Veritone, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Unaudited results; amounts below are in U.S. dollars unless noted. Veritone provides AI solutions, including its aiWARE platform, content licensing and media services, and advertising services.
Financial results
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $12.8 million | $7.5 million | $37.2 million | $16.1 million |
| Gross profit / margin | $8.0 million / 62.9% | $6.0 million / 79.2% | $24.0 million / 64.5% | $13.1 million / 81.7% |
| Operating loss | $(16.2) million | $(16.3) million | $(49.4) million | $(43.9) million |
| Net loss | $(14.2) million | $(15.9) million | $(47.2) million | $(43.3) million |
| Loss per share, basic and diluted | $(0.64) | $(0.86) | $(2.26) | $(2.55) |
- Q3 revenue rose 69.7%; nine-month revenue rose 131%. Growth reflected higher advertising and aiWARE revenue, plus acquisitions. Content licensing and media services revenue was $4.2 million for Q3 and $11.6 million for the first nine months; the 2018 comparison included only the period after Wazee Digital’s late-August acquisition.
- Advertising revenue was $6.3 million in Q3, up 33%; aiWARE SaaS revenue was $2.4 million, up 67%. The filing attributes much of reported growth to acquisitions. Excluding Performance Bridge, advertising revenue grew 4% in Q3; excluding Wazee Digital, SaaS revenue grew 30%.
- Gross margin declined as advertising, which generally has margins above 95%, made up a smaller share of revenue and acquired aiWARE businesses contributed more. Acquired-intangible amortization reduced gross margin by approximately 4.1 percentage points in Q3 and 3.8 points year to date.
- Operating expenses were $24.2 million in Q3 and $73.4 million for nine months. Nine-month stock-based compensation was $16.0 million, versus $10.0 million a year earlier.
- Cash and cash equivalents were $49.2 million at September 30, versus $37.5 million at year-end; marketable securities were zero, versus $13.6 million at year-end. Current assets were $89.0 million and current liabilities $66.2 million. The company reported no outstanding debt.
- For the first nine months, operating cash use was $18.4 million, investing activities provided $12.0 million, and financing activities provided $18.0 million. Financing included $17.3 million net from common-stock sales. Adjusted EBITDAS loss, a non-GAAP measure, was $28.1 million versus $29.8 million in the prior-year period.
Changes, outlook and risks
- Q3 net loss narrowed year over year, while the nine-month net loss increased. Share count also rose: 23.2 million shares were outstanding at September 30, compared with 19.3 million at December 31, 2018. The company sold 2.77 million shares under its equity distribution agreement in the first nine months.
- Management expects losses to continue for the foreseeable future. It believes existing cash will fund ordinary-course operations for at least 12 months from issuance of the financial statements, but not through the point of positive operating cash flow, particularly if acquisitions are made. Additional capital may be needed; the company had up to $27.7 million remaining available under its at-the-market equity agreement and no credit lines.
- In November 2019, after the quarter, management said it realigned teams, reduced computing costs and enhanced aiWARE efficiency, with the aim of improving expenses and financial performance. The filing provides no numeric earnings or revenue guidance.
- Revenue can fluctuate with advertising campaign timing and seasonality, sporting events, project-based contracts, and contract renewals. The top ten customers represented 30.1% of Q3 revenue and 23.4% of nine-month revenue; no individual customer accounted for 10% or more.
- Management disclosed that disclosure controls were not effective at quarter-end due to an unremediated material weakness in accounting for infrequent complex transactions, including business combinations. Remediation efforts were underway; management stated the financial statements were fairly presented in all material respects.
- The company reported no legal proceedings expected to have a material adverse effect. Operating leases require future minimum payments of $10.6 million as of September 30, 2019.
Important facts for investors to verify
- How much of revenue growth and future recurring revenue reflects organic performance versus acquired businesses, and how SaaS bookings and monthly recurring revenue develop.
- Whether gross-margin pressure continues as aiWARE and content-services revenue become a larger share of the mix.
- Cash-burn trends, the timing and terms of any future financing, and potential dilution from additional share sales and equity awards.
- Progress in remediating the material weakness in financial reporting controls.
- The actual results and measurable cost savings from the November 2019 operational changes; the filing provides no quantified savings target.