Categories Earnings Call Transcripts, Technology

Veritone, Inc. (VERI) Q4 2020 Earnings Call Transcript

VERI Earnings Call - Final Transcript

Veritone, Inc.  (NASDAQ: VERI) Q4 2020 earnings call dated Mar. 04, 2021

Corporate Participants:

Brian Alger — Senior Vice President of Corporate Development and Investor Relations

Chad E. Steelberg — Chairman and Chief Executive Officer

Ryan S. Steelberg — President

Michael L. Zemetra — Executive Vice President, Chief Financial Officer, and Treasurer

Analysts:

Darren Aftahi — ROTH Capital Partners — Analyst

Brad R. Reback — Stifel — Analyst

Patrick Walravens — JMP Securities — Analyst

Nick Mattiacci — Craig-Hallum Capital Group — Analyst

Presentation:

Operator

Good day, and welcome to the Veritone Fourth Quarter 2020 Financial Results Conference Call. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]

I would now like to turn the conference over to Brian Alger, Senior Vice President of Corporate Development and Investor Relations. Please go ahead.

Brian Alger — Senior Vice President of Corporate Development and Investor Relations

Good afternoon, and welcome to Veritone’s fourth quarter and full-year 2020 conference call. I’m Brian Alger, Senior Vice President of Corporate Development and Investor Relations. After the market closed today, Veritone issued a press release announcing results for the fourth quarter and full year ended December 31, 2020. This press release is available in the Investors section of our website.

Joining me for today’s call are Veritone’s Chairman and CEO, Chad Steelberg; President, Ryan Steelberg; and CFO, Mike Zemetra. Following their remarks, we’ll open up the call for questions.

Please note that certain information discussed on the call today will include forward-looking statements about future events and Veritone’s business strategy and future financial and operating performance, including its expected net revenues, non-GAAP net loss for the first quarter and full year of 2021. Please note that for the first time, we will be providing guidance for the full year in addition to the current quarter. These forward-looking statements are subject to risks, uncertainties and assumptions that may cause the actual results to differ materially from those stated or implied by those statements. Certain of these risks and assumptions are discussed in Veritone’s SEC filings, including its annual report on Form 10-K, which will be filed in the next few days. These forward-looking statements are based on the assumptions as of today, March 4, 2021 and Veritone undertakes no obligation to revise or update them.

During this call, the actual and forecasted financial measures we will be discussing other than revenue will be presented on a non-GAAP basis, unless otherwise noted. Reconciliations of these measures to the corresponding GAAP measures are included in the press release we issued today. These non-GAAP measures include a breakout of our results between core operations and corporate.

Core operations consist of our aiWARE operating platform of software, SaaS and related services, our content licensing and advertising services and their supporting operations, including the direct cost of sales, as well as the operating expenses for our sales, marketing and product development, and to a lesser extent, certain general and administrative costs.

Corporate consists principally of general and administrative functions, such as executive, finance, legal, people and IT and other areas that support the entire Company, including any public company-driven initiatives and supporting functions.

Finally, I would like to remind everyone that this call is being recorded and will be made available for replay via a link on the Investors section of our Company’s website at www.veritone.com.

Now, I’d like to turn the call over to our Chairman and CEO, Chad Steelberg. Chad?

Chad E. Steelberg — Chairman and Chief Executive Officer

Thank you, Brian, and thanks everyone for joining us on today’s call. 2020 was a pivotal year for the planet, with COVID and social unrest shaking the very foundations of society, and yet in the midst of this turmoil, Veritone demonstrated great agility and speed of thought and execution to not only survive, but thrive, delivering for our customers, while keeping true to our core mission of building a safer, more vibrant, transparent and empowered society through artificial intelligence.

I’m proud to report that our efforts are paying off. Fourth quarter 2020 revenues grew 35% year-over-year. And today, we are guiding to 2021 full year revenue growth in excess of 40%, at the high end of our range, driven by our SaaS business growing 60% to 65%.

In 2020, aiWARE came into its own as a full-fledged distributed intelligent operating system, with massive performance, reliability and deployment improvement. As a result, demand for our cognitive solutions from our customers and partners across multiple markets this past year is accelerating. We are very grateful to have so many loyal and successful customers exploring the boundaries of artificial intelligence with us and applying it to their real-world problems. Their results have been profound and have led to repeat and expanding relationships.

Our media customers are using aiWARE to learn what makes their audiences pick and, in turn, help them deliver more engaging programming and advertising solution. Our law enforcement partners are solving [Indecipherable] unsolvable crimes and processing crime scene data and other legal evidence at superhuman scale and speed to help find the needle in the haystack and sometimes even the smoking gun.

AiWARE assists investigators in their pursuit of justice, while also speeding the disclosure of audio and video footage to the public, increasing transparency and trust. Soon aiWARE will be helping the U.S. government and our allies to analyze huge volumes of aerial images faster and more accurately than humans to identify threats to our national security.

Most recently, we focused the power of aiWARE on addressing the enormous reliability and safety challenges facing electric utilities, as they struggle to manage extreme weather, natural disasters and unpredictable green energy sources with aging grid technology that largely still relies on human-in-the-loop decision-making. The widespread power outages in California and Texas in the past year have underscored yet again the need for more robust electrical grid. Our aiWARE Energy solutions address the critical needs for a better forecasting, synchronization and optimization to make power grids more resilient and efficient.

Early customer data from our forecasting engine combined with our optimization technology leads us to believe that our technology will enable our current and future utility partners to realize significant reduction in their spending reserves, protect critical grid infrastructure and reduce costs, while at the same time, improving the quality and reliability of service to their customers. We believe aiWARE is uniquely positioned to solve these distributed challenges in AI energy management market, which is projected to exceed $7.8 billion by 2024.

I’d like to pause for a moment and let the magnitude of these opportunities settle in. I realize that for some. It’s hard to believe that a nascent company like Veritone could be leading the world in this AI revolution. But then, again, we aren’t alone. We stand with giant partners like Microsoft and NVIDIA that are symbiotically collaborating with us, as we leverage the performance and flexibility of our third generation operating system and proprietary Hamiltonian models to usher in a new era of artificial intelligence powered by aiWARE. Our passionate pursuit of this AI-powered future and strong belief in the meaningful role Veritone will play in shaping this trajectory are being driven by many factors, a few of which I will highlight to help align our perspective and expectations with yours.

First, organizations globally are expected to spend more than $100 billion on AI solution annually by 2025, and we think that’s a conservative estimate. We believe the TAM will be even larger, as AI adoption diversifies and accelerates, especially for those companies serving both the commercial and government sectors. We are seeing a behavioral change in the marketplace. Organizations are no longer simply experimenting with AI, but rather are depending on it to deliver improved operational performance.

Second, Veritone offers hundreds of fully orchestrated world-class cognitive models and cutting-edge machine learning technologies, including our patented Cooperative Distributed Inferencing prediction and optimization models. More companies and government agencies are learning about it across more verticals and geographies. Our customers depend on us to deliver the growth, cost savings and efficiencies that come with the adoption of our AI platform and cognitive engines.

Third, Veritone is a run anywhere and everywhere solution. Today, aiWARE operate in both AWS and Azure, including our aiWARE Government FedRAMP certified version. And we are also deployed and processing data on the edge and our customers’ on-premise data centers. We expect our support of NVIDIA CUDA and EGX to further expand our deployment and use cases into the IoT realm. The symbiotic relationship between Veritone’s aiWARE operating system and NVIDIA’s advanced processors follows a proven path for success, and is reminiscent of the Wintel relationship that dominated the computational computer revolution.

Finally, aiWARE is an open standard-driven OS, a model whose success has been proven time and time again. Just think of Windows over Mac, Linux over Solaris or even Android over iOS, the largest and most vibrant ecosystem have always been built on open standards. We see aiWARE unlocking several successive levels of value for customers measured in orders of magnitude on a logarithmic scale. I look forward to discussing this more in our inaugural technology expo in May.

Veritone is quickly maturing as a company and force in AI revolution with our management team and go-to-market efforts finding their rhythm. This stability gives me comfort, and more importantly, a strong platform to continue to innovate and make calculated bet on exciting new opportunities.

With that, I would like to now hand the call over to Ryan, our President and Co-Founder, to discuss our operational achievements in greater detail. Over to you, Ryan.

Ryan S. Steelberg — President

Thank you, Chad, and good afternoon, everyone. As Chad mentioned, we had a very strong fourth quarter and finish to a exceptional year. In every area, we delivered results above the expectations we had set when we spoke with you in November.

Our SaaS revenue grew by 53% year-over-year in Q4 and by more than 30% for the full year. Our GLC and energy markets were the strongest contributors, just as they were in Q3. I also want to call out our exceptional performance of our advertising team. Fueled by the insights and differentiation enabled by aiWARE, this team massively outperformed its peers throughout 2020.

Advertising revenue, including the contribution of our VeriAds Network, grew by over 50% in Q4 compared with Q4 of 2019. During the year in which many ad budgets were slashed, Veritone showed marked increases in spend from many of our clients, including DraftKings, Purple, HelloFresh and others. Throughout the year, as customers continue to recognize the differentiated results we provide through aiWARE, we increased gross billings per active customer.

Entering 2021, Veritone is currently delivering AI solutions to thousands of customers. We are addressing large and complex problems for our federal government, and we are leveraging the same architecture to enhance and augment workflows for hundreds of organizations. Some of these engagements are multi-year and several million dollar contracts and others can be as little as a few hundred dollars a month, truly democratizing AI machine learning and delivering it to a much more expansive market. The flexibility, scalability and performance of the aiWARE operating system enables Veritone, our partners, and third-party developers to rapidly create and deploy cognitively-driven solutions into virtually any industry. [Technical Issues] believe that Veritone’s market opportunity is substantially larger than other providers.

This past quarter, we announced partnerships with NVIDIA and Alteryx. aiWARE is a complementary technology that extends and accelerates AI adoption and efficacy by providing a cognitive OS, unified big data platforms, advanced processing power and end-user applications into a single holistic solution. Our relationship with NVIDIA truly extends aiWARE everywhere. We’ve already realized accelerating processing speeds in the cloud through our integration with NVIDIA’s CUDA GPUs. And with our integration with their IoT platform EGX, we will deliver cognition and real-time dynamic model creation to the edge. We are applying this to our aiWARE energy solutions and believe that it has potential to transform multiple industries.

In the case of Alteryx, we’ve completed our technical integration, and are working directly with the company’s leadership and customers to deliver unprecedented aiWARE capabilities and develop new use cases. aiWARE is now available to Alteryx’s 7,000-plus end customers as a self-service cloud service for a few hundred dollars per user per month. This integration with Alteryx represents a significant milestone for Veritone, and we plan to replicate this integration with other leading data analytics platforms.

Looking at aiWARE SaaS solutions in greater detail. Revenues in Q4 were $4.4 million, up 53% year-over-year and 31% sequentially. We delivered double-digit sequential growth in each of our primary SaaS verticals, accelerating off a strong performance we posted in Q3. Our opportunity supporting the Air Force continue to grow, augmenting our rapidly increasing activity with the Department of Justice. We are partnering with multiple prime contractors. We have recently been awarded contracts under the DOJ’s $1.5 billion MEGA 5 Automated Litigation Support contract to support our aiWARE software and cognitive processing services under those contracts.

Additionally, we have submitted proposal to provide aiWARE Anywhere within various groups in the Department of Defense and the broader intelligence community. We recently completed a successful proof of concept project for a Canadian government entity expanding our federal government efforts beyond our domestic market.

At the state and local level, both our direct and channel partner sales initiatives are gaining traction. Our initial direct sales go to market has been augmented and expanded by our partners into a number of regional state-wide initiatives. While it’s too early to detail, the high renewal rate and expansion of engagements gives us increasing confidence in the sustainable growth potential of our SLED offerings, where we continue to benefit from strong product fit.

In our other markets, which are dominated by our energy offering today, we achieved over 50% sequential growth, and are engaged on a number of projects in this rapidly emerging market. Initial implementation began at the end of the fourth quarter and the first data set started to come back this week. We and our customers look forward to reporting on the very promising results in the near future.

In M&E, incremental revenues from Attribute across our existing customers as well as new account growth in both TV and radio drove our Q4 revenues up more than 12% year-on-year. As Mike will discuss later, we expect further revenue acceleration in our aiWARE SaaS solutions in 2021.

In our aiWARE-enabled advertising services, our record performance for the fourth quarter and full-year 2020 is a testament to both the aiWARE technology that we leverage and to the outstanding efforts of our advertising team, which, once again, executed well above their peer group.

In aggregate, Q4 net revenues in our advertising business grew 11% sequentially and 50% year-over-year. These are tremendous results in any economy, let alone in the midst of a pandemic affected ad market. We continue to gain momentum with our VeriAds Network, which generated over $4 million of revenue in 2020. Based on the strong bookings momentum we have already achieved, we are confident that 2021 will be another strong year for advertising team.

In our content licensing services, where we leverage the power of aiWARE to index, search and reposition premium video and audio content for licensing by advertisers and content creators, we continue to face headwinds associated with the pandemic in addition to the normal seasonal slowness. This drove both sequential and year-on-year declines in content licensing revenue.

Fortunately, we are experiencing a seasonal uptick in Q1 and key sporting events like March Madness and The Masters are back on calendar, even if they will occur with diminished live crowds. But with production activity rebounding, we look forward to content licensing revenue returning to its pre-pandemic levels over the course of 2021.

In summary, we expect strong momentum and organic growth across all of our markets in 2021.

And now, I will hand it over to Mike Zemetra, our CFO to detail the financial results of the fourth quarter and to outline our financial guidance for the first quarter and full-year 2021. Mike?

Michael L. Zemetra — Executive Vice President, Chief Financial Officer, and Treasurer

Thank you, Ryan. We posted record results in KPIs for the fourth quarter and full year of 2020 across the board, exceeding our financial guidance. For the fourth quarter, we reported $16.8 million in revenue and a non-GAAP net loss of $3.9 million. Since this is our year end, I will first highlight our full-year 2020 results and then spend more time discussing our year-over-year performance in Q4 of 2020 compared with Q4 of 2019, as well as providing some comments on our sequential performance versus Q3.

Turning to full year 2020 performance, full year revenue was a record $57.7 million, up 16% year-over-year from $49.6 million in 2019. This growth was driven by improvements in advertising and aiWARE SaaS, offset by a slight declines in content licensing due to cancellation of some live sporting events caused by COVID-19.

In 2020, advertising grew 29% year-over-year, due largely to our VeriAds Networks, which we launched in late 2019 coupled with growth in our agency services. aiWARE SaaS grew 30% year-over-year, as we expanded our footprint in the media and entertainment, GLC and energy markets. The real story is our sequential improvement in revenue throughout 2020 and the acceleration in our year-over-year revenue growth rate over the course of the year from down minus 2% in Q1 to up 8% in Q2, to up 23% in Q3, and up 35% in Q4. Our aiWARE SaaS growth in particular accelerated in the second half of 2020, growing 43% and 53% in Q3 and Q4 respectively compared with the prior period. I will get deeper into revenue drivers later.

Full year gross profit reached $42 million, improving $7.7 million, or 22% in 2019. This too was largely driven by aiWARE SaaS solutions, which I will get into more detail later. Overall, gross margins increased to 72.9% in 2020 compared with 68.7% in 2019.

Full year non-GAAP net loss was $20.6 million, a $15.6 million or 43% improvement over 2019, driven by improvements in core operations and to a lesser extent in corporate. 2020 non-GAAP net loss for core operations was $0.8 million, a $13.7 million or 94% improvement from 2019, driven largely by margin improvement coupled with a full year benefit of cost improvements enacted in the latter part of 2019. I will elaborate more on these improvements later.

Now I would like to discuss our results for Q4 of 2020. Our Q4 revenue of $16.8 million was up 35% from Q4 of 2019. Year-over-year aiWARE SaaS Solutions grew 53% to $4.4 million, compared with $2.9 million in Q4 2019. Driving this improvement was revenue from our new aiWARE Energy market, while we continue to deliver important technology milestones in Q4 along with growth in our GLC and media and entertainment market. While in the early stages of deliverables across the energy market, we remain incredibly bullish on our 2021 pipeline and growth prospects in this multi-billion dollar market, and we expect to announce material development in new bookings as early as Q2 of 2021.

In addition, our aiWARE-enabled advertising services grew by $3.2 million, or 50% year-over-year, driven by both the ramp of our VeriAds Networks and growth in our agency services. Our year-over-year growth was partially offset by slightly lower content licensing revenues due to fewer live sporting events, as a result of COVID-19.

We reported solid KPI results in Q4. Our advertising services improved average gross billings by 24% year-over-year, $632,000 [Phonetic] in Q4, driven primarily by increased revenues in aiWARE-related initiatives across digital and podcasting markets. Our aiWARE SaaS solutions grew total accounts on the platform by 77% year-over-year in Q4. New bookings were down year-over-year due in large part to the timing of our large iHeartMedia agreement in Q4 2019, coupled with significant pending deals with GLC and energy customers shifting to the first half of 2021.

Q4 gross profit reached $12.7 million, improving $3.8 million or 43% from Q4 of 2019. This increase was driven largely by the expansion of our aiWARE SaaS solutions gross margins to 67.2%, an improvement of 63% versus Q4 of 2019. Sequentially, aiWARE SaaS margins improved each quarter, driven largely by the higher revenue level with a blended incremental margin of over 80% on new accounts and dramatically lower unit processing costs from efficiencies realized in our aiWARE operating system. Overall, Q4 gross margins increased to 75.6%, compared with 71.8% in Q4 of 2019. As we continue to scale over the next 12 months to 24 months, we expect to continue to improve aiWARE gross margins.

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This transcript is produced by AlphaStreet, Inc. While we strive to produce the best transcripts, it may contain misspellings and other inaccuracies. This transcript is provided as is without express or implied warranties of any kind. As with all our articles, AlphaStreet, Inc. does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company’s SEC filings. Neither the information nor any opinion expressed in this transcript constitutes a solicitation of the purchase or sale of securities or commodities. Any opinion expressed in the transcript does not necessarily reflect the views of AlphaStreet, Inc.

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