ProntoForms Corporation

Good morning, ladies and gentlemen, and welcome to the Pronto Forms Corporation third quarter 2020 results conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require assistance, please press star zero for the operator. This call is being recorded on Thursday, November 5th, 2020. I'd now like to turn the conference over to Babak Padram, Director of Investor Relations. Please go ahead.

Thanks very much. Good morning, everyone. Before we begin, I will read our cautionary note regarding forward-looking information. Certain information to be discussed during this call contains forward-looking statements within the meaning of applicable security laws, including, among others, statements concerning the company's 2020 objectives, the company's strategy to achieve those objectives, as well as statements with respect to management's beliefs, plans, estimates, and intentions, and similar statements concerning anticipated future events, results, circumstances, performance, or expectations that are not historical facts. Such forward-looking statements reflect management's current beliefs and are based on information currently available to management and are subject to a number of significant risks and uncertainties that could cause actual results to differ materially from those anticipated. Also, our commentary today will include adjusted financial measures, which are non-GAAP measures. These should be considered as a supplement to and not as a substitute for GAAP financial measures. Reconciliations between the two can be found in our management discussion and analysis, which is available on CDAR.com and our website. And finally, note that because we report in U.S. dollars, all amounts discussed today are in U.S. dollars, unless otherwise indicated. With that, I will hand over the call to our CEO, Mr. Alvaro Pombo, to go over our operational highlights for the quarter.

Thank you, Babek, and thank you, Pam. Good morning, everybody, and welcome to our company conference call. Before I hand the call over to our CFO, Dave Croucher, to discuss this quarter's financials, I would like to take some time to discuss the ProntoForms business. Since the last earnings call, I continue to hear the question, how are you guys doing during COVID? We definitely saw an effect from March through May. From June on, Things have been rebounding with good momentum. There is definitely an impact on some sales, but we're back on a good trajectory. From an operational perspective, the business continues to operate incredibly well. We have improved our operational framework with consistent cadence, tighter objectives and metrics to track results. And finally, from an employee perspective, we have been exercising our corporate value of care We had an incredible response from our employees and we continue to attract and recruit very good talent. Now let's focus on our customers. We hosted our Empower event last month. It was a great success. We had over 640 people register. Almost half were there live and many have replayed sessions afterwards. Definitely a highlight of customer advocacy and education. for our platform. Also throughout the quarter, we have some notable contracts expansions from enterprise and commercial customers. One of them in the United States largest utility companies expanded the RRR to 1.25 million. The utility company uses the solution to improve heavy asset installation, maintenance and service, as well as improve adherence to stringent work and environmental guidance. Another one, a global manufacturer of solar power products expanded their ARR commitment to $98,000. Their manufacturers uses the solution to improve asset installation and maintenance processes to improve product uptime and customer satisfaction. Have a few others. Next one, a leading utility services product expanded their commitment to $139,000. What we're doing with them is we're enabling 200 of their technicians to handle complex asset installations and maintenance within compliance. Next one, a leading cable service provider in the United States expanded their commitment to over $200,000 of ARR. The ProntoForms platform is used to create custom apps supporting field technicians and reliably handle the installation and maintenance of assets deployed in customer locations. Another one to mention, an oil and gas exploration company, which is a division of a Fortune 20 company, expanded its ARR commitment by $96,000. The company creates custom apps with ProntoForms to improve site operations as well as ensure technicians meet strict requirements for health and safety and environmental compliance. Next, let's talk about our product. This year, we have been again recognized by G2 Crowd as the leader in the forms automation category and by Gartner with their Magic Quadrant for low-code application platforms. with another 17 vendors out of a field of 300 that they have considered. I'm also very excited about the release of our team work product feature. It is an exciting capability that increases collaboration between field technicians. Forms can now be submitted as incomplete and reassigned or continued by other technicians with all data aggregated into one data record. This feature is highly sought after by organizations with sophisticated asset processes that involve multiple technicians and a squad of technicians to perform the task. Finally, you probably saw last Friday's press release about the credit facility that we have established with TD, paying out our BDC debt and finally receiving $1.9 million Canadians of cash for the exercise of their warrants. I believe those three transactions put us in a much stronger financial position to continue to invest in scaling our growth. We have a terrific product that is recognized as a leader of a segment. The product expands in a great way, particularly in large enterprises. We have the customers that understand what we do, and above all, we have the team with the conviction, focus, and financial resources to scale our growth. I will now defer to Dave to discuss our financial results for the quarter. Dave.

Thank you, Alvaro. Good to have everyone on the call. I'll go through the financial highlights, but I won't repeat all of the detail included in our MD&A. Total revenue for the third quarter of 2020 was $4.6 million, representing a 9% increase from Q2 2020 and a 19% increase over the comparative Q3 2019. Of this total revenue, 89% was recurring. Recurring revenue for the third quarter of 2020 was $4.1 million, representing a 4% increase from Q2 2020 and a 16% increase over the comparative Q3 2019. Our annualized recurring revenue base, or ARR, as at September 30, 2020, totaled $17 million, Rob Leibowitz, representing an increase of 5.3% from June 30 2020 and an increase of 13% from September 30 2019. Rob Leibowitz, We saw a continuation of the rebound in net AR our growth, with a good mix of commercial and enterprise bookings in Q3 plus a noticeable drop in turn from the previous quarters in 2020. Customers with greater than $100,000 of ARR has grown to be 39% of our base, up from 38% at the end of Q2 2020, and up from 35% a year ago. Revenue from professional services was $494,000 for Q3 2020, compared to $271,000 in Q2 2020 and $338,000 in Q3 2019. The uptick in PFs revenue mainly relates to a large contract with a large customer for the delivery of select enterprise features. Gross margin on total revenue for the second quarter was 82% compared to 88% in Q2 and 84% in Q3 2019. The fluctuation in total gross margin percentage tends to be driven by the mix of revenue. When we have higher professional services, the overall gross margin will be higher but the percentage will decrease due to the mix. Also, recall that the second quarter margin percentage was higher than usual due to roughly $150,000 of COVID-related funding that was recognized against these costs in Q2 only. Gross margin on recurring revenue in Q3 2020 was 91% versus 93% in Q2 2020 and 90% in Q3 2019. Once again, Q2 margin on recurring revenue was unusually high due to the COVID-related funding in that period. Operating expenses for the third quarter were $4.2 million, up 27% from last quarter and up 15% from Q3 2019. 27% sounds like a large uptick, but remember that Q2 operating expenses were also reduced by $480,000 of COVID-related funding. plus another $270,000 of IRAP funding that was reduced against R&D. Funding from these two programs was completed in Q2, and if you compare the gross costs only, then OpEx would have increased by 3.6% from Q2 to Q3. Loss from operations for Q3 2020 was $492,000 versus income from operations of $348,000 in the second quarter of 2020. and a loss of $460,000 in Q3 2019. Net loss for Q3 2020 was $610,000 compared to a net income of $208,000 for the second quarter of 2020 and a net loss of $421,000 in Q3 2019. Non-GAAP loss from operations for Q3 was $345,000, a decrease from $446,000 of income from the second quarter of 2020 and a decrease in loss from $378,000 in Q3 2019. To summarize our bottom line numbers in 2020 to date, early in the year, we took a careful approach to spending to reduce our losses as our booking slowed. And in Q2, we temporarily swung to profitability due to the $650,000 of COVID related funding already discussed. We are rebounding now and are back in the path of following bookings growth with additional investment in sales and marketing with the intention of compounding that growth back into our ARR base. This growth mode results in moderate non-GAAP operating losses, but those are mitigated on a cash flow basis by the prepayment amounts from new contracts. Our cash balance at the end of September was $5.7 million and has remained reasonably steady at above $5.5 million for the last six quarters now. Also, since quarter end, we received, as Alvaro mentioned, Canadian $1.96 million upon the exercise of 4.35 million wards. We also recently entered the revolving credit, as Alvaro discussed, with TD for up to Canadian $6 million. The facility bears interest at a rate of prime plus 1% per annum with a two-year commitment, renewable annually. We used a portion of that new credit facility to settle out all of our obligations to BDC. In summary, we are pleased with the rebound in bookings growth that we saw in the third quarter. With additional evidence that customer and sales activity are increasing, we are ramping up our approach of investing in sales and marketing to achieve more growth. We have also solidified our financial position so that we are better able to handle any variability that we may come across and ensure that we are able to continue performing at a high level. That concludes the financial highlights. With that, I will ask the moderator to open the line for questions. Thanks.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by one on your touchtone phone. You will hear a three-tone prompt acknowledging your request and your questions will be pulled in the order they are received. Should you wish to decline from the polling process, please press star followed by two. If you're using a speakerphone, please lift your hands up before pressing any keys. One moment for your first question. Your first question comes from David Kwan with PI Financial. Please go ahead.

Morning, guys. Morning, Dave. Morning, Dave. Great work managing the company, obviously, through some pretty challenging times, it seems like. The business, I guess, is getting back to kind of pre-pandemic levels, just kind of looking at the sequential growth in the ARR, which is nice to see. I was kind of curious to get some color from you. It obviously seems like, you know, since June, I guess, that the business is kind of getting a little bit back to normal. Did you see any changes in the linearity of that, the bookings trend since that time?

Dave, do you want me to handle it? Yeah, yeah, yeah. Okay. It has been actually pretty steady, David. So, you know, if you remember April 1st, March, April, May were pretty lean. Just people weren't sure. And in our business, people weren't out in the field. So people weren't buying new software to support those people. June started to come back and actually, you know, just June alone caused enough uptake that we weren't positive in Q2. And then we saw that continue pretty steadily through July, August, and September. They said the mix of bookings in that period was commercial and enterprise, maybe a little more commercial than what we normally see, but still some good expansions in those areas. So, you know, some nice, you know, pick up there. And the other thing was that our churn rates were much lower. So, you know, our churn rates before COVID were pretty steady for many quarters and then went we had an uptick in COVID and then it actually came down for a bit, even below pre-COVID levels. So, you know, that's a few different things. We've probably cleaned some stuff out during the COVID period or stuff was cleaned out and you know, just the mix of our base has been changing over time to be more enterprise, which is our best churn profile.

So that's good. I appreciate that color, Dave. I'm, I guess given what's happened in recent weeks, cases obviously have been surging in many parts of the world, including the U.S., which is a major market for you. Some places we've seen some restrictions, particularly over in Europe. Have you seen much of an impact in the last couple of weeks on the bookings front?

Alvaro, do you want to handle that? Yeah, yeah, yeah, yeah. I mean, Dave Kwan, not really. I mean, a good part of our bookings, as Dave was describing, I mean, is existing customers. So existing customers are on a mission of whatever project they're doing. So we haven't seen any major impact. The U.S. is the main market. Now they are in the new acquisition for large enterprises. That's the one that I referred in my comments at the beginning. Yes, definitely there has been an impact. I'll say delayed more than impact that anything has been canceled. But that's a portion of the business that has been... Anyway, that's the effect of COVID, but no major cancellations or any projects or anything like that. It's just taking longer to... to get new customers through a finish line in the large segment.

Well, I appreciate it. I was kind of tied into my next question as it relates to, you know, the success that you guys have had in terms of, you know, the land expand, winning more business with existing customers, but it sounds like it's still a pretty tough market out there trying to win new customers.

I mean, I wouldn't say very tough. We've landed a few. But you can see some projects that are taking longer. However, the kind of projects you get in, the way we get in is through proof of concepts or POCs that people run. And those are not being affected. I mean, it's really the next level of expansion on those large enterprises that sometimes people put it like that, they're not like moving as fast. I couldn't say that they're not moving as fast as they used to, but there is definitely a little bit of trepidation on going a lot harder for those new customers that come from the POC side of things.

Okay, perfect. Just a couple more questions. Dave, just on that large professional services contract, I think you guys had mentioned most of it's expected to be recognized in Q3 and Q4. Can you tell me what the balance is expected on that? And I guess is that expected to show up in Q4?

Um, good question. So we're, we're actually, we actually got ahead of it pretty well. We're 75% complete on it. It was roughly 420, um, the size of the contract and we're, we're about 75% complete. So the rest will come in Q4, maybe a little bit Q1.

Okay, perfect. Um, and the last one, just, um, The commentary you guys had on the R&D, I noticed obviously it picked up this quarter. Was that at least a sequential increase just primarily due to the IRAP funding ending last quarter, or was there something else going on there?

Mostly that. We did have a little bit of ads around product team, but in the MD&A, we have a breakdown. You can see it actually – you know, went up just slightly, about 20K, because on a gross basis, you know, because in Q2, we had quite a bit. We had 272K of IRAP funding, and then the IAP also helped by another 50K in R&D.

Perfect. Thanks, guys. Thank you, Dave.

Ladies and gentlemen, as a reminder, should you have any questions, please press star 1. There are no further questions at this time. Please proceed.

Okay. So thank you, Pam, and thank you, Dave. So just to wrap up, I mean, we plan to continue investing in our product and go to market, especially in the enterprise. We are really excited about what's ahead for the field service management market and how our offering fits in that marketplace. Despite the challenges of the world, we continue to see the next phase of growth for our customers and our company. And I want to thank you very much, everyone, for spending the time this morning with us. And as always, I would like to thank you for your continued support. Thanks, everyone.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.