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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-38093

 

Veritone, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

47-1161641

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

1615 Platte Street, 2nd Floor, Denver, CO 80202

(Address of principal executive offices, including zip code)

(888) 507-1737

(Registrant’s telephone number, including area code)

 

2420 17th St., Office 3002, Denver, CO 80202

(Former name, former address and former fiscal year, if changed since last report))

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock, par value $0.001 per share

 

VERI

 

The NASDAQ Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2) of the Exchange Act. Yes No

As of May 1, 2023, 36,824,829 shares of the registrant’s common stock were outstanding.

 

 


 

VERITONE, INC.

QUARTERLY REPORT ON FORM 10-Q

March 31, 2023

TABLE OF CONTENTS

 

Special Note Regarding Forward-Looking Statements

1

PART I.

FINANCIAL INFORMATION

 

2

Item 1.

Financial Statements (Unaudited)

 

2

 

Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022

2

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2023 and 2022

3

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2023 and 2022

4

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022

5

 

Notes to the Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

33

PART II.

OTHER INFORMATION

 

35

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

Item 3.

Defaults Upon Senior Securities

35

Item 4.

Mine Safety Disclosures

35

Item 5.

Other Information

35

Item 6.

Exhibits

36

Signatures

37

 

 

 

 


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and we intend that such forward-looking statements be subject to the safe harbors created thereby. All statements made in this Quarterly Report on Form 10-Q that are not statements of historical fact are forward-looking statements. Without limiting the generality of the foregoing, words such as “anticipates,” “believes,” “seeks,” “estimates,” “expects,” “intends,” “continue,” “can,” “may,” “plans,” “potential,” “projects,” “should,” “could,” “will,” “would” or similar expressions and the negatives of those expressions may identify forward-looking statements, although not all forward-looking statements contain these identifying words. Such forward-looking statements include, but are not limited to, any statements that refer to projections of our future financial condition and results of operations, capital needs and financing plans, competitive position, industry environment, potential growth and market opportunities, acquisition plans and strategies, compensation plans, governance structure and policies and/or the price of our common stock.

The forward-looking statements included herein represent our management’s current expectations and assumptions based on information available as of the date of this report. These statements involve numerous known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Factors that may cause or contribute to such differences include, but are not limited to:

our ability to expand our aiWARE SaaS business;
declines or limited growth in the market for AI-based software applications and concerns over the use of AI that may hinder the adoption of AI technologies;
our requirements for additional capital to support our business growth, and the availability of such capital on acceptable terms, if at all;
our reliance upon a limited number of key customers for a significant portion of our revenue, including declines in key customers’ usage of our products and other offerings;
fluctuations in our results over time;
the impact of seasonality on our business;
our ability to manage our growth, including through acquisitions and our further expansion into international markets;
our ability to enhance our existing products and introduce new products that achieve market acceptance and keep pace with technological developments;
actions by our competitors, partners and others that may block us from using the technology in our aiWARE platform, offering it for free to the public or making it cost prohibitive to continue to incorporate their technologies into our platform;
interruptions, performance problems or security issues with our technology and infrastructure, or that of our third party service providers;
the impact of the continuing economic disruption caused by the recent and potential future disruptions in access to bank deposits or lending commitments due to bank failures, COVID-19 pandemic and the Russian invasion of Ukraine on the business of the Company and that of our existing and potential customers;
increasing interest rates, inflationary pressures and the threat of a recession in the United States and around the world; and
any additional factors discussed in Item 1A (Risk Factors) of Part I of our Annual Report on Form 10-K for the year ended December 31, 2022 and our other filings with the Securities and Exchange Commission (“SEC”), including future SEC filings.

All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that actual results will not differ materially from expectations. You should carefully review these risks, as well as the additional risks described in other documents we file from time to time with the SEC. In light of the significant risks and uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by us or any other person that such results will be achieved, and readers are cautioned not to place undue reliance on such forward-looking information, which speak only as of the date of this report.

Moreover, we operate in an evolving environment. New risks and uncertainties emerge from time to time and it is not possible for our management to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual future results to be materially different from those expressed or implied by any forward-looking statements.

Except as required by law, we assume no obligation to update any forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. We qualify all of our forward-looking statements by these cautionary statements.

1


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

VERITONE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share and share data)

(Unaudited)

 

 

As of

 

 

March 31,
2023

 

 

December 31,
2022

 

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

139,707

 

 

$

184,423

 

Accounts receivable, net

 

 

54,071

 

 

 

56,001

 

Expenditures billable to clients

 

 

13,035

 

 

 

22,339

 

Prepaid expenses and other current assets

 

 

13,585

 

 

 

15,242

 

Total current assets

 

 

220,398

 

 

 

278,005

 

Property, equipment and improvements, net

 

 

6,394

 

 

 

5,291

 

Intangible assets, net

 

 

74,555

 

 

 

79,664

 

Goodwill

 

 

46,460

 

 

 

46,498

 

Long-term restricted cash

 

 

862

 

 

 

859

 

Other assets

 

 

13,901

 

 

 

14,435

 

Total assets

 

$

362,570

 

 

$

424,752

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Accounts payable

 

$

38,015

 

 

$

36,738

 

Accrued media payments

 

 

82,407

 

 

 

102,064

 

Client advances

 

 

3,412

 

 

 

19,042

 

Contingent consideration, current

 

 

190

 

 

 

8,067

 

Other accrued liabilities

 

 

28,123

 

 

 

27,412

 

Total current liabilities

 

 

152,147

 

 

 

193,323

 

Convertible senior notes, non-current

 

 

137,982

 

 

 

137,767

 

Other non-current liabilities

 

 

11,721

 

 

 

13,811

 

Total liabilities

 

 

301,850

 

 

 

344,901

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Common stock, par value $0.001 per share; 75,000,000 shares authorized; 36,792,812 and 36,321,222 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

 

 

37

 

 

 

36

 

Additional paid-in capital

 

 

455,759

 

 

 

451,162

 

Accumulated deficit

 

 

(394,234

)

 

 

(371,271

)

Accumulated other comprehensive loss

 

 

(842

)

 

 

(76

)

Total stockholders' equity

 

 

60,720

 

 

 

79,851

 

Total liabilities and stockholders' equity

 

$

362,570

 

 

$

424,752

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


 

VERITONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

(in thousands, except per share and share data)

(Unaudited)

 

 

Three Months Ended
March 31,

 

 

2023

 

 

2022

 

Revenue

 

$

30,263

 

 

$

34,407

 

Operating expenses:

 

 

 

 

 

 

Cost of revenue

 

 

6,809

 

 

 

6,923

 

Sales and marketing

 

 

12,690

 

 

 

11,069

 

Research and development

 

 

11,527

 

 

 

9,883

 

General and administrative

 

 

17,397

 

 

 

22,321

 

Amortization

 

 

5,429

 

 

 

5,016

 

Total operating expenses

 

 

53,852

 

 

 

55,212

 

Loss from operations

 

 

(23,589

)

 

 

(20,805

)

Other income (expense), net

 

 

355

 

 

 

(1,186

)

Loss before provision for income taxes

 

 

(23,234

)

 

 

(21,991

)

(Benefit from) provision for income taxes

 

 

(271

)

 

 

138

 

Net loss

 

$

(22,963

)

 

$

(22,129

)

Net loss per share:

 

 

 

 

 

 

Basic and diluted

 

$

(0.63

)

 

$

(0.62

)

Weighted average shares outstanding:

 

 

 

 

 

 

Basic and diluted

 

 

36,587,946

 

 

 

35,476,948

 

Comprehensive loss:

 

 

 

 

 

 

Net loss

 

$

(22,963

)

 

$

(22,129

)

Foreign currency translation (loss) gain, net of income taxes

 

 

(766

)

 

 

190

 

Total comprehensive loss

 

$

(23,729

)

 

$

(21,939

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


 

VERITONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Other

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Total

 

Balance as of December 31, 2022

 

 

36,321,222

 

 

$

36

 

 

$

451,162

 

 

$

(371,271

)

 

$

(76

)

 

$

79,851

 

Common stock issued under employee stock plans, net

 

 

466,906

 

 

 

1

 

 

 

642

 

 

 

 

 

 

 

 

 

643

 

Common stock withheld for employee taxes

 

 

(131,116

)

 

 

 

 

 

(852

)

 

 

 

 

 

 

 

 

(852

)

Common stock issued as part of contingent consideration

 

 

135,800

 

 

 

 

 

 

756

 

 

 

 

 

 

 

 

 

756

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

4,051

 

 

 

 

 

 

 

 

 

4,051

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(22,963

)

 

 

 

 

 

(22,963

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(766

)

 

 

(766

)

Balance as of March 31, 2023

 

 

36,792,812

 

 

$

37

 

 

$

455,759

 

 

$

(394,234

)

 

$

(842

)

 

$

60,720

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Other

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Total

 

Balance as of December 31, 2021

 

 

34,972,256

 

 

$

35

 

 

$

431,606

 

 

$

(345,037

)

 

$

(104

)

 

$

86,500

 

Cumulative-effect of accounting change adopted as of January 1, 2022

 

 

 

 

 

 

 

 

 

 

 

(677

)

 

 

 

 

 

(677

)

Common stock issued under employee stock plans, net

 

 

1,073,543

 

 

 

1

 

 

 

569

 

 

 

 

 

 

 

 

 

570

 

Common stock withheld for employee taxes

 

 

(457,840

)

 

 

 

 

 

(9,437

)

 

 

 

 

 

 

 

 

(9,437

)

Common stock issued for acquisition

 

 

116,550

 

 

 

 

 

 

1,929

 

 

 

 

 

 

 

 

 

1,929

 

Common stock issued as part of contingent consideration

 

 

352,330

 

 

 

 

 

 

6,440

 

 

 

 

 

 

 

 

 

6,440

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

4,847

 

 

 

 

 

 

 

 

 

4,847

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(22,129

)

 

 

 

 

 

(22,129

)

Other comprehensive gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

190

 

 

 

190

 

Balance as of March 31, 2022

 

 

36,056,839

 

 

$

36

 

 

$

435,954

 

 

$

(367,843

)

 

$

86

 

 

$

68,233

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


 

VERITONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

Three Months Ended
March 31,

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(22,963

)

 

$

(22,129

)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

5,907

 

 

 

5,214

 

Provision for credit losses

 

 

(72

)

 

 

194

 

Stock-based compensation expense

 

 

3,917

 

 

 

4,847

 

Change in fair value of contingent consideration

 

 

651

 

 

 

5,045

 

Change in deferred taxes

 

 

(311

)

 

 

(465

)

Amortization of debt issuance costs

 

 

215

 

 

 

299

 

Amortization of right-of-use assets

 

 

300

 

 

 

251

 

Imputed non-cash interest (income) expense

 

 

(22

)

 

 

16

 

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

2,002

 

 

 

18,982

 

Expenditures billable to clients

 

 

9,304

 

 

 

7,487

 

Prepaid expenses and other assets

 

 

631

 

 

 

(34

)

Other assets

 

 

234

 

 

 

(1,146

)

Accounts payable

 

 

1,277

 

 

 

(8,384

)

Accrued media payments

 

 

(19,657

)

 

 

8,770

 

Client advances

 

 

(15,630

)

 

 

(2,593

)

Other accrued liabilities

 

 

2,211

 

 

 

(6,104

)

Other liabilities

 

 

(1,779

)

 

 

(116

)

Net cash (used in) provided by operating activities

 

 

(33,785

)

 

 

10,134

 

Cash flows from investing activities:

 

 

 

 

 

 

Minority investment

 

 

 

 

 

(2,000

)

Capital expenditures

 

 

(1,447

)

 

 

(735

)

Acquisitions, net of cash acquired

 

 

(1,500

)

 

 

(1,319

)

Net cash used in investing activities

 

 

(2,947

)

 

 

(4,054

)

Cash flows from financing activities:

 

 

 

 

 

 

Payment of contingent considerations

 

 

(7,772

)

 

 

(14,376

)

Taxes paid related to net share settlement of equity awards

 

 

(852

)

 

 

(9,441

)

Proceeds from issuances of stock under employee stock plans, net

 

 

643

 

 

 

569

 

Net cash used in financing activities

 

 

(7,981

)

 

 

(23,248

)

Net decrease in cash and cash equivalents and restricted cash

 

 

(44,713

)

 

 

(17,168

)

Cash and cash equivalents and restricted cash, beginning of period

 

 

185,282

 

 

 

255,577

 

Cash and cash equivalents and restricted cash, end of period

 

$

140,569

 

 

$

238,409

 

Supplemental Disclosure of Cash Flow Information

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

Shares issued for acquisition of businesses and earn-out consideration

 

 

756

 

 

 

8,369

 

Stock-based compensation capitalized for software development

 

 

134

 

 

 

33

 

Lease liabilities arising from right-of-use assets

 

 

499

 

 

 

4,501

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


 

VERITONE, INC.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except share and per share data and percentages)

(Unaudited)

NOTE 1. DESCRIPTION OF BUSINESS

Veritone, Inc., a Delaware corporation (“Veritone” and together with its subsidiaries, collectively, the “Company”), is a provider of artificial intelligence (“AI”) computing solutions. The Company’s proprietary AI operating system, aiWARETM, uses machine learning algorithms, or AI models, together with a suite of powerful applications, to reveal valuable insights from vast amounts of structured and unstructured data. The aiWARE platform offers capabilities that mimic human cognitive functions such as perception, prediction and problem solving, enabling users to quickly, efficiently and cost effectively transform unstructured data into structured data, and analyze and optimize data to drive business processes and insights. aiWARE is based on an open architecture that enables new AI models, applications and workflows to be added quickly and efficiently, resulting in a scalable and evolving solution that can be leveraged by organizations across a broad range of business sectors, serving commercial enterprises as well as government and regulated industries.

In addition, the Company operates a full-service advertising agency that leverages the Company’s aiWARE technologies to provide differentiated Managed Services to its clients. The Company’s advertising services include media planning and strategy, advertisement buying and placement, campaign messaging, clearance verification and attribution, and custom analytics, specializing in host-endorsed and influencer advertising across primarily radio, podcasting, streaming audio, social media and other digital media channels. The Company’s advertising services also include its VeriAds Network, which is comprised of programs that enable broadcasters, podcasters and social media influencers to generate incremental advertising revenue. The Company also offers cloud-native digital content management solutions and licensing services, primarily to customers in the media and entertainment market. These offerings leverage the Company’s aiWARE technologies, providing customers with unique capabilities to enrich and drive expanded revenue opportunities from their content.

On August 11, 2022, the Company acquired certain assets of Vision Semantics Limited (“VSL”), a U.K.-based company focused on AI-powered video analytics and surveillance software solutions. On June 10, 2022, the Company acquired VocaliD, Inc. (“VocaliD”), a U.S.-based company that pioneered the creation of personalized synthetic voices. On March 1, 2022, the Company acquired an influencer-based management company. For further details on these acquisitions, refer to Note 3.

NOTE 2. PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial statements and the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not contain all information and footnotes required by GAAP for annual financial statements. Such unaudited condensed consolidated financial statements and accompanying notes are based on the representations of the Company’s management, who is responsible for their integrity and objectivity. The information included in this Form 10-Q should be read in conjunction with the information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 16, 2023. Interim results for the three months ended March 31, 2023 are not necessarily indicative of the results the Company will have for the full year ending December 31, 2023.

The accompanying condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which are normal, recurring and necessary to fairly state the Company’s financial position, results of operations and cash flows. All significant intercompany transactions have been eliminated in consolidation. The financial data and the other information disclosed in these notes to the condensed consolidated financial statements reflected in the three and nine month periods presented are unaudited. The December 31, 2022 balance sheet included herein was derived from the audited financial statements but does not include all disclosures or notes required by GAAP for complete financial statements.

 

Liquidity and Capital Resources

During the years ended December 31, 2022 and 2021, the Company generated cash flows from operations of $3,737 and $7,234, respectively, and incurred net losses of $25,557 and $64,672, respectively. During the three months ended March 31, 2023, the Company used cash in operations of $33,785 and incurred a net loss of $22,963. As of March 31, 2023, the Company had an accumulated deficit of $394,234. Historically, the Company has satisfied its capital needs with the net proceeds from sales of equity securities, issuances of convertible debt, and the exercise of common stock options and warrants. If the Company needs to raise additional capital in order to continue to execute its business plan, there is no assurance that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable to the Company. During the three months ended March 31, 2023, the Company received net proceeds of $643 from the issuance of

6


 

common stock under the Company’s employee stock plans, and used $852 for taxes paid related to net share settlement of equity awards and $7,772 for payment of the 2022 earnout for PandoLogic.

Management believes that the Company’s existing balances of cash and cash equivalents, which totaled $139,707 as of March 31, 2023, will be sufficient to meet its anticipated cash requirements for the next twelve months.

Use of Accounting Estimates

The preparation of the accompanying condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the accompanying condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The principal estimates relate to the accounting recognition and presentation of revenue, allowance for credit losses, purchase accounting, impairment of long-lived assets, the valuation of contingent consideration, the valuation of non-cash consideration received in barter transactions and evaluation of realizability, and the valuation of stock awards and stock warrants and income taxes, where applicable.

There has been uncertainty and disruption in the global economy and financial markets due to the COVID-19 pandemic, the war in Ukraine, the recent inflationary environment and rising interest rates. The Company is not aware of any specific event or circumstance that would require an update to its estimates or assumptions or a revision of the carrying value of its assets or liabilities as of the date of filing of this Quarterly Report on Form 10-Q.

These estimates and assumptions may change as new events occur and additional information is obtained. As a result, actual results could differ materially from these estimates and assumptions.

 

Significant Customers

One individual customer accounted for 10% or more of the Company’s revenue for the three months ended March 31, 2023 and 2022. Two individual customers accounted for 10% or more of the Company’s accounts receivable as of March 31, 2023 and one individual customer accounted for 10% or more of the Company’s accounts receivable as of December 31, 2022.

 

Remaining Performance Obligations

As of March 31, 2023, the aggregate amount of the transaction prices under the Company’s contracts allocated to the Company’s remaining performance obligations was $5,888, approximately 49% of which the Company expects to recognize as revenue over the next twelve months, and the remainder thereafter. This aggregate amount excludes amounts allocated to remaining performance obligations under contracts that have an original duration of one year or less and variable consideration that is allocated to remaining performance obligations. Excluded based on this policy are balances related to hiring solutions representing gross purchase orders to be satisfied in less than one year. Revenues will be recognized net of costs to fulfill these orders.

 

Assets and Liabilities Held for Sale

The Company determined that its energy group met the held for sale criteria under GAAP as of March 31, 2023. The potential sale of the energy group would not qualify as discontinued operations as of that date because the disposal would not have a major effect on the Company’s operations and financial results. As of March 31, 2023, the Company classified $20 as assets held for sale within prepaid expenses and other current assets and $11 as liabilities held for sale within other accrued liabilities on its condensed consolidated balance sheet.

 

Segment Information

The Company operates as one reportable segment. The Company reports segment information based on the internal reporting used by the chief operating decision maker for making decisions and assessing performance as the source of the Company’s reportable segments.

As of January 1, 2023, Chad Steelberg, who had served as the Company’s chief operating decision maker during the year ended December 31, 2022, resigned as the Company’s Chief Executive Officer effective as of December 31, 2022. Ryan Steelberg was appointed by the Company’s Board of Directors as President and Chief Executive Officer, effective as of January 1, 2023, and serves as the chief operating decision maker of the Company. Despite the change in the chief operating decision maker, the Company determined no change to segment reporting was necessary as there was no change in the components of the Company for which separate financial information is regularly evaluated.

 

7


 

Significant Accounting Policies

There have been no material changes in the Company’s significant accounting policies from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022, other than those associated with the recently adopted guidance on accounting for expected credit losses as further described in Note 8.

 

Recently Adopted Accounting Pronouncements

In September 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) which requires measurement and recognition of expected credit losses for financial assets held. This standard will be effective for the Company beginning in the first quarter of fiscal year 2023, and early adoption is permitted. The Company adopted this guidance on January 1, 2023 and the impact of the adoption was not material to our consolidated financial statements as credit losses are not expected to be significant based on historical collection trends, the financial condition of payment partners, and external market factors.

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers, in order to align the recognition of a contract liability with the definition of a performance obligation. The Company adopted this guidance on January 1, 2023. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

NOTE 3. BUSINESS COMBINATIONS

 

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 in 2023 totaling $300, which 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 condensed 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