Veritone, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Business context
Veritone provides AI software and services through its aiWARE platform, alongside hiring solutions, advertising and content-licensing services. It reports one operating segment. In June, it acquired talent-acquisition SaaS provider Broadbean and sold its energy group to GridBeyond.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $28.0 | $34.2 | $58.2 | $68.6 |
| Operating loss | $(28.2) | $(3.6) | $(51.8) | $(24.4) |
| Net loss | $(23.3) | $(3.3) | $(46.3) | $(25.4) |
| Net loss per share | $(0.63) | $(0.09) | $(1.26) | $(0.71) |
| Non-GAAP gross margin | 72.2% | 80.4% | 75.0% | 80.1% |
| Non-GAAP net loss | $(13.0) | $(7.2) | $(22.6) | $(12.4) |
- Revenue mix: Q2 Software Products & Services revenue was $14.1 million and Managed Services revenue was $13.9 million. For the first half, these were $28.2 million and $30.0 million, respectively.
- Cash flow and liquidity: Operating cash use was $58.5 million in the first half, investing cash use was $55.1 million, and financing cash use was $8.1 million. Cash and cash equivalents were $62.7 million at June 30, down from $184.4 million at year-end. Of June cash, $52.7 million was received from advertising customers for future vendor payments.
- Debt: $141.25 million principal of 1.75% convertible senior notes remained outstanding, due November 2026; the balance-sheet carrying value was $138.2 million.
- Other: Total assets were $355.9 million, total liabilities $316.9 million, and stockholders’ equity $39.1 million at June 30. The company reported a $2.6 million pre-tax gain on the energy-group sale.
Material changes versus prior comparable periods
- Revenue declined 18.3% year over year in Q2 and 15.2% for the first half. Commercial Enterprise Software Products & Services revenue fell, partly because prior-year one-time software revenue did not recur; Managed Services revenue also declined, principally from weaker advertising spending. Government & Regulated Industries revenue grew 84% in Q2 and 81% in the first half, from a smaller base.
- Management said Amazon represented 15% of Q2 revenue and 17% of first-half revenue, versus 14% and 22% in the 2022 comparable periods. Amazon notified Veritone in May that it planned further reductions in HR-solutions usage.
- Non-GAAP gross margin fell, primarily due to lower revenue and a mix shift toward lower-margin Managed Services. GAAP general and administrative expense rose sharply, including Broadbean-related accounting and legal costs; the comparison was also affected by a $13.8 million contingent-consideration valuation benefit recorded in Q2 2022.
- Broadbean was acquired for $53.2 million cash on June 13. Its preliminary purchase accounting included $31.9 million of goodwill. Veritone reported $1.7 million of post-acquisition revenue through June 30.
Outlook, risks and unusual items
- Management said that, without further action, additional liquidity would be needed to support operations over the following 12 months. In August 2023, after quarter-end, the company entered a three-year credit facility allowing borrowings up to $30 million, secured by certain domestic receivables and other assets. Pricing is the greater of prime plus 1% or 9.5%; fees and early-termination penalties apply. Management expects available cash, the facility and cost reductions to cover anticipated cash needs for the next 12 months.
- Veritone reported $17 million of net annualized cost reductions executed as of June 30, exceeding its stated $12–15 million 2023 savings target, and said it planned further reductions. Management expects advertising-spending weakness to continue in the second half, though it expects the impact to be less severe than in the first half. It also stated an expectation of achieving non-GAAP profitability in the foreseeable future; the filing provides no specific earnings guidance.
- Key risks include customer concentration and further Amazon usage cuts, economic pressure on hiring and advertising demand, long government sales cycles, acquisition integration and execution, and the need for additional capital. The filing notes Broadbean integration and international expansion as areas of focus.
- The energy divestiture consideration included approximately $2.0 million in GridBeyond preference shares and $0.5 million cash. The reported gain was $2.6 million. A July amendment also made $3.5 million of an acquisition earnout payable based on the seller’s employment status through 2025, rather than acquired-business performance.
- Controls: Management concluded disclosure controls were not effective as of June 30 due to a material weakness in IT general controls over user access and change management. No related financial-statement misstatement was identified; remediation was ongoing.
- The company reported no legal proceedings expected by management to have a material adverse effect and no material changes to the risk factors in its 2022 Form 10-K.
Important facts for investors to verify
- Whether the August credit facility is available in practice, how much is drawn, and the resulting interest, fees, collateral and covenant requirements.
- Cash available for operations after separating customer funds earmarked for vendor payments, alongside the pace of operating cash use.
- Amazon revenue and usage trends, customer concentration, and whether growth in government and other customers can offset declines.
- Broadbean’s post-acquisition revenue, integration costs, working-capital purchase-price adjustments, and contribution to recurring software revenue.
- Progress and testing results for remediation of the IT-control material weakness.
- The filing’s share-count disclosures: the June 30 balance-sheet share count and stockholders’ equity statement differ by 10,000 shares (36,899,862 versus 36,889,862).