Good day and welcome to the Veritone Third Quarter 2020 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Brian Alger. Please go ahead.

Good afternoon and welcome to Veritone's third quarter 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 third quarter ended September 30, 2020. This press release is available at 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 and non-GAAP net loss for the fourth quarter of 2020. 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 and its quarterly report on Form 10-Q filed today. These forward-looking statements are based on assumptions, as of today November 9, 2020 and Veritone undertakes no obligation to revise or update them. During this call, the actual and forecasted financial measures will be discussing including gross margins, operating expenses, and net loss, as well as the discussion of operating earnings by core operations and corporate will be presented on a non-GAAP basis. Reconciliations of these measures to the corresponding GAAP measures are included in the press release we 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 on the investor section of the company's website at www.veritone.com. Now, I'd like to turn the call over to our Chairman and CEO; Chad Steelberg. Chad?

Thank you, Brian. I'm proud to report that by all measures, Q3 was a record quarter for Veritone. More importantly, we are delivering on our mission to help public and private organizations conquer data complexity, to build a smarter and safer world through the power of artificial intelligence. We continue to make big investments in areas that matter whether it is helping improve transparency in law enforcement or accelerating the adoption of renewable energy. Across the board, the Veritone team performed with skills and agility, helping our customers improve their operations, and build resilience in challenging times through the adoption of our cutting edge artificial intelligence solutions, anchored by our powerful aiWARE operating systems. Q3 revenue increased by 23% year-over-year to a record 15.7 million, up 18% from last quarter. Our momentum was boosted by our timely and well received launch or Veritone Energy, which augments our growing presence in the media and entertainment and government, legal, and compliance markets. Our third quarter non-GAAP net loss decreased by 56% year-over-year, and 26% from Q2 to a record 4.3 million. Our top and bottom line results both significantly exceeded the increased guidance we provided in August. But the story this quarter is not about cost savings or our reduced cash usage, it's about growth. Revenue growth continues to accelerate faster than expectations. And we believe this trend will continue for the foreseeable future. This is highlighted by the fact that our Q3 revenues from aiWARE’s software solutions increased by 43% year-over-year, and 12% sequentially. And we saw increasing momentum particularly in our GLC and energy businesses, which we fully expect to continue to build moving forward. Our GLC business is beginning to hit its stride as revenue growth and bookings accelerate. Public safety ranks is one of the biggest issues facing…

Thank you, Chad and good afternoon everyone. As Chad mentioned, we had a very strong third quarter. Each vertical delivered results above the expectations we had coming into the quarter. The 43% year-over-year growth in our staff business reflects the rapid expansion with our GLC customers and initial revenues from the energy sector. Both verticals hold enormous potential and Veritone is driving hard to deliver on meeting the increasing demand. I'm going to spend a few minutes discussing our third quarter revenues and outlook in each of our businesses before Mike discusses the financial details. Starting with our aiWARE SaaS Solutions revenues were 3.4 million, up 43% year-over-year, and 12% sequentially. In addition to strong revenue growth, bookings continue to improve as customers in the GLC and energy markets accelerated their demand. New bookings in the quarter are up 31.6% year-on-year, including multiple six figure bookings for our new energy solutions. During the quarter, we made significant progress on our seven figure subcontract under our U.S. Air Force development program. We are applying aiWARE’s intelligent process automation capabilities to analyze overhead imagery with AI object detection engines to significantly increase the speed, accuracy, and throughput of the analysis process. Our ultimate goal is to secure a much larger long-term agreement to supply solutions that enable U.S. intelligence and surveillance analysts with much needed assistance in rapidly identifying threats and other activity around the globe. We also announced a number of technology and channel partnerships, including GovQA, George Jon, and March Networks that have already begun to bear fruit by expanding our reach both internationally, as well as domestically. In our media and entertainment vertical, we have now completed a deployment of our aiWARE enabled attribute application across all of iHeartMedia and our TV customers are steadily adding attribute as well.…

Great, thank you, Ryan. Before I begin, I would like to thank Chad and Ryan and the entire Veritone team for making my first month a very smooth transition. I've been so impressed with this team, and more importantly, the validations of the aiWARE platform directly from third parties, including some of the largest companies in the S&P 100 today. The proliferation of digital data and our dependency on it in our day-to-day lives today has created many efficiencies and great things in our society. But it has also created a massive amount of problems in efficiencies around the mountains of unstructured content and data. Today, most of which require human intervention to overcome and solve. Whether these are content related at enterprise levels or within the safety and security of our own governments, aiWARE is the only AI platform designed to directly and responsibly solve and create solutions out of this resulting big data problem. The TAM for AI Software is significant, projected to be over 100 billion by 2025 with a CAGR of over 40% year-over-year, and we will play a big part in the AI story. With record Q3 results discussed today, I believe fiscal 2020 is the turning point in Veritone’s evolution, showing massive execution and financial progress, diversification in our revenue mix, and a radical improvement in our bottom line cost structure. The company is laser focused on a strong pathway towards growth and profitability. Turning to Q3, 2020, we posted record results in KPIs across the board, beating our financial guidance with revenue of 15.7 million and non-GAAP net loss of 4.3 million. Q3 2020 revenue was a record 15.7 million, up 23% year-over-year from Q3 2019, including 43% year-over-year growth in our aiWARE SaaS Solutions. I will get deeper into revenue drivers later.…

Thanks Mike. It's great to welcome Mike to the team. I would also like to thank Pete Collins for his dedication and effort over the past four years with Veritone. Pete has done an outstanding job of getting the company to where it is today. We wish Pete the best of luck in his future endeavors. It's likely not our last quarter, I'm extremely proud of the Veritone family and their continued strong performance. While the path to recovery from COVID-19, and all its economic and social fallout remains unclear, we the Veritone family remain focused on our core mission to harness the power of AI to help build a safer, more vibrant, transparent, empowered society. This quarter's results and our bullish outlook for Q4 and beyond demonstrate that aiWARE is delivering on this mission by making law enforcement more transparent by protecting America's global interest through advanced image analysis, by improving our judicial rigor through intelligent evidence processing, and by accelerating our path to cleaner, more reliable energy. We at Veritone see amazing opportunities for our technology to transform our world, and we know our greatest days lie ahead. With that, we would like to begin the Q&A session. Operator?

Thank you. [Operator Instructions] Our first question comes from Darren Aftahi with ROTH Capital Partners. Please go ahead.

Hey, guys, thanks for taking my questions. Congrats on the quarter. Hope you guys are well. Wanted to ask, I know energy is new, but it seems like you guys are fairly bullish on that. So could you maybe just step back – two part question first, talk a little bit about your three verticals in AI, SaaS, and kind of as you look at pipeline opportunity, kind of what represents the most material opportunity over the kind of the next 12 months? And then second, just the energy opportunity, where is kind of the low hanging fruit versus some of these longer-term contracts you might be able to, you know, advance the platform. And then my last question on energy, I'm just kind of curious, go to market strategy, how much this is going to inside sales channel partners, etcetera? Thanks.

Hey, Darren. Thanks for the question. This is Chad. I'll take the first one. And then we'll kind of banter around on the back half of those. You know, from a macro perspective, right, our three primary verticals. Today from a good market standpoint, being media and entertainment and our monetization group, GLC, and now energy, we just saw strong growth across all three categories, and really underpinned by the continuity that aiWARE is bringing to those solutions, and the efficiencies of scale that we're getting across all those verticals interoperating on one common platform. The business, you know, from a go to market standpoint, you know, we saw on the energy side, just an immediate traction out of the gates, which was frankly a little bit unexpected. We knew our technology was more advanced than anything else that was out there, but having the best technology doesn't always lead itself to necessarily being adopted that quickly, but in the energy space, I think that the problem where the [indiscernible] with regard to some of the damages that have been done over the last decade to the infrastructure as renewables have been, you know, being deployed. The legacy grid itself just doesn't lend itself well to being a handle bidirectional energy flows, and the unpredictability be predictability on the supply side of energy. So, the CTOs of these companies have really latched on to our solutions. And we've got a very clean path for them to adoption, with regards to our ability to simulate the problem and our solution for them looking at historical data. And then a very well thought out and progressive plan for deployment, which we're now in phasing. On the GLC side, again, probably our best quarter ever, in that category, strong support from our existing…

That's really a little more in. That was perfect. That was great answer. Thank you for that. Just one on the financials, maybe for Mike, and Mike welcome. It looks like you guys grew sales, I think 2.5 million sequentially, but cost of goods went up by a couple hundred thousand. I know you talked about cloud efficiencies, and then you've also talked about with iHeart, once you get one application on some kind of pass through margin down. I'm just curious, as you grow revenue, how sustainable is that margin improvement that we saw in the third quarter? Thanks.

Darren, we're not going to give any detail color going forward, other than we do expect more efficiencies. And as I mentioned, during the call, those efficiencies are really coming from two parts. One is, the growth in more accretive revenue; and two, the cost cutting efficiencies we've done specifically around cost of sales. We're going to continue to drive that margin. You know, obviously, the hurdle is going to get harder and harder as you go forward in terms of sequential and year-over-year improvement, but we're laser focused on it.

Thanks.

Our next question comes from Pat Walravens with JMP Securities. Please go ahead.

Oh, great. Thank you and congratulations. Great quarter.

Thanks Pat.

Chad, can you just step back for a second, and, I mean, in Q1 revenue, negative 2%. [indiscernible] in Q2, 8% in Q3, 23%, and you're guiding at the midpoint to 30% in Q4. So that's quite an acceleration. Can you just sort of simplify it for us? And just, you know, if there's sort of one or two or three things that you would point to is the driver behind the acceleration with this company? What would you say they are?

You know, I'm surprised you're asking me the softball question. I thought I was going to get Pat the normal from you, which is, you know, how is Biden versus Trump affect your business? But I'll gladly answer the trend question. You know, we've been laser focused in last year and this year on hardening the eyewear operating system. And by [hardening], I'm referring to its reliability, stability and flexibility to be adapted, to really any used cases out there in the market. And we really achieved that goal, as we mentioned in Q3, Q4 of last year, and it sets the stage for our sales engineers, and our inside sales and outside sales and our business partner and our channel partners to now finally start to be able to reliably deploy aiWARE and its power to really any industry. Today, we're operating in three, but the fact that we're getting so much leverage on that technology, and what's driving down our operating costs at the same time is it improving the efficiency of our cost of sales and the efficacy of our products. I think the other one is, is once a customer has tasted aiWARE with one application, I think Darren mentioned this in this call, and they're on the operating system. It's now literally a couple of clicks than a phone call and you got a new application and running. And the margin improvement for us on those secondary and tertiary applications that the same customers are now using the – again just creates great efficiency for us as a business and delivers more value to our customers, more quickly.

Okay, that's great. And so yeah, you brought it up. So, let's hear it. What does the election mean for you guys?

Yeah, I see it was coming. I think we're agnostic to it. Honestly, the industries that we're operating in are so important, strategically, the United States that the drivers, whether it be an energy or in government, legal and compliance are beyond sort of basic, you know, four year political movements that might be happening. And so, you know, we've been playing across the aisle, with really no challenges as an operating group in those sectors and believe that we will work very well with the Biden team as they come to power. On the media and entertainment side, I think, you know, we've had a tough [indiscernible] in this in this COVID situation. I think as COVID gets under control, I think media and entertainment despite performing very well, given our peers. I think we'll even continue to see acceleration as that subside.

Okay, great. We'll dig into all that more tomorrow. Thank you, Chad.

Thanks, cheers.

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

Yes, good afternoon. So, maybe first a follow up to the previous question on the model itself, on average, Mike it looks like you're guiding for revenue growth quarter-over-quarter, but roughly flat EPS. I'm just curious if there's any particular costs or expenses that we should think about [going into] fourth quarter?

Yeah, that's a great question. I mean, we're, you know, the growth that we're targeting particularly in the energy sector and the GLC markets, you know, we're going to be investing in those. So, you will have modest increases from an operating perspective. But overall, you know, not significant.

Okay. And I know, obviously, media did quite well in this tough year, anyway to quantify how much revenue you did lose from the delayed or canceled events that will most likely come back next year?

Ryan, do you have any insights on that? You can put some quantity around, but I don't think we do.

Yeah, I don't think we're we would be able to reconcile that since some of these events are, you know, happening again, you know, and being rebroadcast at a later date, such as the Masters. But it was not inconsequential sum, but I don't think it was overly material. So again, as we look at sort of 2021, even if we see delays for major sporting events, or I'll say, a very light audience based live events, I still don't think it's going to have a material impact on a negative basis to our business going forward.

Okay, great. And then Chad, going back to the energy markets, you are doing a nice large regional utility work right now? Is this a situation where, you know, it's kind of your proof of concept, and to kind of how that goes, it could really open the door or things are already, you know, moving pretty quickly with other players?

No, great question. No, this is not a proof of concept. We're in full deployment mode right now with a major U.S. utility, with high expectations, given the modeling that we've already done in our simulators. The expectations on both sides are very high. And we expect those to be to me reached here very quickly. And on the business development side, we have great traction, again, in a multiple different vectors, obviously, energy operators, both legacy grid operators, and the renewable micro grids that are now popping up, all have great affinity towards our solutions, but I think that one of the more interesting opportunities that's out there that I just briefly touched on was on the energy trading desks that are [starting to happen]. In Texas, for example, there's the air cloud exchange, there's another one out here in the west as well, [where air], I think it's 50 megawatts is the required energy that you have to be providing to the grid to the [exchange], flatten and smooth out and reduce costs to the end user with regards to our U.S. energy bill. So, very exciting capabilities and Veritone’s arbitrage solutions and predicting plays a great role in that new solution.

Okay, thanks for the color.

Our next question comes from Michael Latimore with Northland Capital. Please go ahead.

Hi, this is [indiscernible] on for Mike. Congrats on a great quarter. I want to know, did you have bookings at Microsoft as a partner in the quarter? So, could you discuss end used cases and the potential size?

Yeah, I think you're talking about any activity specifically with Microsoft specific used cases, but I will comment on – so the size on what I can say is, you know, Microsoft has been a very active partner with us, I'd say highlighted by, you know, most recently our sort of collaboration with GovQA in selling to both as a regional and statewide organizations. But it really runs the gamut, Redact – Veritone Redact, our programmatic and automated Redaction application suite, is really gains traction. I think we're servicing, you know, well over 100 channel opportunity in direct sales efforts to regional and smaller agencies as well.

Okay. And how well did legal do in the quarter as compared to your expectation? And is this an important growth category for you next year?

Yeah Ryan you’re going to handle that.

The Department of Justice and legal versus, you know, more traditional public safety, we don't segment out our revenues that way. Again, but GLC in its entirety had a very, very strong quarter. And we expect those growth to continue in the foreseeable future. Obviously, our relationship with the Department of Justice continues to build as our deployments and our FedRAMP continue to harden with the progress that we made with aiWARE. So, I think that we will continue to see positive growth both out of the again, public safety and the legal side of the business.

Okay, thank you.

Thank you.

Our next question comes from Nick Mattiacci with Craig-Hallum. Please go ahead.

Hi, this is Nick Mattiacci on for Chad Bennett. Thanks for taking my questions. So, just on the aiWARE business, I'm curious how much of that is recurring in this quarter? And if you could speak about that through the lens of the media and entertainment vertical and then also the new energy bookings?

Yeah, Mike, why don't you take that one?

Yeah, sorry. So, it's about 50/50. I mean, the growth from the SaaS perspective is 43% year-over-year, and then equal side. On the media side, the growth predominantly from the VeriAds business, so it's about 50/50.

And then on the new energy bookings, Can you talk about…

We don't give exact – yeah, we don't give exact details. But just know that between GLC and energy, I mean, these are growing 100% quarter-over-quarter. So these are very high growth areas for us at the present moment.

Alright. And then just one last one for from me. So, it looks like RPO is down 15% quarter-over-quarter, could you just help me reconcile that with just some of your other commentary about SaaS business? Thank you.

Yeah, I mean, it's down slightly, but it’s not material.

Great, thanks.

[Operator Instructions] I’m showing no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Chad Steelberg for any closing remarks.

Thank you, operator. And thank you all for joining us on today's call. As I said, I am so proud of the way our entire team has performed to achieve these record results. I want to personally thank each of them for their tireless efforts and for their unwavering focus on continuing to pursue our vision of building the world's leading AI solutions company. We have huge opportunities on our business, and our teams are better positioned to capture them than they ever have before. We look forward to reporting to you on our progress. Goodbye.

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