Veritone, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise stated.
Business context
Veritone provides AI solutions through its aiWARE platform, alongside software and services for intelligent hiring, advertising, and content licensing. The company acquired an influencer-management business in March 2022 and synthetic-voice company VocaliD in June 2022. Its 2021 acquisition of PandoLogic expanded its software business into AI-enabled recruiting.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $34.2 | $19.2 | $68.6 | $37.5 |
| Operating loss | $3.6 | $12.6 | $24.4 | $43.2 |
| Net loss | $3.3 | $12.7 | $25.4 | $43.3 |
| Net loss per share, diluted | $0.09 | $0.39 | $0.71 | $1.33 |
| Operating cash flow | Not presented quarterly in the supplied text | $(4.3) | $(1.0) |
- Q2 revenue grew 78% year over year; six-month revenue grew 83%. Software Products & Services revenue was $18.4 million in Q2 versus $5.6 million, while Managed Services revenue was $15.9 million versus $13.6 million.
- Management reported non-GAAP gross margin of 80.4% in Q2 and 80.1% for the six-month period, compared with 72.8% and 73.2%, respectively, in 2021.
- At June 30, cash and cash equivalents were $220.5 million, down from $254.7 million at year-end. Approximately $64.0 million was cash received from advertising customers for future vendor payments. Six-month cash used was $4.3 million in operations, $6.9 million in investing, and $23.1 million in financing.
- Convertible senior notes had a carrying value of $195.7 million, with $201.3 million aggregate principal, 1.75% interest, and a November 2026 maturity. Current liabilities were $170.4 million; total liabilities were $381.7 million.
- Total assets were $452.0 million and stockholders’ equity was $70.2 million at June 30. Shares outstanding were 36.1 million, versus 35.0 million at December 31, 2021.
Material changes versus the prior comparable period
- Growth reflects, in substantial part, PandoLogic, acquired in September 2021, as well as expansion in licensing and advertising services. The company also completed the two 2022 acquisitions described above.
- Sales and marketing and research and development expenses increased sharply year over year as the company added personnel and integrated PandoLogic. Amortization increased with acquired intangible assets.
- Reported GAAP losses narrowed, but comparisons were affected by noncash and unusual items. Q2 general and administrative expense included a $13.8 million favorable change in the estimated fair value of PandoLogic contingent consideration. The prior-year periods included substantial stock-based compensation, including performance-option expense, and a 2021 office-sublease charge.
- Amazon represented 14% of Q2 revenue and 22% of six-month revenue. Management said Amazon reduced hiring consumption across fulfillment centers by 50% versus Q2 2021; its share of revenue had been 31% in Q1 2022 and 36% in Q2 2021 on a pro forma basis.
Outlook, risks, and unusual items
- Management said existing cash should fund ordinary-course operations for at least the next 12 months. It expected substantial improvement in 2022 operating results compared with 2021, but provided no specific numerical revenue or earnings guidance in the supplied filing text.
- Management anticipated seasonal revenue and profitability improvement in the second half, particularly from PandoLogic, and said it expected hiring-platform revenue to normalize beginning in Q3 after hiring activity shifted earlier in 2022. It also planned further sales, marketing, engineering, and infrastructure investment; these costs were expected to weigh more heavily in the second half.
- Management cited customer concentration, long sales cycles in government and regulated markets, hiring-pattern volatility, seasonality, competition, technology and infrastructure risks, and macroeconomic uncertainty including inflation, labor shortages, recession risks, COVID-19 disruption, and the Russia-Ukraine conflict. It said cost-saving measures had been instituted for Q3.
- The company disclosed that its Q1 2022 financial statements were restated because of an error in the PandoLogic contingent-consideration valuation and related purchase accounting and amortization. It also corrected an immaterial 2021 balance-sheet error. Management identified a material weakness in controls over oversight, review, and coordination of third-party specialists; remediation was underway but the weakness was not yet considered remediated.
- The company reported no legal proceedings expected by management to have a material adverse effect. It said there were no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Review the Q1 2022 restatement and the related contingent-consideration, goodwill, intangible-asset, and amortization adjustments; monitor whether the disclosed control weakness is remediated and tested effectively.
- Track Amazon hiring activity and revenue concentration, along with customer diversification, PandoLogic non-Amazon growth, and the reported decline in average annual revenue per customer.
- Assess the quality of reported earnings against non-GAAP results and the effect of contingent-consideration revaluations, acquisition accounting, stock compensation, and amortization.
- Compare the $220.5 million cash balance with cash burn, including the portion associated with future advertising-vendor payments; review acquisition and earnout payment obligations and the 2026 convertible notes.
- Evaluate whether second-half seasonality, customer growth, margin improvement, and management’s expected 2022 operating improvement materialize, while considering planned spending and macroeconomic risks.