Veritone, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019; filed August 8, 2019. Veritone provides AI solutions through its aiWARE platform, alongside advertising and digital content licensing and media services. Unless stated otherwise, amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $12.27m | $4.17m | $24.40m | $8.56m |
| Gross profit / margin | $7.71m / 62.8% | $3.35m / 80.3% | $15.96m / 65.4% | $7.17m / 83.8% |
| Operating loss | ($16.74m) | ($14.45m) | ($33.24m) | ($27.68m) |
| Net loss | ($16.69m) | ($14.33m) | ($33.00m) | ($27.38m) |
| Basic and diluted loss per share | ($0.80) | ($0.88) | ($1.64) | ($1.69) |
- Q2 revenue rose 194%; first-half revenue rose 185%. Q2 revenue comprised advertising $5.84m, aiWARE SaaS $2.68m, and content licensing and media services $3.75m.
- Revenue growth included contributions from 2018 acquisitions Performance Bridge and Wazee Digital. Excluding those acquisitions, advertising revenue increased 30% in Q2 and SaaS revenue increased 102%, according to management.
- Gross margin declined as AI-related services became a larger share of revenue; management said advertising generally carries margins above 95%. Acquired-intangible amortization also reduced Q2 and first-half gross margin by approximately 3.9 and 3.3 percentage points, respectively, versus the comparable 2018 periods.
- Operating expenses increased 37% in Q2 and 41% in the first half. Management cited acquisition-related costs and higher stock-based compensation, among other factors. First-half stock-based compensation was $11.3m.
- Cash used in operations was $16.61m in the first half, compared with $21.34m in 2018. Investing activities provided $7.05m and financing activities provided $12.19m; cash, cash equivalents and restricted cash increased $2.63m.
- At June 30, cash and cash equivalents were $40.28m, marketable securities $5.00m, and current assets $80.52m versus current liabilities of $53.69m. The company reported no outstanding debt. Accumulated deficit was $203.41m.
Material changes and capital
- The 2018 acquisitions expanded digital content management and licensing, podcast advertising, and machine-learning capabilities. Acquisition-related revenue, costs, amortization and contingent compensation affect comparisons with 2018.
- Veritone raised $12.2m net from common-stock sales under its at-the-market equity agreement in the first half, issuing 1.67m shares. Approximately $35.5m of offering capacity remained available as of the filing. Shares outstanding were 21.92m at June 30, versus 19.34m at December 31, 2018.
- Management said existing cash, cash equivalents and marketable securities should fund ordinary-course operations for at least 12 months from issuance of the financial statements. It expects continuing losses and does not expect current resources to fund the business to positive operating cash flow; future financing may be needed and may be unavailable or dilutive.
Outlook, risks and unusual matters
- No specific revenue or earnings guidance was provided. Management expects continued investment in AI product development and sales and marketing, with operating expenses expected to rise in dollars but decline as a percentage of revenue if revenue grows.
- Management expects gross margin pressure to continue as AI SaaS and content services become a larger revenue mix. Revenue may fluctuate with advertising campaign timing, major sporting events, project timing and seasonality.
- Management identified advertising-client volatility and customer dependence, project-based demand, and the need for additional capital as risks. The top ten customers generated 25.9% of Q2 revenue; no single customer represented 10% or more in the periods reported.
- Disclosure controls were deemed ineffective at June 30, 2019 because of an unremediated material weakness in accounting for infrequent complex transactions, including business combinations. Management nevertheless stated that the financial statements were prepared in accordance with GAAP and fairly presented in all material respects.
- Management reported no legal proceedings expected to have a material adverse effect. Machine Box milestone payments and acquisition-related equity issuance were notable contingent and dilution-related items.
Key facts for investors to verify
- How much of reported growth reflects acquired businesses versus sustainable organic demand, particularly in SaaS and content services.
- Whether gross margins stabilize as revenue mix shifts, and whether operating-cost growth remains below revenue growth.
- Cash burn, the timing of additional financing, remaining ATM capacity, and potential dilution from equity issuance and outstanding awards.
- Progress in remediating the material weakness in controls over complex transactions.
- Performance against bookings and recurring-revenue KPIs, noting management cautions that these measures can fluctuate and may not predict future results.