Good afternoon. My name is Susan, and I’ll be your conference operator for today. At this time, I would like to welcome everyone to the Veritone First Quarter 2020 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remark, there will be a question-and-answer session. [Operator Instructions] Thank you. Brian Alger, Senior Vice President of Corporate Development and Investor Relation, you may begin your conference.

Good afternoon, and welcome to Veritone's first quarter 2020 conference call. I'm Brian Alger, Senior Vice President of Corporate Development and Investor Relations. After the market closed today, Veritone issued a press release announcing the results for the first quarter ended March 31, 2020. The press release is available on the Investors section of our website. Joining me for today's call are Veritone's Chairman and CEO; Chad Steelberg, President; Ryan Steelberg and CFO; Pete Collins. Following their remarks, we'll open up the call for questions. 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 net revenues and non-GAAP net loss for the second quarter of 2020. 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 Veritone's SEC filings, including its Annual Report on Form 10-K and its quarterly report on Form 10-Q filed today. These forward-looking statements are based on assumptions, as of today May 11, 2020 and Veritone undertakes no obligation to revise or update them. During this call, the actual and forecasted non-GAAP financial measures will be discussing including, gross margins, operating expenses and net loss will be presented on a non-GAAP basis. Reconciliations of these measures to the corresponding GAAP measures are included in the press release we issued today. Finally, I would like to remind everyone that this call is being recorded and will be made available for replay via link available on our Investor section of the Company's website at www.veritone.com. Now, I'd like to turn the call over to our Chairman and CEO; Chad Steelberg. Chad?

Thank you, Brian. Welcome everyone and thank you for joining us today. I hope you and your families are staying safe and healthy in light of these extraordinary circumstances. When I last spoke with you in early March, no one could have imagined how much and how quickly the world would change. Our prayers are with everyone who has been hit by this pandemic especially those who have lost loved ones. The pandemic had an immediate impact on our content licensing and advertising businesses in March with approximately 1.5 million and expected revenue loss or delays in the last few weeks of the quarter. Despite the significant revenue pressure, I’m pleased with our Q1 results which demonstrate the resiliency of our team and the value of our differentiated and diverse portfolio. Veritone’s Q1 revenue was 11.9 million. On the cost side, we were in a strong position given the focus we've had since Q4 on the bottom line. As the pandemic continue to spread, we were able to quickly accelerate and expand our program and further reduce our operating expenses without a reduction in headcount, enabling us to reduce our non-GAAP net loss to 6.7 million. I cannot stress enough how immensely proud I am of the Herculean effort of our talented employees, working from home to maintain operations in this environment while driving customer engagement and product development levels to all time highs. We’ve seen a decade’s worth of digital transformation in the last two months, as businesses increasingly move to the cloud and AI recognizing the necessity for change and the changing world. As a result, they expect to see increased strong engagement on our powerful and unique platforms. We continue to innovate and explore new verticals such as energy and safety, and we are building out existing…

Thank you Chad and good afternoon everyone. Let me start by saying that in the phase of pressures resulting from the pandemic and economic restrictions, our entire team has been laser focused on not just mitigating the impact on our business, but emerging even stronger than before. I'd like to spend a few minutes discussing our first quarter revenues and outlook in each of our businesses. In our advertising business while we saw the cancellation and delay of several advertising campaigns in March. Our differentiated cognitive processing and analytics capabilities, the diversity of our serves media markets and the fact that many of our clients are direct to consumer focused helps to mitigate the disruption from the pandemics to some extent. In terms of performance highlights for the quarter in this business, while its revenues declined, our net customer count has continued to be relatively stable and its revenues grew 5% year over year by most of their peers are according to clients. We are introducing a new KPI, average gross billings per active clients as it is a primary indicator of our current and future performance of our advertising business. Our average gross billings per active clients for Q1 2020 increased 23.7% year over year to 579,000 reflecting the increasing traction we are having with accounts like express VPN and a large pharmaceutical company that is adding new drugs to his campaigns service through Veritone. One our performance marketing and podcasts, broadcast, and digital influencers enabled by aiWARE cognitive analytics continue to perform very well. For us billings in the segments continued to represent more than 60% of our total gross billions and our revenue growth here continues to outperform the competition. I also want to call out the strength we are seeing in our new ad networks business…

Thank you, Ryan, and good afternoon everyone. Each of you should have accessed to the results we released earlier this afternoon, and Ryan has already provided significant color on the first quarter revenues of our business units. The COVID-19 pandemic had an immediate impact on our monetization businesses starting in March, which resulted in our total revenues declining by 4.3% sequentially and 1.8% year over year. As I reviewed our financial results, a couple of items warranted further discussion. First, we were able to achieve significant improvements in our gross margin Q1. Our overall non-GAAP gross margin improved 110 basis points sequentially and more than 150 basis points year over year. This is due primarily to our revenue mix in Q1 as content licensing is our lowest gross margin business, but it's also reflective of enhancements we have made to our underlying aiWARE software, which are not only reducing our computing costs, but also improving performance and stability. We've also made great progress in reducing our operating expenses. Starting back in Q4 of 2019, we began aggressively cutting costs and presenting efficiencies in a number of areas. As we talked conditions begin to deteriorate in March, we implemented additional actions to reduce our costs. As a result, we were able to bring our non-GAAP operating expenses down by nearly two point $2 million versus the fourth quarter of last year. On an annualized basis, we are now operating with a $13 million lower cost base than we had in the third quarter of 2019, before we shifted our focus on driving towards cash flow breakeven. As a result of these actions, despite the revenue disruption caused by the pandemic, our gross margin improvement together with tight expense controls helped us to reduce our Q1 non-GAAP net loss to $6.7 million,…

Thank you, Pete. As you persevere through this crisis, it is clear that we will be facing a world very different than before. And while we recognize the severe human and economic impact this pandemic has created, we also see new opportunities ahead. We're committed to ensuring that Veritone will play a critical role in the rebuilding of our global economy. aiWARE, our proprietary operating system for artificial intelligence is the backbone of our strategy and key to enterprise AI transformation. Our customers trust in artificial intelligence and deep learning, and a new sound fellowship between man and machine is being forged as a result of our efforts. I'll conclude by reiterating our confidence that Veritone will emerge stronger through this crisis. Our business today is differentiated in the marketplace. We have a unique and diverse portfolio of products and solutions, and we have a very strong relationships and engagement with our customers. We're truly a partner to our customers are helping them through this period, which brings me to our team and our culture, which is our source of strength and differentiation. During this pandemic, as fear and uncertainty spread like wildfire, I watched the Veritone team become a family, as they cared encourage one another with sincerity and empathy. I am honored and blessed to be counted among them. And I'm thankful for our shareholders, customers and partners for your continued support in business. We look forward to connecting directly with our investors and analysts at the Oppenheimer virtual conference tomorrow, May 12. To arrange meetings at this event, we encouraged institutional investors to reach out to their respective brokers or to contact Bryan Alger. At this time, we'd like to begin the Q&A session, operator.

And thank you very much. [Operator Instructions] Our first question comes from the line of Pat Walravens with JMP Securities. Your line is open.

Great, thank you and congratulations you guys on controlling your expenses in an extremely volatile period. Chad, can I start with certain one of the big questions I know people have, which is. You've announced in April that you’ve got the 6.5 million from the Paycheck Protection Program, and there has just been so many different headlines about that. Can you update us and what the status is?

First, I'll start with very first part has always been and continued to be the safety and wellbeing of our employees, their families, and our communities. And meeting our obligations to our customers and partners is paramount to our future success. And as we noted in our prepared remarks, the COVID-19 pandemic had an immediate negative impact on our business starting in March and there was a tremendous amount of uncertainty. I'd say both the duration and intensity that both the pandemic and the economic downturn would have in our ability to access capital and obviously continue to, to finance the business going forward to profitability. When the CARES Act was passed, we applied for PVP loans and good base based on the rules and interpretations and in fact at the time. And these loans truly allowed us to avoid the salary reductions and layoffs, and help us through this period of economic uncertainty. We do not have any updates today though on this sort of question, Pat. Our board continues to evaluate the situation. As you know, the government continues to make modifications to the rules governing the CARES Act and the PPP loans themselves, but we will update you in the future. But again, our primary goal is to protect our business and our employees going forward.

And then two more, I’ll just put them out there. So, you had a big aiWARE SaaS bookings quarter into Q4 and I'm wondering, did that turn into revenue the way you thought it would? Or were there some things about the environment that might have impacted that? And then, Pete, maybe this is a little unfair cause I know you didn't guide for the year, but any ideas on how we should think about the quarters after Q2? I mean, should they go down sequentially? Should it be flat? Anything you can share with us would be really helpful.

So, why don't I have Ryan address the bookings and how that translates into revenue in 2020?

So, in the fourth quarter, we renewed and expanded some very material, large contracts, including a material expansion with iHeart media. That expansion is on track. It's actually sending us up to deploy our next generation attribute application software across their station groups. So, I wouldn't say that there's been a material delay. So the bookings are we're very competent with in terms of total contract value, and we will start to see more accelerated expansion specifically as it relates to attribute through the end of Q2 and Q3.

This is Pete. Let me pick up on that. So your question, the full year outlook, I think the thing as you mentioned when you first started with the job we did was operating expenses and that's the thing that we can really control the most. So, let me just kind of share feedback with you on what we see from that perspective. I think for the rest of the year, we're looking to -- we're expecting that our operating expenses will be very similar to where they are in Q1 and what we're guiding to for Q2. So, we're not expecting to see significant changes from that operating expense perspective looking out for the remainder of the year.

And our next question comes from Darren Aftahi from ROTH Capital Partners. Your line is now open.

Few, can I follow up, Pete, on your commentary around OpEx reductions. Just so I understand it clearly, I think you've referenced 13 million annualized savings, correct me if I'm wrong? So does that compare to the 8 million in annualized savings you guys took I think at the end of maybe the third quarter in 2019? And so should we think about run rate of OpEx as benefiting from that by 13 million annualized basis starting in 2Q?

I think the comment was really back anchored on the third quarter of last year, Darren, and saying that we pulled out roughly over $3 million a quarter since that point in time. So, the 13 million is really an annual improvement over that Q3 2019 run rate.

Okay and that's starting in the quarter, is that correct?

Yes, it's ongoing from the first and second quarter, yes.

And then, two more, if I may. On your ads business, can you kind of duplicate between the core business and maybe VeriAds? I know in the commentary in the release, you said, weakness around content licensing and AI SaaS. A little bit surprised though you said a rebound in the ads business, so maybe Ryan, if you could just talk about your core business versus VeriAds and then kind of compare and contrast?

Sure, the core agency business was rather resilience although it was softer than we had hoped for Q1. It was rather resilient and primarily because of the just the type and the portfolio of different types of customers that we represent. And specifically, we have a heavy distribution of dollars for direct to consumer type of accounts. If you express VPNs of the world, the GoTo, LogMeIn which actually maintained in some instances actually increase the spend that we were never really historically heavy with consumer packaged goods or retail. So I think that bodes very well for us throughout the quarter. And we did bring on some very recent, larger pharmaceutical buys that started to kick in at the end of Q1 and are continuing through Q2. So again, I would chalk it up mostly to, great, great discipline and execution the team. But going into the year, we had a pretty diversified portfolio and sort of dominant position as relates to client distribution for direct to consumers.

Great and then just last one for me. I noticed two parts of this. On the aiWARE accounts that was up, I think, pretty materially the both a year-on-year and sequentially. So, there's your talk of that. And then Chad, I think you mentioned energy is a vertical may have been the first time you've talked about that for aiWARE. So, I'm just kind of curious if you could a little bit more into that? Thanks.

So, Ryan, you take the first and I’ll take the second.

Sure. GLC, we've obviously been laying in the groundwork and laying the infrastructure for a long time, and I think we're just starting to really see the benefits of that. And obviously, we specifically referenced, a couple of mark opportunities with an extension to our ATO with the DOJ, and really starting to roll out in trains their 94 states U.S. attorney's offices that we're pretty excited about that. Obviously, the with AFWERX, which was a relatively material side deals for us to deploy aiWARE for the Air Force's use within the U.S. Military is again -- been a long time coming, but we're starting to see a lot of those deals start to come in and actually close. So, we are very optimistic about the pipeline for GLC, both from I'll say more legal centric initiatives with the DOJ, but also with DOD and other related opportunities within the government. Chad?

The aiWARE was always developed as an operating system that was independent of any vertical and industry specific. And so, over the past year we have been working heavily with our aiWARE team and our labs organization to explore new markets and new applications both in the safety, security and even the energy market. And as these markets continue to evolve and really, the needs of those markets continued to progress to the standpoint where they actually could take advantage of artificial intelligence in terms of their transformation to be in the technology sectors, I've been really pleased with some of the opportunities that we see in front of us, both in terms, again the energy markets as well as just general safety. And so, stay tuned. I think we've got some big, big things underway that we've worked on for over a year with regards to our core data science and aiWARE team that could have a dramatic impact into new markets for us.

Our next question comes from the line of Chad Bennett of Craig-Hallum. Your line is now open.

Pete, I don’t know if I missed it in the prepared or in the press release. Did you talk about an MRR for aiWARE in the quarter?

We did not. We've refined our KPIs and with the mix of business that we've got, we just found that that wasn't a significant factor for us. So, it's not presented in the KPI table any longer.

I guess, was there -- in the 3.1 million in the quarter, was there any revenue in there that would be more one time in nature?

Yes, the one project, one piece of revenue that Ryan was referring to from AFWERX would be the one item that would be one-timer in the revenue for the quarter jet.

Okay. And can you quantify that?

It was a 300,000.

Okay, got it. And then, just directionally it sounds like, I think it was Ryan talking about the segments and you think aiWARE sequentially will grow again in the June quarter here as far as you can tell today.

We haven't given a broken out the color on the segments. I think that the -- we had comments that the Ryan shared emphasize the improvement that we're seeing in advertising. And the challenges we're facing especially in content licensing. So, those are the two that I'd say overall are kind of on a sequential basis or more directionally one heading up, one heading down for the factors that that Ryan talks about that overall producing relatively flat, revenues Q1 looking at Q2.

Right. Okay. And maybe last one for me. The aiWARE bookings in the quarter were 1.4 million, is there any kind of split you can provide with respect to GLC and M&E in that bookings a dollar amount? Thanks.

Yes, the bookings are still skewed more towards M&E they have been in the past, but what we talked about was the significant ramp up in the number of GLC accounts that we signed. And from our perspective, this is following the playbook that we've seen in the past where we get in, we've got, typically kind of five figure type contracts with customers. Once they get more familiar with the aiWARE and applications that we've built specifically for GLC, we expect to be able to expand that revenue on account-by-account basis, as well as adding new account. So, really excited about the growth we've got in accounts and the adoption and really the reaction to the applications as well as just the overall improvements, we've made in the operating system and looking to continue to build that momentum in Q2 and throughout the year.

And sorry, one last one from me, Pete. I think you've indicated on the call you're comfortable with the capital position right now. Does that imply that you guys won't utilize the APM going forward at least near term?

Yes, what we said is that we do not need -- with the proceeds from the PPP loan, we do not expect to need additional capital in the near term.

[Operator Instructions] The next question comes from the line of Tom Diffely of DA Davidson. Your line is open.

This is Frank on for Tom this afternoon. I want to dig a little bit on the revenue impact you had on the quarter. You talked about cancellations and push out late in a quarter. Do you have any sort of visibility into what percentage of the impact with cancellations versus push outs?

Hi Frank. We'll have Ryan to address that question for you. Ryan.

I'm sorry, you guys cut out for a second. Can you repeat the question?

Yes. So, I'm just trying to understand what the revenue impact in a quarter was between cancellations and push outs, if you have any color on that?

Yes, I think we represented that based on our estimates was around 1.5 million of an impact in the quarter and it started pretty immediately. Although we do believe some of these are singular events and not systemic. So specifically, if you look at March Madness and the Masters versus those who historically have generated several hundred thousand dollars of revenue for us. The Masters is at least as everybody knows rescheduled for this year, so we do expect to recoup, if not an immaterial amount, a majority of those loss revenues for the Masters. The NCAA basketball tournament obviously is not being rescheduled. And so, we look at that as just lost on opportunity there. But again, what I think is important is for the other businesses, they all look relatively resilient and our pipelines look strong and healthy, as we sit here today. With the exception of the licensing business, which is still going to be somewhat predicated upon production, opening back up, and potentially these professional sports leagues going back to work in, and a lot of other there's lots of discussions about opening up NBA and other sports. As we sit here today, nothing has been definitively rescheduled with the exception of the PGA Tour.

And then have you seen any impacts on saving engagements or perhaps the timing of the deals and the GLC vertical as a result of the pandemic?

There has definitely been some softness and in a delay, and I wouldn't say, it's not necessarily directly correlated to the appetite and demand for the products and services specifically redact and identified. Part of it is just the police agencies themselves who are also impacted by COVID-19. And the stay at home orders has just been put out there that deal flow and tiny into, into a little bit of a bump. That being said and you can self having in a recent press release, we did -- we are pretty excited that the City Council for Anaheim Police Department did approve the renewal of our license for identify and that was a unanimous vote with the pretty good sized city operations. So that bodes very well for us for other agencies to point to. So, we do -- we have seen softness, but we don't believe it's going to be overly impactful over the course of the year.

Okay. And then one last one if I may, do you have any updates on the performance of recently introduced podcast tools they put in the market few quarters ago?

The podcast tools, I think you're referring to the tech analytics solutions. The primary beneficiary of those new technologies is actually our own monetization group. So, I think we've started to roll out and have started to leverage the targeting capabilities provided by tech analytics against our own advertising clients, which we're really excited about. And again, just to be clear, that's in lieu I've just tried to target the entire shelf. We now can look into these shows and target very specific topics in different contexts, categories. And so, that's going to be the really big push initially. In addition to ART19 and a few other groups, we're starting to license that technology externally, but I'd say the primary beneficiary of that technology is actually Veritone One in our own monetization group.

[Operator Instructions] And our first question comes from [Yolanda Dee] Private Investor. Please go ahead. Your line is now open.

Thank you. I'm very sorry you had to cancel the shareholder conference meeting. Are you planning on trying to reschedule it this year or next year? What's your thoughts on that?

Yes, we put a lot of effort into -- this is Pete. We put a lot of effort into preparing for the shareholder meeting. So, we definitely like to -- let me correct myself, not the shelter meeting, but the investor meeting. And it was time to coincide with the ROTH Conference when many of the folks would be in town and it would be in and it just made sense from a logistics perspective to host them at our offices because of the proximity between that conference and our office. So, once things got to get back to normal and we kind of back in a more normal operating pattern, we'll reevaluate kind of getting that back on the schedule. But we were excited that the host it and update investors and look forward to doing something most likely later in the year.

Your next question comes from the line of [Chad Latimore] of Northland Capital. Your line is now open.

Hi guys, Mike here. You talked about GLC exceeding a media entertainment. What was the timeline again for there? Or what are you thinking here?

I think the timelines of longer term, might, we see more opportunities long-term in GLC, but today the mix is something like 80-20 M&E versus a GLC. And so GLC will grow faster than M&E just because of the TAM is out there.

Content licensing, what's kind of the rough gross margin on that?

The gross margins in the low 40s, now the tipping is, the overhead is relatively low as well. So, it's a good operating margin business for us, but it is our lowest now -- kind of on a rough high level basis, our lowest gross margin business.

Then just last on podcasting, it sounds like that is going well overall. Is that kind of meeting expectations? Is it the head of expectations? Is a little bit slower as because of COVID stuff, just tell more color that will be great?

Yes. I think the podcast business remains very strong. The demand has kind of always been there and the performance as relates to our clients benefit. But also just during this event, time spent consuming podcasts continues to increase, at a disproportionate rate for obviously people not being in the office and sort of taking advantage of the work from home. So, across the board, engagements are higher the performance of the advertising is still maintaining in the demand for investment within podcast remains high.

There are no further questions in the queue. I'll turn the call back to Mr. Chad Steelberg for closing remarks.

Thank you, operator, and thank you all for joining us on today's call. As I said, I am very proud of the way our entire team has responded to this very challenging situation. I want to personally thank each of them for their tireless efforts in the past two months, and for their unwavering focus on continuing to pursue our vision of building the world's leading AI solutions company. We have huge opportunities in our businesses and our teams are better positioned to capture them than they ever have been before. We look forward to reporting you on our progress. Good bye.

And this concludes today's conference. You may now disconnect.