Verb Technology Company, Inc.
Q3 2020 Earnings Call Transcript

Published: 16 Nov 2020

[Operator:]

Good afternoon and welcome to the Third Quarter 2020 Financial Results Conference Call from VERB Technology Company. Please be advised that this call is being recorded at the Company's request. On our call today are Rory J. Cutaia, CEO; and Jeff Clayborne, CFO. Before we begin, I would like to remind everyone that statements made during this conference call will include forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties that could cause actual results to differ materially. Forward-looking statements speak only as of the date they are made, except as required by law as the underlying facts and circumstances may change. VERB Technology company disclaims any obligations to update these forward-looking statements, as well as those contained in the Company's current and subsequent filings with the SEC. The Company also notes that in addition to these results under Generally Accepted Accounting Principles or GAAP discussed on this call, the Company will also present two non-GAAP measures as supplemental measures of its performance

[Rory Cutaia:]

Thank you. And I thank everyone for joining us today for our third quarter 2020 financial results conference call. Here is agenda for the call. First, we'll bring everyone up to date on our progress over the past three months. And since this will be the last formal report for 2020, I'll provide some product focused review of the year where we are, how we got here, and then I'll provide some insights into some of the exciting things we have planned for the bounce of this year, and the first quarter of 2021. Next, I'll provide some high level color around our third quarter numbers, which by the way, now represents six consecutive quarters of SaaS revenue growth, half of which we produce during a global pandemic and a collapse in the economy and otherwise very difficult period of time in which we nevertheless enjoyed unprecedented record breaking growth. And while we continue to focus on our underlying bread and butter verbCRM business, we were still able to allocate resources to development of certain new products and services that I'll talk about today that we believe can propel this company into 2021 and beyond. Then I'll turn it over to Jeff Clayborne, our CFO for some scintillating detail around the P&L, balance sheet, cap table with financings and after Jeff's financial presentation, we'll take some questions. So with that agenda for the call, let's get started. I think we all hoped the election would have been behind us by now and all of the uncertainty that evokes but unfortunately, we remain a divided nation navigating uncharted post-election waters with the impact on the economy and the markets still to be determined. COVID-19 continues to dominate redefining every aspect of our personal and professional lives. And if we had $1 for every time I hear the phrase, the new normal, I'd ask the board to declare a dividend and distribute a fortune to our shareholders. And while I have no illusions that the world will become a safer, friendlier, more inclusive or at least a less divisive place anytime soon, I nevertheless have an extraordinarily high level of confidence and optimism about our company, our business and our prospects for meaningful growth. Yes, we're all familiar with the philosophy that difficult, challenging times are really just new opportunities waiting to be uncovered and I certainly subscribe to that, but this is not that. This is really more than that. You see, I may not have great visibility on what lies ahead for our country, the economy or the world at large. But I do have great visibility on what lies ahead for VERB.

[Jeff Clayborne:]

Thank you, Rory, and good afternoon everyone. I'd like to review the financial highlights as included in our Form 10-Q file today, November 16, for the quarterly period ended September 30, 2020. As Rory has discussed, we have been focused on growing our SaaS recurring subscription revenue. Total SaaS revenue for Q3 totaled $1.5 million, an increase of 16% and the $1.3 million reported last quarter and an increase of 55% for the $953,000 reported for the same period last year. Total digital revenue for Q3 totaled $1.8 million, an increase of almost 10% from the $1.7 million reported last quarter and an increase of almost 28% from the $1.5 million reported for the same period last year. On a pro forma basis, total SaaS revenue for the first nine months of 2020 totaled $4.5 million, an increase of 33% from the $3.4 million reported for the same period last year. On a pro forma basis, total digital for the first nine months of 2020 totaled $5.7 million, an increase of almost 20% in the $4.7 million reported for the same period last year. Looking at our operating expenses, we continue to add resources to our product team to support development of verbLIVE plus enhancements to verbCRM, and to our core platform to facilitate native integrations with Salesforce, Microsoft and other channel partners. Research and Development for Q3 total $2.4 million, an increase of approximately 98% from the $1.2 million reported for the same period last year. On a pro forma basis research and development for the first nine months of 2020 totaled $5.3 million, an increase of 40% for the $3.8 million reported for the same period last year. Now, we've had increases to general and administrative expenses attributed to increase labor to support growth plus retention bonuses pay through SoloFire employees and an increase in stock compensation expense to support growth plus the shares granted to employees and consultants that was part of our payroll reduction plan, an increase in professional services primarily related to the acquisition SoloFire and we had an increase in facility costs at our offices in Newport Beach, California. General and administrative expenses for Q3 totaled $6.7 million, an increase of approximately 102% and a $3.3 million report in the same period last year. On a pro forma basis, general and administrative expenses for the first nine months of 2020 totaled $14.9 million, an increase of approximately 42% for the $10.5 million reported in the same period last year. As of September 30, 2020, cash totaled $10.7 million. Our total assets were $42.6 million total liabilities were $20.8 million, and stockholders' equity was $21.8 million. We had a couple notable changes to our balance sheet in 2020. We added $1.9 million in a notes payable as part of the acquisition SoloFire that was paid off on October 1 2020, plus we added $1.5 million in long term debt, of which $1.2 million is a Paycheck Protection Program loan that we believe will be completely forgiven that I'll discuss in further detail in a moment. Plus $150,000 associated with an economic injury disaster loan payable over 30 years. An additional Paycheck Protection Program loan of $90,000 we inherited from the SoloFire acquisition. We had a couple classification changes as 1.1 million of long-term related party debt and 521,000 deferred incentive compensation is now classified as current. As Rory mentioned earlier, we've also been incredibly focused on properly capitalizing the Company provide necessary growth capital and to manage the social and economic uncertainty. Some of the financing initiatives that occurred in the first nine months of 2020 are as follows. On February 5 2020, we initiate a private placement for the sale and issuance of up to 5 million restricted shares or common stock at a per share price of $1.20 which represented a 20% discount to the then current $1.50 closing price of our common stock on the day the offering was priced and is memorialized by executed subscription agreements. As a result of this private placement a total of 4,237,833 shares of common stock were subscribed for an issued for net proceeds of 4.4 million after direct costs. On April 17, 2020, we receive loan proceeds in the amount of approximately 1.2 million under the Paycheck Protection Program or PPP. The PPP established as part of the coronavirus aid relief and Economic Security Act provides for loans to qualifying businesses for amounts up to 2.5 times, the average monthly payroll expenses of the qualifying business. The loan and accrued interest are forgivable after the earlier of; one, 24 weeks after the loan disbursement date; and two, December 31 2020, as long as the borrower uses a loan proceeds for eligible purposes, including payroll, benefits, rent and utilities and maintains this payroll levels. To the extent any portion of the loan is not forgiven is payable for two years and an interest rate of 1% with a deferral payments for the first six months. We have used and will continue to use the proceeds solely for the expenditures strictly in compliance with the terms of the PPP. On July 24 2020, we closed our public offering and the Company issued and sold 12,545,453 shares of common stock, which includes 1,636,363 shares of common stock sold pursuant to the exercise by the underwriters of an overallotment option for gross proceeds of 13.8 million. Our net proceeds totaled 12.3 million after deducting the underwriting discounts commissions and operating expenses. As of today, there are 46,693,790 shares of common stock issued outstanding of the total number of common shares issued and outstanding, approximately 4.5 million shares or approximately 10% are owned or controlled by management and board members. I'd like to turn the call back over to the operator for Q&A. Operator?

[Operator:]

At this time, we will be conducting a question-and-answer session. Our first question comes from the line of Brian Kinstlinger with Alliance Global Partners. You may proceed with your question.

[Brian Kinstlinger:]

My first question is on verbLIVE. I think although I was late to the call. You mentioned its launch. I just want to make sure that the official launch and not a soft launch. I didn't see a press release, which I thought we would? And then can you talk about the revenue model, is this revenue per seat per month and excel what price should we be thinking about?

[Rory Cutaia:]

Yes, I talked about that, Brian, earlier in the call before you came on. So, we're pretty satisfied now that we've been able to harden the platform and ensure that we have the degree of scalability for simultaneous users on a global basis now. As I mentioned in our last earnings calls, we were concerned that the rate of adoption and the rate of growth around that might challenge the platform, but I feel pretty good about it now. There is some final testing happening because I have these guys on it every single day. And we do have a growing, growing backlog of users who will absolutely challenge the platform. So at this moment, it looks like we're just a few weeks away now from the launch, the official launch globally with all of our clients. We'll put our direct sales clients on it first because as I said that's low hanging fruit. These guys will be signed up in this, really a ton of those. I also mentioned in the call that we're going to be doing a cyber Monday launch with a handful of our clients as a way to really kick off verbLIVE. So, we're pretty excited about that that's coming up. In terms of the revenue model, it's a SaaS model. It's a monthly recurring fee. If you are a verbCRM existing subscriber, then you will have a premium opportunity to pay. I think it's $4.95 a month on top of your other subscription. So, that's the current plan.

[Brian Kinstlinger:]

And did you mention how many, you said, you have a bunch of customers have already signed. You have maybe a figure for how many seats you already have signed up for once it's ready to go in the last few weeks, so maybe the year that you can get on the platform?

[Rory Cutaia:]

Yes, that's another metric that we spoke to. We've got 17 some odd. I think actually, there's more now. Clients that have signed up, those are enterprise clients. Their user base among them is somewhere north of 460,000 individual users. And as we roll it out, we'll see what kind of adoption rates we get. We're pretty optimistic, but I think for purposes of sort of trying to set expectations we are assuming just for modeling purposes. Let's assume we only get 10% of those. And frankly, I think we're going to get more, but I think for modeling purposes, that comes out to if you're looking at annual recurring revenue somewhere north of $5 million of annual recurring revenue get you headed?

[Brian Kinstlinger:]

Now, just from some of your old prices curious. Is the enterprise taking on that 4.95 per month charge? Or is it the user and employee who is taking on that charge or does it vary?

[Rory Cutaia:]

It varies. We are finding a great deal of success in a model whereby corporate enterprise pays a flat fee. And then the balance is paid by the individual users. So we're seeing greater adoption and acceptance of that we feel pretty good about it. But you joined after I spoke about verbTEAMS, Brian, which is a new product, which addresses some of the things that you and I have spoken about. In the past, that's a completely self serve, self on-boarding, new platform that we launched today, that you really, really need to take a look at Brian, and you might want to think about incorporating that.

[Brian Kinstlinger:]

And then switching to a different product, I know that you've slowed the rollout in app purchasing, given your focus and verbLIVE. But if you could just discuss in our purchasing, how many customers have you rolled this out to? Are you continuing to roll out in the fourth quarter? Just something about its contribution to business and expectations of how you plan to move forward with this?

[Rory Cutaia:]

So yes, we've begun rolling that out. We've got a couple of applications in there. I think that our focus, as I think everybody knows, has been really on getting verbLIVE because that's going to give us the biggest bang for our buck. And as we're spending our development resources on hardening that platform, you're right, we did slow that down a bit, but you could expect to see that pick up in a pretty big way beginning in January.

[Brian Kinstlinger:]

And then overall enterprise customer additions for the traditional product. Can you talk about what they were in the third quarter compared to the second in the first quarter?

[Rory Cutaia:]

Yes.

[Jeff Clayborne:]

Brian, this is Jeff. So, we have 16 enterprise clients in the third quarter compared to 20 enterprise clients in the second quarter. And we did 11 enterprise clients in Q1.

[Brian Kinstlinger:]

And lastly, for me, you may have aggressive so I'm sorry. Can you give trailing 12 months revenue for SoloFire? And just to be clear, is that also a recurring SaaS revenue model 100%? Or is there some non-recurring revenue in there?

[Rory Cutaia:]

Hey, Brian, the cash flow mark was just north of $1 million trailing 12. Now their revenue is all SaaS. Unlike us, all their contracts say what you mentioned in the further call they build all their contracts, one year contracts they done in advance.

[Brian Kinstlinger:]

And can you talk about I guess I have one more question. Since it's one year contracts, what's the traditional churn they know this business?

[Rory Cutaia:]

Very small, they maybe lose one or two logos. We will call logo annually. But obviously, it's a positive net charge for them.

[Brian Kinstlinger:]

Great, thank you so much.

[Rory Cutaia:]

One thing I would add to that, Brian, we're really beginning to see some big logos, big businesses join this. This quarter, we added Market America, which is huge, huge enterprise. And we also added Shaklee, which I think we have a press release that we'll see pre market tomorrow, so a couple of big ones. The thing about Shaklee, that I think is interesting, not only are they I think among the top 10 in terms of size, to access companies in the world, which is a big win for us. Obviously, that was a competitive situation. But the other thing that's really cool about the Shaklee thing is that we've created an integration for verbCRM into Salesforce and because Shaklee uses Salesforce as their CRM for their entire organization. And they wanted the features and functionality of CRM to sync with Salesforce. So, we build that. That's going to be a great model for us going forward with our other clients that we've done that.

[Operator:]

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. Rory J. Cutaia, for closing remarks.

[Rory Cutaia:]

Well, thank you all very much for taking the time to listen to talk us talk about VERB. We are in a crazy time in the world guys. It's just -- there's so many things that are going on right now that are impacting our lives. But as I said in the beginning of the call, now, we are so optimistic about what's going on with the business right now. The things that we've done in 2020 introducing verbTEAMS, I know that was a big surprise for a lot of you guys. That's the ability to self-onboard, right on the website and all the features of that that has the one click sync with Salesforce, verbLIVE is in it. That's a really, really exciting new product for us. And it's actually out there now. Please take a look at it. Some of the other initiatives that we talked about the hyper growth things, guys we're delivering. We are not stopping. COVID nothing is slowing us down. We are really firing on all cylinders. So, 2021, I am very, very excited about it. I also asked you guys please go check out that website. I gave you the address. what was the website?

[Unidentified Company Representative:]

Verbshowcase.com.

[Rory Cutaia:]

Verbshowcase.com. Take a look at that video about what the Microsoft Outlook Integration is going to look like, it does roughly right. But we're going to try and finish the product, make it look as close to that as possible. It's killer. It's crazy. So yes, I'm excited, and I do my best to temper that excitement, but it's hard. Honestly, I really feel so proud of my team and thank you for hanging out with us through this crazy time. I think we're going to do really, really well together. Enjoy the holidays. Talk to you soon.