Veritone, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Veritone provides AI and aiWARE software and content services, and operates an advertising agency and VeriAds Network. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial results and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $13.268 | $12.270 | $25.172 | $24.395 |
| Gross profit / margin | $8.943 / 67.4% | $7.708 / 62.8% | $17.036 / 67.7% | $15.961 / 65.4% |
| Operating expenses | $20.499 | $24.444 | $41.404 | $49.205 |
| Operating loss | $(11.556) | $(16.736) | $(24.368) | $(33.244) |
| Net loss | $(11.793) | $(16.691) | $(24.477) | $(32.997) |
| Loss per share, basic and diluted | $(0.43) | $(0.80) | $(0.91) | $(1.64) |
- Q2 revenue grew 8.1% year over year; six-month revenue grew 3.2%. Advertising revenue rose 20.5% in Q2, and aiWARE SaaS revenue rose 12.1%; content licensing and media services revenue fell 13.9%.
- Gross margin improved, which management attributed primarily to lower platform costs. Operating expenses declined 16.1% in Q2 and 15.9% for the six-month period, reflecting spending reductions, lower compensation costs and, for R&D, nonrecurring 2019 Machine Box contingent payments.
- Cash and cash equivalents were $50.1 million at June 30, up from $44.1 million at year-end. Operating activities used $2.8 million in the first six months, versus $16.6 million in 2019. Financing provided $8.8 million, including $6.5 million in net stock-sale proceeds and $2.1 million from warrant exercises.
- Total current assets were $83.1 million and current liabilities $65.9 million. The company reported no outstanding debt at June 30. It borrowed $6.491 million under the Paycheck Protection Program and repaid the full amount by May 18, 2020.
- Stockholders’ equity was $40.1 million, down from $47.4 million at December 31, 2019. Shares outstanding increased to 27.5 million from 25.7 million. The company had 1.592 million warrants outstanding at quarter-end.
Material changes and operating indicators
- VeriAds, launched in late 2019, contributed $0.898 million of Q2 revenue and $1.018 million for the first six months; it had no comparable 2019 revenue.
- aiWARE SaaS platform accounts increased to 1,753 at quarter-end from 1,069 at year-end 2019. Q2 new bookings were $2.319 million, and total contract value of new bookings was $2.502 million; management cautioned that bookings and revenue can fluctuate with contract timing and customer mix.
- Advertising gross billings per active client averaged $614,000 in Q2, compared with $488,000 a year earlier. The top ten customers represented approximately 40% of Q2 revenue and 34% of first-half revenue; one customer represented 11% of Q2 revenue.
Outlook, risks and unusual items
- Management expects net losses to continue for the foreseeable future as it invests in aiWARE SaaS development and sales. It believes available cash will fund anticipated requirements for at least 12 months from issuance of the financial statements, but does not expect current cash to fund the business through sustained positive operating cash flow.
- The company may seek additional equity or debt financing. Up to $18.538 million remained available under its at-the-market equity distribution agreement; future financing may be unavailable or cause shareholder dilution. No formal revenue or earnings guidance is provided in the filing.
- COVID-19-related cancellation and postponement of major sporting events reduced content licensing and media services revenue. Management warned further cancellations could materially affect that business in Q3 2020 and later periods. Advertising and SaaS revenue had not declined year over year for the first six months, but customer demand, purchasing decisions and creditworthiness remained uncertain.
- Management reduced expenses, restricted discretionary spending and moved employees to work from home, while stating it would continue investing in AI capabilities and sales and marketing.
- Disclosure controls were deemed ineffective because of an unremediated material weakness in accounting for advertising revenue. Remediation efforts were underway. Management nevertheless stated that the financial statements were prepared in accordance with GAAP and fairly presented.
- Remaining performance obligations were $4.463 million at June 30; approximately 81% was expected to be recognized over the next 12 months. The filing reported no legal proceeding expected by management to have a material adverse effect.
Key facts for investors to verify
- Whether sporting-event schedules and customer demand recover, and the resulting effect on content licensing revenue.
- Whether revenue growth in advertising and SaaS translates into improved operating cash flow and progress toward profitability.
- Cash runway assumptions, the availability and terms of additional financing, and potential dilution from equity issuance and outstanding warrants.
- Progress in remediating the advertising-revenue accounting material weakness.
- Customer concentration and the conversion of SaaS bookings and remaining performance obligations into recognized revenue and cash collections.