Veritone, Inc.

Good evening, thank you for attending today's Veritone fourth quarter and year end 2021 financial results conference call. My name is Bethany and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to our host. Please go ahead.

Good afternoon and welcome to Veritone's fourth quarter and full year 2021 conference call. I am the digital twin of Vin Scully, the legendary voice of the Los Angeles Dodgers from 1963 through 2010. Even though I've retired from calling Dodger games several years ago, my voice and passion for sports and great achievements in human history have me here with you today by Veritone Voice, the most advanced AI-powered synthetic voice platform in the world. I'm excited to introduce Veritone's fourth quarter and year-end 2021 conference call. It's now my pleasure to hand the call off to Brian Alger, SVP Investor Relations and Capital Markets. Over to you, Brian. Thank you, Mr. Scully.

After the market closed today, Veritone issued a press release announcing results for the fourth quarter ended December 31st, 2021. The press release and other supplemental information is available at the investor 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 Stilberg, President Ryan Stilberg, and CFO Mike Zmetra, who will provide prepared remarks and then open up the call for a live Q&A session. We believe having an AI-led earnings call available in multiple languages is an industry first. Shortly after completing today's call, the remarks will be made available in six languages in Veritone's synthetic voices. Please note that certain information discussed on the call today will include forward-looking statements about future events in Veritone's business strategy and future financial and operating performance, including its expected net revenues and non-GAAP net income and loss for the first quarter and full year of 2021, 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, March 3, 2022, and Veritone undertakes no obligation to revise or update them. During this call, the actual and forecast financial measures that we'll 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 consists of Veritone's consolidated software products and services, including Panalogic, acquired in late September 2021, and managed services that include Veritone's content licensing and advertising services and their supporting operations, including direct costs and sales, as well as operating expenses for sales, marketing, and product development, and certain general and administrative costs dedicated to these operations. Corporate consists of general and administrative functions, such as executives, finance, legal, people operations, fixed overhead expenses, including facilities and information technology expenses, other income or expenses and taxes, and other expenses that support the entire company, including public company-driven costs. Veritone has aligned its organization to focus on two distinct customer groups, commercial enterprise and government and regulated industries. Commercial enterprise today consists of customers in the commercial sector, including our media and entertainment customers, advertising customers, content licensing customers, and customers through PandaLogic that are not from the government or regulated industry. Government Regulated Industries, also known as GRI, today consists of customers in the government and regulated industry sectors, including state, local, and federal governments, legal, compliance, and energy customers. Across the commercial enterprise and government regulated industries businesses, we separate revenue into two categories, software products and services, and managed services. Software products and services consists of revenues generated from our AIWare platform and through panelogic software product solutions, any related support or maintenance services, and any related professional services associated with the deployment and or implementation of such solutions. Managed service solutions consist of revenues generated from our advertising agency and related services and our content licensing services. Finally, I would like to remind everyone 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. I'd like to turn the call over to the digital twin of our chairman and CEO, Chad Stilbert.

Chad? Thank you, Brian. Good afternoon. Buenas tardes. Bonsoir. And fa'al shahab. Before we begin, I want to take a moment to say that Veritone stands with Ukraine in its opposition to Russia and hope that one day our AI is sufficient to help mitigate, and if necessary, actively resolve conflicts of this nature. As Brian noted, I am digital twin Chad, Our customers, including the sports icon, Mr. Ven Scully, are already using our synthetic voice for commercial purposes, and we are using it on this call today to give you a quick demonstration of one of our many AIWare-powered applications. We suspect synthetic voice earnings calls will become the standard of the future. Without further ado, I'll review our pivotal quarter and year-end performance, which without question validates our AI operating system vision, our focused application strategy, and our team's exceptional performance. Veritone delivered fourth quarter 2021 revenue of $55 million and bottom line non-gap net income of $17 million, resulting in several firsts for the company. Q4 was our first profitable quarter. 2021 was our first profitable year and our first year of positive cash flow. Our focus on profitability, operating efficiency, and our customer success have paid off. These results are the culmination of years of hard work and determination and a continuation of a trend that we started nearly two years ago. as Q4 is our seventh consecutive quarter of record revenue. While 2021 was a great year financially, with revenue growth of 100% and operating leverage improving, the future looks even brighter as the network effect of our land and expand strategy and nearly perfect customer retention metrics lay the foundation for continued growth and profitability. We are guiding for full-year 2022 revenue to be more than 60% higher than 2021 with positive EBITDA. More than two decades ago, Mark Benioff declared, software is dead. Today, I am proud to state that AI is alive. It is alive in its direct impact on so many services that hundreds of millions of people benefit from on a daily basis. Veritone's AIWare is now powering critical applications that underpin and make possible the world of tomorrow. Today, AI is alive. It is alive in the podcast that we listen to every day, synthetically producing the content and advertising that inform and entertain us. In the delivery of our Amazon packages and Domino's pizzas through AI power recruiting, diligence and hiring. In saving the planet through optimizing the energy flow in Southern California, increasing efficiency and improving energy forecasting by more than 30%. In protecting our communities by helping police investigate crimes and providing transparency and communication with the public it serves. And in defending America and its allies by helping the Department of Defense manage and understand an ever-growing data set of information being created and collected on the ground, on the sea, in the air, and even in space. AIWare's impact is much bigger than my local community or personal life. It is impacting massive industries in profound ways, touching every corner of the world, and we are only getting started. AIWare is poised to expand into every facet of our lives, both the real world and the metaverse yet to come. It's important to note, not all AI companies are equal. Some companies are delivering machine learning models and tools, others are providing consulting and integration services, and a few are delivering point solution applications in specific industries. However, only Veritone has developed an AI operating system with all of its supporting applications and services that can power a vast array of AI applications across any industry. In fact, since our IPO roadshow, I have been saying that the future of AI will have a common operating system, just like how traditional computational software runs on a handful of common OSes, like Windows, Mac OS X, or Linux. We remain laser-focused on our AI operating system, AIWare, and its ability to support an ever-expanding number of applications. AIWare's mission is to improve enterprise AI capabilities by 100-fold by reducing application development time, boosting performance, and dramatically reducing compute cost. Our unique and differentiated business model paves the way for significant potential upside for our investors, our employees, and our loyal customers. We do one thing and one thing very well, artificial intelligence. And based on our financial performance and customer metrics, I would say we do it better than anyone else. It's been a long process evolving from a startup to a profitable AI leader, from building AIWare as the first AIOS to developing award-winning AI applications. At the end of 2019, as we developed version 3 of AIWare, we set the target of expanding our gross margin from 40% to 80-plus percent, and we did it. Check the box. Also in 2019, we predicted law enforcement and public safety would be improved through the ethical use of AI. Check that box as well. Before we even went public, both Ryan and I publicly predicted the use of synthetic human voices in numerous industries. Check again. AIWare is more diverse, more powerful, more stable, and more profitable than anyone outside Veritone seems to realize. Similarly, in 2001, nobody thought Amazon, an online bookseller and now our largest customer, could become the online marketplace for everything in the future. But its focus on its core technology, what we now call AWS, is the engine that made that possible. and is now the leading engine that powers the cloud. AI is 1000 times more important, more powerful, and more diverse than any marketplace or cloud computing infrastructure. It is the future of humanity, and it's our only focus. We have reached another tipping point, and the continued translation of our vision into reality is accelerating. I'll elaborate. Just six years ago, Veritone had one AI model with one application used by less than five customers in one industry running on version 1 of AIWare. We ended 2021 with hundreds of models with dozens of applications used by over 500 customers in four industries. Our Q4 results broke many records, including customer growth, negligible attrition, and SaaS revenue contribution, and this is just the beginning. We have been aggressively and systematically going after the market. We have formed numerous strategic relationships with global entities like Deloitte, Microsoft, and the U.S. federal government. In 2021, these enterprise partners tested the power of AIWare. They were able to build new applications from scratch with 10% of the typical cost in one-tenth of the average time. Now they are believers, and repeatedly our partners have returned to AIWare and our managed services teams to develop novel AI solutions for their customers, thus We have entered a new stage in our land and expand strategy as we are now helping our partners land and expand their own AI solutions powered by AIWare. In 2022, we expect increased adoption and believe it will further accelerate in 2023. This is the tipping point we have been striving for. This is the point where it really gets interesting. The point where our customers use AIWare to develop applications for their customers and in turn drive the geometric progression of our business. the point where AI application development and Veritone diverge, and the point where AIWare creates enormous leverage to grow customers, end users, revenue, and so on. The Veritone of the future will have billions of end users, millions of customers, with less than 1% of the applications running on AIWare being developed and owned by Veritone. We are building the OS of the future, and we've reached the tipping point. How do I know we have reached this point? Or rather, and equally important for this call, how do I convince investors we have reached this point? Because our hard work is translating to metrics that investors can appreciate, value, compare, and understand. Our record Q4 and full-year 2021 KPIs, both operational and financial, are proof of our progression. In addition, we successfully integrated our acquisition of PandaLogic, proving our ability to grow inorganically at scale. While our technology is complex, our metrics and results are not. We are maniacal in our purpose to declare and prove that AI is alive and available for everyone. We are leading the world into a new era, a new epoch, a new beginning where our biological limitations are augmented and enhanced through our symbiotic relationship with artificial intelligence. Steve Jobs once famously declared that the computer was a bicycle for the mind. This is one case where Steve may have been short-sighted. The computer is a mind that will one day surpass its creator. As Ryan and Mike will detail in a moment, Veritone is executing and delivering on the strategy that we envisioned nearly seven years ago. As AI gains trust and continues to deliver accelerating efficiency and unprecedented positive outcomes, we are convinced that AIWare with its standardized adapter layer common intelligent data lake and standard APIs will drive broad-based enterprise adoption of cognitive solutions. Further enhancing this inherent strength, we find ourselves in an unprecedented period of employment choice. While many businesses are challenged by the current labor environment, Veritone is benefiting from our recent acquisition of PandaLogic and through the exceptional talent we are now able to attract and leverage. For Veritone, the current labor environment is our great opportunity With over $250 million in cash in a cash flow positive business, we are investing in our people and leaning into these advantages to further accelerate our growth and outpace our peers. I'll summarize. 2021 was our best year ever, and we expect accelerating growth in 2022 with our revenue guidance projected to be at least 60% higher than 2021, even when it is only forecasting our clear line of sight and omitting our customers' geometric adoption of AIWare. Most importantly, this is the year that proved that AI is alive. You might not see it yet, but trust me, it's there in the shows you watch, in the police that protect and serve you better, in the electricity that powers your electric vehicle, and so much more. And it's all running on AIWare and getting smarter every day. Now, I'll turn the call over to Ryan, our president, to provide further details on our operational progress. Over to you, Ryan.

Thank you, Chad. And good afternoon. Buenas tardes. We closed 2021 with yet another record performance. The outstanding results reflect our first full quarter after acquiring PandaLogic. Our integration is on track and cross-selling efforts are already beginning to bear fruit, starting with commercial enterprise. On the whole, Q421 commercial enterprise revenues increased 248% over the prior year period, Within commercial, our managed services grew 20% year-over-year, and our software and services revenue grew by nearly 1,200%. Pandalogic's contribution was obviously significant. The business with Amazon, our largest customer, remains quite robust. However, customer growth for Pandalogic was over 100% in the quarter. Perhaps more importantly, our commercial business, excluding Pandalogic, grew 61% year-over-year in the December quarter, an outstanding quarter by every measure. Veritone is going from strength to strength. Our bookings, retention, and new market offerings are delivering strong compounding growth. Our bookings hit a record high, eclipsing $8 million, and our organic bookings were up more than 130% versus the year ago quarter. As we enter 2022, we are excited to have renewed and or expanded virtually every single one of our commercial enterprise contracts. As Mike will detail shortly, our retention metrics remain in the top tier. In February, we exemplified our land and expand strategy when our longstanding client, iHeartMedia, the largest audio and podcast company, announced it is licensing Veritone's synthetic voice technology for its podcast network. The implications are wide-reaching as Veritone is already the leader in podcast advertising, and we are rapidly building a deep list of synthetic content prospects to follow iHeartMedia's lead. When both large and small commercial businesses seek to leverage synthetic content, they are rapidly turning to Veritone. In November, we unveiled how Veritone's synthetic voice and conversational AI can help companies pre-qualify applicants. This is just another example of how Veritone is bringing the metaverse to global enterprises. In the coming weeks and months, we will be talking more about our metaverse offerings. However, our already announced engagements should leave no doubt of Veritone's relevance in this emerging market, of which we are calling this strategy and focus the very verse. In addition to iHeart, We are inking deals in a number of voice markets beyond podcasting like audiobooks, production studios, audio advertising, and digital influencers. While announced in the prior quarter, our expanded licensing and NFT agreements with the Pac-12 and Recur deserve attention as they represent just another piece of the very verse puzzle enabled by the AIWare platform and our unique market position. In 2022, we expect to see strong growth from all of our commercial enterprise offerings with growth acceleration being driven by new PandoIQ customers, expanded DMH functionality, AI-ware, driven analytics and workflows, and synthetic voice, all of which are expanding our TAM, shifting to our government and regulated industries, or GRI. GRI finished 2021 with strong momentum that has carried over into 2022. resulting in early booking strength. Activity is accelerating across local, state, federal, and regulated markets. Recently, we announced that Veritone Contact has been licensed by nearly 100 California law enforcement agencies. While that rapid adoption is impressive on its own, it is the enterprise sale of our other products that holds greater revenue potential. Although not as material in revenue contribution today, the product market fit and value that we are delivering into the public safety sector is incredibly high and our rapid penetration of the California law enforcement agencies reflects that strength. We are also excited to report significant expansion outside of California with some notable new customers, including the Indiana State Police, Sarasota County Sheriff, Henderson Police Department, DeKalb County Sheriff, and the Chamblee Police Department. In February, we also announced that Veritone was named to a $249 million bulk purchase agreement, or BPA, with the Joint AI Center, or JAIC, for the T&E portion of the broader AI data acceleration initiative. Veritone's penetration and brand within the federal government has never been stronger, not just with the DoD, but across the DOJ and numerous other agencies. Ultimately, the results of the past several years of investment will shine in the financial results, if not in the press. We expect to see material growth from our government customers represented in our financials this year. On the regulated side, we continue to make good progress. In February, we announced the statistical results of our forecasting technology up against the California Independent System Operator Standard, known as CASO. CASO manages the flow of electricity on high-voltage power lines. operates a wholesale energy market, and oversees infrastructure planning in California. With 31% better forecasting, Veritone has demonstrated the potential to save millions of dollars for energy participants while at the same time delivering better grid resiliency and reliability. Already, we have signed a contract with CPV in Southern California and are in advanced contracting discussions with another energy provider on the East Coast. This week's formal announcement for our iDerm suite of energy applications is directly targeting this important market opportunity. With our lead customer in the Southeast U.S., our software continues to run 24-7 in production on their equipment, delivering outstanding results. We are in extended conversations regarding a much broader and extended deployment across that utility's entire clean energy portfolio. Needless to say, as soon as commercial terms are finalized, we look forward to providing more details. On the whole, Veritone is operating at its highest performance and efficiency and with more momentum than in any other time in our company's history. Our customer engagement is rapidly expanding and the operational leverage enabled by AIWare is just beginning to be realized. Now, I would like to hand the call off to Mike Zimetra, our CFO, to go through the financial results and guidance in more detail.

Over to you, Mike. Thank you, Ryan. First, I want to thank our international investors and analysts around the world in China. Xiexie. Latin America, gracias. And Germany, danke. Turning to Q4. I am excited to report we are performing at the highest levels with our seventh consecutive record quarter, our first quarter in year reporting positive non-GAAP results, and ending 2021 with cash in excess of $250 million. More importantly, we have executed on everything we outlined to you at the beginning of 2021, including generating over 50% year-over-year organic revenue growth from our software products and services, and closing and integrating on our largest acquisition to date, PandaLogic, which contributed $38 million of revenue with over 50% operating margin and generated pro forma revenue growth over 50% year-over-year and ending the year in quarter profitable for the first time. Heading into 2022 with over 60% consolidated revenue growth, a rock-solid balance sheet, and profitability, we now have the business momentum and financial leverage to accelerate our growth story even further. During my prepared remarks, I will discuss our 2021 and Q4 year-over-year performance and KPIs on a non-gap and pro forma basis as if we owned PandaLogic since the beginning of 2020, our November 2021 $200 million convertible debt financing and working capital, and Q1 and full year 2022 guidance, starting with full year 2021 performance. 2021 revenue reached a record $115.3 million, up 100% year-over-year. Software products and services revenue increased 329% to a record $59.5 million, driven by the $38.0 million PandaLogic contribution and a 53% year-over-year increase in organic software products and services. Managed services grew $11.9 million, or 27% well above industry averages. On a pro forma basis, 2021 revenue increased 41% to $148.1 million, driven primarily by software products and services. PandaLogic increased $23.8 million, or 50%, and organic software products and services grew $7.3 million, or 53%. Managed services increased by $11.9 million, or 27%, as a percentage of total revenue, pro forma software products and services represented approximately 62% of total revenue in 2021 versus 58% in 2020 2021 gross profit reached $93.2 million, improving $51.1 million, or 122% from 2020. Gross margins expanded to 80.1% in 2021, compared with 72.7% in 2020. On a pro forma basis, gross profit was $124.0 million. of $35.0 million, or 39% from the prior year, and gross margins remain relatively constant at 84% in 2021 compared to 83.9% in 2020. I am very pleased to report that for the first time since inception, Veritone generated full-year positive non-GAAP net income of $6.8 million. as compared to a $20.6 million non-GAAP net loss in 2020. The remarkable $27.4 million improvement was driven by core operations, most notably from PandaLogic's approximate 50% operating margin contribution for the last four months of 2021 combined with increases in organic revenue. On a pro forma basis, non-GAAP net income was $18.5 million. a 56% or $6.7 million improvement representing an approximate 13% operating margin in each year. Now turning to Q4 2021 financial performance. Q4 revenue was a record $55.1 million up $38.3 million, or 228% from Q4 of 2020. Software products and services increased $35.8 million, or 714%, to a record $40.2 million in revenue, reflecting $34.0 million Pandalogic contribution and 41% year-over-year increase from organic software products and services, led by growth in commercial media and entertainment and government. Managed services grew $2.5 million, or 20%, On a pro forma basis, Q4 revenue increased 27% from Q4 2020. Software products and services increased 30% driven by 47% growth in new software customers to 529 at Q4 2021, coupled with Q4 net customer retention of over 120%. On a pro forma basis, PandaLogic grew 28% year over year driven by over 200% growth in non-Amazon customer revenue. AAR was relatively flat year over year, which is driven by the timing of new customers offset by the year-over-year pro forma growth in Amazon. Overall, our revenue pipeline has never been stronger. Our partner-driven channel strategy continues to deliver results. New bookings were $8.2 million in Q4 2021, an increase of over 450%. Organic bookings growth was 238% in the quarter. Our future pipeline is at an all-time high, particularly in GRI, where we expect to immediately begin realizing significant growth in the near and long term. We have increased opportunities around enterprise offerings within GRI, new product applications like synthetic voice technology, international expansion and licensing and other services, cross-selling of PandaLogic, the recent $249 million BPA announcement with the Joint AI Commission, and significant progress on our energy initiatives. In Q4, we reported solid KPI results. New bookings were $8.2 million, up over 450% from pro forma Q4 2020. Gross retention continued to exceed 90%. Pro forma customers were up 47% year-over-year, and pro forma software AAR remained consistent year-over-year at $209,000. In managed services, advertising gross billings per active client increased to $625,000. up 15% over Q4 2020. Q4 2021 advertising revenue continued to outpace prior year, approximating industry growth versus the robust strength shown in the first half of 2021 largely driven by the timing of new and larger event-driven campaigns by key customers in the first half of 2021. Q4 2021 gross profit reached $48.9 million, improving $36.2 million, or 284%, from Q4 of 2020. Gross margins expanded to 88.6%, up compared with 75.6% in Q4 2020 and 74.4% in Q3 2021, benefiting from the entire quarter inclusion of PandaLogic, which generated gross margins in excess of 90%. As we continue to scale over the next 12 to 24 months, including the full impact of PandaLogic, we expect total gross margins to exceed 80% throughout 2022, improving sequentially each quarter, reflecting PandaLogic seasonality. On a pro forma basis, our Q4 gross profit of $48.9 million increased $10.1 million, or 26% versus Q4 2020. Pro forma gross margins were relatively flat year over year at 88.6% to 89.6%. Q4 net income was a record $17.0 million, improving $20.9 million year-over-year. Core operations posted record net income of $21.2 million, compared with $1.1 million in Q4 2020, reflecting PandaLogic and the aforementioned gross margin expansion. The corporate net loss improved to $4.3 million, compared to $5.0 million in Q4 2020 driven principally by lower personnel-related and rent expenses year-over-year. On a pro forma basis, Q4 non-GAAP net income increased $1.4 million, or 9% versus Q4 2020, reflecting improved revenue and gross profit offset by increased investments in OPEX, namely sales and engineering, organically, and at PandaLogic to fund growth. Turning to our balance sheet. At December 31, 2021, we held cash and restricted cash of $254.7 million, including $66 million received from managed services clients for future payments to vendors. This compares to $114.8 million at December 31, 2020. The increase reflects net cash inflows of $176.6 million from our November 2021 convertible debt offering and $7.2 million from operations. offset by $53.7 million in net cash used for the acquisition of PandaLogic. Working capital will continue to fluctuate depending on the timing and due dates of payments in any given period. Our unencumbered cash at the end of Q4 2021 was over $188 million, which is sufficient to operate the existing business and support growth for the foreseeable future. As a reminder, the result of the convertible debt financing was $201.3 million in gross proceeds after the green shoe, generating net proceeds of $176.6 million to Veritone. Total cost of capital, including the cap call and 1.75% coupon, is approximately 3.8% with annual interest cash cost of approximately $3.5 million. We plan to use the proceeds for general corporate purposes and strategic acquisitions. We ended December 31, 2021 with 35 million shares outstanding. Lastly, I want to note that in connection with PandaLogic achieving its 2021 financial target, we expect to pay out $21.7 million to PandaLogic shareholders by the end of Q1 2022, which will be comprised of $14.4 million in cash and $7.2 million in stock or approximately 350,000 shares valued at $20.53 per share. Turning to financial guidance for Q1 and full year 2022, 2022 will be a significant growth year for Veritone. To support this growth and achieve our near and long-term objectives, we expect to continue making responsible investments. These include forecasted increases in headcount by over 50%, which today includes just over 500 full-time employees. Our growth is largely dependent on these hires, the majority of which will be engineers, operational support, and sales. In addition, we have an active pipeline of strategic acquisitions to accelerate our planned organic growth and scale. In order to manage future growth and scale, we also need to invest in our infrastructure, including planned deployments of global systems such as Oracle and Workday in the first half of 2022. Lastly, as Chad mentioned at the outset, where the world sees the great resignation, we see the great opportunity. We no longer have border restrictions on hiring. However, we also need to retain our current employees. and with higher inflation and wage increases globally, we will need to reinvest back into our current employees with newer retention rewards, higher annual raises, and richer benefits versus historical. In total, we expect these one-time system and retention-related investments to be approximately $5 million of incremental costs to Veritone in 2022 versus 2021. With that backdrop and the reminder that PandaLogic has significant revenue seasonality with the lowest hiring in Q1 and accelerating quarterly throughout the year, we expect Q1 2022 revenue to be between $32.5 and $33.5 million, representing an 80% increase year-over-year at the midpoint versus Q1 2021 gap and an increase of 39% versus Q1 2021 pro forma. Software products and services revenue is projected to increase over 80% as compared to Q1 2021 pro forma revenue, reflecting customer growth while maintaining consistent AAR and gross and net retention rates. Managed services revenue is expected to grow in the mid to high single digits. We expect Q1 2022 non-GAAP net loss to be between $3.5 and $4.5 million, which is relatively flat versus Q1 2021 on both the GAAP and pro forma basis. As a reminder, the majority of our operating costs are fixed and payroll-driven. When comparing Q1 2022 to Q4 2021, the seasonal decline in revenue results in a decrease of over $20 million in gross profit. Even with this, we are still forecasting our core operations to be profitable in Q1 2022 and our corporate overhead non-GAAP net loss to be relatively consistent with Q4 2021. For full year 2022, we expect Revenue to be between $180 and $190 million, representing a year-over-year increase of over 60% at the midpoint on a GAAP basis and near 30% increase on a pro forma basis for 2022. We expect our combined software products and services revenue growth to be over 100% year-over-year on a GAAP basis. We expect full-year non-GAAP net income to be between $10 and $20 million, At the midpoint, this represents an over 100% improvement when compared to 2021 non-GAAP net income. If you exclude the previously discussed one-time expenses associated with retention and system upgrades, non-GAAP net income would be projected to be slightly up when compared to 2021 pro forma. It should be noted that in 2022, we expect our fully diluted share count to be between 45.2 and 47.2 million shares largely due to the as-if-converted accounting associated with our convertible debt offering and to a lesser extent the outstanding options, warrants, and RSUs held primarily by our employees. Before I close, we will be speaking at the following investor conferences this month, the JMP Securities Technology Conference March 7th and 8th, and the 34th Annual Roth Conference March 13th through the 15th Operator, now we would like to open up the call for questions.

Certainly. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason you would like to remove that question, please press star followed by 2. Again, to ask a question, please press star 1. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. The first question comes from the line of Darren of Tahit with Roth Capital Partners. Please go ahead.

Hey, guys. Good afternoon. Thanks for taking my questions, and congrats on the nice work. A couple, if I may. Mike, did I hear you right? You gave a GAAP growth number for 22 for software and services. If that's correct, I'm just kind of curious what the underlying is on a pro forma basis. And then within that pro forma growth number, how contributory are things like government, basically GRI and Marvel AI? And then lastly, I know you talked about the incremental investment, but in terms of acquisition, I mean, what are you guys going to do with that? sort of net $200 million unencumbered cash in 2022? Are we going to see more acquisitions? Thank you.

All right. Those are a lot of questions. So maybe I'll start with the pro forma growth. So we don't really break out in terms of guidance what the pro forma growth is going to be. But, you know, you can go back and look at, you know, we grew over 50% pro forma year over year. in 2021 versus 2020. now my expectations it's not going to be that good because we do have concentration with amazon amazon had a great year this year and you know they just are significant in terms of hiring and kind of logic um and but you know you can expect you know consistent we said all longs or 40 plus target um as far as what's going to comprise that growth I mean, we're certainly going to see growth in commercial enterprise. You know, Prandtl Logic is going to grow nicely. You know, the synthetic stuff we talked about today is going to contribute to growth. But more importantly, I think you will see growth in GRI, particularly in government and on the energy side. So it'll be a healthy mix of both. And then as far as, you know, capital, I mean, we've got the healthy balance sheet. None of our guidance includes acquisitions. You know, we feel like we're in a good spot to be aggressive, but to be responsible. And so, as I mentioned before, use of proceeds on that is probably going to be for operating purposes and then for future acquisitions, but nothing specific today.

Thank you.

Thank you, Mr. Aposki. The next question comes from the line of Patrick Walraven with J&P Security. Please go ahead.

Oh, great. Thank you. Actually, Chad, I have to give credit to this question to my wife who was walking through the kitchen, and I go, this is Chad's digital twin talking. She's like, what's that? And I explained what it was, and she goes, how do they do that? And I think that's right. I think that's a great question. How do you do that? So let's start that, and then I'll ask something more traditional.

Yep, absolutely. So, you know, as you could tell, there was some discrepancy in terms of the quality of the audio. If you know Ryan's voice, my voice, and Mike's voice, from my perspective, you could really tell that Ryan's kind of was probably the best voice out there in terms of mimicking his voice most. I noticed that. Right? Wouldn't you agree? You'd notice that I sounded a little bit robotic. I sounded like I was kind of like, you know, Roboto guy. Yeah. And then Vin Scully was epic. And it really, really comes down to, and we were just literally chatting about this while the prepared remarks being read, that the way it works is you provide a small sample of training data set. And the better your training data set, the better the model performs. It's all hosted on AI, where we basically, we take the audio in, we run it through a training model, and we generate a voice profile that basically represents the individual. We then can just feed text straight into the system and specify which voice we want to have prepare the remarks. So that's how we did this. You can also do voice-to-voice where I could have you speaking live, Pat, but have the output of your speaking could be translated into an individual. So really, really powerful stuff. Now, the reason why I didn't sound necessarily as good is I've been busy and I didn't have the time to spend on the training data. So I came out a little bit staccato. But you can really see where this goes. And I think it really also amplifies how important access to AI is for everybody. Because if you don't have access to the AI and the ability to get the training data built up, you really are going to not have the same level of capabilities in communicating and access. So it's interesting.

Yeah. And can you just use... So, for example, lots of recordings have been talking. Can you just use all those recordings, or do you actually have to spend time on it live?

You can actually use – go ahead, Ryan. Yeah, well, I mean, again, one of the luxuries that we have of working with so many meeting entertainment customers, as you know, we're sitting on tens of millions of hours of content. And obviously our ability to ingest that into AI work separate that content out, right, speaker separation, et cetera, we are also in a very unique situation to do this at scale. So our ability to isolate the voices, in effect, programmatically creating training data, right, which is a very unique opportunity for us. But, yes, we can repurpose a lot of historical footage. Obviously, the better quality, think of it as just quality of training data begets quality of models. relative to number of hours of training data. So if we could isolate super high quality and hour worth of training data at a very high fidelity bit rate performance, we may need one-tenth amount of training data. But to be clear, we're not talking about the difference of Ryan, my voice, of spending 100 hours of training data. We're talking of the difference of only a few hours between Chad and Ryan. So this is something that we're obviously – very excited about. We put out a press release about iHeart Media, you know, the largest audio company in the world using this technology. And you've got a little bit of snippet in our speeches about the different languages. So, you know, we're really excited about the, you know, several of the major use cases that we're taking this to market with.

All right. Awesome. Okay. Now my more traditional question. So look, how would you guys characterize the demand environment that you're selling into now? And in particular, you know, we're, we're, Hopefully it's going to stay this way, but we're exiting the pandemic, right? So is there a big sort of during the pandemic versus post-pandemic difference in buying behavior? Ryan, why don't you take that?

Sure. Yeah, I mean, our products, I don't think any of them have been directly correlated to the pandemic at all. You know, the macro trends of people having choice to work remotely these days is obviously here to stay. But if you kind of look at all of our different business lines, I would say more than anything, maybe the COVID pandemic maybe was a catalyst for some of these things. But again, as we see the demand for our products and services with state and local law enforcement, Fed, energy, and our traditional commercial products, we don't see any sort of dissipation at all on demand. And in certain areas we actually see, you know, acceleration. So again, you know, Pando was, I mean, I'm sorry, the COVID and pandemic was definitely a catalyst for some elements, but I think, you know, our business is very diverse and it's very strong.

Okay, great. Thank you.

Thank you, Mr. Wallaway-Van. Our next question comes from the line of Koji. Akita with Bank of America. Please go ahead.

Hey, Chad, Ryan, and Mike. Thanks for taking the questions. So a couple questions from me. First one, kind of going back to the government opportunity here. So, you know, kind of finished the year. It looks like around $4 million of revenue. But a couple of big announcements over the past few weeks with the law enforcement contract and especially that DOD contract. So You know, how should we be thinking about, you know, maybe the adoption or the revenue opportunity between the both of those, and then more specifically on DOD, you know, how long of an opportunity is this? I mean, it's a pretty big contract. You know, I do understand there's a bunch of different other companies that are also within that contract. Is this a one-year opportunity, two-year opportunity, or maybe even longer, like a 10-year opportunity?

I'll kick it off. Go for it, Ryan.

Yeah. So the, the, the opportunity with the department of defense, specifically the Jake division, the joint AI center, um, these are efforts that started years ago. Um, and that's just, you know, the, the price you pay to get into this space and tackle, um, what you see for us being able to successfully bid and be awarded as part of these blank person agreements, OTA agreements, and others. It is a huge milestone. We can't really undersell that. And yes, there is still a multitude of different customers under this BPA. But we're also, as you can imagine, heavily involved in a multitude of different awards and opportunities, not just within the JAIC, but across many different areas of the federal government. So this is one of many. It will be a multi-year opportunity. We do expect specific task orders to come down here shortly for this BPA. But to be very clear, we are an approved vendor now, right? And that's a big thing. Obviously, the investments we made in FedRAMP and all of our security protocols, our provisioning with partners like Deloitte and others are starting to pay dividends. And we see this really as the tip of the iceberg.

Got it. Got it. Okay. Thanks for that, Ryan. And then maybe a question for Mike. You know, Synthetic Mike was rattling off a lot of PandoLogic numbers, just wanted to make sure I got it right. What was the full year contribution from a pro forma basis of PandoLogic? I guess the first housekeeping question.

Yeah, $38 million of revenue. With a slightly over 50% contribution margin. For not pro forma, but for our gap year. Yeah, for Q4 and Q3. Okay.

Okay. So do you think kind of the, so I guess from a, from a basis that applies about 79 million, is that right? And you're just thinking about that.

That's probably closer to closer to 70. Yeah. Close to 70 million. Yeah.

Okay. 70 million still, still well above the 50 million. So how, how do we think about, you know, the growth with Panda logic, you know, contribution of Panda logic for it within the 2022.

Yeah.

I mean, thanks for taking my question.

This is, Sure. Yeah. This is the gift that keeps on giving, um, you know, very healthy, you know, double digit growth. I mean, you know, 30% plus year over year. Um, and, and what's happening with Panda logic, you know, Ryan alluded to it is sort of post pandemic, the world's changed and we call it the great opportunity where not just the employer has challenges in hiring, but the employee now has complete flexibility because we're all mobile. And that requires technology to find that right person and for that person to find the right employer. And we are projecting very healthy triple-digit growth in non-Amazon-related customers. So we're very happy with PandaLogic and its projections.

Got it. Thanks, Mike. Thanks for taking my question, guys.

Yep. Thank you, Mr. Akita. The next question comes from the line of Chad Bennett with Craig Halem. Please go ahead.

Great. Thanks for taking my questions. Again, one for Mike probably. So again, I don't recall because it was rapid fire a little bit on the prepared remarks. So on the 8.2 million in bookings for the quarter, did you say how much was PANDO related and non-PANDO in your prepared?

No, we don't break that down, but the majority is organic.

Majority organic, okay. And then of that $8.2 million in bookings, and then maybe also going forward more for the organic software business, How much of that business, either bookings or revenue, is recurring at this point or truly SaaS?

Yeah, so a healthy, we've disclosed before, PandoLogic's revenue is more event-driven, which creates the seasonality.

Yeah, I'm speaking more non-Pando, I guess. I'm more focused on it.

Yeah, I mean, as far as exact percentage, I mean, I'd say the majority is actually SaaS. On the M&E side, it's recurring type revenue. On the GRI side, it is, at least for the past 12 months, it has been recurring for the most part. But we will see some enterprise here shortly where it'll be sort of proof of concept with revenues maybe coming on deliverables. And then, you know, more fully bled out staff recurring post-delivery. But the majority, certainly on the commercial side, outside of Pando, is recurring.

Got it. And then maybe one last one real quick for me. Just on, you know, with what you indicated in terms of Pando growth this year, which looks pretty impressive off a great year. So we're going to be potentially north of $90 million in that business, if I'm kind of doing the math right. In terms of how we think about contribution margin, EBITDA, is that – I mean, I know it's all in one, but that business still kind of potentially turns out 50% type EBITDA margins above that $90 million run rate, or should we think differently on that?

Yeah, I mean, yeah, plus or minus a few percentage points, but that's the best way to think about it.

Okay. Thanks much.

Thank you, Mr. Bennett. Our next question comes from the line of Mike Lattimore with Northland Capital Markets. Please go ahead.

Great. Thank you. Yeah. Love the presentation there. That was fun. In terms of the PandoLogic Veritone kind of cross-sell opportunities, I know it's still early days, but Maybe can you talk a little bit about what you're seeing, what kind of use cases are emerging here?

Mike, I'll take that.

Ryan, why don't you take that?

You know, we see almost every single one of our customers, mutual customers, applicable for both Pando services and, frankly, the balance of AI-related services. You know, we have already closed deals, cross-selling. I think the integration... We really don't even look at them, you know, internally, candidly, between like organic and inorganic. We really are, you know, becoming a very single integrated company. And, you know, they're definitely benefiting not just from, you know, our enhanced technology capabilities. And we're not going into detail today, but we've already made some great milestones as it relates to AIware integration with PandaLogic. But also our ability to, which is kind of unique, is, you know, they really historically have tapped into talent acquisition budgets. Obviously, Veritone has a very strong branding and advertising side of our business as well, and you're seeing those two elements come more congruous together, where obviously the branding and corporate side of advertising and brand building is now getting a lot more involved in talent acquisition. Obviously, hiring is a major issue for a lot of companies. So we're really excited, and we think there's just a ton of synergy that we expected, but we're already seeing the realization of that.

Great. And then on PandoLogic, what kind of innovations or technology advancements are you thinking about this year for Pando itself?

I think the big one is just the continued advancement of PandoIQ. Again, trying to streamline all of the programmatic nature of the opportunity. As we go from large, I'll say more dominantly national accounts like Amazon and others. We're seeing very strong demand for, I'd say, more regional and local opportunities where there's just a ton of, let's say, hiring demand and turnover issues. So trying to make it as efficient when we look at local and regional-based hiring is something that is a core focus of ours. Also, the integration, which we touched on at the previous call and sort of talked a little bit as we've gone through the acquisition, is the conversational AI and Wade and Wendy integration, which we'll be talking about in some of the product updates here over the next several weeks. But trying to really automate that so you really have a continuity from an end-to-end perspective as the candidate enters the door in the system all the way through the onboarding process. We're really excited about the growth and opportunities for leveraging AI and our conversational AI framework to automate that.

Great. Thanks a lot. Thank you.

Thank you, Mr. Latimore. There are no additional questions waiting at this time. I would now like to pass the conference back to Chad Stuhlberg for any closing remarks.

Thank you, operator, and thank you all for joining us on today's call. I'm very pleased with Veritone's performance this past quarter and past year, but I am even more excited about what lies ahead. We appreciate your time today and the opportunity to share the exciting progress we are making towards our mission of making the world better through artificial intelligence. Until next time, goodbye.

That concludes the Veritone fourth quarter and year-end 2021 financial results conference call. I hope you all enjoy the rest of your day. You may now disconnect your lines.