10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on May 10, 2022
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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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:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices, including zip code)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2) of the Exchange Act. Yes
As of April 30, 2022,
VERITONE, INC.
QUARTERLY REPORT ON FORM 10-Q
March 31, 2022
TABLE OF CONTENTS
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PART I. |
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2 |
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Item 1. |
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2 |
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Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 |
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2 |
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3 |
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4 |
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Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 |
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6 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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32 |
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Item 4. |
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32 |
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PART II. |
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33 |
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Item 1. |
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33 |
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Item 1A. |
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33 |
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Item 2. |
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33 |
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Item 3. |
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33 |
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Item 4. |
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33 |
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Item 5. |
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33 |
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Item 6. |
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34 |
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35 |
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and we intend that such forward-looking statements be subject to the safe harbors created thereby. For this purpose, any statements made in this Quarterly Report on Form 10-Q that are not historical or current facts may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “anticipates,” “believes,” “seeks,” “estimates,” “expects,” “intends,” “continue,” “can,” “may,” “plans,” “potential,” “projects,” “should,” “could,” “will,” “would” or similar expressions and the negatives of those expressions are intended to 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, those discussed in more detail in Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of Part I, and Item 1A (Risk Factors) of Part II, of this Quarterly Report on Form 10-Q, and in Item 1 (Business) and Item 1A (Risk Factors) of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 17, 2022. Readers should carefully review these risks, as well as the additional risks described in other documents we file from time to time with the Securities and Exchange Commission. 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 publicly, 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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2022 |
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2021 |
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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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Contingent consideration, current |
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Other accrued liabilities |
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Total current liabilities |
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Convertible senior notes, non-current |
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Contingent consideration, non-current |
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Other non-current liabilities |
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Total liabilities |
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Commitments and contingencies (Note 9) |
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Stockholders' equity |
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Common stock, par value $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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Accumulated other comprehensive income (loss) |
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( |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2
VERITONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(in thousands, except per share and share data)
(Unaudited)
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Three Months Ended |
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March 31, |
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2022 |
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2021 |
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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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( |
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( |
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Other expense, net |
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( |
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( |
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Loss before provision for income taxes |
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( |
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Provision for income taxes |
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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 gain, net of income taxes |
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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, 2022 |
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Accumulated |
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Additional |
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Other |
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Common Stock |
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Paid-in |
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Accumulated |
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Comprehensive |
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Shares |
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Amount |
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Capital |
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Deficit |
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Income |
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Total |
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Balance as of December 31, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Cumulative-effect of accounting change adopted as of January 1, 2022 |
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— |
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— |
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— |
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( |
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— |
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( |
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Common stock issued under employee stock plans |
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— |
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— |
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Common stock withheld for employee taxes |
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( |
) |
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— |
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( |
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— |
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— |
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( |
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Common stock issued for acquisitions |
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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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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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Balance as of March 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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Three Months Ended March 31, 2021 |
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Accumulated |
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Additional |
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Other |
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Common Stock |
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Paid-in |
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Accumulated |
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Comprehensive |
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Shares |
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Amount |
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Capital |
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Deficit |
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Income |
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Total |
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Balance as of December 31, 2020 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Common stock issued under employee stock plans, net |
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— |
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— |
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Common stock issued for services |
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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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Exercise of warrants |
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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, 2021 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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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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March 31, |
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2022 |
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2021 |
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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 operating activities: |
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Depreciation and amortization |
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Loss on disposal of fixed assets |
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— |
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Provision for doubtful accounts |
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Loss on sublease |
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— |
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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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( |
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— |
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Amortization of debt issuance costs |
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— |
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Changes in assets and liabilities: |
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Accounts receivable |
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( |
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Expenditures billable to clients |
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Prepaid expenses and other assets |
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( |
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Other assets |
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( |
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— |
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Accounts payable |
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( |
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Accrued media payments |
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Client advances |
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( |
) |
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Other accrued liabilities |
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( |
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( |
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Other liabilities |
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( |
) |
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( |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Minority investment |
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( |
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— |
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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 considerations |
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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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— |
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Proceeds from the exercise of warrants |
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— |
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Proceeds from issuances of stock under employee stock plans, net |
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Net cash (used in) provided by financing activities |
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( |
) |
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Net (decrease) increase 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 |
|
$ |
|
|
|
$ |
|
|
|
Supplemental Disclosure of Cash Flow Information |
|
|
|
|
|
|
|
|
|
Non-cash activities: |
|
|
|
|
|
|
|
|
|
Shares issued for acquisition of businesses and earn-out consideration |
|
|
|
|
|
|
— |
|
|
Lease liabilities arising from right-of-use assets |
|
|
|
|
|
|
— |
|
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
Description of Business
Veritone, Inc., a Delaware corporation (“Veritone”) (together with its wholly owned 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 future-proof, 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 March 1, 2022, the Company acquired an influencer-based management company, as discussed in more detail in Note 3. On September 14, 2021, the Company acquired PandoLogic Ltd. (“PandoLogic”), a company incorporated under the laws of the state of Israel, and a leading provider of intelligent hiring solutions, as discussed in more detail in Note 3. PandoLogic’s software platform, PandoIQ, is an AI-enabled talent acquisition and recruitment platform.
NOTE 2. PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Preparation
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, 2021, filed with the SEC on March 17, 2022. Interim results for the three months ended March 31, 2022 are not necessarily indicative of the results the Company will have for the full year ending December 31, 2022.
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, 2021 balance sheet included herein was derived from the audited financial statements but does not include all disclosures or notes required by GAAP for complete financial statements.
Liquidity and Capital Resources
During the years ended December 31, 2021 and 2020, the Company generated cash flows from operations of $
In 2022, driven by the acquisition of PandoLogic in September 2021, the Company expects to generate positive consolidated cash flows from its operations. As a result, management believes that the Company’s existing balances of cash and cash equivalents, which totaled $
6
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 doubtful accounts, purchase accounting, impairment of long-lived assets, the valuation of contingent consideration, the valuation of stock awards and stock warrants and income taxes, where applicable.
There has been uncertainty and disruption in the global economy and financial markets due to the COVID-19 pandemic and the war in Ukraine. 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
Remaining Performance Obligations
As of March 31, 2022, the aggregate amount of the transaction prices under the Company’s contracts allocated to the Company’s remaining performance obligations was $
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, 2021, other than those associated with the recently adopted leasing guidance as further described in Note 9.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments under this pronouncement change the way all leases with duration of one year or more are treated. Under this guidance, lessees are required to capitalize virtually all leases on the balance sheet as a right-of-use asset and an associated financing lease liability or operating lease liability. On January 1, 2022, the Company adopted the new leasing standard using the modified retrospective transition method applied at the adoption date of the standard. See Note 9 for further details.
In December 2019, the FASB issued ASU No. 2019-12 to simplify the accounting in ASC 740, Income Taxes. This standard removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. This guidance also clarifies and simplifies other areas of ASC 740. The Company adopted this guidance on January 1, 2022 using the prospective transition method. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
Recently Issued Accounting Pronouncements
In September 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) which requires measurement and recognition of expected credit losses for financial assets held. This standard will be effective for the Company beginning in the first quarter of fiscal year 2023, and early adoption is permitted. The Company is currently evaluating the impact that this standard will have on its consolidated financial statements and related disclosures as well as the timing of adoption.
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
7
contract liability with the definition of a performance obligation. This standard will be effective for the Company beginning in the first quarter of fiscal year 2023, and early adoption is permitted. The Company is currently evaluating the impact that this standard will have on its financial statements and related disclosures as well as the timing of adoption.
NOTE 3. BUSINESS COMBINATIONS
March 2022 Acquisition
On
The total purchase consideration was $
The following table summarizes the fair value of the purchase price consideration (in thousands):
|
Acquisition consideration |
Preliminary |
|
|
|
|
Cash consideration at closing |
$ |
|
|
|
|
Equity consideration at closing |
|
|
|
|
|
Deferred consideration |
|
|
|
|
|
Acquired cash |
|
|
|
|
|
Settlement of pre-existing receivable |
|
( |
) |
|
|
Total |
$ |
|
|
|
The preliminary allocation of the purchase consideration to tangible and intangible assets acquired and liabilities assumed is based on estimated fair values and is as follows (in thousands):
|
Preliminary purchase price allocation** |
Preliminary |
|
|
|
|
Cash |
$ |
|
|
|
|
Accounts receivable |
|
|
|
|
|
Prepaid and other current assets |
|
|
|
|
|
Property and equipment |
|
|
|
|
|
Intangible assets |
|
|
|
|
|
Other assets |
|
|
|
|
|
Total assets acquired |
|
|
|
|
|
Accounts payable |
|
|
|
|
|
Accrued expenses and other current liabilities |
|
|
|
|
|
Operating lease liabilities, non-current |
|
|
|
|
|
Total liabilities assumed |
|
|
|
|
|
Identifiable net assets acquired |
$ |
|
|
|
|
Goodwill |
|
|
|
|
|
Total purchase consideration |
$ |
|
|
|
**The excess of the total consideration over the tangible assets, identifiable intangible assets, and assumed liabilities is recorded as goodwill. Goodwill is primarily attributable to opportunities to cross-sell into our Commercial Enterprise customer base. For income tax purposes, the Company elected to treat the transaction as an asset acquisition. Tax deductible goodwill generated from the acquisition is $
Identifiable Intangible Assets
8
The identifiable intangible assets acquired consisted of the influencer network, trade name and brand relationships with estimated useful lives of 2-
The fair value of the intangible assets has been estimated using an income approach. Under the income approach, the after-tax cash flows associated with the asset are discounted to present value. The key assumptions include the Company’s estimates of the projected cash flows and discount rates.
The valuation of the intangible assets acquired along with their estimated useful lives, is as follows (in thousands):
|
|
Estimated Fair Value |
|
|
Estimated Useful Lives (in years) |
|
||
|
Influencer network |
$ |
|
|
|
|
|
|
|
Trade name |
|
|
|
|
|
|
|
|
Brand relationships |
|
|
|
|
|
|
|
|
Total intangible assets |
$ |
|
|
|
|
|
|
PandoLogic Acquisition
On
The total purchase consideration for PandoLogic was $
The following table summarizes the fair value of the purchase price consideration (in thousands):
|
Acquisition consideration |
Amount |
|
|
|
Cash consideration at closing |
$ |
|
|
|
Equity consideration at closing |
|
|
|
|
Contingent earnout |
|
|
|
|
Net working capital adjustment |
|
|
|
|
Total |
$ |
|
|
9
The preliminary allocation of the purchase consideration to tangible and intangible assets acquired and liabilities assumed is based on estimated fair values and is as follows (in thousands):
|
Purchase price allocation** |
Amount |
|
|
|
Cash |
$ |
|
|
|
Accounts receivable |
|
|
|
|
Prepaid and other current assets |
|
|
|
|
Property and equipment |
|
|
|
|
Intangible assets |
|
|
|
|
Other assets |
|
|
|
|
Total assets acquired |
|
|
|
|
Accounts payable |
|
|
|
|
Accrued expenses and other current liabilities |
|
|
|
|
Deferred tax liability |
|
|
|