Q2 2023 Veritone Inc Earnings Call
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Good day, and welcome to the Virtu and incorporated second quarter 2023 financial results call.
Participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions. Please note. This event is being recorded I would now like to turn the conference over to Stephan or bump of Investor Relations. Please go ahead.
Thank you and good afternoon. After the market closed today virtually issued a press release announcing results for the second quarter ended June 32023, the press release and other supplemental information are available on the investors section not baritones website, joining us for today's call are <unk>, CEO and President Ryan Steel Burke CFO .
Mike Some metro who will provide prepared remarks, and then open up the call for a live question and answer session. Please note that certain information discussed on the call today, including certain answers to your questions will include forward looking statements. This include 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 <unk> SEC filings, including its annual report on Form 10-K. These forward looking statements are based on assumptions as of today August eight 2023.
And baritone 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.
So when we referenced pro forma measures such measures are presented on a combined pro forma basis trading brought being owned by baritone during fiscal year 2022.
Finally, I would like to remind everyone that not only has this call been produced with fur atone generative AI, but it is also being recorded and will be made available for replay via a link in the investors section of <unk> website at Www Dot baritone dot com now I would like to turn the call over to our CEO and President Ryan Gilbert.
Thank you Stephanie.
Good afternoon, when establish good nabil.
Sure.
As Stephen noted this call is being powered by our AI, driven and multi award winning offering baritone voice.
I'm pleased to share our second quarter earnings results, which demonstrate baritones progress against the strategic pillars. We presented earlier this year, despite a challenging macroeconomic backdrop.
Before turning to results I want to discuss the attractive opportunity at baritone is uniquely positioned to capitalize on through disrupting target vertical markets.
Over the last year artificial intelligence has transitioned from a niche area of R&D to a catalyst for transformation expected to boost global productivity and GDP by over 14% and 2030, representing a contribution of approximately 16 trillion dollars. According to Pwc the global technology landscape has experienced immense innovation over the past deck.
AIDS and consequently, we have seen a rapid increase in data creation foundational to consumers and businesses with unstructured data comprising the overwhelming majority of data created globally. There is a clear demand for solutions that extract value and actionable insights from this sea of unmanned data as well as act upon it while structured data can show you what's happening there.
Programmatic use of unstructured data allows you to realize the full potential of this asset data is the lifeblood of predictive end to end automation and commercialized artificial intelligence.
True Baritones enterprise AI software and solutions, we are enabling companies to integrate and orchestrate their disparate data sources and workflows to drive operational efficiencies and productivity gains.
Consequence of enterprises, centralizing vast amounts of structured and unstructured data is the opportunity to infuse existing applications or build new applications with AI based generative models.
Baritones purpose built applications powered by AI, where have been enabling disruptive efficiency and productivity in our market verticals. We believe are most attractive talent acquisition media and entertainment sports and government and regulated industries. These purpose built applications provide a best in class ecosystem of AI models as well as an intelligent data lake and workflow tools.
That helps companies acquire analyze and act on unstructured data sources for greater business efficiency and insight with baritones, a eyewear operating system developers are able to rapidly build scale and operationalize AI enabled applications.
The AI paradigm has shifted and its important to remember we are still in the early innings, while companies continued to ramp adoption. The underlying AI models themselves will not be differentiated rather differentiation will come from the application of the AI enlarge language models with unique data on a job specific basis for almost a decade baritone has them.
Construction its ability to weave together data in a vast array of cognitive and generative AI models for industry, leading customers. These capabilities allow baritone to double down on attractive market verticals and expand our proprietary data moats I can confidently state that baritone through a eyewear and our unique data and workflow capabilities is strategically positioned to capitalize on the opportunities.
<unk> that lie ahead.
To understand my initial strategy as CEO I want to reiterate baritones pillars of focused execution operational excellence and fiscal responsibility. The entire team remains committed to strengthening our foundation, while streamlining operations to accelerate our mission of achieving sustainable and profitable growth I'm excited to share with you the progress on baritones <unk>.
Hands formation initiatives, and unpack operational updates, which enforce management's focus on driving long term shareholder value.
In line with our strategy to pursue existing market verticals, where baritone has clear differentiation, resulting in efficiency gains for customers Baritones acquisition of broadband this quarter marks an inflection in growth trajectory for years to come accelerating our leadership in the global talent acquisition, and HR technology market, which is projected to exceed a valuation of 196.
<unk> billion dollars by 2028 within this expanding opportunity baritone is amplifying recruitment and positioned to benefit from generative AI in HR, which alone will grow from $413 million in 2022 to over $1.6 billion in 2030 to the.
The combination of panel logic with broad bean or baritone HR solutions will leverage a eyewear to orchestrate cognitive predictive and generative AI workflows across the talent acquisition ecosystem, notably broad beam provides us access to nearly 3000 customers direct integration with over 100, and a T S providers millions of applicants and resumes and.
Billions of valuable data points globally. This transaction is immediately accretive to baritone and on a standalone basis is projected to generate SaaS and GAAP revenues of over $35 million on an annualized basis of which about $30 million is subscription based with attractive margins baritone HR solutions will be the leading provider capable of off.
Marine Universal talent acquisition, and AI, driven data solutions to its global set of customers leading to significant growth opportunities beginning in 2024 in.
In the near term the platform synergies accelerate growth of programmatic adoption with diversified customers across the globe drive efficiencies of scale and enhance recruitment insights as we look ahead. This solution will allow customers to evaluate the return on hiring investments in real time from job acquisitions and recruitment to down the funnel attribution improving the quality.
Of applicants. Moreover, the recurring subscription based revenue streams generated by this acquisition aligns with our long term strategy for growth, earning stability and strong customer retention. There are a number of additional strategic initiatives currently in flight and we look forward to providing an update in the back half of the year.
As baritone pursues operational excellence across all aspects of our business achieving profitable growth through reshaping the organization to more efficiently support the needs of our customers remains a priority or integration of broadband is just the beginning baritone has been strategically evaluating opportunities to deepen our exposure to the industries. We believe are the most attractive as mentioned previously.
Lee we are committed to diversifying our customer and revenue base and we expect that for each quarter moving forward earnings will become more stable and less susceptible to the actions of a single customer or end market <unk>.
Notably we are seeing meaningful traction with near 100% year over year growth for 'twenty twenty-three from new and existing government and regulated industry solutions or G. R. I customers that want to benefit from baritones industry, leading applications as evidenced by cloud based baritone redact, which accelerates evidenced reduction workflows during the second quarter.
Our atone deployed a series of product enhancements for its award winning AI, we're powered baritone redact and contact applications for its customers and the legal and law enforcement sectors, delivering greater customization capabilities to enable users to operate with a higher overall degree of efficiency effectiveness and seamlessness hundreds of law enforcement agencies are actively using baritones.
AI powered technologies and applications to improve the way they respond to crime collect and analyze data while maintaining safety within their respective communities.
One customer that I would like to highlight is the Beverly Hills Police Department led by its data focused chief Mark Stainbrook Mark is developing a state of the art real time Watch center that is ingesting and orchestrating thousands of datasets, including real time drone video officer body in Dash Cam video as well as CCTV footage from across the city his goal.
<unk> is to protect its citizens and real property and this real time visibility is providing the data and information to not only react quickly to crime, but potentially to prevent it. This infrastructure is already producing results, but mark and his team understand that to keep up and process. All this data and I must be at the center of it stack. We are excited to be working with cheese stained.
Brook, who is setting the standard for modern law enforcement agencies.
Not only are our customers fans of our products and solutions, but the industry is also taking note baritones generative AI platform won two prestigious awards at the Nab show 2023, including the Niv product of the year in the AI and machine learning category and the I B M broadcast and media award in the monetization category.
Winning these two awards is a testament to the power of Baritones generative AI platform and validates our efforts to create solutions that deliver meaningful results for our customers 2023 is the fourth year baritone has won the N. A V product of the year.
A recent example of how we have incorporated generative AI into an established product line is digital media hub or D. M. H used by hundreds of media and entertainment customers. Today D. M. H provides the ability to use AI to ingest index and automate your metadata creation process, allowing users to easily find content by metadata tags such as object.
Facial or logo recognition synthetic data enhancement uses generative AI natively within D. M H to filling those gaps by using existing asset metadata to create and apply new metadata in order to improve the cataloging and accessibility of that asset. This is a productivity enhancer and provides users the ability to save countless working hours in data management.
Warner Brothers and other prominent media companies are already using these generative AI features within D. M. H. We believe these examples underpin baritones ability to deliver powerful orchestrated cognitive and generative solutions across a variety of industries that include sports advertising and entertainment law enforcement and talent acquisition.
And most recently in the media Entertainment and sports vertical I wanted to spotlight. Our recent partnership with major League baseball to distribute short form video content through sport X, which is powered by a eyewear and supported through D. M. H baritone sports and media licensing offering sport X is a premier intelligent marketplace for sports federations and cause.
Tent producers, which enables media buyers direct access to sports video from around the globe maximizing additional revenue streams and increasing visibility for rights holders.
Turning to fiscal responsibility today very tones cost saving initiatives have translated into $17 million in annualized savings year to date, we have already exceeded our annualized savings target for 'twenty, 'twenty, three which highlights management's commitment to right sizing our cost structure with the recent integration of bra been we will continue to evaluate.
<unk> to unlock further operational efficiencies on June 30th we officially divested our energy group in line with our strategy to divert resources to bear tones target market verticals.
Furthermore, we have secured in a our credit line of up to $30 million, providing additional liquidity on our balance sheet. The net result of these actions is that verifone is more capable focused and efficient in its operations and our go to market strategy is more tightly aligned as we drive value and progress towards profitability.
Before we turn to second quarter operating results I'd like to reemphasize, the product demand and broad based growth opportunities for baritone as artificial intelligence continues to gain traction since 2014, <unk> AI mission has been to augment the human workforce by transforming concepts into industry, leading applications and solutions, we remain confident in there.
<unk> long term strategy, which will propel us into our next phase of growth.
Now I would like to hand, the call off to make the metra our CFO to go through the financial results and guidance.
Thank you Brian I am pleased to report Baritones made great progress in the second quarter headlined by the acquisition of broad being the divestiture of our energy group the closing of a $30 million revolving <unk> facility to improve our liquidity position and balance sheet and increased annualized cost savings to over $17 million, while closing the quarter with.
Solid customer and operating metrics I would like to highlight a few items before I begin with the June 'twenty twenty-three acquisition abroad, being we have updated our key customer metrics on a pro forma basis, which assumes we owned broad being since the beginning of fiscal year 'twenty 'twenty. Two in addition to any customers in gross retention, we are introducing a R. R.
Our annualized recurring revenue as a new key performance indicator during my prepared remarks, I will discuss our second quarter financial and operating performance the acquisition abroad being and its financial implications progress on 'twenty twenty-three cost savings initiatives Q2, cash flow and liquidity sources, including our $30 million.
Facility, and our Q3 and fiscal 2023 outlook, starting with Q2 2023 performance revenue was $28.0 million down, 18% or $6.3 million year over year, driven primarily by software products and services and managed services, which decreased 23%.
And 13%, respectively. The year over year decline in software products and services was attributed to certain one time software revenue in Q2, 2022 a $5.7 million, which did not recur in Q2, 'twenty twenty-three coupled with the previously announced decision by Amazon to reduce consumption of our HR products and services mid may.
The impact of which was between $4 million to $5 million offsetting this was government and regulated industries, which collectively grew 84% to $1.6 million in Q2 'twenty twenty-three included in our Q2 GAAP results was approximately $1.7 million of revenue from the broad Bean acquisition completed in mid June 'twenty 'twenty.
Three overall Amazon represented approximately 14% of our consolidated Q2, 'twenty twenty-three revenue down sequentially from 18% in Q1, 'twenty twenty-three alter say each quarter baritones revenue base is becoming increasingly diverse the Q2 'twenty twenty-three decline in managed services versus the comparable quarter and.
2022 was driven by advertising, which was impacted by lower Avnet revenue contribution combined with a shift of campaign budgets from the first to the second half of 'twenty twenty-three due to the challenging macro environment offset by a slight improvement in licensing we believe advertising softness will reverse itself into the second half of 'twenty twenty-three two large.
Lee to our customer mix, new customer activation seasonality on spend and improved economic outlook or optimism. Here is also supported by the fact that despite our lower net revenues gross current AD bookings are higher at this point as compared to the same point in 2022 on a pro forma basis, assuming we owned broad bean as at the begin.
<unk> of 'twenty 'twenty to Q2, 2023 revenue was $34.7 million as compared to $42.5 million in Q2, 2023, a decline of 18% driven by the previously discussed one time software revenue benefit in Q2, 2022 coupled with the decline in Amazon.
On a pro forma basis broad being was relatively flat quarter over quarter with Q2, 2023 revenue of $8 $5 million as compared to $8.3 million in Q2, 2022 during 2022 in the first half of 2023 broad being spent a lot of its efforts on moving existing customers off its legacy career builder platform in prep.
Ration to be sold this effort shifted sales focus on maintaining existing customers versus new customers, particularly in North America. Despite this challenge broad being did grow slightly year over year, which highlights the stability of its subscription based business as Ryan indicated we are very excited about the future synergies and revenue growth.
<unk> of our combined HR solutions products and services on a pro forma basis broadband adds close to 3000 subscription based customers with over $30.0 million of annual recurring revenue or a or on a consolidated basis, our software products and services now have a combined <unk> of over $100 million.
With over 44% coming from recurring base subscription customers versus consumption based from a strategic perspective broadband is integrated in over 100 applicant tracking systems with global customers across the EMEA North America, and APAC and is integrated with over 2005 hundred global job board providers accelerating our <unk>.
<unk> product roadmap by years with the addition of our programmatic advertising solutions, we expect to realize significant revenue and cost synergies beginning in the first half of 'twenty 'twenty four as we finalize our go to market and sales strategies. Most importantly, our HR solutions will now benefit long term by leveraging our AI with fully integrated E T.
S datasets based on our conversations with broadband customers. There is a lot of excitement around the long term potential of data migration across top of the funnel talent through the employee lifecycle, we remain highly confident in the strength of our hiring solutions platform, excluding broad being our hiring platform customers exceeded 25% year over year growth.
While their tone has faced a number of external headwinds due to the macro environment strategically we have made improvements in diversifying earnings streams and we are focused on moving towards future net retention growth across existing customers, starting first with a T S partners and customers in North America.
As an industry leader Veera tone remains encouraged by the growing number of opportunities as companies seek to boost operational efficiencies given the challenging market. We continue to see meaningful traction from new and existing commercial enterprise and G. R. A customers that want to benefit from baritones industry, leading applications hiring solutions and new offerings, such as cloud based <unk>.
Their tone, redact, which accelerates evidenced redaction workflows, our future pipeline remains strong with ample cross selling opportunities, particularly in G. R. I, where we expect significant growth in the near and long term are partner driven channel strategies continues to deliver results with new bookings of $8.4 million in Q2 2023 in Q2.
Two we delivered strong key performance metrics on a pro forma basis, a R. R of $108 million, including over $47 million from subscription versus consumption based customers total new bookings were $8.4 million on a pro forma basis down from Q2, 2022 largely due to amazon's reduced spend.
Gross revenue retention continued to be in the high 90, percentile and total software products and services customers of 3705, which were relatively flat year over year, given broad beans focus over the last 18 months on customer retention as it transitioned off its legacy platform and managed services Q2 advertising gross billing.
<unk> per active client decreased to $576000 down 22% from Q2, 2022 consistent with the drop in revenue. The decline was due to the challenging macro environment that impacted customer spend and plan campaigns being pushed to the second half of 'twenty twenty-three given our performance in bookings through today, we expect significant.
Can improvement heading into the second half of 'twenty twenty-three Q2, 'twenty twenty-three GAAP loss from operations was $28 $2 million as compared to $3.6 million in Q2, 2022 driven by a decline in non-GAAP gross profit coupled with a nonrecurring noncash benefit of $13 $8 million in Q2, 2022.
<unk> with the change in estimated value of contingent purchase price consideration.
Q2, 2023 non-GAAP gross profit reached $20.2 million down $7.3 million or 27% from Q2 of 2022 largely due to the decrease in one time software revenue overall Q2, non-GAAP gross margins were 72.2% as compared with 80.4% in Q2 of 'twenty.
22 software products and services non-GAAP gross margins benefited from the inclusion of one time software revenue in Q2, 2022 which generated non-GAAP gross margins in excess of 90%. In addition, our managed services benefits from advertising revenue with non-GAAP gross margins in excess of 90% we expect.
Holiday did non-GAAP gross margins to trend towards 80% by year end 'twenty twenty-three with sequential improvement each quarter consistent with the seasonality of our business.
Q2, non-GAAP net loss was $13.0 million as compared to $7.2 million in Q2, 2022, driven largely by the decline in revenue and corresponding non-GAAP gross margins, which negatively impacted our core operations turning to our balance sheet at June 30th 20, twenty-three, we held cash and restricted cash.
$63.5 million compared to $185.3 million at December 31, 2020 to the 121.7 million dollar decrease reflects net cash outflows from operations of approximately $58.5 million driven principally by the timing of payments and managed services and by our non <unk>.
GAAP net loss. In addition, we had net cash outflows from financing and investing activities of $63.2 million driven by the net 50.2 million dollar acquisition abroad being in June 'twenty twenty-three and deferred purchase price consideration of $10.5 million attributable to pander logics 2022 earn out in certain 22.
22 acquisitions, turning to the broadband acquisition total purchase consideration paid was $50.2 million net of cash acquired or a little over 1.4 times 20 twenty-three forecasted revenue before synergies. The acquisition is expected to be immediately accretive to verifone and on a standalone basis is expected to generate SaaS and.
GAAP revenues of over $35 million on an annualized basis contributing over $30 million and a R. R from its subscription based customers with attractive margins of the totaled $62.7 million in cash $52.7 million of our reported cash is essentially held for payments to third parties from our managed services down from <unk>.
<unk> $3.1 million at December 31, 2022, the 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, 'twenty twenty-three from delayed payments as we migrated onto our new Oracle ERP system in the second half of 2022 turning to our liquidity.
I'm happy to report that we closed a revolving credit facility, allowing us to initially borrowed $30 million over a three year term interest is set at prime plus 1% with a floor of 9.5% with a minimum of $250000 of interest per year, if we choose not to draw down on any funds. The facility will be senior secured against a portion of.
Domestic receivables, allowing us to periodically drawdown on the credit line at our discretion and up to 90% of such receivable balances outside of standard covenants. There are no financial covenants or restrictions and no dilution. In addition, we are currently in the process of completing a strategic transaction, which will further improve our liquidity position on a non <unk>.
<unk> basis, we hope to have an update for you on this before the end of Q3 'twenty twenty-three. We ended June 30th 20, twenty-three with 36.9 million shares outstanding and convertible debt of $141 million principle, 1.75% interest due November 'twenty twenty-six turning to our cost savings update and <unk>.
February of this year, we announced $12 million to $15 million of annualized cost savings initiatives, which included optimizing our cost structure, along with the divestiture of our energy group I'm happy to report that in Q2, we fully divested our energy group in exchange for a minority interest in grid beyond a privately held company that delivers intelligent energy solutions.
To date, we have executed over $17 million of annualized savings well above our initial range. We are in the process of evaluating additional material cost savings targeting over $10 million annually, including planned synergies from the broad Bean acquisition, which we will update in the latter part of Q3 'twenty twenty-three. These cost synergies are all.
Part of our strategic plan as we look towards more vertically integrated growth opportunities in 2024 with a much more efficient cost structure, turning to our financial guidance for Q3 and fiscal 'twenty twenty-three fiscal 'twenty twenty-three continues to be a challenging year with increased uncertainty amplified by recent fed rate increases inflation and customer.
Acting decisions, including Amazon's recent decision to reduce spending with the addition of broad bean and assuming Amazon continues its reduced spend throughout the remainder of 2023, we are providing a more conservative 20 twenty-three outlook with heightened discipline around costs as we march towards profitability heading into 'twenty 'twenty four with that backdrop, we are guide.
<unk> Q3 revenue to be between $35.5 million and $37.5 million flat year over year at the midpoint included in this is broad bin which is expected to contribute $8.5 million to $9.0 million in revenue in Q3, excluding broad being organic revenue is expected to decline.
Overall, largely driven by our conservative outlook on Amazon spend in Q3, 'twenty twenty-three coupled with a slight projected decline in advertising offset by continued improvement in G. R. I and other services risks to our Q3 revenue guidance include the execution of new enterprise deliverables, namely across G. R I, which can be unpredictable advertising.
Current with current economic environment, and any strategic transaction executed in the period offset by potential for upside from Amazon as usage of our hiring platform can vary and we expect Q3 quarterly non-GAAP net loss to be between $6.5 million, an $8.5 million, which is relatively flat versus Q3 'twenty 'twenty.
Two at the high end for full year 'twenty twenty-three, we are tightening our revenue outlook to be between $128.0 million and $135.0 million, representing a year over year decrease of 12% at the midpoint as a reminder, and given the current economic outlook, we are forecasting our revenue conservatively through.
The remainder of 2023, including a material decline from Amazon in the second half of 'twenty twenty-three certain one time software sales revenues in 2022 not recurring in 2023 and the impact of the broad Bean acquisition risks to our annual revenue guidance reflect the macro economy and the results of continued inflation and higher interest rates on our custom.
Mers hiring patterns execution of new enterprise deliverables, namely across G. R. I and continued customer growth and retention metrics from our software products and services 20 twenty-three revenue guidance also excludes the impact of any strategic transactions executed going forward in summary, our efforts in 2023 had been focused on.
Streamlining operations to build a strong foundation for baritones next phase of disruptive growth. Despite external challenges in the current environment. We are excited by the improvements we have made year to date, considering the impact of previously stated headwinds, we expect full year non-GAAP net loss to be between $28 million and $33 million.
With Q4 approaching profitability as previously discussed we will be implementing additional initiatives that will translate to annualized cost savings of $10 million, which is incremental to the $17 million executed in 2023 to date as these cost reductions flow through the P&L. We expect they will have a much larger impact in 'twenty 'twenty four.
Which will be when baritone pivots back towards vertical growth from existing software and services with a clear path towards profitability.
That concludes my prepared remarks.
Operator, we would like to now open up the call for questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
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<unk> financial stewardship, and a strategically planned approach for Aratana is well on its way to becoming a long term dominant player in the enterprise AI field.
While there is still more work to do in 2023 My vision at CEO was clear and I've never been more confident that we're on the right path to achieving profitable growth and long term shareholder value stay tuned for future calls, where we'd be thrilled to share our progress with you. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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