Good day and welcome to the Veritone Fourth Quarter 2020 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Brian Alger, Senior Vice President of Corporate Development and Investor Relations. Please go ahead.

Good afternoon and welcome to Veritone's fourth quarter and full year 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 results for the fourth quarter and full year ended December 31, 2020. This 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, Mike Zemetra. 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 first quarter and full year of 2021. Please note that for the first time, we will be providing guidance for the full year in addition to the current quarter. 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, which will be filed in the next few days. These forward-looking statements are based on assumptions, as of today March 4, 2021 and Veritone undertakes no obligation to revise or update them. During this call, the actual and forecasted financial measures will be discussing other than revenue will be presented on a non-GAAP basis unless otherwise noted. Reconciliations of these measures to the corresponding GAAP measures are included in the press release we issued today. These non-GAAP measures include a breakout of our results between core operations and corporate. Core operations consist of our aiWARE operating platform of software, SaaS and related services, our content licensing and advertising services and their supporting operations, including the direct costs of sales, as well as the operating expenses for our sales, marketing and product development, and to a lesser extent, certain general and administrative costs. Corporate consists principally of general and administrative functions, such as executive finance, legal, people, and IT and other areas that support the entire company, including any public company driven initiatives and supporting functions. Finally, I would like to remind everyone that this call is being recorded and will be made available for replay via a link on the 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. And thanks everyone for joining us on today's call. 2020 was a pivotal year for the planet, with COVID and social unrest, shaking the very foundations of society. And yet, in the midst of this turmoil, Veritone demonstrated great agility and speed of thought and execution to not only survive, but thrive, delivering for our customers while keeping true to our core mission of building a safer, more vibrant, transparent, and empowered society through artificial intelligence. I'm proud to report that our efforts are paying off. Fourth quarter 2020 revenues grew 35% year-over-year, and today, we are guiding to 2021 full year revenue growth in excess of 40% at the high end of our range, driven by our SaaS business growing 60% to 65%. In 2020, aiWARE came into its own as a full-fledged distributed intelligent operating system with massive performance, reliability, and deployment improvements. As a result, demand for our cognitive solutions from our customers and partners across multiple markets this past year is accelerating. We are very grateful to have so many loyal and successful customers exploring the boundaries of artificial intelligence with us and applying it to their real-world problems. Their results have been profound, and have led to repeat and expanding relationships. Our immediate customers are using aiWARE to learn what makes their audiences tick, and in turn help them deliver more engaging programming and advertising solutions. Our law enforcement partners are solving Tier-24 [ph] unsolvable crimes and processing crime scene data and other legal evidence at superhuman scale and speed to help find the needle in the haystack and sometimes even the smoking gun. aiWARE assists investigators in their pursuit of justice, while also speeding the disclosure of audio and video footage to the public, increasing transparency and trust. Soon aiWARE will…

Thank you, Chad and good afternoon everyone. As Chad mentioned, we had a very strong fourth quarter and finish to our exceptional year. In every area we delivered results above the expectations we had set when we spoke with you in November. Our SaaS revenue grew by 53% year-over-year in Q4, and by more than 30% for the full year. Our GLC and energy markets were the strongest contributors just as they were in Q3. I also want to call out our exceptional performance of our advertising team, fueled by the insights and differentiation enabled by aiWARE, this team massively outperformed its peers throughout 2020. Advertising revenue, including the contribution of our VeriAds network grew by over 50% in Q4, compared with Q4 of 2019. During the year in which many ad budgets were slashed Veritone showed marked increases in spend from many of our clients, including DraftKings, Purple, HelloFresh and others. Throughout the year as customers continue to recognize the differentiated results, we provide to aiWARE we increased gross billings per active customer. Entering 2021, Veritone is currently delivering AI solutions to 1000s of customers. We are addressing large and complex problems for our federal government, and we are leveraging the same architecture to enhance and augment workflows for hundreds of organizations. Some of these engagements are multiyear and several million dollar contracts and others can be as little as a few hundred dollars a month, truly democratizing AI and machine learning and delivering it to a much more expansive market. The flexibility, scalability and performance of the aiWARE operating system enables Veritone, our partners and third-party developers to rapidly create and deploy cognitively driven solutions into virtually any industry. And so we believe that Veritone's market opportunity is substantially larger than other providers. This past quarter, we announced…

Thank you, Ryan. We posted record results in KPI's for the fourth quarter and full year of 2020 across the board exceeding our financial guidance. For the fourth quarter, we reported 16.8 million in revenue and in a non-GAAP net loss of 3.9 million. Since this is our year end, I will first highlight our full year 2020 results and then spend more time discussing our year-over-year performance in Q4 of 2020, compared with Q4 2019 as well as providing some comments on our sequential performance versus Q3. Turning to full year 2020 performance, full year revenue was a record 57.7 million up 16% year-over-year from 49.6 million in 2019. This growth was driven by improvements in advertising and aiWARE SaaS offset by slight declines in content licensing due to cancellation of some live sporting events caused by COVID-19. In 2020, advertising grew 29% year-over-year, due largely to our VeriAds networks, which we launched in late 2019 coupled with growth in our agency services. aiWARE SaaS grew 30% year-over-year as we expanded our footprint in the media and entertainment, GLC and energy markets. The real story is our sequential improvement in revenue throughout 2020 and the acceleration in our year-over-year revenue growth rate over the course of the year, from down minus 2% in Q1 to up 8% in Q2 to up 23% in Q3 and up 35% in Q4. Our aiWARE SaaS growth in particular accelerated in the second half of 2020, growing 43% and 53% in Q3 and Q4 respectively, compared with the prior periods, I will get deeper into revenue drivers later. Full year gross profit reached 42 million improving 7.7 million or 22% from 2019. This too was largely driven by aiWARE SaaS solutions which I will get into more detail later. Overall gross margins increased…

Thanks Mike. Reflecting on 2020, I'm extremely proud of the Veritone family and our continued strong performance. While the path to recovery from COVID-19 and all its economic and social fallout continues to evolve, we remain focused on our core mission to harness the power of AI to help build a safer, more vibrant, transparent and empowered society. Last quarter's results as well as our strong 2021 guidance and long-term outlook demonstrate that aiWARE is delivering on this mission. Our expansion into the clean energy sector is a prime example of the universal applicability of aiWARE and the types of large and mission aligned bets that Veritone will continue to make. We at Veritone see amazing opportunities for our technology to transform the world. And we firmly believe that our aiWARE operating system is fundamental to this endeavor. With that, we would like to begin the Q&A session operator.

We will now begin the question-and-answer session. [Operator Instructions] And the first question comes from Darren Aftahi with Roth Capital Partners. Please go ahead.

Hi, guys, thanks for taking my questions. I hope you're well. Nice job on the quarter and nice to see the acceleration on the top line in 2021. Just three questions, if I may, I think if my math is correct, your aiWARE SaaS revenue is somewhere in the 22.5 million for 2021. First question is around the visibility with that. Second question on energy, where are you guys seeing the most traction with grid operators, equipment providers, battery companies, renewables and maybe just talking about the general sales cycle with each of those. And then last one, any color you can give on Automate Studio? What verticals, you're seeing adoption there and guys is that going to be a needle mover in 2021? Thanks.

Yeah, thanks. Appreciate the questions. First of all, why don't I tee it up to Mike to address that one, then I'll pick up the second one and the third. Mike?

Yes. Yeah. Sure. Thanks Chad. Hi, Darren. Yeah, in terms of visibility I mentioned it earlier on the call I think the reason why we're providing an annual outlook is we are highly confident in that visibility and pipeline in particular with SaaS. So the visibility is there, the confidence is good. And we're also - the net retention that we're seeing, even in our advertising business is pretty phenomenal and very strong in terms of pipeline. So hope that answers your question.

Yeah, I mean, let me - I'll add on to that, Mike. As we sit here today, the book of business and pacing of existing customers, and our M&E, SAS and advertising businesses already exceed, and to be clear on this already exceeds our revenues from those groups in all of 2020. And to that - add to that the visibility we have won substantial contracts in the GLC and energy sectors. We are extremely confident on our guidance because of the book of business we know we already have, which goes well beyond the classic definitions of bookings and even TCB. So moving to the second question, I think it was related to energy and sort of the go-to-market cycle there. Remember, we just launched our energy business in Q3 of last year. And as it ramps it of course, is going to be a little bit lumpy. Q4 energy revenues however, were up roughly 50% from Q3. And as I said, in my prepared remarks, right, we began getting data back from our lead utility customers this past month. And the early results are extremely impressive. So stay tuned on what that means for the rollout here. But our go-to-market cycle is really penetrating primarily utility and IPP, independent power providers in the market today that already have existing operations, and customers. This is where our technology makes the biggest difference and impacts end customers. And you've seen as I mentioned it again, in prepared remarks what's happened in California and Texas. And I think that's not unique. I mean, what we're seeing in Florida and other markets, they're having just a really difficult time with their green energy deployments, causing just massive catastrophes at the hardware level, as well as their ability to deliver quality power on…

Thanks for the color.

Sure.

The next question comes from Brad Reback with Stifel. Please go ahead.

Hi, great, thanks very much. A couple of quick ones for me, the sequential growth in the SaaS business, nothing short of astounding, very strong, how should we think about the shape of that curve over the course of '21? Were there any one-time items that drove 4Q a little higher and maybe there's a low on 1Q versus the new base level?

Mike, why don't you take that one?

Yeah, I can take that one. I mean, in terms of next quarter, I think you're going to see similar themes with sequential growth really coming from GLC and energy. And then as we start, as I mentioned, in Q2 we're looking to announce very promising activities around the energy sector. So there may be some onetime things in there like deliverables that would be enterprise level for example. And then it will sort of normal its way down. But our projections here on a quarter-over-quarter basis will follow our plan to follow a similar pattern with what you saw in 2020 as far as sequential growth after those four, five months.

Great, and then - got it and then sort of one housekeeping note, what's the right share count that we should be using for the quarter and for the full year?

As far as the quarter it's about 31.8 million shares.

And the year?

And I would use 31.8 million right now for the year as well.

Okay, great. Thanks very much, guys.

Thanks Brad.

The next question comes from Patrick Walravens with JMP Securities. Please go ahead.

Great. Thank you. And let me add my congratulations on all the acceleration. If I can ask a big picture one for Chad and then Mike, the follow up for you. So Chad, can you help investors understand the distinction between Veritone's strategy in AI and some of the other public companies like C3 and Palantir and Snowflake?

Yeah. Hi, Pat, how are you today?

Great.

Yeah, happy to answer the question. First, I think we can all agree that AI represents one of the greatest technological breakthroughs in the history of mankind. And as such, there's an enormous market opportunity to enterprise - for enterprise artificial intelligence to augment and disrupt industries. It's forecast, as I mentioned in my prepared remarks to exceed over $100 billion annually with just a few years. And we think that's a conservative estimate, but to answer your question more specifically, using that data as a backdrop. AI companies are going to deliver on this opportunity through a number of different approaches. Some are delivering point solution software. Others, as you just mentioned, like C3 and Palantir are more consulting and services driven. Well, yet again, others are building out the hardware and compute infrastructure required to support this growth. Our approach is unique to this, leveraging our proprietary aiWARE operating system to deliver a universal platform for enterprise AI software that runs everywhere. The diversity of our customers and the applications running on the aiWARE and the growth that we are experiencing reinforce our confidence in our strategic approach. Furthermore, as I discussed on the call, we're patterning our business and technology strategies on a historically successful playbook that's been pioneered by some of the largest technology companies in existence. And some of whom not by happenstance as you know, also happened to be some of our strategic partners. So we think we are very uniquely positioned in the AI marketplace, but at the same time extremely complimentary to assist other companies in the space like Alteryx and others to start to fill some of the gaps in their product roadmap and really build a symbiotic relationship with companies like Nvidia to drive further adoption and accelerate AI's important in the market.

All right, that's super, thank you. And then Mike, in your script, you had something that - you don't hear very often that kind of caught my attention. So I was just wondering if you can elaborate on, there is something about material developments and new booking as early as Q2?

Yeah, so I've sort of alluded to it earlier. This will be in the energy market. So a lot of the stuff that we've been working on we're going to be looking forward to announcing some great stuff in the second quarter.

Okay. And then maybe one word just quickly, I mean, when you look at what happened in Texas, is that something that AI could help with?

It's interesting, when you really peel back the covers of what happened there. Yes, we could have forecasted it. Yes, our modeling and control software would have given operators, I think, a much better picture and tried to control it. But at the end of the day, what happened in Texas, was so severe, that they ended up having some of their infrastructure, their wind turbine completely froze, they had major infrastructure on their coal fired plants basically failing and even I think, for 48 hours, they even had a nuclear energy power plant go offline. So the confluence of these factors, regardless of controlling energy was so catastrophic, that I don't think we would have been able to mitigate much of it. But at the end of the day, as the infrastructure and independent power providers begin to flourish on the market, and you start seeing more interconnects, like the AIR Card exchange, but even on broader distribution, long haul lines, our technology would have absolutely mitigated because we would have been able to pull in additional power from areas not being hit by that storm, on a dynamic real time basis, to mitigate a lot of the impact that they had. So with the current infrastructure, probably difficult, but with what's planned in the future, and what we're seeing in the roadmap for a lot of these utilities, our technology would have been vastly critical to mitigating that.

Okay, great. Thank you.

Thanks.

The next question comes from Mike Latimore with Northland Capital Markets. Please go ahead.

Hi, guys. This is Anchal Sahu [ph] on for Mike. Congrats on a great quarter. Could you just give me an update on what type of revenue are you seeing in energy vertical, like is it licensed or recurring? And is the energy probably is more heavily weighted to new logos or upsells?

I'll take that Mike. So I'll take the second half. So it's both upsells and upgrades to existing customers as we expand the deployment across more additional green energy infrastructure, which includes both solar as well as battery infrastructure. But at the same time we've got a very robust pipeline of other independent power providers and utility companies that will consist of obviously new logos that we'll be adding to our roster in 2021. And the first question you asked again, was?

Yeah, it's what type of revenue are you seeing in energy vertical, yeah?

Yeah. So it'll be a variety. I think early on, you're going see agreements that will be enterprise type, but have some flavor of SaaS in terms of maintenance and support. And then you'll see also pure SaaS deliverables. So it'll be a mixture of both.

Okay, all right. And how's the visibility into the legal project pipeline, like any catalysts this year for accelerating growth?

Yeah, Mike, why don't you take that one as well? I know you of course do it.

Yeah, so I mean, listen, we're having good experience on the legal side. That's an area that can tend to be a little bit bumpy because it is highly dependent upon usage. However in terms of the Fed utilizing some of our products in the legal side, we have great visibility on that. So the pipeline looks robust and we feel pretty confident it's going to continue to grow.

And the last one, how important will Microsoft be as a channel this year?

Yeah, I can answer that one, Mike. Microsoft, I think is going to continue to be a strong go-to-market partner for us both in terms of the sales motion, but also a technology partner as we've expanded aiWARE to run natively on Azure. And that's just garnering further and further steam as more and more customers are piling into that cloud environment. So as that symbiotic relationship continues to foster, I think Microsoft will be leaning into the relationship even more. So stay tuned.

Thank you.

[Operator Instructions] The next question comes from Nick Mattiacci with Craig-Hallum. Please go ahead.

Hi, this is Nick Mattiacci on for Chad Bennett. You guys mentioned you're partnering with a couple multiple primary contractors for Air Force contracts. Could you just expand on what you're seeing there? And if that's an extension of the Air Force contracts you guys won last year?

Yeah, Ryan why don't you take that one?

Yeah. So I think right now, as we discussed in our earnings call, we have teaming agreements with multiple, actually almost up to a dozen of major Tier-1 prime contractors, ranging from BAE Systems to others. So our strategy is to both continue to reinforce and work through direct and executed teaming agreements with these large prime contractors. But what you'll see over the next few quarters is Veritone's more aggressive approach, and pushing to be more - and bidding on more as a prime contractor. Some of these use cases and opportunities we feel that we in effect also could be ultimately sole source. A good analogy of that would be our IDIQ with the Department of Justice, where we are the sole source prime contractor in that initiative. So again, we're going to be following a very traditional and successful playbook by being both a prime and a sub.

Got it and then I guess on a DOJ deal, I think last we heard in Q2 is that it was just beginning to ramp with revenues expected in Q3. Could use give us an idea of how much revenue was recognized in the second half of the year for that DOJ deal?

Well, we won't break that out individually. What we can tell you is, as we - our first ATO, Authorization to Operate with the Department of Justice was limited to their State Attorney's offices. And what you'll see over the next few quarters is a material expansion of that relationship, and compliance to support the breath of the DOJ. We are confident that we'll be able to talk more about that in Q2. But we do continue to believe that the DOJ will be one of our largest, if not our largest Fed customer for 2021 and beyond.

Okay and then just one last one for me is as for the energy vertical could you just characterize in any way expected the aiWARE revenue for 2021, just the mix between upfront perpetual revenue and recurring revenue?

Yeah, I think Mike addressed that on the prior question, but Mike, why don't you reiterate.

Yeah, I mean, it's a mix. I mean, we do have in parts of our business. We're dependent upon usage and are other parts of our business it's recurring. And there'll be some enterprise type stuff, particularly in the second quarter. That will be a little bit more one time. So it'll be a mixture.

Congrats on the court. Thanks.

Thank you.

This concludes our question-and-answer session. I would now like to turn the conference back over to Chad Steelberg for any closing remarks.

Thank you, operator and thank you all for joining us on today's call. As I said, I am so proud of the way our entire team has performed to achieve these record results. I want to personally thank each of them for their tireless efforts, 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 all areas of our business, and our teams are better positioned to capture them than they have been ever before. We look forward to reporting to you on our progress in the future. Goodbye. Have a good day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.