Good afternoon. Welcome to Veritone's First Quarter 2017 Earnings Conference Call. Joining us for today's call are Veritone's Chairman and CEO, Chad Steelberg; and the company's Chief Financial Officer, Pete Collins. [Operator Instructions] Please note that certain information discussed on the call today will include forward-looking statements about future events and Veritone's business strategy and future financial and operating performance, including its expected second quarter performance. These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict and 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 Veritone's SEC filings, including its registration statement on Form F-1 and its quarterly report on form 10-Q, which the company expects to file by June 23, 2017. These forward-looking statements reflect management's beliefs, estimates and predictions as of the date of this live broadcast, June 20, 2017, and Veritone undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call. Finally, I would like to remind everyone that this call will be recorded and made available for replay via link available in the Investor Relations section of the company's website at www.veritone.com. Now I would like to turn the call over to Veritone's Chairman and CEO, Chad Steelberg. Sir, please proceed.

Welcome, everyone, and thank you for joining us today. After the market closed, we issued a press release announcing our results for the first quarter ended March 31, 2017, a copy of which is available in the Investor Relations section of our website. This is an incredibly exciting time for our company, both for reasons that are obvious and others that are less so. In terms of the obvious, as you're all well aware, Veritone became a publicly traded company on May 12. I think it almost goes without saying that we are thrilled and appreciate the investor support. We're looking forward to the new opportunities this provides us by having access to greater depth of resources and a much larger and more diversified shareholder base. Now in terms of the less obvious. At Veritone, we talk a lot about our pursuit of building something bigger than ourselves, of making a dent in our universe. And when I say universe, many -- you may rightly think of the physical universe around us, the one directly in front of you that you can see and hear and touch, and that's true. But at Veritone, we also operate in another important universe, the digital one. And something many of you may or may not know is that these 2 universes are merging into one. As more and more devices and content providers bridge this digital divide, in the process generating zetabytes of new unstructured data, the human mind has become the limiting factor in terms of the scale, speed and breadth of understanding required. These digital universe of ours used to only speak one language, the language of computation. But today, 80% of the data stored in our digital universe, including audio, video and image files that can't be understood with classic…

Thanks, Chad, and good afternoon, everyone. It's a pleasure to have this opportunity to speak with all of you today. Turning to our financial results for the first quarter ended March 31, 2017. Our net revenues increased 50% to $3.1 million from $2.1 million in the same period last year. The improvement in net revenues was primarily due to an increase in Media Agency revenues of $864,000 or 43% as well as an increase of $168,000 or 410% in SaaS licensing revenues from our Artificial Intelligence platform. Looking at our AI platform business. The total contract value of new bookings received during the quarter increased to $1.9 million compared with $156,000 in the same period last year. In addition, our monthly recurring revenue under agreements in effect at the end of the quarter increased to $111,000 in Q1 of 2017 compared to $14,000 in Q1 of 2016. Although our revenue mix this quarter was more than 90% derived from our Media Agency business, which was consistent with our historical pattern, we plan to grow our AI platform over time, so that it will be the main driver of our net revenues in the future. Our gross profit for the first quarter of 2017 increased 66% to $2.9 million or 93.7% of revenue from $1.8 million or 84.6% of revenue in the first quarter of last year. The increase in both gross profit and gross margin was primarily due to the operating leverage provided by our higher net revenue level as well as to lower transcription costs per hour, which were due in part to the higher volumes of data being processed. Our total operating expenses in the first quarter of 2017 were $9.5 million, an increase of 68% compared with $5.7 million in the same period last year. The increase…

Thanks, Pete. To more fully appreciate what we're building and where we're headed, it's important to grasp the problems we are solving and the opportunity that it presents for Veritone. As I mentioned in my opening remarks, 80% of the world's data is unstructured. This means that this throve of data cannot be easily searched, understood or utilized without human intercession. This problem is compounded by the fact that the volume of unstructured data being created is continuing to grow exponentially. The research firm IDC has predicted that the total amount of digital data created worldwide will double every 2 years to 44 zettabytes in 2020. That is an almost inconceivably large amount of unstructured data. A zettabyte is 1 trillion gigabytes. And it's going to require this new language of cognition powered by the artificial intelligence to unlock its full potential. The problem is that global organizations, both big and small, lack the proper tools to analyze the growing variety, velocity and volume of data. This is where AI systems, particularly cognitive systems based on machine learning, come into play. These systems are being designed to make sense of the complexity and unpredictability of unstructured data at volumes and speeds that exceed the capabilities of the human brain. The issue with these systems, however, is that they are only useful when applied to a single narrowly defined problem. For example, you can teach a computer to recognize faces nearly as well as a human can, but that same computer is not capable of recognizing objects or spoken words. When my brother Ryan and I started Veritone in 2014, our founding mission was to bring the power of AI-based computing to companies of all sizes by providing a unified cloud-based platform to satisfy a wide variety of use cases across…

[Operator Instructions] Our first question comes from the line of Bill Choi with Wunderlich.

Want to follow up on that last comment about kCura. I know that for us, legal vertical represents a huge opportunity, particularly for big lawsuits and tracking tons of hours of audio tapes and so forth. So just wanted to get a little more color on that. I think as of sometime in Q2, you signed up 18 providers. Relativity total partner base is about 120 with a lot of room to grow here. Just step us through what's been happening as you enable the providers and how some of the deals might look in second half as this tends to be a little bit more transactional, so any visibility on that legal vertical will be helpful.

So Bill, it's Pete. So we're -- as Chad said in the prepared remarks that the ramp-up, both from a technical perspective as well as a sales perspective, has taken longer than we expected. The reseller agreement that you quoted are in place, and that's been accomplished. And the -- I kind of -- I talked sort of the bugs as it relates to the technical integration has also been completed. So we're -- from our perspective, the ramp-up is, like Chad said in the remarks, a little longer than we had expected, but we're getting there. And the good thing is that as we become more and more involved in that market with our General Manager, Michael McDonald, he's confirmed the hypothesis we had coming into the year, which is that we provide a very cost-effective solution and a solution that has much broader cognition or much broader depth of information for the users in that market. So that's why we made the comment in our remarks that this longer ramp-up does not impact our overall goals for the year. We're still confident that we can achieve our goals for the year, despite the slightly longer ramp-up that we have experienced.

Beside the technical aspect of it, is there anything that you need to do to get customer acceptance and usage up? And if there are any hurdles that you could discuss.

No. This is Chad. We don't see any hurdles in front of us. In fact, just to kind of go back on Pete's remarks on the technology front, some of the feature sets that took a little bit longer to integrate, specifically, were the features of redaction, which is the key feature for the legal industry that we put into the platform. It was -- the innovation that we built around that, actually, we filed a patent there as well given what we'll be able to do with our cognitive platform. So we see no reason on a business standpoint that we should have any further delays. It was all technically related. And we expect to hit our end-year objectives.

Okay. The other question I had was the press release that came out a day or 2 ago announcing the new division. There was an update that you have 65 cognitive engines now enabled, so certainly quite significant growth just this quarter alone. And the bigger question here is how you go about monetizing this huge base of cognitive engines. It's primarily been transcription that's been driving much of the revenue. How do you see that evolving as that cognitive engine ecosystems just seems to grow quite significantly? If you could tie that with some kind of customer adoption and any kind of contract or revenue, that will be helpful.

Yes, thanks, We actively track the number of cognitive engines in the market. Our current count exceeds over 5,500 third party cognitive engines and our goal at Veritone for the developer hub is to allow third party cognitive engine developers to join our ecosystem by a self-service model, providing them with a faster path to monetization, an access to our training data to enhance the performance of their engines. We are using in-house marketing resources to spread the word in the community via tools, that is white papers, newsletters and press releases, to continue to expand that market. With the growth that you've seen last -- in this current quarter, we expect that growth to continue. And our monetization strategy around that is really based upon our customers' demands. When we first started the business, it was really Ryan and I and our engineering team randomly selecting engines that we thought were interesting and could add value to our prospective customers. And now as our customer base is diversifying, it really becomes a pull function, where they're reaching and communicating with us, specifically our Head of our ecosystem development team, Tyler Schulze, to reach into that pool of 5,500 and start onboarding specific engines that can add value to the problems in their market.

In terms of -- what's maybe 2 or 3 major cognitive engine classes that could generate revenue for you besides subscriptions, if you have any thoughts on that?

Yes. We are increasing customer demand for object detection, transcription analysis, facial recognition and detection engines. The specific demands are resulting in highly targeted engines within these macro categories, which continue to reinforce the power of the Veritone Platform with speed to onboard new cognitive engines and integrates the resulting intelligence with other pre-existing engines as powerful and our key differentiator.

Okay. One last question for me, then I'll pass along. One of the thesis for your capital raise was the ability to do accretive acquisitions and speed along customer adoption, require guys who might have customer relationship in some data, but then to supercharge it with your cognitive engine base. Can you talk about the environment for potential targets and how the environment currently looks?

So Bill, we're looking for businesses that process audio, video or other unstructured data and provide their products in a software as a service model to their customers. Those are the ones that are most interesting to us at the present. Our focus is limited in the verticals that we currently serve. So companies that have significant existing customer bases are also very interesting to us, particularly where we believe that our platforms, technology and capabilities would enable those businesses to enhance the value of the solution they offer to their customers.

And our next question comes from the line of Mike Latimore with Northland Capital.

On the CBS Radio win and deployment, I guess, is that going to be at a full revenue run rate, say, in the third quarter?

Yes. We expect to complete the rollout to all 117 stations by the end of this quarter.

Okay. And then I noticed this in the press release. You talked about a win with a financial news, TV network. I guess, can you just elaborate a little bit on that? Is the -- what kind of function are you providing there? Is there opportunity to upsell over time?

Yes. We can't share the name of that customer because of the confidentiality clause in our agreement with them. But the customer is using our platform to analyze their broadcasts and provide their advertisers with the complete understanding of the benefits that those advertisers receive by being on their network.

And then I think same with yesterday, you talked about Veritone Government. maybe, I guess, a new division. Can you talk just a little bit more about that? We've probably seen them some work in politics and public safety, but maybe if you can talk a little bit more about what opportunities you're seeing here. It seems like it's a little bit more safe side of the government focus.

Yes, absolutely. At the present time, we are managing the public safety and government sector for both local, state and federal services under a single business unit with subdivisions with dedicated leads targeting the discrete submarkets. As you know, the problems facing public safety today are no longer fall neatly within classic geographic or even departmental boundaries.

Okay. And then just in terms of operating expense, should we assume operating expense in the second quarter similar to the first quarter?

Yes. We're -- Mike, we're -- the guidance that we provided is really at the level of the net revenues and the drivers of that, that Chad mentioned, number of accounts, the number of cognitive engines and the amount of media that will be ingested and processed for the year. So that's really what we're focused on from a guidance perspective.

Yes, okay. And I guess, just the last one on the bookings in the quarter. I guess, looks like a good number there. I mean, is that sort of more bookings than you've had all of last year?

Yes, it was. That was -- that would be the high watermark. Last year, our total revenues were in the agency -- I'm sorry, in the AI platform business were under $1 million. And to do total contract value of $1.9 million in the quarter, that's the largest amount we've ever done in our history.

And our next question comes from the line of Joe Fagden with Craig-Hallum.

Another one on the government business. Just in general, are the contracts you're going to be ratable, like you have with like the media and whatever, is this going to be more of kind of a project-based type of vertical similar to the legal?

I think like our media business, it'll be far more correlated to the amount of content being ingested that's going to be tied to really 3 core initial sources: first, body cams and dash cams; two, some of the municipality cameras and feeds that are coming in; and then third is the public media index from -- that's happening out there from both consumer content that comes in the law-enforcement agencies. So we see that as being a very constant staple consistent with sort of our media business. But at the same time, as cases arise and large events happen, we'll see much more project-based work, probably, also impact the system. So it's a bit of a hybrid with the baseline of consistent content coming from their day-to-day operations. but also spikes involving specific events.

Okay. And then I guess, as much color as you can give, over the near-term call, like through the rest of 2017, I think media and, perhaps, legal are kind of expected to be the 2 big verticals for you. Do you think government can get, like, on that level? Or is it going to be a much more minor part? I guess, I'm trying to figure out how much this really expands your opportunity over the next few quarters?

Yes. This year, it's a build year for us in the public safety sector, both for federal and local as you go through the various compliance and regulatory bodies to onboard customers there. At the same time, we continue to harden our infrastructure to ensure that it's complying and residing in [ hardened ] secured data centers that meet both federal and local law enforcement requirement. So this is a build year for us, but we expect next year to be one of our primary new growth drivers for both revenue and expansion opportunity.

Okay. And last one, I think I already know the answer to it. The margin profile, the economics and pricing in the government vertical, is it the same as your other verticals? Are there anything else different with that?

We believe it will come in line with the other verticals that we currently operate.

thank you. At this time, this concludes our question-and-answer session. If your question was not taken, you may contact Veritone's Investor Relations team at veri@liolios.com. I'd now like to turn the call back over to Mr. Steelberg for his closing remarks.

Thank you for joining us on today's call. As I mentioned, we are excited to now be a public company and want to thank our employees, partners and investors for supporting us through this transition and allowing us to scale our company even further. We look forward to updating you on our progress on our next call. Thank you. Operator?

Thank you for joining us today for Veritone's First Quarter 2017 Earnings Call. You may now disconnect.