Veritone, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unaudited results; amounts below are in U.S. dollars. Veritone provides AI solutions through its aiWARE platform, alongside software, advertising, content licensing and managed services. It acquired intelligent hiring platform PandoLogic on September 14, 2021.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $22.7 million | $15.7 million | $60.2 million | $40.9 million |
| GAAP net loss | $11.4 million | $11.0 million | $54.7 million | $35.5 million |
| GAAP loss per share | $0.34 | $0.40 | $1.67 | $1.31 |
| Non-GAAP gross margin | 74.4% | 71.0% | 73.6% | 71.7% |
| Operating cash flow | Not provided for the quarter | $(3.5) million | $1.3 million |
- Q3 revenue increased 44% year over year; nine-month revenue increased 47%. Commercial Enterprise generated $21.7 million of Q3 revenue and $57.5 million for the nine months. Two customers together represented 27% of Q3 revenue.
- Despite higher revenue and improved gross margin, Q3 GAAP net loss widened modestly. Nine-month net loss increased substantially, including higher stock-based compensation and other costs.
- Nine-month investing cash outflow was $48.1 million, primarily for the PandoLogic acquisition. Financing provided $9.4 million; cash, cash equivalents and restricted cash decreased $42.2 million.
- At September 30, cash and cash equivalents were $72.6 million, total current assets $166.5 million and current liabilities $173.1 million. Cash included $57.0 million collected from Managed Services clients for future vendor payments. The company reported no outstanding debt.
- Accumulated deficit was $335.1 million. Accounts receivable rose to $57.9 million from $16.7 million at year-end 2020; accrued media payments were $75.2 million.
Material changes and unusual items
- PandoLogic was acquired for reported total consideration of $116.6 million: $58.7 million cash, $31.5 million in Veritone shares and earnout consideration valued at $26.4 million at acquisition. The earnout can reach $65 million, is payable in cash and/or shares, and is subject to performance conditions. Purchase accounting remains preliminary.
- PandoLogic contributed $4.3 million of revenue and $1.9 million of net income from acquisition through September 30. Its substantial revenue dependence on a significant customer is a disclosed risk.
- Nine-month stock-based compensation was $33.5 million, versus $13.7 million a year earlier. Achievement of stock-price milestones accelerated recognition of approximately $16.3 million in performance-option compensation.
- Nine-month general and administrative expense included $2.2 million of acquisition-related costs and $3.4 million of charges associated with subleasing the former Costa Mesa office. The sublease reduced future rent exposure, but the filing reports future minimum lease payments of $6.3 million and minimum sublease income of $3.7 million.
- Veritone realigned revenue reporting into Commercial Enterprise and Government & Regulated Industries. The company also changed presentation of cost of revenue and amortization; these reclassifications did not affect net loss.
Outlook, commentary and risks
- Management expected positive consolidated operating cash flow beginning in Q4 2021 and cited PandoLogic’s expected fiscal 2021 operating cash flow of more than $25 million. Management believed cash on hand would fund ordinary operations for at least 12 months from filing, while also noting future acquisitions or growth needs could require additional capital. These are expectations, not a guarantee or formal numerical company-wide guidance.
- Management anticipated improving operating results as early as Q4 following the acquisition, with potential margin benefit from PandoLogic. It also expected continued investment in sales, marketing, engineering and energy-market solutions, and acknowledged that enterprise growth and profitability are not assured.
- Key risks include customer concentration, PandoLogic integration and earnout valuation, hiring-cycle seasonality, long government sales cycles, competition, acquisition execution and financing needs. COVID-19-related event cancellations could affect content-related revenue; broader pandemic effects remain uncertain.
- The filing reports no legal proceedings expected by management to have a material adverse effect. Disclosure controls were assessed as effective at the reasonable-assurance level; the acquisition was the noted change relevant to internal controls.
Investor verification priorities
- Track whether PandoLogic meets performance conditions and whether its major customer renews or expands its relationship.
- Compare subsequent operating cash flow with management’s Q4 expectation, accounting for client funds held for vendor payments.
- Monitor the final PandoLogic purchase-price allocation, earnout liabilities, integration costs and resulting amortization.
- Assess whether revenue growth translates into lower GAAP losses after elevated stock compensation and corporate expenses.
- Review the company’s funding needs and potential dilution if acquisition or investment plans continue.