Veritone, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Business Combinations and Divestiture

Customer relationships

Developed technology

Total intangible assets

Business Combinations and Divestiture

12 Months Ended

Dec. 31, 2023

Business Combinations [Abstract]

Business Combinations and Divestiture

NOTE 3. BUSINESS COMBINATIONS AND DIVESTITURE

Broadbean Acquisition

On June 13, 2023, the Company acquired Broadbean (as defined below), a global leader of talent acquisition software-as-a-service technology, pursuant to a securities and asset purchase agreement whereby the Company acquired (i) 100% of the issued and outstanding share capital of (a) Broadbean Technology Pty Ltd I, (b) Broadbean Technology Limited, (c) Broadbean, Inc., and (d) CareerBuilder France S.A.R.L., and (ii) certain assets and liabilities related thereto (the foregoing clauses (i) and (ii) together, “Broadbean”). The acquisition is intended to strengthen Veritone’s AI-driven human resources product suite, building on the Company’s previous acquisition of PandoLogic.

The total purchase consideration was $53,301 (the “Broadbean Acquisition Consideration”), which consisted of cash payments of $53,301 at closing. The Company incurred $4,214 in acquisition-related expenses and has recorded them in general and administrative expenses in the consolidated statement of operations and comprehensive loss. The following table summarizes the fair value of the Broadbean Acquisition Consideration:



Broadbean Acquisition Consideration		Amount


Cash consideration at closing		$	53,301

The allocation of the Broadbean Acquisition Consideration to tangible and intangible assets acquired and liabilities assumed is based on estimated fair values and is as follows:


Allocation of Broadbean Acquisition Consideration**	As Reported		Measurement Period Adjustment			As Adjusted
Cash and cash equivalents	$	3,029	$	4		$	3,033
Accounts receivable, net		7,910		(93	)		7,817
Prepaid expenses and other current assets		1,008		(1	)		1,007
Property, equipment and improvements, net		4,348		(4,005	)		343
Intangible assets		27,500		—			27,500
Other assets		1,115		2,371			3,486
Total assets acquired		44,910		(1,724	)		43,186
Accounts payable		1,369		(262	)		1,107
Deferred revenue		10,134		(105	)		10,029
Other accrued liabilities		4,565		489			5,054
Other non-current liabilities		7,565		(947	)		6,618
Total liabilities assumed		23,633		(825	)		22,808
Identifiable net assets acquired		21,277		(899	)		20,378
Goodwill		31,947		976			32,923
Total purchase consideration	$	53,224	$	77		$	53,301

**The excess of the total consideration over the tangible assets, identifiable intangible assets, and assumed liabilities is recorded as goodwill. Goodwill is primarily attributable to opportunities to cross-sell into our Commercial Enterprise customer base and to the assembled workforce. Tax deductible goodwill generated from the acquisition is $3,728.

During the year ended December 31, 2023, the Company continued finalizing its valuations of the assets acquired and liabilities assumed in the acquisition of Broadbean based on new information obtained about facts and circumstances that existed as of the acquisition date. During the year ended December 31, 2023, the Company recorded measurement period adjustments, reducing its acquisition date goodwill by approximately $1.0 million primarily to decrease the fair value of property, equipment and improvements, net by $4.0 million and other non-current liabilities by $1.0 million and increase other assets by $2.4 million based on a resolution of tax uncertainties related to qualifying net operating losses and recognition of an uncertain tax position, identification of capitalized software relating to intangible assets recognized, and balances from a formerly commingled foreign entity. In addition, the change to the preliminary amount of property, equipment and liabilities resulted in a decrease in depreciation expense and accumulated amortization of $0.2 million, of which $0.1 million relates to a previous period.

Identifiable Intangible Assets

The identifiable intangible assets acquired consisted of the customer relationships and developed technology with estimated useful lives of four to five years. The Company amortizes the fair value of these intangible assets on a straight-line basis over their respective useful lives.

Developed technology relates to Broadbean’s internally developed software. The Company valued the developed technology using the relief- from- royalty method under the income approach. This method is based on the application of a royalty rate to forecasted revenue that is expected to be generated by the existing developed technology. The economic useful life was determined based on the technology cycle related to the developed technology, as well as the timing of cash flows over the forecast period. Customer relationships relate to the sales of products and services to Broadbean’s existing customer base. The Company valued the customer relationships using the multi-period excess earnings method under the income approach. This method reflects the present value of the projected cash flows that are expected to be generated by the existing customer relationships less charges representing the contribution of other assets to those cash flows. The economic useful life was determined based on historical customer turnover rates, as well as the timing of cash flows over the forecast period.

The valuation of the intangible assets acquired along with their estimated useful lives, is as follows:



		Estimated Fair Value				Estimated Useful Lives (in years)

Taxes

In connection with the acquisition of Broadbean, a net deferred tax liability of $3,741 was established primarily relating to non-goodwill intangible assets and recorded within other non-current liabilities on the Company’s consolidated balance sheets. The amount of tax-deductible goodwill as of the purchase date is $3,728. The allocation of purchase consideration to deferred tax assets and liabilities and income taxes payable is preliminary as the Company continues to evaluate certain balances, estimates and assumptions during the measurement period (up to one year from the acquisition date).

Unaudited Pro Forma Results

The unaudited pro forma financial information in the table below summarizes the combined results of operations for the Company and Broadbean as if the companies were combined for the years ended December 31, 2023 and December 31, 2022, respectively. The unaudited pro forma financial information for all periods presented included the business combination accounting effects resulting from this acquisition, including adjustments to reflect recognition of intangible asset amortization. The unaudited pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of January 1, 2022 or the results that may occur in the future.

The Company recognized $19.1 million in revenue and $1.9 million of net income related to Broadbean since the acquisition date of June 13, 2023 through December 31, 2023 in the consolidated statement of operations and comprehensive loss.

The unaudited pro forma financial information was as follows:


	Year Ended December 31,
	2023
Net revenue	$	33,931
Loss before provision for income taxes		(381	)
Net loss		(811	)


	Year Ended December 31,
	2022
Net revenue	$	29,046
Loss before provision for income taxes		(782	)
Net income		105

VSL Acquisition

On August 11, 2022, the Company acquired certain assets of VSL, a U.K.-based company focused on AI-powered video analytics and surveillance software solutions, pursuant to an asset purchase agreement.

The total purchase consideration was $1,952 (the “VSL Acquisition Consideration”), which consisted of cash payments of $1,700 at closing and deferred cash payments to be made during the three months ended March 31, 2024 totaling $0, of which the deferred payments were estimated to have a fair value of $252 as of the acquisition date. The Company incurred $272 in acquisition-related expenses and has recorded them in general and administrative expenses in the consolidated statement of operations and comprehensive loss.

The following table summarizes the fair value of the VSL Acquisition Consideration (in thousands):


VSL Acquisition Consideration	Amount
Cash consideration at closing	$	1,700
Deferred consideration		252
Total	$	1,952

The allocation of the VSL Acquisition Consideration to tangible and intangible assets acquired and liabilities assumed is based on estimated fair values and is as follows (in thousands):


Allocation of VSL Acquisition Consideration**	Amount
Accounts receivable, net	$	57
Property, equipment and improvements, net		13
Intangible assets		1,500
Total assets acquired		1,570
Accrued expenses and other current liabilities		32
Total liabilities assumed		32
Identifiable net assets acquired		1,538
Goodwill		414
Total purchase consideration	$	1,952

Identifiable Intangible Assets

The identifiable intangible assets acquired consisted of developed technology valued at $1,500 with estimated useful lives of 3 years. The Company amortizes the fair value of these intangible assets on a straight-line basis over their respective useful lives.

The fair value of the intangible assets has been estimated using a cost approach. Under the cost approach, the replacement cost is used to estimate the value of the asset. The key assumptions include the Company’s estimates of the direct and indirect costs required to replace the asset.

VocaliD Acquisition

On June 10, 2022, the Company acquired 100% of VocaliD, a U.S.-based company that specializes in the creation of personalized synthetic voices, pursuant to a stock purchase agreement.

The total purchase consideration was $3,384 (the “VocaliD Acquisition Consideration”), which consisted of cash payments of $1,609 at closing and deferred cash payments made in 2023 totaling $2,000, of which the deferred payments were estimated to have a fair value of $1,785 as of the acquisition date, and a net working capital adjustment reducing the purchase price by $10. The Company incurred $200 in acquisition-related expenses and has recorded them in general and administrative expenses in the consolidated statement of operations and comprehensive loss.

The following table summarizes the fair value of the VocaliD Acquisition Consideration (in thousands):


VocaliD Acquisition Consideration	Amount
Cash consideration at closing	$	1,609
Deferred consideration		1,785
Net working capital adjustment		(10	)
Total	$	3,384

The allocation of the VocaliD Acquisition Consideration to tangible and intangible assets acquired and liabilities assumed is based on estimated fair values and is as follows (in thousands):


Allocation of VocaliD Acquisition Consideration**	Amount
Cash	$	216
Intangible assets		2,700
Total assets acquired		2,916
Accounts payable		6
Accrued expenses and other current liabilities		33
Deferred tax liability		663
Total liabilities assumed		702
Identifiable net assets acquired		2,214
Goodwill		1,170
Total purchase consideration	$	3,384

**The excess of the total consideration over the tangible assets, identifiable intangible assets, and assumed liabilities is recorded as goodwill. Goodwill is primarily attributable to the assembled workforce. The transaction is treated as a non-taxable stock acquisition for income tax purposes and none of the goodwill generated from the acquisition was tax deductible.

Identifiable Intangible Assets

The identifiable intangible assets acquired consisted of developed technology valued at $2,700 with estimated useful lives of 3 years. The Company amortizes the fair value of these intangible assets on a straight-line basis over their respective useful lives.

March 2022 Acquisition

On March 1, 2022, the Company acquired 100% of an influencer-based management company, which is a California limited liability company, pursuant to a securities purchase agreement dated as of March 1, 2022. The entity is an influencer management company that works with a select group of social media influencers to create content and custom marketing campaigns for brand partners and agencies.

The total purchase consideration was $5,881 (the “March Acquisition Consideration”), which consisted of a cash payment of $1,500 at closing, $1,929 for the fair value of the Company’s 116,550 shares of common stock, and deferred cash payments to be made in 2023 and 2024 totaling $3,000, of which the deferred payments were estimated to have a fair value of $2,707 on the acquisition date. The total purchase price was decreased by $976 for the settlement of a preexisting receivable and increased by $684 to adjust for the cash on hand at the time of the transaction closing and a net working capital adjustment of $37. In addition, the seller may receive up to $4,500 in contingent consideration based on achieving certain milestones tied to the entity’s financial performance in fiscal 2022 and 2023, which amount will be paid in cash (the “March Acquisition Contingent Consideration”). The fair value of the March Acquisition Contingent Consideration was estimated to be $3,015 as of March 1, 2022, all of which was deemed to be compensation to the seller which will be recognized as compensation expense over the contingent consideration period in the general and administrative expenses on the consolidated statement of operations and comprehensive loss. The Company incurred $270 in acquisition-related expenses and has recorded them in general and administrative expenses in the consolidated statement of operations and comprehensive loss.

In July 2023, the Company entered into an amendment to the March 2022 Acquisition securities purchase agreement (the “March 2022 Acquisition Amendment”). The March 2022 Acquisition Amendment provides that the March 2022 Acquisition Contingent Consideration amount was reduced to $3,500 (the “March 2022 Acquisition Contingent Consideration Amount”) and the payment is now tied to the employment status of the seller through December 31, 2025, irrespective of the actual financial performance of the acquired company. Expense associated with this expected payment will be accrued ratably over the service period. In exchange for the March 2022 Acquisition Contingent Consideration Amount,

the March 2022 Acquisition Amendment further provides that certain restrictive operational covenants and obligations of the Company terminated immediately as of the date of the March 2022 Acquisition Amendment.

The Company incurred $270 in acquisition-related expenses and has recorded them in general and administrative expenses in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2022.

The Company paid the first of two deferred cash payments of $1,500 during the year ended December 31, 2023.

The following table summarizes the fair value of the March Acquisition Consideration (in thousands):


March 2022 Acquisition Consideration	Amount
Cash consideration at closing	$	1,500
Equity consideration at closing		1,929
Deferred consideration		2,707
Acquired cash		684
Settlement of pre-existing receivable		(976	)
Net working capital adjustment		37
Total	$	5,881

The allocation of the March Acquisition Consideration to tangible and intangible assets acquired and liabilities assumed is based on estimated fair values and is as follows (in thousands):


Allocation of March 2022 Acquisition Consideration**	Amount
Cash	$	715
Accounts receivable		1,088
Prepaid and other current assets		120
Property and equipment		53
Intangible assets		2,700
Other assets		247
Total assets acquired		4,923
Accounts payable		18
Accrued expenses and other current liabilities		1,788
Operating lease liabilities, non-current		140
Total liabilities assumed		1,946
Identifiable net assets acquired		2,977
Goodwill		2,904
Total purchase consideration	$	5,881

**The excess of the total consideration over the tangible assets, identifiable intangible assets, and assumed liabilities is recorded as goodwill. Goodwill is primarily attributable to opportunities to cross-sell into our Commercial Enterprise customer base. For income tax purposes, the Company elected to treat the transaction as an asset acquisition. Tax deductible goodwill generated from the acquisition is $2,842 (including transaction costs of $270).

Identifiable Intangible Assets

The identifiable intangible assets acquired consisted of the influencer network, trade name and brand relationships with estimated useful lives of 3-10 years. The Company amortizes the fair value of these intangible assets on a straight-line basis over their respective useful lives.

The fair value of the intangible assets has been estimated using an income approach. Under the income approach, the after-tax cash flows associated with the asset are discounted to present value. The key assumptions include the Company’s estimates of the projected cash flows and discount rates.

The valuation of the intangible assets acquired along with their estimated useful lives, is as follows (in thousands):

Energy Group Divestiture

On June 30, 2023, the Company completed the sale of its energy group (the “Energy Divestiture”) to GridBeyond Limited, an Ireland-based privately held company (“GridBeyond”) that delivers AI-powered energy solutions, pursuant to an asset purchase agreement. The Company received 4,160,644 shares of Series B Preference Shares in GridBeyond valued at approximately $2,021 as well as $549 to be paid in cash of which $504 was paid during the year ended December 31, 2023. The Energy Divestiture resulted in a pre-tax gain of $2,572 for the year ended December 31, 2023. The Energy Divestiture does not meet the criteria of discontinued operations because the disposal does not have a major effect on the Company’s operations and financial results.