Veritone, Inc. — Q1 2020 Form 10-Q
Business context and reporting period. Veritone provides AI and aiWARE SaaS solutions, content licensing and media services, and advertising services. This unaudited report covers the three months ended March 31, 2020; comparisons are with Q1 2019 unless otherwise stated. Amounts below are in millions of dollars except per-share data, percentages, and where noted.
Key financial results
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $11.904 | $12.125 |
| Gross profit / margin | $8.093 / 68.0% | $8.253 / 68.1% |
| Operating expenses | $20.905 | $24.761 |
| Operating loss | $(12.812) | $(16.508) |
| Net loss | $(12.684) | $(16.306) |
| Diluted loss per share | $(0.47) | $(0.84) |
| Cash from (used in) operations | $1.503 | $(4.632) |
- Revenue declined 1.8%. Advertising revenue rose 5.0% to $6.001 million and aiWARE SaaS revenue rose 12.9% to $3.108 million; content licensing and media services revenue fell 23.6% to $2.795 million.
- Operating expenses fell 15.6%, primarily reflecting lower compensation costs and reduced platform and cognitive-engine expenses. The company reported a non-GAAP net loss of $6.679 million, compared with $9.292 million in Q1 2019; this company-defined measure is not a substitute for GAAP results.
- Operating cash flow turned positive, but was supported in part by approximately $9.7 million of favorable timing effects from advertising-client prepayments and related media payments. Net loss included $4.456 million of stock-based compensation.
Financial position and capital
- At March 31, 2020, cash and cash equivalents were $49.165 million; current assets were $80.398 million and current liabilities were $62.608 million. The company had no outstanding debt at quarter-end.
- Cash, cash equivalents and restricted cash totaled $50.020 million at quarter-end. Total liabilities were $63.945 million and stockholders’ equity was $42.272 million.
- Veritone raised $2.984 million net through common-stock sales in Q1. Shares outstanding increased from 25.671 million at December 31, 2019 to 27.074 million at March 31, 2020.
- After quarter-end, the company borrowed $6.491 million under the Paycheck Protection Program at 1% interest. Forgiveness may be available for eligible uses, but the company gave no assurance it would seek or obtain forgiveness.
Changes, outlook and risks
- COVID-19-related cancellation or postponement of major live sporting events reduced content licensing and media services revenue in Q1. Management expected this to materially adversely affect that business’s Q2 revenue, with effects potentially continuing in later quarters. Advertising clients also reduced or postponed some spending; management noted that advertising and SaaS revenue had not declined year over year in Q1.
- Management expected continuing net losses for the foreseeable future while investing in aiWARE. It believed existing cash would fund ordinary-course operations for at least 12 months from the filing date, but not support the business through to sustained positive operating cash flow. Additional equity or debt financing may be needed; availability and terms are uncertain. Up to $21.737 million remained available under the equity distribution agreement.
- Remaining performance obligations were $5.767 million at March 31, 2020; approximately 64% was expected to be recognized over the next nine months. This excludes certain short-duration contracts and variable consideration.
- The company reported that disclosure controls were not effective at quarter-end because of an unremediated material weakness in accounting for advertising revenue. Remediation measures had begun. Management nevertheless stated that the financial statements were prepared in accordance with GAAP and fairly presented in all material respects.
- Management cited risks from uncertain pandemic duration and customer demand, possible collection delays, remote-work disruption and cybersecurity exposure, as well as financing needs. It reported no legal proceedings expected to have a material adverse effect.
Most important facts for investors to verify
- Whether COVID-19 and the absence or return of major live sporting events materially changed content licensing and media services revenue after Q1.
- How much of positive Q1 operating cash flow reflected timing of client advances and media payments, and whether that cash-flow performance continued.
- Use, repayment, and any forgiveness of the $6.491 million PPP loans.
- Progress in remediating the advertising-revenue accounting material weakness and any resulting reporting changes.
- Future cash burn, financing activity and dilution, given ongoing losses and management’s expectation of additional capital needs.