A Deep Dive into ProntoForms

Disclosure: I do not own shares in PFM.V at the time of publication of this article.

ProntoForms:

  • Ticker: PFM.V
  • Stock price: $0.34
  • O/S share count: 91.6M
  • Market cap: $31.1M
  • Cash & cash equivalents: ~$5.5M
  • Debt: ~$3.8M (~$1.7M in long-term debt + derivative liability)
  • EV: $29.4M
  • 2015E Sales: $9.5M
  • EV/2015E Sales: 3.09x

ProntoForms is a leading provider of digital and mobile forms which allows enterprises and SMBs to do away with the need for paper forms. The workers in the field simply use the ProntoForms application on their mobile device (cellphone or tablet) in order to fill out forms which immediately get sent to HQ and are stored in the company’s servers. As it should be obvious, the process is much more efficient than having to fill out paper forms. Customers benefit from no longer needing to spend money on materials for the paper forms, not worrying about forms being lost and the associated consequences of such an event, and from instantly receiving forms. The latter benefit means the company can finally measure metrics regarding its forms since they are digitized, and they also get information in real-time which means they can make adjustments in their operations quicker.

Here’s a video which demonstrates the product: https://www.youtube.com/watch?v=9hNU2SlKwhI

The company currently sells its products through channel partners, namely AT&T, and direct sales. Furthermore, the ProntoForms application is also getting a push from Apple as they are officially part of Apple’s “mobility partner program” which is a program that Apple has put in place to further increase the presence of the company’s products in the business world (source: http://blogs.wsj.com/digits/2015/08/13/apple-pushes-ipads-for-business-with-different-partners-similar-aims/).

It’s quite impressive for a microcap to have the backing of AT&T and Apple and can be viewed as a testament to the usefulness of the product. The company’s current sales strategy has allowed them to grow recurring revenues, which is ~90% of sales, at CAGR (compound annual growth rate) of 60.2% from 2012 to 2014 and the growth is still going strong till this day with the latest quarter seeing YoY growth of 56%. On a sequential (quarter-to-quarter) basis, the company on average is growing recurring revenues 11%.

The company is currently burning through $200k in cash per quarter according to my estimates.  The reason for the burn is to fuel the direct sales model and not because of the bad SaaS economics. As a matter of fact, the SaaS economics are pretty great in this business. The CLV (customer lifetime value) is $750 and the CAC (customer acquisition cost) is $150, yielding a CLV/CAC ratio of 4x. What’s more, the customer payback period, that is the amount of time before a customer becomes profitable), is less than 1 year. Many SaaS companies run into trouble when their payback periods are too long,  their CLV/CAC ratio isn’t high enough or their CAC is high in terms of absolute $$. The first issue results in old customers taking too much time to become profitable and so long as the company keeps growing (even if its growth rate declines significantly), the company will eternally remain in the red. The second issue implies that the company is hardly making a profit on the customer which is obviously bad. The final issue is more specific to microcaps where the company will need to spend lots of money initially to grow its customer base because each customer is costly to acquire (remember: microcaps are plagued with fewer resources and more difficult access to capital). Fortunately, ProntoForms suffers none of these problems, so it will eventually become profitable.

Let's take a quick look at the impressive revenue growth, and recurring revenue growth, over the years:

 

There are MASSIVE growth opportunities for the company so revenue growth is unlikely to come to a halt for a long time to come. According to their estimates, there are 42M potential subscribers in North America alone. The company currently has 50k subscribers (3.5k customers who have multiple subscriptions) which equates to a 0.11% market penetration – they are still scratching the surface. Their main “competitor” is really paper forms, and given the major economic incentivise of their product for SMBs and enterprises, it’s only a matter of time (a few decades IMO) till digital forms begin outnumbering their paper counterparts.

Regarding the insider ownership, I was extremely surprised to see that the chairman of the board who is the largest shareholder is a billionaire (and also knighted lol). It’s not every day that you see a billionaire involved in microcaps, it’s actually a first for me. He owns ~20% and clearly takes an active role in the business as he’s the chairman of the board. Furthermore, it’s a good assurance that the company will be able to raise even if banks or other investors aren’t willing to further fund the venture.

In conclusion, I think the company has immense potential for the above mentioned reasons and therefore I think this could potentially be a next Amazon or Netflix, albeit on a smaller scale. That said, the company is still burning cash and I anticipate it will continue doing so for a while, so one must be cautious with the price they pay in case of further dilution.  That price for me is around $0.22/share (or 2x EV/2015E sales).

Disclosure: I do not own shares in PFM.V at the time of publication of this article.