Veritone(US:VERI)2022-11-14 22:13PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited financial statements show significant revenue growth, a narrowed net loss, and decreased cash from operations and acquisitions Condensed Consolidated Balance Sheets The balance sheet as of September 30, 2022, reflects a decrease in total assets and liabilities, primarily due to reduced cash and contingent consideration Condensed Consolidated Balance Sheet Highlights | Balance Sheet Item | Sep 30, 2022 ($ millions) | Dec 31, 2021 ($ millions) | Change ($ millions) | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | 196.071 | 254.722 | (58.651) | | Total current assets | 322.770 | 379.082 | (56.312) | | Goodwill | 46.465 | 42.028 | 4.437 | | Total assets | 469.791 | 518.347 | (48.556) | | Total current liabilities | 185.808 | 191.341 | (5.533) | | Contingent consideration (non-current) | 0.546 | 31.533 | (30.987) | | Total liabilities | 399.018 | 431.847 | (32.829) | | Total stockholders' equity | 70.773 | 86.500 | (15.727) | Condensed Consolidated Statements of Operations and Comprehensive Loss The statements show significant revenue growth and a narrowed net loss for both Q3 and the nine-month period ended September 30, 2022 Condensed Consolidated Statements of Operations Highlights | Metric ($ millions) | Q3 2022 | Q3 2021 | YoY Change | 9 Months 2022 | 9 Months 2021 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | 37.196 | 22.655 | +64.2% | 105.838 | 60.156 | +76.0% | | Cost of revenue | 7.097 | 5.808 | +22.2% | 20.725 | 15.862 | +30.7% | | Loss from operations | (3.611) | (11.080) | +67.4% | (28.044) | (54.264) | +48.3% | | Net loss | (4.886) | (11.491) | +57.5% | (30.268) | (54.773) | +44.7% | | Net loss per share (basic & diluted) | $(0.13) | $(0.34) | - | $(0.84) | $(1.67) | - | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity decreased due to net loss and tax settlements on equity awards, partially offset by stock-based compensation and issuances - The primary drivers for the change in stockholders' equity during the first nine months of 2022 were the net loss of $30.3 million and stock-based compensation of $14.7 million21 Condensed Consolidated Statements of Cash Flows Cash flows show a significant net decrease in cash, primarily from increased cash used in operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Highlights | Cash Flow Activity ($ millions) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | (24.630) | (3.528) | | Net cash used in investing activities | (11.116) | (48.050) | | Net cash (used in) provided by financing activities | (22.903) | 9.406 | | Net decrease in cash | (58.649) | (42.172) | Notes to the Condensed Consolidated Financial Statements Notes detail the company's AI business, recent acquisitions, convertible notes, revenue disaggregation, stock-based compensation, and a corrected accounting error - The company provides artificial intelligence (AI) computing solutions through its proprietary AI operating system, aiWARE, and operates a full-service advertising agency. Recent acquisitions include VSL, VocaliD, an influencer-based management company, and PandoLogic293031 - In November 2021, the company issued $201.3 million in 1.75% convertible senior notes due 2026. The initial conversion price is approximately $36.76 per share7780 - The company identified and corrected an immaterial error related to the fair value calculation of contingent consideration for the PandoLogic acquisition, which affected goodwill, intangible assets, and subsequent fair value changes343536 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong revenue growth driven by software and acquisitions, improved non-GAAP gross margin, and challenges from macroeconomic conditions and customer concentration - Software Products & Services revenue grew 197% during the nine months ended September 30, 2022, compared to the same period in 2021, while Managed Services grew 19%146150 - The company is experiencing a reduction in hiring consumption from its largest customer, Amazon, due to the macroeconomic environment. To mitigate this, it is focused on diversifying its customer base153154 Non-GAAP Financial Highlights | Metric | Q3 2022 | Q3 2021 | | :--- | :--- | :--- | | Non-GAAP Gross Profit | $30.1M | $16.8M | | Non-GAAP Gross Margin | 80.9% | 74.4% | | Non-GAAP Net Loss | ($5.7M) | ($2.3M) | - The company's acquisition strategy focuses on increasing scale, accelerating growth in new markets, and promoting aiWARE adoption159 Results of Operations Q3 2022 revenue increased significantly, driven by software and managed services, while operating expenses rose, offset by a decrease in G&A due to contingent consideration adjustments Revenue by Stream | Revenue Stream ($ millions) | Q3 2022 | Q3 2021 | Change | | :--- | :--- | :--- | :--- | | Software Products & Services | 20.812 | 9.027 | +11.785 | | Managed Services | 16.384 | 13.628 | +2.756 | | Total Revenue | 37.196 | 22.655 | +14.541 | Operating Expenses | Operating Expense ($ millions) | Q3 2022 | Q3 2021 | Change | | :--- | :--- | :--- | :--- | | Sales and marketing | 13.920 | 5.906 | +8.014 | | Research and development | 11.784 | 5.254 | +6.530 | | General and administrative | 2.502 | 15.084 | (12.582) | - The decrease in General and Administrative expenses was principally due to a $14.6 million decrease in the estimated fair value of contingent consideration201 Supplemental Financial Information Supplemental data indicates growth in software customers, a decline in Average Annual Revenue per customer due to reduced spending from a major client, and strong new bookings Key Software Metrics | Metric | Q3 2022 | Q3 2021 | | :--- | :--- | :--- | | Ending Software Customers | 618 | 433 | | Average Annual Revenue (AAR) | $170k | $208k | | Total New Bookings | $16.5M | $3.4M | | Gross Revenue Retention | >90% | >90% | - The decline in Average Annual Revenue (AAR) was almost entirely driven by a reduction in hiring consumption from the company's largest customer, Amazon153 Liquidity and Capital Resources Liquidity decreased due to cash used in operations, investing, and financing activities, though management believes current cash is sufficient for the next twelve months - Cash and cash equivalents decreased by $58.6 million during the first nine months of 2022 to a balance of $196.1 million205 - Key cash outflows for the nine months ended Sep 30, 2022 included $14.4 million for the PandoLogic earnout and $9.7 million for taxes related to net share settlement of equity awards205212 - Management believes that the current cash balance of $196.1 million is sufficient to fund operations for at least the next twelve months215 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exempt from providing market risk disclosures as it qualifies as a smaller reporting company - The company is not required to provide quantitative and qualitative disclosures about market risk as it qualifies as a smaller reporting company218 Item 4. Controls and Procedures Management identified a material weakness in internal controls related to third-party specialist oversight for acquisition valuation, with remediation efforts underway - A material weakness was identified in internal control over financial reporting as of September 30, 2022219220 - The weakness relates to the oversight of third-party specialists used in the valuation of contingent consideration and intangible assets for the PandoLogic acquisition, which led to a restatement of the Q1 2022 financials220 - Management has implemented remediation efforts to enhance the evaluation, scope definition, and review of work performed by third-party specialists221 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any legal proceedings expected to materially impact its financial position or operations - As of the report date, the company is not involved in any material legal proceedings227 Item 1A. Risk Factors No material changes to the company's previously disclosed risk factors were reported for the period - No material changes to the company's risk factors were reported for the period228