TON Strategy Company

Good afternoon and welcome to the second quarter 2022 Financial Results Conference Call for Verb Technology Company, Inc. At this time, all participants are in a listen-only mode. Please be advised, the call is being recorded at the company's request. On our call today are Rory J. Kataya, 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 involve risks and uncertainties that can 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. I would now like to turn the call over to Rory J. Gutierrez, CEO. Rory?

Thank you, moderator, and thanks to everyone for joining us today for our Q2 2022 financial results and business update conference call. I'd like to use our time together today to talk a bit about Market, our live stream social shopping platform, and provide some initial reactions and data points around ShopFest, which was the three-day live stream shopping festival we hosted a little over two weeks ago now that marked the hard launch of Market.Live. And, of course, I'll provide insights and perhaps some more color on the information contained in our second quarter 10Q we filed today, which reflects, for the most part, the results of our SaaS business for the direct sales industry. As to market, let me start by saying that we are planning a major, at least in my opinion, a major announcement regarding market within the next six weeks that will include a comprehensive update. Accordingly, my comments here today won't include some of the bigger going forward initiatives, though I will provide a lot of data points on attendance, engagement, vendor experiences, and insights into how the platform performed. We've been advised that ShopFest was the largest live-stream shopping event ever attempted in the U.S., ShopFest consisted of 63 live stream shows over three days featuring over 55 retailers on multiple channels from multiple locations across the country and around the world. We had live streams from Brazil and Australia and perhaps other countries. Of the 63 shows, our market team produced only 18 of them from studios in New York City and a studio in Los Angeles. The 45 other live streams were produced and hosted by the vendors themselves from their own remote locations using little more than their laptops and mobile devices. So when you think about scalability, this is an important statistic. I'm aware of at least one vendor that heard about Market on the day before ShopFest started and went from awareness to onboarding and participation in ShopFest, hosting one of the more popular live streams, all in less than 24 hours. So let me start with the KPIs we focused our team on going into ShopFest, what our objectives were, and how we measured up against those. So first and foremost, we wanted to demonstrate the platform itself under true commercial deployment. Specifically, we wanted to demonstrate the quality, stability, reliability, scalability, feature set, ease of use by both vendors and shoppers, and the overall experience we wanted to create. In fact, to curate for all market participants, an experience that would be the unique hallmark of anyone coming to Market.Live. As to the build and architecture of the platform, I believe it was apparent to all participants that Market.Live is an extremely well-conceived and executed live stream shopping platform on par with any of the world-class social media, e-commerce, video content delivery platforms in the world, and in some cases, even better. Any doubts about our ability to deliver an extraordinary and very valuable piece of technology for our shareholders should now be summarily erased. Everything that we've done up through the Data Shop Fest and everything we've learned from our trials and tribulations over the past several years was necessary in order to produce market. We could have the best and biggest vendors and most impressive go-to-market strategies, which I believe we do, but without a world-class platform, we'd have very little. By no means do I suggest that we've accomplished our goals, that we're done and walking around high-fiving each other in the office. Quite the contrary. Now it begins. While our success in delivering the platform has definitely, definitely injected a new contagious passion, energy, and enthusiasm among everyone on our team as well as among our partners, we recognize the opportunity for value creation that market represents and Unlocking that value is our number one objective, one on which we are laser-focused individually and collectively every single day. What we had not shared until now was how much we had riding on the successful performance of the platform during ShopFest and the reasons we took our time in the planning, testing, and execution of ShopFest And while I know that was a source of frustration and ridicule from those who wanted to see it launched commercially the day the development was completed, which I completely understand, we knew we had to execute our plan the best way we knew how. When I talk about what we had riding on the successful performance of ShopFest, I'm referring to potential partnerships and business opportunities for meaningful growth and scale that were all contingent on the successful performance of the platform during ShopFest. I'm going to share more on this in the market update that I'll be providing in the coming weeks. As to the overall experience we wanted to curate for market participants, it's best described as making it feel personal. Certainly interactive and social, but yet an atmosphere where each shopper became part of a group of friends. immersed in the conversation, not only with the host, but also with each other, an environment where no one feels like they're being sold, one where they want to buy what their trusted host and friend has available for purchase. Among the many things we learned was that people want to watch and buy from a person, not a brand. They will mark their calendars to join the group of digital friends they form relationships with, to chat and shop every week. Those hosts that attract and encourage that environment in their presentations outsell those that don't by a long shot. Now, we saw the beginnings of these relationship-forming activities during ShopFest as we saw people in the chat recognizing one another from previous ShopFest streams and engaging with one another on a more personal level. Think of it, think of it like like the massive growth and popularity of Facebook groups, but with shoppable video. That's why we designed and built Market as a destination social shopping platform and not just one-off live stream event plugins for your website. This is what makes it unique and why we believe it will succeed where others will fail. Our second but equally important KPI was using ShopFest as a vehicle to create awareness for the platform. Look, the reason for this is obvious. The success of the platform is tied directly to the number of livestream events going on at any given time where these relationships can be formed and fostered. It's a number game. The more people we have with stores on the platform bringing their own friends, their fans, and followers, the greater the number of live streams there will be. Revenue, of course, will follow. Our focus, at least initially, is not on the revenue itself, but on the environment and circumstances from which the revenue will flow. To do this, we demonstrated how the platform could accommodate multiple channels of live stream simultaneously, allowing viewers to choose the event and associated groups they wanted to be part of in that moment. As there are more and more simultaneous live streams happening on the platform, this will become a much more compelling and powerful draw for the platform. We also built the platform so that it could broadcast live streams simultaneously in real time over multiple popular social media platforms, exposing market to those audiences and drawing them into the market experience. Here's some of the data we've compiled so far. about attendance on the Market.Live feed during the three days of ShopFest. I want to note that some of this data is still being scrubbed and cross-referenced, so it remains subject to adjustment. All right, total views on the Market.Live feed were 45,161. Total unique views on Market.Live were 15,444. These numbers include those who viewed and shopped storefronts but did not watch a live stream. Total attendance for live stream on Market.Live during ShopFest was 8,511. This number does not include attendees who viewed from Facebook and other social platforms. Total ShopFest video on demand views from the storefronts on Market.Live as of almost, I'm going to say, a week ago, last Tuesday, August 9th, was 3,408, and I imagine there's probably quite a bit more since then. All right, so here's some of the data we compiled so far from the Facebook feed during the three days of ShopFest. Again, this is just the Facebook feed, not any of the other social media channels. 70,194 views from Facebook during the festival. Now, I want to point out that this is Facebook only. and Facebook's metrics that they use for their algorithms, they count the view as anything over three seconds. Notably, if we include the views after ShopFest up to last week, again, I think Tuesday the 9th, we see those numbers jump to 1,219,672. Again, I assume those numbers are much greater now. All of the numbers that I just provided to you from the Facebook-only feed are only for the 18 shows that we produce. This does not even include the data from the other 45 live stream shows. We also had 28,014 RSVPs for ShopFest, almost half of whom opted in for text and email updates for all market live stream events. I don't yet have confirmed engagement data during each stream, but those who watched every stream and the attendee counters for each stated that the vast majority of viewers remained engaged for more than 70% of the show's duration, and a significant number stayed on until the end of the live stream. This is like really, if you take a look at what kind of data exists for engagement on the platform, you'll see this is very, very impressive data. number. So while this data is still being tested and confirmed, it looks like gross merchandise value generated during the event will come in somewhere between $20,000 and $30,000. And the average order size appears to be just over $80. And of course, sales in the stores are still continuing. But there's a ton of data that has been and continues to be generated and and collected and we'll be working through the best ways to mine and analyze that data in order to calculate and report the ratios and identify trends. Without exception, every vendor reported that they truly enjoyed their experience with the platform and pledged to continue their presence and participation on market. And most have already committed to weekly shows, which you should soon be seeing. Just three days ago on Friday, we implemented a new streamlined onboarding process that will help get vendors through the process much more rapidly and reduce the backlog. As you will learn in the coming weeks in my comprehensive market update that I've referred to, this is an important, very well-timed improvement to the platform. We currently have more than 300 vendors committed to market, approximately half of which have open and active stores and appear to in the market.live sellers list. Of the balance that have yet to complete the onboarding process, as they get close to completing the process, we place their names in the sellers list with the notation coming soon. And as the rest get closer, we'll add them too. The onboarding process is really, it's not difficult in any way or time consuming. However, some of the larger vendors, have multiple departments responsible for providing certain of the information needed to complete the process. So like, for example, the people responsible for providing logos and designs are different than the people responsible for uploading inventory SKUs, who in turn are different than the people who have access to and are responsible for providing banking and other financial information. So just, you know, getting those people together and getting them to You know, to get it done does take a bit longer. But, look, we have a team of people who are dedicated to helping vendors through the onboarding process and, in many instances, completing it for them. I get a daily report of the status of vendors who are lagging through the process. And rest assured, we stay on top of all of them to move through the process as rapidly as we can. As I said before, this is a numbers game. And we appreciate how important it is to get more vendors through the process up and running, hosting live streams on the platform. Okay, so that's market. Let me turn to our SaaS business report. We are and remain the undisputed leading provider of sales enablement applications for the direct sales industry, displacing previous market leaders and would-be competitors just as I said we would previously. when we entered the space in 2019. Beginning at the end of the second quarter of this year, we expanded our suite of sales enablement tools with the release of the new innovative sales application I told you we had in development in prior conference calls. These products, including Verblive 2.0 and Pulse, will not only enhance our leadership position in the direct sales space, but put us that much further ahead of the handful of would-be competitors. I'm also very happy to announce that we have begun onboarding one of our direct sales clients to our market platform. Now, in no way does this replace any of the sales tools to which this client currently subscribes. Their use of market represents an entirely unique and complementary enhancement to their direct sales business and is perfectly suited to the direct sales industry generally. Post-launch of this client, I fully expect more of our direct sales clients will seek to adopt market as an enhancement to their business. Consistent with the guidance we provided previously, we expect to see the increased recurring SaaS revenue from the new products in the third and fourth quarter of this year and beyond. I've stated in our previous conference calls, our focus has been on building the very high margin SaaS recurring revenue component of our business and reducing the non-digital, non-recurring, very low margin legacy component of our business. As we began the exit from the legacy business, which represented a large portion of our total revenue, investors that focused solely on the company's top-line revenue misinterpreted and misread the growth the company was actually experiencing in our SaaS business. I once again urge you to focus on the SaaS revenue component of our business and not on the revenue from a business line. We have repeatedly stated we are exiting. For example, just last year in Q2 of 2021, the legacy non-digital revenue represented 24% of our total revenue. In Q1 of this year, it represented only 20% of our total revenue. And in Q2 of this year, it represents just 10% of our total revenue. As our digital revenue continues to grow, the legacy business low margin revenue becomes a smaller and smaller component of our overall revenue. And as it continues to grow and as we continue to exit out of it, you'll see that the top line will appear to grow much more rapidly since that SaaS revenue is no longer just offsetting the reduction of the legacy business revenue. The release of these products also marked the beginning of the next phase of major operational cost reduction we've implemented as first reported in Q4 2021, and that continued up through Q2 of this year. You might recall that R&D expense, which had been the biggest component of our operating expense, was down 22% in Q4 over Q3 in 2021. We then reported a substantially greater and additional reduction in in R&D expense of 42% in Q1 2022 over Q4 2021. And for the second quarter of this year, we're reporting an additional reduction of 13% from Q1. Specifically, R&D expenses for Q2 are now just 1.4 million down from the 3.2 million in the same period last year, representing a 57% reduction. The additional revenue from the newly introduced sales enablement applications and the revenue we expect to generate from our new verticals, including market, together with a new pricing model we're about to introduce to our direct sales clients that will better align our interest with theirs, creating a true win-win. Coupled with these continuing cost reductions, give us confidence in our ability to achieve positive EBITDA and reduce our reliance on the capital markets. I'm going to leave further discussion of our SaaS business results to our CFO, Salman Khan, so as not to take additional time on this call. But let me briefly touch on our new professional sports unit, Vertical, as I discussed in previous earnings calls. In Q4 2021, we launched our professional sports unit built on our verb means sales enablement platform. We started with the announcement of the Pittsburgh Penguins in Q4 2021. And since then, we've added many new professional sports teams to the platform and built a really impressive sales pipeline of professional sports teams, both in the U.S. and now even in other countries. In addition to the Pittsburgh Penguins, we announced the Florida Panthers, the Phoenix Suns, and the Detroit Pistons, and we expect many more announcements. And it's my continuing expectations that some of these teams will adopt market as part of their fan engagement strategies, among other things. All right, so I'm going to turn it over to our CFO, Salman Khan, for more detail around our reported financial performance. Salman?

Thank you, Rory, and good afternoon, everyone. I'd like to review our financial performance as reported in our Form 10Q file today. August 15, for the second quarter ended June 30, 2022. I may reiterate and or provide more color around some of the data points Rory shared with you. The following compares the company's results of operations for the second quarter of 2022 with the second quarter of 2021. Total digital revenue was $2.2 million, an increase of 19% from the same period last year. SAS recurring revenue, a component of total digital revenue, was $2 million, an increase of 23% over the same period last year. Total digital revenue as a percentage of total revenue was 90%, compared with 76% for the same period last year. SAS recurring subscription revenue as a percentage of total revenue was 82%, compared with 67% for the same period last year. Total revenue was $2.4 million, up 0.3% from the same period last year. Cost of revenue was $0.8 million, down 25% from the same period last year, reflecting planned cost reductions and a continuing shift towards the company's digital business and away from the lower margin non-digital business. Gross margin, on the other hand, was 65% compared with 53% for the same period last year, reflecting the systematic transition of our low-margin non-digital business and increase in our digital revenue. Our digital gross margin was 72% compared to 69% for the same period last year. Capitalized software development cost was $6.5 million on June 30, 2022. I want to remind everyone that following the successful completion and launch of Market.Live, we expect to amortize the capitalized software development cost as a non-cash charge to cost of revenue over the 36-month period from third quarter of 2022 onward. Research and development expenses were $1.4 million as compared to $3.2 million for the same period last year, reflecting a 57% decrease to plan cost reductions. R&D expenses were down 13% over the first quarter of 2022. General and administrative expenses were $6.6 million as compared to $6.5 million for the same period last year. G&A expenses were down 7% from the first quarter of 2022 primarily due to the implementation of planned cost reductions offset by planned increases in labor costs due to the launch off-market. Modified EBITDA improved by 2.2 million, or 30%, when compared with the same period last year. EBITDA is a non-GAAP measurement, and I refer you to our press release distributed today for more information and greater specificity around our modified EBITDA analysis. Now, let me share the financial results for the six months ended June 30, 2022, in comparison with the same period in 2021. Total SAS recurring subscription revenue was $4 million, an increase of 30% from the same period last year. Total digital revenue was $4.3 million, an increase of 19% from the same period last year. Total revenue was $5.1 million, up 3.5% from the same period last year, reflecting strong SaaS recurring revenue growth offset by the company's strategic decision to continue to wind down its lower margin non-digital business. Cost of revenue was $1.8 million, down 23% from the same period last year, reflecting planned cost reductions and a shift towards the company's digital business and away from the lower margin non-digital business. R&D expenses were $3 million as compared to $6.1 million for the same period last year, reflecting a 51% decrease due to planned cost reductions. General and administrative expenses were $13.6 million, a decrease of 2% for the same period, last year, primarily due to the implementation of planned cost reductions offset by planned increase in labor costs due to the launch of market. Modified EBITDA improved by 3.2 million, or 23%, when compared with the same period last year. Once again, EBITDA is a non-GAAP measure, and I refer you to our press release distributed today for more information and greater specificity around our modified EBITDA analysis. Cash totaled $5.5 million as of June 30, 2022, compared with $0.9 million on December 31, 2021. In April 2022, the company completed a registered direct offering with institutional investors, which resulted in gross proceeds of $11 million. Subsequent to the quarter end, we repaid in full all advances on future receipt. reducing current debt service payments and cash burn by up to $1.5 million per quarter. I'd now like to return the call back over to the operator for Q&A.