10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on November 14, 2023
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices, including zip code)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class |
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Trading Symbol |
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Name of each exchange on which registered |
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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.
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).
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 |
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Non-accelerated filer |
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Smaller reporting company |
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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
As of November 10, 2023,
VERITONE, INC.
QUARTERLY REPORT ON FORM 10-Q
September 30, 2023
TABLE OF CONTENTS
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PART I. |
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Item 1. |
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2 |
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Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 |
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2 |
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3 |
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4 |
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6 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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43 |
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Item 4. |
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44 |
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PART II. |
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46 |
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Item 1. |
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Item 1A. |
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46 |
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Item 2. |
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48 |
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Item 3. |
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48 |
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Item 4. |
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48 |
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Item 5. |
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Item 6. |
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49 |
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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:
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)
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As of |
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September 30, |
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December 31, |
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ASSETS |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Expenditures billable to clients |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, equipment and improvements, net |
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Intangible assets, net |
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Goodwill |
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Long-term restricted cash |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Accounts payable |
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$ |
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$ |
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Accrued media payments |
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Client advances |
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Deferred revenue |
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Contingent consideration, current |
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Other accrued liabilities |
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Total current liabilities |
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Convertible senior notes, non-current |
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Contingent consideration, non-current |
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— |
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Other non-current liabilities |
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Total liabilities |
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Stockholders' equity |
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Common stock, par value $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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Accumulated other comprehensive loss |
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( |
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( |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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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)
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Three Months Ended |
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Nine Months Ended |
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2023 |
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2022 |
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2023 |
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2022 |
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Revenue |
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$ |
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$ |
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$ |
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$ |
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Operating expenses: |
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Cost of revenue |
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Sales and marketing |
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Research and development |
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General and administrative |
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Amortization |
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Total operating expenses |
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Loss from operations |
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( |
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( |
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( |
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Other income (expense), net |
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( |
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( |
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( |
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Loss before provision for income taxes |
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( |
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( |
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( |
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( |
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(Benefit from) provision for income taxes |
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( |
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( |
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( |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Net loss per share: |
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Basic and diluted |
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$ |
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$ |
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$ |
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$ |
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Weighted average shares outstanding: |
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Basic and diluted |
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Comprehensive loss: |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Foreign currency translation (loss) gain, net of income taxes |
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( |
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Total comprehensive loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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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)
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Three Months Ended September 30, 2023 |
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Accumulated |
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Additional |
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Other |
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Common Stock |
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Paid-in |
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Accumulated |
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Comprehensive |
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Shares |
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Amount |
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Capital |
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Deficit |
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Loss |
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Total |
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Balance as of June 30, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Common stock issued under employee stock plans |
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— |
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— |
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— |
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Common stock withheld for employee taxes |
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( |
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— |
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( |
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— |
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— |
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( |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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Balance as of September 30, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Nine Months Ended September 30, 2023 |
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Accumulated |
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Additional |
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Other |
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Common Stock |
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Paid-in |
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Accumulated |
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Comprehensive |
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Shares |
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Amount |
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Capital |
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Deficit |
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Loss |
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Total |
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Balance as of December 31, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Common stock issued under employee stock plans |
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— |
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— |
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Common stock withheld for employee taxes |
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( |
) |
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— |
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( |
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— |
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— |
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( |
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Common stock issued as part of contingent consideration |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance as of September 30, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
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Three Months Ended September 30, 2022 |
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Accumulated |
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Additional |
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Other |
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Common Stock |
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Paid-in |
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Accumulated |
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Comprehensive |
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Shares |
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Amount |
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Capital |
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Deficit |
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Income |
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Total |
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Balance as of June 30, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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Common stock issued under employee stock plans |
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— |
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— |
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— |
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Common stock withheld for employee taxes |
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( |
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— |
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( |
) |
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— |
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— |
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( |
) |
Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Other comprehensive gain |
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— |
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— |
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— |
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— |
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Balance as of September 30, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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Nine Months Ended September 30, 2022 |
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Accumulated |
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Additional |
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Other |
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Common Stock |
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Paid-in |
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Accumulated |
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Comprehensive |
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Shares |
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Amount |
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Capital |
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Deficit |
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(Loss) Income |
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Total |
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Balance as of December 31, 2021 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Cumulative-effect of accounting change adopted as of January 1, 2022 |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Common stock issued under employee stock plans, net |
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— |
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— |
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Common stock withheld for employee taxes |
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( |
) |
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— |
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( |
) |
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— |
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— |
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( |
) |
Common stock issued for acquisition |
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— |
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— |
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— |
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Common stock issued as part of contingent consideration |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Other comprehensive gain |
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— |
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— |
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— |
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— |
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Balance as of September 30, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
|
|
$ |
|
|||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
VERITONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
|
|
Nine Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Provision for credit losses |
|
|
|
|
|
( |
) |
|
Stock-based compensation expense |
|
|
|
|
|
|
||
Gain on sale of energy group |
|
|
( |
) |
|
|
— |
|
Change in fair value of contingent consideration |
|
|
|
|
|
( |
) |
|
Change in deferred taxes |
|
|
( |
) |
|
|
( |
) |
Amortization of debt issuance costs |
|
|
|
|
|
|
||
Amortization of right-of-use assets |
|
|
|
|
|
|
||
Imputed non-cash interest (income) expense |
|
|
( |
) |
|
|
|
|
Changes in assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
|
|
|
|
||
Expenditures billable to clients |
|
|
( |
) |
|
|
|
|
Prepaid expenses and other assets |
|
|
|
|
|
( |
) |
|
Other assets |
|
|
( |
) |
|
|
( |
) |
Accounts payable |
|
|
|
|
|
( |
) |
|
Deferred revenue |
|
|
( |
) |
|
|
|
|
Accrued media payments |
|
|
( |
) |
|
|
|
|
Client advances |
|
|
( |
) |
|
|
|
|
Other accrued liabilities |
|
|
|
|
|
( |
) |
|
Other liabilities |
|
|
( |
) |
|
|
( |
) |
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
||
Minority investment |
|
|
— |
|
|
|
( |
) |
Proceeds from divestiture |
|
|
|
|
|
— |
|
|
Capital expenditures |
|
|
( |
) |
|
|
( |
) |
Acquisitions, net of cash acquired |
|
|
( |
) |
|
|
( |
) |
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
||
Payment of contingent consideration |
|
|
( |
) |
|
|
( |
) |
Taxes paid related to net share settlement of equity awards |
|
|
( |
) |
|
|
( |
) |
Proceeds from issuances of stock under employee stock plans, net |
|
|
|
|
|
|
||
Settlement of deferred consideration for acquisitions |
|
|
( |
) |
|
|
— |
|
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
Net decrease in cash and cash equivalents and restricted cash |
|
|
( |
) |
|
|
( |
) |
Cash and cash equivalents and restricted cash, beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents and restricted cash, end of period |
|
$ |
|
|
$ |
|
||
Supplemental Disclosure of Cash Flow Information |
|
|
|
|
|
|
||
Non-cash investing and financing activities: |
|
|
|
|
|
|
||
Fair value of shares issued for acquisition of businesses and earn-out consideration |
|
|
|
|
|
|
||
Stock-based compensation capitalized for software development |
|
|
|
|
|
|
||
Lease liabilities arising from right-of-use assets |
|
|
|
|
|
|
||
Fair value of shares received for consideration of energy group sale |
|
|
|
|
|
— |
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
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 June 13, 2023, the Company acquired Broadbean (as defined in Note 3), a global leader of talent acquisition software-as-a-service technology. 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 and nine months ended September 30, 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 six- 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.
Correction of Immaterial Error
During the third quarter of 2023, the Company recorded out of period adjustments related to prior periods associated with consolidation of foreign currency balances in its historical financial statements. The cumulative effect of the error generated during 2022 and during the six months ended June 30, 2023 was corrected during the three months ended September 30, 2023, resulting in a decrease in other income, net of $
7
quarterly periods included therein. Additionally, the Company determined that the errors were not material for the previously issued financial statements for the interim periods for which financial statements were filed during 2023.
Liquidity and Capital Resources
These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles assuming the Company will continue as a going concern. During the years ended December 31, 2022 and 2021, the Company generated cash flows from operations of $
During the nine months ended September 30, 2023, the Company used cash in operations of $
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 certain transactions including barter transactions and the evaluation of its 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 factors including the COVID-19 pandemic, the wars in Ukraine and Israel, the global inflationary environment and rising interest rates. The war in Israel has also adversely impacted the Company’s business operations because the Company has an office and personnel based in Tel Aviv, Israel. 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
No individual customer accounted for
Contract Balances
Contract liabilities are recorded as deferred revenue when customer payments are received in advance of the Company meeting all the revenue recognition criteria. Deferred revenue includes prepaid subscription and revenue with performance obligations yet to be satisfied. The Company recognized $
8
Remaining Performance Obligations
Segment Information
Seasonality
The Company experiences seasonal fluctuations in its revenue and operating performance as a result of the utilization of its platform and associated revenues from its Software Products & Services. In particular, hiring solutions revenues have historically been higher in the second half of each fiscal year, consistent with the hiring cycles of the Company’s larger customers. The Company also experiences seasonality as a result of factors such as the timing of large projects, the length and complexity of sales cycles, trends impacting the Company’s target vertical markets and the Company’s revenue recognition policies and any changes to those policies. Within a given quarter, a higher proportion of the Company’s agreements are signed toward the end of such quarter. Although these seasonal factors are common in the technology industry, historical patterns should not be considered a reliable indicator of our future sales activity or performance.
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 was effective for the Company beginning in the first quarter of fiscal year 2023. The Company adopted this guidance on January 1, 2023 and the impact of the adoption was not material to our condensed 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 condensed consolidated financial statements.
NOTE 3. BUSINESS COMBINATIONS AND DIVESTITURE
Broadbean Acquisition
On
The total purchase consideration was $
9
adjustments that the Company expects to finalize and settle in the measurement period. The final settlement amount may vary materially as amounts are finalized and ultimately agreed to by the parties.
The following table summarizes the fair value of the Broadbean Acquisition Consideration:
Preliminary Broadbean Acquisition Consideration |
|
Amount |
|
|
Cash consideration at closing |
|
$ |
|
|
The preliminary 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:
Preliminary Allocation of Broadbean Acquisition Consideration** |
|
Amount |
|
|
Cash and cash equivalents |
|
$ |
|
|
Accounts receivable, net |
|
|
|
|
Prepaid expenses and other current assets |
|
|
|
|
Property, equipment and improvements, net |
|
|
|
|
Intangible assets |
|
|
|
|
Other assets |
|
|
|
|
Total assets acquired |
|
|
|
|
Accounts payable |
|
|
|
|
Deferred revenue |
|
|
|
|
Other accrued liabilities |
|
|
|
|
Other non-current liabilities |
|
|
|
|
Total liabilities assumed |
|
|
|
|
Identifiable net assets acquired |
|
|
|
|
Goodwill |
|
|
|
|
Total purchase consideration |
|
$ |
|
|
**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.
Identifiable Intangible Assets
The identifiable intangible assets acquired consisted of the customer relationships and developed technology with estimated useful lives of to
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 |
|
|
Estimated Useful Lives (in years) |
|
Customer relationships |
|
$ |
|
|
||
Developed technology |
|
|
|
|
||
Total intangible assets |
|
$ |
|
|
|
|
10
Taxes
In connection with the acquisition of Broadbean, a net deferred tax liability of $
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 three and nine month periods ended September 30, 2023 and September 30, 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 $
The unaudited pro forma financial information was as follows:
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
2023 |
|
|
Net revenue |
|
|
|
$ |
|
|
Loss before provision for income taxes |
|
|
|
|
( |
) |
Net loss |
|
|
|
|
( |
) |
|
|
Three months ended |
|
|
Nine Months Ended |
|
||
|
|
2022 |
|
|
2022 |
|
||
Net revenue |
|
$ |
|
|
$ |
|
||
Loss before provision for income taxes |
|
|
( |
) |
|
|
( |
) |
Net loss |
|
|
( |
) |
|
|
( |
) |
VSL Acquisition
On
The total purchase consideration was $
The following table summarizes the fair value of the VSL Acquisition Consideration:
VSL Acquisition Consideration |
|
Amount |
|
|
Cash consideration at closing |
|
$ |
|
|
Deferred consideration |
|
|
|
|
Total |
|
$ |
|
|
11
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:
Allocation of VSL Acquisition Consideration** |
|
Amount |
|
|
Accounts receivable, net |
|
$ |
|
|
Property, equipment and improvements, net |
|
|
|
|
Intangible assets |
|
|
|
|
Total assets acquired |
|
|
|
|
Accrued expenses and other current liabilities |
|
|
|
|
Total liabilities assumed |
|
|
|
|
Identifiable net assets acquired |
|
|
|
|
Goodwill |
|
|
|
|
Total purchase consideration |
|
$ |
|
|
**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. All goodwill generated from the acquisition is tax deductible.
Identifiable Intangible Assets
The identifiable intangible assets acquired consisted of developed technology valued at $
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
The total purchase consideration was $
The Company paid the first of two deferred cash payments of $
The following table summarizes the fair value of the VocaliD Acquisition Consideration:
VocaliD Acquisition Consideration |
|
Amount |
|
|
Cash consideration at closing |
|
$ |
|
|
Deferred consideration |
|
|
|
|
Net working capital adjustment |
|
|
( |
) |
Total |
|
$ |
|
|
12
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:
Allocation of VocaliD Acquisition Consideration** |
|
Amount |
|
|
Cash |
|
$ |
|
|
Intangible assets |
|
|
|
|
Total assets acquired |
|
|
|
|
Accounts payable |
|
|
|
|
Accrued expenses and other current liabilities |
|
|
|
|
Deferred tax liability |
|
|
|
|
Total liabilities assumed |
|
|
|
|
Identifiable net assets acquired |
|
|
|
|
Goodwill |
|
|
|
|
Total purchase consideration |
|
$ |
|
|
**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
Identifiable Intangible Assets
The identifiable intangible assets acquired consisted of developed technology valued at $
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.
March 2022 Acquisition
On
The total purchase consideration was $
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 Earnout amount was reduced to $
The Company incurred $
The Company paid the first of two deferred cash payments of $
13
The following table summarizes the fair value of the March 2022 Acquisition Consideration:
March 2022 Acquisition Consideration |
|
Amount |
|
|
Cash consideration at closing |
|
$ |
|
|
Equity consideration at closing |
|
|
|
|
Deferred consideration |
|
|
|
|
Acquired cash |
|
|
|
|
Settlement of pre-existing receivable |
|
|
( |
) |
Net working capital adjustment |
|
|
|
|
Total |
|
$ |
|
|
Allocation of March 2022 Acquisition Consideration** |
|
Amount |
|
|
Cash |
|
$ |
|
|
Accounts receivable |
|
|
|
|
Prepaid and other current assets |
|
|
|
|
Property and equipment |
|
|
|
|
Intangible assets |
|
|
|
|
Other assets |
|
|
|
|
Total assets acquired |
|
|
|
|
Accounts payable |
|
|
|
|
Accrued expenses and other current liabilities |
|
|
|
|
Operating lease liabilities, non-current |
|
|
|
|
Total liabilities assumed |
|
|
|
|
Identifiable net assets acquired |
|
|
|
|
Goodwill |
|
|
|
|
Total purchase consideration |
|
$ |
|
|
**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. As such, the goodwill generated from the acquisition is tax deductible.
Identifiable Intangible Assets
The identifiable intangible assets acquired consisted of the influencer network, trade name and brand relationships with estimated useful lives of to
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:
|
|
Estimated |
|
|
Estimated Useful Lives (in years) |
|
Influencer network |
|
$ |
|
|
||
Trade name |
|
|
|
|
||
Brand relationships |
|
|
|
|
||
Total intangible assets |
|
$ |
|
|
|
|
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
14
cash of which $
NOTE 4. DEBT
Convertible Senior Notes
In November 2021, the Company issued, at par value, $
The Convertible Notes are senior, unsecured obligations of the Company and bear interest at a rate of
Holders of the Convertible Notes may convert all or any portion of their Convertible Notes at their option at any time prior to the close of business on the business day immediately preceding May 15, 2026, only under the following conditions: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2022 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least
The conversion rate for the Convertible Notes initially is
The Company may not redeem the Convertible Notes prior to
If the Company undergoes a fundamental change prior to the maturity date, subject to certain conditions, holders may require the Company to repurchase for cash all or any portion of their Convertible Notes. The fundamental change repurchase price will be equal to
The Convertible Notes are the Company’s senior unsecured obligations and rank senior in right of payment to all of the Company’s indebtedness that is expressly subordinated in right of payment to the Convertible Notes; equal in right of payment with all existing and future
15
liabilities of the Company that are not so subordinated; effectively junior to any of secured indebtedness of the Company to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) and any preferred equity of the Company’s current or future subsidiaries.
The net proceeds from the issuance of the Convertible Notes were approximately $
For the three and nine months ended September 30, 2023, interest expense related to the Convertible Notes and amortization of the issuance costs was $
Capped Calls
In connection with the pricing of the Convertible Notes, with the full exercise by the initial purchasers of their option to purchase additional Convertible Notes in November 2021, the Company used approximately $
The capped call transactions cover, subject to anti-dilution adjustments substantially similar to those applicable to the Convertible Notes, the number of shares of the Company’s common stock underlying the Convertible Notes. The capped call transactions are expected generally to reduce the potential dilution to the Company’s common stock upon conversion of the Convertible Notes and/or offset some or all of any cash payments the Company is required to make in excess of the principal amount of converted Convertible Notes, as the case may be, in the event that the market price per share of the Company’s common stock, as measured under the terms of the capped call transactions, is greater than the strike price of the capped call transactions, which initially corresponds to the conversion price of the Convertible Notes and is subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of the Convertible Notes. If, however, the market price per share of the Company’s common stock, as measured under the terms of the capped call transactions, exceeds the cap price of the capped call transactions, there would nevertheless be dilution and/or there would not be an offset of such potential cash payments, in each case, to the extent that such market price exceeds the cap price of the capped call transactions. The initial cap price of the capped calls is $
The capped call transactions are separate transactions and are not part of the terms of the Convertible Notes. The capped calls meet the criteria for classification as equity and, as such, are not remeasured each reporting period and are included as a reduction to additional paid-in-capital within stockholders’ equity.
In connection with the Repurchase Transaction, the Company entered into transactions in December 2022 to unwind a portion of the capped calls. As a result, the Company received $
Credit Facility
In August 2023, the Company entered into a
16
NOTE 5. NET LOSS PER SHARE
The following table presents the computation of basic and diluted net loss per share:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Numerator |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Less: Weighted-average shares subject to repurchase |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Denominator for basic and diluted net loss per share attributable to common stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic and diluted net loss per share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
The Company reported net losses for all periods presented and, as such, all potentially dilutive shares of common stock would have been antidilutive for such periods.
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Common stock options, restricted stock units and performance stock units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warrants to purchase common stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Common stock issuable in connection with convertible senior notes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
NOTE 6. FINANCIAL INSTRUMENTS
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs that may be used to measure fair value. Level 1 and Level 2 are considered observable and Level 3 is considered unobservable, as follows:
Cash and Cash Equivalents
The Company’s money market funds are categorized as Level 1 within the fair value hierarchy. As of September 30, 2023, the Company’s cash and cash equivalents were as follows:
|
|
|
|
|
Gross |
|
|
|
|
|
Cash and |
|
||||
|
|
|
|
|
Unrealized |
|
|
Fair |
|
|
Cash |
|
||||
|
|
Cost |
|
|
Losses |
|
|
Value |
|
|
Equivalents |
|
||||
Cash |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||
Total |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||
17
As of December 31, 2022, the Company’s cash and cash equivalents balances were as follows:
|
|
|
|
|
Gross |
|
|
|
|
|
Cash and |
|
||||
|
|
|
|
|
Unrealized |
|
|
Fair |
|
|
Cash |
|
||||
|
|
Cost |
|
|
Losses |
|
|
Value |
|
|
Equivalents |
|
||||
Cash |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||
Level 1: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
Total |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||
Contingent Consideration
On
All of the Company’s contingent consideration liabilities are categorized as Level 3 within the fair value hierarchy, except when the amount of the payout is determined to be fixed. Contingent consideration for the PandoLogic acquisition was valued at the time of acquisition using Monte Carlo simulation models. These models incorporate contractual terms and assumptions regarding financial forecasts for PandoLogic, discount rates, and volatility of forecasted revenue. The value of the Company’s contingent consideration would increase if a lower discount rate was used and would decrease if a higher discount rate was used. Similarly, a higher revenue volatility assumption would increase the value of the contingent consideration, and a lower revenue volatility assumption would decrease the value of the contingent consideration. Contingent consideration for the March 2022 Acquisition was valued at the time of acquisition using a simple probability of achievement model, with the probability of achievement based on management’s forecasted outcomes for 2022 and 2023 fiscal year results for the acquired entity. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management with the assistance of a third-party valuation specialist when deemed necessary.
In September 2022, the Company and PandoLogic entered into an amendment to the PandoLogic Merger Agreement. This amendment provides that the 2022 PandoLogic Earnout would be no less than $
On
As of September 30, 2023, the Company’s contingent consideration liabilities current and non-current balances classified as Level 3 were as follows:
|
|
Fair Value as of |
|
|
Changes in |
|
|
Amount Paid |
|
|
Fair Value as of |
|
||||
|
|
January 1, 2023 |
|
|
Fair Value |
|
|
To Date |
|
|
September 30, 2023 |
|
||||
Level 3: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contingent consideration, current |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
— |
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
— |
|
||
As of December 31, 2022, the Company’s contingent consideration liabilities current and non-current balances classified as Level 3 were as follows:
18
|
|
Fair Value as of |
|
|
Changes in |
|
|
Amount Paid |
|
|
Reclass from |
|
|
Fair Value as of |
|
|||||
|
|
January 1, 2022 |
|
|
Fair Value |
|
|
To Date |
|
|
Current |
|
|
December 31, 2022 |
|
|||||
Level 3: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Contingent consideration, current |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||
Contingent consideration, non-current |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||
Stock Warrants
All of the Company’s outstanding stock warrants are categorized as Level 3 within the fair value hierarchy. Stock warrants are equity classified and have been recorded at their fair value using either a probability weighted expected return model, the Monte Carlo simulation model or the Black-Scholes option-pricing model. These models incorporate contractual terms, maturity, risk-free interest rates and volatility. The value of the Company’s stock warrants would increase if a higher risk-free interest rate was used and would decrease if a lower risk-free interest rate was used. Similarly, a higher volatility assumption would increase the value of the stock warrants, and a lower volatility assumption would decrease the value of the stock warrants. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management with the assistance of a third-party valuation specialist.
Investments
The Company holds a strategic investment in a technology company that was determined to not have a readily determinable fair value. This investment is carried at cost of $
Because these investments do not have readily determinable fair values, the Company has elected to measure these investment under ASC 321, Investments – Equity Securities, at cost minus impairments, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments.
NOTE 7. GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
The carrying amount of goodwill was $
|
|
Goodwill |
|
|
Balance at December 31, 2022 |
|
$ |
|
|
Broadbean acquisition |
|
$ |
|
|
Foreign currency translation/other |
|
|
( |
) |
Balance at September 30, 2023 |
|
$ |
|
|
19
Intangible Assets
The following table sets forth the Company’s finite-lived intangible assets resulting from business acquisitions and other purchases, which continue to be amortized:
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|||||||||||||||||||
|
|
Weighted |
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|||||||
Software and technology |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
— |
|
|||
Licensed technology |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|||
Developed technology |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Customer and supplier relationships |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Noncompete agreements |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|||
Trademarks and trade names |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Total |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
The following table presents future amortization of the Company’s finite-lived intangible assets as of September 30, 2023:
2023 (three months) |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
20
Impairment Assessment
During the three months ended September 30, 2023, the Company experienced multiple adverse financial trends. As a result, the Company determined that an indicator of impairment was present and performed a quantitative goodwill impairment assessment as of September 30, 2023 using a market approach, which estimates fair value based on the Company’s market capitalization and an estimate of a reasonable range of values of a control premium. The Company determined that goodwill was not impaired, as the estimated fair value of the Company’s reporting units exceeded their carrying values. Additionally, as of September 30, 2023, the Company performed a quantitative analysis of the recoverability of each of the Company’s asset groups. The result of the analyses was that the assets were not impaired, as the expected cash flows exceeded the carrying value for each asset group.
NOTE 8. CONSOLIDATED FINANCIAL STATEMENTS DETAILS
Consolidated Balance Sheets Details
Cash and cash equivalents
As of September 30, 2023 and December 31, 2022, the Company had cash and cash equivalents of $
Accounts Receivable, Net and Allowance for Credit Losses
Accounts receivable consisted of the following:
|
|
As of |
|
|||||
|
|
September 30, |
|
|
December 31, |
|
||
Accounts receivable — Managed Services(1) |
|
$ |
|
|
$ |
|
||
Accounts receivable — Software Products & Services(2) |
|
|
|
|
|
|
||
Accounts receivable — Other |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less: allowance for expected credit losses |
|
|
( |
) |
|
|
( |
) |
Accounts receivable, net |
|
$ |
|
|
$ |
|
||
Allowance for Credit Losses Accounting
The Company maintains an allowance for expected credit losses in order to record accounts receivable at their net realizable value. Inherent in the assessment of the allowance for credit losses are certain judgments and estimates relating to, among other things, the Company’s customers’ access to capital, customers’ willingness and ability to pay, general economic conditions and the ongoing relationship with customers. The Company calculates the expected credit losses on a pool basis for those receivables that have similar risk characteristics aligned with the types of accounts receivable listed in the accounts receivable table above. Allowances have been recorded for receivables believed to be uncollectible, including amounts for the resolution of potential credit and other collection issues. The allowance for expected credit losses is determined by analyzing the Company’s historical write-offs and the current aging of receivables. Adjustments to the allowance may be required in future periods depending on how issues considered such as the financial condition of customers and the general economic climate may change or if the financial condition of the Company’s customers were to deteriorate resulting in an impairment of their ability to make payments. The Company has not historically had material write-offs due to uncollectible accounts receivable.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
|
|
As of |
|
|||||
|
|
September 30, |
|
|
December 31, |
|
||
Prepaid assets |
|
$ |
|
|
$ |
|
||
Other receivables |
|
|
|
|
|
|
||
Other current assets |
|
|
|
|
|
|
||
Prepaid expenses and other current assets |
|
$ |
|
|
$ |
|
||
21
Property, Equipment and Improvements, Net
Property, equipment and improvements, net consisted of the following:
|
|
As of |
|
|||||
|
|
September 30, |
|
|
December 31, |
|
||
Property and equipment |
|
$ |
|
|
$ |
|
||
Leasehold improvements |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Property, equipment and improvements, net |
|
$ |
|
|
$ |
|
||
Depreciation expense was $
Accounts Payable
Accounts payable consisted of the following:
|
|
As of |
|
|||||
|
|
September 30, |
|
|
December 31, |
|
||
Accounts payable — Managed Services(1) |
|
$ |
|
|
$ |
|
||
Accounts payable — Other |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Other Accrued Liabilities
Other accrued liabilities consisted of the following:
|
|
As of |
|
|||||
|
|
September 30, |
|
|
December 31, |
|
||
Accrued compensation |
|
$ |
|
|
$ |
|
||
Taxes payable |
|
|
|
|
$ |
|
||
Current portion of operating lease liabilities |
|
|
|
|
|
|
||
Accrued trade payables |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Other accrued liabilities |
|
$ |
|
|
$ |
|
||
22
Consolidated Statements of Operations and Comprehensive Loss Details
Revenue
Revenue for the periods presented were comprised of the following:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Commercial Enterprise |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Government & Regulated Industries |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The Company serves two customer groups: (1) Commercial Enterprise, which today consists of customers in the commercial sector, including media and entertainment customers, advertising customers, content licensing customers and hiring solutions customers (inclusive of Broadbean customers); and (2) Government & Regulated Industries, which today consists of customers in the government and regulated industries sectors, including state, local and federal government, legal, and compliance customers.
Software Products & Services consists of revenue generated from the Company’s aiWARE platform and hiring solutions’ talent acquisition solutions (inclusive of Broadbean), any related support and maintenance services, and any related professional services associated with the deployment and or implementation of such solutions.
Managed Services consists of revenues generated from content licensing customers and advertising agency customers and related services.
The table below illustrates the presentation of our revenues based on the above definitions:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
||||||||||||||||||
|
|
|
|
|
Government & |
|
|
|
|
|
|
|
|
Government & |
|
|
|
|
|
||||||
|
|
Commercial |
|
|
Regulated |
|
|
|
|
|
Commercial |
|
|
Regulated |
|
|
|
|
|
||||||
|
|
Enterprise |
|
|
Industries |
|
|
Total |
|
|
Enterprise |
|
|
Industries |
|
|
Total |
|
|
||||||
Total Software Products & Services |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Managed Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Advertising |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
||||
Licensing |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
||||
Total Managed Services |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
||||||
23
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||||||
|
|
|
|
|
Government & |
|
|
|
|
|
|
|
|
Government & |
|
|
|
|
||||||
|
|
Commercial |
|
|
Regulated |
|
|
|
|
|
Commercial |
|
|
Regulated |
|
|
|
|
||||||
|
|
Enterprise |
|
|
Industries |
|
|
Total |
|
|
Enterprise |
|
|
Industries |
|
|
Total |
|
||||||
Total Software Products & Services |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Managed Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Advertising |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Licensing |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Total Managed Services |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Broadbean Revenue Recognition Policy
Revenue for Broadbean is generated through various types of talent acquisition software solutions that principally consist of subscription-based talent acquisition products, subscription revenue for recruitment software-as-a-service (“SaaS”) solutions and access to the Broadbean’s online talent networks, transactional talent acquisition products, and other recruitment services. Subscription contracts do not provide customers with the right to take possession of the software supporting the applications and, as a result, are accounted for as service contracts. Subscription fee revenue from SaaS applications and access to Broadbean’s online talent networks, which makes up the majority of Broadbean’s revenues, are generally recognized ratably over the contractual term of the arrangement beginning on the date that service is made available to the customer. Broadbean does not offer financing alternatives to customers and there are no rights of return, warranties, or other variable consideration in contracts with customers. Payment terms are generally net 30 days. In most cases, Broadbean acts as a principal with respect to the goods and services it sells providing for gross revenue. In the certain cases where Broadbean is acting as an agent, net revenue is recognized. Broadbean reports revenue net of sales and other taxes collected from customers to be remitted to government authorities.
Other Income (Expense), Net
Other income (expense), net for the periods presented was comprised of the following:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Interest expense, net |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Gain on sale of energy group |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
Other |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Other income (expense), net |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Other in the table above consists primarily of foreign exchange loss of $
Provision for Income Taxes
In accordance with ASC 740-270, Income Taxes, the provision or benefit from income taxes for interim periods is determined using an estimate of the Company’s annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, the Company updates the estimate of the annual effective tax rate, and if the estimated tax rate changes, the Company records a cumulative adjustment. A separate estimated annual effective tax rate is applied for jurisdictions where an entity anticipates an ordinary loss or has an ordinary loss for the year to date for which no tax benefit can be recognized.
The Company’s effective tax rate for the three and nine months ended September 30, 2023 was
24
the effective tax rates for the three and nine months ended September 30, 2023 as compared to the comparable prior year periods is primarily due to the impact of taxes on foreign operations and valuation allowances against domestic net deferred tax assets.
As of September 30, 2023, the Company continues to provide a valuation allowance against federal and state deferred tax assets that are not expected to be realizable. The Company continues to evaluate the realizability of deferred tax assets and the related valuation allowance. If the Company’s assessment of the deferred tax assets or the corresponding valuation allowance were to change, the Company would record the related adjustment to income during the period in which the determination is made. The tax benefit for the three months ended September 30, 2023 includes a $
As a result of the Broadbean acquisition, the Company expects to be subject to taxation in France and Australia, in addition to already being subject to taxation in the United States, Israel, and the United Kingdom. The United States, Israel, and the United Kingdom comprise the majority of the Company’s operations. In general, the U.S. federal statute of limitations is three years. However, the Internal Revenue Service may still adjust a tax loss or credit carryover in the year the tax loss or credit carryover is utilized. As such, the Company’s U.S. federal tax returns and state tax returns are open for examination since inception. The Israeli statute of limitations period is generally four years commencing at the end of the year in which the return was filed. The UK statute of limitations period is typically twelve months following the date on which the return is filed. The Company is not currently under examination from income tax authorities in the jurisdictions in which the Company does business.
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act (“IRA”) which, among other things, implements a
The main corporation tax rate for UK corporations increases from
NOTE 9. LEASES, COMMITMENTS AND CONTINGENCIES
Leases
Lease Costs
As of September 30, 2023, on its condensed consolidated balance sheet the Company had right-of-use assets of $
The Company made cash payments for its operating leases of $
The total rent expense for all operating leases was $
25
Lease Commitments
Years ended December 31, |
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2023 (three months) |
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$ |
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2024 |
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2025 |
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Total future minimum lease payments, including short-term leases |
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Less: future minimum lease payments for short-term leases |
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( |
) |
Less: imputed interest |
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( |
) |
Present value of future minimum lease payments, excluding short-term leases |
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$ |
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Less: current portion of operating lease liabilities |
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Non-current portion of operating lease liabilities |
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Years ended December 31, |
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Sublease Income |
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2023 (three months) |
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2024 |
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Total sublease income |
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$ |
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Purchase Consideration
In connection with the March 2022 Acquisition, the Company committed to make purchase consideration payments of $
Other Contingencies
From time to time, the Company may be involved in litigation relating to claims arising out of its operations in the normal course of business. The Company currently is not a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on the Company’s results of operations, financial position or cash flows.
NOTE 10. STOCKHOLDERS’ EQUITY
Common Stock Issuances
During the nine months ended September 30, 2023 and 2022, the Company issued an aggregate of
During the nine months ended September 30, 2023 and 2022, the Company issued a total of
NOTE 11. STOCK PLANS
Stock-Based Compensation
During the nine months ended September 30, 2023 and 2022, the Company granted options to purchase an aggregate of
26
The Company valued these stock options using the Black-Scholes Merton option pricing model.
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Expected dividend yield |
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— |
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— |
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The assumptions used in calculating the fair values of purchase rights granted under the ESPP during the nine months ended September 30, 2023 and 2022 are set forth in the table below:
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Nine Months Ended |
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Expected dividend yield |
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— |
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The Company’s stock-based compensation expense by type of award and by operating expense grouping are presented below:
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Nine Months Ended |
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Stock-based compensation expense by type of award: |
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Restricted stock units |
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Performance-based stock units |
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— |
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Stock options |
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Employee stock purchase plan |
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Common stock issued for services |
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— |
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— |
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Total stock-based compensation expense |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation expense by operating expense grouping: |
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Cost of revenue |
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Sales and marketing |
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Research and development |
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General and administrative |
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Total stock-based compensation expense |
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$ |
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$ |
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Stock-based compensation capitalized for internal-use software was $
Equity Award Activity Under Stock Plans
Performance Stock Units
On January 4, 2023, the Company entered into a consulting agreement (the “Steel Holdings Consulting Agreement”) with Steel Holdings, LLC, an affiliate of Chad Steelberg, our former Chief Executive Officer and current Chairman of the Company’s Board of Directors (the “Board”), as further described in Note 12. In connection with the Steel Holdings Consulting Agreement, on January 11, 2023, the Compensation Committee of the Board (the “Compensation Committee”) approved a grant of
On March 16, 2023, the Compensation Committee approved a grant of
27
(up to a
The Company’s performance stock unit activity for the nine months ended September 30, 2023 was as follows:
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Weighted |
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Unvested at December 31, 2022 |
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Vested |
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$ |
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Unvested at September 30, 2023 |
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$ |
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Restricted Stock Units
The Company’s restricted stock unit activity for the nine months ended September 30, 2023 was as follows:
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Weighted |
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Unvested at December 31, 2022 |
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Granted |
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Forfeited |
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Vested |
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$ |
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Unvested at September 30, 2023 |
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$ |
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As of September 30, 2023, total unrecognized compensation cost related to restricted stock units was $
Performance-Based Stock Options
The activity during the nine months ended September 30, 2023 related to stock options that are subject to performance-based vesting conditions tied to the achievement of stock price goals by the Company was as follows:
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Weighted-Average |
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Aggregate |
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Exercise |
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Contractual |
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Intrinsic |
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Options |
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Price |
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Term |
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Value |
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Outstanding at December 31, 2022 |
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Exercised |
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Outstanding at September 30, 2023 |
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$ |
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$ |
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Exercisable at September 30, 2023 |
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$ |
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$ |
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The aggregate intrinsic value of the options exercised during the nine months ended September 30, 2023 and 2022 was $
Stock Options
The activity during the nine months ended September 30, 2023 related to all other stock options was as follows:
28
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Weighted-Average |
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Aggregate |
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Exercise |
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Contractual |
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Intrinsic |
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Options |
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Price |
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Term |
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Value |
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Outstanding at December 31, 2022 |
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$ |
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Granted |
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$ |
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Exercised |
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$ |
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Forfeited |
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( |
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$ |
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Expired |
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$ |
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Outstanding at September 30, 2023 |
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$ |
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$ |
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Exercisable at September 30, 2023 |
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$ |
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$ |
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The weighted average grant date fair value of stock options granted during the nine months ended September 30, 2023 and 2022 was $
The aggregate intrinsic values in the tables above represent the difference between the fair market value of the Company’s common stock and the average option exercise price of in-the-money options, multiplied by the number of such stock options.
Employee Stock Purchase Plan
During the nine months ended September 30, 2023, a total of
NOTE 12. RELATED PARTY TRANSACTIONS
On January 4, 2023, the Company entered into the Steel Holdings Consulting Agreement with Steel Holdings, LLC, effective as of January 1, 2023. Steel Holdings, LLC is an entity affiliated with Chad Steelberg, our current Chairman of the Board and former Chief Executive Officer effective as of December 31, 2022. Under the Steel Holdings Consulting Agreement, the Company retained Mr. Steelberg as a consultant to provide ongoing Chief Executive Officer transition services and to manage and oversee the further development of the Company’s aiWARE platform. During the three and nine months ended September 30, 2023, the Company recorded a research and development expense of $
There were
NOTE 13. SUBSEQUENT EVENTS
New Board Member
On November 6, 2023, the Board increased the size of the Board from five to six members and appointed Michael Zilis as a member of the Board, effective November 8, 2023, to serve as a Class II director until the Company’s 2025 annual meeting of stockholders and until his successor is duly elected and qualified, or until his earlier death, resignation or removal. Mr. Zilis was also appointed to serve as a member of the Audit Committee and Compensation Committee of the Board. The Board has determined that Mr. Zilis is an independent director under the listing standards of the NASDAQ Stock Market LLC (“Nasdaq”) and meets the additional independence requirements of Nasdaq with respect to members of the Audit Committee and Compensation Committee.
Term Loan
On November 7, 2023, Veritone entered into a commitment letter with certain funds managed by Highbridge Capital Management, LLC and with certain other lenders (collectively, the “Lenders”), pursuant to which the Lenders have committed, subject to the terms and conditions contained therein, to establish a senior secured term loan facility in an aggregate principal amount of $
The proceeds of the Term Loan would be used (i) to repurchase an aggregate $
29
out-of-pocket expenses in connection with the Term Loan. The Convertible Notes would be repurchased, on the Closing Date, at a price equal to
Veritone will be the borrower under the Term Loan and all amounts under the Term Loan will be guaranteed by each of its direct and indirect material subsidiaries (Veritone and the guarantors, collectively being the “Credit Parties”). The Term Loan will generally be secured by a first-priority perfected security interest in and lien on substantially all tangible and intangible property of the Credit Parties and a pledge of equity interests held by the Credit Parties. The Term Loan will have certain customary default provisions, representations and warranties and affirmative and negative covenants, including a covenant to maintain unrestricted cash and cash equivalents of at least $
The Term Loan will accrue interest at a rate of Term SOFR plus
The Term Loan will have a term of
The Term Loan will require mandatory prepayments from the net cash proceeds received by the Credit Parties for among other things (i) certain asset sales, but only to the extent net cash proceeds therefrom exceed $
Veritone has agreed to issue warrants (the “Warrants”) to the Lenders to purchase up to
Pursuant to the Commitment Letter, Veritone will agree to enter into a registration rights agreement at or prior to the closing of the Term Loan for the resale of the shares of common stock issued pursuant to the terms of the Term Loan and the Warrants.
As of September 30, 2023, the Company held $
30
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
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, 2022, 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 “Special Note Regarding Forward-Looking Statements.”
Overview
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 Government & Regulated Industries customers. Our Software Products & Services consist of revenues generated from Commercial Enterprise and Government & Regulated Industries customers using our aiWARE platform and hiring 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.
During the three and nine months ended September 30, 2023, we generated revenue of $35.1 million and $93.4 million, respectively, as compared to $37.2 million and $105.8 million during the three and nine months ended September 30, 2022, respectively. Our Software Products & Services revenue was $20.4 million during the three months ended September 30, 2023 as compared with $20.8 million for the same period in 2022, while our Managed Services revenue was $14.8 million during the three months ended September 30, 2023 as compared with the $16.4 million for the same period in 2022. Our Software Products & Services revenue was $48.6 million during the nine months ended September 30, 2023 as compared with $57.4 million for the same period in 2022, while our Managed Services revenue was $44.8 million during the nine months ended September 30, 2023 as compared with the $48.5 million for the same period in 2022. During the three and nine months ended September 30, 2023 our largest customer represented less than 10% and 12%, respectively, of our consolidated revenue and during the three and nine months ended September 30, 2022 that same customer represented 31% and 25%, respectively, of our consolidated revenue.
Recent Developments
On January 31, 2023, we announced strategic cost reduction initiatives with the aim of achieving net annualized savings of $12 to $15 million over the course of fiscal 2023. As part of this initiative, we engaged in headcount and various cost reduction initiatives during the nine months ended September 30, 2023, completed the sale of our energy group to GridBeyond Limited (the “Energy Divestiture”) and we have begun and further intend to reduce and consolidate expenses tied to software, outside services, and cloud-based processing throughout 2023. As of September 30, 2023, we have executed over $24 million of net annualized strategic cost reduction initiatives announced in the first quarter of 2023, exceeding the net annualized savings target for 2023.
On November 7, 2023, we entered into a commitment letter with certain funds managed by Highbridge Capital Management, LLC and certain other lenders to provide a senior secured term loan facility in an aggregate principal amount of $77.5 million (the “Term Loan”). We expect to use the proceeds of the Term Loan to repurchase an aggregate $50.0 million principal amount of our existing 1.75% convertible senior notes due 2026 held by the lenders at a purchase price of $37.5 million plus accrued and unpaid interest and for general corporate purposes.
The Term Loan will have a term of four years, accrue interest at a rate of Term SOFR plus 8.50%, with a 3.00% floor for Term SOFR, payable quarterly, and will require quarterly amortization payments of 2.5% of the principal amount, commencing in June 2024. We may, subject to certain conditions and limitations, elect to make any amortization payment in shares of our common stock. We may prepay the term loan, subject to payment of a premium, at any time and is required to prepay the term loan on certain customary events. We may also, subject to certain conditions and limitations, elect to prepay portions of the Term Loan in shares of our common stock.
We have agreed to issue warrants to the lenders to purchase up to 3,008,540 shares of Common Stock, with 20% of the warrants to be issued for entry into the commitment letter and the remaining 80% conditioned on the closing of the Term Loan. We expect the Term Loan to close in the fourth quarter and to replace our credit facility with Alterna Capital Solutions, LLC. For more information on the Term Loan and warrants, see Note 13. Subsequent Events to our condensed consolidated financial statements included in this Quarterly Report.
31
We have operations and an office in Israel, and as a result of the war with Hamas there, a number of our employees and family members of our employees have been conscripted into military service. In addition, our hiring solutions are sold to businesses that experience performance fluctuations based on factors including the demand for labor and the economic health of current and prospective employers. To the extent that economic uncertainty or attenuated economic conditions cause our current and potential customers to freeze or reduce their headcount, demand for our products and services has been, and may continue to be, negatively affected.
Opportunities, Challenges and Risks
During the nine months ended September 30, 2023 and 2022, we derived our revenue primarily through our Commercial Enterprise customers, and secondarily through our Government & Regulated Industries customers.
We are a leader in AI-based Software Products & Services. Our proprietary AI operating system, aiWARE, 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. Historically, we have derived a large portion of our Software Product & Services revenue from applications we internally developed from our aiWARE platform and actively sold across various customers. While management believes there is a substantial opportunity to increase revenue longer term, current economic conditions have negatively impacted parts of our consumption-based operations and financial results, and there is no certainty that any future investments, which could be significant and include future potential acquisitions, will result in significant enterprise revenue realization or revenue growth when compared with historical revenue. Nevertheless, we continue to see significant opportunities for growth in Software Products & Services and our aiWARE platform sales to existing and newly acquired customers, and where our AI solutions could add near and long-term value in the government and regulated industries and content creation and distribution across the global media and entertainment industry.
We believe there are significant near and long-term revenue and growth opportunities from our Software Products & Services. In June 2023, we completed the acquisition of Broadbean, a leader in subscription-based talent acquisition software-as-a-service which has approximately 3,000 subscription-based customers based throughout the world, integrated with over 100 applicant tracking systems (“ATS”) and has direct access to over 2,500 job boards globally. The acquisition of Broadbean was strategic to our HR Solutions growth, as we plan in the near term to offer our existing product offerings to Broadbean’s 3,000 customers, including programmatic advertising capabilities. Over the long term, we plan to utilize our AI capabilities to analyze complex data sets through direct access to these ATS. In Government & Regulated Industries markets, we see growth opportunities with customer adoption of our products and services related to AI technologies and with our official Authorization to Operate, of our aiWARE platform across the entire U.S. Department of Justice and progress with the Chief Digital and Artificial Intelligence Officer and Department of Defense. However, many enterprise-level opportunities with Government & Regulated Industries customers can involve long sales cycles, during which we must invest significant time and resources without a guarantee of success. We may seek to acquire businesses with deep relationships and greater scale within the U.S. government and within regulated industries to further accelerate our pursuit of the growth opportunities we see in this market.
Growing our existing and new Software Products & Services customer base is critical for our success. Since the second quarter of 2022, we have experienced large variances from the consumption of our HR Solutions when compared to the prior year periods from our largest customer, Amazon. In May 2023, Amazon informed us that they planned to reduce their consumption of our HR Solutions further. Overall, our revenues from Amazon during the nine months ended September 30, 2023 declined as compared to the prior year and represented approximately 12% of our consolidated revenue during the nine months ended September 30, 2023 compared to 25% of our consolidated revenue in the comparable prior year period. Offsetting this decline was non-Amazon Software Products & Services revenue, which grew as compared to the prior year, driven in part by Government & Regulated Industries revenue growth of 67% during the nine months ended September 30, 2023 as compared to the prior year. To reduce this risk, we continue to aggressively invest in existing and growing new customers.
As a result of the recent pullback in the macroeconomic environment caused by high inflation, rising interest rates, and geopolitical factors such as 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, including our hiring solutions and managed services in the first three quarters of 2023 when compared to the same period in the prior year. As of September 30, 2023, our total Software Products & Services customers declined to 3,536, which was a decrease of 7% compared to the third quarter of 2022 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. While we anticipate these trends to continue in the fourth quarter of 2023, we expect the overall impact will not be as severe as it was in the first three quarters of 2023. However, we still expect to see additional declines in existing and new customers consumption of our Software Products & Services. To mitigate these risks, we have been investing aggressively in existing customers and acquiring new customers. In addition, in January 2023 we announced certain cost reduction initiatives and as of September 30, 2023, we had executed over $24 million of net annualized strategic cost reductions. As a result of our efforts to diversify our customer base and increase sales within our existing customer base, 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 cost initiatives.
32
We believe our Software Products & Services will extend the capabilities of many third-party software platforms and products that are widely used today. For example, we believe that, when integrated with aiWARE, our hiring solutions customers will be given greater visibility and transparency in their hiring processes. In addition, we have historically integrated aiWARE across many platforms, including Alteryx, Snowflake and the NVIDIA® CUDA® GPU-based platform, enabling dramatic increases in aiWARE’s processing speed and providing a wide range of new use cases for our technology. We are in the process of developing and marketing more specific use cases for these and future integrations, which we believe will open up new markets for our products and accelerate our long-term revenue growth opportunities.
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.
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 Government & Regulated Industries, 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.
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 may pursue opportunistic sales of certain business operations that are not strategic to us long-term, such as the Energy Divestiture.
During the three and nine months ended September 30, 2023, we reported net loss of $24.5 million and $70.8 million, respectively, compared to a net loss of $4.9 million and $30.3 million during the three and nine months ended September 30, 2022, respectively. During the three and nine months ended September 30, 2023, we reported a non-GAAP net loss of $7.9 million and $30.5 million, respectively as compared to a non-GAAP net loss of $5.7 million and $18.1 million during the three and nine months ended September 30, 2022, respectively. To continue to grow our revenue, we plan to continue to make targeted investments in people, namely software engineers and sales personnel. In 2022, we made substantial investments in our existing employee base and 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.
During the nine months ended September 30, 2023 and 2022, more than 90% of our revenue was derived from customers located in the United States. Since our acquisition of Broadbean in June 2023, we have seen an increase in revenue from customers outside the United States and we believe that there is a substantial opportunity for us to expand 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.
Impact of the Current Global Economic Conditions
Global economic and business activities continue to face uncertainty as a result of macroeconomic and geopolitical factors, including the ongoing impact of the global economy following the COVID-19 pandemic, 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 related sanctions, and the recent war in Israel. In particular, business operations at our Tel Aviv office location where we do development work on our hiring 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
33
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 hiring 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. In fiscal 2021, the COVID-19 pandemic forced certain technology and ecommerce companies, like Amazon, to increase hiring to meet increased demand. This, in turn, increased the overall consumption and use of our hiring solutions, and corresponding revenue. In fiscal 2022 and continuing through the third quarter of fiscal 2023, with the easing of COVID-19 restrictions and higher inflation worldwide, demand for certain ecommerce services declined. As a result, companies adversely impacted by this shift in consumer behavior, including Amazon, reduced consumption of our hiring solutions and corresponding revenue declined.
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 in the fourth quarter of 2023 and beyond. 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 billing 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.
Due to the nature of our business, the effect of these macroeconomic conditions may not be fully reflected in our results of operations until future periods. We have assessed the potential credit deterioration of our customers due to changes in the macroeconomic environment and have determined that no additional allowance for credit losses was necessary due to credit deterioration as of September 30, 2023. The most significant risks to our business and results of operations are discussed in Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for the year ended December 31, 2022, and Part II, Item 1A (Risk Factors) of this Quarterly Report on Form 10-Q.
Non-GAAP Financial Measures and Key Performance Indicators
In evaluating our cash flows and financial performance, we use certain non-GAAP financial measures, including Pro Forma Software Revenue, non-GAAP gross profit, non-GAAP gross margin, non-GAAP net income (loss), and non-GAAP net income (loss) per share. We also provide certain key performance indicators (“KPIs”), including Total Software Products & Services Customers, Annual Recurring Revenue, Annual Recurring Revenue (SaaS), Annual Recurring Revenue (Consumption), Total New Bookings and Gross Revenue Retention.
“Pro Forma” information provided in this current report on Form 10-Q represents our historical information combined with the historical information of Broadbean (as defined below) for the applicable period on a pro forma basis as if we had acquired Broadbean on January 1, 2022.
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 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 warrant liability, changes in fair value of contingent consideration, interest income, interest expense, foreign currency gains and losses, acquisition and due diligence costs, gain on sale of energy group, contribution of 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 nine months ended September 30, 2023 and 2022. 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.
We present these non-GAAP financial measures because management believes such information to be important supplemental measures of performance that are commonly used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. Management also uses this information internally for forecasting and budgeting. These non-GAAP financial measures are not calculated and presented in accordance with GAAP and should not be considered as an alternative to net income (loss), operating income (loss) or any other financial measures so calculated and presented, nor as an alternative to cash flow from operating activities as a measure of liquidity. Other companies (including our competitors) may define these non-GAAP financial measures differently. These non-GAAP measures may not be indicative of our historical operating results or predictive of potential future results. Investors should not consider this supplemental non-GAAP financial information in isolation or as a substitute for analysis of our results as reported in accordance with GAAP.
34
Reconciliation of GAAP net loss to Non-GAAP net income (loss)
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Three Months Ended September 30, |
|
|||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
||||||||||||||||||
|
|
Core Operations(1) |
|
|
Corporate(2) |
|
|
Total |
|
|
Core Operations(1) |
|
|
Corporate(2) |
|
|
Total |
|
||||||
Net income (loss) |
|
$ |
(10,689 |
) |
|
$ |
(13,852 |
) |
|
$ |
(24,541 |
) |
|
$ |
(7,921 |
) |
|
$ |
3,035 |
|
|
$ |
(4,886 |
) |
(Benefit from) provision for income taxes |
|
|
(3,163 |
) |
|
|
2,186 |
|
|
|
(977 |
) |
|
|
20 |
|
|
|
6 |
|
|
|
26 |
|
Depreciation and amortization |
|
|
7,857 |
|
|
|
— |
|
|
|
7,857 |
|
|
|
5,650 |
|
|
|
174 |
|
|
|
5,824 |
|
Stock-based compensation expense |
|
|
1,446 |
|
|
|
586 |
|
|
|
2,032 |
|
|
|
2,944 |
|
|
|
2,158 |
|
|
|
5,102 |
|
Change in fair value of contingent consideration |
|
|
— |
|
|
|
816 |
|
|
|
816 |
|
|
|
— |
|
|
|
(14,291 |
) |
|
|
(14,291 |
) |
Interest expense, net |
|
|
— |
|
|
|
218 |
|
|
|
218 |
|
|
|
— |
|
|
|
1,305 |
|
|
|
1,305 |
|
Foreign currency impact |
|
|
2,318 |
|
|
|
(24 |
) |
|
|
2,294 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Acquisition and due diligence costs |
|
|
— |
|
|
|
3,177 |
|
|
|
3,177 |
|
|
|
— |
|
|
|
839 |
|
|
|
839 |
|
Variable consultant performance bonus expense |
|
|
397 |
|
|
|
— |
|
|
|
397 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Severance and executive transition costs |
|
|
770 |
|
|
|
15 |
|
|
|
785 |
|
|
|
337 |
|
|
|
28 |
|
|
|
365 |
|
Non-GAAP Net Income (Loss) |
|
$ |
(1,064 |
) |
|
$ |
(6,878 |
) |
|
$ |
(7,942 |
) |
|
$ |
1,030 |
|
|
$ |
(6,746 |
) |
|
$ |
(5,716 |
) |
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Nine Months Ended September 30, |
|
|||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
||||||||||||||||||
|
|
Core Operations(1) |
|
|
Corporate(2) |
|
|
Total |
|
|
Core Operations(1) |
|
|
Corporate(2) |
|
|
Total |
|
||||||
Net loss |
|
$ |
(38,464 |
) |
|
$ |
(32,336 |
) |
|
|
(70,800 |
) |
|
$ |
(22,172 |
) |
|
$ |
(8,096 |
) |
|
$ |
(30,268 |
) |
(Benefit from) provision for income taxes |
|
|
(4,409 |
) |
|
|
1,787 |
|
|
|
(2,622 |
) |
|
|
(826 |
) |
|
|
(616 |
) |
|
|
(1,442 |
) |
Depreciation and amortization |
|
|
19,429 |
|
|
|
724 |
|
|
|
20,153 |
|
|
|
16,054 |
|
|
|
440 |
|
|
|
16,494 |
|
Stock-based compensation expense |
|
|
5,710 |
|
|
|
2,936 |
|
|
|
8,646 |
|
|
|
7,612 |
|
|
|
6,967 |
|
|
|
14,579 |
|
Change in fair value of contingent consideration |
|
|
— |
|
|
|
1,467 |
|
|
|
1,467 |
|
|
|
— |
|
|
|
(23,076 |
) |
|
|
(23,076 |
) |
Interest expense, net |
|
|
9 |
|
|
|
1,734 |
|
|
|
1,743 |
|
|
|
— |
|
|
|
3,670 |
|
|
|
3,670 |
|
Foreign currency impact |
|
|
(459 |
) |
|
|
(67 |
) |
|
|
(526 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Acquisition and due diligence costs |
|
|
— |
|
|
|
8,253 |
|
|
|
8,253 |
|
|
|
— |
|
|
|
1,608 |
|
|
|
1,608 |
|
Gain on sale of energy group |
|
|
— |
|
|
|
(2,572 |
) |
|
|
(2,572 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Contribution of business held for sale (3) |
|
|
1,789 |
|
|
|
— |
|
|
|
1,789 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Variable consultant performance bonus expense |
|
|
1,028 |
|
|
|
— |
|
|
|
1,028 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Severance and executive transition costs |
|
|
2,271 |
|
|
|
647 |
|
|
|
2,918 |
|
|
|
337 |
|
|
|
28 |
|
|
|
365 |
|
Non-GAAP Net Income (Loss) |
|
$ |
(13,096 |
) |
|
$ |
(17,427 |
) |
|
$ |
(30,523 |
) |
|
$ |
1,005 |
|
|
$ |
(19,075 |
) |
|
$ |
(18,070 |
) |
(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.
(2) Corporate consists of general and administrative functions such as executive, finance, legal, people operations, fixed overhead expenses (including facilities and information technology expenses), other income (expenses) and taxes, and other expenses that support the entire company, including public company driven costs.
(3) Contribution of business held for sale relates to the net loss for the periods presented for our energy group that we divested during the second quarter of 2023. We have not recast Non-GAAP Net Loss for periods ended prior to March 31, 2023 because the change in business strategy to divest the business occurred in the first quarter of 2023 and the prior period contributions were costs to operate the continuing business when incurred in the prior periods. The historical amounts would not have a major effect on prior period results.
For the three months ended September 30, 2023, our total loss from operations increased to $22.9 million compared to $3.6 million in the corresponding prior year period. For the nine months ended September 30, 2023, our total loss from operations increased to $74.7 million compared to $28.0 million in the corresponding prior year period. The following tables set forth the calculation of our non-GAAP gross profit
35
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, 2023 and 2022.
(dollars in thousands) |
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Revenue |
|
$ |
35,133 |
|
|
$ |
37,196 |
|
|
$ |
93,363 |
|
|
$ |
105,838 |
|
Cost of revenue |
|
|
7,187 |
|
|
|
7,097 |
|
|
|
21,761 |
|
|
|
20,725 |
|
Non-GAAP gross profit |
|
|
27,946 |
|
|
|
30,099 |
|
|
|
71,602 |
|
|
|
85,113 |
|
Non-GAAP gross margin |
|
|
79.5 |
% |
|
|
80.9 |
% |
|
|
76.7 |
% |
|
|
80.4 |
% |
36
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Revenue |
|
$ |
35,133 |
|
|
$ |
37,196 |
|
|
$ |
93,363 |
|
|
$ |
105,838 |
|
Cost of revenue |
|
|
7,187 |
|
|
|
7,097 |
|
|
|
21,761 |
|
|
|
20,725 |
|
Non-GAAP gross profit |
|
|
27,946 |
|
|
|
30,099 |
|
|
|
71,602 |
|
|
|
85,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
GAAP cost of revenue |
|
|
7,187 |
|
|
|
7,097 |
|
|
|
21,761 |
|
|
|
20,725 |
|
Stock-based compensation expense |
|
|
5 |
|
|
|
(46 |
) |
|
|
(32 |
) |
|
|
(90 |
) |
Non-GAAP cost of revenue |
|
|
7,192 |
|
|
|
7,051 |
|
|
|
21,729 |
|
|
|
20,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
GAAP sales and marketing expenses |
|
|
12,892 |
|
|
|
13,920 |
|
|
|
38,706 |
|
|
|
37,565 |
|
Stock-based compensation expense |
|
|
(208 |
) |
|
|
(538 |
) |
|
|
(913 |
) |
|
|
(1,728 |
) |
Contribution of business held for sale (2) |
|
|
— |
|
|
|
— |
|
|
|
(484 |
) |
|
|
— |
|
Severance and executive transition costs |
|
|
(207 |
) |
|
|
(86 |
) |
|
|
(710 |
) |
|
|
(86 |
) |
Non-GAAP sales and marketing expenses |
|
|
12,477 |
|
|
|
13,296 |
|
|
|
36,599 |
|
|
|
35,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
GAAP research and development expenses |
|
|
10,410 |
|
|
|
11,784 |
|
|
|
32,456 |
|
|
|
32,735 |
|
Stock-based compensation expense |
|
|
(953 |
) |
|
|
(1,532 |
) |
|
|
(3,622 |
) |
|
|
(3,783 |
) |
Contribution of business held for sale (2) |
|
|
— |
|
|
|
— |
|
|
|
(1,117 |
) |
|
|
— |
|
Severance and executive transition costs |
|
|
(188 |
) |
|
|
(198 |
) |
|
|
(868 |
) |
|
|
(198 |
) |
Non-GAAP research and development expenses |
|
|
9,269 |
|
|
|
10,054 |
|
|
|
26,849 |
|
|
|
28,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
GAAP general and administrative expenses |
|
|
21,082 |
|
|
|
2,502 |
|
|
|
57,504 |
|
|
|
27,127 |
|
Depreciation |
|
|
(1,233 |
) |
|
|
(320 |
) |
|
|
(2,386 |
) |
|
|
(764 |
) |
Stock-based compensation expense |
|
|
(876 |
) |
|
|
(2,986 |
) |
|
|
(4,079 |
) |
|
|
(8,978 |
) |
Change in fair value of contingent consideration |
|
|
(816 |
) |
|
|
14,291 |
|
|
|
(1,467 |
) |
|
|
23,076 |
|
Variable consultant performance bonus expense |
|
|
(397 |
) |
|
|
— |
|
|
|
(1,028 |
) |
|
|
— |
|
Contribution of business held for sale (2) |
|
|
— |
|
|
|
— |
|
|
|
(188 |
) |
|
|
— |
|
Acquisition and due diligence costs |
|
|
(3,177 |
) |
|
|
(839 |
) |
|
|
(8,253 |
) |
|
|
(1,608 |
) |
Severance and executive transition costs |
|
|
(390 |
) |
|
|
(81 |
) |
|
|
(1,340 |
) |
|
|
(81 |
) |
Non-GAAP general and administrative expenses |
|
|
14,193 |
|
|
|
12,567 |
|
|
|
38,763 |
|
|
|
38,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
GAAP amortization |
|
|
(6,624 |
) |
|
|
(5,504 |
) |
|
|
(17,767 |
) |
|
|
(15,730 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
GAAP loss from operations |
|
|
(23,062 |
) |
|
|
(3,611 |
) |
|
|
(74,831 |
) |
|
|
(28,044 |
) |
Total non-GAAP adjustments (1) |
|
|
15,064 |
|
|
|
(2,161 |
) |
|
|
44,254 |
|
|
|
9,970 |
|
Non-GAAP loss from operations |
|
|
(7,998 |
) |
|
|
(5,772 |
) |
|
|
(30,577 |
) |
|
|
(18,074 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
GAAP other income (expense), net |
|
|
(2,456 |
) |
|
|
(1,249 |
) |
|
|
1,409 |
|
|
|
(3,666 |
) |
Gain on sale of energy group |
|
|
— |
|
|
|
— |
|
|
|
(2,572 |
) |
|
|
|
|
Foreign currency impact |
|
|
2,294 |
|
|
|
— |
|
|
|
(526 |
) |
|
|
— |
|
Interest expense, net |
|
|
218 |
|
|
|
1,305 |
|
|
|
1,743 |
|
|
|
3,670 |
|
Non-GAAP other expense, net |
|
|
56 |
|
|
|
56 |
|
|
|
54 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
GAAP loss before income taxes |
|
|
(25,518 |
) |
|
|
(4,860 |
) |
|
|
(73,422 |
) |
|
|
(31,710 |
) |
Total non-GAAP adjustments (1) |
|
|
17,576 |
|
|
|
(856 |
) |
|
|
42,899 |
|
|
|
13,640 |
|
Non-GAAP loss before income taxes |
|
|
(7,942 |
) |
|
|
(5,716 |
) |
|
|
(30,523 |
) |
|
|
(18,070 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
(Benefit from) provision for income taxes |
|
|
(977 |
) |
|
|
26 |
|
|
|
(2,622 |
) |
|
|
(1,442 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
GAAP net loss |
|
|
(24,541 |
) |
|
|
(4,886 |
) |
|
|
(70,800 |
) |
|
|
(30,268 |
) |
Total non-GAAP adjustments (1) |
|
|
16,599 |
|
|
|
(830 |
) |
|
|
40,277 |
|
|
|
12,198 |
|
Non-GAAP net loss |
|
$ |
(7,942 |
) |
|
$ |
(5,716 |
) |
|
$ |
(30,523 |
) |
|
$ |
(18,070 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Shares used in computing non-GAAP basic and diluted net loss per share |
|
|
36,992 |
|
|
|
36,202 |
|
|
|
36,811 |
|
|
|
35,924 |
|
Shares used in computing non-GAAP diluted net income (loss) per share |
|
|
36,992 |
|
|
|
36,202 |
|
|
|
36,811 |
|
|
|
35,924 |
|
Non-GAAP basic and diluted net loss per share |
|
$ |
(0.21 |
) |
|
$ |
(0.16 |
) |
|
$ |
(0.83 |
) |
|
$ |
(0.50 |
) |
Non-GAAP diluted net loss per share |
|
$ |
(0.21 |
) |
|
$ |
(0.16 |
) |
|
$ |
(0.83 |
) |
|
$ |
(0.50 |
) |
(1) Adjustments are comprised of the adjustments to GAAP cost of revenue, sales and marketing expenses, research and development expenses and general and administrative expenses and other (expense) income, net (where applicable) listed above.
(2) Contribution of business held for sale relates to the net loss for the periods presented for our energy group that we divested during Q2 2023. We have not recast Non-GAAP Net Loss for periods ended prior to March 31, 2023 because the change in business strategy to divest the business occurred in Q1 2023 and the prior period contributions were costs to operate the continuing business when incurred in the prior periods. The historical amounts would not have a major effect on prior period results.
37
Supplemental Financial Information
We are providing the following unaudited supplemental financial information regarding our Software Products & Services and Managed Services as a lookback of the prior year to explain our recent historical and year-over-year performance.
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.
Software Products & Services Supplemental Financial Information
The following table sets forth the results for each of our Software Products & Services supplemental financial information.
|
|
Quarter Ended |
|
|||||||||||||||||||||||||
|
|
Mar 31, |
|
|
Jun 30, |
|
|
Sept 30, |
|
|
Dec 31, |
|
|
Mar 31, |
|
|
Jun 30, |
|
|
Sept 30, |
|
|||||||
|
|
2022 (1) |
|
|
2022 (1) |
|
|
2022 (1) |
|
|
2022 (1) |
|
|
2023 (1) |
|
|
2023 (1) |
|
|
2023 |
|
|||||||
Pro Forma Software Revenue (in 000's) (2) |
|
$ |
26,319 |
|
|
$ |
26,650 |
|
|
$ |
28,603 |
|
|
$ |
35,612 |
|
|
$ |
22,423 |
|
|
$ |
20,860 |
|
|
$ |
20,361 |
|
Total Software Products & Services Customers (3) |
|
|
3,673 |
|
|
|
3,718 |
|
|
|
3,787 |
|
|
|
3,824 |
|
|
|
3,773 |
|
|
|
3,705 |
|
|
|
3,536 |
|
Annual Recurring Revenue (SaaS) (in 000's) (4) |
|
$ |
48,392 |
|
|
$ |
44,465 |
|
|
$ |
43,925 |
|
|
$ |
46,248 |
|
|
$ |
45,453 |
|
|
$ |
47,720 |
|
|
$ |
47,756 |
|
Annual Recurring Revenue (Consumption) (in 000's) (5) |
|
$ |
87,445 |
|
|
$ |
85,901 |
|
|
$ |
85,091 |
|
|
$ |
71,754 |
|
|
$ |
67,242 |
|
|
$ |
60,229 |
|
|
$ |
50,803 |
|
Total New Bookings (in 000's) (6) |
|
$ |
16,643 |
|
|
$ |
22,009 |
|
|
$ |
23,793 |
|
|
$ |
26,342 |
|
|
$ |
22,794 |
|
|
$ |
8,388 |
|
|
$ |
15,501 |
|
Gross Revenue Retention (7) |
|
>90% |
|
|
>90% |
|
|
>90% |
|
|
>90% |
|
|
>90% |
|
|
>90% |
|
|
>90% |
|
|||||||
(1) All of the supplemental financial information for this period is presented on a Pro Forma basis inclusive of Broadbean.
(2) “Pro Forma Software Revenue” is a non-GAAP measure that represents Software Products & Services revenue on a Pro Forma basis.
(3) “Total Software Products & Services Customers” includes Software Products & Services customers as of the end of each respective quarter set forth above with net revenues in excess of $10 and also excludes any customers categorized by us as trial or pilot status. In prior periods, we provided “Ending Software Customers,” which represented Software Products & Services customers as of the end of each fiscal quarter with trailing twelve-month revenues in excess of $2,400 for both Veritone, Inc. and PandoLogic Ltd. and/or deemed by the Company to be under an active contract for the applicable periods. Total Software Products & Services Customers is not comparable to Ending Software Customers. Total Software Products & Services Customers includes customers based on revenues in the last month of the quarter rather than on a trailing twelve-month basis. Total Software Products & Services Customers includes customers based on revenues in the last month of the quarter rather than on a trailing twelve-month basis and excludes any customers that are on trial or pilot status with us rather than including customers with active contracts. Management uses Total Software Products & Services Customers and we believe Total Software Products & Services Customers are useful to investors because it more accurately reflects our total customers for our Software Products & Services customers inclusive of Broadbean.
(4) “Annual Recurring Revenue (SaaS)” represents an annualized calculation of monthly recurring revenue during the last month of the applicable quarter for all Total Software Products & Services customers, in each case on a Pro Forma basis. In prior periods, we provided “Average Annual Revenue,” which was calculated as the aggregate of trailing twelve-month Software Products & Services revenue divided by the average number of customers over the same period for both Veritone, Inc. and PandoLogic Ltd. Annual Recurring Revenue is not comparable to Average Annual Revenue (SaaS). Annual Recurring Revenue (SaaS) includes only subscription-based SaaS revenue, is not averaged among active customers and uses a calculation of recurring revenue as described above instead of annual revenue. Management uses “Annual Recurring Revenue (SaaS)” and we believe Annual Recurring Revenue (SaaS) is useful to investors because Broadbean significantly increases our mix of subscription-based SaaS revenues as compared to Consumption revenues and the split between the two allows the reader to delineate between predictable recurring SaaS revenues and more volatile Consumption revenues.
(5) “Annual Recurring Revenue (Consumption)” represents the trailing twelve months of all non-recurring and/or consumption-based revenue for all active Total Software Products & Services customers, in each case, on a Pro Forma basis. In prior periods, we provided “Average Annual Revenue,” which was calculated as the aggregate of trailing twelve-month Software Products & Services revenue divided by the average number of customers over the same period for both Veritone, Inc. and PandoLogic Ltd. Annual Recurring Revenue (Consumption) is not comparable to Average Annual Revenue. Annual Recurring Revenue (Consumption) includes only non-recurring and/or consumption-based revenue, is not averaged among active customers and uses a calculation of recurring revenue as described above instead of annual revenue. Management uses “Annual Recurring Revenue (Consumption)” and we believe Annual Recurring Revenue (Consumption) is useful to investors because Broadbean significantly increases our mix of subscription-based SaaS revenues as compared to Consumption revenues and the split between the two allows the reader to delineate between predictable recurring SaaS revenues and more volatile Consumption revenues.
(6) “Total New Bookings” represents the total fees payable during the full contract term for new contracts received in the quarter (including fees payable during any cancellable portion and an estimate of license fees that may fluctuate over the term), excluding any variable fees under the contract (e.g., fees for cognitive processing, storage, professional services and other variable services), in each case on a Pro Forma basis.
(7) “Gross Revenue Retention” represents calculate our dollar-based gross revenue retention rate as of the period end by starting with the revenue from Software Products & Services Customers as of the 3 months in the prior year quarter to such period, or Prior Year Quarter Revenue. We then deduct from the Prior Year Quarter Revenue any revenue from Software Products & Services Customers who are no longer customers as of the current period end, or Current Period Ending Software Customer Revenue. We then divide the total Current Period Ending Software Customer Revenue by the total Prior Year Quarter Revenue to arrive at our dollar-based gross retention rate, which is the percentage of revenue from all Software Products & Services Customers from our Software Products & Services as of the year prior that is not lost to customer churn. All numbers used to determine Gross Revenue Retention are calculated on a Pro Forma basis.
38
Managed Services Supplemental Financial Information
The following table sets forth the results for each of the key performance indicators for Managed Services.
|
|
Quarter Ended |
|
|||||||||||||||||||||||||
|
|
Mar 31, |
|
|
Jun 30, |
|
|
Sept 30, |
|
|
Dec 31, |
|
|
Mar 31, |
|
|
Jun 30, |
|
|
Sept 30, |
|
|||||||
|
|
2022 |
|
|
2022 |
|
|
2022 |
|
|
2022 |
|
|
2023 |
|
|
2023 |
|
|
2023 |
|
|||||||
Avg billings per active Managed Services client (in 000's) (1) |
|
$ |
684 |
|
|
$ |
736 |
|
|
$ |
747 |
|
|
$ |
823 |
|
|
$ |
771 |
|
|
$ |
576 |
|
|
$ |
630 |
|
Revenue during quarter (in 000's) (2) |
|
$ |
10,735 |
|
|
$ |
9,625 |
|
|
$ |
10,035 |
|
|
$ |
11,074 |
|
|
$ |
9,337 |
|
|
$ |
6,876 |
|
|
$ |
9,117 |
|
(1) Avg billings per active Managed Services customer for each quarter reflects the average quarterly billings per active Managed Services customer over the twelve-month period through the end of such quarter for Managed Services clients that are active during such quarter.
(2) Managed Services revenue and metrics exclude content licensing and media services.
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.
Results of Operations
The following tables set forth our results of operations for the three and nine months ended September 30, 2023 and 2022, 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.
(dollars in thousands) |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||
|
|
|
|
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Revenue |
|
|
|
|
|
$ |
35,133 |
|
|
$ |
37,196 |
|
|
$ |
93,363 |
|
|
$ |
105,838 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of revenue |
|
|
|
|
|
|
7,187 |
|
|
|
7,097 |
|
|
|
21,761 |
|
|
|
20,725 |
|
Sales and marketing |
|
|
|
|
|
|
12,892 |
|
|
|
13,920 |
|
|
|
38,706 |
|
|
|
37,565 |
|
Research and development |
|
|
|
|
|
|
10,410 |
|
|
|
11,784 |
|
|
|
32,456 |
|
|
|
32,735 |
|
General and administrative |
|
|
|
|
|
|
21,082 |
|
|
|
2,502 |
|
|
|
57,504 |
|
|
|
27,127 |
|
Amortization |
|
|
|
|
|
|
6,624 |
|
|
|
5,504 |
|
|
|
17,767 |
|
|
|
15,730 |
|
Total operating expenses |
|
|
|
|
|
|
58,195 |
|
|
|
40,807 |
|
|
|
168,194 |
|
|
|
133,882 |
|
Loss from operations |
|
|
|
|
|
|
(23,062 |
) |
|
|
(3,611 |
) |
|
|
(74,831 |
) |
|
|
(28,044 |
) |
Other income (expense), net |
|
|
|
|
|
|
(2,456 |
) |
|
|
(1,249 |
) |
|
|
1,409 |
|
|
|
(3,666 |
) |
Loss before provision for income taxes |
|
|
|
|
|
|
(25,518 |
) |
|
|
(4,860 |
) |
|
|
(73,422 |
) |
|
|
(31,710 |
) |
(Benefit from) provision for income taxes |
|
|
|
|
|
|
(977 |
) |
|
|
26 |
|
|
|
(2,622 |
) |
|
|
(1,442 |
) |
Net loss |
|
|
|
|
|
$ |
(24,541 |
) |
|
$ |
(4,886 |
) |
|
$ |
(70,800 |
) |
|
$ |
(30,268 |
) |
39
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||
|
|
|
|
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Revenue |
|
|
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of revenue |
|
|
|
|
|
|
20.5 |
|
|
|
19.1 |
|
|
|
23.3 |
|
|
|
19.6 |
|
Sales and marketing |
|
|
|
|
|
|
36.7 |
|
|
|
37.4 |
|
|
|
41.5 |
|
|
|
35.5 |
|
Research and development |
|
|
|
|
|
|
29.6 |
|
|
|
31.7 |
|
|
|
34.8 |
|
|
|
30.9 |
|
General and administrative |
|
|
|
|
|
|
60.0 |
|
|
|
6.7 |
|
|
|
61.6 |
|
|
|
25.6 |
|
Amortization |
|
|
|
|
|
|
18.9 |
|
|
|
14.9 |
|
|
|
19.0 |
|
|
|
14.9 |
|
Total operating expenses |
|
|
|
|
|
|
165.7 |
|
|
|
109.7 |
|
|
|
180.2 |
|
|
|
126.4 |
|
Loss from operations |
|
|
|
|
|
|
(65.7 |
) |
|
|
(9.7 |
) |
|
|
(80.2 |
) |
|
|
(26.4 |
) |
Other income (expense), net |
|
|
|
|
|
|
(7.0 |
) |
|
|
(3.4 |
) |
|
|
1.5 |
|
|
|
(3.5 |
) |
Loss before provision for income taxes |
|
|
|
|
|
|
(72.7 |
) |
|
|
(13.1 |
) |
|
|
(78.7 |
) |
|
|
(29.9 |
) |
(Benefit from) provision for income taxes |
|
|
|
|
|
|
(2.8 |
) |
|
|
0.1 |
|
|
|
(2.8 |
) |
|
|
(1.4 |
) |
Net loss |
|
|
|
|
|
|
(69.9 |
) |
|
|
(13.1 |
) |
|
|
(75.9 |
) |
|
|
(28.5 |
) |
Three and Nine Months Ended September 30, 2023 Compared with Three and Nine Months Ended September 30, 2022
Revenue
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||||||
|
|
Commercial |
|
|
Government & |
|
|
|
|
|
Commercial |
|
|
Government & |
|
|
|
|
||||||
|
|
Enterprise |
|
|
Regulated |
|
|
Total |
|
|
Enterprise |
|
|
Regulated |
|
|
Total |
|
||||||
Software Products & Services |
|
$ |
18,885 |
|
|
$ |
1,476 |
|
|
$ |
20,361 |
|
|
$ |
44,109 |
|
|
$ |
4,472 |
|
|
$ |
48,581 |
|
Managed Services |
|
|
14,772 |
|
|
|
— |
|
|
|
14,772 |
|
|
|
44,782 |
|
|
|
— |
|
|
|
44,782 |
|
Revenue |
|
$ |
33,657 |
|
|
$ |
1,476 |
|
|
$ |
35,133 |
|
|
$ |
88,891 |
|
|
$ |
4,472 |
|
|
$ |
93,363 |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||||||
|
|
Commercial |
|
|
Government & |
|
|
|
|
|
Commercial |
|
|
Government & |
|
|
|
|
||||||
|
|
Enterprise |
|
|
Regulated |
|
|
Total |
|
|
Enterprise |
|
|
Regulated |
|
|
Total |
|
||||||
Software Products & Services |
|
$ |
19,800 |
|
|
$ |
1,012 |
|
|
$ |
20,812 |
|
|
$ |
54,694 |
|
|
$ |
2,664 |
|
|
$ |
57,358 |
|
Managed Services |
|
|
16,384 |
|
|
|
— |
|
|
|
16,384 |
|
|
|
48,480 |
|
|
|
— |
|
|
|
48,480 |
|
Revenue |
|
$ |
36,184 |
|
|
$ |
1,012 |
|
|
$ |
37,196 |
|
|
$ |
103,174 |
|
|
$ |
2,664 |
|
|
$ |
105,838 |
|
Commercial Enterprise
Commercial Enterprise Software Products & Services revenue decreased $0.9 million or 5% in the three months ended September 30, 2023 compared to the corresponding prior year period and decreased $10.6 million or 19% in the nine months ended September 30, 2023 compared to the corresponding prior year period, with the decreases largely driven by decreased revenue from Amazon, partially offset by revenue from the acquisition of Broadbean in June 2023. Commercial Enterprise Managed Services decreased $1.6 million or 10% in the three months ended September 30, 2023 compared to the corresponding prior year period and decreased $3.7 million or 8% in the nine months ended September 30, 2023 compared to the corresponding prior year period, with the decreases driven primarily due to decreases in advertising revenue driven by the current economic environment.
Government & Regulated Industries
Government & Regulated Industries Software Products & Services revenue increased $0.5 million or 46% in the three months ended September 30, 2023 compared to the corresponding prior year period and increased $1.8 million or 67% in the nine months ended September 30, 2023 compared to the corresponding prior year period, with the increases driven by new and existing customer growth. Government & Regulated Industries Software Products & Services revenue from customers in certain markets, particularly government, is often project-based and is impacted by the timing of projects. As such, we expect that our revenue from these markets could fluctuate significantly from period to period.
Operating Expenses
40
(dollars in thousands) |
|
Three Months Ended |
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
|
||||||||
Cost of revenue |
|
$ |
7,187 |
|
|
$ |
7,097 |
|
|
$ |
90 |
|
|
|
1.3 |
% |
|
$ |
21,761 |
|
|
$ |
20,725 |
|
|
$ |
1,036 |
|
|
|
5.0 |
% |
|
Sales and marketing |
|
|
12,892 |
|
|
|
13,920 |
|
|
|
(1,028 |
) |
|
|
(7.4 |
)% |
|
|
38,706 |
|
|
|
37,565 |
|
|
|
1,141 |
|
|
|
3.0 |
% |
|
Research and development |
|
|
10,410 |
|
|
|
11,784 |
|
|
|
(1,374 |
) |
|
|
(11.7 |
)% |
|
|
32,456 |
|
|
|
32,735 |
|
|
|
(279 |
) |
|
|
(0.9 |
)% |
|
General and administrative |
|
|
21,082 |
|
|
|
2,502 |
|
|
|
18,580 |
|
|
|
742.6 |
% |
|
|
57,504 |
|
|
|
27,127 |
|
|
|
30,377 |
|
|
|
112.0 |
% |
|
Amortization |
|
|
6,624 |
|
|
|
5,504 |
|
|
|
1,120 |
|
|
|
20.3 |
% |
|
|
17,767 |
|
|
|
15,730 |
|
|
|
2,037 |
|
|
|
12.9 |
% |
|
Total operating expenses |
|
$ |
58,195 |
|
|
$ |
40,807 |
|
|
$ |
17,388 |
|
|
|
42.6 |
% |
|
$ |
168,194 |
|
|
$ |
133,882 |
|
|
$ |
34,312 |
|
|
|
25.6 |
% |
|
Cost of Revenue. Cost of revenue increased by $0.1 million in the three months ended September 30, 2023 compared to the corresponding prior year period and increased by $1.0 million in the nine months ended September 30, 2023 compared with the corresponding prior year period, primarily due to a shift in the mix of revenues from higher margin Software Products & Services products to lower margin Managed Services products.
Sales and Marketing. Sales and marketing expenses decreased by $1.0 million in the three months ended September 30, 2023 compared to the corresponding prior year period, 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. Sales and marketing increased by $1.1 million in the nine months ended September 30, 2023 compared with the corresponding prior year period, primarily due to increases in personnel-related costs from the addition of new sales and marketing resources. As a percentage of revenue, sales and marketing expenses increased to 37% and 42% in the three and nine months ended September 30, 2023, respectively, from 37% and 36% in the corresponding prior year periods.
Research and Development. Research and development expenses decreased by $1.4 million or 12% in the three months ended September 30, 2023 and by $0.3 million or 1% in the nine months ended September 30, 2023 compared with the corresponding prior year periods principally due to an increase in capitalized costs for internal use software and decrease in personnel-related costs of due to cost reduction initiatives announced in the first quarter of 2023, partially offset by increased costs for the Steel Holdings Consulting Agreement. As a percentage of revenue, research and development expenses increased to 30% and 35% in the three and nine months ended September 30, 2023, from 32% and 31% in the corresponding prior year periods.
General and Administrative. General and administrative expenses increased by $18.6 million or 743% in the three months ended September 30, 2023 compared with the corresponding prior year period principally due to a non-cash benefit of $14.3 million recognized during the three months ended September 30, 2022 associated with a change in the estimated fair value of contingent consideration. General and administrative expenses increased by $30.4 million or 112% in the nine months ended September 30, 2023 compared with the corresponding prior year period principally due to a non-cash benefit of $23.1 million recognized in the prior year associated with a change in the estimated fair value of contingent consideration, coupled with the increase in accounting and legal fees. As a percentage of revenue, general and administrative expenses increased to 60% and 62% in the three and nine months ended September 30, 2023, respectively, from 7% and 26% in the corresponding prior year periods.
Amortization Expense. Amortization expense increased in the three and nine months ended September 30, 2023 compared with the corresponding prior year period due to the addition of amortization expense related to our 2022 and 2023 acquisitions.
Other Income (Expense), Net
Other expense, net for the three months ended September 30, 2023 was comprised primarily of foreign exchange loss of $2.3 million and interest expense, net of $0.2 million. Other expense, net for the three months ended September 30, 2022 was $1.2 million due primarily to interest expense. Other income, net 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 foreign exchange gain of $0.5 million, offset by interest expense, net of $1.7 million. Other expense, net for the nine months ended September 30, 2022 was $3.7 million due primarily to interest expense.
Non-GAAP Gross Profit
For the three months ended September 30, 2023, our total loss from operations increased to $22.9 million compared to $3.6 million in the corresponding prior year period. For the nine months ended September 30, 2023, our total loss from operations increased to $74.7 million
41
compared to $28.0 million in the corresponding prior year period. As noted above, our non-GAAP gross profit is calculated as our revenue less our cost of revenue, as follows:
(dollars in thousands) |
|
Three Months Ended |
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
|
||||||||
Revenue |
|
$ |
35,133 |
|
|
$ |
37,196 |
|
|
$ |
(2,063 |
) |
|
|
(5.5 |
)% |
|
$ |
93,363 |
|
|
$ |
105,838 |
|
|
$ |
(12,475 |
) |
|
|
(11.8 |
)% |
|
Cost of revenue |
|
|
7,187 |
|
|
|
7,097 |
|
|
|
90 |
|
|
|
1.3 |
% |
|
|
21,761 |
|
|
|
20,725 |
|
|
|
1,036 |
|
|
|
5.0 |
% |
|
Non-GAAP gross profit |
|
|
27,946 |
|
|
|
30,099 |
|
|
|
(2,153 |
) |
|
|
(7.2 |
)% |
|
|
71,602 |
|
|
|
85,113 |
|
|
|
(13,511 |
) |
|
|
(15.9 |
)% |
|
Non-GAAP gross margin |
|
|
79.5 |
% |
|
|
80.9 |
% |
|
|
|
|
|
|
|
|
76.7 |
% |
|
|
80.4 |
% |
|
|
|
|
|
|
|
||||
The decrease in non-GAAP gross profit and non-GAAP gross margin in the three and nine months ended September 30, 2023 compared with the corresponding prior year periods was due primarily to decreases in revenue compared to the corresponding prior year periods.
Liquidity and Capital Resources
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 $72.1 million as of September 30, 2023, compared with total cash and cash equivalents of $184.4 million as of December 31, 2022. The decrease in our cash and cash equivalents as of September 30, 2023 as compared with December 31, 2022 was primarily due to cash used by operating activities of $48.1 million, investments paid during the nine months ended September 30, 2023, and the payment of the PandoLogic 2022 earnout.
In August 2023, we entered into a three-year credit agreement with Alterna Capital Solutions, LLC (“ACS”) under which we are initially able to borrow, at our discretion and throughout the term, up to $30,000 against certain domestic receivables (the “Credit Facility”), subject to the lender’s approval of such domestic receivables. The Credit Facility bears interest at the greater of Prime rate plus 1 percent or 9.5%, and minimum annual interest of $250 is due if no funds are drawn in a given year. ACS will be a senior secured creditor. The Credit Facility provides additional financial flexibility and liquidity on our balance sheet. As of September 30, 2023, we had not drawn any amounts under the Credit Facility.
On November 7, 2023, we entered into a commitment letter with certain lenders to provide a senior secured term loan facility in an aggregate principal amount of $77.5 million. We expect to use the proceeds of the Term Loan to repurchase an aggregate $50.0 million principal amount of our existing 1.75% convertible senior notes due 2026 held by the lenders at a purchase price of $37.5 million plus accrued and unpaid interest and for general corporate purposes. We expect the Term Loan to close in the fourth quarter and to replace our Credit Facility with Alterna Capital Solutions, LLC. For more information on the Term Loan, see Note 13. Subsequent Events to our condensed consolidated financial statements included in this Quarterly Report.
We believe that our ability to borrow up to $30,000 under the Credit Facility, subject to the lender’s approval of qualifying domestic receivables, or the availability of proceeds from our Term Loan, if consummated, when combined with our cash and cash equivalents, will allow us to meet our anticipated cash requirements for the next twelve months.
Cash Flows
A summary of cash flows from our operating, investing and financing activities is shown in the table below.
(in thousands) |
|
Nine Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cash used in operating activities |
|
$ |
(48,111 |
) |
|
$ |
(24,630 |
) |
Cash used in investing activities |
|
|
(53,745 |
) |
|
|
(11,116 |
) |
Cash used in financing activities |
|
|
(10,487 |
) |
|
|
(22,903 |
) |
Net decrease in cash, cash equivalents and restricted cash |
|
$ |
(112,343 |
) |
|
$ |
(58,649 |
) |
Operating Activities
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.
42
Our operating activities used cash of $24.6 million in the nine months ended September 30, 2022, due primarily to our net loss of $30.3 million, adjusted by $7.5 million in non-cash expenses, including $16.5 million in depreciation and amortization and $14.7 million in stock-based compensation expense, offset in part by $23.1 million from a change in the fair value of contingent consideration, $2.1 million from a changes in deferred taxes and the net working capital decrease of $1.9 million.
Investing Activities
Our investing activities for the nine months ended September 30, 2023 used cash of $53.7 million primarily for $50.2 million in cash paid for the Broadbean acquisition net of cash acquired and $4.0 million in capital expenditures, with these uses of cash partially offset by $0.5 million in proceeds from the Energy Divestiture.
Our investing activities for the nine months ended September 30, 2022 used cash of $11.1 million primarily for $4.6 million to fund a portion of the consideration for our acquisitions, $3.8 million in capital expenditures and for an equity investment of $2.8 million in a strategic partner.
Financing Activities
Our financing activities for the nine months ended September 30, 2023 used cash of $10.5 million, consisting of $7.8 million to pay the 2022 earnout for PandoLogic, $2.7 million in deferred consideration primarily related to the March 2022 Acquisition and the VocaliD acquisition, and $1.1 million to pay taxes paid related to the net share settlement of equity awards, offset by $1.1 million in proceeds received from the exercise of stock options and purchases of shares under our ESPP.
Our financing activities for the nine months ended September 30, 2022 used cash of $22.9 million, consisting of $14.4 million to pay the 2021 earnout for PandoLogic and $9.7 million to pay taxes paid related to the net share settlement of equity awards, partially offset by $1.2 million in proceeds received from the exercise of stock options and purchases of shares under our ESPP.
Contractual Obligations and Known Future Cash Requirements
As of September 30, 2023, our only debt obligations were the Convertible Notes issued in the fourth quarter of fiscal year 2021, net of amounts repurchased in 2022 and the Credit Facility. The remaining principal on the Convertible Notes of $141.25 million will mature on November 15, 2026, unless earlier converted, redeemed or repurchased in accordance with the terms of the Convertible Notes.
As of September 30, 2023, we have future cash requirements to pay $2.8 million in purchase consideration commitments related to the VSL acquisition, the VocaliD acquisition and the March 2022 Acquisition that will be paid in 2023 and in 2024. We have no other present agreements or commitments with respect to any material acquisitions of businesses or technologies or any other material capital expenditures.
We have generated significant losses since inception; however, we do expect to begin generating profits on a non-GAAP basis in the foreseeable future. We believe that our current cash and cash equivalents balance, combined with available borrowing under the Credit Facility, will be sufficient to fund our operations in the ordinary course of business for at least the next twelve months from the date of this filing. We have not entered into any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions about future events that affect amounts reported in our condensed consolidated financial statements and related notes, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. Management evaluates its accounting policies, estimates and judgments on an on-going basis. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions.
Our critical accounting estimates reflecting management’s estimates and judgments are described in our Annual Report on Form 10-K for the year ended December 31, 2022. We have reviewed recently adopted accounting pronouncements and determined that the adoption of such pronouncements is not expected to have a material impact, if any, on our condensed consolidated financial statements. Accordingly, there have been no material changes to critical accounting policies and estimates as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the information required by Item 305 of Regulation S-K.
43
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of September 30, 2023. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives of ensuring that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to enable timely decisions regarding required disclosures, and is recorded, processed, summarized, and reported within the time periods specified in the rules and forms promulgated by the SEC. Our management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and there is no assurance that our disclosure controls and procedures will operate effectively under all circumstances. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2023, our disclosure controls and procedures were not effective at the reasonable assurance level due to the following material weakness in internal control over financial reporting.
Material Weaknesses in Internal Control over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
During the preparation of this Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, management identified a material weakness in internal control over financial reporting relating to the consolidation process and review of financial statements specifically pertaining to the Company’s design of controls to determine the proper accounting for certain foreign exchange transactions and translation between Veritone, Inc. and certain foreign subsidiaries. This material weakness did not result in any identified material misstatements to the financial statements. However, this material weakness could have resulted in a material misstatement to the Company's annual or interim condensed consolidated financial statements that would not be prevented or detected on a timely basis. While the adjustments identified were not material to the financial statements for the three and nine months ended September 30, 2023 and there were no changes to previous periods, based on the volatility of the foreign currency exchange rates and cumulative materiality of the outstanding intercompany balance, the calculated amounts could have resulted in a material misstatement to our annual or interim condensed consolidated financial statements that would not be prevented or detected on a timely basis.
During the preparation of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, management identified a material weakness in internal control over financial reporting relating to information technology general controls (“ITGCs”) in the areas of user access and change-management over certain information technology (“IT”) systems that support the Company’s financial reporting processes. In addition, the Company’s business process automated and manual controls that are dependent on the affected ITGCs were also deemed ineffective because they could have been adversely impacted. Although this material weakness did not result in any identified misstatements to the financial statements and there were no changes to previously released financial results, this material weakness could have resulted in a material misstatement to the Company's annual or interim condensed consolidated financial statements that would not be prevented or detected on a timely basis.
Remediation of Material Weaknesses in Internal Control Over Financial Reporting
In order to remediate the material weakness relating to ITGCs, management is taking remediation actions including: (i) developing and enhancing IT compliance oversight capabilities with specific focus over identification and execution of appropriate ITGCs; (ii) developing a training program addressing ITGCs and policies, including educating control owners concerning the principles and requirements of each control, with a focus on those related to user access and change management over IT systems impacting financial reporting; (iii) developing and maintaining documentation of underlying ITGCs to promote knowledge transfer upon personnel and function changes; and (iv) implementing an IT management review and testing plan to monitor ITGCs with a specific focus on systems supporting our financial reporting processes. In order to remediate the material weakness relating to the consolidation process, including the proper accounting of foreign exchange transactions between the Company and its foreign subsidiaries, management plans to implement financial reporting control changes to address the material weakness, evaluate the adequacy of resources surrounding its consolidation process and train individuals in the proper accounting treatment for foreign currency transactions and consolidation under US GAAP. This training is expected to be completed in the fourth quarter of 2023. Management has also hired additional staff to oversee the implementation and testing of these remediation actions. To further remediate the existing material weakness identified herein, the management team, including the Chief Executive Officer and Chief Financial Officer, have reaffirmed and re-emphasized the importance of internal controls, control consciousness and a strong control environment. We are committed to maintaining a strong control environment and believe that these remediation efforts represent continued improvement in our control environment. We also expect to continue to review, optimize and enhance our financial reporting controls and procedures. A material weakness will not be considered remediated until the applicable remediated control operates for a sufficient period of time and management has concluded, through testing, that this enhanced control is operating effectively.
44
Changes in Internal Control over Financial Reporting
During the quarter ended June 30, 2023, we completed the acquisition of Broadbean. Prior to the acquisition, Broadbean was a privately-held company and was not subject to the Sarbanes-Oxley Act of 2002, the rules and regulations of the SEC, or other corporate governance requirements applicable to public reporting companies. As part of our ongoing integration activities, we are continuing to incorporate our controls and procedures into Broadbean and to augment our company-wide controls to reflect the risks that may be inherent in acquisitions of privately-held companies.
Other than our integration of the Broadbean business and the remediation efforts described above, there have been no changes in our internal control over financial reporting during the three months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Management recognizes that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
45
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. We currently are not a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on our results of operations, financial position or cash flows. Regardless of the outcome, any litigation could have an adverse impact on us due to defense and settlement costs, diversion of management resources and other factors.
Item 1A. Risk Factors
Our Annual Report on Form 10-K for the year ended December 31, 2022 contains a discussion of the material risks associated with our business. Other than as set forth below, there have been no material changes to the risks described in such Annual Report on Form 10-K.
We entered into a Commitment Letter for a $77.5 million aggregate principal amount senior secured term loan facility, which we expect to close in the fourth quarter of 2023. If the Term Loan does not close, we anticipate we will require additional liquidity to continue our operations for the next twelve months.
As of September 30, 2023, we had $72.1 million in cash and cash equivalents, and in August 2023, we entered into a three-year credit agreement with Alterna Capital Solutions, LLC (“ACS”) under which we are initially able to borrow, at our discretion and throughout the term, up to $30.0 million against certain domestic receivables (the “Credit Facility”), subject to the lender’s approval of such domestic receivables. There were no amounts outstanding under the Credit Facility as of September 30, 2023. In November 2023, we entered into a Commitment Letter for a $77.5 million aggregate principal amount Term Loan, of which we will use $37.5 million to repurchase $50.0 million of our existing Convertible Notes and the remainder will be used for general corporate purposes. We intend to replace our Credit Facility with Alterna Capital Solutions, LLC with the Term Loan. We believe that our ability to borrow up to $30,000 under the Credit Facility, subject to the lender’s approval of qualifying domestic receivables, and the net proceeds from the Term Loan, if consummated, when combined with our cash and cash equivalents, will allow us to meet our anticipated cash requirements for the next twelve months. If we are unable to borrow up to the full $30.0 million under the Credit Facility or the Term Loan does not close, however, we anticipate we will require additional liquidity to continue our operations over the next twelve months.
In determining our cash requirements for the next twelve months, our estimates regarding our operating expense and capital expenditure requirements are based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate. Moreover, it is particularly difficult to estimate with certainty our future expenses given the dynamic nature of our business and widespread macroeconomic and geopolitical uncertainties, including labor shortages, inflation rates and the responses by central banking authorities to control inflation such as higher interest rates, monetary supply shifts, disruptions in access to bank deposits or lending commitments due to bank failures and the threat of recession in the United States and around the world, as well as disruptions from the Russia-Ukraine conflict and the war in Israel. As a result, we may have to delay, reduce the scope of, suspend or eliminate one or more of our product offerings or lines of business.
We expect to close the Term Loan in the fourth quarter of 2023. As a result of closing the Term Loan, we will incur increased interest expense. Also, we have agreed to issue warrants to purchase up to 3,008,540 shares at an exercise price of $2.576 per share and, subject to certain conditions and limitations, we may elect to pay portions of our Term Loan and interest payments with shares of our common stock. These issuances of common stock may be dilutive to our stockholders.
If we are unable to borrow up to the full $30.0 million under the Credit Facility or do not close the Term Loan, we believe we will require additional liquidity to continue our operations over the next twelve months. However, there can be no assurance that we will be able to obtain additional financing or on terms acceptable to us or at all. If we do raise additional funds through future issuances of equity or convertible debt securities, our stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing that we may secure in the future could involve debt service obligations and restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. Also, market volatility, including as a result of the macroeconomic and geopolitical factors discussed above, could adversely increase our need to access capital and likewise, adversely impact our ability to access capital as and when needed. Our failure to raise capital or on acceptable terms would have a negative impact on our ability to continue to support our business growth, scale our infrastructure, develop product enhancements and respond to business challenges, and we may have to delay, reduce the scope of, suspend or eliminate one or more of our product offerings or programs. Any of the above events could significantly harm our business, financial condition, results of operations, prospects and ability to compete, and cause the price of our common stock to decline.
46
We have identified material weaknesses in our internal control over financial reporting. If we are unable to develop and maintain effective internal control over financial reporting, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us, materially and adversely affect our business and operating results and expose us to potential litigation.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected and corrected on a timely basis. We have previously identified multiple material weaknesses in our internal control over financial reporting.
During the preparation of this Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, management identified a material weakness in internal control over financial reporting relating to the consolidation process and review of financial statements specifically pertaining to the Company’s design of controls to determine proper accounting for certain foreign exchange transactions and translation between Veritone, Inc. and certain foreign subsidiaries. This material weakness did not result in any identified material misstatements to the financial statements. However, this material weakness could have resulted in a material misstatement to the Company's annual or interim condensed consolidated financial statements that would not be prevented or detected on a timely basis. While the adjustments identified were not material to the financial statements for the three and nine months ended September 30, 2023 and there were no changes to previous periods, based on the volatility of the foreign currency exchange rates and cumulative materiality of the outstanding intercompany balance, the calculated amounts could have resulted in a material misstatement to our annual or interim condensed consolidated financial statements that would not be prevented or detected on a timely basis.
During the preparation of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, management identified a material weakness in internal control over financial reporting relating to information technology general controls (“ITGCs”) in the areas of user access and change-management over certain information technology (“IT”) systems that support our financial reporting processes. Our business process automated and manual controls that are dependent on the affected ITGCs were also deemed ineffective because they could have been adversely impacted. These control deficiencies were a result of user access and change management processes over certain IT systems. Although this material weakness did not result in any identified misstatements to the financial statements and there were no changes to previously released financial results, this material weakness could have resulted in a material misstatement to our annual or interim consolidated financial statements that would not be prevented or detected on a timely basis. Management is taking remediation actions with respect to this material weakness including: (i) developing and enhancing IT compliance oversight capabilities with specific focus over identification and execution of appropriate ITGCs; (ii) developing a training program addressing ITGCs and policies, including educating control owners concerning the principles and requirements of each control, with a focus on those related to user access and change management over IT systems impacting financial reporting; (iii) developing and maintaining documentation of underlying ITGCs to promote knowledge transfer upon personnel and function changes; and (iv) implementing an IT management review and testing plan to monitor ITGCs with a specific focus on systems supporting our financial reporting processes.
During the preparation of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, management identified that a material weakness in internal control over financial reporting existed relating to the appropriate oversight and sufficient review of the work performed by third-party specialists on our behalf and the coordination of work being performed by more than one specialist. Such third-party specialists were used in the preparation of (i) our valuation of contingent consideration, (ii) our valuation of certain identified intangible assets and (iii) our purchase price allocation pursuant to ASC 805, Business Combinations, in connection with our acquisition of PandoLogic Ltd. The material weakness resulted in the restatement of the unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2022 and immaterial misstatements to the consolidated financial statements for the year ended December 31, 2021. Additionally, this material weakness could have resulted in a misstatement of certain accounting estimates or disclosures that would have resulted in a material misstatement of our annual consolidated financial statements that would not have been prevented or detected on a timely basis. We concluded this material weakness had been remediated as of December 31, 2022.
To further remediate the material weakness identified herein, the management team, including the Chief Executive Officer and Chief Financial Officer, have reaffirmed and re-emphasized the importance of internal controls, control consciousness and a strong control environment. If we are not able to remediate the existing material weaknesses, or if we identify any new material weaknesses in the future, we may be unable to maintain compliance with the requirements of securities laws, stock exchange listing rules, or debt instrument covenants regarding timely filing of information; we could lose access to sources of capital or liquidity; and investors may lose confidence in our financial reporting and our stock price may decline as a result. Though we are taking steps to remediate the existing material weaknesses, we cannot be assured that the measures we have taken to date, or any measures we may take in the future, will be sufficient to remediate the material weakness or avoid potential future material weaknesses.
As a result of the material weaknesses described above and other related matters raised or that may in the future be identified, we face potential for adverse regulatory consequences, including investigations, penalties or suspensions by the SEC or NASDAQ, litigation or other disputes which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the restatement and material weakness in our internal control over financial reporting and the preparation of our consolidated financial statements. As of the date of this filing, we have no knowledge of any such regulatory consequences, litigation, claim or dispute. However, we can provide no assurance that such regulatory consequences, litigation, claim or dispute will not arise in the future. Any such regulatory consequences, litigation, claim or dispute, whether successful or not, could subject us to additional costs, divert the attention of our
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management, or impair our reputation. Each of these consequences could have a material adverse effect on our business, results of operations and financial condition.
Our business has been and may continue to be negatively affected by macroeconomic and geopolitical factors, including economic disruption caused by the COVID-19 pandemic, the Russia-Ukraine conflict and related sanctions, the war in Israel, inflation rates and the responses by central banking authorities to control inflation, monetary supply shifts and the threat of recession in the United States and around the world .
Global economic and business activities continue to face widespread macroeconomic and geopolitical uncertainties, including labor shortages, inflation rates and the responses by central banking authorities to control inflation such as higher interest rates, monetary supply shifts, disruptions in access to bank deposits or lending commitments due to bank failures, the ongoing impact of the COVID-19 pandemic, and the threat of recession in the United States and around the world, as well as disruptions from the Russia-Ukraine conflict and the war in Israel. We continue to actively monitor the impact of these macroeconomic factors on our financial condition, liquidity, operations, suppliers, industry and workforce, and instituted certain cost saving measures for the during the second half of 2022 and the first nine months of 2023 as a result of these factors. 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 are uncertain and cannot be predicted. These and other global economic conditions, including any new disruptions, have and may again negatively impact our business. For example, we have operations and an office in Israel, and as a result of the war with Hamas there, a number of our employees and family members of our employees have been conscripted into military service. In addition, our hiring solutions are sold to businesses that experience performance fluctuations based on factors including the demand for labor and the economic health of current and prospective employers. To the extent that economic uncertainty or attenuated economic conditions cause our current and potential customers to freeze or reduce their headcount, demand for our products and services has been, and may continue to be negatively affected. Adverse economic conditions have also caused and could continue to 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. For instance, beginning in March 2022, we experienced a reduction in hiring consumption from our largest customer, Amazon, and found that advertisers reduced spending across our managed services when compared to the same periods in the prior year. 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 billing terms. If economic, political, or market conditions deteriorate, or if there is uncertainty around these conditions, our current and potential customers may elect to decrease their software and technology solutions budgets by deferring or reconsidering product purchases, which could 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
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Exhibit No. |
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Description of Exhibit |
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2.1 |
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3.1 |
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3.2 |
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10.1 |
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10.2 |
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10.3 |
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31.1 |
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Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act. |
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31.2 |
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Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act. |
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32.1+ |
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101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document. |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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104 |
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The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, has been formatted in Inline XBRL. |
The Company has omitted portions of the referenced exhibit pursuant to Item 601(a)(5) of Regulation S-K under the Securities Act. The Company agrees to furnish supplementally a copy of all omitted exhibits, schedules and annexes to the Securities and Exchange Commission upon request.
+ The certifications furnished as Exhibit 32.1 accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Subsection 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Exchange Act and are not to be incorporated by reference into any of the Registrant's filings under the Securities Act, irrespective of any general incorporation language contained in any such filing.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Veritone, Inc. |
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November 14, 2023 |
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By: |
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/s/ Michael L. Zemetra |
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Michael L. Zemetra |
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Executive Vice President, Chief Financial Officer and Treasurer |
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(Principal Financial and Accounting Officer) |
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