Verb Technology Company, Inc.
Q4 2020 Earnings Call Transcript

Published: 31 Mar 2021

[Operator:]

Good afternoon and welcome to the Fourth Quarter 2020 and Fiscal 2020 Financial Results Conference Call for VERB Technology Company Inc. At this time, all participants are in a listen-only mode. Please be advised 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.

[Rory Cutaia:]

Thank you and I thank everyone for joining us today for our fourth quarter 2020 and fiscal 2020 financial results conference call. On today's call, we'll bring everyone up-to-date on our progress over the past six months, specifically fourth quarter of 2020. And because with the end of first quarter of 2021, we'll provide some unaudited guidance on what we expect to report and our next Form 10-Q filing for this period. We'll also discuss full year 2020 results and compare it to full year 2019 results. I'll also talk a bit about what has recharged up for 2021, which I believe will represent the year -- the market will recognize the true value of this great company represented by the sum of all the pieces we've been creating and assembling over the past three years. It's been a long, long and arduous road, but as I've learned nothing good comes easy and VERB is certainly no exception. You see, we didn't just set out to build a better mouse trap. We set out to build a better mouse to address a problem in a way that was different, bold and innovative. We set out to achieve something that had never been done before. Some refer to it as a blue ocean strategy. We weren't just redefining a category. We were creating an entirely new category. There was no playbook for the execution of our business plan. We wrote it, modified it as we went along and then we rewrote it. Look, not everyone has the stomach for kind of journey as it's fraught with twists and turns and unexpected dead ends, endless days, nights, and weekends, but it also brings out the best in us, drives us and ultimately yields the greatest returns and rewards for ourselves and our shareholders. For those of you who know my background, you know I've done this before. I've lived it. I've walked it, and I've talked it. And I know what it feels like, what it's so close, you can taste it. It's hard to believe that going into April, 2021, we're still dealing with the impact and uncertainties associated with COVID-19. I count myself among those who one year ago believed that we would be through the crisis well before the end of 2020. To refer to 2020 is a difficult year is a gross understatement, especially as even now the losses, both personal and professional that have touched all of us in some way, continue to mount. And those of you who follow me or listen to my conference presentations, you've heard me say that it's out of these difficult periods of time that the existing paradigm is challenged and opportunities present themselves. You just need to know where to look.

[Jeff Clayborne:]

Thank you, Rory and good afternoon, everyone. I'd like to review our financial performance as reported in our Form 10-K filed on Wednesday, March 31st for the annual period ending December 31st, 2020. The following period-over-period comparisons present the company's pro forma results of operations after giving effect to the acquisition of Sound Concepts and SoloFire based on the historical financial statements of the company Sound Concepts and SoloFire. The unaudited pro forma results give effect to the acquisitions as if they occurred on January 1st, 2019. Total revenue for 2020 totaled $10.9 million, a decrease of 23% from the $14.1 million reported in 2019. Total digital revenue for 2020 totaled $7.4 million, an increase of 18% for the $6.3 million reported in 2019. Total SaaS revenue for 2020 totaled $6.1 million, an increase of 31% from $4.6 million reported in 2019. The cost of revenue for 2020 totaled $5 million, a decrease of 32% from the $7.3 million reported in 2019. Gross profit for 2020 totaled $5.9 million, a decrease of 13% from the $6.8 million reported in 2019. Research and development for 2020 totaled $7.9 million, an increase of 59% from the $5 million reported in 2019. The increase in research and development is attributed to research and development of verbLIVE, enhancements to verbCRM and our core platform to facilitate native integrations with Salesforce, Microsoft, and other channel partners. General and administrative expenses for 2020 totaled $21.2 million, an increase of 28% from $16.5 million reported in 2019. The increase in general and administrative expenses is primarily related to general and administrative expenses attributed to an increase in stock compensation expense of $1.9 million, expenses from SoloFire of $700,000, primarily driven by retention bonuses, plus increased costs and support growth driven by labor related costs of $700,000, professional services of $630,000, marketing and promotion of $490,000 and increased facility cost associated with our California office of $175,000. As on December 31st, 2020, cash on hand totaled $1.8 million; total assets were $32.5 million; total liabilities were $21.8 million; and stockholders' equity was $10.7 million. We had a couple of notable changes to our balance sheet in 2020. We added $1.5 million in long-term debt of which $1.2 million is a Paycheck Protection Program loan that was forgiven on January 4, 2021, $850,000 economic injury disaster loan payable over 30 years and an additional Paycheck Protection Program loan at $90,000 we inherited for the SoloFire acquisition. We've had a couple of classification changes as $1.1 million of long-term related party debt, a $521,000 deferred incentive compensation is now classified as current. Here are some of the financing initiatives that occurred in 2020. 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. As previously mentioned on January 4, 2020, the entire note and accrued interest was forgiven and will be accounted for as a gain in fiscal 2021. On January 24th, 2020, we closed our public offering and a 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 62,451,830 shares of our common stock issued and outstanding, or the total number of common shares issued and outstanding approximately 5.4 million shares, or approximately 9% are owned or controlled by management and the Board of Directors. 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. And our first question is from Brian Kinstlinger with Alliance Global Partners. Please proceed.

[Brian Kinstlinger:]

Hi. Good evening, guys. Can you …

[Rory Cutaia:]

Hi. Good evening, Brian.

[Brian Kinstlinger:]

Great. Can you quantify the impact on revenue from the churn you talked about as well as the company's going out of business on both the digital and the recurring side of that? I know you gave volumes for the first quarter, so that's pretty much done, but can you then quantify the impact it had on revenue in the first quarter of 2021?

[Rory Cutaia:]

Jeff?

[Jeff Clayborne:]

Yes. The impact on the first quarter is about $125,000, Brian.

[Brian Kinstlinger:]

And what was the impact on the fourth quarter rate?

[Jeff Clayborne:]

About $140,000.

[Brian Kinstlinger:]

So -- and then if I adjust for the $140,000, sequential growth still would have been pretty flat. So I guess I'm wondering was the difficulty then in growing sequentially, the verbCRM business, the backlog of customers that couldn't be launched and based on your first quarter guidance, is that issue behind us?

[Rory Cutaia:]

That's correct, Brian. That's exactly what happened, and yes.

[Brian Kinstlinger:]

Okay. And then as it relates to verbLIVE you highlighted your large win. Well, I think the enterprise is actually paying for the tools for the sales reps. How many users does this consist of? When do you expect to generate rep begin generating revenue and what has to happen between now and then for it to move forward? And was there a 60-day trial for that customer?

[Rory Cutaia:]

The 60 day trial is over. We are -- now that they placed their order and executed the agreement, we're making certain customizations to the application for them. Remember, verbCRM is a white label product. This is an add-on where this customer verbLIVE and there's some customization that they like -- they'd like to have. And we're just about done with those upon completion and testing, then it will launch. How long was that going to be? It could be 45 days, it could be 60 days, to be determined.

[Brian Kinstlinger:]

Great. And then, you talked about conversions, hopefully at the end of this 60-day trial. I know it's early, but how many users are on a free trial, actual users? And separately, how many paid users are actually live with this? And then finally, how many are like this large customer? I call it in backlog where they're assigned, but they're not yet paying.

[Rory Cutaia:]

So, this is probably a great opportunity for me to provide maybe a lot more detail into what's happening with verbLIVE that I think our shareholders would probably like to know. So over the past six weeks, we opened up for verbLIVE free trials to approximately 34,000 potential users with more added each week, as we begin to roll that out. That number includes approximately 30 enterprise customers for whom those 34,000 reps work. However, each of those enterprises actually restricted access to verbLIVE to smaller subsets of internal beta testers before they wanted to release it to their entire field of reps. So, the actual number of reps that used it among the 34,000 universe of reps we authorized for use was actually substantially smaller. And of that smaller group, we had 3,200 reps sign up for subscriptions before the free trial period even ended, which we found encouraging. However, the bigger takeaway from this is that over the free trial period, we generated 28 quotes or requests for contracts from the approximately 30 enterprise clients who comprised that initial free trial release. And of those we've already executed five contracts who intend to rollout verbLIVE to their entire field. And then, of those, two, they're making it mandatory that every rep signed up for it and use it. And one of those is that million-dollar a year contract that I referenced earlier. But look we're still in the free trial period for many of the reps that we've opened it up so far too and look we're pretty encouraged by this response. And in fact, so far, it's exceeding our expectations, because it's a new technology. It's a new way of doing things. We anticipated somewhat slower adoption. We felt we needed to be ready in case it's exploded and we are. But we see it picking up momentum. And we're really encouraged by the responses that we've gotten out from that this limited period of time, beta test or free trial.

[Brian Kinstlinger:]

That's some great information and I have a follow up on. And then, that one other mandatory enterprise, it's mandating its salespeople use it. You got equal size to your first customer. And then I take it, there's three others. Since you said you executed five. Is those situations where they're purchasing a corporate license, but then each user or sales person has to opt in and pay a certain piece themselves. Is that what I described it rightly?

[Rory Cutaia:]

You're correct. It's a combination of those things, dependent upon the particular user. And we customize those packages based upon the minimums that they're prepared to commit to in the agreement. That's base contract value that you heard me refer to. And we were going over all contracts that executed last year, last quarter.

[Brian Kinstlinger:]

And the other mandatory one, is that as large as the one you've already executed on?

[Rory Cutaia:]

I'm not sure I'm prepared to commit to that. I believe it could be larger. But I don't want to commit to that just yet as we're refining some of their features and some of the other things. So let me refrain. I'll comment on that. When we put these things out in the press release, when it gets launched and that'll be before next.

[Brian Kinstlinger:]

Great. I have one more question, then I'll get in the queue. I'm guessing now at this point, you're sure you have other people going to ask questions. But talk about the Microsoft integration that you said was in a public beta testing. Did I hear right that is a couple months away from -- maybe a month or two or three away from a general launch, which will start with just a couple of customers to create a buys? Talk about when that -- how you expect the general launch to begin?

[Rory Cutaia:]

So, we put out a press release when we decided to go with a public beta. Now, we've been in beta, as you know, privately for an extended period of time. We went with a public beta and we offered it first to companies that suffered through COVID, companies that were -- whose business was impacted by COVID. And we wanted to give them a little bit of a leg up. So, we announced that we had a ton of companies respond to that. Surprisingly, there were some big names in it. I think I mentioned in the call and we have a large telecom services provider that's included in that. So, that's now begun where we're rolling out, giving them access. They have distributed that access to their number of people in their respective organizations. And then, how long will that last? No, I'm not sure. On the low end, there'll be 30 days. On the high end, there'll be 90 days. But we're not going to wait until that's over before we begin releasing it to the general public. With probably -- as I think I mentioned in the call, we want to do a sort of an invitation only program. We've been tracking companies that have used that as a marketing strategy. And most notably recently is Clubhouse. You had to get an invitation or be recommended by another user, and that creates a buzz and that kind of exclusivity that seems to drive demand and awareness. The key to our business, frankly, is awareness because the products are great. And as soon as people try them -- I mean, look, we opened this beta verbLIVE to really, what'd I say, 30 companies, 28 of them have asked for quotes and five of them have already executed contracts. That's over a really short period of time. So, that really confirms what I'm saying. We just need awareness. So what we're focused on now going forward is creating awareness and doing some innovative things to generate awareness. To what I said about the Clubhouse style approach to how we're going to release the Outlook integration, that's part of it.

[Brian Kinstlinger:]

Great. Thanks. I get back in the queue.

[Operator:]

All right. Thank you everyone.

[Rory Cutaia:]

If you don't mind, there was a couple of things that I wasn't asked -- expected to be asked and -- but I'd like to address anyway. We have a series of rules and policies that we live by, especially as a public company. We have a fiduciary obligation to our shareholders and other stakeholders, and we take it really seriously. So, we create these rules. We create these policies. And some of them are just zero tolerance policies, which means that if you violate the policy, if you violate the rule, then it doesn't matter whether it was intentional. It doesn't matter if it was a mistake. Zero tolerance means that if you violate it and we have to terminate you, it's not something that we are proud of doing, but the fact that we're a company that takes integrity to be one of the most important things that we could provide to our stakeholders, to our shareholders, by holding to these kinds of policies or rules or regulations and enforcing them the way that we do. It's for the protection of the company and our shareholders. So, I'm bringing this up, because we're frankly getting inundated by requests to our investor relations firm and emails and text messages, social media posts, and I want them to address it directly. We had two people in our organization, two people that we valued that violated one of our policies. It wasn't insider trading which I see people talking about in the sense that they had access to inside information material, inside information, which neither of them did, and then went and traded the stock on the basis of that information. That wasn't what happened. We have a rule that we call a blackout period, and that means that you cannot trade the stock. I don't care where you are in the organization at what level, what your role is. It's a very hard and fast rule. During the blackout periods, you cannot trade the stock. We had unfortunately two people in partnership to show that. I'm not sure what that is. But what I'm -- let me finish my thought here. We had a couple of people that traded the stock during that period of time. I don't believe it was intentional. I'm sure that they should have been aware of the policy, they violated and they were terminated and that's it. That's all there was to it. The company is -- has moved on. We had fortunately procedures in place to -- that no one was -- the loss of any one particular, even a group of people would not impact on business. That's just the way we structure our company. So, end of story. And I hope that our shareholders and other stakeholders recognize that we're here as guardians of your investment. And these policies are important and unfortunately, when they were forced, these are the results.

[Rory Cutaia:]

Okay. Well, thank you all for your time today. I appreciate it. We look forward to additional communications with you. In fact, I'm going to see if I can start stepping up some of those communications that I haven't done quite a while. I'm looking forward to reengaging with many of our shareholders and our stakeholders, analysts and investors. So, thanks again for your time today.

[Operator:]

All right. Thank you everyone. This concludes today's conference. You may disconnect your lines at this time. Again, thank you for your participation and have a great day.