Veritone, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; it does not provide a complete standalone fourth-quarter income statement or cash-flow statement. Amounts below are in U.S. dollars.
Business context
Veritone provides AI software and services through its aiWARE platform, serving Commercial Enterprise (CE) and Government & Regulated Industries (GRI) customers. Its offerings also include advertising and content-licensing managed services. The September 14, 2021 acquisition of PandoLogic added AI-enabled talent acquisition software.
Key financial metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $115.3 million | $57.7 million |
| GAAP operating loss | $67.2 million | $47.7 million |
| GAAP net loss | $70.6 million; $2.12 per share | $47.9 million; $1.73 per share |
| Non-GAAP net income (loss) | $6.8 million; $0.21 basic / $0.16 diluted per share | $(20.6) million; $(0.75) per share |
| Non-GAAP gross profit / margin | $93.2 million / 80.8% | $42.0 million / 72.9% |
| Cash from operating activities | $7.2 million | $1.4 million |
| Cash and cash equivalents at year-end | $254.7 million | $114.8 million |
FY2021 revenue was nearly 100% higher year over year. Software Products & Services generated $59.5 million (51.6% of revenue), versus $13.9 million in 2020; Managed Services generated $55.8 million (48.4%), versus $43.8 million. CE revenue was $111.3 million and GRI revenue was $4.0 million. PandoLogic contributed $38.3 million of revenue and $18.3 million of net income after acquisition.
Operating expenses rose 73% to $182.6 million, including a $47.8 million increase in general and administrative expense. That increase included $18.3 million of contingent-consideration fair-value expense, $17.4 million of additional non-cash stock compensation, $3.4 million of office-sublease-related charges and $2.7 million of acquisition costs. Total stock-based compensation was approximately $40.1 million.
Operating cash flow was positive, but working-capital movements were material, including higher accounts receivable and accrued media payments. Investing activities used $53.8 million, primarily for PandoLogic. Financing activities provided $186.5 million, principally from the convertible-note issuance.
Material changes and financing
- PandoLogic was acquired for stated total consideration of $122.5 million, including $58.7 million cash, $31.5 million in stock, a net working-capital adjustment and earnout consideration. The earnout was valued at $44.7 million at year-end, after an $18.3 million fair-value increase recognized in earnings.
- Veritone issued $201.25 million of 1.75% senior unsecured convertible notes due November 2026. Net proceeds were approximately $194.9 million before the $18.6 million capped-call purchase; the balance-sheet carrying amount was $195.1 million. The initial conversion price is approximately $36.76 per share; the capped-call cap price is $48.55.
- At December 31, 2021, total current assets were $379.1 million and current liabilities were $191.3 million. Cash included $66.4 million received from advertising customers and content licensees for future vendor payments.
- Net loss increased from $47.9 million to $70.6 million despite revenue growth. Management’s non-GAAP measure improved to $6.8 million of income from a $20.6 million loss; this measure excludes, among other items, stock compensation, amortization, interest, acquisition-related costs and contingent-consideration remeasurement.
Outlook, commentary and risks
Management forecast FY2022 profitability on a non-GAAP net-income basis, anticipated no non-GAAP net loss in Q1 2022, and expected consolidated non-GAAP gross margin of at least 80% from Q1, improving through 2022. These are management expectations, not guarantees. The company expected continued spending on engineering, sales and marketing, energy-market development and international expansion, and intended to pursue further acquisitions. It stated that year-end cash should fund ordinary-course operations for at least 12 months from the filing date.
- Customer concentration is high: the largest customer represented 30% of FY2021 consolidated revenue, compared with 8% in FY2020; the ten largest represented 57% versus 34%. One customer accounted for approximately 57% of Software Products & Services revenue. PandoLogic also depends substantially on one customer and lacks a long-term contract with it.
- Management cited long and uncertain sales cycles, seasonality in PandoLogic hiring-related revenue, and project timing in government and energy markets. COVID-19-related event cancellations, customer delays and weaker hiring or advertising demand remain uncertainties.
- Other material risks include AI-market adoption and accuracy, competition, third-party AI and cloud-provider dependence, cybersecurity and privacy requirements, potential facial-recognition restrictions, acquisition integration and earnout volatility, and dilution or repayment obligations from convertible notes.
- No legal proceeding was identified as expected by management to have a material adverse effect. Management concluded disclosure controls and internal control over financial reporting were effective as of year-end; the acquired PandoLogic business was excluded from management’s ICFR assessment. The auditor did not provide an ICFR attestation.
- On March 1, 2022, after year-end, Veritone closed an acquisition of a talent agency managing social-media influencers for $1.5 million cash, $2.0 million stock, and deferred cash and earnout consideration of up to $7.5 million.
Important facts for investors to verify
- Whether revenue growth and the reported non-GAAP profitability translate into sustained GAAP improvement and operating cash generation.
- The size, contract duration and renewal risk of the largest customers, especially the concentrated PandoLogic customer relationship.
- Cash available after vendor obligations, integration spending, earnout payments and other acquisition commitments.
- The assumptions and sensitivity behind the $44.7 million contingent-consideration valuation and potential future earnings volatility.
- Convertible-note conversion, dilution and repayment terms, along with the effect of the capped calls above their cap price.
- Progress against 2022 guidance, including the expected gross-margin trajectory, seasonality and investment needs.