10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on May 10, 2024
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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(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:
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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 ☐ No
As of May 8, 2024,
VERITONE, INC.
QUARTERLY REPORT ON FORM 10-Q
March 31, 2024
TABLE OF CONTENTS
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PART I. |
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Item 1. |
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Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023 |
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Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023 |
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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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Item 4. |
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PART II. |
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Item 1. |
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Item 1A. |
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39 |
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Item 2. |
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40 |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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42 |
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CAUTIONARY 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,” “could,” “estimates,” “expects,” “intends,” “continue,” “can,” “may,” “plans,” “potential,” “projects,” “seeks,” “should,” “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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March 31, |
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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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Senior Secured Term Loan, current portion |
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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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Senior Secured Term Loan, non-current |
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Contingent consideration, non-current |
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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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Accumulated other comprehensive income (loss) |
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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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2024 |
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2023 |
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Revenue |
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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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Other income (expense), net |
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Loss before provision for income taxes |
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(Benefit from) provision for income taxes |
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( |
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Net loss |
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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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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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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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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 March 31, 2024 |
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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 (Loss) |
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Total |
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Balance as of December 31, 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 and other |
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( |
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— |
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— |
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— |
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Common stock issued in connection with warrant exercises |
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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 March 31, 2024 |
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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.
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Three Months Ended March 31, 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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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 March 31, 2023 |
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( |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
VERITONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
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Three Months Ended |
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2024 |
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2023 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
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$ |
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Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
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Provision for credit losses |
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Stock-based compensation expense |
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Change in fair value of contingent consideration |
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— |
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Change in deferred taxes |
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Amortization of debt issuance costs |
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Amortization of right-of-use assets |
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Imputed non-cash interest income |
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Changes in assets and liabilities: |
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Accounts receivable |
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Expenditures billable to clients |
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Prepaid expenses and other assets |
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Other assets |
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Accounts payable |
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Deferred revenue |
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— |
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Accrued media payments |
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( |
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( |
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Client advances |
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( |
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Other accrued liabilities |
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Other liabilities |
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( |
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Net cash provided by (used in) operating activities |
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Cash flows from investing activities: |
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Capital expenditures |
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( |
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( |
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Acquisitions, net of cash acquired |
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— |
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( |
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Net cash used in investing activities |
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( |
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( |
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Cash flows from financing activities: |
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Payment of contingent consideration |
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( |
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( |
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Taxes paid related to net share settlement of equity awards |
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— |
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Proceeds from issuances of stock under employee stock plans, net |
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Settlement of deferred consideration for acquisitions |
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( |
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— |
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Net cash used in financing activities |
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( |
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( |
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Net increase (decrease) in cash and cash equivalents and restricted cash |
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( |
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Cash and cash equivalents and restricted cash, beginning of period |
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Cash and cash equivalents and restricted cash, end of period |
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$ |
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$ |
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Supplemental Disclosure of Cash Flow Information |
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Non-cash investing and financing activities: |
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Fair value of shares issued for acquisition of businesses and earn-out consideration |
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— |
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Stock-based compensation capitalized for software development |
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118 |
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Lease liabilities arising from right-of-use assets |
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— |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
VERITONE, INC.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except share and per share data and percentages)
(Unaudited)
NOTE 1. DESCRIPTION OF BUSINESS
Veritone, Inc., a Delaware corporation (“Veritone,” and together with its subsidiaries, collectively, the “Company”), is a provider of artificial intelligence (“AI”) computing solutions. The Company’s proprietary AI operating system, aiWARETM, uses machine learning algorithms, or AI models, together with a suite of powerful applications, to reveal valuable insights from vast amounts of structured and unstructured data. The aiWARE platform offers capabilities that mimic human cognitive functions such as perception, prediction and problem solving, enabling users to quickly, efficiently and cost effectively transform unstructured data into structured data, and analyze and optimize data to drive business processes and insights. aiWARE is based on an open architecture that enables new AI models, applications and workflows to be added quickly and efficiently, resulting in a scalable and evolving solution that can be leveraged by organizations across a broad range of business sectors, serving commercial enterprises as well as government and regulated industries.
In addition, the Company operates a full-service advertising agency that leverages the Company’s aiWARE technologies to provide differentiated Managed Services to its clients. The Company’s advertising services include media planning and strategy, advertisement buying and placement, campaign messaging, clearance verification and attribution, and custom analytics, specializing in host-endorsed and influencer advertising across primarily radio, podcasting, streaming audio, social media and other digital media channels. The Company’s advertising services also include its VeriAds Network, which is comprised of programs that enable broadcasters, podcasters and social media influencers to generate incremental advertising revenue. The Company also offers cloud-native digital content management solutions and licensing services, primarily to customers in the media and entertainment market. These offerings leverage the Company’s aiWARE technologies, providing customers with unique capabilities to enrich and drive expanded revenue opportunities from their content.
On June 13, 2023, the Company acquired Broadbean (as defined in Note 3), a global leader of talent acquisition software-as-a-service technology. For further details on this acquisition, 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, 2023, filed with the SEC on April 1, 2024. Interim results for the three months ended March 31, 2024 are not necessarily indicative of the results the Company will have for the full year ending December 31, 2024.
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 month periods presented are unaudited. The December 31, 2023 balance sheet included herein was derived from the audited financial statements but does not include all disclosures or notes required by GAAP for complete financial statements.
Liquidity and Capital Resources
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, 2023 and 2022, the Company used cash in operations of $
During the three months ended March 31, 2024, the Company generated cash flows from operations of $
6
by the settlement of contingent and deferred consideration. As of March 31, 2024, the Company had cash and cash equivalents of $
In the near term and to meet its obligations as they come due, the Company expects to capture these and potential future cost synergies from the Company’s past acquisitions. The Company expects the cost synergies coupled with the additional cost reduction measures to enable the Company to continue operations for the foreseeable future, including over the next twelve months.
Use of Accounting Estimates
The preparation of the accompanying condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the accompanying condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The principal estimates relate to the accounting recognition and presentation of revenue, allowance for credit losses, purchase accounting, impairment of long-lived assets, the valuation of contingent consideration, the valuation of senior secured debt, the valuation of non-cash consideration received in barter transactions and the evaluation of its realizability, 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 a number of factors including the wars in Ukraine and Israel, the global inflationary environment and high 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 Herzliya, 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
During and as of the three months ended March 31, 2024,
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. The Company recognized $5,742 of revenue during the three months ended March 31, 2024 that was included in the deferred revenue balance as of December 31, 2023.
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, Veritone Hire solutions revenues and advertising have historically been higher in the second half of each fiscal year, consistent with the hiring and spending 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,
7
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, 2023.
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 $
Broadbean Acquisition Consideration |
|
Amount |
|
|
Cash consideration at closing |
|
$ |
|
8
The allocation of the Broadbean Acquisition Consideration to tangible and intangible assets acquired and liabilities assumed is based on estimated fair values and is as follows:
Allocation of Broadbean Acquisition Consideration** |
|
As Reported |
|
|
Measurement Period Adjustment |
|
|
As Adjusted |
|
|||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|||
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. Tax deductible goodwill generated from the acquisition is $
During the year ended December 31, 2023, the Company continued finalizing its valuations of the assets acquired and liabilities assumed in the acquisition of Broadbean based on new information obtained about facts and circumstances that existed as of the acquisition date. During the year ended December 31, 2023, the Company recorded measurement period adjustments, as shown in the table above.
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 |
|
$ |
|
|
|
Taxes
In connection with the acquisition of Broadbean, a net deferred tax liability of $
9
taxes payable is preliminary as the Company continues to evaluate certain balances, estimates and assumptions during the measurement period (up to one year from the acquisition date).
Unaudited Pro Forma Results
The unaudited pro forma financial information in the table below summarizes the combined results of operations for the Company and Broadbean as if the companies were combined for the three months ended March 31, 2024 and 2023, 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, 2023 or the results that may occur in the future.
The unaudited pro forma financial information was as follows:
|
|
Three Months Ended |
|
|
Three Months Ended |
|
||
|
|
2024 |
|
|
2023 |
|
||
Net revenue |
|
$ |
|
|
$ |
|
||
Loss before provision for income taxes |
|
|
( |
) |
|
|
( |
) |
Net loss |
|
|
( |
) |
|
|
( |
) |
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
NOTE 4. DEBT
Senior Secured Term Loan
On December 13, 2023 (the “Closing Date”), the Company and certain of its subsidiaries, as guarantors, entered into a Credit and Guaranty Agreement (the “Credit Agreement”) with certain funds managed by Highbridge Capital Management, LLC and with certain other lenders (collectively, the “Lenders”) and Wilmington Savings Fund Society, FSB, as administrative agent and collateral agent. The Credit Agreement provides for a $
The Company is the borrower under the Credit Agreement and all indebtedness outstanding under the Credit Agreement is guaranteed by each of the Company’s direct and indirect material subsidiaries (the Company and the guarantors, collectively, the “Credit Parties”). Pursuant to a Pledge and Security Agreement, dated December 13, 2023 (the “Pledge and Security Agreement”), the Term Loan is secured by a first-priority 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 Credit Agreement has 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 accrues interest at a rate of Term SOFR plus
The Credit Agreement has a term of
10
The Credit Agreement requires 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 $
On the Closing Date, the Company issued warrants (the “Warrants”) to the Lenders (in such capacity, the “Warrant Holders”) to purchase up to
For the three months ended March 31, 2024, interest expense related to the Term Loan, including amortization of initial discounts and issuance costs, was $
The scheduled principal payments on the Term Loan as of March 31, 2024 were as follows:
2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Total |
|
$ |
|
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
11
subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date or following the Company’s issuance of a notice of redemption, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Convertible Notes in connection with such a corporate event or who elects to convert its Convertible Notes called (or deemed called) for redemption during the related redemption period, as the case may be.
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 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 months ended March 31, 2024 and 2023, interest expense related to the Convertible Notes and amortization of the issuance costs was $
Capped Calls
In connection with the 2022 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 $
12
The capped call transactions are separate transactions and are not part of the terms of the Convertible Notes. The capped calls met 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 2022 Repurchase Transaction, the Company entered into transactions to unwind a portion of the capped calls. As a result, the Company received $
Credit Facility
In August 2023, the Company entered into a
On December 12, 2023, in connection with the Company’s entry into the Credit Agreement (as defined above), the ACS Credit Facility and the related Commercial Guarantee, dated August 8, 2023, were terminated. Immediately prior to its termination,
NOTE 5. NET LOSS PER SHARE
The following table presents the computation of basic and diluted net loss per share:
|
|
Three Months Ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
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 |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
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:
13
Cash and Cash Equivalents
The Company’s money market funds are categorized as Level 1 within the fair value hierarchy. As of March 31, 2024, the Company’s cash and cash equivalents were as follows:
|
|
|
|
|
Gross |
|
|
|
|
|
Cash and |
|
||||
|
|
|
|
|
Unrealized |
|
|
Fair |
|
|
Cash |
|
||||
|
|
Cost |
|
|
Losses |
|
|
Value |
|
|
Equivalents |
|
||||
Cash |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||
Total |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
As of December 31, 2023, the Company’s cash and cash equivalents balances were as follows:
|
|
|
|
|
Gross |
|
|
|
|
|
Cash and |
|
||||
|
|
|
|
|
Unrealized |
|
|
Fair |
|
|
Cash |
|
||||
|
|
Cost |
|
|
Losses |
|
|
Value |
|
|
Equivalents |
|
||||
Cash |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||
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 (as defined below) 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 PandoLogic Contingent Consideration would be no less than $
On
14
As of December 31, 2023, the Company’s contingent consideration liabilities current and non-current balances were as follows:
|
|
Fair Value as of |
|
|
Changes in |
|
|
Amount Paid |
|
|
Fair Value as of |
|
||||
|
|
January 1, 2023 |
|
|
Fair Value |
|
|
To Date |
|
|
December 31, 2023 |
|
||||
Level 3: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contingent consideration, current |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Contingent consideration, non-current |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
Stock Warrants
On the Closing Date of the Term Loan, the Company issued warrants to the Lenders (in such capacity, the “Warrant Holders”) to purchase up to
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, on their issuance date of December 13, 2023, 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 a cost of $
As part of the Energy Divestiture, the Company acquired a strategic investment in GridBeyond that was determined not to have a readily determinable fair value. This investment is carried at a cost equal to its initial estimated fair value of $
Because these investments do not have readily determinable fair values, the Company has elected to measure these investments 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