Q2 2019 Earnings Call
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After the presenters remarks, there will be a question and answer session. If you would like to ask a question during that time simply press Star then the number one on your telephone keypad, if youd like to withdraw your question. Please press the pound key. Thank you Brent Gallagher you may begin your conference.
Good afternoon, welcome to <unk> second quarter 2019 earnings Conference call I'm, Brian Alger Senior Vice President of corporate development and Investor Relations. After the market close today baritone issued a press release announcing results for the second quarter ended June Thirtyth 2019.
The press release is available on the investors section of our website.
Joining me for today's call are very comes chairman and CEO Chet steel Byrd, President Brian's Gilbert and CFO be called following their remarks, well open the call for questions.
Please note that certain information discussed on the call. Today will include forward looking statements about future events, and baritones business strategy and future financial and operating performance, including its expected net revenues for the third quarter of 2019.
These forward looking statements are subject to risks uncertainties and assumptions that may cause the actual results to differ materially from those stated or implied by those statements.
Certain of these risks and assumptions.
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Robert realize good afternoon, welcome to Barrick on second quarter 2019 earnings Conference call I'm, Brian Alger Senior Vice President of corporate development and Investor Relations. After the market close today baritone issued a press release announcing results for the second quarter ended June Thirtyth 2019. The press release is available in the investors section of our web site.
Joining me for today's call are victims, chairman and CEO Chet steel Byrd, President, Brian Stillbirth, and CFO becomes following their remarks, we'll open the call for questions.
Please note that certain information discussed on the call. Today will include forward looking statements about future events, and baritones business strategy and future financial and operating performance, including its expected net revenues for the third quarter of 2019. These forward looking statements are subject to risks uncertainties and assumptions that may cause the actual results to differ materially from those stated or implied by those statements certain of these risks and assumptions are discussed in baritones SEC filings, including its annual report on Form 10-K . These forward looking statements are based on assumptions as of today August seven 2019 baritone undertakes no obligation to revise or update them.
In addition to the company's GAAP financial results. During this call, we will be presenting and discussing the company's earnings before interest expense depreciation amortization and stock based compensation adjusted to exclude certain acquisition integration and financing related expenses or adjusted EBITDA loss as well as our non-GAAP net loss, excluding those same items, both of which are non-GAAP financial measures.
Reconciliations of these measures to the company's GAAP net loss are included in the company's press release issued today.
Finally, I would like to remind everyone that this call is being recorded and will be made available for replay via a link available at the Investor section of the company's website at Www Dot baritone dotcom.
Now I would like to turn the call over to our chairman and CEO sheds Gilbert chat.
Thank you Brian .
Welcome everyone and thank you for joining us today I am pleased with our financial and operating performance in the second quarter. Our revenue was a record $12.3 million, an increase of 194% compared with the second quarter of 2018, reflecting both the contributions of our recent acquisitions and organic growth.
On an organic basis revenues were up 45% year over year consistent with our comments on last quarter's call. We delivered a 150 basis point sequential improvement in our adjusted EBITDA loss rate and we more than doubled the number of trials for identify and redact to date in Q2, our advertising business continued to outpace the competition with first half revenues growing organically by 30% year over year. The addition of performance bridge brings that growth to 77% as Ryan will discuss in greater detail momentarily unique capabilities that AI, where brings to this business are driving faster growth higher commission rates and as we announced this morning, new business opportunities for us with radio stations pod casters online broadcasters and social Influencers.
Our SaaS revenues grew organically by 102% versus Q2 of last year, where there are acquisitions last year that growth was 211%.
As we had communicated on our call in May the sequential comparison was more challenging due to the large government project, we completed in the first quarter as well as the extended sales cycle for our new products in the government and legal markets.
We expect to see strong revenue growth from these products beginning this quarter.
Our content licensing and media services group posted another solid quarter with revenues of $3.8 million in short all of our business delivered results in line with the expectations we communicated in May.
Looking forward, we see tremendous market interest in our solutions.
The number and size of our customer engagements continue to increase.
As has been the case since we started baritone we continued to execute on our land and expand strategy with customers to that end I would like to introduce my brother, Brian Our President and co founder to discuss our operational progress in greater detail Brian .
Thank you Chad as Chad said since we founded baritone our strategy has been one of land and expand critical to this our product and solution innovation to attract new customers and grow our revenue from existing customers as well as providing excellent customer service to retain those customers. This past quarter demonstrated the success, we are having in pursuing that fundamental strategy, our momentum with both new and existing customers was very strong in Q2, and our government market. During the first half we conducted over 170 demos of redact and identify and initiated a more than 30 contracted trials. We signed two six figure SaaS contracts with customers in Italy, and Spain in the quarter and after the shift in our go to market strategy in the legal market that we have discussed in prior calls we grew our legal revenues a 100% sequentially in our media and entertainment vertical we continue to produce sequential growth and we announced a new AD where SaaS agreement with Cox media for 49 stations, we have now licensed and deployed our software.
Fair across over 800 Us radio and TV stations. We also continued to have very strong customer retention in Q2 with a total rate above 95%.
Baritone one our advertising agency achieved 32% year over year organic growth in the first half well above the industry average we believe that our AI were driven capabilities. In this business are driving not only rapid share gains, but also higher than average commission rates.
During the quarter, we added 21 net new customers in this business and our revenue per account continue to improve as is reflected in todays reported capesize.
As with the rest of Veritone, we had negligible customer loss in this business during the quarter.
Another core element of our strategy has been to leverage our technology and scale of our business to create new synergies and disruptive business opportunities across our markets. Our critical mass of AI, where enabled broadcasters and advertisers has now created a unique opportunity for baritone to introduce intelligent and autonomous Unwired media networks.
At where listens watches and understands media at scale, enabling the programmatic targeting delivery verification and clearance of native advertising across terrestrial broadcasting and digital media.
These exciting new advertising and monetization solutions expand baritones advertising business into the network and sell side, adding to our existing agency and buy side business.
Earlier today, we announced the launch of Influencer Bridge. The first of these unwired networks and influence or bridge is a pay per performance advertising platform that gives podcasts and other influencers unprecedented access to advertising opportunities and Conversely give advertisers the ability to place advertisements on these popular channels on a simple and cost effective basis as the largest podcasting agency currently placing advertisements with over 3300 pod casters, we are uniquely positioned to pursue and grow this opportunity.
To frame the opportunity of influence or bridge in more detail Pwc estimates that podcast advertising revenue will be $678 million this year and exceed $1 billion by 2021, and we think it could grow even faster than that last year more than 85% of podcast adds were placed on a CPM basis with more than 90% of the revenues going to a tiny fraction of a 700000 active podcasts and more than 29 million podcast episodes.
In short the mid and long tail have been completely ignored up to this point.
Influencer bridge aims to solve this problem, enabling advertisers to effectively target the mid and long tail segments of the market expanding the total available market significantly. We believe that this is similar to what happened in the early days of Internet advertising.
We have already seen tremendous interest in Influencer bridge from advertisers and pod casters and we expect to have at least 10 advertisers and at least 500 podcast are using the platform this quarter.
The second of the new Unwired networks. We are launching is micro merchants, which is initially targeted at live broadcasts.
The platform connect AI were unable broadcasters and advertisers to efficiently and autonomously transact organic libraries as opposed to traditionally scheduled spot ads.
Hey, Eyewear, then verifies the libraries automatically and build the advertiser.
We believe these micro mentioned ads will sell at premium advertising rates without cannibalizing the inventory of the broadcaster and complement existing advertising campaigns.
The capabilities of our AD, where technology and our scale in the media market with over 800 US radio stations already a outwear enabled uniquely position us to pursue and grow this disruptive new initiatives.
These eight were enabled stations collectively reach over 270 million unique users per week, representing 98% of us radio listeners.
We are launching the beta of micro mentioned in this quarter with several prominent broadcasters and over 20 prominent advertising clients.
Both Influencer bridge and micro mentions will initially be introduced to our existing advertising customers and we expect both of them to generate revenues this quarter with higher profit margins than our traditional agency business.
Furthermore, we believe that the success of Influencer Bridge and micro mentions will drive expanded adoption of the Iwear.
And our sled market, we are seeing accelerating demand for both our identify and react applications similar to the situation in California with Assembly Bill 748, we're seeing legislative action in New York and other states essentially and accelerate the need for AI based solutions. For example, we have recently seen an uptick of interest for redact coming from a recently passed New York law, which among other things requires prosecutors to provide all evidence to defendants within 15 days of a Raymond and no less than seven days prior to the expiration of post arraignment fleet deal offers while this law does not go into effect until January we are in active discussions with several municipalities and agencies looking to acquire and begin using our solutions prior to the implementation of the law.
It also bears mentioning that many of our discussions have naturally less interest in our ILLUMENATE application, particularly from prosecutors looking to better process and understand the massive volumes of data gathered during the investigation and discovery phases before disclosing at to the defense.
Baritones unique capability to utilize multiple cognitive engines across multiple classes of cognition and tight unstructured data to structured content continue to differentiate us from the single point solutions on the market today.
While we are still cautious in forecasting revenues for our sled customers due to the lumpiness of deals and the length and variability of the sales cycle. We are more confident than ever that we have unique products targeting significant new opportunities in both the government and legal markets.
We believe that this will enable us to grow and diversify our revenues from these markets significantly over the coming quarters.
To summarize our advertising business continues to significantly outpace the industry due to our unique technical capabilities and we are on the cost of extending its differentiation and scale.
Our new applications for government and legal markets have expanded our addressable market and increased our differentiation and we're seeing tremendous customer interest from public safety and government agencies, both domestically and abroad.
Operationally, we are continuing to execute our land and expand strategy, while maintaining discipline in budget controls and we look forward to continue to deliver diversified revenue growth across all of our market segments with that I'll pass it back to chat.
Thank you Ryan.
On last quarters call I said that we are seeing an operational inflection point in our business, we believe that the customer engagements for our new products and the opportunities with influence or bridge and micro mentions that Ryan just described further validate this statement to date, we have identified three very large markets that we are targeting media and entertainment government and legal and compliance.
In each of these markets, we have delivered products that specifically target improving specific workloads in ways that our customers can have previously considered without the capabilities of AI were in doing so we are rapidly engaging new customers and increasing revenues from existing ones with negligible customer loss.
By building the Iwear operating system, we have the ability to rapidly develop and deploy applications that address customer specific needs. Moreover, we have the tools to enable channel partners and third party developers to customize their own applications beyond the scope of baritones current offerings.
The operating system approach to AI is unique to baritone and one that continues to be the foundation of our current and future growth companies without access to AI, where we'll incur higher costs of development longer development lifecycle and applications locked into silos versus internal operating on a common framework.
Our focus on enhancing the development tools for AI, where remain front and center targeting data scientists engineers and even low code no code analysts.
Let me touch briefly on automate studio are no code Loco developer tool, formerly known as flow does a great example of how we are enabling others to leverage the airware ecosystem automate studio was originally designed to help us internally accelerate our product development in fact, ILLUMENATE was largely developed with it.
However, in talking with our channel partners, particularly in the government vertical it rapidly became apparent that automates studio represents an even greater opportunity for third parties than it does for us internally Im personally very committed to this product and expect great things as we roll it out to our customers and partners with that I'll ask Pete Collins, our CFO to review, our Q2 financial results and update our guidance for Q3 2019, Pete Thanks, Chad and good afternoon, everyone.
As Chad mentioned, we are pleased that we executed on the expectations, we had communicated in may.
Organic net revenues increased by 45%, while our non-GAAP operating expenses, excluding the businesses, we acquired intangible amortization and earn outs associated with those acquisitions and stock based compensation decreased by approximately $60000. This shows the operating leverage we can generate now that we have invested in anywhere for the past five years.
First I'd like to review our financial highlights of the second quarter of 2019 as compared to the second quarter of 2018 as a reminder, in the third quarter of 2018, we acquired three companies, while the digital performance bridge and machine Bucks.
Our net revenues in Q2 increased 194% year over year to $12.3 million due primarily to a $6.2 million contribution from the acquisitions I just mentioned as well as to the addition of new customers and growth with existing customers.
On an organic basis, our area were SaaS net revenues increased by $876000 or 102% in the second quarter and increased by $1.2 million or 59% in the first half compared with the prior year periods.
The organic growth in both periods was driven primarily by our media and entertainment vertical which increased by $689000, 83% in the second quarter and $1.1 million or 73% in the first half compared with the prior year periods as we continue to land new customers and expand our business with existing customers.
Our average monthly recurring revenue or EMR under agreements in effect at the end of the second quarter increased over the first quarter by approximately $51000 or 10%.
Our iwear SaaS bookings in the second quarter were $1.4 million, an increase of 3% over the first quarter level. The majority of our second quarter bookings were in the media and entertainment vertical.
Alright, Okay, where content licensing and media services business had net revenues of $3.8 million.
In total our AD, where software and services businesses contributed 52% of our total net revenues in Q2.
Continuing the trend we have discussed in prior quarters.
Our advertising net revenues increased $2.5 million or 77% to $5.8 million, including the $1.5 million contribution from performance bridge. Excluding this acquisition, our Q2 advertising net revenues increased by 30% year over year, thanks to a combination of new clients and growth with existing clients.
In the second quarter of 2019, our total GAAP operating expenses increased to $24.4 million from $17.8 million in the same period of 2018 due primarily to the addition of approximately $3.3 million of operating expenses of the businesses acquired in the third quarter 2018.
Approximately zero point $6 million of intangibles amortization and earn out compensation expense for those acquisitions and approximately $2.5 million of additional stock based compensation expense related primarily to awards under our 2018 performance based plan and acquisition related stock Awards.
The additional operating expenses from the acquisitions and the higher stock based compensation were offset in part by the impact of our efforts to manage our overhead closely but continuing to invest in software and product development.
Our non-GAAP operating expenses increased to $17.5 million from $14.5 million in the same period of 2018. This increase is due primarily to the addition of operating expenses of the businesses acquired.
Going forward, we will keep a focus on driving revenue growth, while controlling our spending which will reduce our use of cash.
Our loss from operations in Q2 was $16.7 million compared to the loss of $14.5 million in the second quarter of 2018.
Our net loss totaled $16.7 million or 80 cents per share compared with a net loss of $14.3 million or 88 cents per share for the prior year quarter.
Now turning to non-GAAP results.
Our total non-GAAP operating expenses in Q2 were $17.5 million or 143% of net revenues compared with $14.5 million or 348% of net revenues in Q2 2018, reflecting the leverage created by our higher revenue level and the benefits of our cost management efforts.
Our non-GAAP net loss totaled $9.2 million or 44 cents per share compared with $11.0 million or 67 cents per share for the prior year quarter.
Our second quarter, adjusted Ebitdas loss was $9.2 million or 75% of net revenues down from $11.0 million.
Or 263% of net revenues in the second quarter of last year.
In 2019, we are continuing to leverage our revenue growth and prudent expense management.
And we expect to reduce our adjusted Ebitdas loss rate on a year over year basis in each quarter of 2019.
Our balance sheet remains strong as of June 32018, we had cash cash equivalents and marketable securities totaling $45.3 million and no long term debt.
Cash and marketable securities balance includes cash received from clients for future payments of $8.9 million.
During the second quarter, we raised net proceeds of $8.1 million through the issuance of 1.0 million shares of our common stock under the ATM facility that we set up in the second quarter of 2018, we have $35.5 million available under the ATM as of today.
Turning to our guidance, we expect net revenue for the third quarter to be in the range of $12.6 million to $13.0 million as in prior quarters. This net revenue guidance range is based upon the signed agreements we have in place today the expected net revenues from our Iwear.
Content licensing and media services based on recent and historical trends and the planned spending by our advertising clients.
This range of net revenues does not include potential projects, including E discovery or media and entertainment archive processing that have not yet started as those are difficult to forecast accurately.
We expect our adjusted Ebitdas loss rate to be similar to the second quarter level.
Later this quarter, we look forward to connecting directly with our investors and analysts in early September we will be presenting at the 18th annual D.A. Davidson Technology Conference in New York City to arrange meetings at the conference or in person, we encourage institutional investors to reach out to their respective brokers or please contact Brian .
At this time, we would like to begin the Q and a session.
Operator.
Thank you and at this time I would like to remind everyone would like to ask a question. Please press star one on your telephone keypad.
Pause for just a moment to compile acuity roster.
Your first question comes from the line of Pat Walravens from JMP Securities. Your line is open.
Oh, great. Thank you and congratulations you guys for doing what you said you would do which is.
Great.
Hey, Ted let me ask.
If we look at the AI.
We are.
Total contract value.
I'm really happy with that is that is that is that.
Does that is that a productive quarter for the sales organization.
Yes, it was a productive quarter for us.
Yes, I think it was on parts and what we did in the prior quarter 1.4.
I think that we probably could have expected a little more out of it I think we're in long term negotiated contracts for that large $400000.
Revenue deal we had in Q1 this year and Q2 is about us really trying to ink larger contracts that just extend that out a little bit. So we expect that to start to hit in Q3 and Q4.
And see the accelerator.
Okay Cool and then.
I mean 70 demos seems like a lot right are we we talk a little bit about sort of what the pipeline looks for that for identifying redacting and how you see how and when you see that converting.
Actually I believe was over 170 demos and we have our entered into over 30 contracted trial. So yes. Those numbers are very high for these type of demos with those type of municipalities and agencies. So we're very excited about that that being said the sales cycles can be very long as it relates to him. So we are getting great demand im actually great usage in our trials.
But again right now we know we want we want to make sure that we sort of set expectations that the as those translate into long term contracted deals that may take a while.
All right Great and then one for you I know, you're clearly not guiding to Q4, but just can you help us a little bit in terms of is there seasonality that we should be aware of as we model out the three revenue areas I mean should they all go up sequentially or is there is there.
Some wrinkle there that we should keep in mind.
Yes, the only real seasonality Pat is in the content licensing business.
And that is a soft time of the year for them for us in that business because.
Just the nature of some of the customers, we serve which are sporting events that occur.
In the first second and third quarters. Since we just don't have that source of revenue in the fourth quarter.
That being said Theres some other things that offset a good portion of that seasonal decline in other parts of the business advertising in the past year roughly two years has been kind of finished the year on strong Mark and then there is also a large contract that we've got on the SaaS side that has a bonus component to it that if you remember back in our in our fourth quarter call that we did in February we called out that we have picked up that extra 400 Grand in the fourth quarter of 18 related to the timing of when that bonus was achieved in the fourth quarter of 18.
As it stands today that bonus is still something were pursuing for this year. So I think the only Billy real structural seasonality is really in that content licensing business.
Hi, great. Thank you very much.
Your next question comes from the line of Mike Latimore from Northland Capital. Your line is open.
Great. Thanks, Yeah.
Congratulations on the corner.
Just a clarification I think Ryan said you had two six figure deals in the quarter was that specific tumor that can identify or something else.
Now they are more generic AI, where.
That I can't really go into too much detail on that but they were not react and identify.
Hi, guys.
And then I think you also talked a little bit about seeing.
Strong revenue growth I think in the third quarter in governing legal just wanted to clarify that in case and if so that.
Maybe what would drive that.
No I don't think its a much strong revenue I think what we're seeing is strong adoption of the platform with a number of trials that were under in the demos that we're doing with the right redact and identify.
Products, that's really being driven by a couple of different factors first.
You just have this explosion of audio and video based evidence that's happening within law enforcement and second you've got a lot of legislation thats coming both in California, and New York.
Florida et cetera, that's changing the timeline by which agencies have to respond to freedom information request back on as well as to da and so that is putting tremendous pressure on the market for advanced solutions that can.
Hole that human based timeline forward and obviously veritone is at the forefront of that with both identify and redact. So we think theres going to be tremendous customer uptick both in terms of trials pilot and even contracts, but in terms of actually impacting the revenue side, just given what we've seen to date.
The the approval for those types of deals really needs to go to city councils et cetera, which can delay that by as much as a quarter to two a year. So I don't think were to see a huge uptick on the on the government side. However, we talked about the 400000 that we did in Q1 with a large system integrator out of the UK for multiple projects. We've been in negotiations with them throughout Q2, and expect revenue to start to kick back in from those agreements on the international side in Q3 and Q4 this year.
Got you, Okay, and then just last on.
Automatic studio.
New Tech can you elaborate a little bit on.
I don't know go to market.
How you monetize that or just kind of the broader effect from that.
Yes, absolutely. So one of the things that Veritone has been able to do is we built.
This product on a protocol.
Yes, we built this product the base would be a real time.
Cognitive infrastructure for analyst inside of the enterprise to be able to harness the power of artificial intelligence and the over 350 engines on AI were on and to integrate that seamlessly into their internal processes and business operations. On today, you really have no product in the market that enables real time capabilities on the cognitive fronts.
So baritones go to market is really predicated on kind of injecting this into our existing customer base to expand the number of applications and use cases that at work now touch to our significant installed customer base today and to a lot of the software that we've integrated actually comes from the open source market itself, where there are literally tens of thousands of enterprise customers already using.
The base technology that we've integrated so we believe this gives us gives us a phenomenal base level customer base to push.
This brand new cognitive infrastructure into.
Great. Thank you.
Thanks.
Your next question comes from the line of Chad Bennett from Craig Hallum. Your line is open.
Great. Thanks for taking my questions nice job again on a good quarter.
So just on the Q3 guide so at the midpoint, you're up about 500 Grand sequentially.
I guess.
Can you give us sense within the revenue segment does the majority of that sequential growth come from everywhere SaaS or any any puts and takes in the other segments.
Yes, I'd say that the majority of it is in the area where SaaS.
The advertising business.
We'll be up I think that the content licensing business.
He is looking to be.
Slightly down to flat so.
From the from an overall mix perspective, the lion share of that we're expecting is in SaaS with those other two being slightly up or slightly down to flat.
Okay. Thank you and then.
Maybe.
A little more of a kind of longer term question on growth. So in the December quarter, we annualize fully on on the acquisitions you guys made last year.
Should we how should we think about the organic growth of the overall business and then if you're willing to share the iwear SaaS business across organically.
Well, we called out the organic growth in Q2, I think Chad what you're getting at is once we've anniversary the acquisitions what type of a run rate are going to get from.
From the combined business right Yep Yep correct, yes.
So I think the run rate on.
As the business stands today, so not taking into consideration some of the the.
Changes in the enhancements, we're making like Brian talked about with influence or bridge, but if you look at advertising the run rate that we've got today between.
The historical Veritone, one and performance bridge business is doing very well so.
30% growth in the organic growth in the second quarter, and 32% growth on a year to date basis.
That business is teed up on on a combined basis to continue a very healthy run rate I would never tell you that we're going to bank on 30% Thats just.
A huge number but the market is very bright and we're very well positioned in the podcast the market.
On the on the on the SaaS side.
It's just it's difficult to predict that we are very.
Proud of the results we've got in our media and entertainment vertical that's why we highlighted those in the remarks, we've been.
Really penetrated there or had.
Good sales efforts there for over three years now and have products that we're selling and continued to land and expand there, but like Ryan was sharing with you.
The feedback on identifying redact in the government market is very positive, but the sales cycles also very long. So I think it's harder to predict that overall SaaS growth rate and that's why we're really kind of limiting ourselves at this point to kind of a quarter out just because we don't want to.
Get ahead of ourselves.
Okay, Thanks, and nice job on the quarter once again.
Thank you. Thank you.
Your next question comes from the line of Darren Aftahi from Roth Capital Partners. Your line is open.
Hey, guys. Good afternoon, thanks for taking my questions and nice quarter just clarification on this the 32.
Engage customer trials, the two that converted with new contracts and those outright own contracts and they just renewing.
10 of their their trial in mobile unclear about language.
Yes, those are paid contracts might there sorry.
Okay Fair enough and then my question on that is.
How long were those two clients on trial and then as you look at the pipeline of those other 30.
Were they kind of in the lifecycle curve of trials.
Yes, I mean, there were definitely several months.
So for the bulk of these 30.
Recent contract in trials.
If if they are successful and they do get through appropriation committees, we do expected to take several months for them to kick in on a totally on a on an annualized contract basis going forward.
Due to the two contract that did convert they were in trial contracts with us.
I believe was about 90 days the other one was a bit longer was one of the groups that we actually pioneered in piloted the technology from scratch with which so that was close to about six months yes.
And were those the two international ones that you spoke of earlier I think stand mainly.
No those are both domestic domestic law enforcement.
Got it that's helpful.
Okay, I guess second.
Maybe for Ryan Influencer Bridge, you know as of this morning, what's kind of the go to market strategy there.
For employee were implemented as it's kind of a running start here. This is our formal announcement, we've already over the over the last several quarters.
Actually deployed in sort of managed.
Affiliate based campaigns through Influencer bridge across over I think it's 2200 different podcast. So this has been something that's been in the works with for a while the go to market strategy.
Number one is we are taking advantage of veritone ones.
Position as the market leader in podcast advertising. So we have a very strong brand in that community.
The area that we're missing is our investment firm through our agency was only focused on the top 3300 pod casters, whereas obviously the huge opportunity of growth in the mid and long tail. So the opportunity for us to launch and grow Influencer Bridge, we are absolutely taking advantage of our well known brand equity in the space, but we are using a multitude of both PR traditional marketing efforts and direct sales efforts to go out and acquire and sign and attract new podcasts ers to influence of rich.
That's helpful. Thank you and then maybe one for Pete.
If my math is right your revenues.
Up a little bit quarter on quarter and it looks like the mix was pretty similar.
But your non-GAAP gross margin was down I think 400 basis points.
Okay, I guess one anything.
Nuance there and then to as we think about gross margins kind of going forward, how should we think about kind of blended rate.
Yes, so the good color Darren.
One of the things we did in the quarter with as we enhance the capabilities of our cloud platform in order to be able to provide real time processing and that had the impact of increasing our cost and then we also expanded our footprint in Europe to support the revenue growth over there as well. So those two were the main factors that drove that reduction in the gross margin rate on a non-GAAP basis.
That being said, we think that theres some opportunities we've got to kind of refine some of the.
Activities, we undertook in the in the second quarter to be able to maintain the capabilities that we want but do it in a more cost effective way and we've already implemented some of those and we've got more that are.
In process of being evaluated and hopefully executed on so that should help to drive down some of the costs as we move into Q3 in the second half of the year.
But from an overall perspective, we are.
As the business shifts the revenue shifts.
More towards the content licensing and SaaS.
We do see the year over year impact in gross margins at this point.
Great. Thank you.
Yes.
And again Thats Star one if you would like to ask a question.
Your next question comes from the line of Tom Diffely from D.A. Davidson. Your line is open.
Hi, guys. This is Frank on for Tom Thanks for letting US ask a few questions first of all that I want to congratulate you guys on the qualification.
And then I did want to ask.
First significant uptick on.
AD dollars per hour in the quarter.
What is driving the incremental spend per customer.
It would can you restate is that increased AI, where utilization on a per customer basis.
On a.
For our innovative process power basis.
Yes, so as you look at the.
As the hours of cognitive.
Content process, it's basically almost flat at 4 million from Q1 to Q2, okay, but yes I think.
As people utilize our services they're acquiring.
Yes enhanced seat licenses.
And licensing and a broader array of applications. So even against the same number of hours of that that we have processed through cognition, they're utilizing the platform more and more diversified way, which we do charge for.
Secularly in through additional licenses at.
And additional seats. So again, where this is goes to kind of our land and expand strategy, where we signed the SDN.
They continue to use the platform add more seat licenses.
And then so in effect, it's increasing our revenue per hour, we don't really peg our revenue as against hours of cognitive media hours of cognition processed.
But again it is a favorable trend since it more or less of the fixed cost and we're generating more revenue against that expense.
Okay. So if I were to expect that to go up over time.
For.
It depends on the product coming out.
If you look at for example in the law enforcement sector.
Identify and REDAPT has very different.
Sort of revenue per minute of content ingestion and very different cost. So I think as we continued to develop an innovative new products and services inside the three verticals. Each one has its own revenue characteristic.
And again happy to dig into more detail with you guys and exposure explain some of that stuff because I think it's how we're running our business and our product managers think about their go to market and pricing.
But as of today redact and identified do generate higher revenue per hour of cognition processed than our historical median entertainment broadcast customers.
Correct Okay.
That's helpful. Thank you.
And then when you look at the different laws that are being passed.
Regarding special recognition.
Like the one in San Francisco, a few quarters ago.
How does that really affect your business and how are you addressing this topic.
Yes, Adam at a macro level, we're all in California. So we're very well aware of what happened in California, where they were banning facial and AI technology kind of carve launch across the state.
In other states you have the exact opposite forces being driven.
Which is big and in California, as well. So you have Senate Bill working 20, Onest and we both 748, California.
A handful of others Internet in New York as well as Florida like I mentioned that are basically putting pressure primarily driven from groups like the so you to force law enforcement agencies to have a far more transparent.
Service to the public and what they're doing those laws are forcing fine upon the agency that they can't comply with supplying redacted content on public information request as well as in the amount of time. It takes for information to go from the the investigators to the prosecutors the da and the defense they are forcing agencies to be far more efficient in that process and unfortunately, it's not something that theyre doing intentionally literally a technical problem of how their redacting constant today, the human beings sitting in front of a screen and going frame by frame using a video editing software to blur out contest with applications like redact. It now becomes something where the AI is doing 95% of the heavy lifting and we can reduce both time and cost and an extremely profitable way for the company. So we think that the legislation is moving far more I think in.
Favour of Veritone in terms of increasing the demand in the pressures on agencies to adopt the technology than what we saw happening in the circus in California Sacramento.
Okay, and then on the okay.
Thank you.
And then lastly.
On the adjusted EBITDA loss rate.
For this quarter you had mentioned that are similar to the second quarter.
And then you're guiding up sequentially, a little bit for revenues.
What is driving the higher expenses.
Well, we've got some.
Primarily.
Headcount increases that we're looking to continue to expand capabilities in software development.
Engineering and other kind of related team so.
Some of that additional.
Gross profit that we're expecting to generate frankly, we're expecting to invest back into the business and Thats why we.
Guided towards the flat rate.
Okay. Thank you.
Thank you.
There are no further questions I will now turn the call back to Chad Gilbert for closing remarks.
Thank you operator, and thank you all for joining us on today's call. We're very pleased with our start to 2019. The takeaway from our standpoint is that the operational inflection points of product channel and revenue diversification. We have discussed since our IPO are happening. This early momentum is encouraging us to move forward aggressively to pursue these huge opportunities we see for our technology in the coming months, we expect to see further revenue growth and diversification across product geography verticals and channels and we look forward to reporting to you on our progress Goodbye.
Ladies and gentlemen, thank you for your participation. This concludes today's conference call you may now disconnect.
Everyone else has.