Veritone, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Consolidated Financial Statements Details

Consolidated Financial Statements Details

9 Months Ended

Sep. 30, 2023

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Consolidated Financial Statements Details

NOTE 8. CONSOLIDATED FINANCIAL STATEMENTS DETAILS

Consolidated Balance Sheets Details

Cash and cash equivalents

As of September 30, 2023 and December 31, 2022, the Company had cash and cash equivalents of $72,070 and $184,423, respectively, including $58,002 and $93,118, respectively, of cash received from advertising customers for future payments to vendors.

Accounts Receivable, Net and Allowance for Credit Losses

Accounts receivable consisted of the following:


	As of
	September 30, 2023			December 31, 2022
Accounts receivable — Managed Services(1)	$	19,769		$	27,670
Accounts receivable — Software Products & Services(2)		22,586			26,969
Accounts receivable — Other		8,544			2,181
		50,899			56,820
Less: allowance for expected credit losses		(1,208	)		(819	)
Accounts receivable, net	$	49,691		$	56,001

(1)

Accounts receivable – Managed Services reflects the amounts due from the Company’s advertising customers.

(2)

Accounts receivable – Software Products & Services reflects the amounts due from the Company’s hiring solutions customers.

Allowance for Credit Losses Accounting

The Company maintains an allowance for expected credit losses in order to record accounts receivable at their net realizable value. Inherent in the assessment of the allowance for credit losses are certain judgments and estimates relating to, among other things, the Company’s customers’ access to capital, customers’ willingness and ability to pay, general economic conditions and the ongoing relationship with customers. The Company calculates the expected credit losses on a pool basis for those receivables that have similar risk characteristics aligned with the types of accounts receivable listed in the accounts receivable table above. Allowances have been recorded for receivables believed to be uncollectible, including amounts for the resolution of potential credit and other collection issues. The allowance for expected credit losses is determined by analyzing the Company’s historical write-offs and the current aging of receivables. Adjustments to the allowance may be required in future periods depending on how issues considered such as the financial condition of customers and the general economic climate may change or if the financial condition of the Company’s customers were to deteriorate resulting in an impairment of their ability to make payments. The Company has not historically had material write-offs due to uncollectible accounts receivable.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:


	As of
	September 30, 2023		December 31, 2022
Prepaid assets	$	6,543	$	5,465
Other receivables		1,348		1,631
Other current assets		7,288		8,146
Prepaid expenses and other current assets	$	15,179	$	15,242

Property, Equipment and Improvements, Net

Property, equipment and improvements, net consisted of the following:


	As of
	September 30, 2023			December 31, 2022
Property and equipment	$	27,309		$	8,532
Leasehold improvements		1,593			250
		28,902			8,782
Less: accumulated depreciation		(17,307	)		(3,491	)
Property, equipment and improvements, net	$	11,595		$	5,291

Depreciation expense was $1,233 and $2,386 for the three and nine months ended September 30, 2023, respectively. Depreciation expense was $320 and $764 for the three and nine months ended September 30, 2022, respectively. Of the $27,309 in property and equipment as of September 30, 2023, $19,091 consisted of internal use software development costs placed in service and $2,127 consisted of work in progress not yet placed in service for internal use software development costs. Depreciation of internal use software development costs was $520 and $1,144 for the three and nine months ended September 30, 2023, respectively. Depreciation of internal use software development costs was $95 and $175 for the three and nine months ended September 30, 2022, respectively.

Accounts Payable

Accounts payable consisted of the following:


	As of
	September 30, 2023		December 31, 2022
Accounts payable — Managed Services(1)	$	22,413	$	17,972
Accounts payable — Other		18,099		18,766
Accounts payable	$	40,512	$	36,738

(1)

Accounts payable – Managed Services reflects the amounts due to media vendors for advertisements placed on behalf of the Company’s advertising clients.

Other Accrued Liabilities

Other accrued liabilities consisted of the following:


	As of
	September 30, 2023		December 31, 2022
Accrued compensation	$	4,409	$	4,882
Taxes payable		7,353	$	4,774
Current portion of operating lease liabilities		2,494		2,112
Accrued trade payables		18,471		14,724
Other		1,470		920
Other accrued liabilities	$	34,197	$	27,412

Consolidated Statements of Operations and Comprehensive Loss Details

Revenue

Revenue for the periods presented were comprised of the following:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Commercial Enterprise	$	33,657	$	36,184	$	88,891	$	103,174
Government & Regulated Industries		1,476		1,012		4,472		2,664
Total revenue	$	35,133	$	37,196	$	93,363	$	105,838

The Company serves two customer groups: (1) Commercial Enterprise, which today consists of customers in the commercial sector, including media and entertainment customers, advertising customers, content licensing customers and hiring solutions customers (inclusive of Broadbean customers); and (2) Government & Regulated Industries, which today consists of customers in the government and regulated industries sectors, including state, local and federal government, legal, and compliance customers.

Software Products & Services consists of revenue generated from the Company’s aiWARE platform and hiring solutions’ talent acquisition solutions (inclusive of Broadbean), any related support and maintenance services, and any related professional services associated with the deployment and or implementation of such solutions.

Managed Services consists of revenues generated from content licensing customers and advertising agency customers and related services.

The table below illustrates the presentation of our revenues based on the above definitions:


	Three Months Ended September 30, 2023						Nine Months Ended September 30, 2023
			Government &						Government &
	Commercial		Regulated				Commercial		Regulated
	Enterprise		Industries		Total		Enterprise		Industries		Total
Total Software Products & Services	$	18,885	$	1,476	$	20,361	$	44,109	$	4,472	$	48,581

Managed Services
Advertising		9,993		—		9,993		28,945		—		28,945
Licensing		4,779		—		4,779		15,837		—		15,837
Total Managed Services		14,772		—		14,772		44,782		—		44,782

Total Revenue	$	33,657	$	1,476	$	35,133	$	88,891	$	4,472	$	93,363


	Three Months Ended September 30, 2022						Nine Months Ended September 30, 2022
			Government &						Government &
	Commercial		Regulated				Commercial		Regulated
	Enterprise		Industries		Total		Enterprise		Industries		Total
Total Software Products & Services	$	19,800	$	1,012	$	20,812	$	54,694	$	2,664	$	57,358

Managed Services
Advertising		11,017		—		11,017		32,620		—		32,620
Licensing		5,367		—		5,367		15,860		—		15,860
Total Managed Services		16,384		—		16,384		48,480		—		48,480

Total Revenue	$	36,184	$	1,012	$	37,196	$	103,174	$	2,664	$	105,838

Broadbean Revenue Recognition Policy

Revenue for Broadbean is generated through various types of talent acquisition software solutions that principally consist of subscription-based talent acquisition products, subscription revenue for recruitment software-as-a-service (“SaaS”) solutions and access to the Broadbean’s online talent networks, transactional talent acquisition products, and other recruitment services. Subscription contracts do not provide customers with the right to take possession of the software supporting the applications and, as a result, are accounted for as service contracts. Subscription fee revenue from SaaS applications and access to Broadbean’s online talent networks, which makes up the majority of Broadbean’s revenues, are generally recognized ratably over the contractual term of the arrangement beginning on the date that service is made available to the customer. Broadbean does not offer financing alternatives to customers and there are no rights of return, warranties, or other variable consideration in contracts with customers. Payment terms are generally net 30 days. In most cases, Broadbean acts as a principal with respect to the goods and services it sells providing for gross revenue. In the certain cases where Broadbean is acting as an agent, net revenue is recognized. Broadbean reports revenue net of sales and other taxes collected from customers to be remitted to government authorities.

Other Income (Expense), Net

Other income (expense), net for the periods presented was comprised of the following:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Interest expense, net	$	(218	)	$	(1,305	)	$	(1,743	)	$	(3,670	)
Gain on sale of energy group		—			—			2,572			—
Other		(2,238	)		56			580			4
Other income (expense), net	$	(2,456	)	$	(1,249	)	$	1,409		$	(3,666	)

Other in the table above consists primarily of foreign exchange loss of $2,294 for the three months ended September 30, 2023 and foreign exchange gain of $526 for the nine months ended September 30, 2023.

Provision for Income Taxes

In accordance with ASC 740-270, Income Taxes, the provision or benefit from income taxes for interim periods is determined using an estimate of the Company’s annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, the Company updates the estimate of the annual effective tax rate, and if the estimated tax rate changes, the Company records a cumulative adjustment. A separate estimated annual effective tax rate is applied for jurisdictions where an entity anticipates an ordinary loss or has an ordinary loss for the year to date for which no tax benefit can be recognized.

The Company’s effective tax rate for the three and nine months ended September 30, 2023 was 3.8% and 3.6%, respectively. The difference between the effective tax rate and the U.S. federal statutory rate of 21% is primarily due to a valuation allowance established on the Company’s domestic federal and state net deferred tax assets, as well as the impact of foreign operations subject to tax in foreign jurisdictions. The Company’s effective tax rate for the three and nine months ended September 30, 2022 was (0.5%) and 4.5%, respectively. The change in

the effective tax rates for the three and nine months ended September 30, 2023 as compared to the comparable prior year periods is primarily due to the impact of taxes on foreign operations and valuation allowances against domestic net deferred tax assets.

As of September 30, 2023, the Company continues to provide a valuation allowance against federal and state deferred tax assets that are not expected to be realizable. The Company continues to evaluate the realizability of deferred tax assets and the related valuation allowance. If the Company’s assessment of the deferred tax assets or the corresponding valuation allowance were to change, the Company would record the related adjustment to income during the period in which the determination is made. The tax benefit for the three months ended September 30, 2023 includes a $347 tax benefit relating to a change to beginning of the year valuation allowance. With the acquisition of Broadbean, the Company acquired deferred tax liabilities that provide a source of taxable income that allows for the release of valuation allowance related to the Company’s deferred tax assets.

As a result of the Broadbean acquisition, the Company expects to be subject to taxation in France and Australia, in addition to already being subject to taxation in the United States, Israel, and the United Kingdom. The United States, Israel, and the United Kingdom comprise the majority of the Company’s operations. In general, the U.S. federal statute of limitations is three years. However, the Internal Revenue Service may still adjust a tax loss or credit carryover in the year the tax loss or credit carryover is utilized. As such, the Company’s U.S. federal tax returns and state tax returns are open for examination since inception. The Israeli statute of limitations period is generally four years commencing at the end of the year in which the return was filed. The UK statute of limitations period is typically twelve months following the date on which the return is filed. The Company is not currently under examination from income tax authorities in the jurisdictions in which the Company does business.

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act (“IRA”) which, among other things, implements a 15% corporate alternative minimum tax based on the adjusted financial statement income for certain large corporations and a 1% excise tax on net share repurchases. The minimum tax and excise tax, if applicable, are effective for fiscal years beginning after December 31, 2022. The Company does not expect the IRA to have a material impact on its financial position, results of operations or cash flows. The Company will continue to monitor additional future guidance from the IRS.

The main corporation tax rate for UK corporations increases from 19% to 25% for the financial year beginning April 1, 2023. The tax provision for the year ended September 30, 2023 is reflective of the change in tax rate.