ProntoForms Corporation

Good day and welcome to the Pronto Forms Corporation first quarter 2022 results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Babai Khadram. Please go ahead.

Thanks very much, Samira. 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 2022 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 is 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're reporting 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.

Hey, good morning. Thank you, Babak, and thank you, Samara. Good morning, everybody, and welcome to our company's conference call. Before I hand the call to our CFO, David Croucher, to discuss this quarter financials, I would like to take some time to discuss the performance business. We achieved 14% growth in recurring revenue over the 2021 comparable quarter. Our annual recurring revenue, ARR, based at the end of the Q1, was $19.6 million, with 41% from customers with greater than $100K of ARR. As reported, our base decrease is likely due partially to a 1.5% enterprise reduction in ARR from the completion of a one-year project and lower new enterprise bookings in the quarter. The enterprise go-to-market transition is continuing, but we saw the effect of the longer sales cycles, typically of the larger enterprise sales, on which we're increasingly focused. However, we are pleased to report that with our recent enterprise expansion of over $100,000 of ARR, bringing that customer to a total of approximately 870K ARR. This is the kind of deal we are targeting and expecting to be more of. We're scaling conversation with our customers and how our platform can help them addressing pressing business issues like inflation, labor markets. People need to rapidly automate today. Our improved go-to-market team is uncovering more enterprise expansion opportunities. Last week, I was a keynote speaker and moderated two panels at Field Service USA, the largest show in our industry held in Palm Springs, California. The relevance of the industry is better than any year before. The need for automation is growing. Our rapid automation capability is focused on the field. primarily with large enterprises, continue to be very well received, and the main large suite of software players acknowledge the reference and addressable market of our solution. The market remains strong, and the opportunity for growth continues to be more real every day. Recently, the connection between customer experience and technician experience has become more acknowledged. and the need to improve workflows and automation beyond the traditional work order management has become more relevant. A good customer experience is made of multiple workflows that need to be iterated, coupled with the need to improve the field technician experience, combined to make the need of our product timely and relevant. Also, as field service organizations are finishing their field service management implementations, they now have more time to consider other workflows outside fix and repair, which plays very well into our abilities. Let me give you some interesting and exciting examples of what I just mentioned. The Global Heavy Manufacturing Organization increases commitment to ProntoFarms by $180K to approximately $870K. This is an organization with over 60,000 employees and billions of dollars in revenue. They use Prontoforms as a key technology driver for their full asset lifecycle business model, from new asset installation, maintenance, and recommission to replacement. Why did they select us? Our ability to scale to thousands of users with many use cases, open integration, security, reliability, and agility were key in their decision, and they continue to expand on that belief. Second example, a Fortune 500 power and renewable energy Global Enterprise deployed us as a technology starting with 450 subscriptions across two sub-divisions. Prontoform supports health and safety reporting, inspection process for wind and hydro turbines, and gathering performance metrics to enable their field engineers and salespeople. Our agility to deploy multiple use cases, seamless and intelligent connection to their field service management platforms, ability to move contextual data from the field and to the office, as well as the capability to embed rich media into automatically rendered and routed custom work documents were key factors in their choice or decision. Third example, the Fortune 500 oil and gas enterprise has expanded their multi-year deployment of ProntoForums by 200 subscriptions. for a total of 2,000 as part of a global service agreement, an MSA with us, as their sole mobile forms solution provider. The platform also provides unique capabilities for this organization, including repeatable sections, interactive multimedia, sketch, high-resolution photo capture, as well as seamless integration with Microsoft SharePoint. As you can see, the diversity of workflows beyond fix and repair are very powerful. Installation, decommissions, compliance, and safety are some of the themes, and that's why we are a standing up clear set of solution templates. Through stronger and more robust product marketing capabilities, we believe this is a key in our evolution this year. Enable our customers and our sellers to see where they can take the product next, given the global nature of their needs on these corporations, will accelerate expansions. Working together as a squad, we have a scaled customer success, community, learning, and support, and focus more energy in our large enterprise accounts. We continue to receive very good MPS scores, and the churn of this segment is particularly low. These squads are generating very good conversations and ultimately opportunities from these key accounts. Our customers are living very clear challenges. As one of the customers say, It is a lot easier to find and pay for five attorneys than a good technician. And that is just the beginning. Costs are going through the roof. So multi-year agreements, contracts that they enter into are challenging. Rapid automation is a key lever they want to activate. Which use case to deploy first? Eighty percent of the hundreds of use cases deployed with our product are implemented in less than eight weeks. Our sole task today is to make it easier for everyone and everyone to adopt. This brings me to the last bastion of our improved go-to-market, sales. The team is in place. The transformation is underway. And the main thrust is customer centricity, particularly around enterprise expansions. These changes take time, but they are well underway. Finally, the pandemic has had an impact on meeting people in person. The world is opening up and we're taking full advantage of that. Our people and culture focus continues to evolve. We're back at the office in a hybrid mode and we have been recruiting some great talent. Finding and recruiting is very difficult in certain functions these days. We have been improving our tactics to deal with the people challenges that we are all living. We are not out of the woods with that challenge. I will wonder who is out of the woods with that challenge. but continue to have a company and culture that attracts some great people. So as CEO, I'm very proud of our transition to enterprise and accelerating our pace of capturing this great market. It is an exciting time to be in this industry, but even more exciting to be servicing those technicians that serve us all all the time. I now defer to Dave to discuss the financial results for the quarter. Dave.

Thank you, Alvaro. Good morning and nice 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 in Q1 2022 was $5.04 million, a 1% increase from Q4 2021, and a 9% increase compared to Q1 2021. Repairing revenue in Q1 2022 was $4.9 million, a 2% increase from Q4 2021, and a 14% increase from Q1 2021. Our annualized recurring revenue base, or ARR, as of March 31, 2022, was $19.6 million, representing a decrease of 0.7% sequentially and an increase of 9.6% from March 31, 2021. We are continuing with the transition of our sales force that we commenced in 2021 under new leadership to focus on enterprises. Those initiatives have caused variability in our bookings, but we are confident that that they are creating the field sales organization that can deliver sustainable enterprise growth. The variability was compounded in Q1 by the end of one-year project-based subscription that resulted in a 1.5% reduction in ARR. Customers with greater than 100K of ARR represented 41% unchanged from Q4 2021 and up 1% from Q1 2021. Revenue from professional services was $150,000 in Q1, a decrease of 29% sequentially, and 51% from Q1 2021. Professional services revenue has been affected by our transition to enterprise sales focus, and we expect these results will generally trend with ARR bookings growth. Gross margin on total revenue for the first quarter was 84%, which is consistent sequentially and down from 85% in Q1 2021. Gross margin on recurring revenue in Q1 2022 was 89%, down from 90% in Q4 2021 and 91% in Q1 2021. Recurring revenue gross margin percentage for the last three years has remained in the range of 88% to 93% and is still in that range. Operating expenses in Q1 2022 were $5.7 million, an increase of 9% sequentially and up 14% from Q1 2021. As mentioned, we are committed to investing in go-to-markets product development, and messaging to push for more enterprise growth. Loss from operations in Q1 2022 was $1.5 million versus loss from operations of $1.0 million in the fourth quarter of 2021 and a loss of $1.1 million in Q1 2021. The increase in net loss in Q1 2022 compared to Q1 2021 is due mainly to continued spending on our enterprise go-to-market strategy and some stock-based compensation. Non-GAAP loss from operations for Q1 2022 was $1.1 million, up from a loss of $618,000 in Q4 2021 and a loss of $904,000 in Q1 2021. Our cash balance at the end of March was $7.4 million compared to $6.1 million on December 31st. Recall that we increased our line of credit from $6 million Canadian to $10 million Canadian And in the first quarter, we drew $3 million against that line, $3 million Canadian. To conclude, we continue to be well-positioned in 2022 to capture additional market share with existing and new customers. The recent Q2 enterprise deal is exactly the type of deal that we are targeting with our new enterprise go-to-market motions. We feel that this transition, supported by the investments that we are making, will provide sustainable growth in our ARR base. We want to get back to the compounding nature of growth and reinvestment in sales and marketing to get even more growth. With that in mind, I'd like to open the floor for questions.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal for questions.

And we'll take our first question from Gabriel with Beacon Securities. Please go ahead.

Good morning, and thanks for taking my questions. A couple of things. First, just as it relates to the longer decision cycles on the enterprise side, are you finding that this is a function of needing more approvals to get deals done now, or is there some element of some enterprises sort of delaying spending or hesitating on spending in the current environment?

Dave, I'll give it a try.

Gabe, thanks for joining us, and thanks for the question. We are seeing is that as we move more marketing and focus and, I mean, resources into the enterprise, your funnel becomes obviously a lot more spiky. I mean, there is more concentration in these deals. I wouldn't qualify it as any of the macro trends affecting it or changing, I mean, people changing positions on how they will do this. is that now there is a heavier concentration on bigger things. So I think it's going to be a little bit lumpier as we transition and as we have more of those, obviously, in the funnel. That's the issue. Now, on the net side, basically what we had is one very large project that was a year project. And that coincided with the other thing taking, I mean, a few deals taking longer. But we don't see any trend on either, okay, any negative trend or headwinds on either, on churn or on the deals becoming more sporadic, if you want to put it like that.

Gotcha. And while we're on the question here, do you have any sort of large deals in your revenue base right now that are similar or sort of one year in nature or that's a bit of a one-off in the quarter?

No, this was a very unique one. This was a company that had a contract with a government, foreign government, big contract. It was a spike, very unusual. They're mainly like an integrator, like a consulting firm that has projects that come and go. No, it was a big one, and they delayed the end of that project. But anyway, it is one of those things. It wasn't a surprise or anything like that.

Gotcha. Now you've been, you know, the sales initiatives and enterprise has been going on for a little bit of time now. So I'm curious, you know, based on the pipeline, based on what the feedback you're getting from your sales group and just given the demand environment, you know, do you have, you know, sort of a better sense of when you might be able to get that ARR growth back to, you know, the target of 20 plus percent growth again? Do you think this is a, second half of this calendar year thing, or do you think it'd be a bit more time to make the next calendar year?

Look, I think we are having the conversations, as I said. We are seeing the engagement, and I'm starting to see a lot more deeper conversations at scale. I mean, these deeper conversations, we used to have them, I don't know, one, two, three, four, five of them on an ongoing basis. That's how we got to 20 or 30 of these guys going at a high pace. Now we have many of them, and those conversations are yielding good projects. Some of them are small, and that's something we report some of them, and sometimes some people wonder, okay, 200 subscribers extra on a very large account is very meaningful because that's under an MSAE, that is global, that is, I mean, we're talking monstrous companies. So you capture a little island, and that's what's important as well to communicate to you, I mean, to all of the investors and analysts. Those little things, they add up in a great way because those are attractions with very large pieces, with monsters that move geographically with multiple dimensions. So a little thing from a big guy is big.

Hey, Gabe, just to add.

Yeah, Dave.

So just to add to that, you know, I don't think we're seeing any real trends with our enterprise. It's still, you know, historically we would have, you know, a handful, a small portion of our enterprise team that would be closing good deals. And we're still seeing that, but we've added better people there, but it's just going to take time to ramp. We added five good enterprise people in Q1 and they really haven't had a chance to really get ramped. So we're feeling that, you know, that should start to happen soon and more in the second half of the year. But it's like I've already said, it just takes time. I mean, you know, historically we, we were taking orders and working with our champions and, and not really doing the right enterprise sales motions to get deeper into the organization and into the executive level. And those are the things that are happening now that weren't happening before. We still have very strong enterprise list of customers. And that churn that happened in Q1, like Amar said, was a blip. Our enterprise retention without that is still TTM 94% gross retention. So that's a strong number. And even with that, it's 91%. But, you know, that hasn't changed. And that was one unique one. We don't have others like that. Certainly there might be some small ones, but not of that size and not in our enterprise space. But that's just part of the transition that we're going through. And, you know, so we have part of the sales team that is, you know, continuing on performing and it's got good opportunities. And then the other just needs to get in and get, more familiar and deeper with those customers to start building up the same level, and then we'll be more broad-based.

Gotcha. No, thanks for that. While we're on the subject of the sales team, Dave, you mentioned you had five more reps in Q1. Just remind us where you're at now in terms of your rep count relative to the start of the year and expectations for the end of this calendar year.

Okay. We're the same, actually. We added those five enterprise reps, mostly in the US. We moved one person over to a management role, so there's one open spot right now. It's more of a commercial rep. Then we're looking to add some more in the UK, but that's not because of turnover. That's just because we want to build up a little bit more in the UK, but one or two people there. So really the team is there and haven't seen turnover, you know, this year. And it's just a matter of, you know, them building up their, you know, customer relationships and then pipeline from there.

Gotcha. So we might see that sales and marketing expense line maybe creep up a little bit if you decide to, as you said, add some more to expand within the UK there.

Yeah. So, um, you know, there, there will be for sure. Um, you know, it's expensive to build a proper enterprise sales team and what you'll see also is, you know, more expense with higher commissions, um, on more bookings. And the other thing would be, uh, I think connecting with the customers is really important. We want to get those people back out. Um, so you'll see an increase in travel and expense. Um, but that's all part of that, that motion and, uh, I think it's a good thing at the end of the day to connect more closely with those customers.

So with some of these variables you talked about, sales team getting out there again, adding to the group, maybe some wage inflation as well, where do you foresee your quarterly operating expense creeping up to over the course of the year? I think it was 5.7 in Q1.

Yeah, it's going to creep up certainly more now, but then Then we'll have most of the team in place. There's always some additions here and there, but we'll see more of the increase similar to Q1 from Q4. But then in the second half, it'll slow down, and then we'll start to see the effects of some return on that spending.

Gotcha. I appreciate the feedback, everyone. Thanks, Gabriel. Thanks, Gabriel.

And we'll take our next question from Chris Thompson with PI Financial. Please go ahead.

Great. Thanks. Morning, guys. Hey, Alvaro, just on the partnership front, I didn't hear you mention anything about that. Can you give us an update on your go-to-market strategy with the partners and progress with Salesforce and Microsoft?

Yeah, look, good progress on those two, plus we announced some work on tighter contracts I mean, go-to-market as well on a portion of Microsoft. There is also some, I mean, the other gorilla in this space is ServiceNow, and we have some customers in common, and looking into it. Look, my take on the partner side of those four big players, they acknowledge that they have a gap. a gap in their offering. With that gap in mind, they have different tactics to address the gap. One of them obviously being partnering and where we're all for in a very good position. So we continue to see the flow, but I believe that the flow will, I mean, should accelerate. We made some hires. that are from those ecosystems, and we're bolstering the team on the go-to-market side to stay closely related to those ecosystems. So I think that should be, I mean, it has been a good spot for us, but I think it's looking brighter.

Okay, maybe, Dave, can you give us an update on your total headcount at the end of December? and the end of March, and then I want to tie that into the partnership effort. I mean, how many people have you got on those efforts? Because it seems like some good low-hanging fruit to get some operating leverage out of that partnership revenue base.

Sorry, headcount on the partner side, the business development side?

The total company at December and then at March, so we can see the change, and then how much of that is dedicated to the partnership efforts.

Okay. Um, at the end of December, we were right around 150 or we were right at 150 people. And in, in, uh, the end of Q1, we were mid or like 155. Um, and we're right around there right now. Uh, the sales team, as I mentioned, uh, is same, like in terms of the, the quota bearing reps has not changed. Uh, we do have some open headcount in the, you know, junior, the sales, uh, development, uh, the entry level, uh, BDRs, FDRs. In terms of the BD, uh, that, that team is around, it's four. Um, and we did have one person that moved from that department into product. And then we replaced that person with a more senior, uh, um, person who knows who's closer to Salesforce, who has some, um, better relations with Salesforce, and maybe I'll pass it over to Alvaro to talk about that. So the headcount in BD hasn't changed, but it's gotten stronger.

Chris, the mix has changed. Stronger people, more connected into those ecosystems. On the sales side, as we've been recruiting, we've been able to attract sellers from those organizations, which is good. So you have people that know other people. And then the last piece of investment, that's new, but it's not huge, has been one, two people more on the product marketing side, packaging for those big guys. I'm for the market overall, but it has an effect on those.

Okay, that's helpful.

Extra investment.

Got it. And then looking towards the end of 2022, it sounds like, you know, you're not hiring a ton of people, so you should probably end the year somewhere around 160. Is that fair?

Well, we're behind on a few headcount right now, more on the product side. So a little higher than that, but, you know, probably around 170 or so.

Okay. That's very helpful. Maybe just the last one for me, addressing the TD credit facility up to Canadian $10 million. Can you just help us understand the covenant on that facility, given you have no EBITDA and just want to get an understanding of your ability to continue to draw on that facility?

Okay. Yeah, there is no EBITDA covenant on that. It's an ARR loan, so it's really against our base. And, you know, there is a growth covenant for the next several quarters. It's protected by a cash balance. So as long as we have, I think it was 6.2 million Canadian in the bank, then that doesn't kick in, the growth covenant. But then towards the end of the year, it's a year-over-year growth covenant set at 10% on the base. and carries forward from there. Then there's a cash burn covenant for the trailing six months against the available cash plus available line.

Okay. That's helpful. Thanks, David. Maybe I'll just sneak one more in. You mentioned you added four or five senior kind of enterprise focused account reps in Q1. I mean, how do you, you know, set their quotas? Could you give us an understanding of like what would make you guys, you know, happy with their annual quotas so we can kind of zero in on that ARR towards the end of the year?

Sure. The, the enterprise reps have a pretty standard quota. We, you know, we're, we have in our minds that they should be hitting a million ARR a year once they're, you know, running. But we've set a quota a little below that. I think it was like 700. And as they come on board, it's really nothing in the first quarter. But then in the second quarter, it's 50% of their quota or that quarterly amount. And then full on 100% after that. is usually how we wrap them.

Okay, thanks so much for the call, guys. I'll leave it there.

Thanks. Thank you, Chris.

There are no additional questions at this time.

Okay, thank you, Samara. So thank you, everyone. I mean, look, we plan to continue investing in our product and go-to-market focus in the enterprise. We are excited about the future. We clearly see growth opportunities from our customers, both geographically and in these new use cases. I mean, that's a whole dimension that we're mastering as we speak. So thank you very much, everyone, for spending your time with us this morning. And as always, I would like to thank you for your continued support.

Thanks, everyone. Have a great day.

This concludes today's call. Thank you for your participation. You may now disconnect.