TON Strategy Company

Good afternoon, and welcome to the second quarter 2020 Financial Results Conference Call for Verb Technology Company, Inc. Please be advised this call is being recorded at the company's request. On our call today are Rory J. Kataya, CEO, and Jeff Claiborne, 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. Verve 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 the supplemental measures of this performance, quarterly recurring subscription revenue, or QRR, and annual recurring revenue, or ARR. Although QRR and ARR were commonly used by companies in the SAS space, neither is recognized measurement under GAAP and should not be considered as an alternative to the company's net income, income from operations or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from the company's activities as a measure of liquidity. I would now like to turn the call over to Rory J. Kataya, CEO. Rory, you may begin.

Thank you, and I thank everyone for joining us today for our 2020 Second Quarter Financial Results Conference Call. On today's call, we will bring everyone up to date on our progress over the past three months, a time that for companies and investors alike has been fraught with uncertainty. Uncertainty arising from the continuing, potentially long-lasting, if not permanent effects of COVID-19 on business, investments, and the economy at large, as well as the uncertainty surrounding the ongoing social unrest, the upcoming election, and the potential impact of these events on the capital market. I'll discuss the measures we've implemented and the steps we've taken to mitigate that uncertainty for ourselves, our employees, and certainly for our investors. And some of those initiatives have allowed us to deliver the best quarter in the history of our company. Jeff Claiborne, our CFO, will provide a more detailed review of our financial results for this period. And at the end of the earnings call, we'll hold a Q&A session. So for those new to our company, We're a software as a service or SaaS applications platform developer. Our platform is comprised of a suite of sales enablement apps marketed on a subscription basis. Our applications available in both mobile and desktop versions are offered as a fully integrated suite as well as on a standalone basis. They include VerbCRM, our customer relationship management application, VerbLearn, our learning management system application, and VerbLive, our live broadcast, interactive video webinar, and live stream e-commerce application. Our suite of applications can be distinguished from other sales enablement products because they utilize our proprietary interactive video technology as the primary means of communication between sales and marketing professionals and their customers and prospects. Moreover, the proprietary data collection and analytics capabilities of our applications inform our users in real time on their devices when and for how long prospects have watched a video, how many times they watched it, and what they clicked on, which allows our users to focus their time and efforts on hot leads or interested prospects rather than on those that have not seen the video or otherwise expressed interest in the content. Our clients report that these capabilities provide for a much more efficient and effective sales process resulting in increased sales conversion rates. We developed the proprietary patent-pending interactive video technology, as well as several other patent-issued and patent-pending technology that serve as the unique foundation for all of our platform applications. As I've talked about over the past year, we've been focused on setting the table, building and shoring up the foundation upon which we are building peace by carefully and strategically built peace a world-class organization with global aspirations. In an effort to provide the kind of transparency I believe our shareholders deserve, not just our shareholders, who I consider our co-owners, but shareholders in any company, I've talked quite a bit about what we're building, what's coming, what we're working on, and our evolving vision for this company. But in the I need it now, immediate gratification, attention deficit disorder, put up or shut up social media, mobile screen world that has consumed our entire virtual existence, talk and talk alone doesn't move the needle. Results move the needle. Measurable results. Execution moves the needle. So today, we're going to talk about execution and measurable results. The company, and for those of you that are shareholders, your company, is really hitting its stride. I'm proud to report that we had a record-breaking quarter, even beating the preliminary guidance about our second quarter results that we released last month on July 13th. To provide a complete picture of the business, I'm going to discuss and compare the GAAP-recognized quarterly recurring revenue reflected in our current 10Q against prior periods. I'm going to share the number of new client contracts executed in the quarter, And then I'm going to share the annual recurring revenue we expect to recognize from those contracts. So starting with Q2 of 2019, which was the first full quarter we reported post-NASDAQ listing and the launch of our VERB CRM app, and continuing through Q2 of 2020, here's our quarter-over-quarter SAS recurring revenue growth as recognized by GAAP and reflected in our filed financials. 2019 Q2 was $858,000. Q3 was $958,000. Q4 was $995,000. 2020 Q1 was $1,057,000. And Q2, our currently reported quarter, was $1,274,000. That's five consecutive quarters of SAS revenue growth. Again, these numbers represent the gap recognized SAS revenue as reported on our financials as a component of our digital revenue. Comparing these results to last quarter, we have SAS revenue in Q2 of $1,274,000, up almost 21% over Q1, and reflects growth of almost 49% over the same period last year. Total digital revenue in Q2 of $1,680,000 up almost 16% over Q1. Total non-digital revenue in Q2 of $972,000, up almost 9% over Q1. Total combined revenue in Q2 of $2,652,000 was up almost 13% over Q1. In Q2, we executed 20 new client contracts. That's almost double the 11 we signed in Q1. And if we go back a year ago, it's five times the number we signed in the same period last year. The base value of those contracts is $983,000. That's growth of 65% over last quarter and 245% growth over the same period last year. I say base value because base value only represents the minimum monthly guarantee over the life of the contract. And during the upcoming months and over the life of the contract, we expect the individual users will add additional services and features, such as BIRD Live, and corresponding revenue that is not yet reflected in these numbers. It also represents $573,000 of annual recurring revenue. That's growth of almost 92% over last quarter and 227% growth over the same period last year. And a couple of other notable data points. We're now at 1.49 million user downloads, up from 1.46 million as of June 30th. And also, the investment community is beginning to take notice. We've recently added 1,741 investors in just one week. I've said this before, but it's worth repeating. The monthly recurring subscription component of the digital revenue, our SaaS revenue, is very high margin business with gross margins above 80%. And now it's the largest and fastest growing component of our total revenue. This revenue also commands the highest market multiples to calculate market value for the business and the corresponding per share value. When we think of underlying business fundamentals, which in our view is the source of true market value, this is what we focus on. And this is what we believe value investors focus on. So with growth of our SaaS business up almost 49% over last year and almost 21% over last quarter alone, I'm proud to report that our value creation initiatives are indeed producing measurable, quantifiable, and now accelerating results. So now let's talk about what we're doing to drive that growth further and faster, because yes, that's impressive growth and certainly a lot to be proud of, especially during a global pandemic. But we want hyper growth. We want to see this thing hit that tipping point where the revenue just takes off and the share price follows. And as an investor, And look, I've invested $4 million of my own dough in this. So like you, I want to know what we're doing to achieve that, right? So let's talk about Verve Live. As we announced last quarter, we began the limited release of Verve Live on groundbreaking interactive video live stream e-commerce and webinar platform. Verve Live truly captures the value proposition of our entire company, delivering easy-to-use products that drive sales revenue by eliminating friction from the sales process. Essentially, VerbLive is Zoom, but does something Zoom doesn't. It gives the host the amazing, almost magical ability to insert clickable buttons and product images on screen on which viewers can click right in the live stream broadcast to purchase your products and services. For those of you who've seen a demo of it, you know. It's quite extraordinary. And in the age of remote work and social distancing, when many stores are closed, and for those that are open, people are afraid to go in and shop. And browsing on Amazon is so 2010. We believe Verve Live is a game changer. And that's just not me saying it. Many who have seen it get it. I'm not sure I could overstate what we believe is an enormous value creation opportunity. So how do we intend to market it and monetize So first off, you've seen the press release issue this morning about Verve Live being available to Salesforce users in the Salesforce AppExchange marketplace under the Salesforce Partner Program. It will give every Salesforce user the ability to click on their contacts icon right in their Salesforce dashboard, and from the drop-down menu, they'll see Verve Live. They click on that, they launch their own verb live, live stream e-commerce session, and invite people directly from this Salesforce contact list. Super cool. Very easy and a very effective sales generation add-on tool for every Salesforce user. We're charging $24.99 per month per user. And we're going to work with Salesforce to develop a marketing campaign to promote it heavily within the Salesforce ecosystem. We've already got some new features for the Salesforce version in Q&A that we'll be releasing soon as well. So we expect that there will be a constant stream of new updates and features that we think users are gonna love. As I said before, we're delivering on all of our promises and we intend that Microsoft will be the next one we announce, so stand by. But back to that hyper growth we all want. Let's talk about the low hanging fruit. At last count we have, I believe, 17, of our existing clients that have already signed up for VIRB Live during the pre-launch marketing. Combined, they represent a total addressable market of 465,350 users. So work through this analysis with me. Our penetration rates among our existing customers vary, but on the low, low end, it's about 10%. So let's say we only get 46,000 users to subscribe and pay for VIRB Live. We're charging $9.99 to $14.99 per user per month for VerbLive, depending on the features in the package for existing VerbCRM users. So for this analysis, let's go with the low number of $9.99 per user per month. That means we have an existing total addressable market in dollars of approximately $4.6 million per month of recurring SaaS revenue, of which applying low penetration rate of 10%, we believe we can capture approximately $460,000 of SaaS recurring revenue per month or approximately $5.5 million of annual recurring revenue. So let me provide some more color around the penetration rates. This is not like running ads on social media to a large target audience and predicting or rather crossing our fingers and hoping we get adoption. Many of these are people who already have our VIRB CRM app on their mobile device to whom we can send very targeted messages with video demos of what VIRB Live can do for their business. And our platform is already integrated into many of the back office providers, making adoption quick and easy. Again, that may be the very realistic SaaS revenue potential from what we've already signed for VIRB Live among existing customers before releasing it broadly to the global market. So let me be clear here. This is a small part of our internal model. This is not to be interpreted by anyone as a guarantee of performance or results. This is a forward-looking statement. So don't go out and buy more shares based solely on this information. As you know, we encourage communication with our investors on a regular basis. And many are writing to me saying, release it to the full global market already. But as those of you who are familiar with massive product launches know, we need to make sure our projected usage models match our server capacity. And while this falls once again squarely in the province of a forward-looking statement, our current projected usage models forecast far greater numbers than the 10% penetration rates for existing signed customers that we projected six months ago. And much greater numbers still when we add anticipated adoption rates from the as yet untapped market outside our existing business. So we are working diligently to ramp up capacity before a large launch to ensure that we don't face service outages from overloaded servers. The fact is, no matter what we do, we may end up having server overloads anyway, as it's difficult to predict the rate at which this thing could take off. Well, we have to do our best to be patient, thoughtful, and cautious to make sure the users have the best experience, as that is the recipe for exponential growth, or rather, the hypergrowth that we're shooting for. As to other updates, our Japan operations are continuing to perform very well. In fact, I believe we launched another new client just this week. We're also making progress on our own App Store ecosystem that I referenced in our last earnings call. In fact, We're about to release a bundled service offering, which includes a higher-priced version of our VIRB CRM app bundled with third-party tax app software for sales professionals. And VIRB was recently added to the Russell Microcap Index as part of the 2020 Russell Index's annual reconstitution. So as you can tell, despite the COVID-19 global pandemic, the remote work environment we've been in for the past six months, and all the social unrest and uncertainty in the world, We're still focused and executing at a furious pace. But that focus doesn't mean we live in a bubble without regard to what's happening in the world. We're living through very difficult times. The social issues are inescapable and can no longer be ignored. At VIRB, our motto is inspire action. And we've decided to apply that not only to the sales tools that we provide, but also to ourselves. We believe every company should adopt and employ socially conscious programs, no matter how big or small, now more than ever. For that's how we inspire action in ourselves, and in so doing, inspire action in others to do their part. All of us need to do our part. Don't get me wrong, I'm a capitalist through and through, and I'm not suggesting for a minute that companies forego their profit motive, because the fact is, it's through those profits that we are then better able to assist those in need. And in that regard, we applaud NASDAQ for establishing and promoting their ESG advisory program. For those of you unfamiliar with ESG scores, it stands for environmental, social, and governance. And companies are now rated based upon how they stack up in each of those categories. And today, more and more investors are taking ESG scores into account when contemplating an investment. According to NASDAQ, ESG information is no less relevant or useful to an investor in assessing the financial prospects and operational performance of a company than information channeled through traditional accounting practices. In fact, 96% of NASDAQ listed companies now report at least one ESG metric on an annual basis. And we intend to be among them. And I'm proud to announce the launch of Verve for Humanity earlier this year. We've been behind numerous socially conscious initiatives which you'll find on a new Verve for Humanity website that we expect to launch in the coming weeks. With regard to other events creating uncertainty in the world, well, the upcoming election and the potential post-election impact on the capital markets. We've all heard rumblings about the impact on the capital markets depending upon which candidate is victorious on election day. And while We certainly don't profess to know one way or the other whether that's true. We do believe it was incumbent on us to insulate ourselves and our shareholders from any risk or uncertainty to the extent we could. As you know, we previously adopted a policy of only raising the capital we need for short, predictable periods so as to minimize the dilutive effect of new share issuances. In hindsight, I'm not so sure that policy has yielded the results that we desired. However, back in April and May, as we looked forward toward our future capital needs, and specifically around the capital required for an intensive marketing campaign around Verve Live, we were concerned that if we wait until we need the capital again, the markets may be closed or we may encounter other issues related to the overall economy that might make a capital raise difficult. So, in order to eliminate that uncertainty and the potential damaging consequences of not having access to capital as and when we needed it, we decided to pursue a larger offering now in order to ensure that our current business plans were fully funded well into next year and potentially beyond. That led us to conduct a public offering to raise $8 to $10 million. But we wanted to raise capital through the issuance of straight common shares, no warrants, which many told us might be difficult to achieve. Well, as it turned out, the offering was extremely well received. And not only did we raise the higher end of the offering to $10 million, but due to the demand from the investment community, we were able to upsize our offering by 15%. And together with the exercise of the over allotment by our underwriters, we were able to close on a total of $13.8 million. Well more than we intended, leaving us extremely well capitalized. That was closed several weeks ago on July 24th, and you'll see that cash on our balance sheet in the subsequent events section of our current final. I'll leave it to Jeff Claiborne to lay out the details of that transaction for you. Finally, before I turn you over to Jeff, and in the spirit of transparency, we recently executed a letter of intent for another acquisition. that will allow us to expand more rapidly into a desirable new business vertical for our products and services. Contracts are now out for review and, when executed, potentially as soon as next week, we will disclose the full details for all of you in an SEC filing. If executed as we anticipate, the transaction is expected to close next month. I'd now like to turn the call over to Jeff Claymore, our Chief Financial Officer, for a more detailed review of our financial results.

Jeff?