Veritone, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparative figures are for the three months ended March 31, 2023. Veritone provides AI software and services through aiWARE and Veritone Hire, alongside advertising, content licensing, and related managed services. Broadbean, acquired in June 2023, contributes to Software Products & Services.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Revenue | $31.6 million | $30.3 million; up 4.5% |
| Software Products & Services revenue | $15.2 million | $14.1 million; up 7.7% |
| Managed Services revenue | $16.4 million | $16.1 million |
| Operating loss | $21.8 million | $23.6 million |
| Net loss / diluted loss per share | $25.2 million / $0.67 | $23.0 million / $0.63 |
| Non-GAAP net loss | $7.6 million | $9.6 million |
| Operating cash flow | $15.9 million provided | $33.8 million used |
| Cash and cash equivalents | $90.7 million | $79.4 million at Dec. 31, 2023 |
| Total debt principal | $168.8 million | $77.5 million term loan and $91.25 million convertible notes |
Non-GAAP gross margin was 77.7%, versus 77.5%; GAAP cost of revenue was 22.3% of revenue. Total assets were $359.6 million and stockholders’ equity was $14.9 million at March 31, 2024. Current assets of $172.4 million were below current liabilities of $197.7 million. Cash and cash equivalents exclude $0.9 million of long-term restricted cash; reported cash including restricted cash was $91.7 million.
Material changes and drivers
- Software revenue growth was attributed principally to Broadbean, which generated $8.5 million in Q1 2024; this was partly offset by lower consumption among legacy Veritone Hire customers. Managed Services revenue increased modestly.
- Operating expenses declined slightly overall. Lower sales and marketing and R&D costs were partly offset by higher G&A and amortization, including acquisition-related costs.
- Net loss increased despite a narrower operating loss, as other income/expense shifted from $0.4 million of income to $4.4 million of expense. Management cited higher interest expense, including term-loan discount and issuance-cost amortization, and foreign-exchange movements.
- Operating cash flow improved year over year, primarily due to working-capital timing, including collections of receivables and increased client advances. Cash flow should not be read as a measure of earnings: the company reported a $25.2 million net loss.
- Pro forma software revenue declined from $22.4 million in Q1 2023 to $15.2 million in Q1 2024. Disclosed software KPIs also showed consumption ARR down to $23.5 million from $67.2 million a year earlier, SaaS ARR of $48.6 million, new bookings of $13.0 million, and 3,384 customers. Gross revenue retention remained above 90%. KPI definitions and pro forma basis differ from GAAP revenue measures.
Outlook, risks, and unusual items
- Liquidity: Management says that, based on its forecasts and March 31 liquidity, Veritone will require additional liquidity to continue operations over the foreseeable future, including the next 12 months, absent other action. It expects acquisition synergies and further cost reductions to support operations over that period. This is a significant financing and execution risk.
- Cost reductions: Q1 restructuring reduced the global workforce by approximately 13%; the company expects more than $13 million of annualized operating-expense savings from this initiative. It reported more than $37 million of net annualized strategic cost reductions expected from initiatives since Q1 2023. Q1 restructuring incurred $2.0 million in one-time severance and transition costs.
- Debt: The $77.5 million secured term loan bears interest at Term SOFR plus 8.50%, subject to a 3.00% SOFR floor; its reported effective annual interest rate was approximately 31.3%. It is secured by substantially all assets, requires a minimum $15 million of unrestricted cash, and matures in December 2027. The company said it was covenant-compliant at quarter-end. The $91.25 million convertible notes mature in November 2026.
- Other notable items: A $1.484 million charge was recorded for future payments under a related-party consulting agreement with Steel Holdings, an entity affiliated with director Chad Steelberg. In April 2024, Veritone sold its GridBeyond investment for $1.8 million cash. The filing also reports $2.0 million of gross uncertain-tax-position liabilities; timing and amount of payment cannot be reasonably estimated.
- Risks and controls: Management cited economic uncertainty, customer spending and hiring trends, seasonality, long public-sector sales cycles, competition, and the impact of the Israel conflict on its Herzliya operations. A temporary vulnerability affecting two Azure environments used by a limited number of government customers was remediated in March; the company notified potentially affected customers and was investigating. Disclosure controls were deemed ineffective because of material weaknesses in foreign-exchange consolidation controls and IT access/change-management controls; remediation is underway but not yet established as effective.
- Guidance: The filing does not provide specific full-year revenue or earnings guidance. Management expects seasonal strength in Veritone Hire and advertising in the second half, but cautions that historical seasonality is not a reliable predictor.
Important facts for investors to verify
- How the company plans to secure the additional liquidity management says is needed, and whether projected savings are sufficient to support operations and debt obligations.
- Cash availability after considering the $73.3 million of cash received from advertising customers for future vendor payments, as well as the term-loan minimum unrestricted-cash covenant.
- Progress in reducing software consumption revenue declines and customer attrition, and the underlying definitions and trends for ARR, bookings, and retention KPIs.
- Actual delivery and timing of restructuring savings, and any further severance, integration, or related-party costs.
- Remediation and testing of the identified control weaknesses, and the outcome of the investigation into the Azure vulnerability.
- Debt servicing costs, quarterly term-loan amortization beginning June 2024, and refinancing or repayment requirements tied to the 2026 convertible notes.