Veritone Inc . (NASDAQ: NASDAQ:VERI) has reported its financial results for the second quarter of 2024, demonstrating strong demand for its AI-based applications and a significant improvement in its financial metrics. The company announced a notable multiyear contract with the NCAA and expanded its partnership with AWS.
Veritone's restructuring efforts led to a 47% improvement in non-GAAP net loss, and it expects to see the full benefits in the latter half of 2024. The company is also in the process of divesting a non-software asset to strengthen its balance sheet. Revenue growth was over 10% year-over-year, and the company is on track to achieve non-GAAP operating cash flow neutrality by Q4 2024.
Key Takeaways
- Veritone's second-quarter earnings show a revenue increase of over 10% compared to the previous year.
- The company secured its largest revenue contract to date with the NCAA and expanded its AWS partnership.
- Significant enhancements were made to aiWARE, Veritone's proprietary AI platform.
- Veritone One and AI-assisted content licensing businesses have seen substantial growth.
- Restructuring efforts are expected to yield full benefits in the second half of 2024, with a 47% improvement in non-GAAP net loss.
- The company is working on divesting one of its non-software-based assets.
- Financial guidance for Q3 includes projected revenue of $34 million to $35 million and a non-GAAP net loss of $2.5 million to $4 million.
- Full-year revenue is expected to be between $136 million to $142 million, with non-GAAP net loss projected between $13 million and $16 million.
- Veritone anticipates substantial progress towards profitability in the second half of 2024, with potential cash flow positivity by Q4.
Company Outlook
- Veritone aims for operating cash flow profitability neutrality by Q4 2024.
- The company maintains its full-year 2024 revenue guidance of $136 million to $142 million.
- Anticipates a non-GAAP net loss between $13 million and $16 million for fiscal 2024.
- Expects to be cash flow positive on a non-GAAP basis as early as Q4 2024, with further profitability in fiscal 2025 assuming modest revenue growth.
Bearish Highlights
- The balance sheet reflects a decrease in cash from $80.3 million to $47 million due to cash outflows from operations and investments.
- Non-GAAP net loss for Q2 2024 was $6.9 million, although this represents a 47% improvement from the same period last year.
Bullish Highlights
- Veritone's core market verticals, including Veritone Hire, media and entertainment, and the public sector, are experiencing growth.
- The public sector business, including iDEMS, is thriving with a large and growing market potential.
- AI-assisted content licensing business and Veritone One advertising agency saw significant revenue growth.
Misses
- Despite improvements, the company still reported a non-GAAP net loss in Q2 2024.
Q&A Highlights
- Discussions included cost cuts, organizational changes, and progress in the public sector.
- The potential divestiture of non-software-based assets was addressed, along with optimism for future growth and profitability.
Veritone's commitment to AI innovation and public sector service positions the company as a growing competitor in the digital evidence management market, which is estimated to surpass $50 billion by 2030. With its largest revenue contract secured and a strong partnership with AWS, Veritone is set to capitalize on the increasing adoption of AI solutions. The company's progress towards profitability and cash flow positivity signals a positive outlook for the latter half of 2024 and beyond. Veritone will provide further updates on its progress during the third quarter earnings call in November.
InvestingPro Insights
Veritone Inc. (NASDAQ: VERI) has shown resilience with its latest financial results, underscoring the strength of its AI-based applications. An InvestingPro Tip highlights the company's impressive gross profit margin, which stood at 77.9% for the last twelve months as of Q1 2024. This is indicative of the company's ability to maintain cost-effective operations despite the competitive landscape.
InvestingPro Data also reveals a significant return over the last week, with a 10.7% price total return, reflecting investor optimism in the short term. This may be aligned with the company's recent announcements and restructuring efforts. However, it's worth noting that the stock price has experienced considerable volatility, with a 25.48% drop over the last three months. This volatility is something investors should keep in mind, as it could indicate a higher risk profile for the stock.
Another InvestingPro Tip points out that Veritone is quickly burning through cash, which is corroborated by the recent decrease in cash from $80.3 million to $47 million. This cash burn rate, coupled with the fact that analysts do not anticipate the company will be profitable this year, emphasizes the importance of the company's move towards achieving non-GAAP operating cash flow neutrality by Q4 2024.
For investors seeking a deeper dive into Veritone's performance and potential, InvestingPro offers additional tips, with a total of 12 tips available that provide insights into the company's valuation, profitability, and financial health.
Visit InvestingPro for additional insights and real-time metrics on Veritone Inc.: https://www.investing.com/pro/VERI
Full transcript - Veritone Inc (VERI) Q2 2024:
Stefan Norbom - IR:
Ryan Steelberg - Chairman and CEO:
Mike Zemetra - CFO:
Operator: 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.
Stefan Norbom: 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.
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 sectors. We also continue to make great strides in the restructuring and strategic initiatives we announced earlier this year. And we made further material progress optimizing our operating structure, resulting in a non-GAAP net loss improvement of 47% in the quarter year-over-year. While realizing these fiscal improvements, we continue to sharpening and accelerating our product and go-to-market focus while concurrently achieving significant milestones in delivering the latest AI-powered solutions to our enterprise customers. While we continue to optimize our cost structure with incremental OpEx saving opportunities, we are strategically shifting our focus to organic growth and servicing our accelerating business pipeline. We've completed our announced restructuring efforts in Q2, and we expect to realize the full benefits of these efforts in the second half of 2024. Additionally, as we have reported on previous calls, we remain on a near-term pathway to improve our balance sheet and liquidity position. In Q1, we launched a formal banking process to divest one of our non-software-based assets. We currently have multiple qualified bidders and hope to close this transaction in the second half of 2024. If consummated, this transaction will generate significant cash proceeds that will be used to repay a portion of our term debt and fund future operations. While there can be no assurance that a transaction from this process will ultimately be completed, this is an active strategic objective for our company. One of the core drivers of the increase in demand and robust pipeline that we are seeing is due to the strength of our software. Over the past several quarters, Veritone has made significant enhancements to our proprietary AI platform, aiWARE. With aiWARE, businesses can swiftly develop and deploy production-grade AI-driven solutions using ready-to-use models, workflows and data adapters. Leveraging our 10 years of experience building and deploying AI solutions at scale, Veritone is able to support enterprise customers to quickly operationalize AI solutions designed to solve large-scale real-world business challenges. aiWARE supports a wide array of AI models, including offerings from major cloud providers, best-of-breed point solutions, proprietary Veritone models and, of course, the latest large language models on the market. This extensive catalog of plug-and-play AI models enable seamless and interchangeable AI processing, an increasingly valuable feature as model development advances at unprecedented speeds. Recent enhancements to the aiWARE platform includes significant advancements in search, analytics and data ingestion. Our sophisticated search capabilities now incorporate cutting-edge, vector databases and embedded technologies, enabling natural language and semantic search. In analytics, we provide robust insights across cognition, monetization, and processing via self-service dashboards and offer custom analytics for clients needing specific reporting on their ontology and identifiers. Additionally, we've significantly upgraded our enterprise-grade data ingestion capabilities, ensuring that they are more reliable, observable and scalable, essential features across our business units. These advancements enable Veritone to drive transformative results and foster innovation within our business units and AI Solutions Group. All of these enhancements in aggregate have led to positive customer feedback and a meaningful increase in demand as evidenced by our largest AI software pipeline to date. When we launched aiWARE several years ago, it was a groundbreaking way to improve the workflows of enterprise customers. As I mentioned in previous discussions, we are still in the early stages of AI adoption and have only begun to explore its full potential for large-scale deployment. Today, the global race for AI is about more than just applications, their features and accuracy. It's also about how well these technologies can work in complex and distributed environments. As AI continues to change how organizations operate businesses must move away from traditional software models. Leaders now need to rethink and redesign their large workflows and data systems to adapt to the fast-changing AI landscape. Despite challenges like uncertain ROI, isolated data sets, data privacy issues and accessibility concerns, our aiWARE platform and comprehensive aiWARE product suite stand out. Our platform is flexible and can work with various models and deployment methods. Additionally, our advancements in large language models and Retrieval Augmented Generation make us a strong partner for hardware providers and cloud service clients in the AI ecosystem across our three main market areas. Now let me turn to providing some further details on quarterly progress across our core market verticals. First, Veritone Hire. Veritone Hire maintains its strong performance in the second quarter, underpinned by a strategic go-to-market strategy, efficiency gains resulting from the reorganization of its product and engineering teams and focus on securing multiyear subscription deals. I'm excited to report that we have completed the integration of Broadbean this quarter. All employee back office and system integration work has been completed, including the migration of the legacy Broadbean platforms, CRM and financial systems this quarter moving us one step closer to providing one seamless recruiter experience that enhances operational efficiency, automation and data-driven hiring decisions for employers. We've successfully unified the branding under Veritone Hire incorporating the best of the Broadbeam and Pandalogic brands, and our team is hard at work on the next-generation Veritone Hire platform and application suite. Notably, from a synergy perspective, we signed significant new enterprise programmatic advertising and job distribution of software deals in the quarter, including global brands such as Savita, Whole Foods, Best Buy (NYSE:BBY) and Harrods. We also completed the beta launch of our programmatic advertising solution and programmatic publisher network in Australia, and we're thrilled to become the first programmatic solutions provider with a presence there. Our performance in programmatic campaigns continues to deliver leading KPIs in the market, executing an average 40% plus improvement versus client target cost per acquisition this quarter. Despite industry headwinds, Veritone Hire remains well positioned to capitalize on the upward trend of programmatic spend in recruitment, driving market expansion as companies seek to maximize returns from their recruiting efforts. We look forward to keeping up this momentum with additional wins and pilot conversions in the second half of 2024. Shifting focus to media and entertainment. Across AI software and intelligence services within media and entertainment, we completed landmark partnerships and agreements with notable brands and generated significant customer renewals in the second quarter. Headlining Veritone's media and entertainment vertical. I am pleased to announce that Veritone has been named the NCAA's global archive of Record and exclusive licensing partner. This multiyear agreement represents Veritone's largest contract to date and extends our synergistic and dynamic partnership with the NCAA for years to come. The agreement will leverage Veritone's advanced AI-powered Digital Media Hub platform to enhance the storage management and distribution of NCAA's extensive championship media assets. Veritone will also provide name image and likeness clearances services for current and former student athletes on behalf of the NCAA. In addition to the NCAA win, we executed over 23 new deals in the second, among highlights, we secured multiple deals with prominent Australian media and sports organizations, including a Tennis Australia multiyear partnership. Tennis Australia, which owns and produces the Australian Open, now secures three of the four tennis grand slam tournaments as Veritone customers. Veritone has also recently secured a major new Australian broadcaster customer, resulting in Veritone now servicing three of the top four major Australian media companies. Other notable renewals and deal expansions include agreements with include agreements with NBCUniversal, CNBC, Bloomberg, CNN, Big Ten Network and AMI networks underscoring our commitment to client satisfaction and the stickiness of our solutions. Veritone's AI-assisted content licensing business continues to thrive and demonstrate significant partner growth, supported by a diverse base of content customers and buyers. Alongside securing these licensing arrangements, Veritone played a pivotal role in facilitating near real-time packaged and distributed content for companies such as Pack 12, Core TV, State Farm, Disney, ESPN, Nike (NYSE:NKE), Rolex, and HBO. Our advertising agency, Veritone One, delivered strong performance in Q2 with revenues increasing substantially year-over-year at over 25%. We also saw significant growth from key customers such as Mint Mobile, LinkedIn, Draft Kings and Quint. By expanding our customers' media investments and adding prominent new customers, including market-leading Chewy (NYSE:CHWY), we've capitalized on the revitalized advertising market. Streaming and YouTube media placements led the way, with revenues surging 55% and 29%, respectively, driving improved margins. This momentum is expected to continue, fueled by a robust pipeline of new advertisers in various stages of contracting and discussions, positioning us for continued success in the quarters to come. Finally, I would like to comment on Veritone's public sector business both in terms of strategy and progress. We are very bullish about our public sector growth prospects. To provide some context around this, we came to market in state and local law enforcement with our initial AI solutions in 2019 and despite the impact of COVID, today, we service several hundred state and local enforcement agencies and are growing quickly. On the federal side, despite coming to market just recently in 2020, we already are contracting with Fed SIV and Fed DoD agencies. This is great progress relative to the timing of government contracting and procurement, especially for a new AI software player in the space. This progress is a direct result of our market-leading AI products and solutions built on aiWARE. Our go-to-market strategy is clear, applicable and extensible across state and local law enforcement and judicial agencies, Fed SIV, Fed DoD and international government. We can move and provision customers quickly. In Q1 of this year, we introduced Veritone Intelligent Digital Evidence Management System, or iDEMS, and the reception so far has greatly exceeded our expectations. Our iDEMS application suite powered by aiWARE positions Veritone as a strong competitor in a fast-growing digital evidence management market allowing Veritone to become a leading system of record and set of intelligence tools for aggregating, analyzing, correlating and sharing all investigation-related materials and disparate data sets. iDEMS uses AI to speed up and more accurately assess the evidence, including robust and comprehensive video and audio analytics. According to future data stats, the addressable market for Veritone's public sector business is large and growing quickly, pacing to surpass $50 billion by 2030. Reports estimate that the global digital evidence management market size alone is poised to exceed $12 billion by 2028. We are in a great position. Expanding on the successes achieved in previous quarters, we have made significant strides in developing and deploying AI solutions that meet the evolving needs of our public sector and government customers. Our suite of solutions continue to gain significant traction in the global public sector market with new customer acquisitions and increased pipeline activity now totaling more than $100 million. This traction includes the addition of 17 new public sector customers to the portfolio this quarter. We've deepened our distribution channels and market reach to more rapidly seize opportunities through strategic technical partnerships, the addition of new resellers and platform listings such as our AWS advanced tier services partner status and the public listing of our iDEMS applications on the AWS marketplace. Together with AWS, we're uniquely positioned to support public sector customers, such as law enforcement agencies, to overcome adoption challenges while also harnessing the transformative potential of AI and cloud computing through accelerating streamlined cloud-native enterprise AI and generative AI solutions at scale. This is simply one example of our dedication to unlocking AI at scale and enabling our customers to achieve not only sustain success, but a competitive advantage in their respective industries as well. Relating to the second quarter, I want to share some operational highlights to give further context to our progress. In Q2, we completed the second phase of AI-based video redaction service for one of the largest police agencies in the country with a total contract value of greater than $500,000. And just recently, we were able to enter the third phase of this agreement. In addition, two Department of Justice components used the $15 million blank purchase agreement, as previously announced, to procure Veritone services. Also, our ongoing pilot with the Bureau of Prisons is making significant headway and we officially received security approval to move this project forward. Confirming our vision to expand our offerings globally, we also signed a landmark paid trial with a European country's national policing agency for both our Tracker and Illuminate offerings, which are part of the iDEMS suite. On the U.S. front, just this week, we were awarded a contract with a major DoD agency, the Defense Logistics Agency, for our Veritone's iDEMS applications for electronic storage of information, discovery, and disclosure for forensic video. This is a one-year contract with four annual renewals. If realized and serviced to term, this will represent one of our largest contracts to date with a DoD agency. The quality of our pipeline has never been stronger, and we have a promising number of opportunities that are in the latest stages of the funnel, including an expanded U.S. Senate contract. In addition to realizing great traction and growth in our Fed business, state and local law enforcement agencies are increasingly turning to our AI-powered tools to streamline their audio and video processing. By automating these time-consuming manual tasks, hundreds of agencies are now significantly reducing operational cost optimizing the resource allocation and expediting the fulfillment of Freedom of Information Act requests or FOIA. This allows law enforcement to focus on their core missions of protecting and serving their communities. Our realized achievements in 2024 demonstrate our dedication to serving as a trusted partner in the public sector and the immense opportunity ahead to broaden our footprint across countries, cities, agencies and municipalities globally. Finally, as it relates to our public sector and government business, I am thrilled to have Gus Hunt, the former long-standing CTO of the Central Intelligence Agency, joined Veritone as a strategic adviser. Security and AI insights domain expertise and passion for Veritone's AI for food mission will generate great yields for Veritone, our shareholders and our customers. We have made significant strides in building a strong foundation throughout the first half of 2024. Our team's dedication has been instrumental in driving this progress. We remain committed to financial discipline and implementing operational improvements to optimize Veritone's operating model for long-term success. I am confident that our enhanced strategic focus will enable us to better serve our customers and strengthen our leadership position in delivering cutting-edge AI solutions to our customers and partners at scale. Now I would like to hand the call off to Mike Zemetra, our CFO, who will go through our financial results and guidance in more detail. Mike?
Mike Zemetra: 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 (NASDAQ:AMZN). 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 2023, and over 72% of our total ARR. While our subscription-based ARR grew year-over-year, our overall ARR decline given the trailing 12-month pullback in consumption-based spending, principally from customers, including Amazon. We expect consumption-based ARR to continue to decline year-over-year in the second half of 2024 as we exit Amazon dependencies over the trailing 12-month period. Total new bookings were $14 million, up 67% year-over-year, driven by increases in subscription-based customer bookings. As I will discuss later, we are seeing a large uplift in our sales pipeline, in particular with public sector and we expect bookings over the next few quarters to improve substantially year-over-year as a result. Gross revenue retention continued to be above the 90th percentile, and software products and services customers of 3,437, which were up quarter-over-quarter, but slightly down year-over-year, principally due to reductions in legacy CareerBuilder accounts, transition off our higher platform post the acquisition of Broadbean and from smaller ACV accounts across Veritone Hire as we prioritize renewals with larger ACV customers in Q2 2024. The overall decline had a minimal impact as overall ARR from subscription-based customers improved year-over-year that was slightly up from Q1 2024. As we discussed in our prior call, we are seeing a rebound in advertising beginning in Q2 2024. Specifically, Q2 managed services advertising gross billings per active client were $727,000, improving 26% from Q2 2023. Given our performance, bookings through today and expected macroeconomic improvements in the second half of 2024 we anticipate advertising to continue improving throughout the second half of 2024 as compared to 2023. Q2 loss from operations of $17.7 million improved $10.5 million or 36.8% from Q2 2023 loss from operations of $28.2 million. The year-over-year improvement was driven in part by an improvement in non-GAAP gross profit, a decline in acquisition-related expenses year-over-year driven by the Q2 2023 Broadbeam acquisition, year-over-year reductions in operating expenses from legacy cost restructuring efforts over the trailing 18 months and the timing of the Broadbeam acquisition which included a full quarter of Broadbeam results in Q2 2024 as opposed to a partial month in June of 2023. Q2 2024 non-GAAP gross profit reached $24.6 million, improving $4.4 million or 22% from Q2 2023, largely due to the increase in revenue. Overall, non-GAAP gross margin in Q2 2024 of 78.8% improved by 660 basis points versus Q2 2023 of 72.2%, largely driven by the outperformance and mix of our revenue. We expect consolidated non-GAAP gross margins to approximate 78% to 80% through the remainder of fiscal 2024. Q2 non-GAAP net loss was $6.9 million, an improvement of $6.1 million or 47% as compared to non-GAAP net loss of $13.0 million in Q2 2023. This was driven largely by the improvements in non-GAAP gross profit, coupled with the reductions in our cost structure over the trailing 12 months, which included significant cost reductions through fiscal 2023 through Q1 2024. On the strategic time as we transition our focus out of cost reductions in Q1 2024, we are now well positioned to return back towards growth. As a reminder, we executed over $37 million of annualized cost savings since the beginning of 2023. During Q1 2020, we completed over $13 million of annualized cost reductions, which is included in our full year and Q3 2024 financial guidance. On top of this phase of reorganization, we expect future synergies both cost and revenue to materialize in the latter part of fiscal 2024, largely from integration of past acquisitions across our software products and services lines. The Q1 restructuring included organizational realignments within sales, engineering and corporate, the result of which was a reduction of approximately 14% of our global workforce. On the growth front, our software products and services revenue pipeline and long-term outlook are at all-time highs. More specifically, we see strong demand across the global digital evidence management market, which represents an approximate $10 billion market opportunity. In the public sector alone, we are currently in contract phases on several large projects with various facets of the U.S. federal government and international customers with a sales pipeline of over $100 million. Additionally, we recently renewed our license agreement with the NCAA, a multiyear deal with up to $40 million in expected revenue over the term and against heavy competition. Turning to our balance sheet. At June 30, 2024, we held cash and restricted cash of $47 million compared to $80.3 million at December 31, 2023. The net $33.3 million decrease reflects net cash outflows from operations of $26.8 million, driven principally by the timing of payments in managed services in Q2 of 2024. Our non-GAAP net loss net interest payments of approximately $4.1 million, principally from our debt and approximately $1.5 million of onetime transition and severance expenses associated with our Q1 2024 restructuring. Note that in Q2, we accelerated the timing of payments to our customers across our advertising platform, partly driven by a shift from traditional media to increased influencer-based campaigns where expectations on media settlements are much shorter versus traditional media. In addition, there was net cash outflows from investing activities of $3.4 million, driven by capital expenditures, $2.8 million of deferred purchase consideration from fiscal 2023 acquisitions and principal debt payments of $1.9 million on our December 2023 term loan offset by $1.8 million in cash from the sale of our energy investment. Total interest paid on our debt was $4.7 million in the first half of Q2 2024, which was offset by interest income earned from cash on hand of approximately $0.6 million. At June 30, 2024, we had consolidated debt of $166.5 million principal of which $75.5 million is term debt and the remaining $91 million is convertible debt due November 2026. Beginning in June 2024, we began amortizing our term debt principal balance at the rate of 2.5% per quarter. As we have mentioned on previous calls, we remain on a near-term pathway to improve our balance sheet and liquidity position. We are currently engaged with outside bankers and have launched a formal process to sell 1 of our non-software assets. We currently have multiple qualified bidders and hope to close this transaction in the second half of 2024. If consummated, this transaction is expected to generate significant cash proceeds, which will be used to repay a portion of our term debt and to fund future operations. There can be no assurance that any transaction resulting from this process will ultimately be completed but this is an active strategic objective for our company. Of the total $47 million in cash, approximately $39.3 million of our reported cash is essentially held for payment to third parties for our managed services, down from $45.3 million at December 31, 2023. In June 2024, we refreshed our $300 million shelf filing, which expired in the same month. We ended June 30, 2024, with $38 million outstanding and approximately $2.5 million five-year warrants outstanding under our debt facility at $2.57strike price. During the first half of 2024, we net settled 499,857 warrant shares in exchange for 298,110 shares of common stock. Looking ahead to Q3 2024, I want to point out certain onetime cash items. Cash payments of $2 million associated with the amortization of our term debt. Cash interest payments is up to $5.2 million associated with our term and convertible debt and cash payments of $1.2 million associated with our January 2024 amended consulting agreement with our former CEO. Turning to financial guidance for Q3 and fiscal 2024. As a backdrop to fiscal 2024, we continue to approach our planning with a very conservative approach on revenue, particularly on any consumption-based revenue and with heightened discipline around costs as we march towards profitability. As previously mentioned, in Q1 2024, we executed over $13 million of annualized cost savings, which is included in our guidance but have intentionally omitted from our 2024 guidance any future cost and revenue synergies expected in the second half of 2024 until they are realized. Given uncertainty and timing of closing some larger deals in the public sector, we are maintaining the top end of our revenue range to reflect a more conservative outlook in the second half of 2024, and our guidance assumes we continue to grow advertising in the second half of 2024 at a similar pace to year-over-year growth in Q2 2024. With that backdrop, we are guiding Q3 revenue to be between $34 million and $35 million, which is relatively flat year-over-year at the midpoint. Driving this will be growth from public sector and for our managed services, including advertising, offset by a decline in consumption and onetime revenues. Our managed services is expected to continue accelerating with more significant growth coming in the second half of 2024 as we begin to exit a more challenging 2023 macro environment and continue to grow our bookings with new and existing customers. We continue to see strong bookings across our advertising services with Q3 pacing in excess of 15% year-over-year. Offsetting these growth drivers will be legacy Veritone Hire applications. More specifically, Q3 2024 assumes Amazon will be less than 5% of our consolidated revenue as compared to 8% of our consolidated revenue in Q3 2023. Risks and upside to our Q3 revenue guidance include execution on new enterprise deliverables, namely across our public sector, which can be unpredictable, and, to a lesser extent, from consumption-based revenue across our Hire and managed services, and Q3 quarterly non-GAAP net loss to be between $2.5 million and $4 million an improvement of 59% at the midpoint versus Q3 2023. Driving this improvement in the bottom line are legacy cost reductions, which we will begin fully realizing in Q1 2024. For full year 2024, we are maintaining our revenue range to be between $136 million and $142 million, representing a year-over-year increase of 9% at the midpoint and relatively flat versus pro forma 2024. As a reminder, and given the current economic outlook, we continue to forecast our revenue conservatively in 2024, driving the second half of 2024 our public sector remains on pace to grow as much as 40% to 50% year-over-year. However, and as previously discussed, this growth is dependent on closing some of the larger near-term deals over the next three to five months. Moreover, we remain in late agreement stages with various federal agencies on large multimillion-dollar enterprise-level arrangements, which if executed in 2024 could accelerate this growth projection even further. We expect our managed services, including our advertising, to continue to improve in the second half by over 15% year-over-year, led by advertising and licensing. Offsetting this is a year-over-year decline in consumption-based revenue and certain one-time software sales in 2023, not recurring in 2024. Amazon is projected to considerably represent less than 5% of our consolidated revenue at the midpoint as compared to 11% in 2024. Risk to our annual revenue guidance include the macro economy and the results of continued inflation, tighter labor markets and higher interest rate on our customers, which we expect to continue at least through the latter part of Q3 2024. Execution on new enterprise deliverables namely across our public sector and continued customer growth and retention metrics from our software products and services. As a result, we now expect full year non-GAAP net loss to be between $13 million and $16 million, with substantial progress towards profitability beginning in the second half of 2024. At the midpoint, this represents over $20 million and a 61% improvement when compared to fiscal 2023 non-GAAP net loss. Assuming we reach the higher end of our guidance, we expect we will be cash flow positive on a non-GAAP basis as early as Q4 2024. Further, and assuming modest revenue growth in fiscal 2025, we should be cash flow positive on a non-GAAP basis in fiscal 2025. Lastly, we will be presenting at the 26th Annual Investment Conference, September 9 to the 11th in New York City. That concludes my prepared remarks. Operator, we would like to now open the call for questions.
Operator: [Operator Instructions] The first question comes from Brent [indiscernible] from Pacific Equity. Please go ahead.
Unidentified Analyst: 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?
Ryan Steelberg: 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.
Operator: The next question comes from Andrew Michael [indiscernible] Wealth Management. Please go ahead.
Unidentified Analyst: 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.
Ryan Steelberg: 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.
Mike Zemetra: 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 (NASDAQ:DKNG) 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.
Unidentified Analyst: So the growth component of that that would imply 20-some-odd percent, right? So is that what you mean? Or...
Mike Zemetra: 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: [Operator Instructions] Our next question comes from Stephen Banta with Banta Asset Management. Please go ahead.
Stephen Banta: 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?
Ryan Steelberg: 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.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Ryan Steelberg for any closing remarks.
Ryan Steelberg: 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.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.