreement this year.
The analyst sees potential to add customers similar in size to Del Taco, or larger.
The analyst's model implies that PRST may achieve break-even at about $100 million of ARR, assuming 60% gross profit market and corporate expense growth.
The analyst expects Presto to generate $59 million of total revenue in F2025E.
The Checkers roll-out maintains positive momentum, and new business announcements may be on the horizon, stated the analyst.
The analyst remains optimistic regarding the adoption of PRST's technology, but the valuation keeps the rating at Neutral.
Price Action: PRST shares are trading higher by 4.23% at $3.45 on the last check Friday.

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