Verb Technology Q4 2022 Earnings Call Transcript

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April 17, 2023

There are 3 speakers on the call.

Operator

Good afternoon, and welcome to the Full Year and Fourth Quarter 2022 Financial Results Conference Call for Verb Technology Company Incorporated. At this time, all participants are in a listen only mode. Please be advised that This call is being recorded at the company's request. On our call today are Rory J. Cataya, CEO and Salim Khan, for CFO.

Operator

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 involves 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 obligation to update these forward looking statements as well as those contained in the company's current and subsequent filings with the SEC. I would now like to turn the call over to Rory J. Cataya, CEO.

Operator

Rory?

Speaker 1

Thank you, moderator, and thanks to everyone for joining us today for our Q4 and full year 2022 financial results and business update conference call. At this moment, we have a number of ongoing initiatives that we're not ready to report on. These include the Board's review and consideration of certain strategic opportunities presented by Elantra, the M and A advisory firm we engaged last fall among other matters. I'm advised that to ensure the accuracy of any forward looking statements, it is best to refrain from any comments at this time. As you know, we have another earnings call coming up in about 4 weeks to discuss the Q1 2023 results.

Speaker 1

And it's my hope and expectation that we will be in a position to provide details around some of these activities at that time and respond to questions. Accordingly, I'm going to limit this call to a succinct review of the salient points contained in the Form 10 ks filed today. While we are very optimistic for the outlook for 2023, 20 22 is a challenging environment for many businesses to operate in. Among our top priorities for 2022 was a drive to profitability. We continue to focus on creating new efficiencies throughout the entire organization, allowing us to implement significant additional cost reductions.

Speaker 1

These included the elimination of non essential and high cost staff as well as the reduction in cash compensation of our highest paid executives and Board members, including myself and the elimination of 2022 bonuses. We slashed research and development expenses by 58 percent to $5,200,000 as compared to 12,300,000 for the year ended December 31, 2021. As our remaining product development work moves rapidly from the research and development stage to deployment stage, we expect our research and development cost reductions to continue through 2023 beyond. We reduced general and administrative expenses associated with our SaaS business by $2,400,000 representing an improvement of 9% year over year. We limited general and administrative expenses for our Market.

Speaker 1

Live business to just under $2,000,000 We reduced our Utah office expense by more than 60% from approximately $372,000 to approximately $144,000 saving more than $200,000 per annum. With regard to our SaaS business, our primary focus has been on the growth of our recurring subscription revenue. Over the past several years, we have continued to exit and wind down our digital services business based on our determination that we can generate a better ROI by outsourcing the non digital services business, that's the printing, fulfillment and shipping, as it is a low margin business and costly to scale. For the year ended December 31, 2022, our SaaS recurring subscription revenue was $7,700,000 a 12% increase of $832,000 over the $6,800,000 for the year ended December 31, 2021. The increase was driven primarily from the SaaS recurring subscription based revenue associated with our Verb CRM, VerveLive, VerveLearn and Verve Pulse suite of applications and our Verve Teams platform.

Speaker 1

For the year ended December 31, 2022, non digital revenue was $1,200,000 representing a planned decrease from the $2,300,000 for the year ended December 31, 2021. SaaS recurring revenue as a percentage of total revenue for the year ended December 31, 2022 was 81%, up from 65% for the year ended December 31, 2021. Total digital revenue for the year ended December 31, 2022 increased to 88% of total revenue, up from 78% for the year ended December 31, 2021. Total cost of revenue for the year ended December 31, 2022 was 3 point $3,000,000 representing almost a 27% improvement compared to the $4,500,000 for the year ended December 31, 2021. The improved cost of revenue is attributed primarily to our planned reduction in low margin non digital services, partially offset by a slight increase in digital costs to support additional enterprise customers on the platform and increased users within our existing customer base.

Speaker 1

We increased our gross margin to 65 percent at $6,100,000 for the year ended December 31, 2022 over the 57% for the year ended December 31, 2021. Our statement of operations for the year ended December 31, 2022 reflects a loss from operations of $38,800,000 However, This sum includes $19,000,000 of non cash expenses. These non cash items include $2,500,000 in depreciation and amortization expenses, dollars 4,500,000 in stock based compensation and $12,000,000 in goodwill and intangibles impairment. The $12,000,000 non cash Impairment loss represents an impairment primarily to the goodwill reflected previously on our balance sheet following the 2019 acquisition of Sound Concepts. This non cash impairment charge of $12,000,000 was due to the results of the annual impairment testing of goodwill, intangible assets and other long lived assets.

Speaker 1

We ended the year with approximately $2,400,000 in cash plus just over $1,600,000 in receivables and prepaid expenses and we added another $6,600,000 in cash in January, representing net proceeds of an equity offering of straight common shares with no warrants. With regard to our market. Live livestream shopping platform, there are certain ongoing initiatives I referred to earlier that also apply to Market. Live. So I'm going to defer further discussion around Market.

Speaker 1

Live until next month when we report on Q1 2023. Okay. With that,

Speaker 2

I'll turn it over to Saman. Thank you, Rory, and good afternoon, everyone. I'd like to review our financial performance as reported in our Form 10 ks filed today, on April 17, 2023 for the year ended December 31, 2022. I may provide more color around some of the data points Rui shared Thank you. The following compares the company's results of operations for fiscal year 2022 with the previous year.

Speaker 2

Total SaaS recurring revenue, a component of total digital revenue was $7,700,000 for fiscal year 2022, up 12% over the previous year and the highest amount of SaaS recurring revenue generated any year in the history of the company. Total digital revenue of approximately 8,300,000 up just modestly over the previous year. SaaS recurring revenue as a percentage of total digital revenue was 93% compared with 84% for the previous year. Until we completely phase out our legacy non digital business, our total revenue will not be a reliable indicator of our performance since it includes the revenue generated from both our digital business, which is growing and our non digital business, which we are exiting. For example, The non digital business now represents only 12% of total revenue compared with 22% last year.

Speaker 2

As Rory discussed, we have reduced operational costs dramatically. In establishing our strategy to accelerate profitability and reduce reliance on outside capital, we have implemented a series of specific cost reductions. We cut research and development expenses by 58% to $5,200,000 as compared to $12,300,000 for the year ended December 31, 2021. We expect our R and D cost reductions to continue through Q2 2023 and beyond. We also reduced general and administrative expenses associated with our SaaS business by $2,400,000 representing an improvement of 9% year over year.

Speaker 2

G and A for Market. Live business were less than $2,000,000 During the year, we recorded a non cash impairment charge of $12,000,000 This loss relates to the goodwill intangibles and long lived assets from Sound Concepts and SolaFire acquisitions reflected previously on our balance sheets. This non cash impairment charge of $12,000,000 was due to the results of the annual impairment testing that we conducted during Q4. At December 31, 2022, we have capitalized software development costs of $7,100,000 attributed to the development of market. Live, which we expect to amortize over a 3 year period.

Speaker 2

During the year, we amortized $900,000 and had a remaining balance of $6,200,000 at December 31, 2022. We are fortunate to be able to access the capital markets and attract high quality institutional investors on better terms than many companies our size, which speaks to the quality of our business plan execution and our management team. Among the financing activities we undertook in 2022 were an $11,000,000 gross proceeds registered direct offering of common shares on April 20, 2022 a $4,000,000 gross proceeds registered direct offering common shares on October 25, 2022 a $5,000,000 gross proceeds non convertible promissory note on November 7, 2022, and subsequently a $7,200,000 gross proceeds registered direct offering of common shares on January 24, 2023.

Speaker 1

On January 12,

Speaker 2

2022, we entered into a $6,300,000 above the market convertible debt financing with 3 institutional investors at favorable terms, as well as a supplemental equity line of credit facility for the sale and issuance of up to $50,000,000 inclusive of fees in shares over 3 years. The Elok agreement was with Tunum Stone Capital, whose manager and general partner 3i LP had been a long term investor in Burp. On January 26, 2023, the company repaid in full all outstanding obligations under the January 12, 2022 note offering and discontinued the Elok agreement with Tulum of Stone Capital. The following compares the company's results of operations for 3 months ended December 31, 2022 with the 3 months ended December 31, 2021. Total sales recurring revenue for the Q4 was just over $1,800,000 which was just slightly under the record breaking Q4 of 2021 in what is historically the slowest quarter in direct sales.

Speaker 2

Total digital revenue was 1,900,000 a decrease of 12% from the same quarter last year. Total non digital revenue was $200,000 down 57% from the same period last year, reflecting the company's strategic decision to continue to wind down its low margin non digital services. Cost of revenue was $800,000 down 29% from the same period last year, reflecting and improved operational efficiencies. R and D expenses were $900,000 compared with $2,700,000 for the same period last year, reflecting a 69% reduction in costs. General and administrative expenses were $4,700,000 a decrease of 18% from the same period last year and down 33% from the previous quarter.

Speaker 2

In the MD and A section of our Form 10 ks filed today, we provide modified EBITDA as a supplemental measure of our performance. We define modified EBITDA as net income or loss plus depreciation and amortization expense, Share based compensation expense, impairment loss, interest expense, change in fair value of derivative liability, other income or expense, net debt extinguishment costs, market. Live start up costs and other non recurring charges. However, I am required to note that modified EBITDA is not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations or any other performance measure derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of liquidity. In evaluating modified EBITDA, You should be aware that in the future, we may incur expenses that are similar to or different from adjustments in this presentation.

Speaker 2

Our presentation of modified EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non recurring items. In addition, while many companies calculate and track modified EBITDA, you should be aware that other companies may calculate modified EBITDA in a manner that differs from our calculation. Our calculation of modified EBITDA results in modified EBITDA of negative $18,900,000 for fiscal year 2022, which represents quite a significant improvement in modified EBITDA of approximately 28% year over year. Please refer to the modified EBITDA reconciliation provided in the earnings release and also in our Form 10 ks filed today. This concludes the management's presentation.

Speaker 2

Thank you all. I'd now like to turn the call back to the operator. Operator?

Operator

Thank you. This concludes today's call. You may now disconnect and thank you for your participation.

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