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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2024

OR

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

For the transition period from to

Commission File Number: 001-38093

 

Veritone, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

47-1161641

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

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

(Address of principal executive offices, including zip code)

(888) 507-1737

(Registrant’s telephone number, including area code)

 

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

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock, par value $0.001 per share

 

VERI

 

The NASDAQ Stock Market LLC

 

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

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

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

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

Emerging growth company

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

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

As of May 8, 2024, 37,738,677 shares of the registrant’s common stock were outstanding.

 

 


 

VERITONE, INC.

QUARTERLY REPORT ON FORM 10-Q

March 31, 2024

TABLE OF CONTENTS

 

Cautionary Note Regarding Forward-Looking Statements

1

PART I.

FINANCIAL INFORMATION

 

2

Item 1.

Financial Statements (Unaudited)

 

2

 

Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023

2

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2024 and 2023

3

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2024 and 2023

4

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023

5

 

Notes to the Condensed Consolidated Financial Statements

6

Item 2.

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

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

Item 4.

Controls and Procedures

37

PART II.

OTHER INFORMATION

 

39

Item 1.

Legal Proceedings

39

Item 1A.

Risk Factors

39

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

40

Item 3.

Defaults Upon Senior Securities

40

Item 4.

Mine Safety Disclosures

41

Item 5.

Other Information

41

Item 6.

Exhibits

42

Signatures

43

 

 

 

 


 

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:

our ability to expand our aiWARE SaaS business;
declines or limited growth in the market for AI-based software applications and concerns over the use of AI that may hinder the adoption of AI technologies;
our requirements for additional capital to support our business growth, service our debt obligations and refinance maturing debt obligations, and the availability of such capital on acceptable terms, if at all;
our reliance upon a limited number of key customers for a significant portion of our revenue, including declines in key customers’ usage of our products and other offerings;
our ability to realize the intended benefits of our acquisitions, divestitures and other planned cost savings measures, including our ability to successfully integrate our recent acquisition of Broadbean (as defined in Note 3);
our identification of existing material weaknesses in our internal control over financial reporting;
fluctuations in our results over time;
the impact of seasonality on our business;
our ability to manage our growth, including through acquisitions and expansion into international markets;
our ability to enhance our existing products and introduce new products that achieve market acceptance and keep pace with technological developments;
actions by our competitors, partners and others that may block us from using third party technologies in our aiWARE platform, offering it for free to the public or making it cost prohibitive to continue to incorporate such technologies into our platform;
interruptions, performance problems or security issues with our technology and infrastructure, or that of our third party service providers;
the impact of the continuing economic disruption caused by macroeconomic and geopolitical factors, including the Russia-Ukraine conflict, the war in Israel, financial instability, inflation 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;
increasing interest rates, inflationary pressures and the threat of a recession in the United States and around the world on our business operations and those of our existing and potential customers; and
any additional factors discussed in more detail in “Item 1. Business” and “Item 1A. Risk Factors” of Part I and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part II of our Annual Report on Form 10-K for the year ended December 31, 2023 and our other filings with the Securities and Exchange Commission (“SEC”), including this Quarterly Report on Form 10-Q and our future SEC filings.

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

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

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

1


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

VERITONE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share and share data)

(Unaudited)

 

 

As of

 

 

March 31,
2024

 

 

December 31,
2023

 

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

90,733

 

 

$

79,439

 

Accounts receivable, net

 

 

45,749

 

 

 

69,266

 

Expenditures billable to clients

 

 

20,043

 

 

 

19,608

 

Prepaid expenses and other current assets

 

 

15,844

 

 

 

14,457

 

Total current assets

 

 

172,369

 

 

 

182,770

 

Property, equipment and improvements, net

 

 

9,165

 

 

 

8,656

 

Intangible assets, net

 

 

77,443

 

 

 

83,423

 

Goodwill

 

 

79,828

 

 

 

80,247

 

Long-term restricted cash

 

 

929

 

 

 

867

 

Other assets

 

 

19,907

 

 

 

19,851

 

Total assets

 

$

359,641

 

 

$

375,814

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Accounts payable

 

$

36,588

 

 

$

32,756

 

Accrued media payments

 

 

84,848

 

 

 

93,896

 

Client advances

 

 

28,295

 

 

 

15,452

 

Deferred revenue

 

 

13,415

 

 

 

12,813

 

Senior Secured Term Loan, current portion

 

 

7,750

 

 

 

5,813

 

Contingent consideration, current

 

 

500

 

 

 

1,000

 

Other accrued liabilities

 

 

26,275

 

 

 

27,095

 

Total current liabilities

 

 

197,671

 

 

 

188,825

 

Convertible senior notes, non-current

 

 

89,717

 

 

 

89,572

 

Senior Secured Term Loan, non-current

 

 

44,407

 

 

 

45,012

 

Contingent consideration, non-current

 

 

450

 

 

 

633

 

Other non-current liabilities

 

 

12,531

 

 

 

13,625

 

Total liabilities

 

 

344,776

 

 

 

337,667

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Common stock, par value $0.001 per share; 75,000,000 shares authorized; 37,629,461 and 37,186,348 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

 

 

38

 

 

 

38

 

Additional paid-in capital

 

 

469,712

 

 

 

468,015

 

Accumulated deficit

 

 

(455,094

)

 

 

(429,896

)

Accumulated other comprehensive income (loss)

 

 

209

 

 

 

(10

)

Total stockholders' equity

 

 

14,865

 

 

 

38,147

 

Total liabilities and stockholders' equity

 

$

359,641

 

 

$

375,814

 

 

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

2


 

VERITONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

(in thousands, except per share and share data)

(Unaudited)

 

 

Three Months Ended
March 31,

 

 

2024

 

 

2023

 

Revenue

 

$

31,636

 

 

$

30,263

 

Operating expenses:

 

 

 

 

 

 

Cost of revenue

 

 

7,046

 

 

 

6,809

 

Sales and marketing

 

 

11,804

 

 

 

12,690

 

Research and development

 

 

9,215

 

 

 

11,527

 

General and administrative

 

 

19,420

 

 

 

17,397

 

Amortization

 

 

5,991

 

 

 

5,429

 

Total operating expenses

 

 

53,476

 

 

 

53,852

 

Loss from operations

 

 

(21,840

)

 

 

(23,589

)

Other income (expense), net

 

 

(4,403

)

 

 

355

 

Loss before provision for income taxes

 

 

(26,243

)

 

 

(23,234

)

(Benefit from) provision for income taxes

 

 

(1,045

)

 

 

(271

)

Net loss

 

$

(25,198

)

 

$

(22,963

)

Net loss per share:

 

 

 

 

 

 

Basic and diluted

 

$

(0.67

)

 

$

(0.63

)

Weighted average shares outstanding:

 

 

 

 

 

 

Basic and diluted

 

 

37,353,228

 

 

 

36,587,946

 

Comprehensive loss:

 

 

 

 

 

 

Net loss

 

$

(25,198

)

 

$

(22,963

)

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

 

 

219

 

 

 

(766

)

Total comprehensive loss

 

$

(24,979

)

 

$

(23,729

)

 

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

3


 

VERITONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

(Unaudited)

 

 

Three Months Ended March 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Other

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Total

 

Balance as of December 31, 2023

 

 

37,186,348

 

 

$

38

 

 

$

468,015

 

 

$

(429,896

)

 

$

(10

)

 

$

38,147

 

Common stock issued under employee stock plans

 

 

297,460

 

 

 

 

 

 

218

 

 

 

 

 

 

 

 

 

218

 

Common stock withheld for employee taxes and other

 

 

(61,304

)

 

 

 

 

 

(247

)

 

 

 

 

 

 

 

 

(247

)

Common stock issued in connection with warrant exercises

 

 

206,957

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,726

 

 

 

 

 

 

 

 

 

1,726

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(25,198

)

 

 

 

 

 

(25,198

)

Other comprehensive gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

219

 

 

 

219

 

Balance as of March 31, 2024

 

 

37,629,461

 

 

$

38

 

 

$

469,712

 

 

$

(455,094

)

 

$

209

 

 

$

14,865

 

 

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

 

 

 

Three Months Ended March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Other

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Total

 

Balance as of December 31, 2022

 

 

36,321,222

 

 

$

36

 

 

$

451,162

 

 

$

(371,271

)

 

$

(76

)

 

$

79,851

 

Common stock issued under employee stock plans

 

 

466,906

 

 

 

1

 

 

 

642

 

 

 

 

 

 

 

 

 

643

 

Common stock withheld for employee taxes

 

 

(131,116

)

 

 

 

 

 

(852

)

 

 

 

 

 

 

 

 

(852

)

Common stock issued as part of contingent consideration

 

 

135,800

 

 

 

 

 

 

756

 

 

 

 

 

 

 

 

 

756

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

4,051

 

 

 

 

 

 

 

 

 

4,051

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(22,963

)

 

 

 

 

 

(22,963

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(766

)

 

 

(766

)

Balance as of March 31, 2023

 

 

36,792,812

 

 

 

37

 

 

 

455,759

 

 

 

(394,234

)

 

 

(842

)

 

 

60,720

 

 

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

4


 

VERITONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

Three Months Ended
March 31,

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(25,198

)

 

$

(22,963

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

7,502

 

 

 

5,907

 

Provision for credit losses

 

 

234

 

 

 

(72

)

Stock-based compensation expense

 

 

1,608

 

 

 

3,917

 

Change in fair value of contingent consideration

 

 

 

 

 

651

 

Change in deferred taxes

 

 

(1,336

)

 

 

(311

)

Amortization of debt issuance costs

 

 

1,323

 

 

 

215

 

Amortization of right-of-use assets

 

 

251

 

 

 

300

 

Imputed non-cash interest income

 

 

(107

)

 

 

(22

)

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

23,283

 

 

 

2,002

 

Expenditures billable to clients

 

 

(435

)

 

 

9,304

 

Prepaid expenses and other assets

 

 

(1,280

)

 

 

631

 

Other assets

 

 

318

 

 

 

234

 

Accounts payable

 

 

3,832

 

 

 

1,277

 

Deferred revenue

 

 

602

 

 

 

 

Accrued media payments

 

 

(9,048

)

 

 

(19,657

)

Client advances

 

 

12,843

 

 

 

(15,630

)

Other accrued liabilities

 

 

1,297

 

 

 

2,211

 

Other liabilities

 

 

242

 

 

 

(1,779

)

Net cash provided by (used in) operating activities

 

 

15,931

 

 

 

(33,785

)

Cash flows from investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(1,901

)

 

 

(1,447

)

Acquisitions, net of cash acquired

 

 

 

 

 

(1,500

)

Net cash used in investing activities

 

 

(1,901

)

 

 

(2,947

)

Cash flows from financing activities:

 

 

 

 

 

 

Payment of contingent consideration

 

 

(1,000

)

 

 

(7,772

)

Taxes paid related to net share settlement of equity awards

 

 

 

 

 

(852

)

Proceeds from issuances of stock under employee stock plans, net

 

 

126

 

 

 

643

 

Settlement of deferred consideration for acquisitions

 

 

(1,800

)

 

 

 

Net cash used in financing activities

 

 

(2,674

)

 

 

(7,981

)

Net increase (decrease) in cash and cash equivalents and restricted cash

 

 

11,356

 

 

 

(44,713

)

Cash and cash equivalents and restricted cash, beginning of period

 

 

80,306

 

 

 

185,282

 

Cash and cash equivalents and restricted cash, end of period

 

$

91,662

 

 

$

140,569

 

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

 

 

 

 

 

756

 

Stock-based compensation capitalized for software development

 

 

118

 

 

 

134

 

Lease liabilities arising from right-of-use assets

 

 

 

 

 

499

 

 

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 $76,421 and generated cash flows from operations of $3,737, respectively, and incurred net losses of $58,625 and $25,557, respectively. During the three months ended March 31, 2024 and 2023, the Company generated cash flows from operations of $15,931 and used cash in operations of $33,785, respectively, and incurred net losses of $25,198 and $22,963, respectively. As of March 31, 2024, the Company had an accumulated deficit of $455,094. Historically, the Company has satisfied its capital needs with the net proceeds from sales of its equity securities, issuances of its convertible debt, borrowings under its term loan and the exercises of common stock options and warrants.

During the three months ended March 31, 2024, the Company generated cash flows from operations of $15,931, driven principally by the timing of payments from customers and from client advances, partially offset by the Company’s net loss of $25,198. The Company used cash in investing activities of $1,901, driven principally by capital expenditures, and used cash in financing activities of $2,674, driven principally

6


 

by the settlement of contingent and deferred consideration. As of March 31, 2024, the Company had cash and cash equivalents of $91,662, including long term restricted cash of $929. Based on the Company's liquidity position as of March 31, 2024 and the Company's current forecast of operating results and cash flows, absent any other action, management determined that the Company will require additional liquidity to continue its operations for the foreseeable future, including over the next twelve months.

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, no individual customer accounted for more than 10% of the Company’s revenue and one individual customer accounted for 10% or more of accounts receivable. During and as of the three months ended March 31, 2023, one individual customer accounted for 10% or more of the Company’s revenue and two individual customers accounted for 10% or more of the Company’s accounts receivable. No individual customer accounted for 10% or more of the Company’s accounts receivable as of December 31, 2023.

 

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

As of March 31, 2024, the aggregate amount of the transaction prices under the Company’s contracts allocated to the Company’s remaining performance obligations was $26,734, approximately 48.0% of which the Company expects to recognize as revenue over the next twelve months, and the remainder thereafter to be recognized over the next three years. This aggregate amount excludes amounts allocated to remaining performance obligations under contracts that have an original duration of one year or less and variable consideration that is allocated to remaining performance obligations. Excluded based on this policy are balances related to Veritone Hire solutions representing gross purchase orders to be satisfied in less than one year. Revenues will be recognized net of costs to fulfill these orders.

 

Segment Information

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

 

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

The total purchase consideration was $53,301 (the “Broadbean Acquisition Consideration”), which consisted of cash payments of $53,301 at closing. During the year ended December 31, 2023, the Company incurred $4,214 in acquisition-related expenses. The following table summarizes the fair value of the Broadbean Acquisition Consideration:

 

Broadbean Acquisition Consideration

 

Amount

 

Cash consideration at closing

 

$

53,301

 

 

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

 

$

3,029

 

 

$

4

 

 

$

3,033

 

Accounts receivable, net

 

 

7,910

 

 

 

(93

)

 

 

7,817

 

Prepaid expenses and other current assets

 

 

1,008

 

 

 

(1

)

 

 

1,007

 

Property, equipment and improvements, net

 

 

4,348

 

 

 

(4,005

)

 

 

343

 

Intangible assets

 

 

27,500

 

 

 

 

 

 

27,500

 

Other assets

 

 

1,115

 

 

 

2,371

 

 

 

3,486

 

Total assets acquired

 

 

44,910

 

 

 

(1,724

)

 

 

43,186

 

Accounts payable

 

 

1,369

 

 

 

(262

)

 

 

1,107

 

Deferred revenue

 

 

10,134

 

 

 

(105

)

 

 

10,029

 

Other accrued liabilities

 

 

4,565

 

 

 

489

 

 

 

5,054

 

Other non-current liabilities

 

 

7,565

 

 

 

(947

)

 

 

6,618

 

Total liabilities assumed

 

 

23,633

 

 

 

(825

)

 

 

22,808

 

Identifiable net assets acquired

 

 

21,277

 

 

 

(899

)

 

 

20,378

 

Goodwill

 

 

31,947

 

 

 

976

 

 

 

32,923

 

Total purchase consideration

 

$

53,224

 

 

$

77

 

 

$

53,301

 

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

 

During the year ended December 31, 2023, the Company continued finalizing its valuations of the assets acquired and liabilities assumed in the acquisition of Broadbean based on new information obtained about facts and circumstances that existed as of the acquisition date. During the year ended December 31, 2023, the Company recorded measurement period adjustments, 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 four to five years. The Company amortizes the fair value of these intangible assets on a straight-line basis over their respective useful lives.

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

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

 

 

 

Estimated
Fair Value

 

 

Estimated Useful Lives (in years)

Customer relationships

 

$

17,200

 

 

5

Developed technology

 

 

10,300

 

 

4

Total intangible assets

 

$

27,500

 

 

 

 

Taxes

In connection with the acquisition of Broadbean, a net deferred tax liability of $3,741 was established primarily relating to non-goodwill intangible assets and recorded within other non-current liabilities on the Company’s condensed consolidated balance sheets. The amount of tax-deductible goodwill as of the purchase date is $3,728. The allocation of purchase consideration to deferred tax assets and liabilities and income

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
March 31,

 

 

Three Months Ended
March 31,

 

 

2024

 

 

2023

 

Net revenue

 

$

31,636

 

 

$

38,559

 

Loss before provision for income taxes

 

 

(26,243

)

 

 

(24,701

)

Net loss

 

 

(25,198

)

 

 

(24,072

)

 

Energy Group Divestiture

On June 30, 2023, the Company completed the sale of its energy group (the “Energy Divestiture”) to GridBeyond Limited, an Ireland-based privately held company (“GridBeyond”) that delivers AI-powered energy solutions, pursuant to an asset purchase agreement. The Company received 4,160,644 shares of Series B Preference Shares in GridBeyond valued at approximately $2,021 as of June 30, 2023, as well as $549 to be paid in cash. The Energy Divestiture resulted in a pre-tax gain of $2,572 in second quarter of 2023. The Energy Divestiture does not meet the criteria of discontinued operations because the disposal does not have a major effect on the Company’s operations and financial results. In April 2024, the Company sold its interest in GridBeyond for $1,800 in cash.

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 $77,500 senior secured term loan (the “Term Loan”), which was fully drawn by the Company on the Closing Date. On the Closing Date, the Company used $37,500 of the Term Loan proceeds to repurchase $50,000 of its 2026 Convertible Senior Notes. As a result of the collective transactions at the Closing Date, the Company recorded the Term Loan at fair value and recognized a one-time gain of $30,000 on the extinguishment of convertible debt. The initial discount on the Term Loan of $23,807 along with the capitalized issuance costs of $3,120 each will be amortized to interest expense over the term of the loan using the effective interest method. During the three months ended March 31, 2024, $1,332 was recognized as the amortization of initial discounts and issuance costs.

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 $15,000 at all times. The Company was in compliance with the financial covenants at March 31, 2024.

The Term Loan accrues interest at a rate of Term SOFR plus 8.50% per annum, with a 3.00% floor for Term SOFR, payable quarterly. A default interest rate of an additional 3.00% per annum applies on all outstanding obligations after the occurrence and during the continuance of an event of default.

The Credit Agreement has a term of four years from the Closing Date, with a scheduled maturity date of December 13, 2027, and requires quarterly amortization payments of 2.50% of the principal amount, commencing in June 2024, with the outstanding balance of the Term Loan payable on the scheduled maturity date.

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 $10,000 in the aggregate, and (ii) insurance recoveries on loss of property that are not otherwise reinvested in other assets of the Credit Parties at a 10% prepayment premium. The Credit Agreement also requires prepayment of the Term Loan in full if $30,000 or more of aggregate principal amount of the 2026 Convertible Senior Notes are outstanding on August 14, 2026. The Company may elect to prepay the Term Loan, in whole or in part, in cash, subject to a make-whole premium during the first year of the Term Loan, a 14.0% prepayment premium during the second year of the Term Loan, and a 7.0% premium during the third year of the Term Loan. The Term Loan is not repayable with the Company’s common stock, $0.001 per share (the “Common Stock”) as was initially set forth in the Commitment Letter.

On the Closing Date, the Company issued warrants (the “Warrants”) to the Lenders (in such capacity, the “Warrant Holders”) to purchase up to 3,008,540 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) at an exercise price of $2.576 per share with a termination date of December 12, 2028. Refer to Note 6 for further details about the Warrants.

For the three months ended March 31, 2024, interest expense related to the Term Loan, including amortization of initial discounts and issuance costs, was $4,057. The effective annual interest rate was approximately 31.3%.

The scheduled principal payments on the Term Loan as of March 31, 2024 were as follows:

 2024

 

$

5,813

 

 2025

 

 

7,750

 

 2026

 

 

7,750

 

 2027

 

 

56,188

 

Total

 

$

77,500

 

 

Convertible Senior Notes

In November 2021, the Company issued, at par value, $201,250 aggregate principal amount of 1.75% convertible senior notes due 2026 (the “Convertible Notes”). The issuance included the full exercise of an option granted by the Company to the initial purchasers of the Convertible Notes to purchase an additional $26,250 aggregate principal amount of Convertible Notes. The Convertible Notes were issued pursuant to and are subject to the terms and conditions of an indenture, which is referred to as the Indenture, between the Company and U.S. Bank National Association, as trustee. The Convertible Notes were offered and sold in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. In December 2022, the Company repurchased $60,000 aggregate principal amount of the Convertible Notes at approximately 65% of par (the “2022 Repurchase Transaction”). In December 2023, the Company repurchased $50,000 aggregate principal amount of the Convertible Notes at approximately 75% of par (the “2023 Repurchase Transaction”). The Company has $91,250 in aggregate principal amount of the Convertible Notes outstanding as of March 31, 2024.

The Convertible Notes are senior, unsecured obligations of the Company and bear interest at a rate of 1.75% per year. Interest accrues from November 19, 2021 and is payable semi-annually in arrears on May 15 and November 15 of each year, beginning on May 15, 2022. The Convertible Notes will mature on November 15, 2026, unless earlier converted, redeemed, or repurchased in accordance with the terms of the Convertible Notes.

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 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate for the Convertible Notes on each such trading day; (3) if the Company calls such Convertible Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the applicable redemption date; or (4) upon the occurrence of specified corporate events. On or after May 15, 2026, holders may convert all or any portion of their Convertible Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date regardless of the foregoing conditions. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election.

The conversion rate for the Convertible Notes initially is 27.2068 shares of the Company’s common stock per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $36.76 per share of common stock). The conversion rate 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 November 20, 2024. The Company may redeem for cash all or any portion of the Convertible Notes (subject to certain limitations), at its option, on or after November 20, 2024 if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Convertible Notes.

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 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

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 $194,945, after deducting debt issuance costs. The total debt issuance costs incurred and recorded by the Company amounted to $6,304, which were recorded as a reduction to the face amount of the Convertible Notes and are being amortized to interest expense using the effective interest method over the contractual term of the Convertible Notes. The Convertible Notes are recorded as a liability within convertible senior notes, non-current.

For the three months ended March 31, 2024 and 2023, interest expense related to the Convertible Notes and amortization of the issuance costs was $541 and $833, respectively. The effective annual interest rate for the three months ended March 31, 2024 and 2023 was approximately 2.42%. As of March 31, 2024, the if-converted value of the Convertible Notes did not exceed the outstanding principal amount. As of March 31, 2024, the total estimated fair value of the Convertible Notes was $32,765, which was determined based on a market approach using actual bids and offers of the Convertible Notes in an over-the-counter market during the period. The Company considers these assumptions to be Level 2 inputs in accordance with the fair value hierarchy described in Note 6.

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 $18,616 of the net proceeds from the issuance of the Convertible Notes to enter into privately negotiated capped call transactions, which are referred to as the capped calls, with various financial institutions.

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 $48.55 per share of common stock, which represents a premium of 75% over the last reported sale price of the Company’s common stock of $27.74 per share on November 16, 2021, and is subject to certain customary adjustments under the terms of the capped calls; provided that the cap price will not be reduced to an amount less than the strike price of $35.76 per share.

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 $276 in net proceeds from the proceeds of the unwinding of the capped calls. In connection with the 2023 Repurchase Transaction, the Company entered into transactions to unwind a portion of the capped calls. The Company did not receive any proceeds from the unwinding of the capped calls in 2023.

Credit Facility

In August 2023, the Company entered into a three year credit agreement with Alterna Capital Solutions, LLC (“ACS”) pursuant to which the Company may borrow up to $30,000 (the “ACS Credit Facility”). Loans under the Credit Facility were secured by certain domestic receivables and other assets as determined by ACS. The ACS Credit Facility bore interest at the greater of Prime rate plus 1% or 9.5%, and minimum annual interest of $250 if no funds are drawn under the ACS Credit Facility in a given year. ACS was a senior secured creditor.

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, no amounts were outstanding under the Prior Credit Agreement. The Company did not incur any early termination penalties in connection with the termination of the ACS Credit Facility and related agreements.

NOTE 5. NET LOSS PER SHARE

The following table presents the computation of basic and diluted net loss per share:

 

 

Three Months Ended
March 31,

 

 

2024

 

 

2023

 

Numerator

 

 

 

 

 

 

Net loss

 

$

(25,198

)

 

$

(22,963

)

Denominator

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

37,353,228

 

 

 

36,587,946

 

Less: Weighted-average shares subject to repurchase

 

 

 

 

 

 

Denominator for basic and diluted net loss per share attributable to common stockholders

 

 

37,353,228

 

 

 

36,587,946

 

Basic and diluted net loss per share

 

$

(0.67

)

 

$

(0.63

)

 

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. The table below presents the weighted-average securities (in common equivalent shares) outstanding during the periods presented that have been excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive:

 

 

Three Months Ended
March 31,

 

 

2024

 

 

2023

 

Common stock options, restricted stock units and performance stock units

 

 

11,074,865

 

 

 

10,755,833

 

Warrants to purchase common stock

 

 

3,469,769

 

 

 

496,612

 

Common stock issuable in connection with convertible senior notes

 

 

2,482,621

 

 

 

3,842,961

 

 

 

17,027,255

 

 

 

15,095,406

 

 

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:

Level 1—quoted prices (unadjusted) in active markets for identical assets or liabilities;

 

13


 

Level 2—inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or

 

Level 3—unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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

 

$

90,733

 

 

$

 

 

$

90,733

 

 

$

90,733

 

Total

 

$

90,733

 

 

$

 

 

$

90,733

 

 

$

90,733

 

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

 

$

79,439

 

 

$

 

 

$

79,439

 

 

$

79,439

 

Total

 

$

79,439

 

 

$

 

 

$

79,439

 

 

$

79,439

 

 

Contingent Consideration

On September 14, 2021, the Company acquired 100% of PandoLogic, Ltd. (“PandoLogic”), a company incorporated under the laws of the state of Israel, pursuant to an Agreement and Plan of Merger, dated as of July 21, 2021 (the “PandoLogic Merger Agreement”). The total purchase consideration for PandoLogic included up to $65,000 in contingent consideration based on achieving certain contingent consideration tied to financial performance of PandoLogic in fiscal 2021 and 2022, which amount will be paid in a combination of cash and common stock (the “PandoLogic Contingent Consideration”).

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 $10,825, irrespective of the actual financial performance of PandoLogic for the PandoLogic Contingent Consideration period. All of the PandoLogic Contingent Consideration was paid during the year ended December 31, 2023 in a combination of cash consideration and stock consideration, with the number of shares paid equal to that stock consideration portion of the contingent consideration amount divided by a price per share of $20.53 in accordance with the terms of the PandoLogic Merger Agreement.

On March 1, 2022, the Company acquired 100% of an influencer-based management company (the “March 2022 Acquisition”). As part of the consideration, the seller was eligible to receive up to $4,500 in cash (the “March 2022 Acquisition Contingent Consideration”). In July 2023, the Company entered into an agreement amending the March 2022 Acquisition Contingent Consideration (the “March 2022 Acquisition Amendment”). The March 2022 Acquisition Amendment provides that the March 2022 Acquisition Contingent Consideration was reduced to $3,500 and payment of the March 2022 Acquisition Contingent Consideration amount is now tied to employment status of the seller through December 31, 2025, irrespective of the actual financial performance of the acquired company. As the amount became fixed under the March 2022 Acquisition Amendment, the Company determined that the March 2022 Acquisition Contingent Consideration amount should no longer be categorized as Level 3 within the fair value hierarchy at the time of the amendment.

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

 

$

8,067

 

 

$

1,651

 

 

$

(8,718

)

 

$

1,000

 

Contingent consideration, non-current

 

 

 

 

 

633

 

 

 

 

 

 

633

 

Total

 

$

8,067

 

 

$

2,284

 

 

$

(8,718

)

 

$

1,633

 

 

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 3,008,540 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”). During the three months ended March 31, 2024, 349,657 of these warrants were net settled in exchange for 206,957 shares of Common Stock. As of March 31, 2024, the Warrant Holders held warrants to purchase 2,658,883 shares of Common Stock.

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 $2,750 on the Company’s condensed consolidated balance sheets within other assets as of March 31, 2024 and December 31, 2023 and is categorized as Level 3 within the fair value hierarchy.

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 $2,021 on the Company’s condensed consolidated balance sheets within other assets as of March 31, 2024 and December 31, 2023, with that initial estimated fair value based on third party valuation at the time of this transaction and is categorized as Level 3 within the fair value hierarchy. See Note 13 involving the sale of the Company’s investment in GridBeyond subsequent to March 31, 2024.

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. No impairment was recorded for the three months ended March 31, 2024. The Company re-measures its investments if there is an observable transaction in a class of security similar to the Company’s investments and there were no such re-measurements for the three months ended March 31, 2024.

 

NOTE 7. GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill

The carrying amount of goodwill was $79,828 as of March 31, 2024 and $80,247 as of December 31, 2023.

 

 

Goodwill

 

Balance at December 31, 2023