Verb Technology Company and Transparency

It has been a tough year for tech companies, some, but not all of it directly due to COVID restrictions. Trying times are a good time to look into transparency and that prompted a look into the Verb Technology Company and others to follow.

Many companies lost customers when lockdowns began because customers could not reach them, and there were flow-on effects, due to their customers losing their customers. In other cases, customer loss may have been exacerbated by COVID restrictions, but that was neither the start nor the primary reason for their troubles.

Take for example, Verb Technology Company, Inc., a SAAS vendor of sales enablement tools (NASDAQ: VERB). The company had customers leave the platform in 2020 and it burned through $17 million in cash.

VERB’s CEO blamed the company’s loss of customers on the COVID pandemic, but other digital sales enablement tools (the company’s core product base) reported record growth throughout the pandemic. What is not known is whether they had initial losses and then picked up later. There were no explanations that described this.

Verb Technology Company’s most recent press release announcing their financial results for the fourth quarter and full year of 2020 uses upbeat wording, but the devil is in the details.

Verb Technology Company Chart

verb technology company chart
Verb Technology Company chart.

Words like “record,” “up” and “increase” can be found across the release. But what is conveniently omitted is the stark assessment of VERB’s current situation and future prospects as a company.

Of course, companies or their PR agencies write press releases, so they can ignore problems and frame a rosy situation. There appears to be very little investigative news written about tech companies like Verb.

According to its own release, the company only had $1.8 million in cash on hand as of the end of 2020; and auditors Weinberg & Company, P.A. expressed doubt about the company’s ability to continue on a path forward due to continuing losses, shareholder dilution and the associated challenge of raising additional capital.

The poor cash position was not helped by a class action lawsuit Verb settled in 2020, that alleged in 2018 the company “violated federal securities laws by issuing materially false and/or misleading information and/or failing to disclose material information” in relation to the Oracle company. The class action was settled for $640,000 with Verb not admitting wrongdoing. That loss of $640,000 was a drag on the company’s finances. It is a reminder to all public companies to be very careful with their wording because when things go wrong and people lose money, legal actions will always be time consuming and costly, even if wrongdoing is not proved.

Share Dilution

Verb’s issues do not stop there. In its registration statement with the SEC filed in January of this year, the company disclosed the issuance of up to $75 million worth of new shares. Subsequently, the company issued 9,375,000 new shares for net proceeds of approximately $14 million, further diluting an already heavily diluted shareholder base.

The company’s overall weak cash management position serves as a source of great concern to investors and customers alike. Apparently the company factored approximately $5.4 million in receivables for gross proceeds of approximately $4.4 million. While the agreement does include benefits for early pre-payment, analysts suggest this poor cash management will cost investors a minimum of $500,000. Given the company’s recent low performance coupled with the poor track record, analysts suspect that the recently procured capital may not last beyond the second quarter of this year, leading to even further shareholder dilution.

With its operations continuing to bleed cash, the compensation of its executive management team seems somewhat suspect, analysts say. For example, VERB’s CEO and CFO, received total compensation of $1.76 million and $775,000 respectively in 2020. This comes out to more than 25% of the company’s total 2020 revenue – a startling amount. Both the CEO and CFO’s cash bonuses in 2020 were attributable to successfully raising additional capital. That amounted to a high reward for having burned through cash, and significantly diluting investors.

External Reports

Several sites, including Simply Wall Street note that the company “has less than 1 year of cash runway,” that “shareholders have been substantially diluted in the past year,” and is “currently unprofitable and not forecast to become profitable over the next 3 years.”

It also said shareholders should look closely at “how risky the balance sheet is.” … and “whether it can repay its debt, since in the worst case scenario, creditors could force the company to bankruptcy.”

Marketing Sentinel painted a rosy picture of the company, but at the end noted a very negative future outlook, saying “the outlook is negative 0% per year for the next five years.”

All this is an indication that management and investors’ interests may not be in alignment. Moreover, it raises some very serious concerns relating to the ongoing operations and viability of the company.

Reaction to Adversity

When the company was running out of cash, management took a 25% pay cut, receiving stock instead, and staff all took a 20% cut in return for stock. Then the CEO and CFO received their huge bonuses, according to staff. Those staff reports were published at Glassdoor.

In March of 2021, the company’s CTO and director of product development left the company. At the end of March, 30 of the company’s developers were unexpectedly laid off. Naturally, what was left of the company’s morale has inevitably bottomed out, as evidenced by the Glassdoor comments for Verb Technology Company.

These are facts that the public and VERB shareholders may not be aware of. Certainly, people in trading chat rooms are talking up the stock now, apparently based on moving averages and where the stock moved down from. There did not appear to be any talk about company stability, lack of cash, addition of debt, management compensation or the loss of 30 developers.

The company owes it to its shareholders to be transparent about all these matters. But given the company’s apparent lack of willingness to share these important facts with the public, it will be left to others.

The lack of transparency was what prompted this investigation.

Even though the company is going through hard times, management are clearly not giving up. In the first week of January 2021, the website got a complete makeover, and they continue to make announcements, issue press releases, conduct interviews and take part in webinars.

They are also changing their products and business model. The question is, can they survive the addition of debt, the lack of cash, high executive bonuses and loss of staff?

As noted in the book ‘Founders at Work,’ “Perseverance is important because, in a startup, nothing goes according to plan. Founders live day to day with a sense of uncertainty, isolation, and sometimes lack of progress. Plus, startups, by their nature, are doing new things – and when you do new things, people often reject you.”

transparency Image by ds_30 from Pixabay
Transparency Image by ds_30 from Pixabay
John Ransham

John Ransham is a writer interested in financial markets, small to medium-sized companies and how they maintain their transparency when the chips are down.