Verb Technology Company Inc (VERB)

[Nspireaction]

Rory says that once a new contract is executed, it takes approximately 70 to 90 days “and sometimes more” to launch a new client's application and begin recognizing the recurring revenue. Therefore, reported revenue is a lagging indicator and mis-leading. Company progress is more accurately measured by how many new contracts "and their expected QRR" that were actually executed during each quarter.

The analyst from Litchfield also says that new client orders are the leading indicator and would encourage Verb's management to continue providing aggregate order data.

These numbers were pulled from the discussion below.

2019
Q-1 - Verb executed "4" new client contracts.
Q-2 - Verb executed "4" new client contracts (QRR $39,000) - Qtr over Qtr recuring revenue was $858,000. (GAAP)
Q-3 - Verb executed "14" new client contracts (QRR $195,000) - Qtr over Qtr recuring revenue was $953,000. (GAAP)
Q-4 - Verb executed "15" new client contracts (QRR $234,000) - Qtr over Qtr recuring revenue was $995,000. (GAAP)

2020
Q-1 - Verb executed only "11" new client contracts (QRR $91,000) partly due to the corona virus, but Qtr over Qtr recuring revenue was $1,057,000. (GAAP) An increase of $62,000 over the previous quarter.

(From the CC)
I suggested that investors interested in ascertaining the financial performance of our business focus on two things. First, the growth of our digital business and in particular the quarterly recurring subscription revenue what the industry refers to as QRR and how that translates into ARR or annual recurring revenue. That is the number against which the high end market multiples are applied in calculating enterprise and per share value. The second thing I suggested investors focus on is the number of new contracts executed in a particular quarter and the associated QRR and ARR expected to be generated from those new contracts. I've explained that these numbers are extremely relevant in analyzing the performance of the business because it demonstrates whether or not the company is continuing to attract new customers quarter-over-quarter and not just recognizing and recording the revenue generated from prior or from existing contracts.

Because the subscription revenue from new contracts is typically not recognized for 70 to 90 days or sometimes longer after the date the contract is executed, that revenue is not immediately reflected in the company's GAAP compliant financials, such as ours. So let me repeat that for clarity. Our financials are GAAP compliant and as a result they will only reflect revenue we are permitted to recognize in accordance with Generally Accepted Accounting Principles in that quarter. For a software-as-a-service business like ours, the revenue recognized in any particular quarter will likely not reflect any of the new subscription recurring revenue contracts executed in that quarter.

In my view, the purpose of these earnings calls is not to simply read the numbers off the balance sheet and income statements, but rather to explain what the numbers mean, to put them in context and compare them to prior periods so relevant trends can be readily identified and analyzed. So to provide a more complete picture of the business, I'm not only going to discuss and compare the recognized GAAP QRR reflected in our 2019 10-K and our 2020 10-Q against prior periods but I'm also going to discuss and compare the QRR we expect to recognize from contracts we executed in the fourth quarter 2019 and in the first quarter 2020 with prior periods.

So starting with Q2 of 2019 which was the first full quarter we reported post acquisition as a combined business and continuing through Q1 of 2020 here's our quarter-over-quarter recurring revenue growth as recognized by GAAP and reflected in our final financials. 2019 Q2 was $858,000, Q3 was $953,000, Q4 was $995,000 and Q1 of 2020 was $1.57 million. Again, these numbers represent the GAAP recognized revenue as reported on our financials as a component of our digital revenue.

Now for the QRR we expect to recognize from the new client contracts we executed over that same period, Q2 of 2019 was $39,000, Q3 was $195,000, Q4 was $234,000 and Q1 of 2020 was $91,000. So with the exception of Q1 2020 the growth of expected recurring subscription revenue from contracts has grown dramatically quarter-over-quarter since Q2 of last year. As to the contract value in Q1 2020, yes, the expected value was down over that prior quarter, but we attribute that to the impact of COVID-19 on the world generally, as we had many clients that were simply afraid to sign new contracts because there was so much uncertainty about the future at that time.

I do point out that our GAAP recognized quarterly recurring subscription revenue in Q1 2020 was up over the prior quarter going from $995,000 in Q4 2019 to $1.57 million in Q1 2020. I'm happy to report that the fear of executing new contracts we saw in Q1 has dissipated. And based on the activity we've had halfway through the current quarter, I expect to report another consecutive quarter of QRR growth. In fact, that's a stat we're very proud of. Going back to Q1 2019 through Q1 of 2020, we've now had four consecutive quarters of recurring subscription fee revenue growth and I fully expect to extend that winning streak to five consecutive quarters of growth next quarter.