Good day, and welcome to the Veritone Inc. Second Quarter 2024 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Stefan Norbom, Investor Relations. Please go ahead.

Thank you, and good afternoon. After market close today, Veritone issued a press release announcing results for the second quarter ended June 30, 2024. The press release and other supplemental information are available on the Investors section of Veritone's website. Joining us for today's call are Veritone's Chairman Chief Executive Officer; Ryan Steelberg; and Chief Financial Officer, Mike Zemetra, will provide prepared remarks and then open the call up for a live question-and-answer session. Please note that certain information discussed on the call today, including certain answers to your questions will include forward-looking statements. This includes, without limitation, statements about our business strategy and future financial and operating performance. These forward-looking statements are subject to risks, uncertainties and assumptions that may cause actual results to differ materially from those stated. Certain of these risks and assumptions are discussed in Veritone's SEC fillings including its annual report on Form 10-K. These forward-looking statements are based on assumptions as of today, August 5, 2024, and Veritone undertakes no obligation to revise or update them. During this call, the actual and forecasted financial measures we will be discussing include non-GAAP measures. Reconciliations of these measures to the corresponding GAAP measures are included in the press release we issued today. Also, when we reference pro forma measures, such measures are presented on a combined pro forma basis, treating Broadbeam as owned by Veritone during fiscal year 2022. Finally, I would like to remind everyone that the call today is being recorded and will be made available for replay via link on the Investors section of Veritone's website at www.veritone.com. Now I would like to turn the call over to our Chairman and Chief Executive Officer, Ryan Steelberg.

Thank you, Stefan, and thank you, everyone, for joining us. We are excited to speak with you today and provide an update on our second quarter 2024 operations, financial performance and strategic progress. Mike Zemetra will cover our quarterly performance and financials in more detail, but I wanted to start by providing a broader company update and perspective on our current market environment and opportunity. The demand for AI-based applications, workflows and solutions has never been higher, and Veritone is both a catalyst for this demand as well as a direct beneficiary. Veritone has been developing and delivering production-grade AI applications and solutions at scale for several years now, now serving over 3,000 customers, and we are just getting started. As of this earnings call, Veritone boasts its largest AI software pipeline ever with a material portion of such already contracted and launching in trials in initial phases. This momentum is highlighted by strong demand and activations in the public sector, spendable state and local law enforcement as well as Fed SIV and Fed DoD, which I will detail for you more later. Not to be overlooked in media and entertainment, Veritone also boasted a record pipeline, and I'm excited to announce that Veritone recently secured its largest revenue contract to date, a multiyear technology and services contract with the NCAA. Again, I will speak later to our media and entertainment services in more detail. Veritone's accelerating velocity is not limited or credited solely to our direct selling efforts, but also includes a robust and expanding partnership and reseller network. This is highlighted by our expanded partnership with AWS, which we announced premarket today. Under our new strategic collaboration agreement with AWS, Veritone and AWS will drive AI and cloud innovation across media, entertainment, sports, talent acquisition and the public…

Thank you, Ryan. I'm happy to report we continue to execute on plan through Q2 2024. More importantly, we ended Q2 with our strongest pipeline of SaaS revenue since our inception and on track with costs keeping us on target towards operating cash flow profitability neutrality on a non-GAAP basis as early as Q4 2024. During my prepared remarks, I will discuss our Q2 year-over-year performance and KPIs and Q3 and fiscal 2024 guidance highlighting the scalability of our revenue and business, including the risks heading into the second half of fiscal 2024, focus on near-term profitability and projected full year results. Starting with Q2 2024 performance. Revenue was $31 million, up 10.7% or $3 million from Q2 2023 driven by an increase of $1.5 million from software products and services and $1.5 million for managed services driven largely from year-over-year improvement in advertising. The increase in software products and service revenue was largely driven by Veritone Hire, which improved $1.7 million as compared to Q2 2023, largely driven by the June 2023 acquisition of Broadbean which generated $8.7 million in revenue in Q2 2024, offset by the expected decline in consumption-based revenue from legacy Veritone Hire customers over the same period, including Amazon. By comparison, Amazon represented approximately 14% of consolidated revenue in Q2 2023 as compared to less than 5% in Q2 2024. Excluding the impact of Amazon, Q2 software products and services revenue would have increased over 50% in Q2 2024 versus Q2 2023. As we continue to diversify our customer base throughout fiscal 2024, our partner-driven channel strategy continues to deliver results. In Q2, we delivered strong key performance metrics on a pro forma basis. ARR of $67.9 million, including $49.2 million from subscription versus consumption-based customers, which represents an improvement of over 3% from Q2…

[Operator Instructions] The first question comes from Brent [indiscernible] from Pacific Equity. Please go ahead.

Hey, Ryan, Mike. Thanks for taking my question here. You guys have made some material strides in reducing your GAAP operating loss and non-GAAP net loss. I believe you said 47% improvement, but do you foresee any impact on future growth from these cost cuts and organizational changes?

Thanks, Brent. I think -- we've started to put this strategy and execution plan in the practice now well over 1.5 years ago. And I think part of it has been very methodical about looking at where the future growth drivers of this business are, obviously, we talked a lot about one key area of the public sector what that would require in terms of product and engineering focus as well as go-to-market focus. So the short answer is, I think we've done a fantastic job of finding the right mix and reorganizational structure. So we can continue to hit the numbers, right, despite the very material cost cuts that we've done. But I can honestly state and very excited to state that I think our productivity on a product perspective and engineering perspective is at an all-time high. And the testament is really our ability to not just be bidding on contracts in state and local enforcement areas, but we're landing those contracts and looking to provision these solutions at scale this year. So ultimately, I think the proof of that statement is software is being deployed, we're servicing it effectively, and we're still retaining our customers at a very, very high retention rate.

The next question comes from Andrew Michael [indiscernible] Wealth Management. Please go ahead.

Hi, thanks for taking my questions. Your projections for Q -- for 2024 imply that Q4 non-GAAP profit would be mid-single digits, $3 million to $7 million or somewhere around there and then revenue of $41.9 million for Q4. So this would be a pretty good big improvement over the fourth quarter of last year, I think, $7.7 million. So, should we think about this as an increase as a return to the seasonality that you have in revenue, or is the fourth quarter more of a base for revenue going forward? And that's the kind of improvement we can expect on a regular basis from quarterly revenue for Q1, Q2, Q3 of next year.

I'll cover some of the business. You'll speak to seasonality, but obviously that includes, again, the expected contribution of some say, newer revenues that we've talked about on the call today of contracts with public sector customers. Number two, as Mike talked about on the call is we've definitely seen a revitalization of the managed services, particularly on the advertising side, where we stated a 25% quarter-over-quarter improvement in the second quarter. So we expect with, I'd say, kind of record bookings at this time of the year, coupled with net new customers coming on board, we're very bullish about that as well. And then I'll let Mike speak to the seasonality a little bit.

Yes, there's definitely some seasonality, particularly across the consumption side of our business. On the software side, we typically see seasonal increases or our hiring products, which are consumption based. And then on the managed services side, certainly more driven by our customer mix. So for example, DraftKings is going to be advertising more during football and higher sports market times versus not. So I wouldn't kind of queue that in as a run rate heading into Q1, but it's certainly something you can start proxying in, in terms of growth for next year.

So the growth component of that that would imply 20-some-odd percent, right? So is that what you mean? Or...

We're not giving guidance on 2025, but you can use that as sort of a in your model to some sort of exit rate.

[Operator Instructions] Our next question comes from Stephen Banta with Banta Asset Management. Please go ahead.

Hey guys, thanks for taking the call. It’s good to hear that you’re making progress in divesting the legacy service business. Is there anything more you can share about the transaction and its probability to close? The second question would be, it looks like you're getting some traction in the public service space. And I'm just curious to know what you're thinking about material revenue contribution from area over the next several quarters?

I think we're pretty clear of what we're comfortable stating relative to sort of the timing and progress of the potential divestiture of the non-software-based assets. What I can say is this is something that we've talked a little bit about that we had inbound interest into this asset last year we went pretty far down the transactional path. And the market was a little softer last year. I mean, as we've reported, the advertising unit of Veritone was soft last year for the first time in many years. But as we've stated on this call and sort of the guide and sort of discussion about future managed services growth let's just say the asset is strong, it's growing, we're adding new customers. So I think that this time around with the formal banking process that we started back in Q1. And I'd say the number of qualified interested parties around the table, we are optimistic that we'll get this transaction done. But again, we want to be very disciplined. We know it's an important part of this business on a historical legacy basis, and we expect to see a good result and outcome in 2024. As it relates to the public sector, you can sort of tell by, I think, the comprehensiveness of my prepared remarks and how much detail I went into it is, I think we've arrived as it relates to the public sector as a group. Now the Fed space and the Law Enforcement space and timing is lumpy. But Veritone is becoming an established and trusted partner in state and local enforcement and on the Fed side. And one thing I want to point out is a lot of what we're selling to them is not custom-based solutions. These applications and workflows that we are selling to both state local enforcement and the Fed are all built on aiWARE, our core platform and infrastructure, but the applications and the workflows are very repeatable. So where our velocity to be able to sign new customers and provision new customers quickly, we're very bullish about. And that's a true testament of, frankly, how we built aiWARE and how we sort of honed our skills and expertise because of the complexities and volume of data in the and actually in the media and entertainment business. So we're excited. We're glad we'll be able to discuss certain key accounts like the defense logistics agencies and others. And we're also very proud that we're able to apply our AI expertise and technologies for AI for good and specifically servicing the public sector.

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

I would like to thank everyone today for joining us. As we head into the remainder of 2024, I have a lot of excitement and optimism for what is to come for Veritone. As the adoption of AI continues to accelerate, Veritone remains well positioned to capitalize on this effort -- I mean, on this momentum and break down barriers to our customers may fully realize the true value and opportunity of AI. Our team has obviously worked incredibly hard to secure and advance a record serviceable pipeline led by our public sector but also strong contributions from our media and entertainment and higher divisions. We look to communicate these advancements and successes in the near future. We will continue to drive the business towards profitable growth. That's been a clear focus and pillar of strategy for ours for a while. And also we're aiming to improve both our liquidity and balance sheet, during the second half of 2024, which we've articulated previously. If you kind of look at this as -- and sort of, again, a testament to and a validation of our strategy and execution is our 47% improvement in non-GAAP net loss and growth in our top line, we did a strong validation and I really want to applaud our employees and partners for helping us realize us through this transition. AI is quickly becoming the foundational new element for data-driven businesses and Veritone is definitively at the forefront of advancing these solutions and AI-based solutions to empower people to do even better. And we look forward to providing an update on our progress during our third quarter 2024 earnings call in November. Thank you for your time today.

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