10-K: Veritone Inc. Reports Fiscal Year 2023 Results and Outlines Strategic Cost Reduction Initiatives

Veritone Inc., a provider of artificial intelligence (AI) computing solutions and services, reported a decrease in revenue and an increased net loss for fiscal year 2023, while also announcing strategic cost reduction initiatives and the acquisition of Broadbean, a talent acquisition software-as-a-service company.

Summary

• Veritone Inc. reported revenue of $127.6 million for the year ended December 31, 2023, a decrease from $149.7 million in 2022.
• Software Products & Services revenue was $68.4 million in 2023, down from $84.8 million in 2022.
• Managed Services revenue was $59.2 million in 2023, compared to $65.0 million in 2022.
• The company experienced a net loss of $58.6 million in 2023, compared to a net loss of $25.6 million in 2022.
• Non-GAAP gross margin declined to 78% in 2023 from 82% in 2022.
• Veritone's largest customer, Amazon, accounted for 12% of consolidated revenue in 2023, down from 25% in 2022.
• The company completed the acquisition of Broadbean, a talent acquisition software-as-a-service company, for $53.3 million in June 2023.
• Veritone divested its energy group in June 2023 for approximately $2.5 million.
• The company entered into a $77.5 million senior secured term loan agreement in December 2023.
• Cost reduction initiatives were announced in January 2023, November 2023, and February 2024, with over $34.0 million in net annualized strategic cost reductions executed through February 2024.
• Veritone identified material weaknesses in its internal control over financial reporting related to foreign exchange transactions, IT general controls, and entity-level controls.
• The company is taking steps to remediate the identified material weaknesses.

Sentiment

Score: 3

Explanation: The document presents a mixed picture with significant challenges. While the company is taking steps to address its financial performance and has growth opportunities, the decline in revenue, increased net loss, reliance on a single customer, and identified material weaknesses in internal controls warrant a cautious sentiment.

Positives

• Government & Regulated Industries revenue grew 56% year over year in 2023.
• The acquisition of Broadbean is expected to strengthen Veritone's AI-driven human resources product suite and expand its customer base.
• The company has secured a $77.5 million senior secured term loan, providing additional liquidity.
• Cost reduction initiatives are expected to improve profitability.
• Veritone is investing in new markets and developing new AI-powered applications.
• The company has a strong intellectual property portfolio with 33 issued patents in the United States and 20 issued patents in foreign jurisdictions.

Negatives

• Revenue declined 15% year over year in 2023.
• Net loss increased to $58.6 million in 2023 from $25.6 million in 2022.
• Non-GAAP gross margin declined to 78% in 2023 from 82% in 2022.
• Software Products & Services revenue declined 19.1% year over year.
• Consumption from the company's largest customer, Amazon, significantly decreased.
• The company identified material weaknesses in its internal control over financial reporting.
• The company faces challenges from macroeconomic and geopolitical factors.
• The market for AI-based software applications is relatively new and unproven.

Risks

• The company may not be successful in expanding its aiWARE SaaS business.
• The market for AI-based software applications may experience limited growth or decline.
• The company may be unable to achieve or sustain profitability.
• Acquisitions may be expensive, divert management's attention, and fail to achieve expected benefits.
• Macroeconomic and geopolitical factors may negatively affect the company's business.
• The company may not be able to enhance existing products or introduce new products that achieve market acceptance.
• Competitors may acquire technologies used in aiWARE and offer them for free or at a lower cost.
• The company relies on third parties for AI models and infrastructure.
• Security breaches or cyber-attacks could harm the company's business and reputation.
• The company may not have sufficient cash flow to service its debt obligations.
• The company may require additional capital that may not be available on acceptable terms.
• Restrictive covenants in the Credit Agreement may impair the company's ability to operate its business.
• The company generates substantial revenue from a single customer, Amazon, and the loss of such customer may harm its business.
• The company faces risks related to intellectual property, including potential infringement claims and the need to protect its own intellectual property.
• The company is subject to evolving laws and regulations related to data privacy and security.
• The company's stock price has been extremely volatile and could continue to fluctuate widely.

Future Outlook

Veritone anticipates that macroeconomic headwinds, including reduced consumption by its largest customer, Amazon, will continue to impact its financial results in the first quarter of 2024. However, the company expects the overall impact to be less significant for the full year 2024. Veritone plans to focus on cost synergies from past acquisitions, cost reduction measures, and growth in its Government & Regulated Industries segment to improve profitability. The company also plans to continue investing in its AI platform and expanding into new markets.

Management Comments

• The document contains no direct quotes from management, only a summary of their assessment of internal controls.

Industry Context

Veritone operates in the rapidly evolving AI industry, competing with large technology companies and smaller AI-focused vendors. The company's focus on providing an AI operating system (aiWARE) differentiates it from competitors who primarily offer point solutions. The acquisition of Broadbean positions Veritone to capitalize on the growing demand for AI-driven talent acquisition solutions. The company's expansion into the Government & Regulated Industries market aligns with the increasing adoption of AI by government agencies for various applications, including law enforcement and eDiscovery.

Comparison to Industry Standards

• Compared to large, well-capitalized technology companies like Google, Microsoft, Amazon, and Palantir, Veritone is a smaller player with fewer resources. These larger competitors have greater brand recognition, financial resources, and larger sales and marketing teams.
• In the talent acquisition software market, Veritone competes with programmatic job advertising software companies, traditional human capital management (HCM) companies like Oracle and SAP, and providers of applicant tracking systems.
• Veritone's aiWARE platform is unique in its ability to orchestrate multiple proprietary and third-party AI models from a single integrated platform. This differentiates it from competitors who may offer more limited AI capabilities or focus on specific cognitive categories.
• In the advertising managed services market, Veritone competes with traditional advertising agencies and consulting firms. Its aiWARE platform provides a competitive advantage by offering better analytics and insights into advertising campaigns.
• In the content licensing market, Veritone faces limited competition in North America but may face more competition internationally from established content licensing and talent management companies.

Management Changes

Related Party Transactions

• The Company entered into a consulting agreement with Steel Holdings, LLC, an affiliate of Chad Steelberg, a director on our Board, and our former Chief Executive Officer and former Chairman of our Board in January 2023. The Company recorded research and development expenses of $662 for consulting fees and reimbursements for reasonable and documented expenses; $951 for variable consultant performance bonus expense; and $667 in stock-based compensation expense for the Steel Holdings Consulting PSUs.

Stakeholder Impact

• Shareholders: Potential dilution from future equity or convertible debt issuances, volatility in stock price.
• Employees: Potential impact from cost reduction initiatives, including workforce reductions.
• Customers: Potential changes in product offerings and pricing as the company adapts to market conditions.
• Creditors: Increased risk due to the company's financial performance and need for additional liquidity.

Next Steps

• Veritone will continue to focus on integrating Broadbean and realizing cost synergies from the acquisition.
• The company will implement its planned cost reduction measures.
• Veritone will continue to invest in sales and marketing to grow its customer base, particularly in the Government & Regulated Industries segment.
• The company will work to remediate the identified material weaknesses in its internal control over financial reporting.
• Veritone will continue to develop and deploy new AI-powered applications and expand the capabilities of its aiWARE platform.

Key Dates

Keywords

artificial intelligence, AI, aiWARE, machine learning, SaaS, cloud computing, digital content management, advertising, media planning, talent acquisition, Broadbean, government, regulated industries, eDiscovery, redaction, software, Veritone Hire