Veritone, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; filed May 9, 2019. Veritone provides AI solutions through its aiWARE platform, alongside advertising and digital content licensing and media services. The results include acquisitions made in 2018, notably Wazee Digital and Performance Bridge.
Financial performance and liquidity
Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
- Revenue: $12.1 million, up 176% from $4.4 million. Advertising contributed $5.7 million; aiWARE SaaS solutions $2.8 million; content licensing and media services $3.7 million.
- Profitability: Gross profit was $8.3 million and gross margin was 68%, down from 87%. Operating expenses were $24.8 million; operating loss was $16.5 million versus $13.2 million. Net loss was $16.3 million, or $0.84 per diluted share, compared with $13.0 million, or $0.81 per share.
- Cash flow: Operating cash use was $4.6 million, improved from $13.2 million used in Q1 2018. Investing activities provided $2.4 million and financing activities provided $4.5 million. Adjusted EBITDAS, a non-GAAP measure, was a loss of $9.3 million versus a loss of $10.2 million.
- Liquidity: Cash, cash equivalents and marketable securities totaled $50.9 million at March 31, 2019, compared with $51.1 million at year-end 2018. Current assets were $87.3 million and current liabilities $58.7 million.
- Debt and equity: The company reported no outstanding debt. It raised $4.2 million net from sales of 662,000 shares under its equity distribution agreement; up to $44.9 million remained available under that agreement. Shares outstanding were 20.2 million at quarter-end.
Changes versus the prior comparable period
- Revenue growth reflected both acquisitions and reported organic growth: excluding Performance Bridge, advertising revenue rose 38%; excluding Wazee Digital, SaaS revenue rose 29%. Content licensing and media services revenue was attributable to Wazee Digital, with no comparable Q1 2018 revenue.
- Gross margin declined as SaaS and content licensing/media services made up a larger share of sales than advertising; acquired-intangible amortization also reduced margin by about 270 basis points.
- Operating expenses rose 45%, including higher stock-based compensation and acquisition-related expenses. Stock-based compensation totaled $5.5 million versus $2.5 million.
- Operating cash use improved, partly reflecting working-capital movements and client advances; net loss increased despite substantially higher revenue.
Outlook, commentary and risks
- Management expects continued net losses while investing in product development and sales. It said available cash and marketable securities should fund anticipated requirements for at least 12 months from issuance of the statements, but are not expected to fund the business to positive operating cash flow. Additional equity or debt financing may be needed; availability and terms are uncertain.
- Management expects operating expenses to increase in dollars but decrease as a percentage of revenue if revenue grows. No specific revenue or earnings guidance was provided.
- Revenue can fluctuate with advertising campaign timing and seasonality, sporting events, and project-based customer work. Management cited advertising-client concentration and risks from clients bringing work in-house, budget reductions, or changing providers.
- Q1 included $0.9 million of Machine Box contingent-payment compensation expense and $0.1 million of Performance Bridge earn-out adjustment expense. The company also expected to issue 574,231 shares for Performance Bridge earn-out consideration; it reported using $0.9 million cash for that payment in April.
- Disclosure controls were not effective at quarter-end because of an unremediated material weakness in accounting for infrequent complex transactions, including business combinations. Management said remediation was underway and concluded the financial statements were fairly presented in all material respects.
- The company reported no legal proceedings expected by management to have a material adverse effect. It stated there were no other material changes to the risk factors in its 2018 Form 10-K.
Important facts for investors to verify
- How much of reported growth reflects acquired businesses versus sustainable organic demand, and how revenue and margins evolve by business line.
- Cash consumption, working-capital requirements, and the assumptions supporting management’s stated 12-month liquidity expectation.
- Progress remediating the material weakness and the effect of complex acquisition accounting on future reporting.
- Potential dilution from the equity distribution agreement, acquisition earn-outs, options and other equity awards.
- Whether SaaS bookings and recurring revenue translate into durable revenue growth; Q1 SaaS monthly recurring revenue was $494,000 including Wazee Digital, versus $544,000 at year-end 2018.