ProntoForms still a Buy, says PI Financial

PI Financial analyst Kris Thompson has pushed down his expectations for ProntoForms Corporation (ProntoForms Stock Quote, Chart, News, Analysts, Financials TSXV:PFM). Despite maintaining a “Buy” rating for the company, Thompson reduced his target price from C$1.50/share to C$1/share for a projected return of 88.7 per cent in an update to clients on Friday.

ProntoForms, based in Kanata, Ont., researches, develops and markets mobile business solutions, including its ProntoForms mobile workflow management app, for enterprises to automate field sales, field service and other field data collection.

Thompson’s latest update on ProntoForms comes after the company released financial results for the first quarter of its 2022 fiscal year, with Thompson attributing his target price reduction to a slowdown in bookings and lower revenue growth visibility.

The ProntoForms quarterly report was headlined by $5 million in revenue, representing a sequential increase of 0.7 per cent and year-over-year growth of 9.3 per cent while being in line with PI Financial projections. (All figures are in US dollars except where noted otherwise.)

However, the company’s annual recurring revenue of $19.6 million represented a 0.7 per cent decrease on a sequential basis despite being a 9.6 per cent year-over-year increase, coming in slightly behind the $20.4 million expectation set out by PI Financial.

“Management noted lumpiness and longer durations in the sales cycle as the focus is revamped towards Enterprise accounts,” Thompson said. “Our analysis indicates that bookings declined QoQ largely due to the termination of a large one-year unique contract with a foreign government that shaved 1.5 per cent from ARR.”

On the margins, the company reported gross profit of $4.2 million for an 84 per cent margin to come in slightly behind the PI Financial expectation of $4.4 million and a margin of 86.4 per cent, while the $959,000 EBITDA loss came in ahead of the PI Financial prediction of a $1.3 million loss, with Thompson attributing the EBITDA beat to vacant employment positions and a reduction in non-essential spending.

Subsequent to the end of the quarter, a global heavy manufacturing organization increased their commitment to ProntoForms by over $180,000 ARR to approximately $870,000 ARR, with varying contractual commitments from the end of 2022 to the start of 2023.

The new commitment follows an expansion of 200 additional subscriptions for a Fortune 500 oil and gas organization, a deployment of 450 subscriptions for a Fortune 500 power and renewable energy global enterprise, and an additional 510 subscriptions for a Fortune 500 HVAC and refrigeration organization.

“Our most recent customer expansion wins demonstrate the success of our enhanced go-to-market,” said Alvaro Pombo, Founder and Chief Executive Officer of ProntoForms in the company’s May 5 press release. “We’re scaling conversations with our customers on how our platform can help them address pressing business challenges, like inflation and the labor market. Our improved team is uncovering more enterprise expansion opportunities.”

All told, the company ended the quarter with $7.4 million in cash on hand, along with an additional $5.7 million drawn from its $10 million credit facility.

“Management seemed confident that the remaining facility would be available under the covenant terms,” Thompson said. “Our view is that growth initiatives are going to suffer somewhat as inflation creeps into the hiring and retention of key people in a challenging economic backdrop, and excess capital is tight.”

The release of the updated financial results has prompted Thompson to revise some of his financial projections, lowering his 2022 revenue target from $22.9 million to $21.1 million for a potential year-over-year increase of 11.1 per cent, and also lowering his 2023 revenue target from $28.5 million to $25.5 million, marking a potential year-over-year increase of 20.9 per cent.

From a valuation perspective, Thompson forecasts the company’s EV/Revenue multiple to drop from the reported 2.7x in 2021 to a projected 2.5x in 2022, then to a projected 2x in 2023.

Meanwhile, Thompson continues to forecast EBITDA losses for ProntoForms, shifting his 2022 forecast from a $5.7 million loss to a $5.3 million loss, while he now projects a loss of $4.9 million in 2023 compared to his previous $4.8 million loss projection.

Going forward, Thompson believes the company’s shift toward enterprise sales could cause some uncertainty in the short term.

“The investment thesis always considered some weakness in H1/22 until recent quota-carrying sales hires reach their targets by year-end,” Thompson said. “However, we are less confident that execution will back-fill churn as we were again surprised by the churn of another large customer completion in Q1.”

ProntoForms has seen its stock price drop off by 37.7 per cent since the start of 2022, unable to sustain an early high close of $0.96/share from January 25 and closing the week at a 2022 low of $0.53/share.