Good afternoon. Welcome to Veritone's Third Quarter 2018 Earnings Conference Call. After the market closed today, Veritone issued a press release announcing its results for the third quarter ended September 30, 2018. The press release is available in the Investor Relations section of Veritone's website. Joining us for today's call are Veritone's Chairman and CEO, Chad Steelberg; and the company's Chief Financial Officer, Pete Collins. Following their remarks, we will 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 operating performance for the fourth quarter of 2018. 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. These forward-looking statements are based on assumptions as of today, November 12, 2018, and Veritone undertakes no obligation to revise or update them. In addition to the company's GAAP financial results, during this call, management will be presenting and discussing the company's earnings before interest, expense, depreciation, amortization and stock-based compensation, adjusted to exclude certain acquisition, integration-related expenses or adjusted EBITDAS which is a non-GAAP financial measure, a reconciliation of the company’s adjusted EBITDAS to its net loss is included in the company’s pres release issued today. Finally, I would like to remind everyone that this call is being recorded and will be made available for replay via a link available in the Investor Relations section of the company's website at www.veritone.com. Now, I would like to turn the call over to Veritone's Chairman and CEO, Chad Steelberg. Sir, please proceed.

Welcome everyone and thank you for joining us today. I’m very pleased with our strong financial and operational performance in the third quarter. Our revenue was a record $7.5 million. We launch three exciting new applications for law enforcement and media customers; and, we closed three strategic acquisitions that strengthen and extend the capabilities of our businesses. Our Q3 revenue was driven by both solid organic growth with our AI and Digital Content Solutions, up 150% year-over-year. And our media agency revenue up 31% year-over-year and by contributions from our recent acquisition of Wazee Digital and Performance Bridge which added $2.2 million in a quarter. We also leverage this revenue growth together with good operating expense management to reduce our adjusted EBITDA loss to $8.6 million in Q3 from a $11 million in the prior quarter. Our strong organic revenue growth this quarter showed the success we are seeing with our land and expand strategy of signing up new customers for our aiWARE operating system and then increasing our business with those customers as they add more users and take advantage of the exciting new applications and engines we’re adding to our development efforts and strategic acquisitions. The third quarter has strengthen my fundamental convection the ubiquitous development of artificial intelligence required an AI operating system much in the same way that mainframes, personal computers and mobile devices require operating systems such UNIX, Windows and android respectively. Veritone’s industry-leading AI operating system, aiWARE is uniquely position to lead the industry into a more powerful and ubiquitous cognitive computing future. Operating systems perform three critical functions; first they orchestrate a wide variety of third party peripherals and create common software architecture for applications to interoperate. Second, they lower the cost of software development and distribution by delivering high-level developer tools that…

Thank you, Chad, and good afternoon everybody. Our net revenues in the third quarter of 2018 increased 103% to $7.5 million from $3.7 million in the third quarter last year, reflecting both contributions from our acquisitions and organic growth. Our AI and Digital Content Solutions net revenues which includes revenues from our AI Solutions and Wazee Digital's core and digital media hub software platforms, totaled $1.4 million in the third quarter. This was comprised of $1.1 million of net revenues from our AI Solutions, an increase of 150% from $431,000 in the third quarter last year and approximately $300,000 of net revenues from Wazee Digital which we acquired on August 31st. Our media agency net revenues increased 44% to $4.7 million in Q3 this year from $3.3 million in Q3 last year. This increase was driven primarily by an increase in the number of active clients of our Veritone One business and the contribution of $434,000 of net revenues by Performance Bridge which we acquired on August 21st. Excluding Performance Bridges clients we had 78 active Media Agency clients in the third quarter of 2018 compared with 49 in the third quarter of 2017, an increase of 59%. Our Digital Media Services net revenues which was comprised of Wazee's content licensing and live event services following the acquisition was $1.4 million in the third quarter. We will have a full quarter of revenue from Wazee Digital and Performance Bridge in Q4, but it’s important to note that September has historically been one of Wazee's strongest revenue month of the year due to the seasonality of its services business and so we do not expect their Q4 results to reflect three months at that level. Looking closer at our AI operating system business, we grew our net revenue sequentially in each…

Thank you. And we will not take questions from Veritone sales side analysts. [Operator Instructions] And our first question is from Mike Latimore with Northland Capital. Please go ahead.

Great. Thanks a lot. Congratulations on the quarter. That looks good.

Thanks Mike.

So, I guess on the sort of core AI Solutions business in the quarter, what was the sequential driver there? Was that media customers expanding? Was that a little bit more legal cases, I guess, what drove some of the organic sequential growth there?

So the driver there was Media and Entertainment category. And in my remarks I mentioned specifically two of our largest clients; iHeartMedia and Entercom. And I think we’ve covered this in the past, but just to kind of reiterate. These are customers that we started out with servicing a small market of theirs, five to eight stations and today we’re into the hundreds of stations, we’re serving for them and providing service too, so that just another testament to kind of that land-and-expand strategy that we started back in 2016 and seeing the fruition of that coming today.

Great. And then just in terms of the revenue segments, so these are three new revenue segments and we should assume those will be represented consistently going forward here?

Yes. That’s the plan. As we step back and try to figure out what was the best way to communicate kind of the categories of revenue between the Media Agency and then with the addition of the live event services and the licensing business from Wazee, we felt that these three categories was a best way to do it.

Got it. And then you said your fourth quarter guidance and thanks for giving revenue guidance. Your fourth quarter guidance, you said, it does not include new e-discovery, is that what you said?

Yes. What we said, it doesn’t include any projects that haven’t already been started. So we didn’t forecast anything coming in the last basically 45 days of the quarter and just frankly we don’t have enough visibility to be able to do that.

Okay. And then just last from me. What should we think about gross margin being with the new kind of revenue mix there?

Yes. I think that the – what you’re going to see is the two AI businesses continuing to grow. They carry a lower gross margin rate in the agency business, so that will continue to reduce the gross margin rate, but obviously the gross profit dollars should be scaling nicely as revenue grows.

Okay. Thanks. Congratulations.

Thanks, Mike.

Thanks Mike.

Thank you. Our next question comes from Darren Aftahi with ROTH Capital. Please go ahead.

Hey, guys. Thanks for taking my questions. Good afternoon. Just a couple of if I may. So when you guys acquired Wazee, you talked about I think, Chad, and particularly in your prepared remarks on the M&A call, just some of the bigger media clients, HBO, Viacom, Fremantle, won’t go through those. I’m just kind of curious with a few months under your belt where you stand in terms of kind of the upsell with AI. That’s kind of question one. Two, you talked about expansion into the government vertical with Wazee. I’m kind of curious where that stands? And then Pete if you indulge us, you didn’t have full operating cost quarter with the acquisitions. As we think about growth should we think about improvement in EBITDA sequentially and if you could maybe kind of categorize that, give us a sense would be helpful? Thank you.

Sure. So the first integration that we completed with Wazee’s two product lines which really about getting some of the core AI cognitive functions integrated so that users of their application could surf its content faster, again, using facial recognition, speech, transcription etcetera. And the first client that we rolled it out to was actually the USTA with the live event and allowed their media partners to literally sift through thousands of hours of broadcast across multiple courts, literally in real time. So that happened within week of the acquisition closing. Since then we’ve done even further integration and just last week as I mentioned in the prepared remarks that we closed a fairly significant deal on a jointly integrated product. So we think this is going to continue to expand across their existing customer base in terms of cross sells. But also to your next question, it’s opening up opportunities in the law enforcement space as well. So Wazee had a contract last year just kind of a pilot for them working with the government agency. I think it bled into this year as well. Some of the things that we’re working on, on our new application like Redact and Identify, our core to Veritone and obviously interoperate with the other applications which include now Wazee etcetera. So I think that – it’s not about having again, it’s just a set of point solutions on a common framework. It’s becoming an interoperable suite of applications that these different industry partners can use as the need arise.

And then Darren, let me pickup your third part of your question. So from an EBITDAS perspective we didn’t give any guidance for the fourth quarter as it relates to EBITDAS, but we have said in the past is that the performance of Wazee and Performance Bridge on a combined basis was just slightly positive from an EBITDAS perspective. So we would expect that to continue into the fourth quarter.

Great. And just if I could sneak in one, last one. I know you kind of call out some political customers on AI business, but I’m curious was that impactful in your agency business? And should we think kind of a belt curve there too as well, just given midterm elections are over?

I don’t think, because we don’t have those customers – or those type of advertisers as clients of our Media Agency, so it didn’t drive our business in Q3 from that side of the shop.

Helpful. Thank you.

All right.

Thank you. Our next question comes from Tom Diffely with D.A. Davidson. Please go ahead.

Yes. Good afternoon. Just curious first of all, what impact if any of the acquisitions had on your kind of core KPIs that you report every quarter?

So, in a quarter term, the KPIs that we’ve reported excluded any impact from both Wazee and Performance Bridge. So it’s an apples-to-apples comparison in further Q3 KPIs to the prior quarters.

Okay. And is that true with the guidance going forward then or does that include them?

We have excluded them from Q4 KPIs as well. So everything is on the same basis, if you think about of kind of just the prior aiWARE and Media Agency business that we have.

Okay. That’s great. Okay. And then we look at the new engines that were added quite a few during the quarter, any new categories there? Or anything you can say about what’s those engines were for? What category they were in?

With the acquisition of machine box which we mentioned, we picked up I would say some derivative categories of cognition and some refinements, but during the quarter I don’t think there was any material changes to the categories. It was really about the ability to go from big large generalized engines down to more specific narrow-cast engines that conductor can leverage more effectively. That’s the result of which is obviously higher levels of accurate cognition.

Okay. That makes sense. And then finally, well, I guess first when you look at the AI dollars per hour, obviously that jumps around quite a bit. Is that simply kind of reflecting that how – what percentage of it is audio versus video. Is that the main driver there?

That’s one of the drivers. I think volume is another one. So there three kinds of core metrics or four core metrics we track, obviously, what types of cognition and engines are being run? And then obviously whether its audio or video has a dramatic effect in terms of the number of engines you can apply to those different content sets. And then volume of media coming from discrete customers, some of our customers are processing hundreds of radio stations and TV stations 24 hours a day, while others are very spotty. So those rates also change.

Okay. And then finally, Pete, when you look at the added costs or expenses of the acquisitions what is that due to kind of the run rate of expenses going forward?

So we really haven’t given guidance on OpEx like I was sharing with Darren, but there is a month of the two businesses; Wazee and Performance Bridge in the third quarter and so we’ll ramp that up to basically a run rate for the fourth quarter. We’ve made very few changes from a headcount perspective almost none. We brought over basically their full team and have been busying integrating them into our business adding their capabilities to serve our clients. So I wouldn’t expect a significant deviation from kind of the implied run rate coming out of the month in September.

Okay. That’s helpful. Thank you for your time.

All right, Tom.

Thank you. Our next question is from Sameet Sinha with B. Riley FBR. Please go ahead.

Yes. Thank you. Couple of questions. So, Pete, I guess, starting off with your revenue guidance. Can you help us with what’s the organic growth for the fourth quarter and how much from acquisitions? And second one Chad, probably for you. When you look at plans like iHeartMedia and Entercom when you how they were only in a handful of stations earlier, now in hundreds of stations. So that’s one vector for growth is as you grow into new stations how about revenue per market? Or as you mature within that base how much have seen revenue per station go up that kind of give us another vector of growth? Then I have a follow-up question. Thank you.

So, Sameet on the organic versus inorganic growth rates, I mean we’re not breaking it down below, just the general guidance we gave of $9.3 million to $9.7 million in that revenue. We did mention that the month of September is a very good month for Wazee. And so while the combination of Wazee and Performance Bridge added 2.2 million into the third quarter that it’s not reasonable to take that amount and extrapolate that into the whole fourth quarter that same run rate. I think that’s the guidance, that’s the information that we provide to this point.

Sameet, and with regards to the kind of land and expand strategy as it relates specifically to radio stations or even any of our customer basis, essentially on a market by market basis we’re seeing more and more stations within that market adopt the platform. But within on a specific stream, because audio has significant but obviously limitation in the back that it’s only audio. Little bit of background going on here.

From Sameet.

Can you maybe mute your phone? Thank you. Perfect. Thanks. But with regards to other forms of media whether that in video coming from other broadcasters and the TV world or from public safety, the breadth of cognition that enables by running different engines not just the basic transcription is really starting to expand rapidly. So I think in radio we’re seeing the expansion coming less from more cognitive engines or more hours of media being processed on a single station, versus just having more stations being deployed on the platform. In other forms of media, again, in public safety as well as in media and entertainment with video assets we’re seeing that expansion rate increase both in terms of the applications that they’re using, the number of employees at those companies that are using those application and the types of engines that they’re running against that content.

Got it. One final question for Pete. Pete, I don’t know if you ever given out the gross margin profile of this acquisitions?

No. What we talked about was the revenue and then their impact on the EBITDAS level. So, revenue as I said we shared with that, I mean as I was sharing I think earlier with Darren, that the impact from a OpEx perspective is really more viewed at the EBITDAS level and they were slightly positive on a combined basis when we acquired them.

Got it. Thank you.

Okay.

Thank you. And at this time, ladies and gentlemen, this concludes our Q&A session. If your question wasn’t taken you may contact Veritone’s Investor Relations team and veri@liolios.com. I would now like to turn the call back over to Mr. Steelberg for his closing remarks.

Thank you for joining us on the call today. We want to thank our employees, partners and investors for supporting us as we pursue our mission of building the AI operating system of the future. We look forward to updating you on our progress on our next call. Operator?

Thank you for joining us today for Veritone’s third quarter 2018 earnings call. You may now disconnect.