Welcome to the Veritone First Quarter 2022 Financial Results Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Brian Alger, Senior Vice President of Capital Markets and Investor Relations. Please go ahead.

Thank you, and good afternoon. After the market closed today, Veritone issued a press release announcing the results for the first quarter ended March 31, 2022. The press release and other supplemental information is available in the Investors section of Veritone's website. Joining us for today's call are both the live and digital twin versions of Veritone's Chairman and CEO, Chad Steelberg; President, Ryan Steelberg; and CFO, Mike Zemetra, who will provide prepared remarks and then open up the call for a live Q&A session. Shortly after completing today's call, the remarks will be made available in 6 languages on Veritone's synthetic voices. Please note that certain information discussed in 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 income and loss for the second quarter and full year of 2022, respectively. 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 the assumptions as of today, May 3, 2022, 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 noted otherwise. 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 Veritone's results between core operations and corporate. Core operations consist of Veritone's consolidated Software Products & Services and Managed Services and their supporting operations, including direct cost of…

Thank you, Brian. Good afternoon. As Brian noted, I am Digital Twin Chad. I am excited to speak with you today and to reiterate that AI is alive and growing stronger every day. For the first quarter of 2022, Veritone reported revenue of $34.4 million, representing year-over-year growth of 88% on a GAAP basis and 45% on a pro forma basis. Our new bookings increased 292% versus Q1 2021. We continue to see strong demand for aiWARE, and we remain committed to investing to capture future growth. Artificial intelligence in good times and bad, will continue to thrive. In good times, AI is the leverage for companies to innovate, differentiate and expand their products and offerings. In tough times, AI provides the tools to better optimize, automate and reduce costs and inefficiencies. The pandemic allowed us to prove the value of AI to Amazon and FedEx, 2 of the world's most advanced and efficient logistics companies. Through our strong partnership with these companies, we pioneered a new AI standard in recruiting that is being rapidly adopted by a diverse set of businesses. Case in point, during Q1, we experienced greater than 200% revenue growth in our hiring platform within our non-Amazon customer base. Similarly, in the early days of COVID, demand for our performance-based advertising business surged while overall media spend cratered. Law enforcement agencies all across the U.S. selected our solutions while facing the pressure of increased operational expectations combined with reduced funding. In fact, every day, we see further evidence that our strategy of developing and delivering AI solutions based on common ingestion, temporarily based cognition and standard APIs is fundamentally superior to custom or single point applications. We remain very confident in our projected growth over the course of 2022 and beyond, and we continue to execute…

Thank you, Chad, and good afternoon, everyone. In the first quarter of 2022, strength in commercial Software Products & Services as well as Managed Services drove our revenue growth. The first quarter also delivered our best software bookings quarter ever at just over $9.5 million, up nearly 300% year-over-year with both GRI and commercial delivering strong bookings acceleration. Let's start the business review with commercial enterprise. Q1 2022 commercial enterprise revenues increased 96% over the prior year period. Within commercial, on a GAAP basis, our Managed Services grew 18% year-over-year, and our software and services revenue grew by nearly 420%. On a pro forma basis, our Software Products & Services revenues were up 79% year-over-year. PandoLogic's contribution was obviously significant to the GAAP growth. The business with Amazon, our largest customer, accelerated with increased penetration and overall robust hiring demand across all our high-volume customers in a highly competitive labor market. Customer growth in general was strong with PandoLogic maintaining triple-digit customer growth within its customer base while Veritone grew its customer count 15% year-over-year on top of Pando's growth. In total, we exited Q1 2022 with 559 customers. Our record bookings, strong retention and new market offerings validate our strategy and the investments we are making. We are successfully attracting top talent to the organization, and we have hired more than 150 employees since the beginning of the year. Our expanded team enables us to accelerate the pace of our product innovation, resulting in the launch of Veriverse, enterprise AI for the Metaverse, which we showcased at last week's NAB show in Las Vegas. We are proud to report we won NAB Product of the Year 2022 for Veritone Avatar, right on the heels of receiving the same award for Veritone Voice in 2021. Veritone Voice continues to see…

Thank you, Ryan. We continue to execute at the highest levels with record first quarter revenues, year-over-year pro forma revenue growth of 45%, a rock solid balance sheet as well as recent business momentum and financial leverage to accelerate our growth story even further. On top of this, we closed a small but strategic acquisition at the end of the quarter that we believe will help accelerate our Metaverse strategy. During my prepared remarks, I will discuss our Q1 year-over-year performance and KPIs on a pro forma basis as if we owned PandoLogic since the beginning of 2021, our Q1 cash position and working capital and Q2 and full year 2022 guidance. Now turning to Q1 2022 financial performance. Q1 revenue of $34.4 million was a record first quarter, up $16.1 million or 88% from Q1 2021. Software Products & Services revenue increased $13.5 million or 288% to a Q1 record of $18.2 million, driven largely by the addition of PandoLogic. Managed Services revenue grew $2.6 million or 19%, driven largely by growth in content licensing, which rose an astonishing 61% year-over-year driven by the overall increase in digital content usage and in live events coverage such as the NCAA March Basketball Tournament as we return back to pre-COVID conditions. On a pro forma basis, Q1 2022 revenue increased 45% from Q1 2021 and Software Products & Services revenue increased 78%, driven by new software customers growth of 45% to 559, coupled with net customer retention of over 120%. Q1 2022 revenue also benefited slightly from our high-volume customers shifting their hiring too early in the year as opposed to spreading it throughout the first half of the year, in part to meet demands in a highly competitive labor market. As a result, we expect there will be a slight…

[Operator Instructions]. And our first question will come from Koji Ikeda with Bank of America.

A couple for me. First one on Amazon, just kind of really thinking about the Amazon comments in your prepared remarks. But also their comments last week on their earnings call thinking about their fulfillment segment overcapacity. Really thinking about Amazon being your biggest customer, not only for Pando, but really for the total business. Help us understand, I guess, some of the visibility maybe from a committed recruiting spend with them, that's giving you the confidence in the PandoLogic piece of the total revenue guide? I just want to be absolutely clear here: is Amazon an example of a high-volume customer for you?

Why don't I take the beginning of this thing and just take a step back for a moment. I think the market massively overreacted to Amazon's comments with respect to its impact on our business. Amazon isn't just a customer. Amazon is a phenomenal strategic partner to Veritone. And we work with them and have been working with them for a number of years across a number of our business units and service offerings, from AWS to Wondery to Audible and obviously, the talent recruiting side as well. So yes, they are our biggest strategic partner across our AI set of solutions. And it's just an example of, again, other companies. I mean if you think about our business in addition to Amazon, now our leadership position with customers like Microsoft, Disney, iHeart -- AbbVie, one of the largest pharma companies in the world. We have and are fortunate enough to be a company targeting close to $180 million, $190 million in revenue this year, and we have some of the Fortune 1 companies, Fortune 1 companies in each of their category sectors that trust Veritone and are scaling their business geometrically with us should tell you something about the power of our technology and the capabilities of our AI in a hypercompetitive marketplace. And Amazon, going back to essentially their core part of their business, we're trading with that group of customers, hundreds of millions of dollars. And what Amazon is doing for us is really -- and all those customers are allowing us to collaborate with them to perfect our AI solutions that are solving systemic challenges that are not unique to Amazon. I mean, think about Amazon's business and fulfillment. It's not just customer growth -- sorry, employment growth that they're trying to solve for. It's customer…

Yes. And I'd just also touch on the recent report that came out yesterday from the Department of Labor Statistics represents, obviously, that open job reqs has increased now to 11.5%. And obviously, that impacts everybody. We don't want to focus just on high-volume hires, quick-service restaurants, hospitality and the like. But obviously, we expect probably the normal pressures on those type of organizations to fill. And as Chad has made it very clear, we are a very trusted partner. Actually, we're developing new products and services as it relates to proprietary data lakes and other forms of deeper integrations to make even that much more of an efficient relationship -- and that stickier. So I think in addition to what we're doing in co-selling with AWS, as Chad alluded to, on the media and entertainment side of our business with commercial to, again, our ever expanding and deepening relationship on the recruitment side and what we're doing on the advertising services side, we're thrilled to call Amazon a partner. And we do expect great growth from that relationship and others over the course of the year and beyond.

Thanks, Chad, and Ryan. Just one follow-up for me. Wanted to touch on the Veriverse. I saw it in the press release, I saw you guys talking about it on your website, too. So -- it sounds exciting. Congrats on that launch. I guess from a high level, how do we think about monetization of Veriverse? Maybe help us understand the pricing model and where it could show up in revenue. Is it a software? Is it Managed Services? Maybe even a little bit of both.

Yes. I think the majority of it is going to be software related. There'll be some upfront fees based upon the cost to produce some of the initial avatars and voices but then it'll transition to, I'd say, more ratably and easy to forecast SaaS-based revenues. We do expect the majority of the revenues initially to come, which I'm thrilled about, from our actually existing customers. So one of the reasons we were able to efficiently launch as a large and comprehensive set of solutions for the Veriverse is because of all of our customers already running and having all their content -- AKA training data -- already indexed. So our ability to quickly provision and deploy these new synthetic solutions for media and entertainment partners has been great. So I do expect this to provide a level of materiality to the revenue base by the end of the year. But the primary goal here is to quickly sign as many media and entertainment, broadcaster and digital influencer customers as quickly as possible to sort of reinforce our leadership position here.

Our next question will come from Pat Walravens with JMP Securities LLC.

I mean big picture takeaway here is that pro forma growth accelerated to 45% from 30%, right? So that's great. Mike, if I could just drill down on 2 areas where I just -- you had a lot in your section, and I just wanted to be really clear for people. So the Q1 net income and EPS missed the consensus, $0.15 versus $0.10. Can you just summarize quickly what are the key factors there? There was an $800,000 onetime expense, right?

Yes, there was about $800,000 in onetime nonrecurring expenses. Really associated with customer credits from one of our major hiring platforms did an upgrade. And it took our software a little bit to catch up with it.

Okay. All right. So that's for that one. And then secondly, your -- for the full year, your guidance is intact, but Q2 revenue comes in about $2 million to $3 million below the consensus. And just help summarize again what -- is that PandoLogic coming on or is it more...

Yes. So a big part of that is just the shift in revenue. So some of our high-volume hiring customers like Amazon, accelerated hiring into Q1, and they'll see some of that benefit in through Q2. So if you look at the entire first half, we're on plan, but there's just a little bit of mix in Q1 versus Q2, if that makes sense.

Our next question will come from Darren Aftahi with ROTH Capital Partners.

So Ryan, can I follow up with the commentary about some of your content partners and rights owners in terms of the Veriverse offerings, like who do you think will adopt this in some of the kind of major sporting events that you guys kind of work with? Are those going to be kind of early adopters, low-hanging fruit? And then just maybe one for Mike. Just looking at the annual sales number and appreciating kind of Pando's seasonality -- so your guidance kind of implies about $73 million in the first half of the year and $112 million in the second half. What else beyond Pando kind of gives you confidence in that second half ramp versus the first half?

Mike, maybe I'll cover 1 and 3, and I'll let you hit the middle. So on the Veriverse side, the 2 primary constituent groups that we're being very laser-focused on are digital influencers and content providers and IP owners on the content side. And so we expect, if you -- based upon the announcements we've already made with iHeart and others, is that we have obviously a very strong engagement with all groups audio-based: podcasters, radio networks, radio broadcasters and the like. And we're going to be going very hard and we do envision in very -- in the near future, a world where every single person of notoriety and fame, including, obviously, these prominent digital influencers, will have a digital twin that can be used for a multitude of different both utility and future revenue and extensibility growth opportunities. So that's what we've been focusing on. Most of these are our customers already. The second major category is going to be the content groups directly, not necessarily sports. But as you know, we have kind of a broad array of different types of general entertainment, children's programming, sports programming and news and talk. So we're going after each one of these customers, again, prioritizing against our existing customers first. But I'll leave you with this one -- is we do envision a time in the very near future where almost every single actor or voiceover talent or character will have built into their rider when they're doing a production contract to specifically address the concept of a digital twin. And hopefully, Veritone is the leading force behind that. The last point, I touched on point 3, the second half of the year, and then I'll let Mike close it. There was another key element -- we're going to -- we've talked a lot about our ever increasing activity as it relates to government, legal and compliance and our ability to service the DOJ and the DoD. I'm excited to announce that against every one of the publicly voiced or announced BPAs and the IDIQs, the government contracting vehicles, we are actively generating revenue against all of those. We obviously are excited and always looking to accelerate the growth, but the fact that we've transitioned from the RFI to the RFP to being named in awards and successfully now prosecuting against task orders is something that we're very excited about and considering both the breadth of the opportunity and the diversity between the 2 different branches of the government. Mike, did you want to add onto...

Yes, I'll add onto it. Yes, as far as first half versus the second half, I mean, listen, we've got a good sight of visibility into our pipeline, which obviously gives us tremendous comfort. In terms of variability, I mean, things that are more output driven like PandoLogic, we do have what we mentioned before, we've got over 100% growth year-over-year in the non-volume hiring or sort of the non-Amazon non-FedEx. And that's going to continue to accelerate. I mean they're just -- they're continuing just to crush it every week. So we have high confidence in those numbers in the outwards as well. So I don't know if that answers your question.

No, it does. That's helpful...

And one thing we've noted in our prepared remarks in our release is the strong bookings. And those represent still continued growth from really all facets of the business, including GLC of that $9.6 million in bookings for the quarter, and we expect similar trends going forward.

Yes. Yes, Darren, just to triple tap on a couple of things there. So there's a lot of info on that. But on the script, right, new bookings increased pursuant to our prepared remarks, 292% versus Q1 of 2021. So this is just massive acceleration. We're not seeing it stop. And artificial intelligence is used during good times and bad. So while a lot of companies are fretful that we're heading to a recessionary period, or that we could be ending up with a significant slowdown as rates continue to increase at the Fed level, all that's going to do is shift the use of artificial intelligence with all of our customers from being expansion in the go-go times to now looking at cost cutting to looking at more efficient ways to drive their operations. And it's literally all going to be powered by aiWARE. And we're working with literally every one of our major customers to start thinking about that expansion and that shift in that adoption. And then lastly, on the Fed side, again, I can't stress this enough. Every single contract that we have announced with the Fed, we now have active task orders, revenue-generating active task orders and are working with them on those functions.

Our next question will come from Karl Keirstead with UBS.

Mike, I wanted to press you a little bit on the first half, second half net loss profile. Given your 2Q guide, it's about an $8 million first half loss. Given your full year guide midpoint, it means second half needs to beat '21, '22. Can you talk through that ramp? Maybe part of your answer is that you guys have front-end loaded hiring, so it's less of a drag in the second half. But perhaps you could bridge that first half, second half to give me and everybody on the call comfort in your second half implied net loss guide.

Yes, sure. The first half, as I mentioned in my prepared remarks, we are spending an incremental $5 million on existing staff and infrastructure. The bulk of those costs start really in the second quarter. So you'll have a full second half of those costs as opposed to 1/4 of those coming into the second quarter. On top of that, we did front-end load our hiring, right? So that's going to have a full impact in the back half as opposed to a partial impact in the first half. And then really from a margin perspective, our margin, what I mentioned in my call is our margin is sequentially going to improve. And most of that's going to be driven off the seasonality of our revenues with PandoLogic. So the lion's share come in Q3, Q4. If you look into Amazon's call, they actually shifted their Prime Day from June to July. That's actually going to positively impact Q3 from a hiring perspective. And then as Amazon and some of our higher volume customers sequentially go throughout the end of the year, Q4 ends up being the largest in terms of volume with them. So when you take all those, mixed with the margin sequentially improving -- and, obviously, revenue is improving quarter-over-quarter, that's what's impacting the bottom line.

Got it. Okay. And then maybe just a follow-up for you on the full year revenue guide of $180 million, $190 million. That obviously now includes this acquisition. Could you just clarify what the dollar revenue contribution is in that full year rev guide?

Yes, yes, at the high end, it's less than 2%.

Our next question will come from Chad Bennett with Craig Hallum.

So Mike, just a quick question. I was hopping between calls. Just on the Pando contribution both in the quarter and if you care to share kind of how you're thinking about it for the year. Did you provide any of that info in the call?

Yes. We said that it was about 30% of consolidated revenue.

In the quarter?

In the quarter, yes.

Got it. And I think you said down seasonally, right?

Yes. So the first half of the year is seasonally down, and they ramp in the back half of the year.

Okay. And then just I think there's a lot of bullish commentary around GRI and kind of bookings and activity there. So I guess, is there a target or level of expectation we should have for that business? I mean it was from a revenue standpoint, down 40% sequentially, down 40% year-over-year. I don't know if that shows up in some type of RPO number or whatnot. And -- or these are more kind of longer-standing ratable deals. But when do we actually see GRI revenue show up?

Yes, I'll take the part of that, maybe Chad and Ryan want to add in. So GRI, the investments we've made in GRI, we are winning. And really, you're going to see that manifest itself starting as early as Q2. And then we'll be able to provide more color as that starts to progress throughout the year. As far as RPO, RPO has doubled year-over-year. So we're close to $9 million in terms of RPO and a lot of that is the bookings and the winnings we're having on the GRI side.

Okay. and then, Mike, with the kind of initial or kind of accelerated investments in the first half of the year, looking at the full year, considering the net income guide for the year or range for the year, is the company going to be cash flow positive for the year based on what you see today?

Yes. From a non-GAAP net income perspective, $10 million to $17 million. Obviously, we've got variability in our working cap. Some of that we do control, some of it we don't because of our Managed Services business. But if you assume working cap to be net neutral, yes, you get -- you would be positive cash flow from operations.

Our next question will come from Mike Latimore with Northland Capital Markets.

I mean the software bookings were excellent. I guess, can you give a little more detail on that? Was there a couple of big wins in there? Or is it pretty broad-based? And then are there a couple I don't know, use cases that really stood out?

Yes, Ryan, do you want to take that?

Yes. Really kind of across the board. I don't think there was any unique use cases per se, but in the regulated industries as it relates to government legal and compliance, it's mostly aiWARE proper, obviously, more at the enterprise level versus specific applications, which is really exciting. So as I mentioned earlier, some of the active task orders that we're currently prosecuting today, are aiWARE direct, meaning they're not necessarily tied to appropriations against a specific application, but really looking at the aiWARE operating system as the product, which we're thrilled about. So I think that's a major one that we're active in. Hopefully, there'll be more information that we can provide when appropriate on them. But those are some of the bigger active ones. And just in addition to, I'd say, normal increase in acceleration of other sides of the business, including commercial.

Got it. And then you...

Yes, I want to just sort of echo that we talked about Amazon and 25% of the revenue from Amazon was from new services.

And then the sequential growth implied in the guidance is pretty solid there. I guess what is the -- what would be kind of a couple of key drivers? It kind of sounds like the hiring -- volume hiring maybe doesn't pick up in the second quarter, but maybe that's wrong. But what are some of the big sequential growth drivers?

Did you say from the top line or from a bottom line perspective?

Top line.

Yes. I mean, listen, our -- the content licensing business, some kind of combination of exiting COVID and having more content as we start to deploy more customers and expand with existing customers is really starting to manifest itself. While sequentially, it will probably be flat but year-over-year, it's going to be a nice growth. And then a lot of -- we talk about the Veriverse. It's really starting to open up starting in Q2. So sequentially, that should improve quarter-over-quarter and throughout the back half of the year.

Our next question will come from Robert Galvin with Stifel.

This is Rob Galvin on for Brad Reback. I'm just wondering with the nonrecurring customer credits, is there the potential for other vendors to do a similar upgrade?

They could, but just given the size of this particular platform, it will not have anywhere near an impact that this one did.

This concludes our question-and-answer session. I would like to turn the conference back over to Chad Steelberg, CEO of Veritone, for any closing remarks.

Thank you, operator. We at Veritone are experts in artificial intelligence, and our unique and differentiated business model paves the way for significant potential upside for our investors, our employees and our loyal customers. Despite the geopolitical and macroeconomic volatility that surrounds us today, without question, the future of enterprise is going to be powered by artificial intelligence. And we believe Veritone will play a vital role in unlocking that potential. 2021 was strong. We expect 2022 to be even stronger. Additionally, our pipeline of new business continues to imply accelerating growth beyond this year. Thank you for joining us on today's call. Goodbye.

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