Earnings Labs

Veritone, Inc. (VERI)

Q4 2021 Earnings Call· Thu, Mar 3, 2022

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Transcript

Operator

Operator

Good evening, thank you for attending today’s Veritone Fourth Quarter and Year End 2021 Financial Results Conference Call. My name is Bethany and I will be your moderator for today’s call. [Operator instructions] I would now like to pass the conference over to our host. Please go ahead.

Unidentified Company Representative

Analyst

Good afternoon, and welcome to Veritone’s fourth quarter and full-year 2021 conference call. I am the digital twin of Vin Scully, the legendary voice of the Los Angeles Dodgers from 1963 to 2010. Even though I have retired from calling Dodger games several years ago, my voice and passion for sports and great achievements in human history have made here with you today by Veritone Voice, the most-advanced AI-powered synthetic voice platform in the world. I am excited to introduce Veritone’s fourth quarter and year-end conference call. It’s now my pleasure to the hand the call after Brian Alger, SVP, Investor Relations and Capital Markets, over to you Brian.

Brian Alger

Analyst

Thank you, Mr. Scully. After the market closed today, Veritone issued a press release announcing the results for the fourth quarter ended December 31, 2021. The press release and other supplemental information is available at the investors section of Veritone’s website. Joining us for today’s call are both the live and digital tone versions of Veritone’s Chairman and CEO, Chad Steelberg; President, Ryan Steelberg; and CFO, Mike Zemetra. Who will provide prepared remarks and then open up the call for a live Q&A sessions. We believe having an AI-lead earnings call available on multiple languages is an industry-first. Shortly after completing today’s call, the remarks will be made available in six languages in Veritone’s synthetic voices. 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 income and loss for the first quarter and full year of 2022[ph] respectively. 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, included its annual report on Form 10-K. These forward-looking statements are based on assumptions as of today March 3, 2022, and Veritone undertakes no obligation to revise or update them. During this call, the actual and forecasted financial measures we’ll be discussing other than revenue will be presented on a non-GAAP basis, unless noted otherwise. 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 Veritone’s results between core operations and corporate. Core operations consist of our consolidated Software Products & Services…

Chad Steelberg

Analyst

Thank you, Brian. Good afternoon. [Foreign Language] Before we begin, I want to take a moment to say that Veritone stands with Ukraine in its opposition to Russia and hope that one day, our AI is sufficient to help mitigate and, if necessary, actively resolve conflicts of this nature. As Brian noted, I am Digital Twin Chad. Our customers, including the sports icon, Mr. Vin Scully, are already using our synthetic voice for commercial purposes and we are using it on this call today to give you a quick demonstration of one of our many aiWARE-powered applications. We suspect synthetic voice earnings calls will become the standard of the future. Without further ado, I'll review our pivotal quarter and year-end performance, which, without question, validates our AI operating system vision, our focused application strategy and our team's exceptional performance. Veritone delivered fourth quarter 2021 revenue of $55 million and bottom line non-GAAP net income of $17 million, resulting in several firsts for the company. Q4 was our first profitable quarter, 2021 was our first profitable year and our first year of positive cash flow, our focus on profitability, operating efficiency and our customer success have paid-off. These results are the culmination of years of hard work and determination and a continuation of a trend that we started nearly two-years ago as Q4 is our seventh consecutive quarter of record revenue, while 2021 was a great year financially, with revenue growth of 100% and operating leverage improving, the future looks even brighter as the network effect of our land and expand strategy and nearly perfect customer retention metrics lay the foundation for continued growth and profitability. We are guiding for full year 2022 revenue to be more than 60% higher than 2021 with positive EBITDA. More than two decades ago, Marc…

Ryan Steelberg

Analyst

Thank you, Chad. And good afternoon [Foreign language]. We closed 2021 with yet another record performance. The outstanding results reflect our first full quarter after acquiring PandoLogic. Our integration is on track and cross-selling efforts are already beginning to bear fruit, starting with commercial enterprise. On the whole, Q4 2021 commercial enterprise revenues increased 248% over the prior year period. Within commercial, our managed services grew 20% year-over-year, and our software and services revenue grew by nearly 1,200%. PandoLogic's contribution was obviously significant. The business with Amazon, our largest customer, remains quite robust. However, customer growth for PandoLogic was over 100% in the quarter. Perhaps more importantly, our commercial business, excluding PandoLogic, grew 61% year-over-year in the December quarter, an outstanding quarter by every measure. Veritone is going from strength to strength. Our bookings, retention and new market offerings are delivering strong compounding growth. Our bookings hit a record high, eclipsing $8 million, and our organic bookings were up more than 130% versus the year ago quarter. As we enter 2022, we are excited to have renewed and/or expanded virtually every single one of our commercial enterprise contracts. As Mike will detail shortly, our retention metrics remain in the top tier. In February, we exemplified our land and expand strategy when our long-standing client, iHeartMedia the largest audio and podcast company, announced it is licensing Veritone's synthetic voice technology for its podcast network. The implications are wide-reaching as Veritone is already the leader in podcast advertising, and we are rapidly building a deep list of synthetic content prospects to follow iHeartMedia's lead. When both large and small commercial businesses seek to leverage synthetic content, they are rapidly turning to Veritone. In November, we unveiled how Veritone's synthetic voice and conversational AI can help companies prequalify applicants. This is just another…

Mike Zemetra

Analyst

Thank you, Ryan. First, I want to thank our international investors and analysts around the world in China, [Foreign Language], Latin America, [Foreign Language] in Germany, [Foreign Language]. Turning to Q4, I'm excited to report we are performing at the highest levels with our seventh consecutive record quarter, our first quarter and year reporting positive non-GAAP results and ending 2021 with cash in excess of $250 million. More importantly, we have executed on everything we outlined to you at the beginning of 2021, including generating over 50% year-over-year organic revenue growth from our software products and services and closing and integrating on our largest acquisition to-date, PandoLogic, which contributed $38 million of revenue with over 50% operating margin and generated pro forma revenue growth over 50% year-over-year and ending the year and quarter profitable for the first time. Heading into 2022, with over 60% consolidated revenue growth, a rock solid balance sheet and profitability we now have the business momentum and financial leverage to accelerate our growth story even further. During my prepared remarks, I will discuss our 2021 and Q4 year-over-year performance and KPIs on an non-GAAP and pro forma basis as if we own PandoLogic since the beginning of 2020, our November 2021, $200 million convertible debt financing and working capital and Q1 and full year 2022 guidance. Starting with full-year 2021 performance, 2021 revenue reached a record $115.3 million, up 100% year-over-year. Software products and services revenue increased 329% to a record $59.5 million, driven by the $38.0 million PandoLogic contribution and a 53% year-over-year increase in organic software products and services. Managed services grew $11.9 million, or 27%, well above industry averages. On a pro forma basis, 2021 revenue increased 41% to $148.1 million, driven primarily by software products and services. PandoLogic increased $23.8 million or…

Operator

Operator

Certainly. [Operator Instructions] The first question comes from the line of from the line of Darren Aftahi with ROTH Capital Partners. Please go ahead.

Darren Aftahi

Analyst

Hey guys. Good afternoon. Thanks so much – questions and congrats on the nice work. A couple, if I may. Mike, did I hear you right you gave a GAAP growth number for 2022 for software and services if that's correct, I'm just kind of curious what the underlay is on a pro forma basis? And then within that pro forma growth number how contributory are things like government basically GRI and MARVEL.ai? And then lastly, I know you talked about the incremental investment, but in terms of acquisition, I mean, what are you guys going to do with that sort of net $200 million unencumbered cash in 2022? Are we going to see more acquisitions? Thank you.

Mike Zemetra

Analyst

All right. There was a lot of questions. So maybe I'll start with the pro forma growth. So we don't really break out in terms of guidance what the pro forma growth is going to be. But you can go back and look at we grew over 50% pro forma year-over-year in 2021 versus 2020. Now my expectation is it's not going to be that good because we do have concentration with Amazon. Amazon had a great year this year, and they just are significant in terms of hiring and PandoLogic. And – but you can expect consistent with what we said all along or 40%-plus target. As far as what's going to comprise that growth, I mean, we're certainly going to see growth in commercial enterprise. PandoLogic is going to grow nicely. The synthetic stuff we talked about today is going to contribute to growth. But more importantly, I think you will see growth in GRI, particularly in government and on the energy side. So it will be a healthy mix of both. And then as far as capital, I mean, we've got a healthy balance sheet. None of our guidance includes acquisitions. We feel like we're in a good spot to be aggressive, but to be responsible. And so as I mentioned before, use of proceeds on that is probably going to be for operating purposes and then for future acquisitions, but nothing specific today.

Darren Aftahi

Analyst

Thank you.

Operator

Operator

Thank you, Mr. Aftahi. The next question comes from the line of Patrick Walravens with JMP Securities. Please go ahead.

Patrick Walravens

Analyst · JMP Securities. Please go ahead.

Oh, great. Thank you. Actually, Chad, I have to give credit to this question to my wife who is walking through the kitchen and I go, this is a Chad's digital twin talking. She's like, what's that. And I explained what it was and she goes. [ph] How do they do that? And I think that's right. I think that's a great question. How do you do that? So let's start that, and then I'll ask something more traditional?

Chad Steelberg

Analyst · JMP Securities. Please go ahead.

Yes, that’s absolutely. So as you could tell, there was some discrepancy in terms of the quality of the audio. If you know Ryan's voice, my voice and Mike's voice, from my perspective, you could really tell that Ryan kind of was probably the best voice out there in terms of mimicking his voice most, right? Ryan, you agree?

Patrick Walravens

Analyst · JMP Securities. Please go ahead.

Yes.

Chad Steelberg

Analyst · JMP Securities. Please go ahead.

You noted that I sound a little bit robotic, I sounded like I was kind of like Roboto guy and then Vince Cole with epic, and it really, really comes down to and we're just literally chatting about this while the prepared remarks being read that the way it works is you provide a small sample of training data set. And the better your training data set, the better the model performs. It's all host on aiWARE, we basically – we take the audio in. We run it through a training model, and we generate a voice profile that basically represents the individual. We then can just feed text straight into the system and specify which voice we want to have prepared the remarks. So that's how we did this. You can also do voice to voice where I could you speaking live, Pat, but have the output of your speaking could be translated into an individual. So really, really powerful stuff. Now the reason why I didn't sound necessarily as good as I've been busy and I didn't have the time to spend on the training data. So I came out a little bit [indiscernible], but you can really see where this goes. And I think it really also amplifies how important access to AI is for everybody because if you don't have access to the AI and the ability to get the training data built up, you really are going to not have the same level of capabilities in communicating and access. So it's interesting.

Patrick Walravens

Analyst · JMP Securities. Please go ahead.

Yes. And can you just use – so for example, lots of recordings have been talking. Can you just use all those recordings, or do you actually have to spend time on it live?

Chad Steelberg

Analyst · JMP Securities. Please go ahead.

You can actually use – go ahead, Ryan.

Ryan Steelberg

Analyst · JMP Securities. Please go ahead.

Yes. Well, I mean, again, one of the luxury that we have of working with so many media entertainment customers, as you know, we're sitting on tens of millions of hours of content. And obviously, our ability to ingest that in aiWARE separate that content out, right, speaker separation, et cetera. We are also in a very unique situation to do this at scale. So our ability to isolate the voices in effect, programmatically creating training data, right, which is a very unique opportunity for us. But yes, we can repurpose a lot of historical footage. Obviously, the better quality and think of it as just quality of training data, we get quality of model relative to number of hours of training data. So if I could have – if we could isolate super high quality and our worth of training data at a very high fidelity bit rate performance, we may need 1/10 amount of training data. But to be clear, we're not talking about the difference of Ryan, my voice spending 100 hours of training data, we're talking on the difference of only a few hours between Chat and Ryan. So this is something that we're obviously very excited about. We put out a press release about iHeartMedia, the largest audio company in the world using this technology. And you've got a little bit of a snippet in our speeches about the different languages. So we're really excited about several of the major use cases that we're taking this to market with.

Patrick Walravens

Analyst · JMP Securities. Please go ahead.

Awesome. Okay. Now my more traditional question. So look, how would you guys characterize the demand environment that you're selling into now? And in particular, we're – hopefully, it's going to stay this way, but we're exiting the pandemic, right? So is there a big sort of during the pandemic versus post-pandemic difference in buying behavior?

Chad Steelberg

Analyst · JMP Securities. Please go ahead.

Ryan, why don't you take that?

Ryan Steelberg

Analyst · JMP Securities. Please go ahead.

Sure. I don't – I mean, our products, I don't think any of them have been directly correlated to the pandemic at all. The macro trends of people having choice to work remotely these days is obviously here to stay. But if you kind of look at all of our different business lines, I would say more than anything, maybe the COVID pandemic maybe was a catalyst for some of these things. But again, as we see the demand for our products and services with state and local law enforcement, Fed, energy and our traditional commercial products, we don't see any sort of dissipation at all on demand. And in certain areas, we actually see acceleration. So again, Pando was – I mean, I'm sorry, the COVID and pandemic was definitely a catalyst for some elements. But I think our business is very diverse, and it's very strong.

Patrick Walravens

Analyst · JMP Securities. Please go ahead.

Okay, great. Thank you.

Operator

Operator

Thank you, Mr. Walravens. Our next question comes from the line of Koji Ikeda with Bank of America. Please go ahead.

Koji Ikeda

Analyst · Bank of America. Please go ahead.

Hi, hey Chad, Ryan and Mike. Thanks for taking the questions. So a couple of questions for me. First one, kind of going back to the government opportunity here. So kind of finished the year, it looks like around $4 million of revenue. But a couple of big announcements over the past few weeks with the law enforcement contract and especially that DoD contract. So how should we be thinking about maybe the adoption or the revenue opportunity between both of those and then more specifically on DoD? How long of an opportunity is this? I mean it's a pretty big contract. I do understand there's a bunch of different other companies that are also within that contract. Is this a one-year opportunity, two-year opportunity or maybe even longer like a 10-year opportunity?

Mike Zemetra

Analyst · Bank of America. Please go ahead.

I'll take it off, Chad. Go for it, Ryan.

Ryan Steelberg

Analyst · Bank of America. Please go ahead.

Yes. So the opportunity with the Department of Defense, specifically the JAIC division, the joint AI center, these are efforts that started years ago. And that's just the price you pay to get into the space and tackle. What you see for us being able to successfully bid and be awarded as part of these blank purchase agreements, OTA agreements and others, it is a huge milestone. I can't – we can't really understand that. And yes, there is still a multitude of different customers under this PPA. But we're also, as you can imagine, heavily involved in a multitude of different awards and opportunities, not just within the JAIC, but across many different areas of the federal government. So this is one of many. It will be a multiyear opportunity. We do expect specific task orders to come down here shortly for this PPA. But to be very clear, we are an approved vendor now, right? And that's a big thing. Obviously, the investments we made in FedRAMP and all of our security protocols, our provisioning with partners like Deloitte and others are starting to pay dividends, and we see this really as the tip of the iceberg.

Koji Ikeda

Analyst · Bank of America. Please go ahead.

Got it. Got it. Okay. Thanks for that Ryan. And then maybe a question for Mike. Synthetic, Mike was rattling off a lot of PandoLogic numbers, I just wanted to make sure I got it right. What was the full year contribution from a pro forma basis of PandoLogic? And I guess, first housekeeping question?

Mike Zemetra

Analyst · Bank of America. Please go ahead.

Yes. $38 million of revenue with slightly over 50% contribution mark for not pro forma, but for our GAAP year yes, for Q4 and Q3.

Koji Ikeda

Analyst · Bank of America. Please go ahead.

Okay. So you think kind of the – so from a pro forma basis, $79 [ph] million. Is that right? And just thinking about that...

Mike Zemetra

Analyst · Bank of America. Please go ahead.

Closer to $70 million, on a pro forma basis.

Koji Ikeda

Analyst · Bank of America. Please go ahead.

Okay. $70 million, still well above the $50 million. So how do we think about the growth with PandoLogic, contribution of PandoLogic within the 2022? Thanks for taking my question guys.

Mike Zemetra

Analyst · Bank of America. Please go ahead.

Sure. Yes, this is the gift that keeps on giving. Very healthy double-digit growth, I mean 30% plus year-over-year. And what's happening with PandoLogic, Ryan alluded to it, is sort of post-pandemic, the world's changed, and we call it the great opportunity where not just the employer has challenges in hiring, but the employee now has complete flexibility because we're all mobile. And with – that requires technology to find that right person and for that person to find the right employer. And we are projecting very healthy triple-digit growth in non-Amazon-related customers. So we're very happy with PandoLogic and its projections.

Koji Ikeda

Analyst · Bank of America. Please go ahead.

Got it. Thanks, Mike. Thanks for taking my question guys.

Mike Zemetra

Analyst · Bank of America. Please go ahead.

Yes.

Operator

Operator

Thank you, Ikeda. The next question comes from the line of Chad Bennett with Craig-Hallum. Please go ahead.

Chad Bennett

Analyst · Craig-Hallum. Please go ahead.

Great. Thanks for taking my questions. Again, one for Mike probably. So again, I don't recall because it was rapid fire a little bit on the prepared remarks. So on the $8.2 million in bookings for the quarter, did you say how much was Pando related and non-Pando in your prepared?

Mike Zemetra

Analyst · Craig-Hallum. Please go ahead.

No, we don't break that down. But the majority is organic.

Chad Bennett

Analyst · Craig-Hallum. Please go ahead.

Majority organic, okay. And then of that $8.2 million in bookings, is – and then maybe also going forward more for the organic software business, how much of that business, either bookings or revenue, is recurring at this point or truly SaaS?

Mike Zemetra

Analyst · Craig-Hallum. Please go ahead.

Yes. So a healthy – we've disclosed before, PandoLogic's revenue is more event-driven, which creates the seasonality.

Chad Bennett

Analyst · Craig-Hallum. Please go ahead.

I'm speaking more non-Pando, I guess, I'm more focused on.

Mike Zemetra

Analyst · Craig-Hallum. Please go ahead.

Yes. I mean as far as exact percentage, I mean, I'd say the majority is actually SaaS. I mean on the M&A side, it's recurring type revenue. On the GRI side, it is at least for the past 12 months, it has been recurring for the most part. But we will see some enterprise here shortly, where it will be sort of proof of concept with revenues maybe coming on deliverables and then more fully bled out SaaS recurring post delivery. But the majority certainly on the commercial side, outside of Canada is recurring.

Chad Bennett

Analyst · Craig-Hallum. Please go ahead.

Got it. And then maybe one last one real quick for me. Just on with what you indicated in terms of Pando growth this year, which looks pretty impressive off a great year. So we're going to be potentially north of $90 million in that business, if I'm kind of doing the math right. In terms of how we think about contribution margin, EBITDA – is that – I mean, I know it's all in one, but that business still kind of potentially turns out 50% type EBITDA margins at – above that $90 million run rate? Or should we think differently on that?

Mike Zemetra

Analyst · Craig-Hallum. Please go ahead.

Yes. I mean, yes, plus or minus a few percentage points, but that's the best way to think about it.

Chad Bennett

Analyst · Craig-Hallum. Please go ahead.

Okay, thanks so much.

Operator

Operator

Thank you, Mr. Bennett. Our next question comes from the line of Mike Latimore with Northland Capital Markets. Please go ahead.

Mike Latimore

Analyst · Northland Capital Markets. Please go ahead.

Great. Thank you again. I love the presentation. That was fun. In terms of the PandoLogic, Veritone kind of cross-sell opportunities, I know it's still early days, but – maybe can you talk a little bit about what you're seeing, what kind of use cases are emerging here?

Ryan Steelberg

Analyst · Northland Capital Markets. Please go ahead.

Mike, I'll take that.

Chad Steelberg

Analyst · Northland Capital Markets. Please go ahead.

Ryan, why don't you take that?

Ryan Steelberg

Analyst · Northland Capital Markets. Please go ahead.

We see almost every single one of our customers, mutual customers, applicable for both Pando services and frankly, the balance of AI-related services. We have already closed deals cross-selling. I think the integration we really don't even look at them internally candidly, between like organic and inorganic. We really are becoming a very single integrated company. And they're definitely benefiting, not just from our enhanced technology capabilities and we're not going into detail today, but we've already made some great milestones as it relates to aiWARE integration with PandoLogic. But also our ability to – which is kind of unique is they really historically have tapped into talent acquisition budgets. Obviously, Veritone has a very strong branding and advertising side of our business as well. And you're seeing those two elements come more congruous together, where obviously the branding and corporate side of advertising and brand building is now getting a lot more involved in talent acquisition, obviously, hiring is a major issue for a lot of companies. So we're really excited, and we think there's just a ton of synergy that we expected, but we're already seeing the realization of that.

Mike Latimore

Analyst · Northland Capital Markets. Please go ahead.

Great. And then on PandoLogic, what kind of innovations or technology advancements are you thinking about this year for Pando itself?

Ryan Steelberg

Analyst · Northland Capital Markets. Please go ahead.

I think the big one is just the continued advancement of PandoIQ, I mean making again trying to streamline all of the programmatic nature of the opportunity. As we go from large, I'll say, more dominantly national accounts like Amazon and others, we're seeing very strong demand for, I'd say, more regional local opportunities where there's just a ton of, let's say, hiring demand and turnover issues. So trying to make it as efficient when we look at local and regional-based hiring is something that is a core focus of ours. Also the integration, which we touched on in the previous call and sort of talked a little bit as we've gone through the acquisition is the conversational AI and Wade & Wendy integration, which we'll be talking about in some of the product updates here over the next several weeks. But trying to really automate that so you really have a continuity from an end-to-end perspective as the candidate enters the door in the system all the way through the onboarding process, where we're really excited about the growth and opportunities for leveraging AI and our conversational AI framework to automate that.

Operator

Operator

There are no additional questions waiting at this time. I would now like to pass the conference back to Chad for any closing remarks.

Chad Steelberg

Analyst

SP1 Thank you, operator, and thank you all for joining us on today's call. I'm very pleased with Veritone's performance this past quarter and past year, but I'm even more excited about what lies ahead. We appreciate your time today and the opportunity to share the exciting progress we are making towards our mission of making the world better through artificial intelligence. Until next time, goodbye.

Mike Latimore

Analyst

All right. Great. Thanks a lot.

Chad Steelberg

Analyst

Thank you.

Operator

Operator

Thank you, Mr. Latimore. There are no additional questions waiting at this time. I would now like to pass the conference back to Chad Spielberg for any closing remarks.

Chad Steelberg

Analyst

Thank you, operator, and thank you all for joining us on today's call. I'm very pleased with Veritone’s performance this past quarter and past year. But I’m even more excited about what lies ahead. We appreciate your time today and the opportunity to share the exciting progress we are making towards our mission of making the world better through artificial intelligence, until next time, goodbye.

Operator

Operator

That concludes the Veritone fourth quarter and year-end 2021 financial results conference call. I hope you all enjoy the rest of your day. You may now disconnect your lines.