Verb Technology Company, Inc.

Good afternoon and welcome to the first quarter 2022 financial results conference call for Verb Technology Company, Inc. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touchtone phone. To withdraw your question, please press star, then two. 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'd 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. Kataya, CEO. Rory?

Thank you, moderator, and thanks to everyone for joining us today for our Q1 2022 financial results and business update conference call. So let's jump into it. We were just named the number one software provider to the direct sales industry for the second year in a row, which is an industry that we entered just three years ago that we now dominate. And with regard to that side of our business, I'm pleased to report that we've had another consecutive quarter of growth in our SaaS business, and I'd like to cover some of the highlights of the quarter. But first, I want to talk about Market, our new livestream shopping platform. First and foremost, I'm excited to announce the dates for the festivals. They are July 26th, 27th, and 28th. As I've discussed today, the recent public-facing livestream shopping events on Market have resulted in an acceleration of inbound interest from brands who want to be part of the festivals, including potential sponsors as well as headliners. So we've been reshuffling the lineup of it. The dates, times, lineup, sponsors, hosts, and other information will be released as part of the advertising and marketing campaign that's been developed for the festivals. There are also plans for follow-on festivals around specific important shopping dates this year. I will disclose more information on those subsequent communications I'd next like to share some data points about the ongoing sales and onboarding process for market and the interest we're seeing from vendors so the onboarding team they take over from sales once a vendor agrees to join market and set up a store all vendors get a store and as you'll see as we as we get through a little bit of this today you'll understand why that's important to So between January and March, and I think we talked about this in the last call, we added approximately 100 vendors to the onboarding process. But for the 39-day, for that period between April 1 and May 10, we added approximately 90 vendors to the onboarding process. And beginning with the Alex Traeger event and accelerating through and after the Wander Beauty event, inbound demand from really high quality vendors has increased rather dramatically. Since the Wanda Beauty event, we're now onboarding eight to 10 vendors a day. And due to the volume of inbound interest, we are prioritizing vendor acceptance and onboarding based on certain criteria. And chief among them is annual sales volume in excess of $5 million a year, together with a measurable online following through social media. So here's some Important stats on the top 100 vendors on market based on revenue and social media followers as of May 10th. Combined annual e-commerce sales in the United States for the past 12 months is approximately $4 billion. Of the top 100, we have two companies with sales of over $1 billion. We have five companies with sales of $100 million or more. three companies with sales of $50 million or more, 11 companies with sales of $10 million or more, 12 companies with sales of $5 million or more, 22 companies with sales of $1 million or more, and the balance has sales under $1 million a year. Total social media followers for the top 100 companies is over 80 million. In fact, the number is actually 80,691,982. There's a fair amount of diversity among the categories of products offered by the vendors to assure a really robust shopping experience for shoppers on market. The sales cycle? The sales cycle is, quite frankly, really unlike anything I've ever seen. We have salespeople who are reporting close rates of 100% during the demo, which is often the first call with the vendor. And I realize that that just sounds insane, and I'm not suggesting that close ratio is going to be sustainable as it continues to scale. But I'd not be surprised if it remains well above traditional sales close ratios. It appears that we've really tapped into something here, like kind of a long pent-up demand from vendors across every product category looking for a new distribution outlet. There's also a massive movement by manufacturers to adopt a direct-to-consumer distribution strategy, which market obviously addresses directly. More recently, we've seen even traditional retail brands looking to incorporate a more effective direct-to-consumer distribution strategy to lower distribution costs and increase margins. And if there is a contraction in the economy and a drop in consumer spending, which is the way it's looking right now, we could very well be facing that. We believe this will drive business for market as vendors will seek ways to lower their prices and yet retain their margins. As the vendors that are fully onboarded choose to host public-facing events, which we actively encourage, we anticipate the onboard rate to continue to ramp up through the festivals and then accelerate even further. Accordingly, we are focusing on the sales and onboarding process to identify and eliminate any bottlenecks and points of friction. As I mentioned a few moments ago, we are experiencing an extraordinarily high close rate when our sales teams demo the platform for prospects We're working to better automate that demo process for prospects. In fact, just over the past six weeks, we've revamped our user guides, our FAQs, our onboarding processes, and created best practices guides for our teams as well as for our vendors. And these efforts have already produced measurable efficiencies. Our goal is to be able to accommodate hundreds of new vendors per day, and over time, thousands per day with little intervention from any of our sales and onboarding team members. By the way, this is one of the reasons to do the soft launch the way we have, so we can learn what we didn't know, what we don't know, things that are not discovered during the beta trial period that you want to address before a full, hard public launch. We've learned from our mistakes, and what some may incorrectly perceive as a delay is actually our teams taking a very careful and thoughtful approach to the launch of market. We're in this for the long haul, guys, and we believe that this is an enormous opportunity to create real, real sustainable value for all of our shareholders. All right, let's talk about the standalone stores and what that means. The process of onboarding involves setting up the vendor's storefront, and this includes, among other things, providing their banking and tax ID information, confirming inventory and fulfillment capabilities, uploading their logos, their branding elements, and content, and of course, loading their inventory SKUs. In some cases, vendors start and finish in a single day. In other cases, it takes much longer. Once their stores are set up, we offer training, support on how best to use and leverage the platform. Some vendors begin hosting private events while they get comfortable. with the platform's features and functionality, but we actively encourage vendors that have completed onboarding and set up to begin hosting public-facing events. We developed the standalone store capability to allow those public-facing events to take place without exposing the identities of certain brands that ask that we not disclose their presence on market until they either completed their setup or they announce their presence publicly themselves or jointly with us. Okay, so let's now discuss the recent public-facing events. Over the past month, we've had three public-facing events. The first one was hosted by Alex Traeger, a popular influencer from BuzzFeed's Tasty Show. The next one was a brand called Don't Call Me Mommy, a very popular, fast-growing brand. And the last one was Wander Beauty, a very successful cosmetics brand and one of the biggest sellers on HSNs. These were all test events for these brands and intentionally not well promoted. And as such, we waived our normal fees. The Alex Traeger and Don't Call Me Mommy events were produced by a company whose business is to develop and execute live stream shopping monetization strategies for influencers with large social media followings and service the creator economy. This is a very savvy, experienced company. connected management team that looked at virtually all competing live stream platforms and chose Market to host their clients' live stream shopping events. The Wander Beauty event was produced by John Rizzo, our new SVP of content and brand partnerships. John was a producer at QVC for more than 20 years and led QVC's online initiative and grew it to more than $300 million a year in sales. Kate Ekman, our new SVP of Programming Talent Acquisition, a former QVC HSN on-air host, she hosted the event alongside some of the Wander Beauty principals. As a testament to vendors' experience on the platform after their test events, I'm happy to report that all three have talked openly about how much they enjoyed the experience. And Wanda Beauty has already confirmed a series of events on market. And the next one is already scheduled. I think it's currently scheduled for this month, May 27th at 2 p.m. Eastern. And I hope that you get to see the real quality of this platform and what a game changer this is. I'd like to share some of the data points that came out of those three events. We had a total of 492 verified attendees. So that number does not include insiders like Verve employees. It does not include people who attended on YouTube and Facebook and Instagram and other social media sites as both the Alex Traeger and the Don't Call Me Mommy events were simulcast on social media as well as on market. And I don't yet have the number of attendees on the social media feeds that clicked over to watch on market to make purchases directly on market, which is definitely an important metric. But the producer told us that they were very pleasantly surprised at that conversion rate. As to sales data, I'm going to aggregate the information in order to be as transparent as I possibly can here, but still respect the confidential sales information of our individual vendors. So total sales for all the events during the live streams were low four figures, under $5,000. However, sales continued after the live stream events as people did, in fact, return to shop the stores and watch the recordings of prior events, which are all still shoppable. validating one of my premises for incorporating shoppable stores that retain a permanent presence on market, as opposed to some of the companies that do the one-off live stream events. That post-event sales number, while preliminary, seems to be approximately 20% of the sales done during the events. But those sales are still continuing, and that amount obviously will change. As time goes on, and we have a much larger pool of events and post-sales data we'll be better able to determine how much the vendor storefronts contribute to the revenue stream and the rate of drop-off over time after the live stream event, which will help vendors determine when to schedule follow-on live streams to maintain or increase sales. Sales are continuing in the market stores days and even weeks after the live events. Twelve percent of live event attendees made purchases, which is well above the 2.5% average conversion rate for non-livestream e-commerce. The average size purchase from all events was $47.88 per purchaser. And I think if my math is right, I believe that works out to about $240 in GMV gross merchandise value for every 25 people that attend a market event. However, market data for live stream shows indicates that the number goes up when attendees remain on for more than 12 minutes. In fact, I believe it's actually as much as 50 to 100% greater if they get past that first 12 minutes. shows that 95% of attendees remained on for more than 12 minutes and 85% of attendees remained on for the entire show. Now, these are unusually high engagement rates, guys, and we don't yet know if this is sustainable in scale, but even 25% of these engagement rates would be really very impressive. And while this data is only from three relatively small unpromoted events, there is a lot of data we've provided today about the vendors that are already committed to market that would allow savvy investors to begin building their own revenue forecast model to determine what market could potentially generate from the vendors already confirmed and then plot a growth rate for additional vendors layering in over the next 12 months and beyond. And And I'm hopeful that this will help investors formulate their own opinion of value for market on a standalone basis and compare that to our current market cap for the whole company, whole combined company, when making an informed investment decision. So the points that we've discussed, I think they're worth repeating, are collectively, the vendors committed through May 10th generate approximately $4 billion a year in U.S. e-commerce sales. Collectively, they have more than 80 million social media followers to whom they can promote their events on market. 12% of attendees made purchases that averaged $48 per attendee. Attendees that remain on for more than 12 minutes will likely purchase more, as much as 50% to 100% more. And there's an additional 20% in sales taking place in the stores after the events, and in at least one case, it's even more than that. And finally, our revenue is derived from several sources. The first component is a fixed percentage, which averages revenue. 10 to 20 percent, and in some cases it's even more, of gross sales by each and every vendor on the platform. So that's from both the live events and from the stores. In addition to that, as the platform continues to attract a critical mass of buyers and sellers, we will impose onboarding fees, which we currently waive, as well as monthly recurring fees from vendors to maintain their store on market, which we are also waiving for vendors coming on during the soft launch period. There are additional revenue streams flowing from sponsorship fees, hosting service fees, production services fees, among many other revenue categories, though I don't have visibility on how to quantify any of those yet, so I leave them out of the model until we do. Now I'd like to turn to our SaaS business and Q1 results, after which our CFO, Salman Khan, will provide more details. So starting with our SAS recurring subscription revenue for Q1 2022, we report just over $2 million, up 37% over the same period last year. We've now had five consecutive quarters of SAS revenue recurring revenue growth. In fact, but for Q4 2020, we would now have reported eight consecutive quarters of SAS revenue growth. And the only reason Q4 of 2020 wasn't part of the consecutive quarters of growth was not that it was a bad quarter. It was that Q3 of 2020 just happened to be a blockbuster quarter. You may recall that it was a record breaker for us. Okay, next. First quarter 2022 gross profit margin was 1.7 million, up 31% over the prior year comparable quarter, 1.3 million. Total digital revenue, of which SaaS recurring revenue is a component, was 2.2, up 19% over the same period in 2021. And notably, we ended the first quarter of 2022 with SaaS recurring revenue once again representing a larger and larger percentage of our total digital revenue, now 93%, up from 81% in Q1 2021. And as a percentage of total revenue, our SaaS revenue is now 74%, up from 58% in Q1 2021. Total cost of revenue was $1 million, an improvement of 20% compared to the prior year comparable quarter. But I am particularly pleased to report that the revenue growth we've reported today was achieved while fulfilling our commitment to reduce operating expenses. As I indicated previously, we would begin to see the results of our plans to reduce operating costs in Q4 of 2021 and Q1 of 2022. You might recall that R&D expense, which is the biggest component of our operating expense, was down 22% in Q4 over Q3 2021. And we're reporting a substantially greater and additional reduction in R&D expense of 42% in Q1 over Q4 of 2021, and that also represents a reduction in R&D expense of 45 percent over the prior year comparable quarter. We expect to report further plan reductions in operating expenses while revenues increase throughout the year and into next as we move closer to cash flow positive. And Salman will address additional expense reductions in his comments. In our last quarterly report, I talked about a new version of VerbLive, version 2.0, designed specifically for the direct sales industry that was under development. It includes many of the features that have already been built into the market platform, such as dual presenter mode and recording capabilities, but built to be used as a tool for individual sales reps, and it's tightly integrated into our VIRB CRM application with attribution features. And I'm pleased to report that development is ahead of schedule and we'll have no problem meeting our delivery dates for the clients waiting for it next month in June and in July. And in addition, a new admin system for our super popular Pulse application, allowing us to dramatically accelerate client onboarding, will also be released ahead of schedule for delivery to clients waiting for that as well. As I discussed in our last earnings call in Q4 2021, we launched a new business unit for Verve, our professional sports unit, built on our Verve Teams 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 an impressive sales pipeline of professional sports teams, both in the U.S. as well as in other countries. So in addition to the Pittsburgh Penguins, we announced the Florida Panthers, the Phoenix Suns, and the Detroit Pistons, and many more announcements are expected. Some of the initial deals we've done and expect to do are done on a type of barter basis, rather than just doing a free trial, whereby we provide the teams a license to our platform in exchange for corresponding value in marketing for VRB. Our strategy is that once they use the platform, they'll see the benefits and be willing to pay for a subscription upon the expiration of the initial term. And we have reason to believe that this strategy will prove to be an effective one, as at least one team has already reported extremely impressive results from their use of the platform, such as 72% click-through rates using our interactive video technology. In addition, we're now in talks with one of the leads who is exploring the possibility of rolling our sales enablement platform out to all of the teams in their league. And as I mentioned in the last call, it is my expectation that there will be market and verb TV implications for the sports teams using our platform. Let's talk about the acquisitions. As to one of them, I discussed previously, the audit is virtually complete, however, given the recent rather shocking and more rapid deterioration of the financial markets over the past few weeks, including the precipitous and inexplicable decline in the current price of our shares, which we intended to use as currency in connection with the consideration, we are negotiating an extension of the closing date with the sellers. It is our hope that market conditions will improve, allowing us to complete the acquisition really soon. And as we worked very closely together, you know, with these guys over the past year and developed, you know, a real mutual respect that extends beyond our business relationship. And, and I really believe that we, the company should be together. The team should, should remain together. And, but look, given the market conditions today, we believe this is really the prudent course of action until we're able to complete the acquisition and We'll be operating under the long-term licenses that we have in place for those components we rely on for the market platform. And we will outsource some of the ongoing platform improvements and updates to their developers under previously negotiated and fully executed statements of work. So there's no interruption of any kind. All right, I'll turn it over to our CFO, Salman Khan, for questions. more detail around our reported financial performance, as well as the recent finances we secured to assure the uninterrupted execution of our plans for market, among other things. Salman.

Thank you, Rory, and good afternoon, everyone. I'd like to review our financial performance as reported in our Form 10-Q file today, May 16, for the first quarter ended March 31, 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 first quarter of 2022 with the first quarter of 2021. SAS recovering revenue, a component of total digital revenue, was $2 million for the first quarter of 2022, up 37% over the comparable prior year quarter. SAS recurring revenue as a percentage of total digital revenue was 93% compared with 81% for the comparable prior year quarter. SAS recurring revenue as a percentage of total revenue was 74% compared with 58% for the comparable prior year quarter. As Rory mentioned, it has now been five consecutive quarters of SAS recurring revenue growth. As we discussed in our last earnings call, until we completely phase out of 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 cumulatively is growing at a record pace, and our non-digital business, which is declining as we exit that business. For example, the non-digital business now represents only 20% of total revenue through the first quarter of 2022, compared with 29% through the comparable period in 2021. I do note, however, that due to our exponential growth in SaaS business, our total revenue for the first quarter 2022 or the prior year first quarter is up 6.5%, despite the planned decline in non-digital business. As discussed in our earnings call last month, we historically made a conscious decision to ramp up our research and development investment among other related expenses in order to accelerate the time to market for several major revenue generating features and products. In Q4 2021, we began the move from R&D mode to maintenance mode for many of our products, allowing us to reduce operational costs to more normalized levels. The plan reductions will continue throughout this year and into next, with some of the biggest reductions occurring in the latter half of this year. For the three months ended March 31, 2022, we invested 1.6 million in R&D, compared with 2.9 million in the same quarter of 2021. This 45% reduction is in line with our expectations, and as part of our cost reduction strategy, I also note, as Rory said, this also represents a 42% reduction in R&D expense from Q4 2021. At March 31st, 2022, we capitalized software development costs of $6.2 million attributed to the development of market, which we expect to depreciate in cost of revenue. General and administrative expenses were $7 million in the first quarter of 2022, a decrease of $0.3 million from the $7.3 million in the prior year comparable period, primarily due to a decrease in share-based compensation of $1.1 million and a decrease in marketing spend of $0.4 million, both offset by planned increases in labor costs of $0.9 million. As discussed in our previous earnings call, we have begun implementing a top-grading strict ROI approach to our marketing spend, and based on the efficiencies we're now seeing, we are all set for the annualized savings of $1 million in marketing spend over time. We anticipate that these additional savings will help offset any marketing increases we expect to incur as we promote the public commercial release of our new market platform and Verb TV, among other things. As we began the year, we continued to focus on identifying cost efficiencies. For example, we determined that many of our Utah team members could continue to work remotely very effectively. Accordingly, in Q1 2022, we terminated our office building and warehouse leases in Utah and entered into a new office sublease agreement in Lehigh, Utah for smaller space, saving us over $270,000 a year. In the first quarter of 2022, we improved our modified EBITDA by 1 million, or 16%, when compared for the first quarter of 2021. This unlocking in modified EBITDA represents approximately 50% of our current quarter's SAS revenues of 2 million, and is a testament of our employees' and management team's efforts to make our company more efficient with a drive towards profitability. As a reminder, Modified EBITDA is a non-GAAP financial measure, and we have provided information reconciling to the comparable GAAP financial measure in the press release for today and in our Form 10-Q. As of March 31, 2022, total assets were $38.1 million, total liabilities were $22.3 million, and total stockholders' equity was $15.8 million. On April 25, 2021, we completed a registered direct offering price at the market at 75 cents with a small group of institutional investors, which resulted in gross proceeds of 11 million. It was a straight common transaction with one-for-one warrants. As of May 10, 2022, there are slightly over 101 million shares of our common stock issued and outstanding. Of the total number of common shares issued in outstanding, approximately 6.8 million shares or approximately 6.7% are owned or controlled by management and the board members. I'd now like to turn the call back over to the operator for Q&A.