ProntoForms Corporation

Good day and welcome to the Pronto Forms Corporation Second Quarter 2022 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Babak Pedra. Please go ahead, sir.

Thanks very much, and 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 intention, 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 analysis, which is available on CDAR.com and our websites. 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. Please go ahead, sir.

Hey, good morning, Babak, and thank you, Sergey. Good morning, everybody, and welcome to our company's conference call. Before I hand the call over to Dave, our CFO, to discuss this quarter's financials, I would like to take some time to discuss the pro-performance business. Hey, we started 2022 with a disappointing Q1. In the second half of 2021, we added new leadership, followed by large changes to the sales organization. Q2 2022 showed improvement, but didn't reflect the volume that we expected. We finished Q2 with 9% annual growth in recurring revenue and 2% over Q1. We had an important enterprise expansion in Q2 with growth that is expected to continue. After the lag in bookings in the first half, we are seeing value building up. We are seeing more new and expansion activities, and we're confident that we have a capable enterprise go-to-market structure that is as scaly as our enterprise salespeople ramp. We recently passed the $20 million ARR milestone. 51% of the base now comes from enterprise size, higher than 2,500 employees, customers. And 41% of the base comes from customers with greater than 100K of ARR each. This is a crucial ARR milestone for SaaS companies. Compared to other size businesses of our size, we have a strong foundation, excellent logos, very good retention, high gross margin, and good capital efficiency. I recently had a meeting with a large enterprise customer that is looking to expand their footprint. They are concluding their retooling of two core back-office systems, and we're seeing that the demand for more workflows in the field is increasing substantially. Their new systems offer some difficult ways to do that. But as they progress, the cost and complexity make them reassess their approach. They're exploring instead scaling ProntoForms to be their prime tool to help them accelerate their field automation to scale their business. This week, I was invited to give an opening keynote at Field Services, one of the largest shows in our industry held this year in Hilton Head. I shared with the audience our vision of how agile automation can unite their field teams. The model basically enables a greater level of collaboration around workflow improvement between the field sales leaders, the field service analysts, and the technicians or engineers, resulting in durable customer value. I shared with the audience some of the key results of our annual customer survey that clearly shows powerful business ROI and major impact in the technician productivity and job satisfaction. I also shared the incredible stat that 80% of the workflows built with ProntoForms are up and running in less than eight weeks. The message resonated very well with the audience and we had the opportunity to demo diverse use case examples at the booth, which are becoming templates to help simplify and speed the implementation even further. The increased demand of enterprise automation in response to the challenge of technicians' enablement is not going away anytime soon. People identify with our proposition and message. As you may imagine, we did secure many opportunities from this show, a great show. This year, We have Empower 2022 in Austin at the end of September. We will be in intimate meetings with key customers who will learn and be inspired by their peers on how ProntoForms is used in multiple industries of hundreds of diverse use cases. It will also provide a formal and informal setting for establishing deeper connection between our customers and our go-to-market teams. I wanted to share just a small sampling of solution sharing and advocacy that attendees will experience. A global brand in the medical industry will be sharing how ProntoPars is a key mobile technician enablement strategy they have developed and grown, fully integrated into Salesforce, and has facilitated them to rapidly grow their business to meet a booming demand. They also leverage our solution to more rapidly onboard and ramp technicians to full productivity in a fraction of the time that it took them in the past. Another example is a leading utility service provider will be doing a deep dive into how rapid and agile deployments of ProntoForms has enabled them to reach and drive incredible ROI and has utilized ProntoForms capabilities as a strategic differentiator for earning business and contracts throughout Multiple divisions, seven divisions. One of the largest elevators and escalator brands in the world will be sharing their stories of how ProntoForms is quickly becoming their prime solution for tracking installations, maintenance, and service compliance, in addition to being a powerful solution enabling technicians to handle complex service reliability. The focus of product development for much of this year has been on improving technician experience and productivity. In Q2, we introduced a number of features that enable app users to review, capture, and revise data sets more rapidly and accurately. This means better and more comprehensive data and analysis for our customers, but it also means technicians that are more content to adopt the solutions and contributes to their overall satisfaction with their work. Q2 also saw improvements to integration features with online services for Microsoft and Google Workspace, and with more in progress for other leading CRMs and field service management systems. With these, we continue to push to enable the business technologies or citizen developers within our customers and minimizing the need to have pro IT admins and developers. Our people and culture focus continues to evolve. We're back at the office in hybrid mode. We have been improving our tactics to deal with the people challenges that we're all living through. Our strength is our culture, so we continue to focus on growing a company culture that is attracting the best talent. As CEO, it's an exciting time to be in this industry. Lead a team of talented professionals. and most importantly, provide a solution that improves the life of those field technicians that keep our world running. I will now pass the call to Dave to discuss our financial results for the quarter. Dave.

Thank you, Alvaro. Good morning, and nice to have everyone on the call. I will now go through the financial highlights for the quarter. Total revenue in Q2 2022 was $5.2 million, a 3% increase from Q1 2022, and an 8% increase from Q2 2021. Total revenue for the first half of 2022 was 10.3 million, representing an increase of 8% over the first half of 2021. Recurring revenue in Q2 2022 was 4.97 million, a 2% increase from Q1 2022 and a 9% increase from Q2 2021. Recurring revenue for the first half of 2022 was 9.9 million, representing an increase of 11% over the first half of 2021. Our annualized recurring revenue base, or ARR, as of June 30, 2022, was just over $20 million, representing an increase of 1.9% sequentially and an increase of 7.1% from June 30, 2021. Customers with greater than $100K of ARR represented 41% of the base, unchanged from Q1 2022 and up 1% from Q2 2021. During 2021, we began restructuring, the restructuring of our sales force under new leadership to focus on sales to major enterprises. While those initiatives have caused volatility in our bookings through the first half of 2022, we are confident that we have the field organization in place that can deliver sustainable enterprise revenue growth. Revenue from professional services was $243,000 in Q2 2022, an increase of 61% compared to Q1 2022, and a decrease of 17% from Q2 2021. Revenue from professional services for the first half of 2021, sorry, 2022, was $393,000, down 34% compared to the same period in 2021. Professional services revenue has been affected by our transition to enterprise sales focus, and we expect that these results will generally trend back with ARR growth. Gross margin on total revenue for the second quarter of 2022 was 84%, which is consistent sequentially and down 1% compared to Q2 2021. Gross margin on total revenue for the first six months in 2022 was 84% compared to 85% in the same period in 2021. Gross margin on recurring revenue in Q2 2022 was 89%, unchanged from Q1 2022 and down 1% from Q2 2021. Gross margin on recurring revenue for the first six months was 89% compared to 90% in the same period in 2021. Operating expenses in Q2 2022 were $5.7 million in line with Q1 2022 and up 11% from Q2 2021. Operating expenses for the first six months of 2022 were $11.4 million compared to $10.2 million in the same period for 2021. We increased the spend as we rebuilt the sales organization in the second half of 2021 and the first half of 2022. With this investment, we have the team in place now and we see progress. as the enterprise team has been ramping. We don't expect to add significant costs in the second half, but rather optimize the go-to-market spend and allow the team in place to deliver. Loss from operations in Q2 2022 was $1.3 million versus $1.5 million in the first quarter of 2022 and $1.1 million in Q2 2021. Loss from operations for the first half of 2022 was $2.8 million compared to $2.1 million lost in the first half of 2022. Non-GAAP loss from operations for Q2 2022 was $1.02 million down from a loss of $1.12 million in Q1 2022 and roughly in line with Q2 2021 at $1 million even. Non-GAAP loss from operations for the first half of 2022 was $2.1 million compared to $1.9 million in the first half of 2021. Our cash balance at June 30, 2022 was $7.5 million compared to $7.4 million at March 2021. and $6.1 million at December 31, 2021. We also have Canadian $1.8 million still available on our Canadian $10 million credit facility. In closing, we have made the investment in the enterprise team. We will hold costs steady in the short term and allow the revenue growth to go to the bottom line. With that, we will continue to optimize sales and allow the ramped reps to deliver results. Our cash plus available line is sufficient for the foreseeable future and provides the capacity for us to deliver enterprise growth. With that in mind, I'll open the floor to questions.

Thank you. Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star 1 on your telephone keypad. Please make sure the mute function on your phone is switched off to allow your signal to reach our equipment. If you wish to cancel your request, please press star 2. Again, please press star 1 to ask a question. I will pause for just a moment to assemble the queue. Our first question comes from Gabriel Lund from Beacon Securities. Please go ahead.

Hi, good morning, guys, and thanks for taking my questions. First off, Alvaro, just I know it's early into the second half, but are you able to give us some qualitative comments around what you're seeing in terms of sort of pipeline generation and if you can also close rates for what you've seen so far in the quarter vis-a-vis sort of the first half of this year?

Gabriel, thank you for the question and thanks for joining us. Look, I'm very optimistic about what I'm seeing. These things take a while to get sales reps ramped. It takes about six months to get them up and running. The activity that we're seeing is very strong. And, look, we look at the large base of customers that we have. About 175 of them are large enterprises. And we segmented them into top 45 is what we call them. Two-thirds of them have open opportunities going on. So there is a lot of activity happening, and we're seeing a very different scenario than the first half.

Would you anticipate your sort of second-half growth on a year-over-year basis to exceed what was generated in the first half, just given what you're seeing in pipeline loss?

Yes. Absolutely.

Gotcha. A second, Dave, during your commentary, I noticed you mentioned that you're expecting, I guess, minimal increases in operating expenses. I just wanted to confirm that with you, that sort of $5.4 million of operating expenses that you reported in the quarter. Do you expect much, do we expect that to sort of stay within that range over the second half of this year and for you to sort of optimize what you have in place right now?

Yeah, that's right. So 5.7, I think it was. But yeah, we're generally going to hold it steady. Hopefully there's some increase with higher commissions than that as we deliver stronger results. But really keeping that steady and letting the organization catch up. We've gone through some really big changes and some maybe overly aggressive changes on the sales side. So those guys have to catch up. and, you know, as Alvaro mentioned, they've been ramping, and, you know, so we'll let the growth go to the bottom line, and then we can get back to a pace where we're matching the growth with the growth in the team.

Would you say that there's maybe a change within the narrative internally within PranaForums, that there maybe is a greater urgency to get the break-even EBITDA, or are you still of the view that you're happy to burn a little bit of cash to try to accelerate your recurring revenue growth?

Yeah, good question. So, you know, we're holding it steady where it is. And then that will, you know, start to decrease the losses as we grow. So we're not going to, you know, we've always had the levers where we can slow the spend down and let the, not necessarily cut, but just slow it down. and then let the revenue pass it. We're in one of those stages where we just want to hold it for a little while and get on that track. I think if you roll it out, then we would get to break even end of 2023, roughly. So that is a different trajectory than what we were describing in the first half of the year. And really just a reaction to the markets and just to the pace and let the pace of the business catch up. Does that answer your question? Gotcha.

Yeah, I know.

Yeah, Gabriel, I wanted to add something. I mean, you asked a good question about sentiment or something like that. I mean, how are we feeling inside the organization today? So, yes, we're controlling the cost side, but, look, nobody is under-resourced whatsoever. I mean, we're tweaking and moving the resources where we're seeing that the majority of the impact is happening, and that's expansions of enterprise. I mean, no surprise there. We're definitely, I mean, sense of urgency. I mean, it's an understatement. were disappointed with Q1, felt a much better Q2, and were at it like lions at it. And we're seeing it.

Yeah, no, that's great feedback. Just one more question for you, Dave. Can you just give us an update on where headcount currently stands and just the number of quota carrying reps as of the end of Q2?

As a company, we're just under 160 people, and then on the quota-bearing, just under 20. We've been around 20 for the year, but really shifting the mix. The one thing that's happened behind the scenes is we've been shifting to the U.S. more and to Europe more. we've added some good managers and maybe Alvaro can add to this, but some good managers in, or one, one in the U S and one in Europe under Kramer. So the team has shifted probably a little more away from the inside sales team in Ottawa to some more field presence in the U S and in Europe. That was great feedback.

Yep. Yeah. I'll add one piece to it. I mean, in terms of, You know when you have those kind of sales managers that nothing is impossible, and we have now that kind of mentality.

I appreciate that feedback, and congrats on progress.

Thank you. Our next question comes from Chris Thompson from PI Financial. Please go ahead.

Hello? Chris, please go ahead. Your line is open. Please unmute your line.

Chris Thompson, please go ahead. Your line is open. Please check if you have a mute function disabled.

Can you guys hear me?

Yes, we can hear you.

I don't know what happened. I'm not on mute. Anyway, sorry about that. Just listening to the conversation here about you know, dialing back on OpEx in the near term and trying to get the break even by the end of 2023, the revenue growth's been, you know, I'll call it lackluster over the last four quarters, less than 10%. Just help us understand, I mean, how do you get back to that 20% year over year kind of revenue growth mode? And is it something that requires more investment in your sales or do you think you can get there the way you're kind of managing your OpEx in this environment?

So two parts to that, Chris. In the short term, we have enough resources to add significantly more volume than what we've been doing. And, you know, as the reps have been ramping, the pipeline certainly supports that. So on pace, you know, are able to achieve that easily. So it's resourced certainly through the end of this year. And then To sustain that, we do have it in the plan to reallocate resources into that group, some of it coming from within sales, some of it coming from other areas of the company, but shifting just some of the costs and more of the enterprise reps, really focusing on enterprise expansion and enterprise expansion in the U.S. market and in Europe. And we definitely have the capacity to do that with the resources that we have.

Okay. I guess that's what you meant by optimizing FEN and H2. You're just kind of shifting it around. Yeah.

So, you know, we've really built, if you look at it, we've really built a lot of infrastructure. We have, you know, five managers in place. We have a lot of sales engineering. We have BDRs in place. We have everything we need for demand gen and infrastructure and And really now it's adding those quota-bearing enterprise reps to get more leverage out of them. And they're more capable of closing bigger deals as well. And that's really what a successful quarter comes down to is closing more than one, which we had one in Q2 that was a very good one. More of those in a quarter is really going to get you your growth rates.

Chris, if I may comment on Dave's statement. The key word here, and it's horrible to hear it as investors, as people running this thing, is time. Okay? Time of the change we made. I mean, 2019, we've done these numbers and these productivity that Dave is referring to before. Now, doing it at scale, when I say two-thirds of top 45s, that's a scale. And that's the piece where we've been investing in it. And that's the piece that we're seeing engagement now with the customers. And we're confident that it's translating into, I mean, to buy first, the first indicator for sure, but into numbers, into real revenue. And I think the size of the amount of customers that we have, I think as they start landing, it's going to be a very different story.

Okay, that's helpful, Alvaro. And just maybe, I mean, what's Kramer done internally? I mean, what kind of tools are you using to track your pipeline? How confident are you that the close rates are going to accelerate and have to? And, you know, is the pipeline mostly new business or is it mostly upselling to your existing enterprise base?

Chris, the key tool is called Focus. Okay, it's all in Salesforce. Seriously, I mean, it's all very well tracked. Great analytics. We have more numbers than what anybody needs. And I mentioned this. I mean, you know what I'm talking about when I say sales guys that can, I don't know, they eat glass. They go through things that is impossible. Don't worry, I can metabolize that. Not from an overly optimistic piece, giving you the la-la land, but just asking the customer at a time of renewal For, hey, why don't we do this? Didn't you know this? I mean, you know what I'm talking about. He's basically ultimately taking that relationship with the customer, which, again, we've done it before, but we need to do that at scale with multiple guys doing that at the same time. That is the key tool. He's very focused. He's very methodical. He's not going to, I don't know, tell you every day that he's going to, I don't know, get it out of the park every conversation that you have with him. He's a very realistic guy, a guy with a lot of experience that has delivered before. So I'm anxious, as all of everybody on the call is. I have the advantage of seeing it closer, and I think he's in a different place.

Okay, and just, you know, on the pipeline side, the confidence that you have will borrow. Is it direct sales or, I mean, there's some- Oh, sorry, extension.

Yeah, yeah. I mean, there is some deals through partners. I mean, just to give you an idea, 23% of our base is partner-driven. Partners are very good for new because you get through very quickly. Then the customer is owned by, I mean, shared ownership, but it's owned by us. I mean, we're the guys who get those guys through a finish line and get them to adopt faster. However, the majority of the numbers are coming through direct expansions. Some of them are with partners because the paperwork is with the partner. That is direct. It's our squad team, our customer success people, our reps, our training people, everybody together, hugging and loving those customers and getting them to the next place.

Okay, that's helpful. Yeah. Yeah. Dave, just last one for me, Dave, maybe on the OpEx and Q3, the Empower user conference, is that like something we should be thinking about in our model? Is that a significant cost?

No, I mean, it's another event, right? So we, Alvaro's at an event right now. So we, you know, we have those things spread throughout the year. So that won't have a big impact in OpEx. It's already in there, but You know, really, it's going to be in a fairly tight range, but, you know, if the volume of business picks up, the commissions will pick up for sure. And, you know, so that's kind of how that should work in the long run.

All right. Well, that's positive if we see effects grow from more commissions. Thanks, guys. Have a great day.

Thank you, Chris. Thank you. And as a final reminder, to ask a question, please see one by pressing star 1. We will pause for just a moment. to allow you to signal. Is there enough other questions in the queue? I'd like to hand the call back over to our speakers for any additional or closing remarks.

Yes, that's me. Look, we've invested to build our enterprise go-to-market team, and we feel confident that we have the right team. We feel that this team can deliver the strong results in the second half. We continue to be fine-tuned, but roughly our current spend levels, okay? So you heard from Dave and from me where the focus is. I remain very excited about the future. We clearly see growth opportunities for our customers, both geographically and with new use cases. And I want to thank everybody for spending your time with us. And as always, I would like to thank you for your continued support. I understand the first half of being like, oh, my God. But seriously, I appreciate that support. And we're seeing a very different future.

Thank you. This concludes today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.