ProntoForms Corporation

Good morning, ladies and gentlemen, and welcome to the Pronto Forms Corporation second quarter 2023 results conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, July 26, 2023. I would now like to turn the conference over to Dave Croucher. Please go ahead.

Thank you. 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 securities laws. Including among others statements concerning the company's 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 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. I will now go through the financial highlights for the second quarter of 2023. Total revenue in Q2 2023 was $6.1 million, a 6% sequential increase from Q1 2023, and an increase of 17% compared to Q2 2022. Total revenue for the first half of 2023 was $11.9 million, representing an increase of 16% over the first half of 2022. Recurring revenue in Q2 2023 was $5.8 million, a 7% increase from Q1, and a 16% increase from Q2 2022. Recurring revenue for the first half of 2023 was $11.2 million, representing an increase of 14% over the first half of 2022. Our annual recurring revenue base, or ARR, as at June 30th, was $23.7 million, representing an increase of 7.4% sequentially, and an increase of 18.7% from a year ago. Customers with greater than 100K of ARR represented 44% of our Q2 2023 ending ARR base, up from 43% at the end of last quarter and up from 41% a year ago. Revenue from professional services was $335,000 in Q2 2023, down slightly from Q1 2023, and up 38% from the second quarter Revenue from professional services for the first half of 2023 was 678,000, up 73% compared to the first half of 2022. The 2023 first half increase in professional services revenue relates to increased sales and delivery of larger engagements with enterprise customers. Gross margin on total revenue for the second quarter was 86%, which is flat sequentially and up 2% compared to Q2 2022. Gross margin on total revenue for the first six months in 2023 was 86% compared to 84% for the same period in 2022. Gross margin on recurring revenue in Q2 2023 was 91% up from 90% in Q1 2023 and up from 89% in Q2 2022. Gross margin on recurring revenue for the first six months of 2023 was 91% compared to 89% in the same period in 2022. Operating expenses in Q2 2023 were $6.3 million, a 4% increase from Q1 2023 and up 9% from Q2 2022. Operating expenses for the first six months of 2023 were $12.3 million compared to $11.4 million for the same period of 2022. Loss from operations in Q2 2023 was $970,000 versus just over a million in the first quarter of 2023 and $1.3 million in Q2 2022. Loss from operations for the first half of 2023 was $2 million compared to $2.8 million loss for the first half of 2022. Non-GAAP loss from operations for Q2 2023 was $684,000 down from $790,000 in Q1 2023 and down from roughly $1 million in Q2 2022. Non-GAAP loss from operations for the first half of 2023 was $1.5 million compared to $2.1 million for the first half of 2022. We saw improvement in our Q2 2023 non-GAAP operating loss despite incurring severance-related costs related to org charges or changes. We still expect steady improvement in our profitability for the remainder of 2023 with the improved bookings and adjusted cost structure. Our cash balance at June 30th, 2023 was $6.3 million up from $6.1 million at December 31, 2022. We did not draw anything from our line of credit and we still have $1.4 million available and committed through October 2024. In addition to the steady results in commercial sales, enterprise expansion and retention, the large Q2 deal that we reported is the kind of deal that can get us new growth levels. Within our profitability targets, we continue to optimize our go-to-market investment with the objective of replicating similar deals to provide sustainable higher growth in our ARR base. We continue to have a strong cash position to enable us to reach our growth and profitability objectives. With that said, I'll pass it over to Phil.

Thanks, Dave. The last time we communicated with shareholders, we set out goals for the acceleration of our revenue growth and steady progress towards profitability. We also highlighted that some of the costs of reconfiguring our go-to-market activities that would continue through the second quarter before moderating. The quarter played out largely as planned. On the ARR growth front, we started strongly with our largest deal ever, announced in the first week of the quarter with a major medical device manufacturing company. But we also saw strong results from our commercial sales group, from other small enterprise expansion deals, and from improving levels of contract retention. This added up to an increase in ARR of 1.6 million, our best quarterly result ever, and in turn continued the acceleration of our ARR growth to over 19% on a trailing 12-month basis. We won't do very large deals in every quarter, but the pipeline for enterprise expansions and new logo deals continues to improve. During Q2, we completed a major overhaul of our marketing strategy. by moving to a completely targeted enterprise approach bolstered by an AI-fueled intention tracking capability. We will bolster that by redirecting lead generation costs to focus search engine investments in a very precisely targeted manner. The focusing of our account strategy has already had the effect of redirecting our enterprise sales executives into the most promising accounts. The new technology platform we've rolled out will now help focus them on the individuals within those accounts that are engaged in field service productivity initiatives. Our new marketing and sales strategy has required changes to a myriad of ways in which we market, sell, and support and build our products for customers. And many of those changes required changes to our organization that increased our costs in the second quarter. Most of the expensive part of those changes are now behind us. And from the third quarter on, our overhead will more closely track our ongoing spend. Our sales and marketing costs relative to new ARR, also known as customer acquisition costs, declined from 2.5 at the end of Q1 to just over two on a trailing 12-month basis. The go-to-market changes are focused on the number one priority of our management team, to support higher sustainable growth rates in the long term. The key parts of that priority are making sure that we're focused on the most promising customers, mentoring and training our sales executives to bring them to maturity, rolling out new collateral under our new true context name, leading with value-based messaging, promoting a more expansive vision of our capabilities to match our product capabilities, and evolving our platform to deepen our competitive advantage in the enterprise field intelligence space. My partner, Alvaro, will have more to say about that part of the plan. The work is far from complete and will take several more quarters to achieve a more reliable pace of enterprise deals. but we've made tremendous progress in the past six months, and the pace of change continues to be high. At the same time as making those critical investments, we're operating within a very disciplined cost envelope that will ensure that we achieve the improvements in profitability that need to accompany our higher levels of growth. Our overall headcount declined 5% from the end of Q1, improving our revenue per head from $158,000 to $176,000. We continue to optimize the way we work together within the company to collaborate better and align the new processes between departments. Part of collaborating better is seeing each other in person more. During Q2, our workforce returned to our two major offices in Canada and Toronto for three days a week. This is part of our efforts to improve the engagement of our employees with each other, particularly important during this period of rapid change. but the only way to create a fully engaged and collaborative workforce. We continue to enjoy improving relationships with major IT vendors like ServiceNow and Salesforce, where the teams deploying those platforms see increasing benefits of using ProtoForms as a complement to their platforms, handling the difficult and complex task of automating field processes that their desktop-centric user bases do not face. While we don't expect to or we don't expect or intend to develop resale agreements with these partners, we are collaborating to deliver great combined solutions for our customers. In Q2, we also had an outstanding quarter from the standpoint of customer retention, as Dave highlighted. As we've said in the past, our customer retention is largely proportional to customer size. As we shift our customer mix steadily towards larger enterprise transactions, where we're more intimately connected to major enterprise systems, And where the mandate we fulfill relates to the installation, maintenance, and repair of complex field-deployed equipment, we expect to see continuing improvements in retention. At the end of Q2, the segment of our revenue base that has churned higher than 10%, the SMB segment, now represents only 18% of our total ARR base. With the strong ARR results that we've posted in Q2, we've made significant progress towards our profitability mandates. The increased revenue will combine with modest declines in operating expenses through the balance of the year that will push us towards our important break-even milestone. It is a milestone, however, not just a goal. Our long-term strategy remains, as we outlined last quarter, to accelerate our growth to higher sustainable levels, to make steady long-term improvements in profitability, and to strengthen the product advantage that we are using to create leadership in the field intelligence markets. I'll now ask Alvaro Pombo to make some comments on the way we're expanding our thought and product leadership in the field intelligence space.