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Good day, and welcome to the ProntoForms 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 Pedram. 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 securities 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 2 can be found in our management discussion and analysis, which is available on sedar.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. Please go ahead, sir.
Hey. Good morning, Babak, and thank you, [ Sergei ]. 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 ProntoForms 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 volumes 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 scaling 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 $100,000 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 2 core back-office systems, and we're seeing that the demand for more workflows in the field is increasing substantially. Their new systems offered some difficult ways to do that. But as they progressed, the cost and complexity made 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 Service East, 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 is that it looks like our enabled -- 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 [ shareable ] 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 impacts 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 8 weeks. The message resonated very well with the audience, and we had the opportunity to demo diverse use case examples at the [ bulletin ], which are becoming templates to help simplify and then speed the implementation even further.
The increased demand of enterprise automation, in response to the challenge of a technician's 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 Internet meetings with key customers, who will learn and be inspired by their peers on how ProntoForms is using multiple industries of hundreds of diverse use cases.
It will also provide a formal and informal setting for establishing a deeper connection between our customers and our go-to-market teams.
I wanted to share just a small sampling of [ option sharing ], an advocacy that attendees will experience. A global brand in the medical industry will be sharing how ProntoForms 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 leveraged 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 who will be doing a deep dive into how rapid and agile deployments of ProntoForms have 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, 7 divisions. One of the largest elevator 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 which -- 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 datasets 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 all of the leading CRMs and field service management systems. With this, we continue to push to enable the business technologies of citizen developers within our customers and minimizing the need to have [ pro IT engineers ] 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 the company culture that is attracting the best talent. As CEO, it's an exciting time to be in this industry, to 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 $100,000 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 -- or 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 6 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 6 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 6 months of 2020 -- for the first 6 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 loss 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 ]. 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 and $6.1 million at December 31, 2021. We also have CAD 1.8 million still available on our CAD 10 million credit facility.
In closing, we have made the investment in the enterprise team. We will hold cost 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.
[Operator Instructions] Our first question comes from Gabriel Leung from Beacon Securities.
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 6 months to get them up and running. The activity that we're seeing is very strong. And I mean, 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. 2/3 of them have open opportunities going on, okay? So there is a lot of activity happening, and we're seeing a very different scenario than, I believe, in 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-wise?
Yes, absolutely.
Got you. Second, Dave, during your commentary, I noticed you had mentioned that you're expecting, I guess, minimal increases in operating expenses. I just want to confirm that with you, that sort of $5.4 million of operating expenses that you reported in the quarter, do you expect much -- should 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?
Yes, that's right. So $5.7 million, it was. But yes, 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 as Alvaro mentioned, they've been ramping. And 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 ProntoForms that there maybe is a greater urgency to get to breakeven EBITDA? Or are you still with the view that you're happy to burn a little bit of cash to try to accelerate your recurring revenue growth?
Yes, good question. So we're holding it steady where it is, and then that will start to decrease the losses as we grow. So we're not going to -- 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 breakeven end of 2023 roughly. So that is a different trajectory than what we were describing in the first half of the year. And it's really just a reaction to the markets and just to the pace and let the pace of the business catch up. Did that answer your question?
Yes. No, it's...
Yes, Gabriel, I wanted to add something. I mean you asked a question about sentiment or something like that. I mean how are we feeling inside the organization. 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 is a -- I mean, it's an understatement. I mean we're disappointed with Q1, felt much better in Q2 and we're at it like a lion. So [ we're seeing it just to keep ]...
[ Was that helpful ]?
Yes. No, that's great feedback. Just one more question for you, Dave. Can you just give us an update on where the headcount currently stands and just the number of quota-bearing 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 at around 20 for the year, but really shifting the mix. And the one thing that's happened behind the scenes is we've been shifting to the U.S. more and to Europe more. And we've added some good managers, and maybe Alvaro can add to this, but some good managers in -- or 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.
Yes. 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 the progress.
Thank you, Gabriel.
Our next question comes from Chris Thompson from PI Financial.
Can you guys hear me?
Yes, we can hear you. You're good.
Yes.
I don't know what happened. I'm not on mute. Anyway, sorry about that. Just listening to the conversation here about dialing back on OpEx in the near term and trying to get to breakeven by the end of 2023. The revenue growth has been, I'll call it, lackluster over the last 4 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 2 parts to that, Chris. In the short term, we have enough resources to add significantly more volume than what we've been doing. And as the reps have been ramping, the pipeline certainly supports that. So on pace, are able to achieve that easily. So it's resource 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. office or 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, Dave, what you meant by optimizing spend in H2, just kind of shifting around.
Yes. Chris, so we've really built -- if you look at it, we've really built a lot of infrastructure. We have 5 managers in place. We have a lot of sales engineering. We have BDRs in place. We have everything we needed for demand gen and infrastructure. And really now it's adding those quota-bearing enterprise reps to get more leverage out of them, right? And they're more capable of closing bigger deals as well. And that's really what a successful quarter comes down to. It's 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 keyword here -- I mean, it's horrible to hear those investors, so it's people wanting the same. It's timing, okay, time of the change we made. I mean 2019, we've done these numbers and this productivity that Dave is referring to before.
Now doing it at scale. When I say 2/3 of top 45, that's at 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 -- [ come into pipe ] is the first indication 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 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 -- they 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 [ make -- monetize ] that, not from an overly optimistic piece, giving you the la-la land, but just asking the customer at the time of renewal for, hey, what else can -- why don't we do this, didn't you know these? I mean do you know what I'm talking about? It'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 here. I have the advantage of seeing him closer, and I think he's in a different place.
Okay. And just on the pipeline, the confidence that you have, Alvaro, is it direct sales? Or I mean, are there some...
Sorry, expansion. Yes, yes. A lot -- I mean, there is some deals through partners. And 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 are 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, but it's 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. And just last -- Dave, just last one for me, Dave. Maybe on the OpEx in Q3, the EMPOWER user conference, is that like something we should be thinking about in your 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 have those things spread throughout the year. So that won't have a big impact on OpEx. It's already in there, but really, it's going to be in a fairly tight range. But if the volume of business picks up, the commissions will pick up, for sure. And so that's kind of how that should work in the morrow.
All right. Well, that's positive if we see OpEx grow from more commissions.
[Operator Instructions] As there are no further 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 And 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 level is, 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 had been like, oh, my God, but seriously, I appreciate the support, and we're seeing a very different future.
This concludes today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.