Veritone, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed March 11, 2020. This is an annual report, not a standalone fourth-quarter financial statement. Veritone provides AI software and services through its aiWARE platform, alongside advertising and digital content licensing and media services.
Financial performance and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $49.6 million | $27.0 million |
| Gross profit / margin | $32.4 million / 65.2% | $20.6 million / 76.0% |
| Operating loss | $(64.1) million | $(62.0) million |
| Net loss | $(62.1) million | $(61.1) million |
| Basic and diluted loss per share | $(2.85) | $(3.48) |
| Cash used in operating activities | $(30.1) million | $(41.8) million |
| Adjusted EBITDAS (non-GAAP) | $(36.2) million | $(39.0) million |
- Revenue by business: advertising $24.4 million (+42.1%); aiWARE content licensing and media services $14.6 million (+271.1%); aiWARE SaaS solutions $10.7 million (+78.8%). Growth in all three included the effect of businesses acquired in 2018 and additional months of contribution in 2019.
- Gross margin declined as advertising, generally a higher-margin business, fell to 49% of total revenue from 63%. Management expected margin pressure to continue as aiWARE businesses became a larger share of revenue.
- At year-end, cash and cash equivalents were $44.1 million, versus $37.5 million, plus $13.6 million of marketable securities, at the end of 2018. Current assets were $81.1 million and current liabilities $59.7 million. The company reported no outstanding debt.
- Cash from investing activities was $12.0 million and from financing activities $24.6 million. FY2019 financing included $23.9 million net proceeds from common-stock sales. Shares outstanding increased to 25.7 million at year-end from 19.3 million a year earlier.
- Selected Q4 operating indicators—not a complete quarterly income statement—include advertising revenue of $6.5 million and aiWARE SaaS revenue of $2.9 million. SaaS customers reached 172; quarterly new-booking contract value was $2.5 million and reported monthly recurring revenue was $568,000.
Changes, outlook and material matters
- Management said operating cash use improved and the non-GAAP Adjusted EBITDAS loss narrowed, while GAAP net loss widened slightly. Operating expenses rose 16.8% to $96.4 million, including higher stock compensation and acquired-business costs.
- Management expected cash and cash equivalents to fund ordinary-course operations for at least 12 months from the filing date, but not to support the business through positive operating cash flow. It expected continued losses and planned to seek additional capital through equity and/or debt; $21.7 million remained available under its at-the-market equity agreement at filing. No specific revenue or earnings guidance was provided.
- In November 2019, Veritone realigned teams, reduced computing costs and completed aiWARE efficiency enhancements. Management said these actions were intended to improve operating efficiency and financial performance.
- Internal control over financial reporting and disclosure controls were deemed ineffective at year-end because of a material weakness primarily involving advertising revenue accounting. Adjustments were immaterial, but the weakness resulted in adjustments to revenue, receivables and prepayments. The separate weakness related to complex acquisition accounting was reported remediated.
- Key risks include continued losses and reliance on external financing, customer concentration and advertising-spend volatility, competition, dependence on third-party cloud and cognitive-engine providers, cybersecurity and privacy regulation, and potential restrictions on facial recognition. The company reported no legal proceedings expected by management to have a material adverse effect.
- Subsequent to year-end, Veritone sold 1.29 million shares for approximately $3.0 million net proceeds. The 2019 financial statements were audited and received an unqualified opinion; the auditor did not opine on internal-control effectiveness.
Important facts for investors to verify
- How much of reported growth reflects acquisitions versus organic, recurring customer demand, particularly in SaaS and content licensing.
- Whether advertising-revenue controls are remediated, and whether any further adjustments or restatements arise.
- Cash runway, ongoing operating cash burn, access to financing, and dilution from additional equity issuance.
- Trends in gross margin, cloud and processing costs, customer concentration, SaaS bookings and recurring revenue.
- Potential effects of privacy rules or facial-recognition restrictions on government and other markets.