Veritone Inc

Previous wording

The following discussion and analysis of our financial condition and results of operations should be read together with and is qualified in its entirety by reference to the condensed consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed under “Risk Factors,” set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023, and any updates thereto set forth in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission (“SEC”), including future SEC filings. See “Cautionary Note Regarding Forward-Looking Statements.”

Current wording

The following discussion and analysis of our financial condition and results of operations should be read together with and is qualified in its entirety by reference to the condensed consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed under “Risk Factors,” set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023, “Risk Factors,” set forth in Part I, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, and any updates thereto set forth in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission (“SEC”), including future SEC filings. See “Cautionary Note Regarding Forward-Looking Statements.”

Previous wording

Veritone, Inc., collectively with our subsidiaries, referred to as “Veritone,” “Company,” “we,” “our,” and “us,” is a provider of Artificial Intelligence (“AI”) solutions, powered by our proprietary AI operating system, aiWARE™, to deliver differentiated products and solutions to our Commercial Enterprise and Public Sector (which we previously referred to as Government & Regulated Industries) customers. Our Software Products & Services consist of revenues generated from Commercial Enterprise and Public Sector customers using our aiWARE platform and Veritone Hire solutions, any related support and maintenance services, and any related professional services associated with the deployment and/or implementation of such solutions. Our Managed Services consist of revenues generated from Commercial Enterprise customers using our content licensing services, advertising agency, influencer management and related services.

Current wording

Veritone, Inc., collectively with our subsidiaries, referred to as “Veritone,” “Company,” “we,” “our,” and “us,” is a provider of Artificial Intelligence (“AI”) solutions, powered by our proprietary AI operating system, aiWARE™, to deliver differentiated products and solutions to our Commercial Enterprise and Public Sector (which we previously referred to as Government & Regulated Industries) customers. Our Software Products & Services consist of revenues generated from Commercial Enterprise and Public Sector customers using our aiWARE platform and Veritone Hire solutions, any related support and maintenance services, and any related professional services associated with the deployment and/or implementation of such solutions. Our Managed Services consist of revenues generated from Commercial Enterprise customers using our content licensing and representation services, including influencer management and related operations.

Previous wording

During the three and six months ended June 30, 2024, we generated revenue of $31.0 million and $62.6 million, respectively, as compared to $28.0 million and $58.2 million during the three and six months ended June 30, 2023, respectively. Our Software Products & Services revenue was $15.6 million during the three months ended June 30, 2024 as compared to $14.1 million for the same period in 2023, while our Managed Services revenue was $15.4 million during the three months ended June 30, 2024 as compared to $13.9 million for the same period in 2023. Our Software Products & Services revenue was $30.8 million during the six months ended June 30, 2024 as compared to $28.2 million for the same period in 2023, while our Managed Services revenue was $31.8 million during the six months ended June 30, 2024 as compared to $30.0 million for the same period in 2023. During the three and six months ended June 30, 2024, no customer represented more than 10% of our consolidated revenue. During the three and six months ended June 30, 2023, one customer represented 15% and 17%, respectively, of our consolidated revenue.

Current wording

During the three and nine months ended September 30, 2024, we generated revenue of $22.0 million and $70.2 million, respectively, as compared to $28.0 million and $72.9 million during the three and nine months ended September 30, 2023, respectively. Our Software Products & Services revenue was $14.7 million during the three months ended September 30, 2024 as compared to $20.4 million for the same period in 2023, while our Managed Services revenue was $7.3 million during the three months ended September 30, 2024 as compared to $7.6 million for the same period in 2023. Our Software Products & Services revenue was $45.5 million during the nine months ended September 30, 2024 as compared to $48.6 million for the same period in 2023, while our Managed Services revenue was $24.7 million during the nine months ended September 30, 2024 as compared to $24.3 million for the same period in 2023. During the three and nine months ended September 30, 2024, no customer represented more than 10% of our consolidated revenue. During the three and three and nine months ended September 30, 2023, our largest customer represented less than 10% and 12%, respectively, of our consolidated revenue.

Previous wording

Operational Realignment and Restructuring. During the first quarter of 2024, we enacted certain operational and restructuring initiatives (the “Q1 2024 Restructuring”), the result of which was an approximate 13% reduction in our global workforce. As a result of the Q1 2024 Restructuring, we expect to reduce our annualized operating expenses by over $13.0 million. We incurred $2.5 million in one-time severance and transition expenses in connection with the Q1 2024 Restructuring, of which $2.3 million was paid as of June 30, 2024.

Current wording

Operational Realignment and Restructuring. During the first quarter of 2024, we enacted certain operational and restructuring initiatives (the “Q1 2024 Restructuring”). As a result of the Q1 2024 Restructuring, we expect to reduce our annualized operating expenses by approximately $13.0 million. We have continued with additional cost reductions in the second half of 2024, which when combined with our Q1 2024 Restructuring, we expect will result in over $40.0 million of net annualized strategic cost reductions. We incurred $3.9 million in one-time severance and transition expenses in connection with the Q1 2024 Restructuring, all of which was paid as of September 30, 2024 and we have incurred approximately $1.4 million in related one-time severance and transition costs for our cost reduction initiatives after the Q1 2024 Restructuring of which $0.3 million was paid as of September 30, 2024. The cumulative results of these initiatives was an approximate 19% reduction in our global workforce.

Previous wording

During the six months ended June 30, 2024 and 2023, we derived our revenue primarily through our Commercial Enterprise customers, and secondarily, through our Public Sector customers.

Current wording

During the nine months ended September 30, 2024 and 2023, we derived our revenue primarily through our Commercial Enterprise customers, and secondarily, through our Public Sector customers.

Previous wording

Growing our existing and new Software Products & Services customer base is critical for our success. Software Products & Services revenue increased by 9.3% during the six months ended June 30, 2024 as compared to the prior year period due to the addition of Broadbean in the second quarter of 2023, partially offset by lower consumption across our legacy Veritone Hire customer base. During the six months ended June 30, 2024, no customer represented more than 10% of our consolidated revenue as compared to one customer that represented 17% of our consolidated revenue during the six months ended June 30, 2023.

Current wording

Growing our existing and new Software Products & Services customer base is critical for our success. Software Products & Services revenue decreased by 6.2% during the nine months ended September 30, 2024 as compared to the prior year period due to lower consumption across our Commercial Enterprise customer base, including Amazon and certain one-time software revenue recognized in 2023 that did not recur at the same rate in 2024, partially offset by the addition of Broadbean in the second quarter of 2023. During the nine months ended September 30, 2024, no customer represented more than 10% of our consolidated revenue as compared to one customer that represented 12% of our consolidated revenue during the nine months ended September 30, 2023.

Previous wording

As a result of the recent pullback in the macroeconomic environment caused by high inflation, high interest rates, higher unemployment and geopolitical factors including the Russia-Ukraine conflict and the war in Israel, some of our customers reduced consumption-based and advertising spending across our Commercial Enterprise customer base, namely of our Veritone Hire solutions and Managed Services.

Current wording

As a result of the recent pullback in the macroeconomic environment caused by high inflation, high interest rates, higher unemployment and geopolitical factors including the Russia-Ukraine conflict and the war in Israel, some of our customers reduced consumption-based spending across our Commercial Enterprise customer base, namely from our Veritone Hire solutions.

Previous wording

As of June 30, 2024, our total Software Products & Services customers declined to 3,437, which was a decrease of 7.1% as compared to the end of the second quarter of 2023 on a pro forma basis, giving effect to the acquisition of Broadbean as if it occurred on January 1, 2022. The decrease in customers was largely driven by planned migration of legacy CareerBuilder customers off the Broadbean software platform, which did not have a significant impact on our financial results in 2023 or for the six months ended June 30, 2024. The overall impact of this customer decline is insignificant to our financial results in 2024. To continue our effort to grow our customer base and overall revenue, we have been investing aggressively in existing customers and acquiring new customers. In addition, in February 2024, we announced certain cost reduction and restructuring initiatives, the results of which was a reduction in our global workforce of approximately 13%. Since the first quarter of 2023, we have been actively realigning and restructuring our organization, which, as of June 30, 2024, is expected to result in over $37.0 million of net annualized strategic cost reductions, which includes expected cost reductions from our Q1 2024 Restructuring. As a result of our efforts to diversify our customer base and increase sales within our existing customer base, as well as the June 2023 acquisition of Broadbean, we increased our sales and marketing spending in the near term as compared to the trailing twelve months; however, these increased investments were partially offset by our 2023 and 2024 cost-reduction initiatives.

Current wording

As of September 30, 2024, our total Software Products & Services customers declined to 3,291, which was a decrease of 6.9% as compared to the end of the third quarter of 2023. The decrease in customers was largely driven by planned migration of legacy CareerBuilder customers off the Broadbean software platform, which did not have a significant impact on our financial results in 2023 or for the nine months ended September 30, 2024. To continue our effort to grow our customer base and overall revenue, we have been investing aggressively in existing customers and acquiring new customers. In addition, in February 2024, we announced certain cost reduction and restructuring initiatives, the results of which was a reduction in our global workforce of approximately 13% as of September 30, 2024. Since the first quarter of 2023, we have been actively realigning and restructuring our organization, which, as of September 30, 2024, is expected to result in over $40.0 million of net annualized strategic cost reductions, which includes expected cost reductions from our Q1 2024 Restructuring along with additional cost reductions made in the second half of 2024. As a result of our efforts to diversify our customer base and increase sales within our existing customer base, as well as the June 2023 acquisition of Broadbean, we increased our sales and marketing spending in the near term as compared to the trailing twelve months; however, these increased investments were partially offset by our 2023 and 2024 cost-reduction initiatives.

Previous wording

We believe our operating results and performance are, and will continue to be, driven by various factors that affect our industry. Our ability to attract, grow and retain customers for our aiWARE platform is highly sensitive to rapidly changing technology and is dependent on our ability to maintain the attractiveness of our platform, content and services to our customers. Our future revenue and operating growth will rely heavily on our ability to grow and retain our Software Products & Services customer base, continue to develop and deploy quality and innovative AI-driven applications and enterprise-level offerings, provide unique and attractive content and advertising services to our customers, continue to grow in newer markets such as Public Sector, expand aiWARE into larger and more expansive enterprise engagements and manage our corporate overhead costs. While we believe we will be successful in these endeavors, we cannot guarantee that we will succeed in generating substantial long term operating growth and profitability.

Current wording

We believe our operating results and performance are, and will continue to be, driven by various factors that affect our industry. Our ability to attract, grow and retain customers for our aiWARE platform is highly sensitive to rapidly changing technology and is dependent on our ability to maintain the attractiveness of our platform, content and services to our customers. Our future revenue and operating growth will rely heavily on our ability to grow and retain our Software Products & Services customer base, continue to develop and deploy quality and innovative AI-driven applications and enterprise-level offerings, provide unique and attractive content and related services to our customers, continue to grow in newer markets such as Public Sector, expand aiWARE into larger and more expansive enterprise engagements and manage our corporate overhead costs. While we believe we will be successful in these endeavors, we cannot guarantee that we will succeed in generating substantial long term operating growth and profitability.

Previous wording

Historically, we have pursued an opportunistic strategy of acquiring companies to help accelerate our organic growth. Our acquisition strategy has been threefold: (i) to increase the scale of our business in markets we are in today, (ii) to accelerate growth in new markets and product categories, including expanding our existing engineering and sales resources, and (iii) to accelerate the adoption of aiWARE as the universal AI operating system through venture or market-driven opportunities. While we believe there are strategic acquisition targets that can accelerate our entry into and expand our existing market share in key strategic markets, as well as our ability to grow our business, there is no certainty our historical or future acquisitions will achieve these objectives. Conversely, we have pursued and may continue to pursue opportunistic sales of certain business operations that are not strategic to us long-term, such as the potential sale of the Asset discussed above and the divestiture of our Energy Group in the second quarter of 2023.

Current wording

Historically, we have pursued an opportunistic strategy of acquiring companies to help accelerate our organic growth. Our acquisition strategy has been threefold: (i) to increase the scale of our business in markets we are in today, (ii) to accelerate growth in new markets and product categories, including expanding our existing engineering and sales resources, and (iii) to accelerate the adoption of aiWARE as the universal AI operating system through venture or market-driven opportunities. While we believe there are strategic acquisition targets that can accelerate our entry into and expand our existing market share in key strategic markets, as well as our ability to grow our business, there is no certainty our historical or future acquisitions will achieve these objectives. Conversely, we have pursued and may continue to pursue opportunistic sales of certain business operations that are not strategic to us long-term, such as the divestitures of our Energy Group in the second quarter of 2023 and our media agency in October 2024.

Previous wording

For the three and six months ended June 30, 2024, our total revenues were $31.0 million and $62.6 million, respectively, as compared to $28.0 million and $58.2 million for the three and six months ended June 30, 2023, respectively, an increase of 10.8% and 7.6%, respectively, over the prior year periods. For the three and six months ended June 30, 2024, our total loss from operations was $17.7 million and $39.5 million, respectively, as compared to $28.2 million and $51.8 million for the three and six months ended June 30, 2023, respectively, a decrease of 37.3% and 23.7%, respectively, over the prior year periods. For the three and six months ended June 30, 2024, our non-GAAP gross margin (calculated as described in “Non-GAAP Financial Measures” below) increased to approximately 78.8% and 78.2%, respectively, as compared to 72.2% and 75.0% for the three and six months ended June 30, 2023, respectively, driven in large part by increased customer margins and the mix of revenue as compared to the prior year periods. Our non-GAAP gross margin is impacted significantly by the mix of our Software Products & Services and our Managed Services revenue in any given period because our Managed Services revenue typically has a lower overall non-GAAP gross margin than our Software Products & Services revenue. Our non-GAAP gross profit (see “Non-GAAP Financial Measures” below) is also dependent upon our ability to grow our revenue by expanding our customer base and increasing business with existing customers, and to manage our costs by negotiating favorable economic terms with cloud computing providers such as AWS and Microsoft Azure. While we are focused on continuing to improve our non-GAAP gross profit, our ability to attract and retain customers to grow our revenue will be highly dependent on our ability to implement and continually improve upon our technology and services and improve our technology infrastructure and operations as we experience increased network capacity constraints due to our growth.

Current wording

For the three and nine months ended September 30, 2024, our total revenues were $22.0 million and $70.2 million, respectively, as compared to $28.0 million and $72.9 million for the three and nine months ended September 30, 2023, respectively, a decrease of 21.8% and 3.7%, respectively, over the prior year periods. For the three and nine months ended September 30, 2024, our total loss from operations was $22.5 million and $67.2 million, respectively, as compared to $25.2 million and $79.8 million for the three and nine months ended September 30, 2023, respectively, an improvement of 10.7% and 15.8%, respectively, over the prior year periods. For the three and nine months ended September 30, 2024, our non-GAAP gross margin (calculated as described in “Non-GAAP Financial Measures” below) was approximately 71.2% and 72.1%, respectively, as compared to 74.9% and 70.7% for the three and nine months ended September 30, 2023, respectively, driven in large part by decreased customer margins and the mix of revenue as compared to the prior year periods. Our non-GAAP gross margin is impacted significantly by the mix of our Software Products & Services and our Managed Services revenue in any given period because our Managed Services revenue typically has a lower overall non-GAAP gross margin than our Software Products & Services revenue. Our non-GAAP gross profit (see “Non-GAAP Financial Measures” below) is also dependent upon our ability to grow our revenue by expanding our customer base and increasing business with existing customers, and to manage our costs by negotiating favorable economic terms with cloud computing providers such as AWS and Microsoft Azure. While we are focused on continuing to improve our non-GAAP gross profit, our ability to attract and retain customers to grow our revenue will be highly dependent on our ability to implement and continually improve upon our technology and services and improve our technology infrastructure and operations as we experience increased network capacity constraints due to our growth.

Previous wording

During the three and six months ended June 30, 2024, we reported a net loss of $22.2 million and $47.4 million, respectively, as compared to a net loss of $23.3 million and $46.3 million during the three and six months ended June 30, 2023, respectively. During the three and six months ended June 30, 2024, we reported a non-GAAP net loss of $6.9 million and $14.5 million, respectively, as compared to a non-GAAP net loss of $13.0 million and $22.6 million during the three and six months ended June 30, 2023, respectively. To continue to grow our revenue, we will continue to make targeted investments in people, namely software engineers and sales personnel. Historically, we have also made investments in our corporate infrastructure, including new ERP and workforce systems to help us better manage the scale and growth of our business. However, considering the current challenging macro-economic environment, we have made and are continuing to make significant cost reductions to our operating structure to better streamline our business and prioritization around our growth and corresponding investments. These cost reduction initiatives began in the latter half of 2022 and will continue through 2024, and include reductions in workforce and certain legacy operating costs, as well as the integration of past acquisitions. As a result of these initiatives, we believe we will be able to accelerate our pathway toward long term profitability.

Current wording

During the three and nine months ended September 30, 2024, we reported a net loss from continuing operations of $22.6 million and $72.1 million, respectively, as compared to a net loss of $26.8 million and $ 79.8 million during the three and nine months ended September 30, 2023, respectively. During the three and nine months ended September 30, 2024, we reported a non-GAAP net loss from continuing operations of $11,097 and $31,139, respectively, as compared to a non-GAAP net loss of $10,411 and $36,833 during the three and nine months ended September 30, 2023, respectively. To continue to grow our revenue, we will continue to make targeted investments in people, namely software engineers and sales personnel. Historically, we have also made investments in our corporate infrastructure, including new ERP and workforce systems to help us better manage the scale and growth of our business. However, considering the current challenging macro-economic environment, we have made and are continuing to make significant cost reductions to our operating structure to better streamline our business and prioritization around our growth and corresponding investments throughout 2024 and into 2025. These cost reduction initiatives began in the latter half of 2022 and will continue through 2024 and 2025, and include reductions in workforce and certain legacy operating costs, as well as the integration of past acquisitions. As a result of these initiatives, we believe we will be able to accelerate our pathway toward long term profitability.

Previous wording

During the three and six months ended June 30, 2023, substantially all of our revenue was derived from customers located in the United States. With the June 2023 acquisition of Broadbean, we expanded our customer base throughout Europe and Asia Pacific. During the three and six months ended June 30, 2024, 33.4% and 33.1%, respectively, of our consolidated revenue was from customers outside of the U.S., principally from customers located throughout Western Europe, as compared to less than 10% during the three and six months ended June 30, 2023. We believe that there is a substantial opportunity for us to continue expanding our service offerings and customer base in countries outside of the United States. In the long term, we plan to expand our business further internationally in places such as Europe, Asia Pacific and Latin America, and as a result, we expect to continue to incur significant incremental upfront expenses associated with these expansion opportunities.

Current wording

With the June 2023 acquisition of Broadbean, we expanded our customer base throughout Europe and Asia Pacific. During the three and nine months ended September 30, 2024, 28.9% and 28.4%, respectively, of our consolidated revenue was from customers outside of the U.S., principally from customers located throughout Western Europe, as compared to 23.5% and 10.8% during the three and nine months ended September 30, 2023, respectively. We believe that there is a substantial opportunity for us to continue expanding our service offerings and customer base in countries outside of the United States. In the long term, we plan to expand our business further internationally in places such as Europe, Asia Pacific and Latin America, and as a result, we expect to continue to incur significant incremental upfront expenses associated with these expansion opportunities.

Previous wording

Global economic and business activities continue to face uncertainty as a result of macroeconomic and geopolitical factors, labor shortages, inflation rates and the responses by central banking authorities to control inflation, monetary supply shifts, recession risks, disruptions from the Russia-Ukraine conflict, and the war in Israel. In particular, business operations at our Herzliya office location where we do development work on our Veritone Hire solutions products have been, and may continue to be, impacted by the war in Israel. A small portion of our Israel-based employees, and a number of their family members, have been conscripted into military service. The extent of the impact of these factors on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, and the impact on our customers, partners and employees, all of which have uncertainty and cannot be predicted. These global economic conditions and any continued or new disruptions caused by these conditions may negatively impact our business in a number of ways. For example, our Veritone Hire solutions are sold to businesses whose financial conditions fluctuate based on general economic and business conditions, particularly the overall demand for labor and the economic health of current and prospective employers.

Current wording

Global economic and business activities continue to face uncertainty as a result of macroeconomic and geopolitical factors, labor shortages, inflation rates, the U.S. presidential election and responses by central banking authorities to control inflation, monetary supply shifts, recession risks, disruptions from the Russia-Ukraine conflict, and the war in Israel. In particular, business operations at our Herzliya office location where we do development work on our Veritone Hire solutions products have been, and may continue to be, impacted by the war in Israel. A small portion of our Israel-based employees, and a number of their family members, have been conscripted into military service. The extent of the impact of these factors on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, and the impact on our customers, partners and employees, all of which have uncertainty and cannot be predicted. These global economic conditions and any continued or new disruptions caused by these conditions may negatively impact our business in a number of ways. For example, our Commercial Enterprise solutions are sold to businesses whose financial conditions fluctuate based on general economic and business conditions, particularly the overall demand for labor and the economic health of current and prospective employers.

Previous wording

To the extent that economic uncertainty or attenuated economic conditions cause our customers and potential customers to freeze or reduce their headcount, and reduce their advertising spending, demand for our products and services may be negatively affected. These adverse economic conditions could also result in reductions in sales of our applications, longer sales cycles, reductions in contract duration and value, slower adoption of new technologies and increased price competition. In addition, economic recessions have historically resulted in overall reductions in spending on software and technology solutions as well as pressure from customers and potential customers for extended payment terms. If economic, political, or market conditions deteriorate, or if there is uncertainty around these conditions, our customers and potential customers may elect to decrease their software and technology solutions budgets by deferring or reconsidering product purchases, which would limit our ability to grow our business and negatively affect our operating results. Any of these events would likely have an adverse effect on our business, operating results and financial position.

Current wording

To the extent that economic uncertainty or attenuated economic conditions cause our customers and potential customers to freeze or reduce their headcount, and reduce their consumption-based spending, demand for our products and services may be negatively affected. These adverse economic conditions could also result in reductions in sales of our applications, longer sales cycles, reductions in contract duration and value, slower adoption of new technologies and increased price competition. In addition, economic recessions have historically resulted in overall reductions in spending on software and technology solutions as well as pressure from customers and potential customers for extended payment terms. If economic, political, or market conditions deteriorate, or if there is uncertainty around these conditions, our customers and potential customers may elect to decrease their software and technology solutions budgets by deferring or reconsidering product purchases, which would limit our ability to grow our business and negatively affect our operating results. Any of these events would likely have an adverse effect on our business, operating results and financial position.

Previous wording

Pro Forma Software Revenue represents Software Products & Services revenue on a Pro Forma basis. Non-GAAP gross margin is defined as Non-GAAP gross profit divided by revenue. Non-GAAP gross profit is calculated as our loss from operations with adjustments to add back sales and marketing expense, research and development expense, general and administrative expense and amortization expense. Non-GAAP net loss (pro forma) is the Company’s net loss excluding the items set forth below. Non-GAAP net income (loss) and non-GAAP net income (loss) per share is the Company’s net income (loss) and net income (loss) per share, adjusted to exclude provision for income taxes, depreciation expense, amortization expense, stock-based compensation expense, changes in fair value of contingent consideration, interest income, interest expense, foreign currency gains and losses, gain on debt extinguishment, acquisition and due diligence costs, gain or loss on sale of investment assets, loss from business held for sale, variable consultant performance bonus expense, and severance and executive transition costs. The results for non-GAAP net income (loss), are presented below for the three and six months ended June 30, 2024 and 2023. The items excluded from these non-GAAP financial measures, as well as a breakdown of GAAP net loss, non-GAAP net income (loss) and these excluded items between our Core Operations and Corporate, are detailed in the reconciliation below. In addition, we have provided supplemental non-GAAP measures of gross profit, operating expenses, loss from operations, other (expense) income, net, and loss before income taxes, excluding the items excluded from non-GAAP net loss as noted above, and reconciling such non-GAAP measures to the most directly comparable GAAP measures.

Current wording

Pro Forma Software Revenue represents Software Products & Services revenue on a Pro Forma basis. Non-GAAP gross margin is defined as Non-GAAP gross profit divided by revenue. Non-GAAP gross profit is calculated as our loss from operations with adjustments to add back sales and marketing expense, research and development expense, general and administrative expense and amortization expense. Non-GAAP net loss (pro forma) is the Company’s net loss excluding the items set forth below. Non-GAAP net income (loss) and non-GAAP net income (loss) per share is the Company’s net income (loss) and net income (loss) per share, adjusted to exclude provision for income taxes, depreciation expense, amortization expense, stock-based compensation expense, changes in fair value of contingent consideration, interest income, interest expense, foreign currency gains and losses, gain on debt extinguishment, acquisition and due diligence costs, gain or loss on sale of investment assets, loss from business held for sale, variable consultant performance bonus expense, severance and executive transition costs and net income from discontinued operations. The results for non-GAAP net income (loss), are presented below for the three and nine months ended September 30, 2024 and 2023. The items excluded from these non-GAAP financial measures, as well as a breakdown of GAAP net loss, non-GAAP net income (loss) and these excluded items between our Core Operations and Corporate, are detailed in the reconciliation below. In addition, we have provided supplemental non-GAAP measures of gross profit, operating expenses, loss from operations, other (expense) income, net, and loss before income taxes, excluding the items excluded from non-GAAP net loss as noted above, and reconciling such non-GAAP measures to the most directly comparable GAAP measures.

Previous wording

(1)Core operations consists of our consolidated Software Products & Services and Managed Services that include our content licensing and advertising services, and their supporting operations, including direct costs of sales as well as operating expenses for sales, marketing and product development and certain general and administrative costs dedicated to these operations.

Current wording

(1)Core operations consists of our consolidated Software Products & Services and Managed Services that include our content licensing and representation services, and their supporting operations, including direct costs of sales as well as operating expenses for sales, marketing and product development and certain general and administrative costs dedicated to these operations.

Previous wording

$51.8 million in the corresponding prior year period. The following tables set forth the calculation of our non-GAAP gross profit and non-GAAP gross margin, followed by a reconciliation of non-GAAP to GAAP financial information presented in our condensed consolidated financial statements for three and six months ended June 30, 2024 and 2023.

Current wording

For the three months ended September 30, 2024, our loss from operations decreased to $22.5 million compared to $25.2 million in the corresponding prior year period. For the nine months ended September 30, 2024 our loss from operations decreased to $67.2 million compared to $79.8 million in the corresponding prior year period. The following tables set forth the calculation of our non-GAAP gross profit and non-GAAP gross margin, followed by a reconciliation of non-GAAP to GAAP financial information presented in our condensed consolidated financial statements for three and nine months ended September 30, 2024 and 2023.

Previous wording

We are providing the following unaudited supplemental financial information regarding our Software Products & Services and Managed Services as a lookback of prior years to explain our recent historical and year-over-year performance.

Current wording

We are providing the following unaudited supplemental financial information regarding our Software Products & Services as a lookback of prior years to explain our recent historical and year-over-year performance.

Previous wording

The supplemental financial information for our Software Products & Services includes: (i) Pro Forma Software Revenue, (ii) Total Software Products & Services Customers, (iii) Annual Recurring Revenue, (iv) Total New Bookings, and (iv) Gross Revenue Retention, in each case as defined in the footnotes to the table below. The supplemental financial information for our Managed Services includes: (i) average billings per active Managed Services client, and (ii) revenue.

Current wording

The supplemental financial information for our Software Products & Services includes: (i) Pro Forma Software Revenue, (ii) Total Software Products & Services Customers, (iii) Annual Recurring Revenue, (iv) Total New Bookings, and (iv) Gross Revenue Retention, in each case as defined in the footnotes to the table below.

Previous wording

We have experienced and may continue to experience volatility in revenue from our Managed Services due to a number of factors, including: (i) the timing of new large customer agreements; (ii) loss of customers who choose to replace our services with new providers or by bringing their advertising placement in-house; (iii) customers who experience reductions in their advertising budgets due to issues with their own businesses; and (iv) the seasonality of the campaigns for certain large customers. We have historically generated a significant portion of our revenue from a few major customers. As we continue to grow and diversify our customer base, we expect that our dependency on a limited number of large customers will be minimized.

Current wording

In the past, we have provided supplemental financial information for our Managed Services including average billings per active Managed Services client, and revenue. Because Managed Services will comprise a smaller portion of our business after the Divestiture, we no longer will provide this supplemental information. Prior to the Divestiture, we experienced volatility in revenue from our Managed Services due to a number of factors, including: (i) the timing of new large customer agreements; (ii) loss of customers who chose to replace our services with new providers or by bringing their advertising placement in-house; (iii) customers who experience reductions in their advertising budgets due to issues with their own businesses; and (iv) the seasonality of the campaigns for certain large customers. We historically generated a significant portion of our revenue from a few major customers. After the Divestiture, we expect revenue from our Managed Services to continue to experience volatility.

Previous wording

(1) “Pro Forma Software Revenue” includes historical Software Products & Services Revenue from the past ten (10) fiscal quarters of each of Veritone, Inc. and Broadbean and presents such revenue on a combined pro forma basis treating Broadbean as owned by Veritone, Inc. since January 1, 2022.

Current wording

(1) “Pro Forma Software Revenue” includes historical Software Products & Services Revenue from the past eleven (11) fiscal quarters of each of Veritone, Inc. and Broadbean and presents such revenue on a combined pro forma basis treating Broadbean as owned by Veritone, Inc. since January 1, 2022.

Previous wording

The following tables set forth our results of operations for the three and six months ended June 30, 2024 and 2023, in dollars and as a percentage of our revenue for those periods. The period-to-period comparisons of our historical results are not necessarily indicative of the results that may be expected in the future.

Current wording

The following tables set forth our results of operations for the three and nine months ended September 30, 2024 and 2023, in dollars and as a percentage of our revenue for those periods. The period-to-period comparisons of our historical results are not necessarily indicative of the results that may be expected in the future.

Previous wording

Three and Six Months Ended June 30, 2024 Compared with Three and Six Months Ended June 30, 2023

Current wording

Three and Nine Months Ended September 30, 2024 Compared with Three and Nine Months Ended September 30, 2023

Previous wording

Commercial Enterprise Software Products & Services revenue increased $2.0 million, or 16.2%, in the three months ended June 30, 2024 compared to the corresponding prior year period and increased $3.0 million, or 11.8%, in the six months ended June 30, 2024 compared to the corresponding prior year period, in each case, primarily due to the addition of Broadbean in the second quarter of 2023, partially offset by decreased revenue from consumption-based customers, including Amazon. We also realized a 3.1% increase from recurring subscription-based SaaS revenue customers for the three months ended June 30, 2024 compared to the prior year period. Commercial Enterprise Managed Services increased $1.5 million, or 10.7%, in the three months ended June 30, 2024 compared to the corresponding prior year period and increased $1.8 million, or 5.9%, in the six months ended June 30, 2024 compared to the corresponding prior year period, in each case, primarily due to increases in advertising revenue driven by the current advertising economic environment.

Current wording

Commercial Enterprise Software Products & Services revenue decreased $5.8 million, or 30.6%, in the three months ended September 30, 2024 compared to the corresponding prior year period and decreased $2.8 million, or 6.3%, in the nine months ended September 30, 2024 compared to the corresponding prior year period, in each case, primarily due to decreased revenue from one-time software sales and from consumption-based customers, including Amazon, partially offset by the addition of Broadbean in the second quarter of 2023. Commercial Enterprise Managed Services decreased $0.3 million, or 4.0%, in the three months ended September 30, 2024 compared to the corresponding prior year period primarily due to lower revenue from licensing customers, partially offset by increased revenue from representation services. Commercial Enterprise Managed Services increased $0.4 million, or 1.5%, in the nine months ended September 30, 2024 compared to the corresponding prior year period, primarily due to lower revenue from licensing customers, partially offset by increased revenue from representation services.

Previous wording

Public Sector Software Products & Services revenue decreased $0.5 million, or 29.9%, in the three months ended June 30, 2024 compared to the corresponding prior year period and decreased $0.4 million, or 11.9%, in the six months ended June 30, 2024 compared to the corresponding prior year period, primarily due to certain one-time service revenues in the three months ended June 30, 2023 that did not recur in three months ended June 20, 2024, partially offset by organic growth in software revenues from public safety and federal customers. In some cases, Software Products & Services revenue from Public Sector customers in certain markets, particularly our government customers, can be project-based and impacted by the timing of such projects. As such, we expect that our revenue from these markets could fluctuate significantly from period to period.

Current wording

Public Sector Software Products & Services revenue increased $0.1 million, or 8.1%, in the three months ended September 30, 2024 compared to the corresponding prior year period and decreased $0.2 million, or 5.3%, in the nine months ended September 30, 2024 compared to the corresponding prior year period, primarily due to fluctuations in timing and magnitude of spend by public safety and federal customers. In some cases, Software Products & Services revenue from Public Sector customers in certain markets, particularly our government customers, can be project-based and impacted by the timing of such projects. As such, we expect that our revenue from these markets could fluctuate significantly from period to period

Previous wording

Cost of Revenue. Cost of revenue decreased by $1.2 million and $0.9 million in the three and six months ended June 30, 2024, respectively, compared to the corresponding prior year periods, in each case, primarily due to improved margins from certain of our customers and a shift in the mix of revenues from lower margin Managed Services products to higher margin Software Products & Services products. During the six months ended June 30, 2024, Software Products & Services products accounted for 49.3% of revenues compared to 48.5% in the prior year period. Cost of revenues as a percentage of revenue improved to 21.2% and 21.8% in the three and six months ended June 30, 2024, respectively, as compared to 27.8% and 25.0% in the three and six months ended June 30, 2023, respectively.

Current wording

Cost of Revenue. Cost of revenue decreased by $0.7 million and $1.8 million in the three and nine months ended September 30, 2024, respectively, compared to the corresponding prior year periods, in each case, primarily due to the decline in revenues, especially in the higher margin Software Products & Services. During the nine months ended September 30, 2024, Software Products & Services products accounted for 64.9% of revenues compared to 66.7% in the prior year period. Cost of revenues as a percentage of revenue increased to 28.8% from 25.1% in the three months ended September 30, 2024, respectively, as compared a decrease to 27.9% from 29.3% in the nine months ended September 30, 2023.

Previous wording

Sales and Marketing. Sales and marketing expenses decreased by $0.5 million and $1.3 million in the three and six months ended June 30, 2024, respectively, compared to the corresponding prior year periods, in each case, primarily due to cost reduction initiatives announced in the first quarter of 2023 and reduced advertising spend, partially offset by increased sales and marketing expense as a result of the acquisition of Broadbean in June 2023. As a percentage of revenue, sales and marketing expenses decreased to 40.9% and 39.1% during the three and six months ended June 30, 2024, respectively, from 46.9% and 44.3% during the three and six months ended June 30, 2023, respectively.

Current wording

Sales and Marketing. Sales and marketing expenses decreased by $0.8 million and $1.7 million in the three and nine months ended September 30, 2024, respectively, compared to the corresponding prior year periods, in each case, primarily due to cost reduction initiatives announced in the first quarter of 2024 partially offset by increased advertising expense and sales and marketing expense as a result of the acquisition of Broadbean in June 2023. As a percentage of revenue, sales and marketing expenses increased to 46.3% from 39.3% during the three months ended September 30, 2024, and decreased to 44.6% from 45.2% during the nine months ended September 30, 2023.

Previous wording

Research and Development. Research and development expenses decreased by $3.9 million, or 36.8%, and $6.2 million, or 28.1%, in the three and six months ended June 30, 2024, respectively, compared with the corresponding prior year periods, in each case, principally due to decreased personnel-related costs resulting from various cost reduction initiatives, partially offset by increases in research and development costs from the acquisition of Broadbean in June 2023 and increased capitalized costs for internal use software. As a percentage of revenue, research and development expenses decreased to 21.4% and 25.3% during the three and six months ended June 30, 2024, respectively, from 37.6% and 37.9% during the three and six months ended June 30, 2023, respectively.

Current wording

Research and Development. Research and development expenses decreased by $2.9 million, or 27.7%, and $9.1 million, or 27.9%, in the three and nine months ended September 30, 2024, respectively, compared with the corresponding prior year periods, in each case, principally due to decreased personnel-related costs resulting from various cost reduction initiatives, partially offset by increased amortization expenses from increased capitalized costs for internal use software and the acquisition of Broadbean in June 2023. As a percentage of revenue, research and development expenses decreased to 34.2% and 33.3% during the three and nine months ended September 30, 2024, respectively, from 37.2% and 44.6% during the three and nine months ended September 30, 2023, respectively.

Previous wording

General and Administrative. General and administrative expenses decreased by $2.3 million, or 11.9% in the three months ended June 30, 2024 compared with the corresponding prior year period, principally due to reductions in non-recurring professional fees largely associated with the Broadbean acquisition and personnel-related costs resulting from various cost reduction initiatives, partially offset by additional costs resulting from the June 2023 Broadbean acquisition. General and administrative expenses decreased by $0.2 million, or 0.7% in the six months ended June 30, 2024 compared with the corresponding prior year period, primarily due to the decrease in the second quarter of 2024, described above, partially offset by a net increase in the first quarter of 2024 compared to the prior year period, which was driven by increased costs from the June 2023 Broadbean acquisition, partially offset by expense reductions in stock based compensation and personnel related costs.

Current wording

General and Administrative. General and administrative expenses decreased by $3.8 million, or 21.0% in the three months ended September 30, 2024 compared with the corresponding prior year period, principally due to reductions in non-recurring professional fees largely associated with the Broadbean acquisition and personnel-related costs resulting from various cost reduction initiatives. General and administrative expenses decreased by $3.7 million, or 7.6% in the nine months ended September 30, 2024 compared with the corresponding prior year period, primarily due to the decrease described above, partially offset by a net increase in the first half of 2024 compared to the prior year period driven by increased costs from the June 2023 Broadbean acquisition.

Previous wording

Amortization Expense. Amortization expense increased in the three and six months ended June 30, 2024 compared with the corresponding prior year period primarily due to the addition of amortization expense related to our June 2023 acquisition of Broadbean, partially offset by certain assets being fully amortized in the third quarter of 2023.

Current wording

Amortization Expense. Amortization expense decreased in the three months ended September 30, 2024 compared with the corresponding prior period primarily due to certain intangible assets being fully amortized in the third quarter of 2023, and increased in the nine months ended September 30, 2024 compared with the corresponding prior year period primarily due to the addition of amortization expense related to our June 2023 acquisition of Broadbean.

Previous wording

Other expense, net of $4.6 million for the three months ended June 30, 2024 was primarily due to interest expense, net of $4.5 million, driven by increased interest expense from our Term Loan. Other income, net of $3.5 million for the three months ended June 30, 2023 was comprised primarily of a gain on the sale of the energy group of $2.6 million and a foreign exchange gain of $1.7 million, offset by interest expense, net of $0.7 million. Other expense, net of $9.0 million for the six months ended June 30, 2024 was primarily due to interest expense, net of $8.5 million, driven by increased interest expense from our Term Loan, and a foreign exchange loss of $0.4 million. Other income, net of 3.9 million for the six months ended June 30, 2023 was comprised primarily of a gain on the sale of the energy group of $2.6 million and a foreign exchange gain of $2.8 million, offset by interest expense, net of $1.5 million.

Current wording

Other expense, net of $2.6 million for the three months ended September 30, 2024 was primarily due to interest expense, net of $3.0 million, driven by increased interest expense from our Term Loan, partially offset by a foreign translation gain of $0.4 million. Other expense, net of $2.6 million for the three months ended September 30, 2023 was comprised primarily of a foreign exchange loss of $2.3 million. Other expense, net of $8.6 million for the nine months ended September 30, 2024 was primarily due to interest expense, net of $8.5 million, driven by increased interest expense from our Term Loan. Other income, net of $1.1 million for the nine months ended September 30, 2023 was comprised primarily of a gain on the sale of the energy group of $2.6 million and a foreign exchange gain of $0.5 million, offset by interest expense, net of $2.1 million.

Previous wording

Our non-GAAP gross profit is calculated as our revenue less our cost of revenue for the three and six months ended June 30, 2024 and 2023. A reconciliation of non-GAAP gross profit to loss from operations presented in our condensed consolidated financial statements for the three and six months ended June 30, 2024 and 2023 is shown below.

Current wording

Our non-GAAP gross profit is calculated as our revenue less our cost of revenue for the three and nine months ended September 30, 2024 and 2023. A reconciliation of non-GAAP gross profit to loss from operations presented in our condensed consolidated financial statements for the three and nine months ended September 30, 2024 and 2023 is shown below.

Previous wording

The improvement in loss from operations for the three and six months ended June 30, 2024 compared to the prior year periods resulted from our increase in revenue and decrease in total operating expenses for the reasons noted above. The increase in non-GAAP gross profit and non-GAAP gross margin in the three and six months ended June 30, 2024 compared with the corresponding prior year periods was primarily due to an increases in revenue and improved Non-GAAP gross margins compared to the corresponding prior year periods.

Current wording

The improvement in loss from operations for the three and nine months ended September 30, 2024 compared to the prior year periods resulted primarily from cost reduction initiatives over the trailing eighteen months, offset by the declines in revenue and corresponding decline in Non-GAAP gross profit. The decline in non-GAAP gross margin for the three months ended September 30, 2024 compared with the corresponding prior year period was primarily due to the decline in higher margin Commercial Enterprise revenue, including one-time software revenue and consumption based revenue from customers such as Amazon.

Previous wording

We have historically financed our business through the sale of equity and debt securities. Our principal sources of liquidity are our cash and cash equivalents, which totaled $46.0 million as of June 30, 2024, compared with total cash and cash equivalents of $79.4 million as of December 31, 2023. The decrease in our cash and cash equivalents as of June 30, 2024 as compared with December 31, 2023 was primarily due to cash used in operating activities of $27.8 million during the six months ended June 30, 2024.

Current wording

We have historically financed our business through the sale of equity and debt securities. Our principal sources of liquidity are our cash and cash equivalents, which totaled $11.4 million as of September 30, 2024, compared with total cash and cash equivalents of $46.6 million as of December 31, 2023. The decrease in our cash and cash equivalents as of September 30, 2024 as compared with December 31, 2023 was primarily due to cash used in operating activities of $24.2 million during the nine months ended September 30, 2024. As of September 30, 2024 and December 31, 2023, the Company also had cash from discontinued operations of $34.5 million and $32.8 million, respectively.

Previous wording

In December 2023, we and certain of our subsidiaries, as guarantors, entered into a Credit and Guaranty Agreement (the “Credit Agreement”), by and among the Company and certain of our subsidiaries, as guarantors, and certain funds managed by Highbridge Capital Management, LLC and with certain other lenders (collectively, the “Lenders”) and Wilmington Savings Fund Society, FSB, as administrative agent and collateral agent. The Credit Agreement provides for a $77.5 million senior secured term loan (the “Term Loan”), which was fully drawn by us on closing of the Term Loan. Based on our liquidity position at June 30, 2024 and our current forecast of operating results and cash flows, absent any other action, management determined that there is substantial doubt about our ability to continue as a going concern over the twelve months following the filing of this Quarterly Report on Form 10-Q, principally driven by our current debt service obligations, historical negative cash flows and recurring losses. We will require additional liquidity to continue our operations over the next twelve months.

Current wording

In December 2023, we and certain of our subsidiaries, as guarantors, entered into a Credit and Guaranty Agreement (the “Credit Agreement”), by and among the Company and certain of our subsidiaries, as guarantors, and certain funds managed by Highbridge Capital Management, LLC and with certain other lenders (collectively, the “Lenders”) and Wilmington Savings Fund Society, FSB, as administrative agent and collateral agent. The Credit Agreement provides for a $77.5 million senior secured term loan (the “Term Loan”), which was fully drawn by us on closing of the Term Loan.

Previous wording

The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We may not be able to access additional equity under acceptable terms, and may not be successful in future operational restructurings or at growing our revenue base. If we are unable to sell the Asset on terms favorable to us, or at all, our ability to execute on our operating plans may be materially adversely impacted. If we become unable to continue as a going concern, we may have to dispose of other or additional assets and might realize significantly less value than the values at which they are carried on our condensed consolidated financial statements. These actions may cause stockholders to lose all or part of their investment in our common stock. Our condensed consolidated financial statements do not include any adjustments that might result from our being unable to continue as a going concern. If we cannot continue as a going concern, adjustments to the carrying values and classification of our assets and liabilities and the reported amounts of income and expenses could be required and could be material.

Current wording

The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business, including the ability to meet minimum liquidity thresholds under our Term Loan Credit Agreement. We may not be able to access additional equity under acceptable terms, and may not be successful in future operational restructurings, earning any of our deferred purchase consideration, meeting our minimum liquidity threshold under our Credit Agreement, growing our revenue base and our ability to execute on our operating plans may be materially adversely impacted. If we become unable to continue as a going concern, we may have to dispose of other or additional assets and might realize significantly less value than the values at which they are carried on our condensed consolidated financial statements. These actions may cause stockholders to lose all or part of their investment in our common stock. Our condensed consolidated financial statements do not include any adjustments that might result from our being unable to continue as a going concern. If we cannot continue as a going concern, adjustments to the carrying values and classification of our assets and liabilities and the reported amounts of income and expenses could be required and could be material.

Previous wording

Our operating activities used cash of $27.8 million in the six months ended June 30, 2024, due primarily to our net loss of $47.4 million, adjusted by $19.4 million in non-cash expenses, including $14.5 million in depreciation and amortization, $3.7 million in stock-based compensation expense and $3.0 million of amortized debt issuance costs. Cash generated by operating activities in the six months ended June 30, 2024 was partially offset by a net working capital impact of $0.3 million, primarily due to net cash inflows from changes in accounts receivable of $14.8 million, client advances of $17.9 million, and prepaid expenses and other current assets of $1.6 million, partially offset by net cash outflows due to the timing of accrued media payments of $24.6 million and expenditures billable to clients of $9.3 million.

Current wording

Our operating activities used cash of $24.2 million in the nine months ended September 30, 2024, due primarily to our net loss of $69.2 million, adjusted by $28.1 million in non-cash expenses, including $21.7 million in depreciation and amortization, $5.9 million in stock-based compensation expense and $4.6 million of amortized debt issuance costs, partially offset by $5.0 million from deferred taxes. Cash used in operating activities in the nine months ended September 30, 2024 was partially offset by a net working capital impact of $16.8 million, primarily due to the timing of accrued media payments of $14.0 million and client advances of $19.7 million, partially offset by net cash outflows from expenditures billable to clients of $17.6 million.

Previous wording

Our operating activities used cash of $58.5 million in the six months ended June 30, 2023, due primarily to our net loss of $46.3 million, adjusted by $16.2 million in non-cash expenses, including $12.3 million in depreciation and amortization and $6.6 million in stock-based compensation expense, as well as the net working capital decrease of $28.4 million, primarily due to decreases in accrued media payments of $34.6 million, partially offset by decreases in accounts receivable of $16.3 million.

Current wording

Our operating activities used cash of $48.1 million in the nine months ended September 30, 2023, due primarily to our net loss of $70.8 million, adjusted by $26.7 million in non-cash expenses, including $20.2 million in depreciation and amortization and $8.6 million in stock-based compensation expense, as well as the net working capital decrease of $4.0 million, primarily due to decreases in accrued media payments of $17.7 million, partially offset by decreases in accounts receivable of $14.1 million.

Previous wording

Our investing activities for the six months ended June 30, 2024 used cash of $1.6 million driven by capital expenditures, partially offset by proceeds from the sale of our interest in GridBeyond Limited, an Ireland-based privately held company.

Current wording

Our investing activities for the nine months ended September 30, 2024 used cash of $3.3 million driven by capital expenditures, partially offset by proceeds from the sale of our interest in GridBeyond Limited, an Ireland-based privately held company.