Veritone, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Unaudited consolidated results; financial amounts below are in U.S. dollars. Veritone provides AI software and services through its aiWARE platform, hiring solutions, advertising and content-licensing services.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $30.3 million | $34.4 million |
| GAAP operating loss | $23.6 million | $20.8 million |
| GAAP net loss | $23.0 million; $0.63 per share | $22.1 million; $0.62 per share |
| Non-GAAP net loss | $9.6 million; $0.26 per share | $5.2 million; $0.15 per share |
| Non-GAAP gross margin | 77.5% | 79.9% |
| Operating cash flow | Use of $33.8 million | Provided $10.1 million |
Revenue declined 12% year over year. Software Products & Services revenue fell to $14.1 million from $18.2 million; Managed Services revenue was broadly flat at $16.1 million. Commercial Enterprise revenue was $28.9 million, while Government & Regulated Industries revenue rose 79% to $1.4 million. The lower gross margin primarily reflected a smaller mix of higher-margin software revenue.
Cash and cash equivalents were $139.7 million at quarter-end, down from $184.4 million at December 31, 2022. Cash, cash equivalents and restricted cash decreased $44.7 million during the quarter. Operating cash use reflected losses and working-capital movements, including lower accrued media payments and client advances; financing cash use included a $7.8 million PandoLogic earnout payment. Management said existing cash should fund anticipated requirements for at least the next 12 months.
Convertible senior notes had $141.25 million of principal outstanding, bearing 1.75% interest and maturing November 2026; their balance-sheet carrying amount was $138.0 million. The company reported $152.1 million of current liabilities and $220.4 million of current assets. Accumulated deficit was $394.2 million.
Changes, outlook and material items
- The largest customer, Amazon, represented 18% of Q1 revenue versus 31% a year earlier; revenue from Amazon declined 49%. Management attributed the hiring-solutions weakness primarily to reduced Amazon hiring consumption. Non-Amazon Software Products & Services revenue grew 16% in aggregate.
- Software Products & Services customers increased 19% year over year to 667, while average annual revenue per customer declined to $128,000 from $207,000 a year earlier. Gross revenue retention was above 90%.
- Management announced cost-reduction measures targeting $12 million–$15 million in net annualized savings during fiscal 2023, and reported $10.8 million achieved to date. It said the company remained on track to meet the target. Management expects to continue investing in sales and marketing, partly offset by cost reductions.
- Veritone classified its energy group as held for sale at March 31 and expected the divestiture to close in Q2 2023; it said it was no longer incurring energy-group expenses as of May 1. The group was not classified as discontinued operations. The company also said it expects to begin generating profits on a non-GAAP basis in the foreseeable future; the filing provides no specific earnings or revenue guidance.
- Remaining performance obligations were $5.9 million, with approximately 49% expected to be recognized over the next 12 months; the disclosed total excludes certain short-duration contracts and variable consideration.
- Ryan Steelberg became CEO on January 1, 2023, succeeding Chad Steelberg, who remains chairman and consults on transition matters and aiWARE development. Veritone recorded consulting, performance-bonus and stock-based compensation expenses related to the arrangement.
- Management highlighted macroeconomic uncertainty, possible reductions in customer hiring and advertising budgets, long government sales cycles, customer concentration, and the need for additional capital if required. It also cited AI adoption, competition, technology and infrastructure risks. The company reported no material-impact legal proceedings.
- Disclosure controls were deemed ineffective because of a material weakness in IT general controls for user access and change management over certain financial-reporting systems. Management reported no identified financial-statement misstatements and described remediation actions; the weakness will not be considered remediated until controls operate effectively and are tested.
Key facts for investors to verify
- Whether reported cost savings are realized, sustained, and sufficient to improve cash use and operating performance.
- Whether revenue stabilizes as Amazon hiring demand changes, and whether customer growth can offset lower average revenue per customer.
- The timing and proceeds, if any, from the energy-group divestiture, and its effect on ongoing expenses.
- Cash-burn trends, future financing needs, and obligations associated with the convertible notes, earnouts and acquisition consideration.
- Progress in remediating the IT-controls material weakness and restoring effective disclosure controls.
- Whether management’s non-GAAP profitability outlook is achieved; non-GAAP results exclude significant expenses and are not a substitute for GAAP results or operating cash flow.