Veritone(US:VERI)2023-08-09 19:54markdown [Special Note Regarding Forward-Looking Statements](index=3&type=section&id=Special%20Note%20Regarding%20Forward-Looking%20Statements) [Forward-Looking Statements Disclosure](index=3&type=section&id=Forward-Looking%20Statements%20Disclosure) This section outlines the nature of forward-looking statements within the Form 10-Q, emphasizing that they are estimates based on current expectations and involve known and unknown risks and uncertainties that could cause actual results to differ materially. It also lists key factors that may cause such differences, including business expansion, market growth, capital needs, customer reliance, acquisition integration, and economic conditions - Forward-looking statements are identified by words such as "anticipates," "believes," "estimates," "expects," "intends," "plans," "potential," "projects," "should," "could," "will," "would" or similar expressions[8](index=8&type=chunk) - Key factors that may cause actual results to differ include the ability to expand aiWARE SaaS business, declines in the AI-based software market, requirements for additional capital, reliance on key customers, ability to realize acquisition benefits (e.g., Broadbean), fluctuations in results, seasonality, ability to manage growth and enhance products, competitor actions, technology interruptions, and the impact of economic disruptions (bank failures, COVID-19, Ukraine war, inflation, recession)[9](index=9&type=chunk)[12](index=12&type=chunk) - The company assumes no obligation to update any forward-looking statements unless required by law[12](index=12&type=chunk) [PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Veritone, Inc., including the balance sheets, statements of operations and comprehensive loss, statements of stockholders' equity, and statements of cash flows, along with detailed notes explaining the company's business, significant accounting policies, business combinations, debt, net loss per share, financial instruments, goodwill, intangible assets, and other financial details [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :-------------- | | **ASSETS** | | | | Cash and cash equivalents | $62,674 | $184,423 | | Accounts receivable, net | $47,618 | $56,001 | | Total current assets | $152,422 | $278,005 | | Total assets | $355,922 | $424,752 | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Total current liabilities | $161,340 | $193,323 | | Convertible senior notes, non-current | $138,199 | $137,767 | | Total liabilities | $316,869 | $344,901 | | Total stockholders' equity | $39,053 | $79,851 | | Total liabilities and stockholders' equity | $355,922 | $424,752 | - Total assets decreased by **$68,830 thousand (16.2%)** from December 31, 2022, to June 30, 2023[15](index=15&type=chunk) - Total stockholders' equity decreased by **$40,798 thousand (51.1%)** from December 31, 2022, to June 30, 2023[15](index=15&type=chunk) [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $27,967 | $34,235 | $58,230 | $68,642 | | Total operating expenses | $56,147 | $37,864 | $109,999 | $93,075 | | Loss from operations | $(28,180) | $(3,629) | $(51,769) | $(24,433) | | Other income (expense), net | $3,510 | $(1,231) | $3,865 | $(2,417) | | Net loss | $(23,296) | $(3,253) | $(46,259) | $(25,382) | | Basic and diluted net loss per share | $(0.63) | $(0.09) | $(1.26) | $(0.71) | | Total comprehensive loss | $(24,293) | $(2,867) | $(48,022) | $(24,806) | - Revenue decreased by **$6,268 thousand (18.3%)** for the three months ended June 30, 2023, compared to the same period in 2022[18](index=18&type=chunk) - Net loss significantly increased by **$20,043 thousand** for the three months ended June 30, 2023, compared to the same period in 2022[18](index=18&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Condensed Consolidated Statements of Stockholders' Equity (in thousands) | Metric | Balance as of Dec 31, 2022 | Six Months Ended June 30, 2023 | | :------------------------------------ | :------------------------- | :----------------------------- | | Common Stock (Shares) | 36,321,222 | 36,889,862 | | Common Stock (Amount) | $36 | $37 | | Additional Paid-in Capital | $451,162 | $458,385 | | Accumulated Deficit | $(371,271) | $(417,530) | | Accumulated Other Comprehensive Loss | $(76) | $(1,839) | | Total Stockholders' Equity | $79,851 | $39,053 | - Total stockholders' equity decreased by **$40,798 thousand** during the six months ended June 30, 2023, primarily due to a net loss of $46,259 thousand and other comprehensive loss of $1,763 thousand, partially offset by stock-based compensation expense and common stock issuances[20](index=20&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(58,533) | $(4,285) | | Net cash used in investing activities | $(55,078) | $(6,870) | | Net cash used in financing activities | $(8,132) | $(23,103) | | Net decrease in cash and cash equivalents and restricted cash | $(121,743) | $(34,258) | | Cash and cash equivalents and restricted cash, end of period | $63,539 | $221,319 | - Net cash used in operating activities significantly increased to **$58,533 thousand** in the first six months of 2023, compared to $4,285 thousand in the same period of 2022, primarily due to the net loss and timing of advertising customer payments[25](index=25&type=chunk)[34](index=34&type=chunk) - Net cash used in investing activities increased to **$55,078 thousand**, mainly driven by the Broadbean acquisition[25](index=25&type=chunk)[34](index=34&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) [NOTE 1. DESCRIPTION OF BUSINESS](index=9&type=section&id=NOTE%201.%20DESCRIPTION%20OF%20BUSINESS) - Veritone, Inc. provides AI computing solutions through its proprietary aiWARE™ operating system, which uses machine learning algorithms to derive insights from structured and unstructured data[27](index=27&type=chunk) - The company also operates a full-service advertising agency leveraging aiWARE for Managed Services, including media planning, buying, campaign messaging, and custom analytics, specializing in host-endorsed and influencer advertising[28](index=28&type=chunk) - Recent acquisitions include Broadbean (June 2023) for talent acquisition software, Vision Semantics Limited (August 2022) for AI-powered video analytics, VocaliD, Inc. (June 2022) for personalized synthetic voices, and an influencer-based management company (March 2022)[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) - The condensed consolidated financial statements are prepared in accordance with GAAP for interim financial statements and SEC rules, and should be read with the Annual Report on Form 10-K for the year ended December 31, 2022[30](index=30&type=chunk) - The company had an accumulated deficit of **$417,530 thousand** as of June 30, 2023, and used **$58,533 thousand** in cash from operations during the six months ended June 30, 2023[32](index=32&type=chunk)[34](index=34&type=chunk) - Management determined additional liquidity was required for the next twelve months, which was addressed by obtaining a Credit Facility in August 2023 and initiating cost reductions[34](index=34&type=chunk) - One individual customer accounted for **10% or more** of revenue for the three and six months ended June 30, 2023 and 2022, and **10% or more** of accounts receivable as of June 30, 2023 and December 31, 2022[38](index=38&type=chunk) - The company adopted ASU No. 2016-13 (Credit Losses) and ASU No. 2021-08 (Business Combinations) on January 1, 2023, with no material impact on financial statements[42](index=42&type=chunk)[43](index=43&type=chunk) [NOTE 3. BUSINESS COMBINATIONS AND DIVESTITURE](index=11&type=section&id=NOTE%203.%20BUSINESS%20COMBINATIONS%20AND%20DIVESTITURE) - On June 13, 2023, Veritone acquired Broadbean, a global leader in talent acquisition software-as-a-service, for **$53,224 thousand** in cash, strengthening its AI-driven HR product suite[44](index=44&type=chunk)[45](index=45&type=chunk) Broadbean Acquisition Preliminary Allocation (in thousands) | Asset/Liability | Amount | | :------------------------------------ | :----- | | Total assets acquired | $44,910 | | Total liabilities assumed | $23,633 | | Identifiable net assets acquired | $21,277 | | Goodwill | $31,947 | | Total purchase consideration | $53,224 | - Broadbean contributed **$1,716 thousand** in revenue and **$276 thousand** in net income from June 13, 2023, through June 30, 2023[53](index=53&type=chunk) - On June 30, 2023, the company divested its energy group to GridBeyond Limited, receiving **$2.0 million** in Series B Preference Shares and **$0.5 million** in cash, resulting in a pre-tax gain of **$2.6 million**[77](index=77&type=chunk) [NOTE 4. DEBT](index=18&type=section&id=NOTE%204.%20DEBT) - As of June 30, 2023, **$141.25 million** aggregate principal amount of 1.75% convertible senior notes due 2026 remained outstanding[78](index=78&type=chunk) - Interest expense related to Convertible Notes and amortization of issuance costs was **$0.8 million** for Q2 2023 (down from $1.2 million in Q2 2022) and **$1.7 million** for H1 2023 (down from $2.4 million in H1 2022)[86](index=86&type=chunk) - The effective annual interest rate for the Convertible Notes was approximately **2.42%** for both periods[86](index=86&type=chunk) - The company entered into capped call transactions in November 2021 to reduce potential dilution from Convertible Notes, with an initial cap price of **$48.55 per share**[87](index=87&type=chunk)[88](index=88&type=chunk) [NOTE 5. NET LOSS PER SHARE](index=20&type=section&id=NOTE%205.%20NET%20LOSS%20PER%20SHARE) Net Loss Per Share (Basic and Diluted) | Period | Net Loss | Weighted Average Shares Outstanding | Net Loss Per Share | | :------------------------------------ | :------- | :-------------------------------- | :----------------- | | Three Months Ended June 30, 2023 | $(23,296) | 36,848,602 | $(0.63) | | Three Months Ended June 30, 2022 | $(3,253) | 36,083,515 | $(0.09) | | Six Months Ended June 30, 2023 | $(46,259) | 36,718,994 | $(1.26) | | Six Months Ended June 30, 2022 | $(25,382) | 35,782,766 | $(0.71) | - All potentially dilutive shares (options, RSUs, warrants, convertible notes) were excluded from diluted EPS calculation due to net losses, making their effect anti-dilutive[91](index=91&type=chunk) [NOTE 6. FINANCIAL INSTRUMENTS](index=20&type=section&id=NOTE%206.%20FINANCIAL%20INSTRUMENTS) Cash and Cash Equivalents (in thousands) | Period | Cash and Cash Equivalents | | :------------------------------------ | :------------------------ | | June 30, 2023 | $62,674 | | December 31, 2022 | $184,423 | - Contingent consideration liabilities are categorized as Level 3 in the fair value hierarchy and are valued using Monte Carlo simulation or probability of achievement models[96](index=96&type=chunk) Contingent Consideration Liabilities (in thousands) | Metric | Fair Value as of Jan 1, 2023 | Changes in Fair Value | Amount Paid To Date | Fair Value as of June 30, 2023 | | :------------------------------------ | :--------------------------- | :-------------------- | :------------------ | :----------------------------- | | Contingent consideration, current | $8,067 | $21,466 | $(29,533) | $0 | | Contingent consideration, non-current | $0 | $0 | $0 | $0 | | Total | $8,067 | $21,466 | $(29,533) | $0 | - The company holds strategic investments in technology companies carried at cost, with no impairment recorded for the three and six months ended June 30, 2023[102](index=102&type=chunk) [NOTE 7. GOODWILL AND INTANGIBLE ASSETS, NET](index=23&type=section&id=NOTE%207.%20GOODWILL%20AND%20INTANGIBLE%20ASSETS%2C%20NET) Goodwill (in thousands) | Metric | Amount | | :------------------------------------ | :----- | | Balance at December 31, 2022 | $46,498 | | Broadbean acquisition | $31,947 | | Foreign currency translation/other | $(90) | | Balance at June 30, 2023 | $78,355 | - Goodwill increased by **$31,857 thousand (68.5%)** from December 31, 2022, to June 30, 2023, primarily due to the Broadbean acquisition[104](index=104&type=chunk) Finite-Lived Intangible Assets, Net (in thousands) | Asset Type | June 30, 2023 (Net Carrying Amount) | December 31, 2022 (Net Carrying Amount) | | :------------------------------------ | :---------------------------------- | :------------------------------------ | | Developed technology | $24,307 | $18,288 | | Customer and supplier relationships | $71,102 | $59,709 | | Trademarks and trade names | $1,457 | $1,667 | | Total intangible assets | $96,866 | $79,664 | - Total finite-lived intangible assets, net, increased by **$17,202 thousand (21.6%)** from December 31, 2022, to June 30, 2023[105](index=105&type=chunk) [NOTE 8. CONSOLIDATED FINANCIAL STATEMENTS DETAILS](index=25&type=section&id=NOTE%208.%20CONSOLIDATED%20FINANCIAL%20STATEMENTS%20DETAILS) Cash and Cash Equivalents (in thousands) | Period | Total | Cash from advertising customers | | :------------------------------------ | :---- | :------------------------------ | | June 30, 2023 | $62,674 | $52,699 | | December 31, 2022 | $184,423 | $93,118 | Revenue by Customer Group (in thousands) | Customer Group | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Commercial Enterprise | $26,366 | $33,364 | $55,234 | $66,990 | | Government & Regulated Industries | $1,601 | $871 | $2,996 | $1,652 | | Total revenue | $27,967 | $34,235 | $58,230 | $68,642 | Revenue by Service Type (in thousands) | Service Type | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Software Products & Services | $14,093 | $18,379 | $28,220 | $36,546 | | Managed Services | $13,874 | $15,856 | $30,010 | $32,096 | | Total revenue | $27,967 | $34,235 | $58,230 | $68,642 | - Other income (expense), net, for Q2 2023 was **$3,510 thousand** (vs. $(1,231) thousand in Q2 2022), primarily due to a **$2,572 thousand** gain on energy group sale and **$1,700 thousand** foreign exchange gain, offset by **$720 thousand** interest expense[116](index=116&type=chunk) - The effective tax rate for Q2 2023 was **5.6%** (vs. 33.1% in Q2 2022) and for H1 2023 was **3.4%** (vs. 5.5% in H1 2022), primarily due to a valuation allowance on deferred tax assets and foreign operations[118](index=118&type=chunk) [NOTE 9. LEASES, COMMITMENTS AND CONTINGENCIES](index=28&type=section&id=NOTE%209.%20LEASES%2C%20COMMITMENTS%20AND%20CONTINGENCIES) Operating Lease Liabilities (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :------------------------------------ | :------------ | :-------------- | | Right-of-use assets | $2,539 | $1,755 | | Current operating lease liabilities | $2,640 | $2,112 | | Non-current operating lease liabilities | $1,329 | $1,510 | | Total present value of future minimum lease payments | $3,969 | N/A | - Cash payments for operating leases were **$1,281 thousand** for the six months ended June 30, 2023, and **$1,321 thousand** for the same period in 2022[125](index=125&type=chunk) - The company has future cash requirements of **$2,800 thousand** for purchase consideration related to the VSL, VocaliD, and March 2022 acquisitions, payable in 2023 and 2024[128](index=128&type=chunk) [NOTE 10. STOCKHOLDERS' EQUITY](index=29&type=section&id=NOTE%2010.%20STOCKHOLDERS%27%20EQUITY) - During the six months ended June 30, 2023, **593,763 shares** of common stock were issued under employee stock plans (down from 1,152,345 in H1 2022)[130](index=130&type=chunk) - **135,800 shares** of common stock were issued for contingent consideration related to the PandoLogic acquisition in H1 2023 (down from 352,330 in H1 2022)[131](index=131&type=chunk) [NOTE 11. STOCK PLANS](index=29&type=section&id=NOTE%2011.%20STOCK%20PLANS) Stock-Based Compensation Expense (in thousands) | Expense Type | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Restricted stock units | $1,224 | $3,058 | $3,392 | $6,490 | | Stock options | $1,081 | $1,502 | $2,052 | $2,775 | | Total stock-based compensation expense | $2,697 | $4,661 | $6,614 | $9,477 | - Total stock-based compensation expense decreased by **$1,964 thousand (42.1%)** for Q2 2023 and **$2,863 thousand (30.2%)** for H1 2023 compared to prior year periods[134](index=134&type=chunk) - As of June 30, 2023, total unrecognized compensation cost related to restricted stock units was **$9,175 thousand**, expected to be recognized over **2.2 years**[138](index=138&type=chunk) - Total unrecognized compensation expense related to stock options was **$9,442 thousand**, expected to be recognized over **2.6 years**[140](index=140&type=chunk) [NOTE 12. RELATED PARTY TRANSACTIONS](index=33&type=section&id=NOTE%2012.%20RELATED%20PARTY%20TRANSACTIONS) - The company entered into a consulting agreement with Steel Holdings, LLC (affiliated with former CEO Chad Steelberg) for CEO transition services and aiWARE platform development[143](index=143&type=chunk) - Consulting fees and reimbursements were **$329 thousand**, variable consultant performance bonus expense was **$631 thousand**, and stock-based compensation expense for PSUs was **$347 thousand** for the six months ended June 30, 2023[143](index=143&type=chunk) [NOTE 13. SUBSEQUENT EVENTS](index=33&type=section&id=NOTE%2013.%20SUBSEQUENT%20EVENTS) - In July 2023, the March 2022 Acquisition earnout amounts totaling **$3,500 thousand** were amended to be tied to the seller's employment status through December 31, 2025, rather than financial performance[145](index=145&type=chunk) - In August 2023, the company secured a three-year Credit Facility with Alterna Capital Solutions, LLC, allowing borrowing up to **$30,000 thousand**, secured by domestic receivables and other assets[146](index=146&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&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 condition and operational results for the three and six months ended June 30, 2023, compared to the prior year. It covers revenue trends, recent developments including acquisitions and cost reductions, market opportunities and challenges, the impact of global economic conditions, and a detailed analysis of GAAP and non-GAAP financial measures, liquidity, and cash flows [Overview](index=34&type=section&id=Overview) - Veritone provides AI solutions via its aiWARE™ operating system to Commercial Enterprise and Government & Regulated Industries customers[149](index=149&type=chunk) Revenue (in millions) | Period | 2023 | 2022 | | :------------------------------------ | :--- | :--- | | Three Months Ended June 30 | $28.0 | $34.2 | | Six Months Ended June 30 | $58.2 | $68.6 | - Software Products & Services revenue for Q2 2023 was **$14.1 million** (down from $18.4 million in Q2 2022), and Managed Services revenue was **$13.9 million** (down from $15.9 million in Q2 2022)[150](index=150&type=chunk) - The largest customer represented **15% and 17%** of consolidated revenue for the three and six months ended June 30, 2023, respectively (down from 14% and 22% in 2022)[150](index=150&type=chunk) [Recent Developments](index=34&type=section&id=Recent%20Developments) - In June 2023, Veritone acquired Broadbean, a global leader in talent acquisition software-as-a-service, for **$53.2 million** in cash[151](index=151&type=chunk) - On June 30, 2023, the company completed the sale of its energy group to GridBeyond Limited, recognizing a pre-tax gain of **$2.6 million**[152](index=152&type=chunk) - Strategic cost reduction initiatives announced in January 2023 aimed for **$12-15 million** in net annualized savings; as of June 30, 2023, **$17 million** in net annualized savings have been executed, exceeding the target[153](index=153&type=chunk) [Opportunities, Challenges and Risks](index=34&type=section&id=Opportunities%2C%20Challenges%20and%20Risks) - Significant growth opportunities are seen in Software Products & Services, particularly with the aiWARE platform and the Broadbean acquisition, which adds **3,000 subscription-based customers**[155](index=155&type=chunk)[156](index=156&type=chunk) - Challenges include the negative impact of current economic conditions on business operations and financial results, and long sales cycles for Government & Regulated Industries customers[155](index=155&type=chunk)[156](index=156&type=chunk) - Revenue from the largest customer (Amazon) for HR Solutions declined in H1 2023 compared to the prior year, representing **17%** of consolidated revenue (down from 22% in H1 2022)[157](index=157&type=chunk) - Non-Amazon Software Products & Services revenue grew, driven by an **81% increase** in Government & Regulated Industries revenue in H1 2023[157](index=157&type=chunk) - The company plans to continue increasing sales and marketing spending, offset by cost reduction initiatives, and pursue strategic acquisitions to accelerate growth and market share[158](index=158&type=chunk)[164](index=164&type=chunk) [Impact of the Current Global Economic Conditions](index=37&type=section&id=Impact%20of%20the%20Current%20Global%20Economic%20Conditions) - Global macroeconomic uncertainties (COVID-19, labor shortages, inflation, recession risks, Russia-Ukraine conflict) continue to impact operational and financial performance[167](index=167&type=chunk) - Demand for hiring solutions and advertising spending has been negatively affected by economic shifts, including Amazon's reduced consumption of HR solutions[167](index=167&type=chunk) - Adverse economic conditions could lead to reductions in sales, longer sales cycles, shorter contract durations, and increased price competition[168](index=168&type=chunk) [Non-GAAP Financial Measures and Key Performance Indicators](index=38&type=section&id=Non-GAAP%20Financial%20Measures%20and%20Key%20Performance%20Indicators) - The company uses non-GAAP financial measures (Pro Forma Software Revenue, non-GAAP gross profit/margin, non-GAAP net income/loss) and KPIs (Total Software Products & Services Customers, Annual Recurring Revenue, Total New Bookings, Gross Revenue Retention) to evaluate performance[171](index=171&type=chunk) Non-GAAP Net Loss Reconciliation (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | GAAP Net loss | $(23,296) | $(3,253) | $(46,259) | $(25,382) | | Total non-GAAP adjustments | $10,270 | $(3,930) | $23,678 | $13,028 | | Non-GAAP Net Loss | $(13,026) | $(7,183) | $(22,581) | $(12,354) | | Non-GAAP basic and diluted net loss per share | $(0.35) | $(0.20) | $(0.61) | $(0.35) | Software Products & Services Supplemental Financial Information (in thousands) | Metric | Q2 2022 | Q1 2023 | Q2 2023 | | :------------------------------------ | :------ | :------ | :------ | | Pro Forma Software Revenue | $26,650 | $22,423 | $20,860 | | Total Software Products & Services Customers | 3,718 | 3,773 | 3,705 | | Annual Recurring Revenue (SaaS) | $44,465 | $45,453 | $47,720 | | Annual Recurring Revenue (Consumption) | $85,901 | $67,242 | $60,229 | | Total New Bookings | $22,009 | $22,794 | $8,388 | | Gross Revenue Retention | >90% | >90% | >90% | Managed Services Supplemental Financial Information (in thousands) | Metric | Q2 2022 | Q1 2023 | Q2 2023 | | :------------------------------------ | :------ | :------ | :------ | | Avg billings per active Managed Services client | $736 | $771 | $576 | | Revenue during quarter | $9,625 | $9,337 | $6,876 | [Results of Operations](index=44&type=section&id=Results%20of%20Operations) Revenue by Segment (in thousands) | Segment | Q2 2023 | Q2 2022 | $ Change | % Change | | :------------------------------------ | :------ | :------ | :------- | :------- | | Commercial Enterprise Software Products & Services | $12,492 | $17,508 | $(5,016) | (29)% | | Commercial Enterprise Managed Services | $13,874 | $15,856 | $(1,982) | (13)% | | Government & Regulated Industries Software Products & Services | $1,601 | $871 | $730 | 84% | - Commercial Enterprise Software Products & Services revenue decreased by **29%** in Q2 2023 YoY, mainly due to the loss of one-time software revenue in 2022, partially offset by Broadbean acquisition revenue[201](index=201&type=chunk) - Government & Regulated Industries Software Products & Services revenue increased by **84%** in Q2 2023 YoY, driven by new and existing customer growth[202](index=202&type=chunk) Operating Expenses (in thousands) | Expense Type | Q2 2023 | Q2 2022 | $ Change | % Change | | :------------------------------------ | :------ | :------ | :------- | :------- | | Cost of revenue | $7,765 | $6,705 | $1,060 | 15.8% | | Sales and marketing | $13,124 | $12,576 | $548 | 4.4% | | Research and development | $10,519 | $11,068 | $(549) | (5.0)% | | General and administrative | $19,025 | $2,304 | $16,721 | 725.7% | | Amortization | $5,714 | $5,211 | $503 | 9.7% | | Total operating expenses | $56,147 | $37,864 | $18,283 | 48.3% | - General and administrative expenses increased significantly by **725.7%** in Q2 2023 YoY, primarily due to a non-cash benefit of **$13.8 million** in Q2 2022 from contingent consideration fair value change and a **$3.1 million** increase in accounting and legal fees related to the Broadbean acquisition[207](index=207&type=chunk) Non-GAAP Gross Profit (in thousands) | Metric | Q2 2023 | Q2 2022 | $ Change | % Change | | :------------------------------------ | :------ | :------ | :------- | :------- | | Revenue | $27,967 | $34,235 | $(6,268) | (18.3)% | | Cost of revenue | $7,765 | $6,705 | $1,060 | 15.8% | | Non-GAAP gross profit | $20,202 | $27,530 | $(7,328) | (26.6)% | | Non-GAAP gross margin | 72.2% | 80.4% | | | [Liquidity and Capital Resources](index=46&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and Cash Equivalents (in millions) | Period | Amount | | :------------------------------------ | :----- | | June 30, 2023 | $62.7 | | December 31, 2022 | $184.4 | - The decrease in cash and cash equivalents was primarily due to **$58.5 million** used in operating activities, **$55.1 million** in investing activities (Broadbean acquisition), and **$7.8 million** for the PandoLogic 2022 earnout[211](index=211&type=chunk)[215](index=215&type=chunk)[217](index=217&type=chunk)[219](index=219&type=chunk) - In August 2023, the company secured a **$30 million** Credit Facility with Alterna Capital Solutions, LLC, to provide additional financial flexibility and liquidity[212](index=212&type=chunk) - The company believes its current cash and cash equivalents, combined with the Credit Facility, will be sufficient to fund operations for at least the next twelve months[223](index=223&type=chunk) [Critical Accounting Policies and Estimates](index=48&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - No material changes to critical accounting policies and estimates were disclosed from the Annual Report on Form 10-K for the year ended December 31, 2022[225](index=225&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=48&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Veritone, Inc. is not required to provide the detailed quantitative and qualitative disclosures about market risk - The company is exempt from providing detailed market risk disclosures as a smaller reporting company[226](index=226&type=chunk) [Item 4. Controls and Procedures](index=48&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2023, due to a material weakness in information technology general controls (ITGCs). Remediation efforts are underway, including enhancing IT compliance oversight, training, documentation, and implementing review plans. The acquisition of Broadbean also necessitates integration of controls - Disclosure controls and procedures were deemed not effective as of June 30, 2023[227](index=227&type=chunk) - A material weakness was identified in ITGCs related to user access and change-management over certain IT systems supporting financial reporting processes[229](index=229&type=chunk) - Remediation actions include developing IT compliance oversight, training on ITGCs, documenting ITGCs, and implementing IT management review and testing plans[230](index=230&type=chunk) - The acquisition of Broadbean requires ongoing integration of controls and augmentation of company-wide controls[232](index=232&type=chunk) [PART II. OTHER INFORMATION](index=50&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=50&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any legal proceedings that, in management's opinion, would have a material adverse effect on its operations, financial position, or cash flows - No material adverse legal proceedings are currently ongoing[237](index=237&type=chunk) [Item 1A. Risk Factors](index=50&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously described in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes to risk factors since the last Annual Report on Form 10-K[238](index=238&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=50&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds to report in this period - No unregistered sales of equity securities or use of proceeds[239](index=239&type=chunk) [Item 3. Defaults Upon Senior Securities](index=50&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities to report in this period - No defaults upon senior securities[240](index=240&type=chunk) [Item 4. Mine Safety Disclosures](index=50&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Mine Safety Disclosures are not applicable[241](index=241&type=chunk) [Item 5. Other Information](index=50&type=section&id=Item%205.%20Other%20Information) There is no other information to report in this period - No other information to report[242](index=242&type=chunk) [Item 6. Exhibits](index=51&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Form 10-Q, including the Securities and Asset Purchase Agreement, corporate organizational documents, equity incentive plan, and various certifications - Key exhibits include the Securities and Asset Purchase Agreement (Broadbean acquisition), corporate organizational documents, the 2023 Equity Incentive Plan, and certifications (Rule 13a-14(a)/15d-14(a) and 18 U.S.C. Section 1350)[244](index=244&type=chunk)