Verb Technology Company Inc

NASDAQ:VERB

Earnings Call Transcript 2022-Q4

[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. Cutaia, CEO, and Salman Khan, 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 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. Cutaia, CEO. Rory.

[Rory Cutaia, CEO]

Thank you, moderator and thanks to everyone for joining us today for our fourth quarter 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 Alantra, the M&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 four weeks to discuss the Q1, 2023 results. 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-K filed today.

While we are very optimistic that the outlook for 2023, 2022 was 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. 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% to $5.2 million, as compared to $12.3 million 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 and beyond.

We've reduced general and administrative expenses associated with our SaaS business by $2.4 million, representing an improvement of 9% year-over-year. We've limited general and administrative expenses for our MARKET.live business to just under $2 million. We've 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 $7.7 million, a 12% increase of $832,000 over the $6.8 million for the year ended December 31, 2021. The increase was driven primarily from the SaaS recurring subscription-based revenue associated with our verbCRM, verbLIVE, verbLEARN and verbPULSE suite of applications and our verbTEAMS platform.

For the year ended December 31, 2022, non-digital revenue was $1.2 million, representing a planned decrease from the $2.3 million 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 3120 21. 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 $3.3 million, representing almost a 27% improvement, compared to the $4.5 million 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 cost to support additional enterprise customers on the platform and increased users within our existing customer base.

We increased our gross margin to 65% at $6.1 million 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 3120 22 reflects a loss from operations of $38.8 million. However, this sum includes $19 million of non-cash expenses. These non-cash items include $2.5 million in depreciation and amortization expenses, $4.5 million in stock-based compensation, and $12 million dollars in goodwill and intangibles impairment.

The $12 million 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 million was due to the results of the annual impairment testing of goodwill, intangible assets and other long-lived assets.

We ended the year with what approximately $2.4 million in cash plus just over $1.6 million dollars and receivables and prepaid expenses. And we added another $6.6 million in cash in January representing net proceeds of an equity offering of straight common shares with no warrants.

With regard to our MARKET.live stream shopping platform, there are certain ongoing initiatives are referred to earlier that also apply to MARKET.live. So I'm going to defer further discussion around MARKET.live until next month, when we report on Q1, 2023.

Okay with that, I'll turn it over to Salman.

[Salman Khan, CFO]

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

Total SaaS recurring revenue, a component of total digital revenue was $7.7 million for fiscal year 2022, up 12% or 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 $8.3 million up just modestly or 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.

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 $5.2 million as compared to $12.3 million for the year ended December 31, 2021. We expect our R&D cost reductions to continue through Q2, 2023 and beyond.

We also reduced general and administrative expenses associated with our SaaS business by $2.4 million, representing an improvement of 9% year-over-year. G&A for MARKET.live business were less than $2 million. During the year, we recorded a non-cash impairment charge of $12 million, this loss relates to the goodwill intangibles, and long-lived assets from Sound Concepts and SoloFire acquisitions reflected previously on our balance sheets. This non cash impairment charge of $12 million 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 $7.1 million attributed to the development of MARKET.live, which we expect to amortize over a three year period. During the year we amortized $0.9 million and had a remaining balance of $6.2 million 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 a $11 million gross proceeds registered direct offering of common shares on April 28, 2022; a $4 million gross proceeds registered direct offering of common shares on October 25, 2022; a $5 million gross proceeds non-convertible promissory note on November 7, 2022 and subsequently, and $7.2 million gross proceeds registered direct offering of common shares on January 24, 2023.

On January 12, 2022, we entered into is $6.3 million above the market convertible debt financing with three institutional investors and favorable terms, as well as a supplemental equity line of credit facility for the sale and issuance of up to $50 million inclusive of fees and shares over three years. The HELOC agreement was with Tumim Stone Capital, whose manager and general partner 3i, LP had been a long term investor in Verb. On January 26, 2023, the company repaid in full, all outstanding obligations under the January 12, 2022 Note offering and discontinued that HELOC agreement with Tumim Stone Capital.

The following compares the company's results of operations for three months ended December 31, 2022, with the three months ended December 31, 2021.

Total Sales recurring revenue for the fourth quarter 2022 was just over $1.8 million, which was just slightly under the record breaking fourth quarter of 2021 and what is historically the slowest quarter in direct sales. Total digital revenue was $1.9 million, a decrease of 12% from the same quarter last year. Total non-digital revenue was $0.2 million, 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 $0.8 million down 29% from the same period last year, reflecting planned cost reductions and improved operational efficiencies.

R&D expenses were $0.9 million compared with $2.7 million for the same period last year, reflecting a 69% reduction in costs. General and administrative expenses were $4.7 million, a decrease of 18% from the same period last year, and down 33% from the previous quarter.

In the MD&A section of our Form 10-K 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 startup 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 are 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. 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 $18.9 million 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-K filed today.

This concludes the management's presentation. 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.