Veritone(VERI) - 2020 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (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 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 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 - 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] - 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] Condensed Consolidated Statements of Cash Flows 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] Notes to the Condensed Consolidated Financial Statements - 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][29][30] - 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] - 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][38] 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 Management discusses Q2 2020 financial performance, noting revenue growth in Advertising and aiWARE SaaS, reduced operating expenses, and improved liquidity Key Performance Indicators (KPIs) 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 - 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][108][109] - Gross margin improved to 67% in Q2 2020 from 63% in Q2 2019, primarily due to a decrease in platform costs[112] - 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][114] Liquidity and Capital Resources - Cash and cash equivalents increased to $50.1 million as of June 30, 2020, from $44.1 million at year-end 2019[118] - 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][121] - 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] Non-GAAP Financial Measure 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 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] Item 4. Controls and Procedures 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] - 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] PART II. OTHER INFORMATION Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] - The securities were issued in a private transaction exempt from registration under Section 4(a)(2) of the Securities Act[144] Item 6. Exhibits 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]