Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the very tough Q3 2019 financial results.
At this time, all participants Oriental listen only mode.
After the speaker presentation, there will be a question answer session to ask your question. During the session. You want me to press Star one on your telephone. Please be advised that today's conference is being recorded and if you require any further assistance. Please press star zero I would now like to handle conference over to Brian . Thank you. Please go ahead.
Good afternoon, welcome to Baritones third quarter 2019 conference call I'm, Brian Alger Senior Vice President corporate development and Investor Relations after market close today baritone issued a press release announcing the results for the third quarter ended September Thirtyth 2019, the press releases available at the Investor section of our website.
Joining me for today's call or Burritos, Chairman and CEO Chats, Gilbert President, Ryan Silbert, and Seattle because.
Following their remarks, well open up the call for questions.
Please note that certain information discussed on the call. Today will include forward looking statements about future events, and Burcons business strategy and future financial and operating performance, including its expected net revenues and adjusted EBITDA loss for the fourth quarter pointing on team and the first quarter 2020. These forward looking statements are subject to risks uncertainties and assumptions that may cause actual results.
Differ materially from most stated or implied but oh statements.
Certain of these risks and assumptions are discussed in very <unk> SEC filings, including its annual report on Form 10-K .
These forward looking statements are based on assumptions as of today November six 2019, and Bertone undertakes no obligation to revise or update them.
In addition to the company's GAAP financial results. During this call will be presenting in discussing the companys actual and forecasted earnings before interest expense depreciation amortization and stock based compensation adjusted to exclude certain acquisition integration and financing related expenses or adjusted EBITDA.
As was our non-GAAP net loss, excluding those same items.
Both of which are non-GAAP financial measures reconciliations of these measures to the Companys GAAP net loss are included in the company's press release issued today.
Finally, I'd like to remind everyone that this call is being recorded and will be made available for replay the link available in the Investor section on the company's website at Www Dot Veritone Dot com.
Now I'd like turn the call over to our chairman and CEO Chad's Gilbert.
Chad.
You, Brian welcome everyone and thank you for joining US today I'm pleased to report our third quarter results and our outlook moving forward you have never been more excited about the prospects of our business. Our bookings are at record levels, our pipeline of new SaaS business entering 2020 is that our strongest point in our history and we have optimized our operations and.
Team structure to capitalize on these new opportunities.
Baritone has historically been focused on investing in technology development and on growing our revenues, while holding our expenses flat to reduce our adjusted EBITDA loss rate.
But the heavy lifting towards these technical investments now complete we're well positioned to take advantage of the amazing growth opportunities, we will be discussing on todays call welding materially reducing our adjusted EBITDA loss. This will minimize our dependence on future dilutive financings our ability to continue our strong revenue growth well reduce.
In our losses, rather than our loss rate is a critical company milestones.
In line with our guidance our net revenues for the third quarter were a record of 12.8 million an increase of 70% compared with the third quarter of 2018, reflecting both the contributions of our recent acquisitions and organic growth.
Also consistent with our guidance our EBITDA loss rates in Q3 was still not similar to the prior quarter of 75% or 9.6 million.
In Q3, our advertising business had its best quarter ever even before the addition of micro mentions revenue their third quarter revenue revenues increased over 33% year over year to 6.3 million.
Led by the continued strength of our podcasting business, our SaaS revenues were up 67% year over year, but down 12% quarter over quarter, well, our SaaS bookings have continued to be strong and we've had near zero customer attrition. Our SaaS revenue in Q3 were less than expected due to lower project based revenues.
And longer than expected sales cycles with government customers, which delayed some revenues we had expected from that market well. The government sales cycle has been longer than expected our sales pipeline and number of active trials is larger than it has ever been and we see multiple indications that our government business is on the cuts a dramatic.
Gross.
Ryan will talk more about it in greater detail, but our relationships with Microsoft and PR I have dramatically extended our reach and brought in our sales funnel.
Our content licensing and media services group posted outstanding quarter with revenues of 4.2 million. This business is normally seasonally strong the third quarter, but this past quarter's performance was even better than expected.
As we have continued to refine our at where platform and pursue our growth strategy in our targeted vertical markets, we've identified opportunities to optimize our organization to maximize our speed efficiency and customer focus as a result of this effort, we've realigned our business and functional teams.
Ration of the company's we acquired last year and eliminated certain positions that are no longer critical to meeting our strategic goals.
In parallel with these actions we have recently completed a significant upgrade to our AD where software without getting into the technical weeds. We expect these enhancements to deliver orders of magnitude improvements and scalability and compute utilization driving improved margins and more importantly, enabling larger and more dynamic use cases.
Of our existing product portfolio. These enhancements will be fully deployed this quarter and we expect them to start producing savings next year.
We believe these actions will propel baritone to the next level accelerating revenue growth and reducing our adjusted EBITDA loss.
Finally, before I hand, the call over to Ryan I want to touch on one of our most strategic announcements today. Many investors have asked us about the importance of our recent announcement regarding the launch of the Iwear on Microsoft Azure government unquestionably. It is a very big deal for baritone as Microsoft is the market leader in cloud enterprise software for it.
Government agencies with nearly 100% market penetration, Microsoft field, and technical salespeople are selling our products and solutions side by side with our team to Microsoft's public safety and justice customers as we stand today Veritone has a deeper pipeline and greater visibility of bookings and revenue growth.
That anytime in our history, our software improvements and organizational realignment will expand our Tam increase the speed and customer focus of our business teams and drive more profitable revenue growth by every metric we will be entering 2020 on our strongest putting ever we have nearly 50 million in cash our cost.
Space has been reduced significantly and our bookings and revenue pipeline, our all time highs.
Now I'd like to hand, the call over to Ryan, our President and co founder to discuss our operational progress in greater detail Brian .
Thank you Chad as Chad indicated we have matrix a tremendous progress since our last call our advertising and content licensing businesses each posted record revenues in the third quarter in our SaaS business, while revenues continued to be somewhat variable quarter to quarter due to the usage component of our revenues can project based revenue we have had strong.
Bookings activity and near zero customer attrition already in Q4, we have signed agreements with total revenue potential at more than $10 million and have more than half of Q4 remain today, our opportunity pipeline is deeper and broader than at any other time in our history.
Before I talk about results I'd like to take a minute to discuss our vertical markets. Historically, we have discussed our SaaS business in terms of three vertical markets media and entertainment government and legal and compliance however, as our products and customer engagements have evolved the lines between our government vertical in our legal and compliance critical have blurred considerably.
As such going forward, we have combined our government and legal and compliance verticals into a single market.
In our media and entertainment SaaS vertical we are in the midst of our biggest bookings quarter ever between new customers and renewals and expansion with existing customers. We have signed over 25 agreements since last quarter's call.
We continue to see increasing traction in the government legal and compliance market GLC for short, though as Chad noted the sales cycle in it in this market have been longer than we had expected.
We have executed 19, new staff license agreements for our redact application since the beginning of Q3 and our pipeline of new customer opportunities. In this market is literally exploding. We have conducted almost 100 customer demos and initiate a 10 trials in this market since last quarter's call our engagements, but Microsoft PR right and other technology and.
General partners have accelerated providing added lift to our 2020 outlook in October alone Chiara range 38 redact demos.
Since the Microsoft announcement, we have had multiple co sell days with their field reps and joint sales calls with end user accounts.
We're incredibly excited about that acceleration of activity and expansion of these channels because based upon numerous trapped trials and feedback from customers. We know that we have differentiated products that are meeting the rapidly growing needs. In this market, we're very confident that our investments in this vertical well paid significant dividends in 2020 and beyond.
In our advertising business, we saw our strongest quarter to date, a major driver of our advertising strengths is our leadership in the podcast market, where our organic growth in our acquisition of performance bridge have made us the largest us podcast advertising agency, our podcast gross billings were up 39% year over year and now nearly equal our broad.
Caf base business, adding strength to strength, we announced the launch of very ads and two but advertising networks influence a bridge and micro mentions we launched micro mentions with only a handful of advertisers and broadcasters in September with virtually zero additional cost we began generating incremental profits profits in its first month of operation at the.
Very good business scales up over the course of 2020, we expected to become a significant revenue and EBITDA contributor for us.
Our content and licensing business posted particularly strong results in the third quarter with some large licensing deals adding to the normal seasonal strength in this business.
While we expect this business to experience, it's normal seasonally lower Q4, we're very excited about its prospects for 2020.
I'd now like to talk about our realignment in more detail. The realignment creates business teams focused on the needs of our customers in the media and entertainment market and government legal and compliance market to maximize each teams effectiveness as we execute the next phase of our growth strategy under this new structure each team will control the product engineering sales.
Okay and product marketing resources dedicated to its customer groups, which we believe will accelerate their time to market and maximize their customer responsiveness.
We're really excited about these actions and we believe will maximize our speed efficiency and customer focus helping us to accelerate our revenue growth.
As our press release indicates we anticipate realizing cost savings from needs a realignment actions as well as the computing cost reductions chat spoke to previously totaling $79 million in annualized savings with the full impact being realized from the start of Q1.
To summarize we have never been more excited about the prospects for our business going forward. Our bookings are at record levels, our pipeline of new SaaS business entering 2020 is that its strongest point in our history and we have optimize our teams to win that business.
Cones will now review the third quarter financials and provide detail around our financial guidance Pete.
Thank you Ryan and good afternoon, everyone.
I'd like to review our financial highlights the third quarter 2019, as compared with the third quarter of 2018 as a reminder, in the third quarter 2018, we acquired three companies Waze digital performance bridge and machine box.
Our net revenues in Q3 increased 70% year over year to $12.8 million net revenues in Q3 included $6.9 billion from the acquisitions. We completed in Q3 in 2018, reflecting a full quarter results of those businesses compared with $2.1 million in the prior year period, which only income.
We did approximately one month of those businesses results.
On an organic basis, our worst asset revenues grew by 32% in the third quarter and 50% in the first nine months of 2019 compared with the prior year periods.
Youre getting growth in both periods was driven primarily by our media and entertainment vertical which increased by zero point $3 million or 30% in the third quarter and by $1.4 million or 55% in the first nine months of 2019 compared with the prior year periods as we continue to land new customers and expand our business.
With existing customers.
All right, we're SaaS monthly recurring revenue or EMR under agreements that affected the ended the third quarter increased slightly over the second quarter to $547000.
All right.
We're SaaS bookings in the third quarter $1.3 million, the majority of our third quarter bookings, where the media and entertainment vertical as Ryan discussed our bookings in October were fantastic.
All right, where content licensing and media services business had net revenues of $4.2 million.
In total.
Where software and services businesses contributed 51% of our total revenues in Q3, continuing the trend we have discussed in prior quarters.
Our advertising net revenues increased $1.6 million or 33% to $6.3 million, reflecting both organic growth and the contribution from our acquisition of performance bridge.
In this third quarter 2019, our total operating expenses increased to $24.2 million from $22.2 million in the same period in 2018 due primarily to the addition of approximately $2.3 million of operating expenses of the businesses acquired in the third quarter 2018, and approximately zero point.
$5 million of intangible amortization, plus additional cost directed to R&D.
These increases were offset in part by higher advisory and professional fees incurred in the third quarter of 2018.
Our loss from operations in the third quarter 2019 was $16.2 million essentially flat when compared with a loss of $16.3 million in the third quarter 2018.
Our net loss totaled $14.2 million or 64 cents per share compared with a net loss of $15.9 million were 86 cents per share for the prior year quarter.
In the third quarter 2019, we finalized the purchase price allocations for the three businesses. We acquired in 2018 as part of this we recorded an income tax benefit of $1.8 million to chew up our deferred income taxes. So the intangible assets recorded for book purposes will not be deductible in the future for its.
Does this income tax benefit in the third quarter 2019 drove much of the decrease in this quarter's net loss.
Now turning to our non-GAAP results.
Our total non-GAAP operating expenses in Q3 were $18.4 million or 143% of net revenues compared with $14.9 million were 197% of net revenues in Q3 2018, reflecting the addition of operating expenses of our acquired businesses.
Offset in part by the benefits of our cost management efforts.
Our non-GAAP net losses totaled $9.6 million or 43 cents per share compared with $8.6 billion or 46 cents per share for the prior year quarter.
Our third quarter, adjusted Ebitdas loss was $9.6 million or 75% of net revenues compared to the loss of $8.6 billion or 114% of net revenues in the third quarter of 2018.
As of September 32019, we had no long term debt and cash and cash equivalents and marketable securities totaling $49.2 million, including cash received from clients for future payments of $17.4 million.
During the third quarter, we raised net proceeds of $5.3 million through through the issuance of 1.1 million shares of our common stock under the ATM facility that we set up in the second quarter of 2018, we have $27.7 million available under the ATM as of today.
Please note that we are adopting the new revenue recognition standard assay six ACICS starting in the fourth quarter, we'll use the modified retrospective method with an adjustment to accumulated deficit for the cumulative effect of adoption.
We have performed at assessment to determine the impact of the new revenue standard on our accounting policies and consolidated financial statements generally for advertising arrangements. We do not expect any changes as the performance obligations are completed by the end of each reporting period.
In connection with our where SaaS revenue arrangements, we expect changes and the timing of revenue recognition only for some variable consideration arrangements in relation to our content licensing revenues, we do not expect changes for the majority of arrangements.
The performance obligation is satisfied as soon as the content is downloaded with regards to content licensing arrangements that have minimum commitments, we're continuing to evaluate the impact of these arrangements. We're working through our implementation plan and continuing to evaluate the impact of the standard on a consolidated financial statements the net.
Revenue guidance that we are providing assumes that the impact of the new revenue standard is immaterial.
Turning to our guidance as Chad mentioned earlier, we are completing the final step of integration of our acquisitions and realigning our teams to be more tightly aligned with their respective end markets.
We are expecting the these actions and compute cost reductions will deliver $7 million to $9 million of annualized savings.
For the fourth quarter ending December 31, 2019, we expect our net revenues to be in the range of $12.0 million to $12.4 million due primarily to seasonal slowness in our content licensing business offset in part by higher SaaS revenues and we expect our adjusted Ebitdas loss, excluding onetime charges.
Stated with the realignment to be in the range of $8.7 million to $8.3 million.
For the first quarter of 2020, we expect our net revenues to be the range of $12.6 million to $13.4 million driven by increases in our SaaS and content licensing businesses.
And we expect our adjusted Ebitdas loss be the range of $7.8 million to $7.2 million.
We look forward to connecting directly with our investors and analysts at the following events on November 12, we will be at the 10, Daniel Craig Hallum Alpha Select conference in New York November 13th we will be at the Ross technology and do Industrials day in New York.
On November 19th we will be participating in the JMP Securities software bus tour in San Francisco.
On December 10, we will be at the Twelveth annual LD micro main event and Bellaire, California.
And then December Twelveth and 13th we will be the eighth annual Roth Deer Valley corporate access event in Park City, Utah.
To arrange meetings in any of these events or in person, we incurred institutional investors to reach out to their respective brokers or please contact Brian Alger.
At this time, we'd like to begin the QNX session.
Operator.
Thank you we will now take questions for Veritone sell side analysts in order to ask your question you will need to press star one on your telephone to withdraw your question press the pound or ASCII, Please standby and where we compile the Q and a roster.
Network first question will come from Pat Walravens with JMP Securities. Your line is open.
Great. Thank you and let me apologize background noise.
I don't think picture can you guys just and I know you tried to do this on the call, but can you just sort of give us the key point on reconciling your bullishness on the business with the sequential decline in revenue that you're guiding to in Q4.
So.
Pete.
The decline in the revenue going into Q4 is really just attributable to the seasonality of our content licensing business.
That business is linked to a lot of different sporting events.
Occur in Q1, two and three with none in Q4. So if you remember back in the fourth quarter last year. The amount of content licensing revenue was relatively low is a 2.5 million weve easily exceeded that each quarter.
This year and but as we go from Q3 to Q4, thats, causing the revenue to decline the other parts of the business specifically, our SaaS business, we're expecting that to grow sequentially and then the advertising business as we talked about on the call had its best quarter ever. We think we can at least Ics achieve that same level.
And possibly beaded by a little bit, but it's the headline is basically seasonality in content licensing Vince.
And.
Meat or possibly slightly sequentially in advertising.
Yeah, Pat one more thing this is Chad that I'd add to that which is we for the first time provide guidance for the first quarter of 2020.
And that shows again that we get back online with the trend continued topline growth and reducing our EBITDA loss pursuant to the conversation the comments from the call.
Well, yes, Chad you anticipated. My next question. So what are your assumption behind that growth for Q1.
Served and are they that's the right we'd ask and.
How often are you that we can get there through the Ron.
I would say as we look at Q4. This is Ryan and we look to exit 2019 based upon the type of clients that we have.
The pacing of the spend that we have seen historically are in line.
With you as it relates to historical years, therefore, we sort of take those models coupled with the SaaS contracts that we've already signed as we've mentioned earlier over 25, new signings this year, which gives us near 100% renewal rate.
It affords us the ability to kind of locked in a baseline.
Good confidence.
Now obviously that.
Tied to the real realignment savings and the compute savings to achieve the forecast or the goal that you the forecast out in the bottom line as well yeah. Pat This is Chad what I'd, probably add to that is we.
As as we're probably halfway through now the fourth quarter had it have had our greatest bookings on the soft side to date and history of the company with over 10 million in SaaS bookings through the quarter again, and we still have I think some significant contracts in the pipeline to go this year. So our visibility entering 2020 of the best itself.
I've been in terms of our ability to deliver topline targets and again achieved those loss rates that we've and losses that we predicted.
Okay. Thank you and last one from me so it sounds like some things slip you're not the only want to add that happened this quarter by the way.
And is there anything you've learned in terms of your sales process.
Yes, reclarify the slip for me so I can.
Oh, all the closing this where I'm assuming some of those were spot, yes I'm assuming.
Thank you.
Yes, exactly I mean, I think dealing with customers.
From one quarter boundary during the next is a fairly arbitrary goalpost add yeah, we definitely had a significant number of bookings kind of move into the first part of Q4.
But I would qualify that that is that is limited to primarily the fed gov.
Vertical.
But Pat continue with the question sorry to interrupt guys trying to clarify yes now that that's it. Thank you very much.
Okay. Thanks. Thanks.
Your next question comes from Darren Aftahi with Roth Capital Partners. Your line is open.
Hey, guys.
Thanks to my question.
Yes follow up on past lessen the last one.
On the sales cycle.
Kind of lengthening and the fed and the government vertical.
I'm just trying to make has entails your comment it sounds like pipeline in that.
Segment continues to build.
Sales cycles are longer than.
Initially anticipated does that a fair.
Yes, I think Thats, a very fair comment I think the other thing thats driving the size of the pipeline is sort of our go to market strategy through channel partners, primarily Microsoft on the domestic sled side as well as PR I, we're seeing tremendous activity from joint sales calls.
Two webinars that are having extremely strong attendance given any of the products. We've had in our company history. On this one is literally orders of magnitude larger.
Great. So I guess at least in next question.
In terms of two things one.
Conversions.
And just fees that are in trial with redacted identify and any other products in that sector. What's the conversion rate I think that was around 20% again as early on last quarter has that continued.
And then you recently announced the Microsoft partnership.
Obviously, there is some some time to integrate.
Does that have the delayed impact on Fourq and Thats kind of gives a little bit more of your bullishness in two to one Q2 thousand 20.
Well, let's talk about the Microsoft one first.
No there's really no ramp up time so.
We are live on as Youre those applications that they are actively selling our live on as Youre.
And so thats ongoing asking full production right now the time to then go through the approval process whether its.
Depending on the municipality.
For Appropriations Committee is all across the map.
Then you through as we sort of learned through this process.
Working in multiple states.
That time horizon is all over the map. So again, we're really pegging on that it's great to have the salesforce sizable Microsoft aggressively selling our products.
Hence, we're very bullish that.
Hopefully a majority of these opportunities will convert at some point in the future.
Yet to give a little bit more color on that this is Chad we've had a number of of the trials that we are in last quarter convert to paid contracts.
And even more importantly, we've actually had a number of new customers actually skip the trial phase and go directly to pay contracts under these slides agreements.
That's helpful and just lastly on the.
Seven to nine.
You mentioned computing, and then kind of realignment.
Maybe for Pete when you speak about computing I mean does that Colombia.
Cost of goods benefit and then on the kind of Opex side, where the biggest kind of cost savings across operating lines. Thanks.
So yes, the compute savings will be in.
Cost of revenues with some also in the R&D category, because we've got it has to deal with the platform.
From an overall perspective, so you're going to see savings and both of those categories.
And then as far as where the the realignment was impacted it's really across.
Almost all areas of the company.
As we evolve significantly over the last couple of years.
Yes, we looked at all areas of the company to ensure that were really optimized for the next phase of growth.
And so we've identified different parts of the business, where we could streamline and realign our resources.
And bring down some of the costs were incurred.
Helpful. Thank you.
Sure.
Our next question comes from Mike Latimore with Northland Capital markets. Your line is open.
Great. Thanks.
On the on the strong bookings so far in the fourth quarter, how much of that is sort of renewals versus versus new customers. I guess, the giant maybe that would you on the new customers, but how much of new kind of versus renewal.
The bulk of that would be I'll call. It new in a form of expansion. So the majority of those bookings.
Not re signing legacy companies, but actually expanding upon a lot of legacy customers. In addition to new signings. So.
Our customers have that I'd say had a percentage of their properties are assets.
Running and being processed through AI, where have moved and opted to go 100% and in some areas in terms of their media allocation.
Okay.
And then on the redact applications, how many customers you after that I think I heard 19, maybe but how many customers the effort act versus say the last quarter.
Yes, we signed 19 in the quarter.
We're probably up into the mid twenties now as far as customers.
Okay.
Great and then on the.
Just.
Integration.
Of the to the way the.
The digital core and the and the AI platform I guess.
But about just sales processes around that integrated platform.
And then area.
I'm sorry can you repeat the question.
Yes, just to integrate after that.
Hey platform with the while the kind of digital asset management platform.
Hey, how is kind of maybe like new logo activity around that.
Yes, so a couple of things there first the technical integration is fully completed so both the iwear search functionality and content ingestion is now fully baked into GMH and core.
Which are the why the products, which are the why the products that we acquired from a sales and go to market strategy. The really exciting thing. There is it's one unified sales team now as well as unit by channel partners in the media Entertainment space that are selling all of our products and we're starting to see some cross pollination actually of GMH into other areas. For example, we signed the Jive.
Yes.
Is it primarily using GMH to process all of their historical archives. So we think that damage is going to bullet make its way actually into public safety in other sectors as well given the large amounts of media content that those government agencies continue to house and need access to.
Specifically on the Giants. It was the combination of certain capability that they eyewear with the DNA capabilities that was what they were looking for correct. We don't even make a distinction anymore from a from a product I mean, GMH now is fully integrated and a native platform application on AI, whereas but that was a differentiator is why they bought that wasn't deal that has been in to the.
His line over a year ago.
Correct correct. So they had passed on it right. So we're starting to see just tremendous traction with customer. The historically had seen effectively media asset management tool as being something that that's not very differentiated in the market today, but when you couple that with at where and cognition. It becomes a unicorn in the space.
Got it.
And then just with regard to.
A little bit longer sales cycle in government does that include legal or is that more on the government side.
That includes legal I mean legal side, if you could break it into a couple of different categories.
From a federal perspective, which.
From the Department Justice and other large agencies those are longer sales cycle.
On the more project based.
Aspects of our revenue in the legal side from companies like epic and others. I mean again, there are also customers of us, but as they bring cases onboard you end up having revenue in that quarter in certain quarters, you down. So again, it's not so much lumpy revenue in the classic sense, it's more usage based SaaS revenue that we experienced on our platform.
Okay. Okay. Thank you.
Your next question comes from Nic map gasoline with Craig Hallum. Your line is open.
This is Nick.
Chad Bennett could you give us some color on your outlook for the Iwear business going into quarter, four and then into 2020, and what kind of growth rate you'll be looking for.
So.
I mean, we just gave the overall revenue guidance for Q4 in Q1, but.
Lower level, specifically for everywhere, we are expecting to see increase in.
In Q4, and then another increase on top of that in Q, what I had mentioned that there.
When you look back on what we reported for Q4 in Q1 of the prior year.
There was we called out that there was about $400000 of revenue in each of those quarters.
That was in the SaaS category that was kind of tied to specific performance in those in those periods one related to a bonus is another one related to some some paid pilots. So we're talking about building on top of those revenues even without those.
So those kind of 400000 dollar sort of onetime items in Q4 last year and Q1. This year. So from the overall rate those those amounts are in the somewhere in the neighborhood of 350 to 400 basis points.
The hurdle, we've got a clear on as we move forward into those periods. When we do the year over year revenue increases.
Got it and then with.
Will there be any cash costs involved with your cost saving and realignment efforts like any onetime severance costs.
Yes, relatively modest but yes, we're we've.
We're at Weve.
Offered severance to the people the.
I have less and its excluded from the guidance that we've got them at adjusted EBITDA perspective, but it's.
In the under $400000 range.
Got it thank you Bill for me.
Your next question is from Tom Diffely with D.A. Davidson Your line is open.
Yes, good afternoon.
Questions on the reduction side.
You have 100 demos going on are done quarter, how labor intensive where those demos and how fast could you ran through demo capabilities.
Okay.
It the good news is a human capital limitation.
So meaning their software now with the improvements in can scale, we could do hundreds and hundreds of simultaneous demos if we needed to.
Got it company. So those 100, they're pretty fast and efficient, it's a relatively clean product to present and educate around and so usually it's anywhere from a 32 minute to an hour long demo and then you're pretty much done so in terms of being able to scale and ramp it we obviously want to tap into.
Partners as well and hopefully in empowered and train them. So they can actually do the demos, but adds up to this point, it's primarily baritone employees working in conjunction with PR Microsoft's field reps and it's actually our employees doing the wide demos to give you a little bit more color on that I mean, the demand has been so high that being able to do.
You want on one demos for a lot of these agencies has been.
As a possible just given calendaring. So we've been grouping them together into group Webinars in a state by state basis and regional based deployments. So that's exciting for us as well.
Yes, I think you've talked in past Bahamas potentially 10000.
Customers for this going forward.
16000 actually.
Okay.
And then a along the same line what is the kind of a relative size of the initial paid contract and as you go through the expansion inside those customers.
It could again.
Yes, it really varies based upon the size of the of the agency on like a per capita basis and the number of officers. It also ends up being a usage base agreement because a lot of applications such as redaction.
It's really predicated more about how much content there moving through the platform in terms of Redacting. So it varies from a couple of thousand dollars amongst to more than a lot more than that so.
This spread is significant and really relative to decide the agency historically, we've been dealing with I think fairly small agencies just as our initial go to market, but with Microsoft They really sort of up that game with introducing us to state level agencies and.
Potential contracts at that level.
Okay. That's helpful that Pete when you talked about the fourth quarter guidance.
You talked about how the content licensing the seasonality there was the big.
Difference.
Versus last year, the use of 2.5 might expect the content license to be up or down year over year.
In Q4, we expected to be up but down sequentially.
Right, Okay, so purely seasonal.
And then finally when you look at the the.
Annualized savings.
Quarter.
Just to clarify that's mainly people it's not facilities at this point.
It's mainly people roughly roughly two thirds to three quarters people, Tom and then the compute cost savings makes up the rest of it.
Okay.
That's all obviously cassez.
Yes. Thanks.
Thanks, Tom.
Your next question is from Steven Van with band to asset management. Your line is open.
Hey, guys.
Steve here.
Thanks for us.
Ask a couple of question yes.
Right.
Thanks for letting US asked a couple of questions I guess really kind of.
Bigger picture to since.
Can you explain your thought process around why you guys are really decided to go down the path of building AI, whereas the operating system.
Being the first question second one is that as we're looking at the market movement out of.
Your stock price, what do you think that the investment community potentially is getting wrong when evaluating.
Your business.
Well I think maybe the first one I mean, it's an interesting question why build the Iwear I mean, it's been a key part of our fundamental strategy from inception of the company I think to refrain that question I think you're probably asking why build eyewear versus building a point solution for a specific vertical would that be.
Better verification.
Yes.
Yes, so when we look about artificial intelligence, that's essentially the greatest invention in my opinion that man as ever stumbled across.
And the reason for that is essentially the only invention that as an opportunity and the potential to change the rate of human innovation. So the things that humans when invention and 100 years with artificial intelligence are going to be completed in five to 10.
And that's going to.
Drastically improve all of our lives in our and our children's lives.
And so when you think about how you deploy and bill AI most companies today from a point solution standpoint think about sprinkling AI.
From an algorithmic standpoint into their application similar to how they built a database in the past where AI is just another component to that application.
Fundamentally we have a different approach to that artificial intelligence requires a large amounts of data.
There is a learning that can happen between applications within a single organization. So point solutions fail to capture any of that cross pollination of data. They failed to enable artificial intelligence to blend from a use case in deployment standpoint across different what I called humans in the loop and so to put this in.
Practical context, when we sign and AD agency or we sign an advertiser or we signed a broadcaster and they start using one of our applications, let's say it's.
I.
Pick one Brian .
They pick up essentially so they're ingesting thousands of streams of audio and video content, they're using it to search and identify.
Where ads are playing et cetera, the ability for them to now suddenly download a second application with simplicity.
Such as were debt such as I'd attribute to be able to start to quantify the value of that advertising literally is as easy as clicking a button and turning on another application as you would on Microsoft Windows. So we're moving from a world and our opinion from having a single application and.
Official intelligence like Microsoft word to now an omni used tool of excel Powerpoint word that all inter operate and work together touching every part of.
And enterprise organization, and the processes, which they function that is a very different.
Market potential and and ease of use in deployment and cost function for those potential customers versus having a collection of independent point solutions that they are trying to use and integrate and this has been proven over and over again in history. If you look at the point solutions that occurred back in the free Microsoft days to what Microsoft.
They able to achieve in the in the mid Eightys and Ninetys. We believe that same transition from computational signed two two cognitive science puts us in a sweet spot that is aligned with history success, and it's clearly resonating with our customers at scale across the two verticals there were executing it.
So on on the switching to the stock price question.
God knows.
We've been buying the stock personally I think if you think about us as a company of the management team. We have an unbelievable management team. They all have phenomenal historical track record is working for public companies.
They have all taken significant pay cuts to come work here from the day. They started on their passion about what we're building in artificial intelligence and.
More importantly, most of US continue to invest in the public markets from our company none of US have sold our stocks since inception, we continue to buy an average down. So we are huge believers in our future and I just not only speak for myself, but for the rest the management team and members of our board of directors. So we are perplexed as you are as to why our stock is trending.
The way it is.
Putting an investor had on which I am.
Theres three outcomes for our company, we're either going to go out of business.
Either going to get sold to a large company are we always going to become a successful tighten in artificial intelligence.
Clearly there are a number of investors that believe or I should say short sellers that believe that we are going to take door number one which has got a business.
I can assure you.
Absolute clarity that that is not going to happen.
We have divisions in our company that are wildly profitable.
We can absolutely scale this business to a point, where as a profitable entity as a public company.
Number one number to this isn't our first rodeo.
And I have had many many successful company in the past and have a large personal balance sheet and we're not going to let this company fail.
From the second door in terms of getting acquired we have no intention of selling this company.
As a shareholder now as the CEO , we might have to value the board and that's up but as a personal shareholder and why we started this company. We built this company because we believe the next company that will own and be the dominant player in artificial intelligence is not one of the existing Titans. It is not a Microsoft is not a Google.
It will be a new company and one that takes a new approach to this market. We have done that and we continue to invest in that future, which is AI where in our applications. So.
We are voting on door number three as a company we continue to invest in the stock and we look forward to what scene, how that shakes out in Q4 in Q1 with the realignment that we have did were just some of the hardest decisions we've ever done as well as the technological enhancements, we've done the improve our operating efficiency and capabilities going for.
Thanks for taking the call.
Welcome.
At this time this concludes our question and answer session.
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I'd now like to turn the call back over to chat Steelbrick for his closing remarks.
Thank you operator, and thank you all for joining us on the call today, we're very pleased to the progress we have made thus far in the second half the takeaway from our standpoint that we are.
As we approach 2020, we have never been more excited about the huge opportunities we see in our business and the team we have in place to go after them in the coming months, we expect to see significant revenue growth and diversification across our products verticals and channels and we look forward to reporting to you on our progress Goodbye have a good day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and you may now disconnect.