Q1 2023 Veritone, Inc. Earnings Call
Speaker 1: The.
Speaker 2: Excuse me, this is a conference operator. Please continue to hold. The call will begin shortly. Thank you.
Speaker 1: I area.
Speaker 2: Good day and welcome to the Veritone first quarter 2023 financial results conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad.
Speaker 2: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the conference over to Stefan Norbaum. Please go ahead.
Speaker 3: Thank you and good afternoon. After the market closed today, Veritone issued a press release announcing results for the first quarter ended March 31, 2023. The press release and other supplemental information are available on the investors section of Veritone's website. Joining us for today's call are both the live and digital twin versions of Veritone's likes!!!
Speaker 3: without limitation, statements about our business strategy and future financial and operating performance. These forward-looking statements are subject to risks, uncertainties, and assumptions that may cause the actual results to differ materially from those stated. Certain of these risks and assumptions are discussed in Veritone's SEC filings, including its annual report on Form 10-K .
Speaker 3: These forward-looking statements are based on assumptions as of today, May 2nd, 2023, and Veritone undertakes no obligation to revise or update them. During this call, the actual and forecasted financial measures we will be discussing include non-GAAP measures. Reconciliations of these measures to the corresponding GAAP measures are included in the press release we issued today.
Speaker 3: Finally, I would like to remind everyone that not only has this call been produced with Veritone Generative AI, but it is also being recorded and will be made available for replay via a link in the investors section of Veritone's website at www.veritone.com. Now, I would like to turn the call over to the digital twin of our CEO and President, Brian Steelberg Attention Now, am I Sam
Speaker 4: Thank you, Stefan.
Speaker 4: Good afternoon. Buenas tardes. Guten Abend. Sao Shaha.
Speaker 4: As Stefan noted, I am Ryan's digital twin, powered by Veritone Generative AI.
Speaker 4: We are excited to speak with you today and to provide an update on our first quarter 2023 operations and financial performance.
Speaker 4: It is truly an exciting and dynamic time for AI development and enterprise adoption. Veritone, through its AIware platform and applications, continues to lead at the forefront of these efforts, supporting hundreds of market-leading and disruptive companies as they transform and extend their businesses, products and services through the scalable and impactful incorporation and deployment of AI technologies and solutions.
Speaker 4: The recent acknowledgement of these efforts earlier this month, winning the prestigious NAV Product of the Year award for Veritone's generative AI solutions, is a testament to our continued focus and passion around building and marketing the most advanced and dynamic artificial intelligence products and services in the markets we serve.
Speaker 4: Before turning to the financial results, I'd like to discuss the strategic pillars laid out earlier this year, which I believe will unlock the true growth potential of our industry leading applications and enterprise AI platform, AI Wear.
Speaker 4: First, is focused execution. Veritone continues to pursue existing markets where we have established clear differentiation and product market fit, resulting in disruptive efficiency and productivity gains delivered to our customers.
Speaker 4: Integration of our various applications enabled through AI-ware offers orchestrated cognitive and generative AI workflows and solutions transforming the verticals we know best. Talent acquisition, media and entertainment, sports and government regulated industries. These are all verticals where we are seeing increased AI adoption with large runways for tremendous growth.
Speaker 4: Second, operational excellence. During 2023, Veritone has already implemented a number of organizational initiatives to reshape the company and more efficiently support the needs of our customers. Together with the executive leadership team, we are pursuing the highest level of excellence in everything we do, from hiring to employee engagement and, of course, to the
Speaker 4: product development and sales. The entire Veritone team is doing their part.
Speaker 4: Lastly, fiscal responsibility. As we drive Veritone towards profitable growth in the upcoming year, I'd like to reiterate the initiatives we announced earlier this year, which include a target of $12 to $15 million of annualized cost savings. I am pleased to report that Veritone remains on track to achieve the target range, reinforcing management's commitment to right-size our cost structure.
Speaker 4: and the divestiture transaction will close by the end of second quarter 2023. The net result of these actions is that Veritone is more capable, focused and efficient in its operations. Our go-to-market strategy and engagement with customers and partners is more tightly aligned as we drive value.
Speaker 4: action will close by the end of second quarter 2023. The net result of these actions is that Veritone is more capable, focused and efficient in its operations. Our go-to-market strategy and engagement with customers and partners is more tightly aligned as we drive value. Turning now to the financial results.
Speaker 4: For the first quarter of 2023, Veritone reported total revenue of $30 million while delivering new bookings of $15 million, up 57% year-over-year. Further, we ended the quarter with a record number of nearly 670 total software customers marking a 19% increase. Gross revenue retention was strong while above the 90th percentile.
Speaker 4: Importantly, the customer and booking strength was balanced across all of our offerings further diversifying our business.
Speaker 4: Our commercial enterprise business, powered by Veritone AI Wear, remains the foundation for our differentiated operating model, providing the majority of the revenues and profits for our company. Our investments in government and regulated industry solutions, or GRI, are also gaining traction as demonstrated by its material growth. The government and regulated sectors are quickly starting to understand how Veritone's applications extract actionable intelligence from disparate data silos.
Speaker 4: are topics of daily conversation and prognostication across the entire country. Experts believe we are on the brink of rapid acceleration in task automation.
Speaker 4: A new study from Stanford and MIT has found that AI tools can make entry-level employees up to 14% more productive. In turn, other sources, like Bloomberg, posit that AI may help narrow the gap between highly and lower skilled workers. These studies validate the veritone strategy. AI will be a productivity accelerator and ultimately create opportunities.
Speaker 4: which enforces the importance of Veritone's mission to democratize artificial intelligence across all industries. Embedding and implementing generative AI tools across the application stack represents an attractive opportunity that Veritone is uniquely positioned to capitalize on. We have led the industry in bringing scalable AI-powered solutions and applications to market, and that remains to be a real success.
Speaker 4: to showcase AI wear and our generative AI capabilities to demonstrate how Veritone customers are using these powerful solutions today. We will be sharing additional details later this week. I hope you all can join us.
Speaker 4: In regards to Veritone's hiring solutions platform, we continue to see industry tailwinds that give us confidence amid the current dynamic environment. As a leader in programmatic job advertising, Veritone cost effectively manages thousands of job listings daily across hundreds of publishers to track results quickly while supporting DEI hiring goals. A study by Gartner demonstrated that highly diverse workforces can improve team performance by up to 30%.
Speaker 4: Likewise, McKinsey and Company found that the most diverse companies outperformed less diverse peers by 36% in profitability. Veritone positions its partners with deeper insights to recruit top quality candidates efficiently in its scale.
Speaker 4: Now, let's get into more of the operational details of our first quarter results.
Speaker 4: Kicking off the business review with Commercial Enterprise. First quarter 2023 Commercial Enterprise revenues of $28.9 million declined 14% year-over-year. Excluding Amazon, Q1 2023 Commercial Enterprise software and services revenues were up 16% year-over-year while managed services revenues were slightly down less than 1%.
Speaker 4: During Q1 2023, Amazon represented 18% of total revenue down significantly from 31% in the comparable period a year ago. Each quarter, Veritone's revenue base becomes increasingly diversified and less susceptible to the actions of a single customer or end market.
Speaker 4: During the quarter, Veritone announced a comprehensive multi-year partnership extension with Augusta National Golf Club, the home of the iconic Masters Tournament. We have served as their official licensing partner and digital asset management platform since 2009, which speaks volumes to Veritone's industry leading retention rates. We've shown very confidently that when we land customers, we rarely lose them.
Speaker 4: Our AI-powered content licensing platform continued to grow during the quarter. Today, we store over five petabytes of actionable content on our platform, partnering with CBS , Fox News, Bloomberg, the Masters and institutions in professional and college sports, among others. This digital content is discoverable and licenseable through the Veritone platform.
Speaker 4: providing a competitive edge as we begin to broaden the reach of our generative AI solutions and capabilities. Whether it is ESPN Sports Center, Augusta Footage, or Archive Footage with the new Michael Jordan and Nike Film Air, our content licensing platform continues to flourish with topical content trends.
Speaker 4: Moving on to government and regulated industries or GRI. Total GRI revenues were 1.4 million dollars representing a 79% increase year over year. We continue to see numerous opportunities on the state and local government side that reinforce our product fit. While revenues in GRI still account for less than 5% of our total revenues.
Speaker 4: Booking strength and the growing diversity of customers continue to give us confidence in Veritone's strategy with state and local law enforcement or LEAN markets.
Speaker 4: Focused execution, operational excellence, and fiscal responsibility are the three components of Veritone's report card that we have executed against during the year so far. Veritone is on a path to profitability in plans to achieve this growth through organic performance and opportunistic strategy. We look forward to updating you on the progress we are making to unlock long-term value for shareholders in the quarters to come.
Speaker 4: Now, I would like to hand the call off to Mike Zimettra, our CFO , to go through the financial results in guidance.
Speaker 3: Thank you, Ryan. I am excited to report that we made solid financial progress, ending the quarter with great customer metrics and contributions made across software products and services and managed services. During my prepared remarks, I will discuss our first quarter performance, progress on 2023 cost savings initiatives and our Q2 and fiscal 2023 outlook.
Speaker 3: Starting with Q1 2023 performance, revenue was $30.3 million, down 12% or $4.1 million year-over-year, driven largely by software products and services, which decreased 22% or $4.0 million. As we discussed in detail during our last earnings call, our high-volume hiring solutions, and our high-volume hiring solutions, are not only available to you, but to all of you.
Speaker 3: including Amazon, returned to pre-pandemic hiring trends this year. Overall, Amazon declined 49% year over year and represented approximately 18% of our consolidated Q1 2023 revenue versus 31% and Q1 2022. Offsetting this decline was non-Amazon software products and services revenue, which collectively grew by 16% year over year.
Speaker 3: driven in part by GRI revenue and software customer growth of 79% year over year. We remain confident in the strength of our hiring solutions platform. During the first quarter, our hiring platform customers grew over 20% year over year. We continue to see our high-volume hiring customers stabilize with more predictive and less volatile hiring patterns experienced throughout 2022.
Speaker 3: environment.
Speaker 3: Our managed services revenue was flat in Q1 2023 versus 2022 led by growth and licensing offset by a slight softness in advertising revenue driven by the current economic environment. As I will discuss later in my prepared remarks, we expect this advertising softness to continue through Q2 2023 and reverse itself into the section.
Speaker 3: representing a 57% increase year over year.
Speaker 3: As an industry leader, Veritone remains encouraged by the growing number of opportunities as companies seek to boost operational efficiencies given the challenging market. We are seeing meaningful traction from new and existing commercial enterprise and GRI customers that want to benefit from Veritone's industry leading applications, hiring solutions, and new offerings such as cloud-based Veritone Redact which accelerates evidence redaction workflows.
Speaker 3: Our future pipeline remains strong with ample cross-selling opportunities, particularly in GRI where we expect significant growth in the near and long term.
Speaker 3: In Q1, we delivered strong key performance metrics. New bookings were $15.0 million, a 57% from Q1 2022. Gross revenue retention continued to be in the high 90th percentile. And ending software customers were up 19% year over year. And managed services.
Speaker 3: Q1 advertising gross buildings per active client increased to $771,000, up 13% from Q1 2022. Overall, gross advertising revenue remained relatively strong despite a challenging macro environment driven by the performative nature of our platform.
Speaker 3: Q-1-2023 gap loss from operations was $23.4 million as compared to $20.8 million in Q-1-2022, a decline of $2.6 million driven by our non-gap gross profit offset by improvements in our operating cost structure.
Speaker 3: Q1 2023 non-gap gross profit reached $23.5 million, declining $4.0 million or 15% from Q1 of 2022 largely due to the decrease in our hiring solutions revenue. Overall Q1 non-gap gross margins were 77.5% as compared with 79.9% in Q1 of 2022.
Speaker 3: Software products and services non-GAP gross margins benefited from the inclusion of our hiring solutions, which generated non-GAP gross margins in excess of 90%. As a result, the overall non-GAP gross margin came down in Q1 2023 as compared to Q1 2022. We expect consolidated non-GAP gross margins to return to and exceed 80% throughout the remainder of the year.
Speaker 3: relatively flat year over year. Turning to our balance sheet, at March 31, 2023, we held cash in restricted cash of $139.7 million compared to $184.4 million at December 31, 2022. The $44.7 million decrease reflects net cash outflows from operations and operations. The $44.7 million decrease reflects net cash outflows from operations and operations.
Speaker 3: $9.3 million paid in Q1 2023 largely from Pandologics 2022 Earn Out and Certain 2022 acquisitions.
Speaker 3: Of the total $139.7 million in cash, approximately $67.9 million of our reported cash is essentially held for payments to third parties from our managed services down from $93.1 million at December 31st, 2022.
Speaker 3: The $25.2 million decline in cash held for third parties is partially reflective of the seasonality of our advertising services coupled with certain catch-up payments made in Q1 2023 from delayed payments as we migrated onto our new Oracle ERP system in the second half of 2022. We ended March 31st 2023 with 36 points.
Speaker 3: initiatives which included optimizing our cost structure along with the divestiture of our energy group.
Speaker 3: I am happy to report that we've executed on approximately $10.8 million of annualized savings through today, or approximately 72% of the high end of our state of range. We remain on schedule to divest our energy group in Q2 2023. Turning to our financial guidance for Q2 and fiscal 2023.
Speaker 3: Fiscal 2023 continues to be a challenging year with increased uncertainty amplified by recent banking developments. We maintain our conservative 2023 outlook with heightened discipline around costs as we march towards profitability.
Speaker 3: With that backdrop, we are guiding Q2 revenue to be between $32.34.0 million, representing a slight decrease year over year at the midpoint. Driving this decrease is the loss of certain one-time software revenue across our media and entertainment SaaS platform offset by an improved hiring solutions outlook, including Amazon.
Speaker 3: which is returning to more seasonal trends in Q2 and in the second half of 2023 and GRI which we expect to improve substantially in Q2 2023 versus Q2 2022 driven by new and existing customer growth.
Speaker 3: Our managed services business is expected to be flat in Q2 2023 versus 2022 with expected advertising revenue to remain comparable to the first quarter of 2023 versus 2022 given the current economic environment.
Speaker 3: Risks to our Q2 revenue guidance include the execution of new enterprise deliverables, namely across GRI which can be unpredictable and our concentration of Amazon as usage of our hiring platform can vary. And we expect Q2 quarterly non-gap net loss to be between $6.5 million and $8.0 million, which is relatively flat versus Q2 2022 at the midpoint.
Speaker 3: As a reminder, Q1 and Q2 are our seasonally low-sperforming quarters as the majority of our costs are fixed and payroll driven.
Speaker 3: For a full year 2023, we are tightening our revenue outlook to be between $158.0 million and $165.0 million, representing a year-over-year increase of 8% at the midpoint. As a reminder, and given the current economic outlook, we are forecasting our revenue conservatively in 2023, including a year-over-year decline of approximately 10%
Speaker 3: new guidance reflect the macroeconomy and the results of continued inflation and higher interest rates on our customers, execution of new enterprise deliverables, namely across GRI, and continued customer growth and retention metrics from our software products and services. We expect full-year non-gap net loss to improve substantially in 2023 and be between
Speaker 3: the following investor conferences, the EF Hutton inaugural global conference in New York on May 11th. The Needham Technology and Media Conference in New York on May 16th, 17th, and 18th. The Steeple Cross Sector Insight Conference in Boston on June 6th and 7th. And the Bank of America Global Technology Conference in San Francisco on June 6th.
Speaker 2: If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed, please press the button.
Speaker 2: And you would like to withdraw your question, please press star then two. Again, it is star then one to ask a question.
Speaker 2: At this time, we will pause momentarily to assemble our roster. The first question comes from Koji Ikeda with Bank of America. Please go ahead. Hey guys, thanks for taking the questions. A couple from me here. First one, I guess really with all the buzz around gender to AI, how does Veritone think about maintaining a...
Speaker 5: Thanks guys.
Speaker 4: Sure. I think, you know, I'll speak to that opportunity really looking at, you know, our software and services in two categories. One is the application layer and the second is the platform AI where the first, first on the application layer, what you're seeing in terms of a lot of success and I'll say practical and profitable use of generative AI and the street.
Speaker 4: is I'll say the enhancement of existing applications. So GitHub copilot, for example, or what we're seeing with other forms of additional generative AI within existing applications. And that's something that we've taken exactly and followed the exact same path. So some of our more successful AI-based applications.
Speaker 4: such as Digital Media Hub, our voice technology. We have already integrated, and again, we're a little bit agnostic into what generative AI models are out there in the market, but our ability to quickly onboard these new models into AIware and immediately make those new generative AI solutions available through our application has already been done across several of our applications.
Speaker 4: and we're already seeing immediate utilization and consumption from our customers that are leveraging these tools. So first and foremost, we see this as an accelerant to our existing application. Again, another testament of our ever increasing customer base and very low retention loss. On the AI Word platform.
Speaker 4: directly AIWARE. Again, we look at this as been consistent with our model since our inception. We are model agnostic. It's one of the main benefits and the primary vision of how we've architected and designed AIWARE is expecting when these new powerful models become available. Our ability to quickly onboard them.
Speaker 4: and make them immediately available through the same workflow stack to our customers has been and we expect to continue to be a strong competitive advantage and we view large language models in other forms of some of the generative AI solutions no different. So again, we have it, we are seeing increased demand, not diminishing demand.
Speaker 2: And we're seeing that both through our application offerings as well as our platform, our native platform AI work offerings. Got it Ryan, thank you very much for that. Just one follow up here for Mike. You know, thanks for all the color on the Amazon and how to think about the contributions. I might have missed it. But what was the total?
Speaker 2: hiring solutions revenue contribution in one queue. I think I heard Amazon revenue down 50%, but what about the total for the hiring solutions revenue? I think on the last call, you mentioned that hiring solutions revenue may come in down 50% year-over-year in one queue, so how did it perform against that metric, or what was that number overall? Thanks, guys. Yeah, we don't break that out, Koji, separately.
Speaker 3: But what we did say that Amazon was down 49% year over year.
Speaker 3: and that they represented 18% of our consolidated revenue in this quarter is opposed to 31% in the prior year quarter.
Speaker 6: So you can probably do the math. Yep. Got it. Thank you.
Speaker 6: out. Yep. Got it. Thank you. Yep.
Speaker 6: The next question comes from Darren Afthahi with Roth MKM. Please go ahead.
Speaker 7: Hey guys, can you hear me? Yep, thank you. So, two if I may.
Speaker 7: So we're kind of over the tough comp for Amazon with Tando and some of your commentary might sound like hiring could start to kind of grow again. I guess I don't want to put words in your mouth. But like you just kind of give a general sense for...
Speaker 7: the outlook for Pando for the rest of the year. And then the booking strength, sort of a second quarter in a row, it's been really strong. I'm just kind of curious, the mix of verticals that you're going to drive in that strength. Thanks. My mic and I can tag team these, but let's start with hiring solutions. We're definitely seeing.
Speaker 4: more stability as we mentioned in our previous repair remarks into the investment on the hiring side, inclusive of Amazon, which is great news. It's definitely back to pre-pandemic levels and we expect more stability in that. We're still cautious and taking a conservative position which we've sort of built into our guidance.
Speaker 4: about, you know, breakout growth on that side. But again, I would stress stability and more consistent or historical patterns, which is great. On the new, as we articulated though, you know, the key things to point out is continue growth over 20% in terms of new customers for our HR hiring solutions group as well as a
Speaker 4: of speed crease and Amazon and just double tap on that again, going from 31% to 18% in terms of revenue contribution for the quarter. These are all great signs. And so again, landing new customers and we're seeing more stability in the hiring. Also, let's point out that outside of some of the very higher...
Speaker 4: compensation level jobs and you know kind of highlighted in the press and the tech industry. We are seeing a continued and very high demand and hiring in many other sectors. Transportation, nursing, hospitality and others. We do not expect that to change. Obviously there's a lot of supporting data around that as well. So in terms of a macro opportunity.
Speaker 7: We look at this as we're very bullish on our hiring solutions business. We see this continuing to be a dynamic and tight labor market. And in some areas, there's still a huge shortage of labor. So very bullish there. And then I apologize, second question was in terms of bookings. I mean, this one was probably the most diversified booking contribution we've had, really since I can remember. So really across the board.
Speaker 7: And that's a combination of net new logos and new customers as well as which is a great sign contributions for and a very high retention rate in renewals. So our ability even with some of these macro market headwinds our ability to maintain and re-sign and in some instances even grow on upon the renewals the size of the deals with existing customers.
Speaker 7: Again, is a great sign for the stickiness of our products and services, as well as our ability to continue to progress on a lot of these deals in the pipeline.
Speaker 7: a great sign for the stickiness of our products and services as well as our ability to continue to progress a lot of these deals in the pipeline. Thanks, Ryan.
Speaker 6: Thank you. Again, if you have a question, please press star then one. The next question comes from Nick Matiachi with Craig Hallum. Please go ahead. Hi, this is Nick on for Chad Bennett, thanks for taking our questions. So just in the hiring solution segment, I guess, excluding Amazon. Can you talk about how growth was split?
Speaker 7: this past year between new customers and expansion of existing and then kind of how are you thinking about new versus existing growth in that segment for the remainder of this year? I don't think we break down that same store renewal based revenues from net new logos but again I would say it's been you know somewhat consistent you know we are heavily consumption based.
Speaker 7: business in certain areas of our revenue base. So what you're seeing here has been somewhat consistent in terms of contribution for a regional base or same customer-based growth, you know, in addition to contributions of net new logos. You know, overall new customer growth.
Speaker 7: is slightly down from previous years. We mentioned on a consolidated basis, I believe it's right around 20% in terms of customer growth up to about 670 software-based customers. But again, I would say this is in-band and consistent with previous years.
We got it and then taking a look at the advertising segment. So average billing is per client. For that segment continues to grow well above revenue growth. Maybe because it's expand on that dynamic and anything you can share on the type of clients that are driving the strong growth in buildings.
So we're going to look at the advertising segment. So average billing is per client. For that segment continues to grow well above revenue growth. Maybe because it's expand on that dynamic and anything you can share on the type of clients that are driving the strong growth in buildings. Yep.
some of our larger customers. And so some of the revenue makeups is we do have different, despite pretty strong and consistent gross billings, you're seeing in a more stability from, I would say, mid and larger customers in the ad business as compared to some of the earlier or smaller startups or venture backed companies.
which some of which have higher commission rates. So if you kind of look at that blend, you're still seeing a strong performance and gross billing, a slight decline in overall net revenues and that's purely sort of based upon the allocation of customers. So the good news is we're maintaining and keeping and growing our larger customers. Hence,
the increase in gross billing per customer, but we have seen softness from some of the venture backed smaller companies that we also work with.
Thanks for taking the questions. Again, if you have a question, please press star then 1.
AI, artificial intelligence, machine learning is evolving rapidly as we're all reading and experiencing and Veritone is well positioned to guide our customers through this innovation that is ahead. What we've seen is the more we empower our customers, and it's really a testament again to us deploying and leveraging these applications built on top of AIware, the more we empower our customers to engage with our tools and solutions, the easier it is for us to make them understand the possibilities when these new capabilities such as generative AI come onto the market. And we really view ourselves as a critical component to these companies transformations in really as they're adopting these new AI solutions.
and in the meeting entertainment space, obviously with a cute focus on generative AI. In conjunction with the Needham conference and our upcoming May investor row show, as we touched on earlier in the prepared remarks, we will be showcasing product demos specifically around generative AI and other newer solutions during our presentations and on our website.
of the business and bringing on excellent new talent to the company. And so I believe we're sitting in a very attractive position again with a very strong customer based high-gross margin and a strong retention rate. And I think we have the right team in the right structure in place to really take advantage of the opportunity.
I look forward to updating you guys on our future calls and I hope to see many of you at the upcoming conferences. Thank you for your time.
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