aiWARE : The OS for AI Investor Presentation | May 2021 Copyright © 2021 Veritone, Inc. All rights reserved. CONFIDENTIAL. Trademarks are the property of their respective owners. NASDAQ: VERI Copyright © 2021 Veritone, Inc. All rights reserved. CONFIDENTIAL. Trademarks are the property of their respective owners. Forward Looking Statements & Disclaimers This presentation of Veritone Inc. (the "Company") contains forward-looking statements that involve substantial risks and uncertainties. The words "anticipa ...

Veritone, Inc. (NASDAQ:VERI) Q1 2021 Results Earnings Conference Call May 4, 2021 4:30 PM ET Company Participants Brian Alger - Senior Vice President of Corporate Development and Investor Relations Chad Steelberg - Chairman and Chief Executive Officer Ryan Steelberg - President Mike Zemetra - Chief Financial Officer Conference Call Participants Darren Aftahi - Roth Capital Partners Brad Reback - Stifel Nick Mattiacci - Craig-Hallum Aaron Kimson - JMP Pat Walravens - JMP Operator Good day and welcome to the ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-38093 Veritone, Inc. (Exact name of registrant as specified in its charter) Delaware 47-1161641 (State or other jurisdiction of incor ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-38093 Veritone, Inc. (Exact name of registrant as specified in its charter) Delaware 47-1161641 (State or other jurisdictio ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents Veritone, Inc.'s unaudited condensed consolidated financial statements for Q2 and the first six months of 2020, showing improved net losses compared to the prior year [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $50,081 | $44,065 | | Total current assets | $83,072 | $81,112 | | Total assets | $107,287 | $108,526 | | **Liabilities & Stockholders' Equity** | | | | Total current liabilities | $65,920 | $59,736 | | Total liabilities | $67,207 | $61,115 | | Total stockholders' equity | $40,080 | $47,411 | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) Statement of Operations Highlights (in thousands, except per share data) | Metric | Q2 2020 | Q2 2019 | Six Months 2020 | Six Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net revenues | $13,268 | $12,270 | $25,172 | $24,395 | | Gross profit | $8,943 | $7,708 | $17,036 | $15,961 | | Loss from operations | $(11,556) | $(16,736) | $(24,368) | $(33,244) | | Net loss | $(11,793) | $(16,691) | $(24,477) | $(32,997) | | Net loss per share (basic and diluted) | $(0.43) | $(0.80) | $(0.91) | $(1.64) | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) - For the six months ended June 30, 2020, the company raised net proceeds of **$6.0 million** from common stock offerings and **$2.1 million** from the exercise of warrants[20](index=20&type=chunk) - Total stockholders' equity decreased from **$47.4 million** at December 31, 2019, to **$40.1 million** at June 30, 2020, primarily due to the net loss of **$24.5 million**, partially offset by capital raised[20](index=20&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(2,777) | $(16,606) | | Net cash provided by investing activities | $26 | $7,048 | | Net cash provided by financing activities | $8,767 | $12,192 | - The significant improvement in cash used in operating activities was driven by a lower net loss and favorable changes in working capital, including a **$7.1 million** decrease in expenditures billable to clients[25](index=25&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) - Veritone provides artificial intelligence (AI) solutions through its proprietary aiWARE™ operating system, alongside digital content management, licensing services, and a full-service advertising agency[28](index=28&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk) - The COVID-19 pandemic negatively impacted the aiWARE content licensing and media services business in the first half of 2020 due to the cancellation or postponement of major live sporting events[39](index=39&type=chunk) - As of June 30, 2020, the company had cash and cash equivalents of **$50.1 million** and believes this is sufficient to meet its cash requirements for at least the next twelve months[36](index=36&type=chunk)[38](index=38&type=chunk) Net Revenues by Segment (in thousands) | Segment | Q2 2020 | Q2 2019 | Six Months 2020 | Six Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Advertising | $7,038 | $5,842 | $13,039 | $11,556 | | aiWARE SaaS Solutions | $3,002 | $2,677 | $6,110 | $5,431 | | aiWARE Content Licensing and Media Services | $3,228 | $3,751 | $6,023 | $7,408 | | **Total net revenues** | **$13,268** | **$12,270** | **$25,172** | **$24,395** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q2 2020 financial performance, noting revenue growth in Advertising and aiWARE SaaS, reduced operating expenses, and improved liquidity [Key Performance Indicators (KPIs)](index=24&type=section&id=Key%20Performance%20Indicators) Advertising KPI Results (in thousands) | Quarter Ended | Average gross billings per active client | Net revenues during quarter | | :--- | :--- | :--- | | Jun 30, 2020 | $614 | $6,140 | | Jun 30, 2019 | $488 | $5,842 | aiWARE SaaS Solutions KPI Results (in thousands, except accounts) | Quarter Ended | Total accounts on platform | New bookings | Total contract value of new bookings | | :--- | :--- | :--- | :--- | | Jun 30, 2020 | 1,753 | $2,319 | $2,502 | | Jun 30, 2019 | 941 | $1,351 | $1,351 | [Results of Operations](index=26&type=section&id=Results%20of%20Operations) - Net revenues for Q2 2020 increased **8.1% YoY** to **$13.3 million**; Advertising revenue grew **20.5%**, and aiWARE SaaS solutions revenue grew **12.1%**, partially offset by a **13.9%** decline in aiWARE Content Licensing revenue due to COVID-19[107](index=107&type=chunk)[108](index=108&type=chunk)[109](index=109&type=chunk) - Gross margin improved to **67%** in Q2 2020 from **63%** in Q2 2019, primarily due to a decrease in platform costs[112](index=112&type=chunk) - Total operating expenses for Q2 2020 decreased by **16.1% YoY** to **$20.5 million**, driven by a **41.8%** decrease in R&D expenses and a **15.3%** decrease in Sales & Marketing expenses[113](index=113&type=chunk)[114](index=114&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) - Cash and cash equivalents increased to **$50.1 million** as of June 30, 2020, from **$44.1 million** at year-end 2019[118](index=118&type=chunk) - Net cash used in operating activities for the first six months of 2020 was **$2.8 million**, a significant improvement from **$16.6 million** in the same period of 2019, primarily due to a lower net loss and cost reduction initiatives[120](index=120&type=chunk)[121](index=121&type=chunk) - Financing activities in the first half of 2020 provided **$8.8 million**, including **$6.5 million** from common stock sales and **$2.1 million** from warrant exercises[125](index=125&type=chunk) [Non-GAAP Financial Measure](index=31&type=section&id=Non-GAAP%20Financial%20Measure) Reconciliation of Net Loss to Non-GAAP Net Loss (in thousands) | Period | Net Loss | Non-GAAP Net Loss | | :--- | :--- | :--- | | Q2 2020 | $(11,793) | $(5,745) | | Q2 2019 | $(16,691) | $(9,207) | | Six Months 2020 | $(24,477) | $(12,424) | | Six Months 2019 | $(32,997) | $(18,499) | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Veritone is not required to provide the information for this item - The company is a smaller reporting company and is not required to provide the information required by Item 305 of Regulation S-K[135](index=135&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were ineffective as of June 30, 2020, due to an un-remediated material weakness in advertising revenue accounting - Management concluded that disclosure controls and procedures were not effective as of the end of the period covered by this report[136](index=136&type=chunk) - The ineffectiveness is due to a material weakness previously reported in the 2019 Form 10-K related to the accounting for advertising net revenues, which had not been fully remediated as of June 30, 2020[136](index=136&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any legal proceedings that would have a material adverse effect on its financial condition or results of operations - Veritone is not currently a party to any legal proceedings that management believes would have a material adverse effect on its business[141](index=141&type=chunk) [Item 1A. Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2019, and the Q1 2020 10-Q - There have been no material changes to the risk factors described in the company's 2019 Form 10-K and Q1 2020 Form 10-Q[142](index=142&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=33&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In April 2020, the company issued warrants for 450,000 common shares to a consulting firm, exempt from registration under Section 4(a)(2) - In April 2020, the company issued warrants to a consulting firm to purchase up to **450,000 shares** of common stock in consideration for services[143](index=143&type=chunk) - The securities were issued in a private transaction exempt from registration under Section 4(a)(2) of the Securities Act[144](index=144&type=chunk) [Item 6. Exhibits](index=34&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including employment agreements for the CEO and President, and required CEO/CFO certifications - The report includes exhibits such as employment agreements for Chad Steelberg and Ryan Steelberg, as well as CEO and CFO certifications pursuant to SEC rules[146](index=146&type=chunk)

[Special Note Regarding Forward-Looking Statements](index=3&type=section&id=Special%20Note%20Regarding%20Forward-Looking%20Statements) This section cautions readers about forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ materially [Forward-Looking Statements Disclosure](index=3&type=section&id=Forward-Looking%20Statements%20Disclosure) This disclosure identifies forward-looking statements and warns that actual results may differ due to various risks, with no obligation to update unless legally required - Forward-looking statements are identified by words such as 'anticipates,' 'believes,' 'estimates,' 'expects,' 'intends,' 'plans,' 'projects,' 'should,' 'will,' or similar expressions, and refer to future financial condition, operations, capital needs, competitive position, growth, market opportunities, and acquisition strategies[8](index=8&type=chunk) - Actual results may differ materially due to numerous known and unknown risks, uncertainties, and other factors, including those detailed in Item 2 (Management's Discussion and Analysis) and Item 1A (Risk Factors) of this report, and the Annual Report on Form 10-K for December 31, 2019[9](index=9&type=chunk) - The company operates in an evolving environment with new risks emerging, and management does not undertake any obligation to publicly update forward-looking statements unless required by law[10](index=10&type=chunk)[11](index=11&type=chunk) [PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the first quarter of 2020 [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section provides Veritone, Inc.'s unaudited condensed consolidated financial statements for Q1 2020 and comparative periods [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheets show Veritone's financial position as of March 31, 2020, with slight decreases in assets and equity | Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--------------------------------- | :----------------------------- | :----------------------------- | | Cash and cash equivalents | $49,165 | $44,065 | | Total current assets | $80,398 | $81,112 | | Total assets | $106,217 | $108,526 | | Total current liabilities | $62,608 | $59,736 | | Total liabilities | $63,945 | $61,115 | | Total stockholders' equity | $42,272 | $47,411 | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) The statements of operations reflect decreased net revenues and a reduced net loss for Q1 2020 compared to Q1 2019 | Metric | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net revenues | $11,904 | $12,125 | | Gross profit | $8,093 | $8,253 | | Total operating expenses | $20,905 | $24,761 | | Loss from operations | $(12,812) | $(16,508) | | Net loss | $(12,684) | $(16,306) | | Basic and diluted net loss per share | $(0.47) | $(0.84) | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This statement details changes in equity components for Q1 2020 and 2019, including stock offerings and net losses | Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--------------------------------- | :----------------------------- | :----------------------------- | | Total Stockholders' Equity | $42,272 | $47,411 | | Common stock offerings, net | $2,984 | $4,160 | | Stock-based compensation expense | $4,456 | $4,803 | | Net loss | $(12,684) | $(16,306) | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash flow statements show improved operating cash flow and increased cash and equivalents in Q1 2020 | Metric | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Net cash provided by (used in) operating activities | $1,503 | $(4,632) | | Net cash (used in) provided by investing activities | $(9) | $2,375 | | Net cash provided by financing activities | $3,606 | $4,484 | | Net increase in cash, cash equivalents and restricted cash | $5,100 | $2,227 | | Cash, cash equivalents and restricted cash, end of period | $50,020 | $41,003 | [Notes to the Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations for the financial statements, covering business, policies, and specific account details [NOTE 1. DESCRIPTION OF BUSINESS](index=8&type=section&id=NOTE%201.%20DESCRIPTION%20OF%20BUSINESS) Veritone, Inc. is an AI computing solutions provider offering aiWARE, content management, licensing, and advertising services - Veritone provides AI computing solutions, including its proprietary aiWARE™ operating system, which integrates cognitive engines to transform unstructured data into structured, searchable insights for industries like media, entertainment, government, legal, and compliance[26](index=26&type=chunk) - The company also offers cloud-native digital content management and content licensing services, leveraging aiWARE for media and entertainment customers[27](index=27&type=chunk) - Veritone operates a full-service advertising agency specializing in host-endorsed and influencer advertising across radio, podcasting, streaming audio, social media, and other digital channels[28](index=28&type=chunk) [NOTE 2. PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=8&type=section&id=NOTE%202.%20PRESENTATION%20AND%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines accounting policies, liquidity, COVID-19 impact, estimates, and revenue recognition changes for Q1 2020 - The company generated positive cash flow from operations of **$1,503 thousand** in Q1 2020, a significant improvement from negative cash flows in prior periods, but still incurred a net loss of **$12,684 thousand**[32](index=32&type=chunk) - Management believes existing cash and cash equivalents (**$49,165 thousand** as of March 31, 2020) will be sufficient for at least twelve months, but not enough to achieve sustained positive cash flows from operations, necessitating future equity and/or debt financings[32](index=32&type=chunk)[35](index=35&type=chunk) - The COVID-19 pandemic negatively impacted aiWARE content licensing and media services revenues in Q1 2020 due to event cancellations, with expected material adverse impacts in Q2 2020 and potentially beyond, though advertising and aiWARE SaaS solutions did not see decreases in Q1[36](index=36&type=chunk)[38](index=38&type=chunk) - The company adopted Topic 606 (Revenue from Contracts with Customers) in Q1 2020, changing revenue recognition for multi-year contracts with fixed annual price increases and certain variable consideration[44](index=44&type=chunk)[45](index=45&type=chunk)[50](index=50&type=chunk) [NOTE 3. NET LOSS PER SHARE](index=14&type=section&id=NOTE%203.%20NET%20LOSS%20PER%20SHARE) This note details basic and diluted net loss per share, with all potentially dilutive securities being anti-dilutive | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Net loss | $(12,684) | $(16,306) | | Denominator for basic and diluted net loss per share | 26,773,163 | 19,511,220 | | Basic and diluted net loss per share | $(0.47) | $(0.84) | - Potentially dilutive securities, including common stock options, restricted stock units, and warrants, totaling **11,078,959** in Q1 2020 and **10,597,934** in Q1 2019, were excluded from diluted EPS calculation as their effect would be anti-dilutive due to net losses[52](index=52&type=chunk) [NOTE 4. FINANCIAL INSTRUMENTS](index=14&type=section&id=NOTE%204.%20FINANCIAL%20INSTRUMENTS) This note describes fair value measurement for financial instruments, including cash and stock warrants, and their valuation inputs | Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :---------------------- | :----------------------------- | :----------------------------- | | Cash and Cash Equivalents | $49,165 | $44,065 | | Money market funds | $13,416 | $20,355 | - All outstanding stock warrants are categorized as **Level 3** within the fair value hierarchy and valued using either a probability-weighted expected return model or the Black-Scholes option-pricing model, incorporating contractual terms, maturity, risk-free interest rates, and volatility[56](index=56&type=chunk) | Warrant Valuation Input | March 31, 2020 | December 31, 2019 | | :---------------------- | :------------- | :---------------- | | Volatility | 70% | 70% | | Risk-free rate | 0.29% | 1.62% | | Term | 3.0 years | 3.25 years | - The fair value of the April 2018 Warrant decreased from **$7 thousand** at December 31, 2019, to **$5 thousand** at March 31, 2020, resulting in a **$2 thousand gain** for the three months ended March 31, 2020[58](index=58&type=chunk) [NOTE 5. GOODWILL AND INTANGIBLE ASSETS, NET](index=16&type=section&id=NOTE%205.%20GOODWILL%20AND%20INTANGIBLE%20ASSETS%2C%20NET) This note details the carrying amounts and amortization expense for goodwill and finite-lived intangible assets - The carrying amount of goodwill remained constant at **$6,904 thousand** as of December 31, 2019, and March 31, 2020[60](index=60&type=chunk) | Intangible Asset Category | March 31, 2020 Net Carrying Amount (in thousands) | December 31, 2019 Net Carrying Amount (in thousands) | | :------------------------ | :---------------------------------------------- | :---------------------------------------------- | | Software and technology | $1,113 | $1,411 | | Developed technology | $6,560 | $7,040 | | Customer relationships | $6,355 | $6,820 | | Total Intangible Assets | $14,778 | $16,126 | | Amortization Expense Category | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :---------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Cost of revenues | $561 | $370 | | Sales and marketing | $531 | $213 | | Research and development | $256 | $256 | | Total Amortization Expense | $1,348 | $841 | [NOTE 6. CONSOLIDATED FINANCIAL STATEMENTS DETAILS](index=17&type=section&id=NOTE%206.%20CONSOLIDATED%20FINANCIAL%20STATEMENTS%20DETAILS) This note provides a detailed breakdown of specific balance sheet and income statement line items, including revenues by segment | Accounts Receivable Category | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--------------------------- | :----------------------------- | :----------------------------- | | Advertising | $18,760 | $19,184 | | aiWARE SaaS Solutions | $2,154 | $1,269 | | aiWARE Content Licensing and Media Services | $1,032 | $928 | | Total Accounts Receivable, net | $21,907 | $21,352 | | Net Revenues by Segment | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :---------------------- | :--------------------------------------------- | :--------------------------------------------- | | Advertising | $6,001 | $5,714 | | aiWARE SaaS Solutions | $3,108 | $2,754 | | aiWARE Content Licensing and Media Services | $2,795 | $3,657 | | Total Net Revenues | $11,904 | $12,125 | | Other Income, Net | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :---------------- | :--------------------------------------------- | :--------------------------------------------- | | Interest income, net | $77 | $169 | | Change in fair value of warrant liability | $2 | $(13) | | Total Other income, net | $131 | $211 | [NOTE 7. COMMITMENTS AND CONTINGENCIES](index=18&type=section&id=NOTE%207.%20COMMITMENTS%20AND%20CONTINGENCIES) This note outlines lease commitments and confirms no material adverse legal proceedings are currently anticipated | Future Minimum Lease Payments | Amount (in thousands) | | :---------------------------- | :-------------------- | | 2020 (nine months) | $1,803 | | 2021 | $2,242 | | 2022 | $1,884 | | 2023 | $1,685 | | 2024 | $1,730 | | Total minimum payments | $9,344 | - Total rent expense for operating leases was **$766 thousand** for Q1 2020, compared to **$745 thousand** for Q1 2019[71](index=71&type=chunk) - The company is not currently a party to any legal proceedings that, in management's opinion, would have a material adverse effect on its results of operations, financial position, or cash flows[72](index=72&type=chunk) [NOTE 8. STOCKHOLDERS' EQUITY (DEFICIT)](index=19&type=section&id=NOTE%208.%20STOCKHOLDERS'%20EQUITY%20(DEFICIT)) This note describes common stock issuances, including sales under the Equity Distribution Agreement and employee plans - The company issued **1,292,208 shares** of common stock in Q1 2020 (vs. **662,000** in Q1 2019) under an Equity Distribution Agreement, generating net proceeds of **$2,984 thousand** (vs. **$4,160 thousand** in Q1 2019)[73](index=73&type=chunk) - Additional shares were issued in Q1 2019 for the Machine Box and Performance Bridge acquisitions, and for employee stock plans[74](index=74&type=chunk)[75](index=75&type=chunk)[76](index=76&type=chunk) [NOTE 9. STOCK PLANS](index=19&type=section&id=NOTE%209.%20STOCK%20PLANS) This note details stock-based compensation, including option grants, valuation assumptions, and restricted stock activity - The company granted options to purchase **487,500 shares** of common stock in Q1 2020, subject to time-based vesting conditions[77](index=77&type=chunk) | Stock-Based Compensation Expense | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Restricted stock units | $142 | $198 | | Performance-based stock options | $1,968 | $1,935 | | Stock options | $2,149 | $2,358 | | Total | $4,456 | $5,507 | - Total unrecognized compensation cost for restricted stock, restricted stock units, performance-based stock options, and other stock options was **$104 thousand**, **$217 thousand**, **$19,319 thousand**, and **$6,283 thousand**, respectively, as of March 31, 2020[80](index=80&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk)[83](index=83&type=chunk) [NOTE 10. SUBSEQUENT EVENTS](index=24&type=section&id=NOTE%2010.%20SUBSEQUENT%20EVENTS) This note discloses the company's receipt of Paycheck Protection Program (PPP) loans in April 2020 for payroll and expenses - On April 14 and 15, 2020, the company received **$6,491 thousand** in unsecured loans under the Paycheck Protection Program (PPP) of the CARES Act[86](index=86&type=chunk) - The PPP loans have a **1.00% interest rate**, with principal and interest payments commencing seven months after the effective date, amortizing fully by the second anniversary[87](index=87&type=chunk) - Loan proceeds are designated for payroll costs, rent, and utilities, and recipients can apply for forgiveness, though no assurance is given that the company will seek or obtain full or partial forgiveness[88](index=88&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Veritone's financial performance for Q1 2020, including COVID-19 impact, revenues, expenses, and liquidity [Overview](index=25&type=section&id=Overview) Veritone is an AI solutions provider with aiWARE, content management, and advertising agency segments - Veritone provides artificial intelligence (AI) solutions, including its proprietary aiWARE™ platform, digital content management solutions, and content licensing services[91](index=91&type=chunk) - The company also operates a full-service media advertising agency, with business segments referred to as advertising, aiWARE content licensing and media services, and aiWARE SaaS solutions[91](index=91&type=chunk)[92](index=92&type=chunk) [Impact of the Coronavirus ("COVID-19") Pandemic](index=25&type=section&id=Impact%20of%20the%20Coronavirus%20(%22COVID-19%22)%20Pandemic) The COVID-19 pandemic began impacting Veritone in March 2020, particularly reducing demand for content licensing services - The COVID-19 pandemic led to a reduction in demand for certain products and services starting March 2020, particularly impacting net revenues from aiWARE content licensing and media services due to the cancellation or postponement of major live sporting events[93](index=93&type=chunk) - The company expects a material adverse impact on aiWARE content licensing and media services revenues in Q2 2020 and potentially beyond, but advertising and aiWARE SaaS solutions did not experience decreases in Q1 2020[93](index=93&type=chunk)[95](index=95&type=chunk) - The extent of the pandemic's impact on financial condition and results of operations is uncertain, depending on factors like duration, spread, government measures, and stimulus actions[95](index=95&type=chunk) [Sales of Common Stock](index=25&type=section&id=Sales%20of%20Common%20Stock) Veritone raised $3.0 million in net proceeds from common stock sales under its Equity Distribution Agreement in Q1 2020 | Metric | Q1 2020 (in millions) | Q1 2019 (in millions) | | :-------------------- | :-------------------- | :-------------------- | | Shares sold | 1.29 million | 0.66 million | | Net proceeds received | $3.0 | $4.2 | [Key Performance Indicators](index=25&type=section&id=Key%20Performance%20Indicators) Veritone tracks KPIs for its advertising and aiWARE SaaS solutions, updated in Q1 2020, to monitor business performance - The company tracks KPIs for its advertising business (average gross billings per active client, net revenue) and aiWARE SaaS solutions business (total accounts on platform, new bookings, total contract value of new bookings, net revenue)[97](index=97&type=chunk)[99](index=99&type=chunk) **Advertising KPI Results (in 000's):** | Metric | Mar 31, 2019 | Jun 30, 2019 | Sept 30, 2019 | Dec 31, 2019 | Mar 31, 2020 | | :-------------------------------- | :----------- | :----------- | :------------ | :----------- | :----------- | | Average gross billings per active client | $469 | $488 | $490 | $511 | $533 | | Net revenues during quarter | $5,714 | $5,842 | $6,291 | $6,517 | $6,001 | **aiWARE SaaS Solutions KPI Results (in 000's):** | Metric | Mar 31, 2019 | Jun 30, 2019 | Sept 30, 2019 | Dec 31, 2019 | Mar 31, 2020 | | :-------------------------------- | :----------- | :----------- | :------------ | :----------- | :----------- | | Total accounts on platform at quarter end | 911 | 941 | 980 | 1,069 | 1,587 | | New bookings received during quarter | $1,316 | $1,362 | $1,384 | $2,522 | $1,397 | | Total contract value of new bookings received during quarter | $2,092 | $1,351 | $1,724 | $12,872 | $2,312 | | Net revenues during quarter | $2,754 | $2,677 | $2,350 | $2,872 | $3,108 | [Results of Operations](index=28&type=section&id=Results%20of%20Operations) This section analyzes Q1 2020 financial performance, noting a slight revenue decrease but significant operating expense reductions **Net Revenues (in thousands):** | Segment | Q1 2020 | Q1 2019 | $ Change | % Change | | :-------------------------------- | :------ | :------ | :------- | :------- | | Advertising | $6,001 | $5,714 | $287 | 5.0% | | aiWARE SaaS Solutions | $3,108 | $2,754 | $354 | 12.9% | | aiWARE Content Licensing and Media Services | $2,795 | $3,657 | $(862) | (23.6)% | | Total Net Revenues | $11,904 | $12,125 | $(221) | (1.8)% | **Operating Expenses (in thousands):** | Expense Category | Q1 2020 | Q1 2019 | $ Change | % Change | | :--------------- | :------ | :------ | :------- | :------- | | Sales and marketing | $5,460 | $6,133 | $(673) | -11.0% | | Research and development | $3,902 | $6,938 | $(3,036) | -43.8% | | General and administrative | $11,543 | $11,690 | $(147) | -1.3% | | Total Operating Expenses | $20,905 | $24,761 | $(3,856) | -15.6% | - Gross margin remained stable at approximately **68.0%** in Q1 2020 (vs. **68.1%** in Q1 2019), with advertising revenues (gross margins >95%) accounting for **50%** of total revenues in Q1 2020[114](index=114&type=chunk) - The decrease in operating expenses was primarily due to reduced compensation costs from focused spending reductions, non-recurring contingent payments in 2019, and lower platform/cognitive engine expenses[115](index=115&type=chunk)[116](index=116&type=chunk)[117](index=117&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses Veritone's liquidity, cash flow activities, and future capital needs, including recent PPP loans - Cash and cash equivalents increased to **$49.2 million** as of March 31, 2020, from **$44.1 million** at December 31, 2019, driven by positive operating cash flow and proceeds from common stock offerings[120](index=120&type=chunk) **Cash Flows (in thousands):** | Activity | Q1 2020 | Q1 2019 | | :-------------------------------- | :------ | :------ | | Operating activities | $1,503 | $(4,632) | | Investing activities | $(9) | $2,375 | | Financing activities | $3,606 | $4,484 | | Net increase in cash, cash equivalents and restricted cash | $5,100 | $2,227 | - Operating activities provided **$1.5 million** in cash in Q1 2020, primarily due to timing of prepayments and advances from advertising clients, offsetting a **$12.7 million** net loss[123](index=123&type=chunk) - The company expects to continue generating losses and will need additional capital through equity and/or debt financings, with **$21.7 million** remaining available under its Equity Distribution Agreement[128](index=128&type=chunk)[132](index=132&type=chunk) **Reconciliation of Net Loss to Non-GAAP Net Loss (in thousands):** | Metric | Q1 2020 | Q1 2019 | | :-------------------------------- | :------ | :------ | | Net loss | $(12,684) | $(16,306) | | Depreciation and amortization | $1,604 | $1,133 | | Stock-based compensation expense | $4,456 | $4,803 | | Non-GAAP Net Loss | $(6,679) | $(9,292) | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Veritone, Inc. is exempt from detailed market risk disclosures - Veritone, Inc. is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[136](index=136&type=chunk) [Item 4. Controls and Procedures](index=33&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls were ineffective due to a material weakness in advertising revenue accounting, though financial statements are fairly presented - Disclosure controls and procedures were deemed **not effective** as of March 31, 2020, due to a material weakness in accounting for advertising net revenues, previously reported in the 2019 Annual Report on Form 10-K[138](index=138&type=chunk) - Remediation measures, including process documentation, personnel training, and control monitoring, have been initiated but were not fully remediated by March 31, 2020[138](index=138&type=chunk)[139](index=139&type=chunk) - Despite the material weakness, management concluded that the condensed consolidated financial statements fairly present the company's financial position, results of operations, and cash flows in all material respects[138](index=138&type=chunk) [PART II. OTHER INFORMATION](index=34&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part includes legal proceedings, updated risk factors, equity sales, defaults, and other required disclosures [Item 1. Legal Proceedings](index=34&type=section&id=Item%201.%20Legal%20Proceedings) Veritone is not involved in legal proceedings expected to materially adversely affect its operations or financial position - The company is not currently a party to any legal proceedings that, in management's opinion, would individually or in aggregate have a material adverse effect on its results of operations, financial position, or cash flows[143](index=143&type=chunk) [Item 1A. Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) This section updates risk factors, emphasizing new and exacerbated risks from the COVID-19 pandemic - The COVID-19 pandemic has significantly impacted the global economy and Veritone's business, leading to reduced demand for certain products and services, particularly aiWARE content licensing and media services due to event cancellations[145](index=145&type=chunk)[146](index=146&type=chunk) - Operational disruptions may arise from continued office closures and increased reliance on a remote workforce, potentially affecting employee effectiveness and productivity[146](index=146&type=chunk) - Other risks include potential inability to collect revenue from customers, limitations on obtaining future financing due to market volatility, and increased exposure to cybersecurity breaches[146](index=146&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered equity securities were sold during the first quarter of 2020 - There were no sales of unregistered equity securities during the first quarter of 2020[147](index=147&type=chunk) [Item 3. Defaults Upon Senior Securities](index=35&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - No defaults upon senior securities were reported[148](index=148&type=chunk) [Item 4. Mine Safety Disclosures](index=35&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Veritone, Inc - Mine Safety Disclosures are not applicable to the company[148](index=148&type=chunk) [Item 5. Other Information](index=35&type=section&id=Item%205.%20Other%20Information) No other information was reported under this item - No other information was reported[148](index=148&type=chunk) [Item 6. Exhibits](index=36&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Form 10-Q, including certifications and XBRL documents - Exhibits include certifications pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act (31.1, 31.2), certifications pursuant to Rule 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350 (32.1), and various XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE)[149](index=149&type=chunk) [SIGNATURES](index=37&type=section&id=SIGNATURES) This section contains the official signatures of Veritone, Inc.'s CEO and CFO, attesting to the report's accuracy [Report Signatures](index=37&type=section&id=Report%20Signatures) The report was signed by Veritone, Inc.'s CEO and CFO on May 11, 2020 - The report was signed by Chad Steelberg, Chief Executive Officer and Chairman of the Board, and Peter F. Collins, Executive Vice President and Chief Financial Officer, on May 11, 2020[154](index=154&type=chunk)

PART I [Business](index=4&type=section&id=Item%201.%20Business) Veritone, Inc. delivers AI solutions through its aiWARE™ platform, with core businesses in SaaS, advertising, and content licensing - Veritone provides AI computing solutions through its proprietary aiWARE™ platform, which integrates and orchestrates a wide ecosystem of machine learning algorithms (cognitive engines)[17](index=17&type=chunk) - The company operates a full-service advertising agency, Veritone One, which leverages the aiWARE platform for ad verification and analytics[21](index=21&type=chunk) - Strategic acquisitions in 2018 (Wazee Digital, Machine Box, Performance Bridge) expanded Veritone's offerings in content licensing, media services, and podcast advertising[20](index=20&type=chunk)[27](index=27&type=chunk)[28](index=28&type=chunk) - In 2019, Veritone launched VeriAds™, a network leveraging aiWARE to help broadcasters and podcasters generate incremental advertising revenue[22](index=22&type=chunk) [aiWARE SaaS Solutions](index=5&type=section&id=aiWARE%20SaaS%20Solutions) The aiWARE platform is Veritone's core SaaS offering, managing the data lifecycle with an open ecosystem of cognitive engines and flexible deployment options - The aiWARE platform's process includes four key stages: Ingestion, Orchestration and Processing, Proprietary Indexing and Storage (Temporal Elastic Database), and Applications/Cognitive Analytics[31](index=31&type=chunk) - The platform incorporates an open ecosystem of hundreds of cognitive engines from major third-party vendors like Amazon, Google, IBM, and Microsoft, as well as proprietary engines[35](index=35&type=chunk)[36](index=36&type=chunk) - Proprietary Conductor™ technology intelligently orchestrates cognitive engines to optimize performance and accuracy, which is a key competitive advantage[38](index=38&type=chunk)[40](index=40&type=chunk) - Deployment models are flexible, including cloud-based options on AWS and Azure (commercial and secure government clouds), on-premises, and hybrid configurations; the company achieved FedRAMP Authority to Operate (ATO) in March 2019[43](index=43&type=chunk)[44](index=44&type=chunk)[45](index=45&type=chunk) [Solutions for Target Markets](index=8&type=section&id=Solutions%20for%20Target%20Markets) Veritone provides tailored aiWARE solutions for Media and Entertainment, and Government, Legal, and Compliance markets, with future expansion into security and surveillance - In Media and Entertainment, solutions enable ad tracking, verification, and attribution, helping clients like radio and television broadcasters unlock value from their content[48](index=48&type=chunk)[50](index=50&type=chunk) - For Government, Legal, and Compliance, applications like IDentify (suspect identification), Redact (automated redaction), and Illuminate (eDiscovery) streamline critical workflows for agencies and legal professionals[52](index=52&type=chunk)[53](index=53&type=chunk)[56](index=56&type=chunk) - The company is developing solutions for other markets, with an expected 2020 release for an integration with security and video management systems for surveillance purposes[56](index=56&type=chunk) [aiWARE Content Licensing and Media Services](index=11&type=section&id=aiWARE%20Content%20Licensing%20and%20Media%20Services) Veritone provides digital content licensing and media services, managing and syndicating content for rights holders via its Commerce web portal, enhanced by aiWARE - The company manages and licenses digital content on behalf of rights holders through its Commerce web portal, which is enhanced by aiWARE's cognitive search capabilities[60](index=60&type=chunk)[61](index=61&type=chunk) - Veritone provides live event services, allowing rights holders to capture, tag, and immediately syndicate content like sports highlights globally[62](index=62&type=chunk) [Advertising](index=11&type=section&id=Advertising) Veritone One is a full-service advertising agency specializing in host-endorsed and influencer advertising, leveraging aiWARE for analytics and launching the VeriAds™ network - The advertising agency placed **$216.5 million** in media for clients in 2019, including notable names like Audible, DraftKings, HelloFresh, and Uber[66](index=66&type=chunk) - The VeriAds™ network was launched in late 2019 to generate incremental ad revenue for broadcasters and influencers through unique ad units and performance-based programs[68](index=68&type=chunk)[69](index=69&type=chunk) [Customers](index=13&type=section&id=Customers) Veritone's customer base shows segment-specific concentration, with top ten clients accounting for significant revenue shares, yet no single customer exceeded **10%** of consolidated net revenues in 2019 - In 2019, customer concentration was notable within segments but not on a consolidated basis: for aiWARE SaaS, the top 10 customers were **49%** of revenue; for Advertising, **43%**; and for Content Licensing, **38%**[74](index=74&type=chunk)[75](index=75&type=chunk)[76](index=76&type=chunk) - No single customer accounted for **10%** or more of consolidated net revenues in 2019[77](index=77&type=chunk) [Competition](index=14&type=section&id=Competition) Veritone faces intense competition in the AI market from large vendors and specialized firms, differentiating with its open aiWARE ecosystem, while also competing in advertising and content licensing - aiWARE SaaS competitors include large cloud vendors (IBM Watson, Microsoft Azure, Amazon AWS), smaller specialized AI vendors, and system integrators[81](index=81&type=chunk) - Veritone's primary competitive advantage is its AI operating system with an open ecosystem of numerous third-party cognitive engines accessible from a single platform[80](index=80&type=chunk) - Advertising competitors are mainly traditional and niche agencies; Content licensing competition comes from rights holders managing licensing in-house and other representation firms[82](index=82&type=chunk)[83](index=83&type=chunk) [Intellectual Property](index=15&type=section&id=Intellectual%20Property) Veritone protects its proprietary technology through patents, copyrights, trademarks, and trade secrets, holding 26 issued U.S. patents and 9 foreign patents as of February 29, 2020 Patent Portfolio as of Feb 29, 2020 | Jurisdiction | Issued Patents | Pending Applications | | :--- | :--- | :--- | | United States | 26 | 31 | | Foreign | 9 | 44 | [Risk Factors](index=17&type=section&id=Item%201A.%20Risk%20Factors) Veritone faces significant risks including an unproven AI market, need for capital, history of losses, reliance on third-party tech, regulatory challenges, and stock volatility [Risks Related to Business, Industry and Financial Condition](index=17&type=section&id=Risks%20Related%20to%20Our%20Business%2C%20Industry%20and%20Financial%20Condition) Veritone's business risks include dependence on aiWARE SaaS growth in an unproven AI market, a history of losses, reliance on third-party technologies, and evolving data privacy regulations - The company's success is heavily dependent on the growth and adoption of its aiWARE platform, which is still under development, in a new and unproven AI market[98](index=98&type=chunk)[101](index=101&type=chunk) - Veritone has a history of significant net losses, reporting a net loss of **$62.1 million** in 2019 and an accumulated deficit of **$232.5 million** as of year-end, and may be unable to achieve profitability[116](index=116&type=chunk) - The business relies on third-party cloud providers (AWS, Microsoft Azure) for hosting and third-party developers for cognitive engines, creating dependencies and potential risks if these relationships are disrupted[109](index=109&type=chunk)[111](index=111&type=chunk)[136](index=136&type=chunk) - The company faces risks from recent and proposed laws regarding data privacy (GDPR, CCPA) and the use of facial recognition technology, which could limit demand for certain products like its IDentify application[125](index=125&type=chunk)[126](index=126&type=chunk)[145](index=145&type=chunk) [Risks Related to Ownership of Securities and Public Company Operations](index=31&type=section&id=Risks%20Related%20to%20the%20Ownership%20of%20Our%20Securities%20and%20Our%20Public%20Company%20Operations) Ownership of Veritone's common stock carries significant risks, including extreme price volatility, reduced reporting requirements as an emerging growth company, identified material weaknesses in internal control, and potential future dilution - The common stock price has been extremely volatile, ranging from a low of **$2.16** to a high of **$65.91** between its IPO in May 2017 and February 29, 2020[170](index=170&type=chunk) - Material weaknesses in internal control over financial reporting were identified for the years ended December 31, 2018 (related to accounting for complex transactions) and 2019 (related to accounting for advertising net revenues)[180](index=180&type=chunk) - As an "emerging growth company" and "smaller reporting company," Veritone is subject to reduced reporting requirements, which could make its stock less attractive to investors[183](index=183&type=chunk) - The company does not expect to pay any cash dividends in the foreseeable future, as funds will be retained for business operations and expansion[185](index=185&type=chunk) [Properties](index=35&type=section&id=Item%202.%20Properties) Veritone's principal executive offices are leased in Costa Mesa, California, with additional leased office spaces across several U.S. states and London, as the company owns no real property - The company's headquarters are in Costa Mesa, CA, under a lease for approximately **39,000 sq. ft.** expiring in December 2024[193](index=193&type=chunk) - Additional offices are leased in Newport Beach and San Diego, CA; Denver, CO; Binghamton and New York, NY; Seattle, WA; and London, England[194](index=194&type=chunk) [Legal Proceedings](index=35&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently involved in any legal proceedings deemed to have a material adverse effect on its financial results, position, or cash flows - As of the report date, Veritone is not a party to any material legal proceedings[195](index=195&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=36&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Veritone's common stock trades on NASDAQ under "VERI"; the company has never paid cash dividends and does not anticipate doing so, retaining earnings for business operations - The company's common stock is listed on NASDAQ under the symbol **"VERI"**[198](index=198&type=chunk) - Veritone has never declared or paid cash dividends and does not expect to in the foreseeable future[199](index=199&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2019, net revenues grew **83.6%** to **$49.6 million**, driven by acquisitions, while net loss remained stable at **$62.1 million**; gross margin declined due to revenue mix, and operating expenses increased [Acquisitions](index=37&type=section&id=Acquisitions) In 2018, Veritone completed three key acquisitions: Performance Bridge for podcast advertising, Wazee Digital for content management, and Machine Box for machine learning technology - Performance Bridge was acquired on August 21, 2018, for initial consideration of **$5.2 million** and **$3.9 million** in earnouts[208](index=208&type=chunk) - Wazee Digital was acquired on August 31, 2018, for an aggregate purchase price of **$12.6 million**[209](index=209&type=chunk) - Machine Box was acquired on September 6, 2018, for initial consideration of **$1.5 million** and **$3.0 million** in contingent payments treated as compensation expense[210](index=210&type=chunk)[211](index=211&type=chunk) [Key Performance Indicators](index=38&type=section&id=Key%20Performance%20Indicators) Veritone tracks KPIs for advertising and aiWARE SaaS, showing stable advertising clients with increased average spend, and growth in aiWARE SaaS customers and new bookings Advertising KPI Results (Quarterly) | KPI | Q4 2018 | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | | :--- | :--- | :--- | :--- | :--- | :--- | | Clients with active campaigns | 115 | 107 | 108 | 111 | 108 | | Avg. ad spend per client (in 000's) | $478 | $486 | $497 | $505 | $567 | | Net revenue (in 000's) | $5,986 | $5,714 | $5,842 | $6,291 | $6,517 | aiWARE SaaS Solutions KPI Results (Quarterly) | KPI | Q4 2018 | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total customers (end of quarter) | 123 | 129 | 136 | 153 | 172 | | Total contract value of new bookings (in 000's) | $1,196 | $1,316 | $1,362 | $1,384 | $2,522 | | Monthly recurring revenue (in 000's) | $544 | $494 | $545 | $547 | $568 | | Net revenue (in 000's) | $2,426 | $2,754 | $2,677 | $2,350 | $2,872 | [Results of Operations (2019 vs. 2018)](index=47&type=section&id=Results%20of%20Operations) In 2019, net revenues increased **83.6%** to **$49.6 million** driven by acquisitions, while gross margin declined to **65.2%** due to revenue mix, and net loss was **$62.1 million** Net Revenues by Segment (in thousands) | Segment | 2019 | 2018 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Advertising | $24,364 | $17,146 | $7,218 | 42.1% | | aiWARE Content Licensing & Media Services | $14,631 | $3,943 | $10,688 | 271.1% | | aiWARE SaaS Solutions | $10,653 | $5,958 | $4,695 | 78.8% | | **Total Net Revenues** | **$49,648** | **$27,047** | **$22,601** | **83.6%** | - Gross margin decreased from **76.0%** in 2018 to **65.2%** in 2019, reflecting a lower proportion of high-margin advertising revenue in the total revenue mix[276](index=276&type=chunk) Operating Expenses (in thousands) | Expense Category | 2019 | 2018 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Sales and marketing | $25,305 | $22,470 | $2,835 | 12.6% | | Research and development | $23,801 | $22,095 | $1,706 | 7.7% | | General and administrative | $47,324 | $37,993 | $9,331 | 24.6% | | **Total Operating Expenses** | **$96,430** | **$82,558** | **$13,872** | **16.8%** | - The increase in General and Administrative expenses was primarily due to a **$4.9 million** increase in stock-based compensation and **$3.9 million** in expenses from acquired businesses[281](index=281&type=chunk) [Liquidity and Capital Resources](index=50&type=section&id=Liquidity%20and%20Capital%20Resources) As of December 31, 2019, Veritone had **$44.1 million** in cash and equivalents, primarily impacted by cash used in operations offset by financing activities, with management believing current cash is sufficient for the next twelve months Cash Flow Summary (in thousands) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Cash used in operating activities | $(30,117) | $(41,770) | | Cash provided by investing activities | $11,961 | $15,929 | | Cash provided by financing activities | $24,615 | $34,292 | - Cash and cash equivalents totaled **$44.1 million** as of December 31, 2019[284](index=284&type=chunk) - The company raised **$24.4 million** in net proceeds from common stock sales in 2019 through its Equity Distribution Agreement with JMP Securities[225](index=225&type=chunk)[284](index=284&type=chunk) [Financial Statements and Supplementary Data](index=54&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) Consolidated financial statements show net revenues increased to **$49.6 million** in 2019, with a net loss of **$62.1 million**, and an accumulated deficit growing to **$232.5 million** Consolidated Statement of Operations Highlights (in thousands) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Net Revenues | $49,648 | $27,047 | | Gross Profit | $32,359 | $20,568 | | Loss from Operations | $(64,071) | $(61,990) | | Net Loss | $(62,078) | $(61,104) | | Net Loss Per Share | $(2.85) | $(3.48) | Consolidated Balance Sheet Highlights (in thousands) | Metric | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $44,065 | $37,539 | | Total Assets | $108,526 | $117,754 | | Total Liabilities | $61,115 | $57,471 | | Total Stockholders' Equity | $47,411 | $60,283 | | Accumulated Deficit | $(232,489) | $(170,411) | [Controls and Procedures](index=88&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were not effective as of December 31, 2019, due to a material weakness in accounting for advertising net revenues, with remediation efforts underway - Management concluded that disclosure controls and procedures were not effective as of December 31, 2019[480](index=480&type=chunk) - A material weakness in internal control over financial reporting was identified related to the accounting for advertising net revenues[484](index=484&type=chunk) - The company has initiated remediation efforts for the current material weakness and successfully remediated a separate material weakness from 2018 related to complex transactions[485](index=485&type=chunk)[487](index=487&type=chunk) PART III [Directors, Executive Officers, Corporate Governance, Compensation, and Principal Accounting Fees](index=90&type=section&id=Item%2010-14) Information for directors, executive officers, corporate governance, compensation, and principal accounting fees is incorporated by reference from the forthcoming 2020 definitive proxy statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the forthcoming definitive proxy statement for the 2020 annual stockholders' meeting[491](index=491&type=chunk)[492](index=492&type=chunk)[493](index=493&type=chunk)[494](index=494&type=chunk)[495](index=495&type=chunk) PART IV [Exhibits, Financial Statement Schedules](index=91&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists documents filed as part of the Form 10-K, including financial statements and a comprehensive list of exhibits, with all financial statement schedules omitted - The financial statements are filed as part of the report, but all financial statement schedules have been omitted[499](index=499&type=chunk)[500](index=500&type=chunk) - A detailed list of exhibits is provided, including governance documents, stock plans, material contracts, and required certifications[501](index=501&type=chunk)

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) Unaudited financial statements show revenue growth from acquisitions, alongside substantial net losses and negative operating cash flow [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets slightly increased to **$118.4 million**, while total liabilities rose to **$67.6 million**, leading to a decline in stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $49,188 | $37,539 | | Total current assets | $89,039 | $86,520 | | Goodwill | $7,241 | $5,509 | | Total assets | $118,374 | $117,754 | | **Liabilities & Equity** | | | | Total current liabilities | $66,159 | $56,085 | | Total liabilities | $67,576 | $57,471 | | Accumulated deficit | $(217,605) | $(170,411) | | Total stockholders' equity | $50,798 | $60,283 | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) Net revenues surged **69.7%** year-over-year to **$12.8 million** in Q3 2019, but net loss widened to **$47.2 million** for the nine-month period Statement of Operations Highlights (in thousands, except per share data) | Metric | Q3 2019 | Q3 2018 | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Net revenues | $12,805 | $7,545 | $37,200 | $16,101 | | Gross profit | $8,048 | $5,975 | $24,009 | $13,148 | | Loss from operations | $(16,196) | $(16,265) | $(49,439) | $(43,947) | | Net loss | $(14,197) | $(15,941) | $(47,194) | $(43,319) | | Net loss per share | $(0.64) | $(0.86) | $(2.26) | $(2.55) | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities improved to **$18.4 million**, with overall cash increasing due to investing and financing activities Cash Flow Summary for the Nine Months Ended Sep 30 (in thousands) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(18,428) | $(24,967) | | Net cash provided by investing activities | $11,972 | $7,201 | | Net cash provided by financing activities | $18,024 | $34,348 | | **Net increase in cash, cash equivalents and restricted cash** | **$11,568** | **$16,582** | [Notes to the Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the company's AI solutions business, accounting policies, and financial condition, including significant acquisitions and ongoing net losses - The company is a provider of AI solutions through its proprietary aiWARE operating system, supplemented by a full-service advertising agency and digital content management services acquired in 2018[28](index=28&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk) - The company has a history of net losses and negative operating cash flows, with an accumulated deficit of **$217.6 million** as of September 30, 2019. Management expects to continue generating net losses for the foreseeable future[33](index=33&type=chunk) - Details of the 2018 acquisitions of Performance Bridge, Wazee Digital, and Machine Box are provided, including purchase considerations and contingent payments. These acquisitions significantly expanded the company's offerings and asset base[50](index=50&type=chunk)[55](index=55&type=chunk)[59](index=59&type=chunk) Net Revenues by Segment (in thousands) | Segment | Q3 2019 | Q3 2018 | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Advertising | $6,291 | $4,730 | $17,847 | $11,159 | | aiWARE SaaS Solutions | $2,350 | $1,406 | $7,781 | $3,533 | | aiWARE Content Licensing and Media Services | $4,164 | $1,409 | $11,572 | $1,409 | - Stock-based compensation expense was **$4.8 million** for Q3 2019 and **$16.0 million** for the nine months ended September 30, 2019, a significant non-cash expense[101](index=101&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses revenue growth from acquisitions, key performance indicators, operating results, and liquidity, noting ongoing losses and future financing needs [Acquisitions](index=31&type=section&id=Acquisitions) The report details the 2018 acquisitions of Performance Bridge, Wazee Digital, and Machine Box, which expanded the company's offerings - Acquired Performance Bridge in August 2018 to expand advertising offerings into comprehensive podcast solutions[114](index=114&type=chunk) - Acquired Wazee Digital in August 2018 for **$12.6 million** to add digital content management and licensing services[115](index=115&type=chunk) - Acquired Machine Box in September 2018 to enhance aiWARE platform capabilities with state-of-the-art machine learning technologies. Contingent payments were treated as compensation expense due to continued employment requirements[116](index=116&type=chunk)[117](index=117&type=chunk) [Key Performance Indicators](index=32&type=section&id=Key%20Performance%20Indicators) Veritone tracks separate KPIs for its Advertising and aiWARE SaaS businesses, showing client growth and new contract bookings Advertising Business KPIs (Q3 2019, including acquisition) | KPI | Value | | :--- | :--- | | Net new advertising clients added | 11 | | Clients with active advertising campaigns | 111 | | Average advertising spend per active client | $505,000 | | Net revenue during quarter | $6,291,000 | aiWARE SaaS Solutions KPIs (Q3 2019, including acquisitions) | KPI | Value | | :--- | :--- | | Total customers at quarter end | 153 | | Total accounts on platform at quarter end | 980 | | Total contract value of new bookings | $1,384,000 | | Monthly recurring revenue at quarter end | $547,000 | | Net revenue during quarter | $2,350,000 | [Results of Operations](index=36&type=section&id=Results%20of%20Operations) Net revenues grew **69.7%** due to acquisitions, while gross margin declined, and operating expenses showed improved leverage - Net revenues for Q3 2019 increased **69.7%** YoY, driven by a **33.0%** increase in Advertising, a **67.1%** increase in aiWARE SaaS Solutions, and a **195.5%** increase in aiWARE Content Licensing (the latter two primarily from acquisitions)[134](index=134&type=chunk) - Gross margin decreased to **63%** in Q3 2019 from **79%** in Q3 2018. This was due to the changing revenue mix, with lower-margin aiWARE businesses comprising a larger portion of total revenue[140](index=140&type=chunk) - Operating expenses as a percentage of net revenue decreased significantly across all categories (Sales & Marketing, R&D, G&A), demonstrating increased operating leverage from higher revenue levels[143](index=143&type=chunk)[145](index=145&type=chunk)[147](index=147&type=chunk) [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is supported by **$49.2 million** in cash and recent equity sales, but future financing is anticipated due to ongoing losses - Principal sources of liquidity are cash and cash equivalents, which totaled **$49.2 million** as of September 30, 2019[151](index=151&type=chunk) - The company has an Equity Distribution Agreement to sell up to **$50.0 million** of common stock, with **$27.7 million** remaining available for sale[161](index=161&type=chunk) - Management believes current cash is sufficient for the **next 12 months** but expects to need additional financing for long-term growth, as the company continues to generate **significant losses**[165](index=165&type=chunk) [Non-GAAP Financial Measure](index=43&type=section&id=Non-GAAP%20Financial%20Measure) Adjusted EBITDAS, a non-GAAP measure, showed a loss of **$9.6 million** for Q3 2019, reflecting adjustments from net loss Reconciliation of Net Loss to Adjusted EBITDAS (in thousands) | Line Item | Q3 2019 | Q3 2018 | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(14,197) | $(15,941) | $(47,194) | $(43,319) | | Adjustments | $4,567 | $6,810 | $19,069 | $13,497 | | **Adjusted EBITDAS** | **$(9,630)** | **$(8,631)** | **$(28,125)** | **$(29,822)** | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=43&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Veritone is not required to provide the information for this item - The company is **exempt from this disclosure requirement** as a smaller reporting company[170](index=170&type=chunk) [Item 4. Controls and Procedures](index=43&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were deemed ineffective due to a material weakness in accounting for complex business combinations - Disclosure controls and procedures were concluded to be **not effective** as of the end of the reporting period[173](index=173&type=chunk) - The ineffectiveness is due to a **material weakness** identified in 2018 related to accounting for complex business combinations[173](index=173&type=chunk) - Measures to remediate the **material weakness** have been initiated but were not fully implemented as of September 30, 2019[173](index=173&type=chunk)[174](index=174&type=chunk) [PART II. OTHER INFORMATION](index=46&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, unregistered equity sales, and exhibits [Item 1. Legal Proceedings](index=46&type=section&id=Item%201.%20Legal%20Proceedings) Veritone is not currently involved in any material legal proceedings that would adversely affect its financial position - Veritone is **not currently involved in any material legal proceedings**[178](index=178&type=chunk) [Item 1A. Risk Factors](index=46&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors have occurred since the last Annual Report on Form 10-K - **No material changes** to risk factors have occurred since the last Annual Report on Form 10-K[179](index=179&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=46&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company issued **129,552** shares of common stock as contingent consideration for the Machine Box acquisition, exempt from registration - On September 6, 2019, Veritone issued **129,552 shares** of common stock as part of the contingent consideration for the Machine Box acquisition[180](index=180&type=chunk) - The issuance was an unregistered sale, exempt from registration under **Section 4(a)(2)** of the Securities Act[181](index=181&type=chunk) [Item 6. Exhibits](index=47&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files - Exhibits filed include certifications by the **CEO and CFO** and XBRL interactive data files[183](index=183&type=chunk) [Signatures](index=48&type=section&id=Signatures) [Signatures](index=48&type=section&id=Signatures_summary) The quarterly report was signed and authorized on **November 8, 2019**, by the **Chief Executive Officer and Chief Financial Officer** - The report was signed on **November 8, 2019**, by the **CEO and CFO**[185](index=185&type=chunk)

[Special Note Regarding Forward-Looking Statements](index=3&type=section&id=Special%20Note%20Regarding%20Forward-Looking%20Statements) The report contains forward-looking statements subject to risks and uncertainties, and actual results may differ materially - The report contains forward-looking statements subject to risks and uncertainties, and actual results may differ materially[8](index=8&type=chunk)[9](index=9&type=chunk) - Factors influencing actual results include financial condition, operations, capital needs, competitive position, and risks detailed in Item 2 of Part I and Item 1A of the Annual Report on Form 10-K[8](index=8&type=chunk)[9](index=9&type=chunk) - The company assumes no obligation to publicly update forward-looking statements unless required by law[11](index=11&type=chunk) [PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents the unaudited condensed consolidated financial statements of Veritone, Inc. for the periods ended June 30, 2019, and December 31, 2018, along with management's discussion and analysis of financial condition and results of operations, market risk disclosures, and controls and procedures [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section provides the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations and comprehensive loss, statements of stockholders' equity, and statements of cash flows, along with their accompanying notes [Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20as%20of%20June%2030%2C%202019%20and%20December%2031%2C%202018) The condensed consolidated balance sheets show a decrease in total assets and stockholders' equity from December 31, 2018, to June 30, 2019, primarily driven by a reduction in marketable securities and an accumulated deficit, despite an increase in cash and cash equivalents | Metric | June 30, 2019 | December 31, 2018 | Change ($) | Change (%) | | :--------------------------------- | :------------ | :---------------- | :--------- | :--------- | | Cash and cash equivalents | $40,275 | $37,539 | $2,736 | 7.3% | | Marketable securities | $4,998 | $13,565 | $(8,567) | -63.2% | | Total current assets | $80,524 | $86,520 | $(5,996) | -6.9% | | Total assets | $109,562 | $117,754 | $(8,192) | -7.0% | | Total current liabilities | $53,694 | $56,085 | $(2,391) | -4.3% | | Total liabilities | $55,063 | $57,471 | $(2,408) | -4.2% | | Accumulated deficit | $(203,408) | $(170,411) | $(32,997) | 19.4% | | Total stockholders' equity | $54,499 | $60,283 | $(5,784) | -9.6% | [Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2019 and 2018](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202019%20and%202018) The company experienced significant revenue growth for both the three and six months ended June 30, 2019, compared to the prior year, primarily driven by acquisitions, though net losses also increased due to higher operating expenses, particularly in general and administrative, and research and development | Metric | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | Change ($) | Change (%) | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | Change ($) | Change (%) | | :--------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Net revenues | $12,270 | $4,168 | $8,102 | 194.4% | $24,395 | $8,556 | $15,839 | 185.1% | | Gross profit | $7,708 | $3,348 | $4,360 | 130.2% | $15,961 | $7,172 | $8,789 | 122.5% | | Total operating expenses | $24,444 | $17,801 | $6,643 | 37.3% | $49,205 | $34,855 | $14,350 | 41.2% | | Loss from operations | $(16,736) | $(14,453) | $(2,283) | 15.8% | $(33,244) | $(27,683) | $(5,561) | 20.1% | | Net loss | $(16,691) | $(14,330) | $(2,361) | 16.5% | $(32,997) | $(27,379) | $(5,618) | 20.5% | | Basic and diluted net loss per share | $(0.80) | $(0.88) | $0.08 | -9.1% | $(1.64) | $(1.69) | $0.05 | -3.0% | [Condensed Consolidated Statements of Stockholders' Equity as of June 30, 2019](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity%20as%20of%20June%2030%2C%202019) The statements of stockholders' equity show an increase in common stock and additional paid-in capital due to common stock offerings, exercise of options, and stock-based compensation, but this was offset by a significant increase in accumulated deficit from net losses, leading to an overall decrease in total stockholders' equity | Metric | December 31, 2018 | June 30, 2019 | Change ($) | | :--------------------------------- | :---------------- | :------------ | :--------- | | Common Stock (shares) | 19,335,220 | 21,918,406 | 2,583,186 | | Common Stock (amount) | $19 | $22 | $3 | | Additional Paid-in Capital | $230,674 | $257,813 | $27,139 | | Accumulated Deficit | $(170,411) | $(203,408) | $(32,997) | | Total Stockholders' Equity | $60,283 | $54,499 | $(5,784) | - Common stock offerings, net, contributed **$12,215 thousand** to additional paid-in capital in the six months ended June 30, 2019[20](index=20&type=chunk) - Stock-based compensation expense for the six months ended June 30, 2019, was **$10,058 thousand**[20](index=20&type=chunk) [Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202019%20and%202018) The company continued to use cash in operating activities, though at a reduced rate compared to the prior year, while cash provided by investing activities decreased, and financing activities also saw a significant reduction, leading to a smaller net increase in cash, cash equivalents, and restricted cash | Metric | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | Change ($) | Change (%) | | :--------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Net cash used in operating activities | $(16,606) | $(21,341) | $4,735 | -22.2% | | Net cash provided by investing activities | $7,048 | $11,031 | $(3,983) | -36.1% | | Net cash provided by financing activities | $12,192 | $33,457 | $(21,265) | -63.6% | | Net increase in cash, cash equivalents and restricted cash | $2,634 | $23,147 | $(20,513) | -88.6% | | Cash, cash equivalents and restricted cash, end of period | $41,410 | $52,692 | $(11,282) | -21.4% | - Net loss was **$(32,997) thousand** for the six months ended June 30, 2019, a primary driver of cash used in operating activities[24](index=24&type=chunk) - Stock-based compensation expense, a non-cash adjustment, was **$11,285 thousand** for the six months ended June 30, 2019[24](index=24&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures regarding the company's accounting policies, business operations, recent acquisitions, financial instruments, goodwill, intangible assets, and other financial statement line items, offering crucial context to the condensed consolidated financial statements [NOTE 1. DESCRIPTION OF BUSINESS](index=9&type=section&id=NOTE%201.%20DESCRIPTION%20OF%20BUSINESS) Veritone, Inc. is an AI-based computing solutions provider, primarily known for its proprietary aiWARE™ operating system, also offering digital content management and licensing services through its acquisition of Wazee Digital and operating a full-service advertising agency, enhanced by the acquisition of Performance Bridge Media - Veritone provides AI-based computing solutions, centered on its proprietary aiWARE™ operating system[27](index=27&type=chunk) - aiWARE™ integrates cognitive engines and applications to derive insights from unstructured and structured data, supporting various industries like media, entertainment, legal, compliance, and government[27](index=27&type=chunk) - The acquisition of Wazee Digital in August 2018 expanded offerings to include cloud-native digital content management and licensing services for the media and entertainment market[28](index=28&type=chunk) - The acquisition of Performance Bridge Media in August 2018 enhanced the company's full-service advertising agency with comprehensive podcast solutions[29](index=29&type=chunk) [NOTE 2. PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=9&type=section&id=NOTE%202.%20PRESENTATION%20AND%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the basis of presentation for the unaudited interim financial statements, confirms the consistency of accounting policies with the prior annual report, and discusses the company's liquidity, capital resources, use of accounting estimates, significant customers, and recently adopted and issued accounting pronouncements [Basis of Presentation and Preparation](index=9&type=section&id=Basis%20of%20Presentation%20and%20Preparation) The condensed consolidated financial statements are prepared in accordance with GAAP for interim reporting and SEC regulations, reflecting management's adjustments for fair presentation, and should be read in conjunction with the 2018 Annual Report on Form 10-K, with interim results not indicative of full-year performance - Financial statements are unaudited and prepared in accordance with GAAP for interim reporting and SEC rules[30](index=30&type=chunk) - Interim results for the three and six months ended June 30, 2019, are not necessarily indicative of full-year results[30](index=30&type=chunk) [Liquidity and Capital Resources](index=9&type=section&id=Liquidity%20and%20Capital%20Resources) The company has historically generated negative cash flows from operations and net losses, with an accumulated deficit of **$203,408 thousand** as of June 30, 2019, and while current cash and marketable securities are believed sufficient for the next twelve months, additional equity and/or debt financing will be needed for future growth and potential acquisitions - The company generated negative cash flows from operations of **$16,606 thousand** and a net loss of **$32,997 thousand** for the six months ended June 30, 2019[32](index=32&type=chunk) - Accumulated deficit stood at **$203,408 thousand** as of June 30, 2019[32](index=32&type=chunk) - Cash, cash equivalents, and marketable securities totaled **$45,273 thousand** as of June 30, 2019, expected to be sufficient for at least the next twelve months[34](index=34&type=chunk) - The company anticipates continued net losses and will require additional capital through equity and/or debt financings for future growth and potential acquisitions[33](index=33&type=chunk)[34](index=34&type=chunk) [Use of Accounting Estimates](index=10&type=section&id=Use%20of%20Accounting%20Estimates) The preparation of financial statements requires management to make significant estimates and assumptions, particularly concerning revenue recognition, allowance for doubtful accounts, valuation of stock awards and warrants, income taxes, and business acquisition allocations, with actual results potentially differing from these estimates - Significant estimates are made for revenue recognition, doubtful accounts, stock awards/warrants valuation, income taxes, and business acquisition allocations[35](index=35&type=chunk) [Significant Customers](index=10&type=section&id=Significant%20Customers) The top ten customers accounted for a decreasing percentage of net revenues in 2019 compared to 2018, with no single customer representing 10% or more of net revenues for the three and six months ended June 30, 2019, indicating a reduced dependency on a few major clients | Period | Top Ten Customers' % of Net Revenues | | :--------------------------------- | :----------------------------------- | | Three months ended June 30, 2019 | 25.9% | | Six months ended June 30, 2019 | 24.9% | | Three months ended June 30, 2018 | 49.7% | | Six months ended June 30, 2018 | 52.1% | - No individual customer accounted for **10% or more** of net revenues for the three and six months ended June 30, 2019[36](index=36&type=chunk) [Significant Accounting Policies](index=10&type=section&id=Significant%20Accounting%20Policies) There have been no material changes to the company's significant accounting policies during the six months ended June 30, 2019, from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2018 - No material changes in significant accounting policies during the six months ended June 30, 2019[37](index=37&type=chunk) [Recently Adopted Accounting Pronouncements](index=10&type=section&id=Recently%20Adopted%20Accounting%20Pronouncements) The company adopted ASU No. 2016-15 (Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments) and ASU No. 2016-18 (Statement of Cash Flows: Restricted Cash) in the first quarter of 2019, neither of which had a material impact on its consolidated financial statements - ASU No. 2016-15 (Cash Flow Classification) and ASU No. 2016-18 (Restricted Cash) were adopted in Q1 2019[38](index=38&type=chunk)[39](index=39&type=chunk) - Adoption of these standards did not have a material impact on the consolidated financial statements[38](index=38&type=chunk)[39](index=39&type=chunk) [Recently Issued Accounting Pronouncements](index=10&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) The company is evaluating the impact of several recently issued accounting pronouncements, including ASU No. 2014-09 (Revenue from Contracts with Customers), ASU No. 2016-02 (Leases), ASU No. 2017-04 (Goodwill Impairment), ASU No. 2018-07 (Nonemployee Share-Based Payment Accounting), and ASU No. 2018-13 (Fair Value Measurement Disclosures), which will become effective in future fiscal years - The new revenue standard (ASU 2014-09) will be effective for annual reporting periods beginning after December 15, 2018, and interim periods within annual reporting periods beginning after December 15, 2019, with the company evaluating its impact[40](index=40&type=chunk)[42](index=42&type=chunk) - ASU No. 2016-02 (Leases) will be effective in Q1 2020, requiring capitalization of most leases on the balance sheet, and the company is evaluating its impact[43](index=43&type=chunk) - ASU No. 2017-04 (Goodwill Impairment) will simplify the impairment test, effective fiscal year 2022, and is not expected to have a material impact[44](index=44&type=chunk) [NOTE 3. BUSINESS COMBINATIONS](index=12&type=section&id=NOTE%203.%20BUSINESS%20COMBINATIONS) This note details the acquisitions of Performance Bridge, Wazee Digital, and Machine Box in August and September 2018, outlining the purchase consideration, preliminary purchase price allocations, and the strategic rationale for each acquisition, which expanded the company's advertising, digital content management, and AI platform capabilities [Acquisition of Performance Bridge](index=12&type=section&id=Acquisition%20of%20Performance%20Bridge) In August 2018, Veritone acquired Performance Bridge for an estimated purchase price of **$8,962 thousand**, comprising cash, equity, and contingent earnout consideration, which expanded the company's media agency offerings to include comprehensive podcast solutions - Acquired Performance Bridge on August 21, 2018, for an estimated purchase price of **$8,962 thousand**[47](index=47&type=chunk)[49](index=49&type=chunk) - The acquisition expanded the company's media agency offerings with comprehensive podcast solutions[48](index=48&type=chunk) | Asset/Liability | Amount | | :--------------------------------- | :----- | | Identifiable net assets acquired | $5,919 | | Goodwill | $3,043 | | Total purchase price | $8,962 | [Acquisition of Wazee Digital, Inc.](index=13&type=section&id=Acquisition%20of%20Wazee%20Digital%2C%20Inc.) In August 2018, Veritone acquired Wazee Digital for an aggregate purchase price of **$12,552 thousand**, consisting of cash and equity, which expanded the company's offerings to include digital content management and licensing solutions, primarily serving the media and entertainment market - Acquired Wazee Digital on August 31, 2018, for an aggregate purchase price of **$12,552 thousand**[50](index=50&type=chunk)[52](index=52&type=chunk) - The acquisition expanded offerings to include digital content management and licensing solutions[51](index=51&type=chunk) | Asset/Liability | Amount | | :--------------------------------- | :------ | | Identifiable net assets acquired | $11,448 | | Goodwill | $1,104 | | Total purchase price | $12,552 | [Acquisition of Machine Box, Inc.](index=14&type=section&id=Acquisition%20of%20Machine%20Box%2C%20Inc.) In September 2018, Veritone acquired Machine Box for initial consideration of **$1,484 thousand**, with potential additional contingent payments up to **$3,000 thousand** tied to technical development and integration milestones and continued employment, enhancing the company's aiWARE™ platform capabilities with state-of-the-art machine learning technologies - Acquired Machine Box on September 6, 2018, for initial consideration of **$1,484 thousand**, with up to **$3,000 thousand** in contingent amounts[54](index=54&type=chunk)[60](index=60&type=chunk) - Contingent amounts are treated as compensation expense for post-combination services, with **$453 thousand** and **$1,333 thousand** recognized in R&D expense for the three and six months ended June 30, 2019, respectively[55](index=55&type=chunk) - The acquisition enhanced the company's aiWARE™ platform capabilities with machine learning technologies[59](index=59&type=chunk) | Asset/Liability | Amount | | :--------------------------------- | :----- | | Identifiable net assets acquired | $350 | | Goodwill | $1,134 | | Total purchase price | $1,484 | [Assumptions in the Allocations of Purchase Price](index=16&type=section&id=Assumptions%20in%20the%20Allocations%20of%20Purchase%20Price) Management's preliminary purchase price allocations for acquired businesses rely on significant estimates and assumptions, including third-party valuations for intangible assets and contingent earn-outs, and these allocations are subject to change upon finalization of valuation analyses, with corresponding adjustments to goodwill - Purchase price allocations are preliminary and based on management's estimates and third-party valuation expert reports[61](index=61&type=chunk) - Goodwill recognized is the excess of purchase price over the fair value of net assets acquired[61](index=61&type=chunk) [NOTE 4. NET LOSS PER SHARE](index=16&type=section&id=NOTE%204.%20NET%20LOSS%20PER%20SHARE) This note provides the computation of basic and diluted net loss per share, indicating a decrease in net loss per share for both the three and six months ended June 30, 2019, compared to the prior year, despite an increase in net loss, due to a higher weighted average number of shares outstanding | Metric | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :--------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(16,691) | $(14,330) | $(32,997) | $(27,379) | | Denominator for basic and diluted net loss per share | 20,759,396 | 16,314,236 | 20,138,756 | 16,192,569 | | Basic and diluted net loss per share | $(0.80) | $(0.88) | $(1.64) | $(1.69) | - Potentially dilutive securities, including common stock options, restricted stock units, and warrants, were anti-dilutive and thus excluded from diluted EPS calculation due to net losses[63](index=63&type=chunk) [NOTE 5. FINANCIAL INSTRUMENTS](index=17&type=section&id=NOTE%205.%20FINANCIAL%20INSTRUMENTS) This note describes the company's fair value hierarchy for financial instruments, classifying cash, cash equivalents, and marketable securities as Level 1 or Level 2, and stock warrants as Level 3, and provides details on the valuation methods and inputs used for these instruments [Cash and Cash Equivalents and Marketable Securities](index=18&type=section&id=Cash%20and%20Cash%20Equivalents%20and%20Marketable%20Securities) The company's cash, cash equivalents, and marketable securities are valued using Level 1 (money market funds) and Level 2 (corporate debt securities) inputs, and as of June 30, 2019, total cash and marketable securities decreased to **$45,273 thousand** from **$51,104 thousand** at December 31, 2018, primarily due to a reduction in marketable securities | Metric | June 30, 2019 | December 31, 2018 | Change ($) | Change (%) | | :--------------------------------- | :------------ | :---------------- | :--------- | :--------- | | Cash | $16,258 | $13,337 | $2,921 | 21.9% | | Money market funds (Level 1) | $24,017 | $24,202 | $(185) | -0.8% | | Corporate debt securities (Level 2) | $4,998 | $11,067 | $(6,069) | -54.8% | | U.S. government securities (Level 2) | $0 | $2,498 | $(2,498) | -100.0% | | Total | $45,273 | $51,104 | $(5,831) | -11.4% | - All marketable securities held as of June 30, 2019, will mature in one year or less[67](index=67&type=chunk) [Stock Warrants](index=18&type=section&id=Stock%20Warrants) The company's outstanding stock warrants are classified as Level 3 financial instruments and are valued using either a probability-weighted expected return model or the Black-Scholes option-pricing model, incorporating unobservable inputs like volatility and risk-free rates, with the fair value of the April 2018 Warrant increasing to **$73 thousand** as of June 30, 2019, from **$23 thousand** at December 31, 2018 - All outstanding stock warrants are categorized as Level 3 within the fair value hierarchy[69](index=69&type=chunk) - Warrants are valued using probability-weighted expected return or Black-Scholes models, incorporating contractual terms, maturity, risk-free rates, and volatility[69](index=69&type=chunk) | Metric | December 31, 2018 | June 30, 2019 | Change ($) | Change (%) | | :--------------------------------- | :---------------- | :------------ | :--------- | :--------- | | Balance | $23 | $73 | $50 | 217.4% | [NOTE 6. GOODWILL AND INTANGIBLE ASSETS, NET](index=19&type=section&id=NOTE%206.%20GOODWILL%20AND%20INTANGIBLE%20ASSETS%2C%20NET) This note details the changes in goodwill and the composition of intangible assets, with goodwill decreasing slightly due to a purchase accounting adjustment for Wazee Digital, while net intangible assets decreased from **$20,480 thousand** at December 31, 2018, to **$18,823 thousand** at June 30, 2019, primarily due to amortization [Goodwill](index=19&type=section&id=Goodwill) Goodwill decreased slightly from **$5,509 thousand** at December 31, 2018, to **$5,420 thousand** at June 30, 2019, primarily due to a purchase accounting adjustment related to the Wazee Digital acquisition | Metric | December 31, 2018 | June 30, 2019 | Change ($) | Change (%) | | :--------------------------------- | :---------------- | :------------ | :--------- | :--------- | | Balance | $5,509 | $5,420 | $(89) | -1.6% | - The decrease was primarily due to a **$123 thousand** Wazee Digital purchase accounting adjustment, partially offset by a **$34 thousand** Performance Bridge working capital adjustment[73](index=73&type=chunk) [Intangible Assets](index=19&type=section&id=Intangible%20Assets) Net intangible assets decreased to **$18,823 thousand** at June 30, 2019, from **$20,480 thousand** at December 31, 2018, primarily due to amortization, with developed technology and customer relationships representing the largest components of the company's intangible assets | Asset Type | June 30, 2019 (Net Carrying Amount) | December 31, 2018 (Net Carrying Amount) | Change ($) | Change (%) | | :--------------------------------- | :------------------------------------ | :------------------------------------ | :--------- | :--------- | | Acquired software and technology | $1,545 | $1,963 | $(418) | -21.3% | | Developed technology | $8,464 | $8,808 | $(344) | -3.9% | | Customer relationships | $7,750 | $8,567 | $(817) | -9.5% | | Total | $18,823 | $20,480 | $(1,657) | -8.1% | | Period | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :--------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Total Amortization Expense | $1,322 | $307 | $2,163 | $618 | - Future amortization of finite-lived intangible assets is projected to be **$2,697 thousand** for the remaining six months of 2019 and **$5,382 thousand** in 2020[75](index=75&type=chunk) [NOTE 7. CONSOLIDATED FINANCIAL STATEMENTS DETAILS](index=20&type=section&id=NOTE%207.%20CONSOLIDATED%20FINANCIAL%20STATEMENTS%20DETAILS) This note provides further disaggregation and details for selected line items within the condensed consolidated balance sheets and statements of operations and comprehensive loss, including cash, accounts receivable, property and equipment, accounts payable, net revenues by segment, and other income [Cash, cash equivalents, and restricted cash](index=20&type=section&id=Cash%2C%20cash%20equivalents%2C%20and%20restricted%20cash) Total cash, cash equivalents, and restricted cash increased to **$41,410 thousand** at June 30, 2019, from **$38,776 thousand** at December 31, 2018, with restricted cash held as collateral for a stand-by letter of credit and credit cards | Metric | June 30, 2019 | December 31, 2018 | Change ($) | Change (%) | | :--------------------------------- | :------------ | :---------------- | :--------- | :--------- | | Cash and cash equivalents | $40,275 | $37,539 | $2,736 | 7.3% | | Long-term restricted cash | $1,135 | $1,237 | $(102) | -8.2% | | Total | $41,410 | $38,776 | $2,634 | 6.8% | [Accounts Receivable, Net](index=20&type=section&id=Accounts%20Receivable%2C%20Net) Net accounts receivable decreased to **$26,820 thousand** at June 30, 2019, from **$29,142 thousand** at December 31, 2018, with advertising receivables remaining the largest component, while aiWARE Content Licensing and Media Services receivables saw a significant increase | Metric | June 30, 2019 | December 31, 2018 | Change ($) | Change (%) | | :--------------------------------- | :------------ | :---------------- | :--------- | :--------- | | Accounts receivable — Advertising | $23,167 | $26,226 | $(3,059) | -11.7% | | Accounts receivable — aiWARE SaaS Solutions | $2,166 | $2,418 | $(252) | -10.4% | | Accounts receivable — aiWARE Content Licensing and Media Services | $1,558 | $538 | $1,020 | 189.6% | | Less: allowance for doubtful accounts | $(71) | $(40) | $(31) | 77.5% | | Accounts receivable, net | $26,820 | $29,142 | $(2,322) | -8.0% | - The average commission earned by the company from advertising clients is less than **15%** of the total invoiced amount[78](index=78&type=chunk) [Property, equipment and improvements, net](index=21&type=section&id=Property%2C%20equipment%20and%20improvements%2C%20net) Net property, equipment, and improvements decreased to **$3,660 thousand** at June 30, 2019, from **$4,008 thousand** at December 31, 2018, primarily due to accumulated depreciation | Metric | June 30, 2019 | December 31, 2018 | Change ($) | Change (%) | | :--------------------------------- | :------------ | :---------------- | :--------- | :--------- | | Property and equipment | $2,151 | $2,019 | $132 | 6.5% | | Leasehold improvements | $2,876 | $2,875 | $1 | 0.0% | | Less: accumulated depreciation | $(1,367) | $(886) | $(481) | 54.3% | | Net | $3,660 | $4,008 | $(348) | -8.7% | - Depreciation expense for the six months ended June 30, 2019, was **$555 thousand**, compared to **$215 thousand** in the prior year period[79](index=79&type=chunk) [Accounts Payable](index=21&type=section&id=Accounts%20Payable) Total accounts payable decreased significantly to **$18,459 thousand** at June 30, 2019, from **$28,714 thousand** at December 31, 2018, primarily driven by a reduction in advertising-related payables | Metric | June 30, 2019 | December 31, 2018 | Change ($) | Change (%) | | :--------------------------------- | :------------ | :---------------- | :--------- | :--------- | | Accounts payable — Advertising | $17,148 | $27,655 | $(10,507) | -38.0% | | Accounts payable — Other | $1,311 | $1,059 | $252 | 23.8% | | Total | $18,459 | $28,714 | $(10,255) | -35.7% | - Accounts payable – Advertising reflects the cost of advertisements placed with media vendors[80](index=80&type=chunk) [Net Revenues](index=21&type=section&id=Net%20Revenues) Net revenues significantly increased across all segments for both the three and six months ended June 30, 2019, compared to the prior year, with aiWARE Content Licensing and Media Services, a new segment from the Wazee Digital acquisition, contributing substantially to this growth | Segment | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | Change ($) | Change (%) | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | Change ($) | Change (%) | | :--------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Advertising | $5,842 | $3,308 | $2,534 | 76.6% | $11,556 | $6,429 | $5,127 | 79.7% | | aiWARE SaaS Solutions | $2,677 | $860 | $1,817 | 211.3% | $5,457 | $2,127 | $3,330 | 157.0% | | aiWARE Content Licensing and Media Services | $3,751 | $0 | $3,751 | NM | $7,382 | $0 | $7,382 | NM | | Total net revenues | $12,270 | $4,168 | $8,102 | 194.4% | $24,395 | $8,556 | $15,839 | 185.1% | - Gross media placements were **$52,973 thousand** and **$103,755 thousand** for the three and six months ended June 30, 2019, respectively[81](index=81&type=chunk) [Other Income, Net](index=22&type=section&id=Other%20Income%2C%20Net) Other income, net, remained relatively stable at **$51 thousand** for the three months ended June 30, 2019, and **$262 thousand** for the six months ended June 30, 2019, primarily consisting of interest income, offset by changes in the fair value of warrant liability and other minor items | Metric | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :--------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Interest income, net | $160 | $168 | $329 | $349 | | Change in fair value of warrant liability | $(37) | $(15) | $(50) | $(15) | | Other income, net | $51 | $133 | $262 | $316 | [NOTE 8. COMMITMENTS AND CONTINGENCIES](index=22&type=section&id=NOTE%208.%20COMMITMENTS%20AND%20CONTINGENCIES) This note outlines the company's lease commitments and other potential legal contingencies, with future minimum lease payments totaling **$11,143 thousand** through fiscal year 2024, and no current involvement in legal proceedings expected to have a material adverse effect [Leases](index=22&type=section&id=Leases) The company leases facilities under operating lease arrangements expiring through fiscal year 2024, with total minimum payments of **$11,143 thousand**, and rent expense for the six months ended June 30, 2019, was **$1,479 thousand**, an increase from the prior year | Year | Amount | | :--------------------------------- | :----- | | 2019 (6 months) | $1,256 | | 2020 | $2,414 | | 2021 | $2,211 | | 2022 | $1,852 | | 2023 | $1,680 | | Thereafter | $1,730 | | Total | $11,143 | - Total rent expense for operating leases was **$1,479 thousand** for the six months ended June 30, 2019, compared to **$833 thousand** in the prior year period[85](index=85&type=chunk) [Other Contingencies](index=22&type=section&id=Other%20Contingencies) The company is not currently a party to any legal proceedings that management believes would have a material adverse effect on its financial position, results of operations, or cash flows - No current legal proceedings are expected to have a material adverse effect on the company's financial results[86](index=86&type=chunk) [NOTE 9. STOCKHOLDERS' EQUITY](index=22&type=section&id=NOTE%209.%20STOCKHOLDERS%27%20EQUITY) This note details changes in stockholders' equity, including common stock issuances from offerings, option exercises, and acquisitions, as well as information on outstanding common stock warrants [Common Stock Issuances](index=22&type=section&id=Common%20Stock%20Issuances) During the first six months of 2019, the company issued 1,668,663 shares of common stock through its Equity Distribution Agreement, generating **$12,215 thousand** in net proceeds, with additional shares issued for acquisitions (Performance Bridge and Machine Box) and employee stock plans - **1,668,663 shares** of common stock were issued through the Equity Distribution Agreement, yielding **$12,215 thousand** in net proceeds[87](index=87&type=chunk) - **580,713 shares** were issued to former Performance Bridge stockholders and **186,135 shares** to former Machine Box stockholders[87](index=87&type=chunk)[88](index=88&type=chunk) - **147,675 shares** were issued for stock option exercises, restricted stock unit vesting, and ESPP purchases[88](index=88&type=chunk) [Common Stock Warrants](index=22&type=section&id=Common%20Stock%20Warrants) As of June 30, 2019, and December 31, 2018, the company had outstanding warrants to purchase an aggregate of 1,297,151 shares of its common stock | Date | Shares | | :--------------------------------- | :----------- | | June 30, 2019 | 1,297,151 | | December 31, 2018 | 1,297,151 | [NOTE 10. STOCK PLANS](index=23&type=section&id=NOTE%2010.%20STOCK%20PLANS) This note details the company's stock-based compensation, including grants of time-based and performance-based stock options, restricted stock awards, and restricted stock units, along with the valuation assumptions and recognized compensation expense [Stock-Based Compensation](index=23&type=section&id=Stock-Based%20Compensation) Stock-based compensation expense significantly increased to **$11,285 thousand** for the six months ended June 30, 2019, from **$5,125 thousand** in the prior year, driven by performance-based stock options, stock options, and Machine Box contingent common stock issuances - Granted **555,346 Time-Based Options** and **1,545,849 Performance Options** during the six months ended June 30, 2019[90](index=90&type=chunk) - Performance Options vest in three tranches based on stock price goals (**$49.15**, **$98.31**, **$196.62 per share**)[91](index=91&type=chunk) | Metric | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :--------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Restricted stock units | $299 | $99 | $497 | $147 | | Restricted stock awards | $96 | $135 | $256 | $353 | | Machine Box contingent common stock issuances | $523 | $0 | $1,227 | $0 | | Performance-based stock options | $2,020 | $53 | $3,956 | $53 | | Stock options | $2,703 | $2,246 | $5,060 | $4,282 | | Employee stock purchase plan | $137 | $118 | $289 | $290 | | Total | $5,778 | $2,651 | $11,285 | $5,125 | - General and administrative expenses accounted for the largest portion of stock-based compensation expense, totaling **$8,787 thousand** for the six months ended June 30, 2019[94](index=94&type=chunk) [Equity Award Activity](index=24&type=section&id=Equity%20Award%20Activity) This section provides a breakdown of the activity for restricted stock awards, restricted stock units, performance-based stock options, and other stock options during the six months ended June 30, 2019, detailing grants, vesting, forfeitures, and unrecognized compensation costs [Restricted Stock Awards](index=24&type=section&id=Restricted%20Stock%20Awards) Unvested restricted stock awards decreased to 40,963 shares at June 30, 2019, from 72,208 shares at December 31, 2018, due to vesting, with total unrecognized compensation cost of **$246 thousand**, expected to be recognized over 1.3 years | Metric | Shares | | :--------------------------------- | :----- | | Unvested at December 31, 2018 | 72,208 | | Vested | (31,245) | | Unvested at June 30, 2019 | 40,963 | [Restricted Stock Units](index=24&type=section&id=Restricted%20Stock%20Units) Unvested restricted stock units increased to 162,745 shares at June 30, 2019, from 49,143 shares at December 31, 2018, primarily due to new grants, with total unrecognized compensation cost of **$950 thousand**, expected to be recognized over 1.2 years | Metric | Shares | | :--------------------------------- | :------- | | Unvested at December 31, 2018 | 49,143 | | Granted | 150,211 | | Vested | (35,609) | | Unvested at June 30, 2019 | 162,745 | [Performance-Based Stock Options](index=24&type=section&id=Performance-Based%20Stock%20Options) Outstanding performance-based stock options increased to 4,610,526 shares at June 30, 2019, from 3,167,325 shares at December 31, 2018, due to new grants, with no performance-based options vesting during the period, and total unrecognized compensation expense of **$26,231 thousand**, expected to be recognized over 3.7 years | Metric | Options | | :--------------------------------- | :-------- | | Outstanding at December 31, 2018 | 3,167,325 | | Granted | 1,545,849 | | Forfeited | (102,648) | | Outstanding at June 30, 2019 | 4,610,526 | [Stock Options](index=25&type=section&id=Stock%20Options) Outstanding stock options increased to 5,420,587 shares at June 30, 2019, from 5,154,691 shares at December 31, 2018, due to new grants, partially offset by exercises, forfeitures, and expirations, with total unrecognized compensation expense of **$13,924 thousand**, expected to be recognized over 2.1 years | Metric | Options | | :--------------------------------- | :-------- | | Outstanding at December 31, 2018 | 5,154,691 | | Granted | 555,346 | | Exercised | (47,099) | | Forfeited | (183,892) | | Expired | (58,459) | | Outstanding at June 30, 2019 | 5,420,587 | [Employee Stock Purchase Plan](index=25&type=section&id=Employee%20Stock%20Purchase%20Plan) In January 2019, 64,967 shares of common stock were purchased under the ESPP, and as of June 30, 2019, accrued employee contributions for future purchases totaled **$277 thousand** - **64,967 shares** of common stock were purchased under the ESPP on January 31, 2019[101](index=101&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance and condition for the three and six months ended June 30, 2019, compared to the prior year periods, covering an overview of the business, impact of recent acquisitions, key performance indicators, detailed analysis of revenues and expenses, and discussion of liquidity and capital resources [Forward-Looking Statements](index=26&type=section&id=Forward-Looking%20Statements) This subsection reiterates that the discussion contains forward-looking statements based on current expectations, which involve risks and uncertainties that could cause actual results to differ materially, as detailed in the 'Risk Factors' section of the Annual Report on Form 10-K - Discussion contains forward-looking statements subject to risks and uncertainties[103](index=103&type=chunk) - Actual results may differ materially due to factors discussed in "Risk Factors" in the Annual Report on Form 10-K[103](index=103&type=chunk) [Overview](index=26&type=section&id=Overview) Veritone is an AI solutions provider, leveraging its aiWARE™ operating system, with recent acquisitions of Wazee Digital and Performance Bridge expanding its offerings to include digital content management, licensing services, and comprehensive podcast advertising solutions, categorizing its businesses into advertising, aiWARE SaaS solutions, and aiWARE content licensing and media services - Veritone provides AI solutions, including its proprietary aiWARE™ operating system[104](index=104&type=chunk) - Acquisitions of Wazee Digital and Performance Bridge expanded offerings to digital content management, licensing, and podcast advertising[104](index=104&type=chunk) - Businesses are categorized as advertising, aiWARE SaaS solutions, and aiWARE content licensing and media services[105](index=105&type=chunk) [Acquisitions](index=26&type=section&id=Acquisitions) This section provides a summary of the acquisitions of Performance Bridge, Wazee Digital, and Machine Box in 2018, detailing the purchase consideration, including cash, equity, and contingent earnout payments, and the strategic contributions of each acquisition to Veritone's business [Performance Bridge](index=26&type=section&id=Performance%20Bridge) Veritone acquired Performance Bridge on August 21, 2018, for **$5.2 million** initial consideration and **$3.9 million** in contingent earnout amounts, paid in cash and common stock, which enhanced the company's podcast advertising solutions - Acquired Performance Bridge on August 21, 2018, for **$5.2 million** initial consideration and **$3.9 million** in contingent earnout amounts[106](index=106&type=chunk) - Consideration included cash and **349,072 shares** of common stock initially, with additional shares and cash for earnouts[106](index=106&type=chunk) [Wazee Digital](index=26&type=section&id=Wazee%20Digital) Veritone acquired Wazee Digital on August 31, 2018, for an aggregate purchase price of **$12.6 million**, paid in cash and common stock, which expanded the company's digital content management and licensing services - Acquired Wazee Digital on August 31, 2018, for **$12.6 million**[107](index=107&type=chunk) - Consideration included **$7.4 million** cash and **491,157 shares** of common stock[107](index=107&type=chunk) [Machine Box](index=27&type=section&id=Machine%20Box) Veritone acquired Machine Box on September 6, 2018, for **$1.5 million** initial consideration and up to **$3.0 million** in contingent payments tied to technical milestones and continued employment, with these contingent payments recognized as R&D compensation expense, and **$1.3 million** recognized in the first six months of 2019 - Acquired Machine Box on September 6, 2018, for **$1.5 million** initial consideration and up to **$3.0 million** in contingent amounts[109](index=109&type=chunk) - Contingent payments are treated as compensation expense, with **$1.3 million** recognized in R&D expense for the six months ended June 30, 2019[110](index=110&type=chunk) - Machine Box achieved technical milestones in March and June 2019, triggering contingent payments in cash and common stock[111](index=111&type=chunk)[112](index=112&type=chunk) [Sales of Common Stock](index=27&type=section&id=Sales%20of%20Common%20Stock) During the first six months of 2019, Veritone sold 1,668,663 shares of common stock through its Equity Distribution Agreement, generating approximately **$11.8 million** in net proceeds - Sold **1,668,663 shares** of common stock via Equity Distribution Agreement in H1 2019[113](index=113&type=chunk) - Generated approximately **$11.8 million** in net proceeds from common stock sales[113](index=113&type=chunk) [Key Performance Indicators](index=27&type=section&id=Key%20Performance%20Indicators) The company tracks KPIs for its advertising and aiWARE SaaS solutions businesses, incorporating results from recent acquisitions, including client numbers, advertising spend, customer accounts, cognitive engines, data processed hours, new bookings, and monthly recurring revenue, which are subject to fluctuations based on market dynamics and project-based work [Advertising KPI Results](index=27&type=section&id=Advertising%20KPI%20Results) The advertising business showed growth in net new clients and active campaigns, with average advertising spend per active client remaining relatively stable, and net revenue increased significantly, partly due to the Performance Bridge acquisition, though the business experiences volatility due to client wins/losses, budget changes, and seasonality | Metric | Q2 2018 | Q3 2018 | Q4 2018 | Q1 2019 | Q2 2019 | | :--------------------------------- | :------ | :------ | :------ | :------ | :------ | | Net new advertising clients added during quarter | 14 | 10 | 14 | 14 | 21 | | Clients with active advertising campaigns during quarter | 74 | 78 | 115 | 107 | 108 | | Average advertising spend per active client during quarter | $425 | $540 | $478 | $486 | $497 | | Net revenue during quarter | $3,308 | $4,730 | $5,986 | $5,714 | $5,842 | - Advertising net revenues increased by **$1.5 million** and **$3.1 million** for the three and six months ended June 30, 2019, respectively, due to the Performance Bridge acquisition[124](index=124&type=chunk) - Volatility in advertising net revenues is influenced by timing of large client wins, client retention, budget changes, and seasonality[118](index=118&type=chunk) [aiWARE SaaS Solutions KPI Results](index=28&type=section&id=aiWARE%20SaaS%20Solutions%20KPI%20Results) The aiWARE SaaS solutions business demonstrated growth in total customers, accounts on the platform, active cognitive engines, and hours of data processed, with total contract value of new bookings and monthly recurring revenue also increasing, partly due to the Wazee Digital and Machine Box acquisitions, but results can fluctuate due to project-based work and varying customer usage patterns | Metric | Q2 2018 | Q3 2018 | Q4 2018 | Q1 2019 | Q2 2019 | | :--------------------------------- | :------ | :------ | :------ | :------ | :------ | | Total customers at quarter end | 86 | 93 | 123 | 129 | 136 | | Total accounts on platform at quarter end | 625 | 634 | 840 | 911 | 941 | | Active cognitive engines at quarter end | 214 | 252 | 287 | 343 | 357 | | Hours of data processed during quarter | 2,729,000 | 2,830,000 | 3,566,000 | 4,061,000 | 4,015,050 | | Total contract value of new bookings received during quarter | $583 | $226 | $1,196 | $1,316 | $1,362 | | Monthly recurring revenue under agreements in effect at quarter end | $214 | $191 | $544 | $494 | $545 | | Net revenue during quarter | $860 | $1,406 | $2,426 | $2,754 | $2,677 | - Wazee Digital acquisition contributed **$0.9 million** and **$2.1 million** to aiWARE SaaS solutions net revenues for the three and six months ended June 30, 2019, respectively[125](index=125&type=chunk) - Revenues from legal and government markets are often project-based, leading to potential fluctuations in net revenue and data processed hours without changes in customer counts or MRR[122](index=122&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) This section provides a detailed comparative analysis of the company's net revenues, cost of revenues, gross profit, and operating expenses for the three and six months ended June 30, 2019, versus the corresponding periods in 2018, highlighting the impact of acquisitions and increased operating leverage [Net Revenues](index=30&type=section&id=Net%20Revenues) Total net revenues significantly increased by **194.4% to $12,270 thousand** in Q2 2019 and **185.1% to $24,395 thousand** in H1 2019, primarily driven by the acquisitions of Performance Bridge and Wazee Digital, which introduced the new aiWARE Content Licensing and Media Services segment | Segment | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | Change ($) | Change (%) | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | Change ($) | Change (%) | | :--------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Advertising | $5,842 | $3,308 | $2,534 | 76.6% | $11,556 | $6,429 | $5,127 | 79.7% | | aiWARE SaaS Solutions | $2,677 | $860 | $1,817 | 211.3% | $5,457 | $2,127 | $3,330 | 157.0% | | aiWARE Content Licensing and Media Services | $3,751 | $0 | $3,751 | NM | $7,382 | $0 | $7,382 | NM | | Total net revenues | $12,270 | $4,168 | $8,102 | 194.4% | $24,395 | $8,556 | $15,839 | 185.1% | - Advertising net revenues increased due to Performance Bridge acquisition and new/existing clients[124](index=124&type=chunk) - All aiWARE content licensing and media services revenues in 2019 were from the Wazee Digital acquisition[126](index=126&type=chunk) [Cost of Revenues; Gross Profit and Gross Margin](index=32&type=section&id=Cost%20of%20Revenues%3B%20Gross%20Profit%20and%20Gross%20Margin) Gross margin decreased to **63%** in Q2 2019 and **65%** in H1 2019 from **80%** and **84%** respectively in the prior year periods, attributed to a higher proportion of net revenues coming from aiWARE businesses, which have lower gross margins than the advertising business, and increased amortization of intangible assets from acquisitions | Metric | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | Change ($) | Change (%) | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | Change ($) | Change (%) | | :--------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Cost of net revenue | $4,562 | $820 | $3,742 | 456.3% | $8,434 | $1,384 | $7,050 | 509.4% | | Gross profit | $7,708 | $3,348 | $4,360 | 130.2% | $15,961 | $7,172 | $8,789 | 122.5% | | Gross margin | 63% | 80% | -17% | -21.3% | 65% | 84% | -19% | -22.6% | - The decrease in gross margin is due to a lower proportion of advertising revenues (**48%** in Q2 2019 vs. **79%** in Q2 2018), as advertising has significantly higher gross margins[129](index=129&type=chunk) - Amortization of intangible assets from 2018 acquisitions reduced gross margin by approximately **3.9%** in Q2 2019 and **3.3%** in H1 2019[129](index=129&type=chunk) [Operating Expenses](index=32&type=section&id=Operating%20Expenses) Total operating expenses increased significantly in absolute dollars for both the three and six months ended June 30, 2019, primarily due to expenses from acquired businesses, amortization of intangibles, and increased stock-based compensation, but as a percentage of net revenues, operating expenses declined due to increased operating leverage from higher revenue levels [Sales and Marketing](index=32&type=section&id=Sales%20and%20Marketing) Sales and marketing expenses increased in absolute dollars due to the inclusion of Wazee Digital and Performance Bridge expenses and amortization of customer relationships, but as a percentage of net revenues, they decreased significantly from **123.4%** to **52.6%** in Q2 2019, reflecting improved operating leverage | Metric | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | Change ($) | Change (%) | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | Change ($) | Change (%) | | :--------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Sales and marketing | $6,448 | $5,142 | $1,306 | 25.4% | $12,581 | $10,890 | $1,691 | 15.5% | | As % of net revenues | 52.6% | 123.4% | -70.8% | -57.4% | 51.6% | 127.3% | -75.7% | -59.5% | - Increases were primarily due to **$1.0 million** (Q2) and **$1.9 million** (H1) from Wazee Digital and Performance Bridge, and **$0.4 million** (Q2) and **$0.5 million** (H1) in amortization of customer relationships[130](index=130&type=chunk) [Research and Development](index=32&type=section&id=Research%20and%20Development) Research and development expenses increased in absolute dollars due to expenses from Wazee Digital and Machine Box, along with amortization of intangibles and earn-out compensation, but as a percentage of net revenues, R&D expenses decreased from **123.5%** to **51.8%** in Q2 2019, indicating improved operating leverage | Metric | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | Change ($) | Change (%) | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | Change ($) | Change (%) | | :--------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Research and development | $6,351 | $5,146 | $1,205 | 23.4% | $13,289 | $9,674 | $3,615 | 37.4% | | As % of net revenues | 51.8% | 123.5% | -71.7% | -58.0% | 54.5% | 113.1% | -58.6% | -51.8% | - Increases were primarily due to **$0.9 million** (Q2) and **$1.7 million** (H1) from Wazee Digital and Machine Box, and **$0.6 million** (Q2) and **$1.1 million** (H1) in amortization of intangibles and earn-out compensation[131](index=131&type=chunk)[132](index=132&type=chunk) [General and Administrative](index=33&type=section&id=General%20and%20Administrative) General and administrative expenses increased in absolute dollars due to higher stock-based compensation and expenses from acquired businesses, but as a percentage of net revenues, G&A expenses decreased from **180.3%** to **94.9%** in Q2 2019, reflecting improved operating leverage | Metric | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | Change ($) | Change (%) | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | Change ($) | Change (%) | | :--------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | General and administrative | $11,645 | $7,513 | $4,132 | 55.0% | $23,335 | $14,291 | $9,044 | 63.3% | | As % of net revenues | 94.9% | 180.3% | -85.4% | -47.4% | 95.7% | 167.0% | -71.3% | -42.7% | - Increases were primarily due to **$2.4 million** (Q2) and **$4.6 million** (H1) in stock-based compensation, and **$1.3 million** (Q2) and **$2.8 million** (H1) from Wazee Digital and Performance Bridge[133](index=133&type=chunk)[134](index=134&type=chunk) - The company plans to manage operating expenses prudently, growing them at a rate less than net revenues to further decrease them as a percentage of revenues[135](index=135&type=chunk) [Other Income, Net](index=33&type=section&id=Other%20Income%2C%20Net) Other income, net, remained relatively stable at **$51 thousand** for the three months and **$262 thousand** for the six months ended June 30, 2019 and 2018, primarily comprising interest income from investments | Metric | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :--------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Interest income, net | $160 | $168 | $329 | $349 | | Change in fair value of warrant liability | $(37) | $(15) | $(50) | $(15) | | Other income, net | $51 | $133 | $262 | $316 | - Primarily comprised of interest income on investments in money market funds and marketable securities[136](index=136&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is primarily from cash, cash equivalents, and marketable securities, which totaled **$45.3 million** as of June 30, 2019, and while current balances are expected to cover the next twelve months, the company anticipates needing additional financing for future growth and potential acquisitions, as it continues to generate losses [Cash Flows](index=33&type=section&id=Cash%20Flows) The company's cash flows for the six months ended June 30, 2019, showed a net increase of **$2,634 thousand**, significantly lower than the **$23,147 thousand** increase in the prior year, driven by reduced cash used in operations, but also by substantially lower cash provided by financing activities | Metric | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | Change ($) | Change (%) | | :--------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Cash used in operating activities | $(16,606) | $(21,341) | $4,735 | -22.2% | | Cash provided by investing activities | $7,048 | $11,031 | $(3,983) | -36.1% | | Cash provided by financing activities | $12,192 | $33,457 | $(21,265) | -63.6% | | Net increase in cash and cash equivalents | $2,634 | $23,147 | $(20,513) | -88.6% | [Operating Activities](index=33&type=section&id=Operating%20Activities) Cash used in operating activities decreased to **$16.6 million** for the six months ended June 30, 2019, from **$21.3 million** in the prior year, with this improvement primarily due to leveraging increased net revenues, despite a net loss of **$33.0 million**, and aided by non-cash expenses like stock-based compensation - Cash used in operating activities decreased by **$4.7 million (22.2%)** to **$16.6 million** in H1 2019[139](index=139&type=chunk)[140](index=140&type=chunk) - Net loss of **$33.0 million** was partially offset by **$14.0 million** in non-cash expenses, including **$11.3 million** in stock-based compensation[140](index=140&type=chunk) - Adjusted EBITDAS loss decreased to **$18.5 million** in H1 2019 from **$21.2 million** in H1 2018, reflecting improved operating leverage[140](index=140&type=chunk) [Investing Activities](index=34&type=section&id=Investing%20Activities) Cash provided by investing activities decreased to **$7.0 million** for the six months ended June 30, 2019, from **$11.0 million** in the prior year, mainly due to lower proceeds from marketable securities sales and cash used for acquisition earnout payments and software acquisitions - Cash provided by investing activities decreased by **$4.0 million (36.1%)** to **$7.0 million** in H1 2019[139](index=139&type=chunk)[142](index=142&type=chunk) - Proceeds from sales of marketable securities were **$8.6 million** in H1 2019, down from **$14.0 million** in H1 2018[24](index=24&type=chunk)[143](index=143&type=chunk) - Cash was used for acquisition earnout payments (**$0.9 million** for Performance Bridge) and intangible assets acquired (**$0.5 million** for software)[142](index=142&type=chunk) [Financing Activities](index=34&type=section&id=Financing%20Activities) Cash provided by financing activities significantly decreased to **$12.2 million** for the six months ended June 30, 2019, from **$33.5 million** in the prior year, with this reduction primarily due to lower net proceeds from common stock offerings compared to the large offering in June 2018 - Cash provided by financing activities decreased by **$21.3 million (63.6%)** to **$12.2 million** in H1 2019[139](index=139&type=chunk)[144](index=144&type=chunk) - Net proceeds from common stock offerings were **$11.8 million** in H1 2019, compared to **$32.5 million** in H1 2018[24](index=24&type=chunk)[145](index=145&type=chunk) [Capital Resources](index=34&type=section&id=Capital%20Resources) As of June 30, 2019, the company had no outstanding debt and **$35.5 million** remaining available under its Equity Distribution Agreement, and while current cash is deemed sufficient for the next twelve months, additional capital may be needed for future acquisitions or investments, which may not be available on favorable terms or at all - No outstanding debt obligations as of June 30, 2019[148](index=148&type=chunk) - **$35.5 million** remains available for sale under the Equity Distribution Agreement[146](index=146&type=chunk) - Current cash and marketable securities are believed sufficient for the next twelve months, but additional financing may be required for future acquisitions/investments[149](index=149&type=chunk) - The company expects to use an additional **$0.2 million** in cash in Q3 2019 to fund the final Machine Box contingent payment[148](index=148&type=chunk) [Off-Balance Sheet Arrangements](index=34&type=section&id=Off-Balance%20Sheet%20Arrangements) The company has not entered into any off-balance sheet arrangements and does not hold any interests in variable interest entities - No off-balance sheet arrangements or holdings in variable interest entities[151](index=151&type=chunk) [Non-GAAP Financial Measure](index=35&type=section&id=Non-GAAP%20Financial%20Measure) This section presents Adjusted EBITDAS as a non-GAAP financial measure, which management uses to evaluate performance and for internal forecasting, believing it provides a useful supplemental comparison, and reconciles net loss to Adjusted EBITDAS, showing a decrease in Adjusted EBITDAS loss for the six months ended June 30, 2019, compared to the prior year - Adjusted EBITDAS is a non-GAAP measure used by management for performance evaluation and internal forecasting[152](index=152&type=chunk) | Metric | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :--------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(16,691) | $(14,330) | $(32,997) | $(27,379) | | Depreciation and amortization | $1,586 | $473 | $2,719 | $828 | | Stock-based compensation expense | $5,255 | $2,651 | $10,058 | $5,125 | | Machine Box contingent payments | $530 | $0 | $1,447 | $0 | | Adjusted EBITDAS | $(9,207) | $(10,974) | $(18,499) | $(21,192) | - Adjusted EBITDAS loss decreased to **$18.5 million** in H1 2019 from **$21.2 million** in H1 2018, reflecting improved operating leverage from increased net revenues[140](index=140&type=chunk)[153](index=153&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Veritone is not required to provide the detailed market risk disclosures typically required by Item 305 of Regulation S-K - As a smaller reporting company, the registrant is exempt from providing detailed market risk disclosures[154](index=154&type=chunk) [Item 4. Controls and Procedures](index=35&type=section&id=Item%204.%20Controls%20and%20Procedures) This section addresses the effectiveness of the company's disclosure controls and procedures and internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=35&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that disclosure controls and procedures were not effective as of June 30, 2019, due to a previously reported material weakness related to accounting for infrequent complex transactions, such as business combinations, but despite this, the condensed consolidated financial statements are deemed to fairly present the company's financial position - Disclosure controls and procedures were not effective as of June 30, 2019[155](index=155&type=chunk) - Material weakness identified relates to accounting for infrequent complex transactions, specifically the three business combinations in Q3 2018[155](index=155&type=chunk) - Management believes the condensed consolidated financial statements fairly present the financial position, results of operations, and cash flows in all material respects[155](index=155&type=chunk) [Changes in Internal Control over Financial Reporting](index=35&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) There were no material changes in internal control over financial reporting during the period, other than on

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-38093 Veritone, Inc. (Exact name of registrant as specified in its charter) Delaware 47-1161641 (State or other jurisdiction of ...