☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~2420 17~~th ~~St.~~1615 Platte Street, ~~Office 3002~~2nd Floor, Denver, CO 80202

(Former name, former address and former fiscal year, if changed since last report))

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2) of the Exchange Act. Yes ☐ No ☒

As of ~~November 8, 2022,~~May 1, 2023, ~~36,289,632~~36,824,829 shares of the registrant’s common stock were outstanding.

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and we intend that such forward-looking statements be subject to the safe harbors created thereby. ~~For this purpose, any~~All statements made in this Quarterly Report on Form 10-Q that are not statements of historical ~~or current facts may be deemed to be~~fact are forward-looking statements. Without limiting the generality of the foregoing, words such as “anticipates,” “believes,” “seeks,” “estimates,” “expects,” “intends,” “continue,” “can,” “may,” “plans,” “potential,” “projects,” “should,” “could,” “will,” “would” or similar expressions and the negatives of those expressions ~~are intended to~~may identify forward-looking statements, although not all forward-looking statements contain these identifying words. Such forward-looking statements include, but are not limited to, any statements that refer to projections of our future financial condition and results of operations, capital needs and financing plans, competitive position, industry environment, potential growth and market opportunities, acquisition plans and strategies, compensation plans, governance structure and policies and/or the price of our common stock.

The forward-looking statements included herein represent our management’s current expectations and assumptions based on information available as of the date of this report. These statements involve numerous known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Factors that may cause or contribute to such differences include, but are not limited to:

~~Readers should carefully review these risks, as well as the additional risks described in other documents we file from time to time with the SEC.~~ All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that actual results will not differ materially from expectations. You should carefully review these risks, as well as the additional risks described in other documents we file from time to time with the SEC. In light of the significant risks and uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by us or any other person that such results will be achieved, and readers are cautioned not to place undue reliance on such forward-looking information, which speak only as of the date of this report.

Moreover, we operate in an evolving environment. New risks and uncertainties emerge from time to time and it is not possible for our management to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual future results to be materially different from those expressed or implied by any forward-looking statements.

Except as required by law, we assume no obligation to update any forward-looking statements, ~~publicly,~~ or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. We qualify all of our forward-looking statements by these cautionary statements.

The accompanying notes are an integral part of these condensed consolidated financial statements.

~~The accompanying notes are an integral part of these condensed consolidated financial statements.~~

The identifiable intangible assets acquired consisted of developed technology valued at $1,500 with estimated useful lives of 3 years. The Company amortizes the fair value of these intangible assets on a straight-line basis over their respective useful lives.

The fair value of the intangible assets has been estimated using a cost approach. Under the cost approach, the replacement cost is used to estimate the value of the asset. The key assumptions include the Company’s estimates of the direct and indirect costs required to replace the asset.

On June 10, 2022, the Company acquired 100% of VocaliD, a U.S.-based company that specializes in the creation of personalized synthetic voices, pursuant to a stock purchase ~~agreement dated as of~~ ~~June 10, 2022~~.agreement.

The total purchase consideration was $3,384 (the “VocaliD Acquisition Consideration”), which consisted of cash payments of $1,609 at closing and deferred cash payments to be made in 2023 totaling $2,000, which deferred payments were estimated to have a fair value of $1,785 as of the acquisition date, and a net working capital adjustment reducing the purchase price by $10. The Company incurred $200 in acquisition-related expenses and has recorded them in general and administrative expenses in the condensed consolidated statement of operations and comprehensive loss.

**The excess of the total consideration over the tangible assets, identifiable intangible assets, and assumed liabilities is recorded as goodwill. Goodwill is primarily attributable to the assembled workforce. ~~For~~The transaction is treated as a non-taxable stock acquisition for income tax purposes ~~the Company elected to treat the transaction as a stock acquisition~~ and none of the goodwill generated from the acquisition was tax deductible.

The identifiable intangible assets acquired consisted of developed technology valued at $2,700 with estimated useful lives of 3 years. The Company amortizes the fair value of these intangible assets on a straight-line basis over their respective useful lives.

On March 1, 2022, the Company acquired 100% of an influencer-based management company, which is a California limited liability company, pursuant to a securities purchase agreement dated as of March 1, 2022 (the “March 2022 Acquisition”). The entity is an influencer management company that works with a select group of social media influencers to create content and custom marketing campaigns for brand partners and agencies.

The total purchase consideration was $5,881 (the “March 2022 Acquisition Consideration”), which consisted of a cash payment of $1,500 at closing, $1,929 for the fair value of the Company’s 116,550 shares of common stock, and deferred cash payments to be made in 2023 and 2024 totaling $3,000, which deferred payments were estimated to have a fair value of $2,707 on the acquisition date. The total purchase price was decreased by $976 for the settlement of a preexisting receivable and increased by $684 to adjust for the cash on hand at the time of the transaction closing and a net working capital adjustment of $37. In addition, the sellers may receive up to $4,500 in contingent earnout consideration based on achieving certain milestones tied to the entity’s financial performance in fiscal 2022 and 2023, which amount will be paid in cash (the “March 2022 Acquisition Earnout”). The fair value of the March 2022 Acquisition Earnout was estimated to be $3,015 as of March 1, 2022, all of which was deemed to be compensation to the seller which will be recognized as compensation expense over the earnout period in the general and administrative expenses on the condensed consolidated statement of operations and comprehensive loss. The Company incurred $270 in acquisition-related expenses and has recorded them in general and administrative expenses in the condensed consolidated statement of operations and comprehensive loss.

The Company paid the first of two deferred cash payments of $1,500 during the three months ended March 31, 2023.

The ~~preliminary~~ allocation of the March 2022 Acquisition Consideration to tangible and intangible assets acquired and liabilities assumed is based on estimated fair values and is as follows (in thousands):

**The excess of the total consideration over the tangible assets, identifiable intangible assets, and assumed liabilities is recorded as goodwill. Goodwill is primarily attributable to opportunities to cross-sell into our Commercial Enterprise customer base. For income tax purposes, the Company elected to treat the transaction as an asset acquisition. ~~Tax deductible~~As such, the goodwill generated from the acquisition is $~~2,842~~ ~~(including transaction costs of $270~~).tax deductible.

The identifiable intangible assets acquired consisted of the influencer network, trade name and brand relationships with estimated useful lives of 3-10 years. The Company amortizes the fair value of these intangible assets on a straight-line basis over their respective useful lives.

The fair value of the intangible assets has been estimated using an income approach. Under the income approach, the after-tax cash flows associated with the asset are discounted to present value. The key assumptions include the Company’s estimates of the projected cash flows and discount rates.

On ~~September 14, 2021, the Company acquired~~ ~~100% of~~ ~~PandoLogic, a company incorporated under the laws of the state of Israel, pursuant to an Agreement and Plan of Merger dated as of~~ ~~July 21, 2021~~ (the “PandoLogic Merger Agreement”). PandoLogic is a leading provider of intelligent hiring solutions and utilizes its proprietary platform to accelerate the time and improve the efficiency in the process for employers hiring at scale for both mass market and difficult-to-source candidates. PandoLogic’s fully autonomous recruiting platform helps employers source talent faster and more efficiently with predictive algorithms, machine learning and AI.

~~The total purchase consideration for PandoLogic was $135,563~~ ~~(the “Merger Consideration”), which consisted of cash payments of $58,733~~ ~~at closing, $31,500~~ ~~for the fair value of the Company’s~~ ~~1,704,822~~ ~~shares of common stock, and up to $65,000~~ in contingent consideration based on achieving certain earnouts tied to financial performance of PandoLogic in fiscal 2021 and 2022, which amount will be paid in a combination of cash and common stock (the “PandoLogic Earnout”) and a net working capital adjustment of $~~5,818~~ ~~paid in cash. The Company utilized a Monte Carlo simulation model to estimate the fair value of the PandoLogic Earnout. The fair value of the PandoLogic Earnout was estimated to be $44,900~~ ~~as of September 14, 2021, $39,512~~ of which was deemed to be purchase consideration and recorded within contingent consideration current and contingent consideration non-current on the condensed consolidated balance sheet. The remaining

$~~5,388~~ will be recognized as compensation expense over the earnout period in the general and administrative expenses on the condensed consolidated statement of operations and comprehensive loss. Subsequent to the closing date, the Company is required to reassess its estimate of the fair value of the PandoLogic Earnout, including certain future PandoLogic Earnout obligations triggered on the employment status of certain PandoLogic management, and record any changes in earnings when the estimate is based on information not known as of the acquisition date (See Note 5). The Company incurred $~~2,161~~ ~~in acquisition-related expenses in 2021 and has recorded them in general and administrative expenses in the condensed consolidated statement of operations and comprehensive loss.~~

~~The allocation of the Merger Consideration to tangible and intangible assets acquired and liabilities assumed is based on estimated fair values and is as follows (in thousands):~~

**The excess of the total consideration over the tangible assets, identifiable intangible assets, and assumed liabilities is recorded as goodwill. Goodwill is primarily attributable to operational efficiencies from operating PandoLogic products on aiWARE as well as opportunities to cross-sell into our Commercial Enterprise customer base.

~~The identifiable intangible assets acquired consisted of developed technology, customer relationships and tradename with estimated useful lives of~~ 4-7 ~~years. The Company amortizes the fair value of these intangible assets on a straight-line basis over their respective useful lives.~~

The fair value of the intangible assets has been estimated using a combination of the income and cost approaches. Under the income approach, the after-tax cash flows associated with the asset are discounted to present value. The key assumptions include the Company’s estimates of the projected cash flows and discount rates. Under the cost approach, the replacement cost is used to estimate the value of the asset. The key assumptions include the Company’s estimates of the direct and indirect costs required to replace the asset. ~~The valuation of the intangible assets acquired from PandoLogic along with their estimated useful lives, is as follows (in thousands):~~

~~In connection with the acquisition, a net deferred tax liability of $12,686~~ ~~was established primarily for the differences between the fair value of the acquired non-goodwill intangible assets and PandoLogic’s historical tax basis in these assets.~~ No ~~deferred tax asset or liability is recorded on PandoLogic goodwill, $33,111~~ ~~of which is not deductible for tax purposes. In August 2021, PandoLogic obtained the approval for Preferred Technology Enterprise status under which its Israeli tax rate is reduced from the~~ 23~~% statutory rate to a~~ 12% beneficial rate. This arrangement is scheduled to expire in December 2025. The acquired Israel deferred tax assets and liabilities are computed based on the tax rate in the year of their expected reversal. No ~~valuation allowance is recorded on the acquired PandoLogic deferred tax assets as it is more likely than not they will be utilized to offset future taxable income.~~

The unaudited pro forma financial information in the table below summarizes the combined results of operations for Veritone and PandoLogic as if the companies were combined for the three and nine months ended September 30, 2021. The unaudited pro forma financial information for all periods presented included the business combination accounting effects resulting from this acquisition, including adjustments to reflect recognition of intangible asset amortization and accretion of contingent consideration. The unaudited pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of January 1, 2021.

NOTE 8. CONSOLIDATED FINANCIAL STATEMENTS DETAILS

Consolidated Balance Sheets Details

Cash and cash equivalents

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company had cash and cash equivalents of $~~196,071~~139,707 and $~~254,722~~184,423, respectively, including $~~59,476~~67,943 and $~~66,401~~93,118, respectively, of cash received from advertising customers for future payments to vendors.

Accounts Receivable, Net and Allowance for Credit Losses

Accounts receivable consisted of the following:


	As of						As of
	September 30, 2022			December 31, 2021			March 31, 2023			December 31, 2022
Accounts receivable — Managed Services(1)	$	46,666		$	21,347		$	29,884		$	27,670
Accounts receivable — Software Products & Services(2)		31,191			59,568			18,442			26,969
Accounts receivable — Other		8,760			4,926			6,490			2,181
		86,617			85,841			54,816			56,820
Less: allowance for doubtful accounts		(666	)		(778	)
Less: allowance for expected credit losses								(745	)		(819	)
Accounts receivable, net	$	85,951		$	85,063		$	54,071		$	56,001

(1)

Accounts receivable – Managed Services reflects the amounts due from the Company’s advertising customers.

(2)

Accounts receivable – Software Products & Services reflects the amounts due from the Company’s ~~PandoLogic~~hiring solutions customers.

Allowance for Credit Losses Accounting

The Company maintains an allowance for expected credit losses in order to record accounts receivable at their net realizable value. Inherent in the assessment of the allowance for credit losses are certain judgments and estimates relating to, among other things, the Company’s customers’ access to capital, customers’ willingness and ability to pay, general economic conditions and the ongoing relationship with customers. The Company calculates the expected credit losses on a pool basis for those receivables that have similar risk characteristics aligned with the types of accounts receivable listed in the accounts receivable table above. Allowances have been recorded for receivables believed to be uncollectible, including amounts for the resolution of potential credit and other collection issues. The allowance for expected credit losses is determined by analyzing the Company’s historical write-offs and the current aging of receivables. Adjustments to the allowance may be required in future periods depending on how issues considered such as the financial condition of customers and the general economic climate may change or if the financial condition of the Company’s customers were to deteriorate resulting in an impairment of their ability to make payments. The Company has not historically had material write-offs due to uncollectible accounts receivable.

Property, Equipment and Improvements, Net

Property, equipment and improvements, net consisted of the following:


	As of						As of
	September 30, 2022			December 31, 2021			March 31, 2023			December 31, 2022
Property and equipment	$	7,451		$	4,262		$	10,074		$	8,532
Leasehold improvements		248			167			254			250
		7,699			4,429			10,328			8,782
Less: accumulated depreciation		(3,063	)		(2,873	)		(3,934	)		(3,491	)
Property, equipment and improvements, net	$	4,636		$	1,556		$	6,394		$	5,291

Depreciation expense was $~~320~~478 and $~~764~~198 for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~respectively. Depreciation expense was $~~95 ~~and $349~~ ~~for the three and nine months ended September 30, 2021,~~ respectively. Of the $~~7,451~~10,074 in property and equipment as of ~~September 30, 2022,~~March 31, 2023, $~~1,918~~1,934 consisted of work in progress not yet placed in service for ~~internally capitalized software.~~internal use software development costs. Depreciation of internal use software development costs was $282 and $41 for the three months ended March 31, 2023 and 2022, respectively.

1916

Accounts Payable

Accounts payable consisted of the following:


	As of				As of
	September 30, 2022		December 31, 2021		March 31, 2023		December 31, 2022
Accounts payable — Managed Services(1)	$	15,156	$	23,613	$	27,903	$	17,972
Accounts payable — Other		16,281		23,098		10,112		18,766
Total	$	31,437	$	46,711	$	38,015	$	36,738

(1)

Accounts payable – Managed Services reflects the amounts due to media vendors for advertisements placed on behalf of the Company’s advertising clients.

Consolidated ~~Statement~~Statements of Operations and Comprehensive Loss Details

Revenue

Revenue for the periods presented were comprised of the following:

Three Months Ended
September 30,

Nine Months Ended
September 30,

2022

2021

2022

2021

Commercial Enterprise

$
36,184

$
21,697

$
103,174

$
57,460

Government & Regulated Entities

1,012

958

2,664

2,696

Total revenue

$
37,196

$
22,655

$
105,838

$
60,156


	Three Months Ended March 31,
	2023		2022
Commercial Enterprise	$	28,868	$	33,626
Government & Regulated Industries		1,395		781
Total revenue	$	30,263	$	34,407

~~In the third quarter of fiscal year 2021, the~~

The Company ~~realigned its organization to improve focus and growth into~~serves two customer groups: (1) Commercial Enterprise, ~~(“CE”),~~ which today consists of customers in the commercial sector, including media and entertainment customers, advertising customers, content licensing customers and PandoLogic customers; and (2) Government & Regulated Industries, ~~(“GRI”),~~ which today consists of customers in the government and regulated industries sectors, including state, local and federal government, legal, ~~compliance~~ and ~~energy~~compliance customers.

Software Products & Services consists of revenue generated from the Company’s aiWARE platform and PandoLogic’s talent acquisition solutions, any related support and maintenance services, and any related professional services associated with the deployment and or implementation of such solutions.

Managed Services consists of revenues generated from content licensing customers and advertising agency customers and related services.

The table below illustrates the presentation of our revenues based on the above definitions:


	Three Months Ended September 30, 2022						Nine Months Ended September 30, 2022						Three Months Ended March 31, 2023
			Government &						Government &						Government &
	Commercial		Regulated				Commercial		Regulated				Commercial		Regulated
	Enterprise		Industries		Total		Enterprise		Industries		Total		Enterprise		Industries		Total
Total Software Products & Services~~(1)~~	$	19,800	$	1,012	$	20,812	$	54,694	$	2,664	$	57,358	$	12,732	$	1,395	$	14,127

Managed Services
Advertising		11,017		—		11,017		32,620		—		32,620		10,535		—		10,535
Licensing		5,367		—		5,367		15,860		—		15,860		5,601		—		5,601
Total Managed Services		16,384		—		16,384		48,480		—		48,480		16,136		—		16,136

Total Revenue	$	36,184	$	1,012	$	37,196	$	103,174	$	2,664	$	105,838	$	28,868	$	1,395	$	30,263

2017

~~(1)~~

~~Software Products & Services consists of aiWARE revenues of $3,839~~

~~and $16,696~~ ~~for the three and nine months ended September 30, 2022, respectively, as well as PandoLogic revenues of $16,973~~ ~~and $40,662~~ ~~for the three and nine months ended September 30, 2022, respectively.~~


	Three Months Ended March 31, 2022
			Government &
	Commercial		Regulated
	Enterprise		Industries		Total
Total Software Products & Services	$	17,386	$	781	$	18,167

Managed Services
Advertising		10,968		—		10,968
Licensing		5,272		—		5,272
Total Managed Services		16,240		—		16,240

Total Revenue	$	33,626	$	781	$	34,407

Three Months Ended
September 30, 2021

Nine Months Ended
September 30, 2021

Government &

Government &

Commercial

Regulated

Commercial

Regulated

Enterprise

Industries

Total

Enterprise

Industries

Total

Total Software Products & Services(1)

$
8,069

$
958

$
9,027

$
16,596

$
2,696

$
19,292

Managed Services

Advertising

9,648

—

9,648

29,943

—

29,943

Licensing

3,980

—

3,980

10,921

—

10,921

Total Managed Services

13,628

—

13,628

40,864

—

40,864

Total Revenue

$
21,697

$
958

$
22,655

$
57,460

$
2,696

$
60,156

~~(1)~~

~~Software Products & Services consists of aiWARE revenues of $4,716~~ ~~and $14,981~~ ~~for the three and nine months ended September 30, 2021, respectively, as well as PandoLogic revenues of $4,311~~ ~~for the three and nine months ended September 30, 2021.~~

Other ~~Expense,~~Income (Expense), Net

Other ~~expense,~~income (expense), net for the periods presented was comprised of the following:

Three Months Ended
September 30,

Nine Months Ended
September 30,

2022

2021

2022

2021

Interest (expense) income, net

$
(1,305
)

$
(3
)

$
(3,670
)

$
4

Other

56

(12
)

4

(41
)
Other expense, net

$
(1,249
)

$
(15
)

$
(3,666
)

$
(37
)


	Three Months Ended March 31,
	2023			2022
Interest expense, net	$	(805	)	$	(1,182	)
Other		1,160			(4	)
Other income (expense), net	$	355		$	(1,186	)

Other in the table above consists primarily of foreign exchange gain of $1.2 million.

Provision for Income Taxes

The provision or benefit from income taxes for interim periods is determined using an estimate of the Company’s annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, the Company updates the estimate of the annual effective tax rate, and if the estimated tax rate changes, the Company records a cumulative adjustment.

The Company’s effective tax rate for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 was (~~0.5~~1.2~~)% and~~ ~~4.5%, respectively. The Company’s effective tax rate for the three and nine months ended September 30, 2021 was (3.6~~)% and (~~0.9~~0.6)%, respectively. The difference between the effective tax rate and the U.S. federal statutory rate of 21% is primarily due to a valuation allowance established on the majority of the Company’s federal and state net deferred tax assets. The change in our year-to-date effective tax rate is primarily driven by year-to-date losses generated by the Company’s foreign ~~subsidiary and a change in valuation allowance resulting from the acquisition of VocaliD,~~subsidiary.

As of ~~September 30, 2022,~~March 31, 2023, the Company continues to provide a valuation allowance against ~~certain~~all federal and state deferred tax assets. The Company continues to evaluate the realizability of deferred tax assets and the related valuation allowance. If the Company’s assessment of the deferred tax assets or the corresponding valuation allowance were to change, the Company would record the related adjustment to income during the period in which the determination is made.

The Company is subject to taxation in the United States, Israel, the United Kingdom, and various U.S. states. ~~Due to~~In general, the ~~Company’s~~U.S. federal statute of limitations is three years. However, the Internal Revenue Service may still adjust a tax loss ~~carryovers~~or credit carryover in ~~some jurisdictions, certain~~the year the tax loss or credit carryover is utilized. As such, the Company’s U.S. federal tax returns and state tax returns are open for examination since inception. The Israeli statute of limitations period is generally three years commencing at the end of the year in which the return was filed. The Company is not currently under examination from income tax authorities in ~~any jurisdiction~~the jurisdictions in which the Company does business.

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act (“IRA”) which, among other things, implements a 15% corporate alternative minimum tax based on the adjusted financial statement income for certain large corporations and a 1% excise tax on net share repurchases. The minimum tax and excise tax, if applicable, are effective for fiscal years beginning after December 31, 2022. The Company does not expect the IRA to have a material impact on its financial position, results of operations or cash flows. The Company will continue to monitor additional future guidance from the IRS.

NOTE 11. STOCK PLANS

Stock-Based Compensation

During the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, the Company granted options to purchase an aggregate of ~~291,850~~226,966 and 480,850 shares of its common stock that are subject to time-based vesting ~~conditions.~~conditions, respectively.

The Company valued these stock options using the Black-Scholes Merton option pricing model. The following assumptions were used to compute the grant date fair values of the stock options granted during the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022:


~~Expected term (in years)~~	~~5.5~~ - ~~6.1~~
~~Expected volatility~~	82~~% -~~ 92%
~~Risk-free interest rate~~	~~1.7% -~~ ~~3.5~~%
~~Expected dividend yield~~		—


	Three Months Ended March 31,
	2023		2022
Expected term (in years)	6.8		6.1
Expected volatility	91%		82%
Risk-free interest rate	3.6%		1.8%
Expected dividend yield		—		—

The assumptions used in calculating the fair values of purchase rights granted under the ESPP during the three months ended ~~September 30,~~March 31, 2023 and 2022 are set forth in the table below:


~~Expected term (in years)~~	~~0.5~~ - ~~2.0~~
~~Expected volatility~~	67~~% -~~ ~~119~~%
~~Risk-free interest rate~~	~~0.1% -~~ ~~3.0~~%
~~Expected dividend yield~~		—


	Three Months Ended March 31,
	2023		2022
Expected term (in years)	0.5 - 2.0		0.5 - 2.0
Expected volatility	71% - 101%		71% - 88%
Risk-free interest rate	0.1% - 4.8%		0.2% - 2.4%
Expected dividend yield		—		—

The Company’s stock-based compensation expense by type of award and by operating expense grouping are presented below:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2022		2021		2022		2021		2023		2022
Stock-based compensation expense by type of award:
Restricted stock units	$	3,509	$	4,264	$	9,999	$	14,014	$	2,168	$	3,432
Stock awards		—		—				19
Performance-based stock options		—		—				16,314
Performance-based stock units										328		—
Stock options		1,226		791		4,001		2,426		971		1,273
Employee stock purchase plan		367		86		540		337		450		92
Common stock issued for services		—		131		39		381		—		19
Total	$	5,102	$	5,272	$	14,579	$	33,491
Total stock-based compensation expense									$	3,917	$	4,816

Stock-based compensation expense by operating expense grouping:
Cost of revenue	$	46	$	—	$	90	$	—	$	20	$	20
Sales and marketing		538		226		1,728		1,358		176		463
Research and development		1,532		431		3,783		2,016		1,542		1,004
General and administrative		2,986		4,615		8,978		30,117		2,179		3,329
	$	5,102	$	5,272	$	14,579	$	33,491
Total stock-based compensation expense									$	3,917	$	4,816

Stock-based compensation capitalized for internal-use software was $134 and $33 for the three months ended March 31, 2023 and 2022, respectively.

Equity Award Activity Under Stock Plans

Performance Stock Units

On January 4, 2023, the Company entered into a consulting agreement (the “Steel Holdings Consulting Agreement”) with Steel Holdings, LLC, an affiliate of Chad Steelberg, our former Chief Executive Officer and current Chairman of the Company’s Board of Directors (the “Board”), as further described in Note 12. In connection with the Steel Holdings Consulting Agreement, on January 11, 2023 the Compensation Committee of the Board (the “Compensation Committee”) approved a grant of 118,460 performance stock units (the “Steel Holdings Consulting PSUs”) that vest upon the achievement of certain performance milestones. The Steel Holdings Consulting PSUs will expire 6 months after the Steel Holdings Consulting Agreement terminates.

On March 16, 2023, the Compensation Committee approved a grant of 170,402 target performance stock units to be granted to the Company’s named executive officers (the “Senior Executive PSUs”). The awards have a grant date of March 31, 2023 and will vest based on the achievement of revenue and non-GAAP net income targets (each equally weighted) for 2023, which achievement shall then be modified (up to a 20% increase or decrease) based on the Company’s relative total shareholder return over a three-year performance period (the “TSR Modifier”), as compared with the S&P Software and Services Select Industry Index. Based on the Company’s performance, the Company’s named executive officers may earn from 0% to 200% of the target number of shares of the Senior Executive PSUs. The Senior Executive PSUs, to the extent earned, will vest on the date the Board certifies the TSR Modifier for the three-year performance period ending December 31, 2025 and the number of Senior Executive PSUs that will vest as of such certification, all of which will occur within 90 days of the end of the performance period ending December 31, 2025. Compensation costs recognized on the Senior Executive PSUs are adjusted, as applicable, for performance above or below the target specified in the award.

The Company’s performance stock unit activity for the three months ended March 31, 2023 was as follows:


			Weighted
			Average Grant
	Shares		Date Fair Value
Unvested at December 31, 2022		—	N/A
Granted		288,862	$	5.88
Unvested at March 31, 2023		288,862	$	5.88

Restricted Stock Units

The Company’s restricted stock unit activity for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 was as follows:


				Weighted					Weighted
				Average Grant					Average Grant
	Shares			Date Fair Value		Shares			Date Fair Value
Unvested at December 31, 2021		886,461		$	32.56
Unvested at December 31, 2022							1,048,834		$	15.28
Granted		766,935		$	13.18		517,554		$	6.03
Forfeited		(40,500	)	$	24.88		(27,994	)	$	22.79
Vested		(511,719	)	$	37.38		(361,532	)	$	16.71
Unvested at September 30, 2022		1,101,177		$	15.60
Unvested at March 31, 2023							1,176,862		$	12.07

As of ~~September 30, 2022,~~March 31, 2023, total unrecognized compensation cost related to restricted stock units was $~~12,339~~10,590, which is expected to be recognized over a weighted average period of ~~1.88~~2.17 years.

Performance-Based Stock Options

The activity during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 related to stock options that are subject to performance-based vesting conditions tied to the achievement of stock price goals by the Company was as follows:

Weighted-Average

Remaining

Aggregate

Exercise

Contractual

Intrinsic

Options

Price

Term

Value

Outstanding at December 31, 2021

3,834,441

$
11.05

Exercised

(40,916
)

$
5.61

Expired

(14,243
)

$
5.30

Outstanding at September 30, 2022

3,779,282

$
11.13

5.8

$
2

Exercisable at September 30, 2022

3,779,282

$
11.13

5.8

$
2


				Weighted-Average
							Remaining	Aggregate
					Exercise		Contractual	Intrinsic
	Options				Price		Term	Value
Outstanding at December 31, 2022		3,762,679			$	11.15
Exercised		(7,000	)		$	6.11
Expired		(14,040	)		$	5.75
Outstanding at March 31, 2023		3,741,639			$	11.18	5.3 years	$	76
Exercisable at March 31, 2023		3,741,639			$	11.18	5.3 years	$	76

The aggregate intrinsic value of the options exercised during the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ was $~~275~~5 and $~~7,665~~221, respectively. No performance-based stock options were granted during the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ and no performance-based stock options vested during the ~~nine~~three months ended September 30, 2022. During the nine months ended September 30, 2021, the Company achieved all of the stock price milestones applicable to substantially all of the performance-based stock options and, as a result, such performance-based stock options vested and all associated unrecognized compensation was accelerated and recognized in full as a one-time expense of $~~16,268~~.March 31, 2023.

Stock Options

The activity during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 related to all other stock options was as follows:


				Weighted-Average										Weighted-Average
							Remaining		Aggregate								Remaining	Aggregate
					Exercise		Contractual		Intrinsic						Exercise		Contractual	Intrinsic
	Options				Price		Term		Value		Options				Price		Term	Value
Outstanding at December 31, 2021		5,508,608			$	15.10
Outstanding at December 31, 2022												5,867,785			$	14.53
Granted		630,467			$	11.50						226,966			$	5.31
Exercised		(49,343	)		$	5.91						(12,979	)		$	6.11
Forfeited		(190,212	)		$	19.44						(67,559	)		$	22.50
Expired		(41,776	)		$	15.45						(33,471	)		$	12.57
Outstanding at September 30, 2022		5,857,744			$	14.69		6.0	$	1,464
Exercisable at September 30, 2022		4,504,070			$	14.03		5.1	$	1,049
Outstanding at March 31, 2023												5,980,742			$	14.12	5.6 years	$	1,624
Exercisable at March 31, 2023												4,708,690			$	14.23	4.6 years	$	1,242

The weighted average grant date fair value of stock options granted during the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ was $~~8.59~~4.21 and $~~19.95~~11.36 per share, respectively. The aggregate intrinsic value of the stock options exercised during the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ was $~~274~~10 and $~~9,521~~163, respectively. The total grant date fair value of stock options vested during the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ was $~~4,204~~1,584 and $~~1,797~~1,085, respectively. At ~~September 30, 2022,~~March 31, 2023, total unrecognized compensation expense related to stock options was $~~14,423~~11,711 and is expected to be recognized over a weighted average period of 2.92.6 years.

The aggregate intrinsic values in the tables above represent the difference between the fair market value of the Company’s common stock and the average option exercise price of in-the-money options, multiplied by the number of such stock options.

Employee Stock Purchase Plan

During the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, a total of ~~130,538~~87,895 shares of common stock were purchased under the ~~Company’s~~ ESPP. As of ~~September 30,~~March 31, 2023 and December 31, 2022, accrued employee contributions for future purchases under the ESPP totaled $~~250~~248. and $595, respectively.

NOTE 12. RELATED PARTY TRANSACTIONS

On January 4, 2023, the Company entered into the Steel Holdings Consulting Agreement with Steel Holdings, LLC, effective as of January 1, 2023. Steel Holdings, LLC is an entity affiliated with Chad Steelberg, our current Chairman of the Board and former Chief Executive Officer effective as of December 31, 2022. Under the Steel Holdings Consulting Agreement, the Company retained Mr. Steelberg as a consultant to provide ongoing Chief Executive Officer transition services and to manage and oversee the further development of the Company’s aiWARE platform. During the three months ended March 31, 2023 the Company recorded a research and development expense of $155 for consulting fees and reimbursements for reasonable and documented expenses, $394 for variable consultant performance bonus expense and $328 in stock-based compensation expense for the Steel Holdings Consulting PSUs.

There were no other related party transactions during the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.

2622

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

The following discussion and analysis of our financial condition and results of operations should be read together with and is qualified in its entirety by reference to the condensed consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form ~~10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2021.~~10-Q. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed under “Risk Factors,” set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2021, as supplemented by Amendment No. 1 to our Quarterly Report on Form 10-Q/A for the three months ended March 31,~~ 2022 and our other filings with the Securities and Exchange Commission ~~(the “SEC”~~(“SEC”), including future SEC filings. . See “Special Note Regarding Forward-Looking ~~Statements” above at page 1.~~Statements.”

Overview

~~We are~~Veritone, Inc., collectively with our subsidiaries, referred to as “Veritone,” “Company,” “we,” “our,” and “us,” is a provider of Artificial Intelligence, or AI, solutions, powered by our proprietary AI operating system, aiWARE™, to deliver differentiated products and solutions to our Commercial Enterprise and Government & Regulated Industries customers. Our Software Products & Services consist of revenues generated from Commercial Enterprise and Government & Regulated Industries customers using our aiWARE platform and hiring solutions, any related support and maintenance services, and any related professional services associated with the deployment and/or implementation of such solutions. Our Managed Services consist of revenues generated from Commercial Enterprise customers using our content licensing services, advertising agency, influencer management and related services.

During the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, we generated revenue of ~~$37.2~~$30.3 million ~~and $105.8 million, respectively,~~ as compared to ~~$22.7 million and $60.2~~$34.4 million during the three ~~and nine~~ months ended ~~September 30, 2021, respectively.~~March 31, 2022. Our Software Products & Services ~~grew 197%~~revenue was $14.1 million during the ~~nine~~three months ended ~~September 30,~~March 31, 2023 as compared with $18.2 million for the same period in 2022, while our Managed Services of $16.1 million was relatively flat during the three months ended March 31, 2023 compared with the same period in 2021, while our Managed Services grew 19% during the nine months ended September 30, 2022 compared with the same period in 2021. During the three and nine months ended September 30, 2022 our largest customer represented 31% and 25%, respectively, of our consolidated revenue.2022. During the three months ended ~~September 30, 2021,~~March 31, 2023 our largest customer represented 18% of our consolidated revenue and during the three months ended March 31, 2022, that same customer was our largest customer and represented ~~17% of our consolidated revenue, while during the nine months ended September 30, 2021, a different customer was our largest customer and represented 8%~~31% of our consolidated revenue.

~~Significant Transactions~~Recent Developments

Effective December 31, 2022, Chad Steelberg resigned as our Chief Executive Officer and, effective January 1, 2023, our Board of Directors, or our Board, appointed Ryan Steelberg as President and Chief Executive Officer of the Company, or CEO. Chad Steelberg will continue to provide services to us in his role as Chairman of the Board and as a consultant to the Company. In ~~August 2022,~~January 2023, we ~~acquired certain assets of VSL, a U.K.-based company focused on AI-powered video analytics~~entered into new employment agreements with Ryan Steelberg and surveillance software solutions, pursuant to an asset purchase agreement. The total purchase consideration was $2.0 million, which consisted of cash payments of $1.7 million at closing and deferred cash payments to be made in 2023 totaling $0.3 million.Michael L. Zemetra, our Chief Financial Officer.

~~In September 2022,~~On January 4, 2023, we ~~and PandoLogic~~ entered into the Steel Holdings Consulting Agreement with Steel Holdings, LLC, an ~~amendment (the “Amendment”)~~entity affiliated with Chad Steelberg. Pursuant to the ~~PandoLogic Merger Agreement. The Amendment provides that~~Consulting Agreement, we retained Chad Steelberg as a consultant to provide ongoing transition services related to Ryan Steelberg’s appointment as CEO and to manage and oversee the ~~2022 PandoLogic Earnout will be no less than $10,825,000 (the “Minimum 2022 Earnout Amount”), irrespective~~further development of our aiWARE platform.

On January 31, 2023, we announced strategic cost reduction initiatives with the ~~actual financial performance~~aim of ~~PandoLogic for~~achieving net annualized savings of $12 to $15 million over the ~~2022 PandoLogic Earnout period. In exchange for the Minimum 2022 Earnout Amount, the Amendment further provides that certain restrictive operational covenants and obligations imposed on us~~course of fiscal 2023. As part of this initiative, we engaged in a headcount reduction during the ~~2022 PandoLogic Earnout period would terminate as~~first quarter of 2023. In addition, we are in the ~~date~~process of divesting our energy group in the ~~Amendment~~first half of 2023, and ~~provides for~~we intend to reduce and consolidate expenses tied to software, outside services, and cloud-based processing throughout 2023. As of May 1, 2023, we were no longer incurring expenses from the ~~early release~~energy group and we anticipate the divestiture transaction will close in the second quarter of certain escrow funds to us and to the paying agent for further distribution to the certain PandoLogic shareholders and employees under the PandoLogic Merger Agreement. The Amendment also provides for releases as to certain matters related to the PandoLogic Merger Agreement and the Amendment.2023.

Opportunities, Challenges and Risks

During the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ we derived our revenue primarily through our Commercial Enterprise customers, and secondarily through our Government & Regulated Industries customers.

We are a leader in AI-based Software Products & Services. Our proprietary AI operating system, aiWARE, uses machine learning algorithms, or AI models, together with a suite of powerful applications, to reveal valuable insights from vast amounts of structured and unstructured data. In addition to the year-over-year growth of 197% in our Software Products & Services during the nine months ended September 30, 2022 as compared to the prior year, we have also demonstrated our ability to grow our AI-based Managed Services, with our revenue from these Managed Services increasing 19% during the nine months ended September 30, 2022 as compared to the prior year. Historically, we have derived a large portion of our Software Product & Services revenue from applications we internally developed from our aiWARE platform and actively sold across various customers. Beginning in the second half of 2021, we realigned our organization to also focus on enterprise sales and opportunities across existing and newer markets. In September 2021, we acquired PandoLogic, an intelligent hiring platform. Based in Israel, PandoLogic serves high-volume hiring and enterprise level customers today, including the second largest employer in the U.S., Amazon. While management believes there is a substantial opportunity to increase revenue longer term, current economic conditions have negatively impacted our business operations and financial results, and there is no certainty that any future investments, which could be significant and include future potential acquisitions, will result in significant enterprise revenue realization or revenue growth when compared with historical revenue. ~~We also~~Nevertheless, we continue to see significant opportunities for growth in ~~cross-selling PandoLogic~~Software Products & Services and our aiWARE platform sales to existing and newly acquired

customers, and where our AI solutions could add tremendous value in content creation and distribution, including in the news, television and film industries.

We believe there will be significant near and long-term opportunities for revenue growth from Government & Regulated Industries markets due to customer adoption of our products and services related to AI technologies and more recently with our official Authorization to Operate, or ATO, of our aiWARE platform across the entire U.S. Department of ~~Justice.~~Justice and progress with the Chief Digital and Artificial Intelligence Officer (“CDAO”) and Department of Defense (“DOD”). However, many enterprise-level opportunities with ~~GRI~~Government & Regulated Industries customers can involve long sales cycles, during which we must invest significant time and resources without a guarantee of success. We may seek to acquire businesses with deep relationships and greater scale within the U.S. government and within regulated industries ~~such as energy~~ to further accelerate our pursuit of the growth opportunities we see in this market.

During the second half of 2020, we launched our Veritone energy ~~solutions~~group as part of our ~~GRI~~Government & Regulated Industries solutions to help utilities increase profitability and improve grid reliability as they make the transition to renewables. Today, our energy solutions are in production at a major utility and being deployed across global manufactures. WeWhile we believe ~~that~~ our patented technology is uniquely suited to solving some of the most difficult challenges facing utilities today, and we see significant near and long-term opportunities to grow our revenue within this market. Conversely,energy solutions have long term value, our aiWARE platform is in the early stages of deployment in ~~the energy~~this market, and given the current macroeconomic environment, coupled with the fact that we will need to continue making significant investments in product, sales and engineering to further develop ~~our~~ current and future solutions, we ~~may opt~~have elected to ~~slow down our investment in Veritone energy and/or~~ divest our energy ~~platform altogether.~~group in the first half of 2023. As of May 1, 2023, we were no longer incurring expenses from the energy group and we anticipate the divestiture transaction will close in the second quarter of 2023.

Growing our existing and new Software Products & Services customer base is critical for our success. During the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, ending Software Products ~~and~~& Services customers grew to ~~618,~~667, a ~~43%~~19% increase year over ~~on a pro forma basis (pro forma basis meaning the inclusion of PandoLogic as if owned by us since January 1, 2021).~~year. While our overall customer growth has been significant, we did experience a slowdown in our Average Annual Revenue (AAR) per customer (as defined and discussed below under “—Non-GAAP Financial Measures”), beginning in our second quarter of 2022, which was ~~almost entirely~~principally driven by athe reduction in hiring consumption from our largest customer, Amazon. ~~Given~~For most of 2021 through the first quarter of 2022, Amazon utilized our hiring platform to support its growth during the COVID-19 pandemic. Beginning in the second quarter of 2022, the COVID-19 pandemic eased and many consumers returned to in-person experiences, including brick and mortar retail shopping. As a result, Amazon substantially slowed its hiring activities in connection with its warehouse and distribution services throughout the remainder of 2022, which created significant fluctuations in our quarterly results in 2022. While we do not expect the same level of fluctuation from Amazon in 2023 as compared to 2022, given Amazon’s high concentration of revenue on our consolidated results, our revenue results may continue to fluctuate significantly year over year based upon their hiring patterns. Overall, our revenues from Amazon during the three months ended March 31, 2023 declined 49% as compared to the prior year, and represented approximately 18% of our consolidated revenue in the first quarter of 2023 compared to 31% of our consolidated revenue in the first quarter of 2022. Offsetting this decline was non-Amazon Software Products & Services revenue, which grew in the aggregate by 16% as compared to the prior year, driven in part by Government & Regulated Industries revenue growth of 79% during the three months ended March 31, 2023 as compared to the prior year. To reduce this risk, we ~~have been~~continue to aggressively ~~investing~~invest in existing and growing new ~~customers since we acquired PandoLogic in September 2021. On a pro forma basis, we~~customers. We also grew ~~PandoLogic’s~~our hiring solutions customer base as of ~~September 30, 2022~~March 31, 2023 over ~~65% year over year and PandoLogic’s non-volume hiring revenue for the nine months ended September 30, 2022, which excludes Amazon, grew over 100%~~21% year over year.

~~Beginning in March 2022,~~Additionally, and as a result of the recent pullback in the macroeconomic environment caused by high inflation, rising interest rates and recent and potential future disruptions in access to bank deposits or lending commitments due to bank failures, we ~~have experienced and are continuing to experience a reduction in hiring consumption from~~expect that some of our ~~largest customer, Amazon, and to a lesser extent from advertisers reducing~~customers may reduce advertising spending across our managed services in 2023 when compared to same periods in the prior year. In addition, in the event of a recession in 2023, we may see additional declines in existing and new customers consumption of our Software Products & Services. To ~~reduce this risk,~~mitigate against these risks, we have been investing aggressively ~~investing~~ in existing customers and acquiring new ~~customers. In order~~customers, and in January 2023, we announced certain cost reduction initiatives. As a result of our efforts to ~~continue to grow our Software Product & Services,~~ diversify our customer base and ~~drive increased~~increase sales within our existing customer base, we intend to continue to increase our sales and marketing spending in the near term as compared to the trailing twelve ~~to eighteen months.~~months; however, these increased investments will be somewhat offset by our 2023 cost reduction initiatives.

We believe our Software Products & Services will extend the capabilities of many third-party software platforms and products that are widely used today. For example, we believe that, when integrated with aiWARE, ~~PandoLogic~~our hiring solutions customers will be given greater visibility and transparency in their hiring processes. In addition, we have historically integrated aiWARE across many platforms, including Alteryx, Snowflake and the NVIDIA® CUDA® GPU-based platform, enabling dramatic increases in aiWARE’s processing speed and providing a wide range of new use cases for our technology. We are in the process of developing and marketing more specific use cases for these and future integrations, which we believe will open up new markets for our products and accelerate our ~~near and~~ long term revenue growth opportunities.

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023, our total revenues decreased to $30.3 million compared to $34.4 million for the three months ended March 31, 2022, a decrease of 12%. For the three months ended March 31, 2023, our total loss from operations increased to $23.6 million compared to $20.8 million for the three months ended March 31, 2022, an increase of 13%. For the three months ended March 31, 2023, our non-GAAP gross margin (calculated as described in “Non-GAAP Financial Measures” below) ~~improved~~decreased slightly to approximately ~~80%~~78% compared with approximately ~~74%~~80% for the three ~~and nine~~ months ended ~~September 30, 2021, driven by growth of new customers across our Software Products & Services and~~March 31, 2022, primarily due to reduced hiring solutions revenue from Amazon as compared to the ~~addition of PandoLogic in late 2021, which generated incremental non-GAAP gross margins in excess of 80% during the three and nine months ended September 30, 2022.~~prior year period. Our non-GAAP gross margin is impacted significantly by the mix of our Software Products & Services and our Managed Services revenue in any given period because our Managed Services revenue typically has a lower

overall non-GAAP gross margin than our Software Products & Services revenue. With the acquisition of PandoLogic in September 2021, we expect our consolidated non-GAAP gross margin and related non-GAAP gross profit to improve in each subsequent quarter in 2022 as the mix of PandoLogic revenue becomes seasonally larger throughout 2022. Our non-GAAP gross profit (see “Non-GAAP Financial Measures” below) is also dependent upon our ability to grow our revenue by expanding our customer base and increasing business with existing customers, and to manage our costs by negotiating favorable economic terms with cloud computing providers such as AWS and Microsoft Azure. While we are focused on continuing to improve our non-GAAP gross profit, our ability to attract and retain customers to grow our revenue will be highly dependent on our ability to implement and continually improve upon our technology and services and improve our technology infrastructure and operations as we experience increased network capacity constraints due to our growth.

We believe our operating results and performance are, and will continue to be, driven by various factors that affect our industry. Our ability to attract, grow and retain customers for our aiWARE platform is highly sensitive to rapidly changing technology and is dependent on our ability to maintain the attractiveness of our platform, content and services to our customers. ~~Moreover, we have historically reported GAAP operating losses, driven by certain non-cash and non-recurring items such as stock-based compensation and purchase accounting; however, we~~

expect to report substantial improvements in our consolidated operating results for the year ending December 31, 2022 as compared to the year ended December 31, 2021, driven by the growth in our software offerings and customers and the growth of PandoLogic. Our future revenue and operating growth will rely heavily on our ability to grow and retain our Software Products & Services customer base, continue to develop and deploy quality and innovative AI-driven applications and enterprise-level offerings, provide unique and attractive content and advertising services to our customers, continue to grow in newer markets such as Government & Regulated Industries, expand aiWARE into larger and more expansive enterprise engagements and manage our corporate overhead costs. While we believe we will be successful in these endeavors, we cannot guarantee that we will succeed in generating substantial long term operating growth and profitability.

We expect to ~~pursue~~continue pursuing a strategy of acquiring companies to help accelerate our organic growth. We believe there are strategic acquisition targets that can accelerate our entry into and expand our existing market share in key strategic markets, as well as our ability to grow our business. As a result, we are continuing to prioritize corporate development efforts throughout ~~2022.~~2023. Our acquisition strategy is threefold: (i) to increase the scale of our business in markets we are in today, (ii) to accelerate growth in new markets and product categories, including expanding our existing engineering and sales resources, and (iii) to accelerate the adoption of aiWARE as the universal AI operating system through venture or market-driven opportunities.

During the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, we reported a net loss of $23.0 million compared to a net loss of $22.1 million during the three months ended March 31, 2022. During the three months ended March 31, 2023, we reported a non-GAAP net loss of ~~$5.7~~$9.6 million ~~and $18.1 million, respectively,~~ as compared to ~~$2.3~~a non-GAAP net loss of $5.2 million ~~and $10.1 million, respectively,~~ during the three ~~and nine~~ months ended ~~September 30, 2021. We do expect seasonality in our revenue and operating performance, with increased profitability during the quarter ended December~~March 31, ~~driven partly from PandoLogic services and Managed Services. Moreover, and to~~2022. To continue to grow our revenue, we ~~will~~plan to continue to make targeted investments in people, namely software engineers and sales personnel. ~~Through September 30, 2022, our headcount grew approximately 24% since the beginning of 2022.~~ In ~~addition, during the first nine months of~~ 2022, we made substantial investments in our existing employee base, including higher annual raises and increased benefits, ~~in order~~ to compete in a challenging and constrained labor environment. ~~Lastly,~~In addition, we made investments in our corporate infrastructure, including new ERP and workforce systems to help us better manage the scale and growth of our business. However, considering the current challenging macro-economic environment in the first half of 2023, we have made and are continuing to make significant cost reductions to our operating structure to better streamline our business and prioritization around our growth and corresponding investments. In January 2023 we announced strategic cost reduction initiatives with the aim of achieving net annualized savings of $12 to $15 million over the course of fiscal year 2023, of which we have attained $10.8 million in cost reduction, or close to 80% of our target. These cost reduction initiatives began in the latter half of 2022 and will continue through the first half of 2023, and include reductions in workforce and certain legacy operating costs, as well as the divestiture of our energy group. We project that we remain on track to meet our annual goal. As a result of these initiatives, we believe we will be able to accelerate our pathway to long term profitability.

In the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ substantially all of our revenue was derived from customers located in the United States. We believe that there is a substantial opportunity over time for us to ~~significantly~~ expand our service offerings and customer base in countries outside of the United States. In the long term, we plan to expand our business further internationally in places such as Europe, Asia Pacific and Latin America, and as a result, we expect to continue to incur significant incremental upfront expenses associated with these expansion opportunities.

Impact of the ~~COVID-19 Pandemic and Other Macroeconomic~~Current Global Economic Conditions

Beginning in March 2020, we began to experience fluctuations in demand for certain services, particularly our Managed Services. Our Managed Services drive a significant amount of revenue from major live sporting events that were cancelled or postponed in the United States due to COVID-19. While many major sporting events have resumed, future cancellations of live sporting events could have a material adverse impact on our revenue generated from our Managed Services in future quarters. The COVID-19 pandemic has also affected and may continue to affect some of our customers, which may further reduce the demand and/or delay purchase decisions for our products and services and may additionally impact the creditworthiness of our customers.

~~In addition to continued market disruptions caused by the COVID-19 pandemic, global~~Global economic and business activities continue to face widespread macroeconomic uncertainties, including the ongoing impact of COVID-19, labor shortages, inflation and monetary supply shifts, recession risks and ~~potential~~ disruptions from the Russia-Ukraine conflict. We continue to actively monitor the impact of these macroeconomic factors on our financial condition, liquidity, operations, suppliers, industry and workforce, and have instituted certain cost saving measures for the third and fourth quarters as a result of these factors. The extent of the impact of these factors on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, and the impact on our customers, partners and employees, all of which are uncertain and cannot be ~~predicted; however,~~predicted. These global economic conditions and any continued or ~~renewed disruption resulting from~~new disruptions caused by these ~~factors could~~conditions may negatively impact our ~~business.~~ business in a number of ways. For example, our hiring solutions are sold to businesses whose financial conditions fluctuate based on general economic and business conditions, particularly the overall demand for labor and the economic health of current and prospective employers. In fiscal 2021, the COVID-19 pandemic forced certain technology and ecommerce companies, like Amazon, to increase hiring to meet increased demand. This, in turn, increased the overall consumption and use of our hiring solutions, and corresponding revenue. In fiscal 2022 and continuing in the first quarter of fiscal 2023, with the easing of COVID-19 restrictions and higher inflation worldwide, demand for certain ecommerce services declined. As a result, companies adversely impacted by this shift in consumer behavior, including Amazon, experienced a decline in the demand for hiring and the consumption of our hiring solutions and corresponding revenue declined.

To the extent that economic uncertainty or attenuated economic conditions cause our customers and potential customers to freeze or reduce their headcount, and reduce their advertising spending, demand for our products and services may be negatively affected in 2023 and beyond. These adverse economic conditions could also result in reductions in sales of our applications, longer sales cycles, reductions in contract duration and value, slower adoption of new technologies and increased price competition. In addition, economic recessions have historically resulted in overall reductions in spending on software and technology solutions as well as pressure from customers and potential customers for extended billing terms. If economic, political, or market conditions deteriorate, or if there is uncertainty around these conditions, our customers and potential customers may elect to decrease their software and technology solutions budgets by deferring or reconsidering product purchases, which would limit our ability to grow our business and negatively affect our operating results. Any of these events would likely have an adverse effect on our business, operating results and financial position.

Due to the nature of our business, the effect of these macroeconomic conditions may not be fully reflected in our results of operations until future periods. We have assessed the potential credit deterioration of our customers due to changes in the macroeconomic environment and have determined that no additional allowance for ~~doubtful accounts~~credit losses was necessary due to credit deterioration as of ~~September 30, 2022.~~March 31, 2023. The most significant risks to our business and results of operations ~~arising from the COVID-19 pandemic~~ are discussed in Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Non-GAAP Financial Measures

In evaluating our cash flows and financial performance, we use certain non-GAAP financial measures, including “Pro Forma Revenue,” “Average Annual Revenue (AAR),” “non-GAAP gross profit,” “non-GAAP gross margin,” “Non-GAAP net loss (pro forma),” “non-GAAP net income (loss),” and “non-GAAP net income (loss) per share.” Pro Forma Revenue includes historical Software Products & Services revenue ~~from the past six fiscal quarters~~ of each of Veritone, Inc. and PandoLogic Ltd. (unaudited) and presents such revenue on a combined

pro forma basis treating PandoLogic Ltd. as owned by Veritone, Inc. since January 1, 2021. Average Annual Revenue (AAR) is calculated as the aggregate of trailing twelve-month Software Products & Services Pro Forma Revenue divided by the average number of customers over the same period for both Veritone, Inc. and PandoLogic Ltd. Non-GAAP gross profit is the Company’s revenue less its cost of revenue. Non-GAAP gross margin is defined as Non-GAAP gross profit divided by revenue. Non-GAAP net loss (pro forma) is the Company’s net loss excluding the items set forth ~~below presented on a combined pro forma basis treating PandoLogic Ltd. as owned by Veritone, Inc. since January 1, 2021.~~below. Non-GAAP net income (loss) and non-GAAP net income (loss) per share is the Company’s net income (loss) and net income (loss) per share, adjusted to exclude interest expense, provision for income taxes, depreciation expense, amortization expense, stock-based compensation expense, changes in fair value of warrant liability, changes in fair value of contingent consideration, a reserve for state sales taxes, charges related to a facility sublease, gain on sale of asset, warrant expense, acquisition and due diligence costs, and severance and executive search costs. The results for non-GAAP net income (loss), are presented below for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022. The items excluded from these non-GAAP financial measures, as well as a breakdown of GAAP net loss, non-GAAP net income (loss) and these excluded items between our Core Operations and Corporate, are detailed in the reconciliation below.

In addition, we have provided supplemental non-GAAP measures of gross profit, operating expenses, loss from operations, other (expense) income, net, and loss before income taxes, excluding the items excluded from non-GAAP net loss as noted above, and reconciling such non-GAAP measures to the most directly comparable GAAP measures.

We present these non-GAAP financial measures because management believes such information to be important supplemental measures of performance that are commonly used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. Management also uses this information internally for forecasting and budgeting. These non-GAAP financial measures are not calculated and presented in accordance with GAAP and should not be considered as an alternative to net income (loss), operating income (loss) or any other financial measures so calculated and presented, nor as an alternative to cash flow from operating activities as a measure of liquidity. Other companies (including our competitors) may define these non-GAAP financial measures differently. These non-GAAP measures may not be indicative of our historical operating results or predictive of potential future results. Investors should not consider this supplemental non-GAAP financial information in isolation or as a substitute for analysis of our results as reported in accordance with GAAP.

Reconciliation of GAAP net loss to Non-GAAP net loss


(in thousands)
	Three Months Ended September 30,																		Three Months Ended March 31,
	2022									2021									2023									2022
	Core Operations(1)			Corporate(2)			Total			Core Operations(1)			Corporate(2)			Total			Core Operations(1)			Corporate(2)			Total			Core Operations(1)			Corporate(2)			Total
Net loss	$	(7,921	)	$	3,035		$	(4,886	)	$	(427	)	$	(11,064	)	$	(11,491	)	$	(12,570	)	$	(10,393	)	$	(22,963	)	$	(6,100	)	$	(16,029	)	$	(22,129	)
(Benefit from) provision for income taxes		20			6			26			390			6			396			(504	)		233			(271	)		134			4			138
Depreciation and amortization		5,650			174			5,824			1,698			81			1,779			5,754			153			5,907			5,098			116			5,214
Stock-based compensation expense		2,944			2,158			5,102			878			4,393			5,271			2,335			1,582			3,917			1,983			2,833			4,816
Change in fair value of contingent consideration		—			(14,291	)		(14,291	)		—			303			303			—			651			651			—			5,045			5,045
Interest expense, net		—			1,305			1,305			—			—			—			9			796			805			—			1,182			1,182
Foreign currency impact																				(1,146	)		(15	)		(1,161	)		—			—			—
Acquisition and due diligence costs		—			839			839			—			1,426			1,426			—			805			805			—			561			561
State sales tax reserve		—			—			—			—			22			22
Severance and executive search		337			28			365			—			—			—
Contribution of business held for sale (3)																				917			—			917			—			—			—
Variable consultant performance bonus expense																				394			—			394			—			—			—
Severance and executive transition costs																				1,027			417			1,444			—			—			—
Non-GAAP Net Income (Loss)	$	1,030		$	(6,746	)	$	(5,716	)	$	2,539		$	(4,833	)	$	(2,294	)	$	(3,784	)	$	(5,771	)	$	(9,555	)	$	1,115		$	(6,288	)	$	(5,173	)

(in thousands)

Nine Months Ended September 30,

2022

2021

Core Operations(1)

Corporate(2)

Total

Core Operations(1)

Corporate(2)

Total

Net loss(3)

$
(22,172
)

$
(8,096
)

$
(30,268
)

$
(3,933
)

$
(50,840
)

$
(54,773
)
(Benefit from) provision for income taxes(3)

(826
)

(616
)

(1,442
)

390

82

472

Depreciation and amortization(3)

16,054

440

16,494

3,865

324

4,189

Stock-based compensation expense

7,612

6,967

14,579

4,589

28,902

33,491

Change in fair value of contingent consideration(3)

—

(23,076
)

(23,076
)

—

303

303

State sales tax reserve

—

—

—

—

306

306

Interest expense, net

—

3,670

3,670

—

—

—

Acquisition and due diligence costs

—

1,608

1,608

—

2,161

2,161

Charges related to sublease

—

—

—

—

3,367

3,367

Severance and executive search

337

28

365

—

349

349

Non-GAAP Net Income (Loss)

$
1,005

$
(19,075
)

$
(18,070
)

$
4,911

$
(15,046
)

$
(10,135
)

(1) Core operations consists of our ~~aiWARE operating platform of software, SaaS~~consolidated Software Products & Services and ~~related services;~~Managed Services that include our content licensing and advertising ~~agency services;~~services, and their supporting operations, including direct costs of sales as well as operating expenses for sales, marketing and product development and certain general and administrative costs dedicated to these operations.

(2) Corporate consists of general and administrative functions such as executive, finance, legal, people operations, fixed overhead expenses (including facilities and information technology expenses), other income (expenses) and taxes, and other expenses that support the entire company, including public company driven costs.

(3) Contribution of business held for sale relates to the net loss for the periods presented for our energy group that we intend to divest before the end of Q2 2023. The energy group met the held for sale criteria as of March 31, 2023. However, we have not recast Non-GAAP Net Income (Loss) for periods ended prior to March 31, 2023 because the change in business strategy to divest the business occurred in Q1 2023 and the prior period contributions were costs to operate the continuing business when incurred in the prior periods. The historical amounts would not have a major effect on prior period results.

For the three months ended March 31, 2023, our total loss from operations increased to $23.6 million compared to $20.8 million for the three months ended March 31, 2022. The following tables set forth the calculation of our non-GAAP gross profit and non-GAAP gross margin, followed by a reconciliation of non-GAAP to GAAP financial information presented in our condensed consolidated financial statements for three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.


(dollars in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2022			2021			2022			2021			2023			2022
Revenue	$	37,196		$	22,655		$	105,838		$	60,156		$	30,263		$	34,407
Cost of revenue		7,097			5,808			20,725			15,862			6,809			6,923
Non-GAAP gross profit		30,099			16,847			85,113			44,294			23,454			27,484
Non-GAAP gross margin		80.9	%		74.4	%		80.4	%		73.6	%		77.5	%		79.9	%

3127


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2022			2021			2022			2021			2023			2022
Revenue	$	37,196		$	22,655		$	105,838		$	60,156		$	30,263		$	34,407
Cost of revenue		7,097			5,808			20,725			15,862			6,809			6,923
Non-GAAP gross profit		30,099			16,847			85,113			44,294			23,454			27,484

GAAP cost of revenue		7,097			5,808			20,725			15,862			6,809			6,923
Stock-based compensation expense		(46	)		—			(90	)		—			(20	)		(20	)
Non-GAAP cost of revenue		7,051			5,808			20,635			15,862			6,789			6,903

GAAP sales and marketing expenses		13,920			5,906			37,565			17,586			12,690			11,069
Stock-based compensation expense		(538	)		(226	)		(1,728	)		(1,358	)		(176	)		(463	)
Severance and executive search		(86	)		—			(86	)		(236	)
Contribution of business held for sale (2)														(263	)		—
Severance and executive transition costs														(313	)		—
Non-GAAP sales and marketing expenses		13,296			5,680			35,751			15,992			11,938			10,606

GAAP research and development expenses		11,784			5,254			32,735			14,860			11,527			9,883
Stock-based compensation expense		(1,532	)		(431	)		(3,783	)		(2,016	)		(1,542	)		(1,004	)
Severance and executive search		(198	)		—			(198	)		(14	)
Contribution of business held for sale (2)														(558	)		—
Severance and executive transition costs														(529	)		—
Non-GAAP research and development expenses		10,054			4,823			28,754			12,830			8,898			8,879

GAAP general and administrative expenses		2,502			15,084			27,127			62,272			17,397			22,321
Depreciation		(320	)		(95	)		(764	)		(349	)		(478	)		(198	)
Stock-based compensation expense		(2,986	)		(4,615	)		(8,978	)		(30,117	)		(2,179	)		(3,329	)
Change in fair value of contingent consideration		14,291			(303	)		23,076			(303	)		(651	)		(5,045	)
Charges related to sublease		—			—			—			(3,367	)
State sales tax reserve		—			(22	)		—			(306	)
Variable consultant performance bonus expense														(394	)		—
Contribution of business held for sale (2)														(96	)		—
Acquisition and due diligence costs		(839	)		(1,426	)		(1,608	)		(2,161	)		(805	)		(561	)
Severance and executive search		(81	)		—			(81	)		(99	)
Severance and executive transition costs														(602	)		—
Non-GAAP general and administrative expenses		12,567			8,623			38,772			25,570			12,192			13,188

GAAP amortization		(5,504	)		(1,683	)		(15,730	)		(3,840	)		(5,429	)		(5,016	)

GAAP loss from operations		(3,611	)		(11,080	)		(28,044	)		(54,264	)		(23,589	)		(20,805	)
Total non-GAAP adjustments (1)		(2,161	)		8,801			9,970			44,166			14,035			15,636
Non-GAAP loss from operations		(5,772	)		(2,279	)		(18,074	)		(10,098	)
Non-GAAP income (loss) from operations														(9,554	)		(5,169	)

GAAP other expense, net		(1,249	)		(15	)		(3,666	)		(37	)
GAAP other income (expense), net														355			(1,186	)
Foreign currency impact														(1,161	)		—
Interest expense, net		1,305			—			3,670			—			805			1,182
Non-GAAP other expense, net		56			(15	)		4			(37	)		(1	)		(4	)

GAAP loss before income taxes		(4,860	)		(11,095	)		(31,710	)		(54,301	)		(23,234	)		(21,991	)
Total non-GAAP adjustments (1)		(856	)		8,801			13,640			44,166			13,679			16,818
Non-GAAP loss before income taxes		(5,716	)		(2,294	)		(18,070	)		(10,135	)		(9,555	)		(5,173	)

Income tax (benefit) provision		26			396			(1,442	)		472
(Benefit from) provision for income taxes														(271	)		138

GAAP net loss		(4,886	)		(11,491	)		(30,268	)		(54,773	)		(22,963	)		(22,129	)
Total non-GAAP adjustments (1)		(830	)		9,197			12,198			44,638			13,408			16,956
Non-GAAP net loss	$	(5,716	)	$	(2,294	)	$	(18,070	)	$	(10,135	)	$	(9,555	)	$	(5,173	)

Shares used in computing non-GAAP basic and diluted net loss per share		36,202			33,333			35,924			32,753			36,588			35,477
Non-GAAP basic and diluted net loss per share	$	(0.16	)	$	(0.07	)	$	(0.50	)	$	(0.31	)	$	(0.26	)	$	(0.15	)

(1) Adjustments are comprised of the adjustments to GAAP cost of revenue, sales and marketing expenses, research and development expenses and general and administrative expenses and other (expense) income, net (where applicable) listed above.

32(2) Contribution of business held for sale relates to the net loss for the periods presented for our energy group that we intend to divest before the end of Q2 2023. The energy group met the held for sale criteria as of March 31, 2023. However, we have not recast Non-GAAP Net Income (Loss) for periods ended prior to March 31, 2023 because the change in business strategy to divest the business occurred in Q1 2023 and the prior period contributions were costs to operate the continuing business when incurred in the prior periods. The historical amounts would not have a major effect on prior period results.

Supplemental Financial Information

We are providing the following unaudited supplemental financial information regarding our Software Products & Services and Managed Services as a lookback of the prior year to explain our recent historical and year-over-year performance. ~~The Software Products & Services supplemental financial information is presented on a pro forma basis, as further described below.~~

The supplemental financial information for our Software Products & Services includes: (i) Software Products & Services Revenue, ~~– Pro Forma,~~ (ii) Ending Software Customers, (iii) Average Annual Revenue (AAR), (iv) Total New Bookings, and (iv) Gross Revenue Retention, in each case as defined in the footnotes to the table below. The supplemental financial information for our Managed Services includes: (i) average gross billings per active agency client, and (ii) revenue.

Software Products & Services Supplemental Financial Information

The following table sets forth the results for each of our Software Products & Services supplemental financial information.


	Quarter Ended														Quarter Ended
	Mar 31,		Jun 30,		Sept 30,		Dec 31,		Mar 31,		Jun 30,		Sept 30,		Mar 31,		Jun 30,		Sept 30,		Dec 31,		Mar 31,
	2021		2021		2021		2021		2022		2022		2022		2022		2022		2022		2022		2023
Software Revenue - Pro Forma (in 000's) (1)	$	10,183	$	20,072	$	21,860	$	40,223	$	18,167	$	18,379	$	20,812
Software Products & Services Revenue															$	18,167	$	18,379	$	20,812	$	27,220	$	14,127
Ending Software Customers ~~(2)~~(1)		385		419		433		529		559		594		618		559		594		618		642		667
Average Annual Revenue (AAR) (in 000's) ~~(3)~~(2)	$	199	$	203	$	208	$	209	$	207	$	187	$	170	$	207	$	187	$	170	$	140	$	128
Total New Bookings (in 000's) ~~(4)~~(3)	$	2,442	$	4,896	$	3,356	$	8,317	$	9,574	$	14,658	$	16,548	$	9,574	$	14,658	$	16,548	$	20,047	$	15,010
Gross Revenue Retention ~~(5)~~(4)	>90%		>90%		>90%		>90%		>90%		>90%		>90%		>90%		>90%		>90%		>90%		>90%

(1) “Software Revenue - Pro Forma” includes historical Software Products & Services revenue from the past seven (7) fiscal quarters of each of Veritone, Inc. and PandoLogic (unaudited) and presents such revenue on a combined pro forma basis treating PandoLogic as owned by Veritone, Inc. since January 1, 2020.

~~(2)~~ “Ending Software Customers” includes Software Products & Services customers as of the end of each respective quarter set forth above with trailing twelve-month revenues in excess of $2,400 for both Veritone, Inc. and PandoLogic and/or deemed by us to be under an active contract for the applicable periods.

~~(3)~~(2) “Average Annual Revenue (AAR)” is calculated as the aggregate of trailing twelve-month Software Products & Services revenue divided by the average number of customers over the same period for both Veritone, Inc. and PandoLogic. Our AAR for the twelve months ended March 31, 2022 and June 30, 2022 is calculated using Pro Forma Revenue for such periods. Pro Forma Revenue is a non-GAAP number. Please see “—Reconciliation of Pro Forma Revenue and Calculation of AAR” below for a reconciliation of Pro forma Revenue to GAAP revenue.

~~(4)~~(3) “Total New Bookings” represents the total fees payable during the full contract term for new contracts received in the quarter (including fees payable during any cancellable portion and an estimate of license fees that may fluctuate over the term), excluding any variable fees under the contract (e.g., fees for cognitive processing, storage, professional services and other variable services).

~~(5)~~(4) “Gross Revenue Retention”: We calculate our dollar-based gross retention rate as of the period end by starting with the revenue from Ending Software Customers for Software Products & Services as of the 3 months in the prior year quarter to such period, or Prior Year Quarter Revenue. We then deduct from the Prior Year Quarter Revenue any revenue from Ending Software Customers who are no longer customers as of the current period end, or Current Period Ending Customer Revenue. We then divide the total Current Period Ending Customer Revenue by the total Prior Year Quarter Revenue to arrive at our dollar-based gross retention rate, which is the percentage of revenue from all Ending Software Customers from our Software Products & Services as of the year prior that is not lost to customer churn.

As we grow our business for our Software Products & Services, we expect that our supplemental financial information will be impacted in different ways based on our customer profiles and the nature of target markets. For example, our PandoLogic business has significant revenue concentration in a single customer which has a material impact on the average contract value and gross retention. As a result, we have shown the supplemental financial information on a pro forma basis for comparability.

~~The following table sets forth the reconciliation of pro forma revenue to revenue and the calculation of AAR.~~

Quarter Ended

Mar 31,

Jun 30,

Sept 30,

Dec 31,

Mar 31,

Jun 30,

Sept 30,

2021

2021

2021

2021

2022

2022

2022

Software Products & Services Revenue

$
4,685

$
5,580

$
9,027

$
40,223

$
18,167

$
18,379

$
20,812

PandoLogic Revenue (1)

5,498

14,492

12,833

—

—

—

—

Software Revenue - Pro Forma

$
10,183

$
20,072

$
21,860

$
40,223

$
18,167

$
18,379

$
20,812

Managed Services Revenue

13,610

13,626

13,628

14,926

16,240

15,856

16,384

Total Pro Forma Revenue

$
23,793

$
33,698

$
35,488

$
55,149

$
34,407

$
34,235

$
37,196

Trailing Twelve Months Ended

Mar 31,

Jun 30,

Sept 30,

Dec 31,

Mar 31,

Jun 30,

Sept 30,

2021

2021

2021

2021

2022

2022

2022

Software Products & Services Revenue

$
15,439

$
18,017

$
23,693

$
59,515

$
72,997

$
85,796

$
97,581

PandoLogic Revenue (1)

50,283

57,262

59,292

32,824

27,325

12,833

—

Software Revenue - Pro Forma

$
65,722

$
75,279

$
82,985

$
92,339

$
100,322

$
98,629

$
97,581

Managed Services Revenue

43,845

52,019

53,279

55,789

58,419

60,546

63,406

Total Pro Forma Revenue

$
109,567

$
127,298

$
136,264

$
148,128

$
158,741

$
159,175

$
160,987

Average Number of Customers - Pro Forma

330

372

399

442

485

529

575

Average Annual Revenue (AAR)

$
199

$
203

$
208

$
209

$
207

$
187

$
170

Managed Services Supplemental Financial Information

The following table sets forth the results for each of the key performance indicators for Managed Services.


	Quarter Ended														Quarter Ended
	Mar 31,		Jun 30,		Sept 30,		Dec 31,		Mar 31,		Jun 30,		Sept 30,		Mar 31,		Jun 30,		Sept 30,		Dec 31,		Mar 31,
	2021		2021		2021		2021		2022		2022		2022		2022		2022		2022		2022		2023
Avg billings per active Managed Services client (in 000's) ~~(6)~~(5)	$	582	$	622	$	615	$	625	$	684	$	736	$	747	$	684	$	736	$	747	$	823	$	771
Revenue during quarter (in 000's) ~~(7)~~(6)	$	10,327	$	9,968	$	9,647	$	10,857	$	10,735	$	9,625	$	10,035	$	10,735	$	9,625	$	10,035	$	11,074	$	9,337

~~(6)~~(5) Avg billings per active Managed Services customer for each quarter reflects the average quarterly billings per active Managed Services customer over the twelve-month period through the end of such quarter for Managed Services customers that are active during such quarter.

~~(7)~~(6) Managed Services revenue and metrics exclude content licensing and media services.

~~Overall, third quarter of 2022 advertising revenue increased slightly year over year.~~ We have experienced and may continue to experience volatility in revenue from our Managed Services due to a number of factors, including: (i) the timing of new large customer agreements; (ii) loss of customers who choose to replace our services with new providers or by bringing their advertising placement in-house; (iii) customers who experience reductions in their advertising budgets due to issues with their own businesses; and (iv) the seasonality of the campaigns for certain large customers. We have historically generated a significant portion of our revenue from a few major customers. As we continue to grow and diversify our customer base, we expect that our dependency on a limited number of large customers will be minimized.

Reconciliation of Pro Forma Revenue and Calculation of AAR

The following table sets forth the reconciliation of pro forma revenue to revenue and the calculation of AAR.


	Trailing Twelve Months Ended
	Mar 31,		Jun 30,		Sept 30,		Dec 31,		Mar 31,
	2022		2022		2022		2022		2023
Software Products & Services Revenue	$	72,997	$	85,796	$	97,581	$	84,578	$	80,538
PandoLogic Revenue		27,325		12,833		—		—		—
Software Revenue - Pro Forma (1)	$	100,322	$	98,629	$	97,581	$	84,578	$	80,538
Managed Services Revenue		58,419		60,546		63,406		65,150		65,046
Total Pro Forma Revenue	$	158,741	$	159,175	$	160,987	$	149,728	$	145,584

Average Number of Customers - Pro Forma		485		529		575		603		630
Average Annual Revenue (AAR)	$	207	$	187	$	170	$	140	$	128

(1) “Software Revenue - Pro Forma” includes historical Software Products & Services revenue from Veritone, Inc. and PandoLogic (unaudited) and presents such revenue on a combined pro forma basis treating PandoLogic as owned by Veritone, Inc. since January 1, 2021.

Results of Operations

The following tables set forth our results of operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ in dollars and as a percentage of our revenue for those periods. The period-to-period comparisons of our historical results are not necessarily indicative of the results that may be expected in the future.


(dollars in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2022			2021			2022			2021			2023			2022
Revenue	$	37,196		$	22,655		$	105,838		$	60,156		$	30,263		$	34,407
Operating expenses:
Cost of revenue		7,097			5,808			20,725			15,862			6,809			6,923
Sales and marketing		13,920			5,906			37,565			17,586			12,690			11,069
Research and development		11,784			5,254			32,735			14,860			11,527			9,883
General and administrative		2,502			15,084			27,127			62,272			17,397			22,321
Amortization		5,504			1,683			15,730			3,840			5,429			5,016
Total operating expenses		40,807			33,735			133,882			114,420			53,852			55,212
Loss from operations		(3,611	)		(11,080	)		(28,044	)		(54,264	)		(23,589	)		(20,805	)
Other expense, net		(1,249	)		(15	)		(3,666	)		(37	)
Other income (expense), net														355			(1,186	)
Loss before provision for income taxes		(4,860	)		(11,095	)		(31,710	)		(54,301	)		(23,234	)		(21,991	)
(Benefit) provision for income taxes		26			396			(1,442	)		472
(Benefit from) provision for income taxes														(271	)		138
Net loss	$	(4,886	)	$	(11,491	)	$	(30,268	)	$	(54,773	)	$	(22,963	)	$	(22,129	)


	Three Months Ended March 31,
	2023			2022
Revenue		100.0	%		100.0	%
Operating expenses:
Cost of revenue		22.5			20.1
Sales and marketing		41.9			32.2
Research and development		38.1			28.7
General and administrative		57.5			64.9
Amortization		17.9			14.6
Total operating expenses		177.9			160.4
Loss from operations		(77.9	)		(60.4	)
Other income (expense), net		1.2			(3.4	)
Loss before provision for income taxes		(76.8	)		(63.8	)
(Benefit from) provision for income taxes		(0.9	)		0.4
Net loss		(75.9	)		(64.2	)

3430

Three Months Ended
September 30,

Nine Months Ended
September 30,

2022

2021

2022

2021

Revenue

100.0
%

100.0
%

100.0
%

100.0
%
Operating expenses:

Cost of revenue

19.1

25.6

19.6

26.4

Sales and marketing

37.4

26.1

35.5

29.2

Research and development

31.7

23.2

30.9

24.7

General and administrative

6.7

66.6

25.6

103.5

Amortization

14.8

7.5

14.9

6.4

Total operating expenses

109.6

148.9

126.5

190.1

Loss from operations

(9.6
)

(48.9
)

(26.5
)

(90.1
)
Other expense, net

(3.4
)

(0.1
)

(3.5
)

(0.1
)
Loss before provision for income taxes

(13.0
)

(49.0
)

(30.0
)

(90.2
)
(Benefit) provision for income taxes

0.1

1.7

(1.4
)

0.8

Net loss

(13.0
)

(50.7
)

(28.6
)

(91.0
)

Three ~~and Nine~~ Months Ended ~~September 30, 2022~~March 31, 2023 Compared with Three ~~and Nine~~ Months Ended ~~September 30, 2021~~March 31, 2022

Revenue


	Three Months Ended September 30, 2022						Nine Months Ended September 30, 2022						Three Months Ended March 31, 2023						Three Months Ended March 31, 2022
	Commercial		Government &				Commercial		Government &				Commercial		Government &				Commercial		Government &
	Enterprise		Regulated		Total		Enterprise		Regulated		Total		Enterprise		Regulated		Total		Enterprise		Regulated		Total
Software Products & Services ~~(1)~~	$	19,800	$	1,012	$	20,812	$	54,694	$	2,664	$	57,358	$	12,732	$	1,395	$	14,127	$	17,386	$	781	$	18,167
Managed Services		16,384		—		16,384		48,480		—		48,480		16,136		—		16,136		16,240		—		16,240
Revenue	$	36,184	$	1,012	$	37,196	$	103,174	$	2,664	$	105,838	$	28,868	$	1,395	$	30,263	$	33,626	$	781	$	34,407

~~(1)~~ Software Products & Services consists of aiWARE revenues of $3.8 million and $16.7 million for the three and nine months ended September 30, 2022, respectively, as well PandoLogic revenues of $17.0 million and $40.7 million for the three and nine months ended September 30, 2022.

Three Months Ended
September 30, 2021

Nine Months Ended
September 30, 2021

Commercial

Government &

Commercial

Government &

Enterprise

Regulated

Total

Enterprise

Regulated

Total

Software Products & Services (1)

$
8,069

$
958

$
9,027

$
16,596

$
2,696

$
19,292

Managed Services

13,628

—

13,628

40,864

—

40,864

Revenue

$
21,697

$
958

$
22,655

$
57,460

$
2,696

$
60,156

~~(1)~~ Software Products & Services consists of aiWARE revenues of $4.7 million and $15.0 million for the three and nine months ended September 30, 2021, respectively, as well PandoLogic revenues of $4.3 million for the three and nine months ended September 30, 2021.

Commercial Enterprise ~~(“CE”)~~

CECommercial Enterprise Software Products & Services revenue ~~increased~~decreased $4.8 million or 14% in the three ~~and nine~~ months ended September 30, 2022 compared to the corresponding prior year periods due primarily due to our acquisition of PandoLogic in September 2021, coupled with expanded services we provided to existing media and entertainment customers. CE Managed Services increased in the three and nine months ended September 30, 2022March 31, 2023 compared to the corresponding prior year period due primarily due to decreased hiring solutions revenue. Commercial Enterprise Managed Services was relatively flat in the three months ended March 31, 2023 compared to the corresponding prior year, with growth ~~of our~~in content licensing ~~platform,~~offset by slight decreases in ~~new~~ advertising ~~customers and in expanded services for existing advertising customers and in live events coverage as conditions return to pre-COVID levels.~~revenue driven by the current economic environment.

Government & Regulated Industries

Government & Regulated Industries ~~(“GRI”)~~

~~GRI~~ Software Products & Services revenue increased ~~$0.1~~$0.6 million or 6%79% in the three months ended ~~September 30, 2022~~March 31, 2023 compared to the corresponding prior year period ~~while remaining relatively flat in the nine months ended September 30, 2022 compared to the corresponding prior year period. GRI~~driven by new and existing customer growth. Government & Regulated Industries Software Products & Services revenue from customers in certain markets, particularly government, ~~and energy customers,~~ is often project-based and is impacted by the timing of projects. As such, we expect that our revenue from these markets could fluctuate significantly from period to period.

With respect to our energy solutions, demand has accelerated since we officially launched our iDERMs product suite and presented our performance metrics against The California Independent System Operator and the results of our deployment at Tampa Electric Company. We are now actively engaged and generating revenues from multiple operators, each with significant potential for expansion.

Operating Expenses


(dollars in thousands)	Three Months Ended September 30,										Nine Months Ended September 30,										Three Months Ended March 31,
	2022		2021		$ Change			% Change			2022		2021		$ Change			% Change			2023		2022		$ Change			% Change
Cost of revenue	$	7,097	$	5,808	$	1,289			22.2	%	$	20,725	$	15,862	$	4,863			30.7	%	$	6,809	$	6,923	$	(114	)		(1.6	)%
Sales and marketing		13,920		5,906		8,014			135.7	%		37,565		17,586		19,979			113.6	%		12,690		11,069		1,621			14.6	%
Research and development		11,784		5,254		6,530			124.3	%		32,735		14,860		17,875			120.3	%		11,527		9,883		1,644			16.6	%
General and administrative		2,502		15,084		(12,582	)		(83.4	)%		27,127		62,272		(35,145	)		(56.4	)%		17,397		22,321		(4,924	)		(22.1	)%
Amortization		5,504		1,683		3,821			227.0	%		15,730		3,840		11,890			309.6	%		5,429		5,016		413			8.2	%
Total operating expenses	$	40,807	$	33,735	$	7,072			21.0	%	$	133,882	$	114,420	$	19,462			17.0	%	$	53,852	$	55,212	$	(1,360	)		(2.5	)%

Cost of Revenue. The ~~increase~~decrease in cost of revenue in the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 compared with the corresponding prior year periods was due primarily to our ~~higher~~lower revenue level, as discussed above. Cost of revenue increased at a lower rate than the increase in revenues due to the introduction of new products with higher non-GAAP gross margin contribution in the second half of 2021, including the addition of PandoLogic.

Sales and Marketing. The increase in sales and marketing expenses in the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 compared with the corresponding prior year periods was primarily due ~~to our acquisition of PandoLogic in September 2021, coupled with a~~ increases in personnel-related costs from the addition of new sales and marketing resources. As a percentage of revenue, sales and marketing expenses increased to ~~37% and 36%~~42% in the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, respectively, from ~~26% and 29%~~32% in the corresponding prior year ~~periods.~~period.

Research and Development. The increase in research and development expenses in the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 compared with the corresponding prior year periods was primarily due to an increase ~~of $4.5 million and $13.0 million, respectively,~~ in personnel-related costs from the addition of new engineering resources and ~~our September 2021 acquisition of PandoLogic in September 2021.~~costs for the Steel Holdings Consulting Agreement. As a percentage of revenue, research and development expenses increased to ~~32% and 31%~~37% in the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023 from ~~23% and 25%~~29% in the corresponding prior year ~~periods.~~period.

General and Administrative. General and administrative expenses decreased by ~~$12.6~~$5.9 million or ~~83%~~22% in the three months ended September 30, 2022 compared with the corresponding prior year periods principally due to a $14.6 million decrease in the estimated fair value of contingent consideration, coupled with a $1.6 million decrease in stock compensation, partially offset by increases in costs from our acquisition of PandoLogic in September 2021. General and administrative expenses decreased $35.2 million or 56% in the nine months ended September 30, 2022March 31, 2023 compared with the corresponding prior year period principally due to a ~~$23.4~~$4.4 million decrease in the estimated fair value of contingent consideration and a ~~$21.1~~$1.2 million decrease in stock compensation expense attributable primarily to additional expense related to the vesting of performance-based stock options in 2021, coupled with $3.4 million one-time charge related to the sublease of our former Costa Mesa corporate office space in the first quarter of 2021, partially offset by increases in personnel-related costs and from our acquisition of PandoLogic in September 2021.expense. As a percentage of revenue, general and administrative expenses decreased to ~~7% and 26%~~57% in the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023 from ~~67% and 104%~~65% in the corresponding prior year ~~periods.~~period.

Amortization Expense. Amortization expense increased in the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 compared with the corresponding prior year ~~periods~~period due to the addition of amortization expense related to ~~our PandoLogic acquisition and~~ our 2022 acquisitions.

Other (Expense) Income, Net

Other expense, net for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 was comprised primarily of ~~interest expense~~foreign exchange gain of $1.2 million, ~~and $3.7 million, respectively, and increased compared with the corresponding prior year periods due primarily to the Convertible Notes we issued in November 2021.~~offset by interest expense, net of $0.8 million.

Non-GAAP Gross Profit

For the three months ended March 31, 2023, our total loss from operations decreased to $23.6 million compared to $20.8 million for the three months ended March 31, 2022. As noted above, our non-GAAP gross profit is calculated as our revenue less our cost of revenue, as follows:


(dollars in thousands)	Three Months Ended September 30,											Nine Months Ended September 30,											Three Months Ended March 31,
	2022			2021			$ Change		% Change			2022			2021			$ Change		% Change			2023			2022			$ Change			% Change
Revenue	$	37,196		$	22,655		$	14,541		64.2	%	$	105,838		$	60,156		$	45,682		75.9	%	$	30,263		$	34,407		$	(4,144	)		(12.0	)%
Cost of revenue		7,097			5,808			1,289		22.2	%		20,725			15,862			4,863		30.7	%		6,809			6,923			(114	)		(1.6	)%
Non-GAAP gross profit		30,099			16,847			13,252		78.7	%		85,113			44,294			40,819		92.2	%		23,454			27,484			(4,030	)		(14.7	)%
Non-GAAP gross margin		80.9	%		74.4	%							80.4	%		73.6	%							77.5	%		79.9	%

The ~~increase~~decrease in non-GAAP gross profit and non-GAAP gross margin in the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 compared with the corresponding prior year periods was due primarily to ~~growth~~decreases in Software Products & Services revenue, ~~including our acquisition of PandoLogic in September 2021,~~ which ~~collectively generated incremental non-GAAP gross~~generally generate higher margins ~~in excess of 80% during the three and nine months ended September 30, 2022.~~than Managed Services revenue.

Liquidity and Capital Resources

We have historically financed our business through the sale of equity and debt securities. Our principal sources of liquidity are our cash and cash equivalents, which totaled ~~$196.1~~$139.7 million as of ~~September 30, 2022,~~March 31, 2023, compared with total cash and cash equivalents of ~~$254.7~~$184.4 million as of December 31, ~~2021.~~2022. The decrease in our cash and cash equivalents as of ~~September 30, 2022~~March 31, 2023 as compared with December 31, ~~2021~~2022 was primarily due to cash used by operation activities of $33.8 million, investments ~~made~~paid during the ~~nine~~three months ended ~~September 30, 2022, taxes paid related to net share settlement of equity awards,~~March 31, 2023, and the payment of the PandoLogic ~~2021~~2022 earnout. ~~We used $24.6 million in the nine months ended September 30, 2022 in operating activities.~~

Cash Flows

A summary of cash flows from our operating, investing and financing activities is shown in the table below.

(in thousands)

Nine Months Ended
September 30,

2022

2021

Cash used in operating activities

$
(24,630
)

$
(3,528
)
Cash used in investing activities

(11,116
)

(48,050
)
Cash (used in) provided by financing activities

(22,903
)

9,406

Net (decrease) increase in cash, cash equivalents and restricted cash

$
(58,649
)

$
(42,172
)


(in thousands)	Three Months Ended March 31,
	2023			2022
Cash (used in) provided by operating activities	$	(33,785	)	$	10,134
Cash used in investing activities		(2,947	)		(4,054	)
Cash used in financing activities		(7,981	)		(23,248	)
Net decrease in cash, cash equivalents and restricted cash	$	(44,713	)	$	(17,168	)

Operating Activities

Our operating activities used cash of ~~$24.6~~$33.8 million in the ~~nine~~three months ended ~~September 30,~~March 31, 2023, due primarily to our net loss of $23.0 million, adjusted by $10.6 million in non-cash expenses, including $5.9 million in depreciation and amortization and $3.9 million in stock-based compensation expense, as well as the net working decrease of $21.4 million, primarily due to decreases in accrued media payments of $19.7 million and client advances of $15.6 million from our Managed Services, partially offset by decreases in expenditures billable to clients of $9.3 million.

Our operating activities provided cash of $10.1 million in the three months ended March 31, 2022, due primarily to our net loss of ~~$30.3~~$22.1 million, adjusted by ~~$7.5~~$15.4 million in non-cash expenses, including ~~$16.5 million in depreciation and amortization and $14.7 million in stock-based compensation expense, offset in part by $23.1~~$5.0 million from a change in the fair value of contingent consideration ~~$2.1 million from a changes in deferred taxes~~ and the net working capital decrease of $1.9 million. Our business strategy includes streamlining operational costs while investing in the development of our AI capabilities and enhancement of our Software Products & Services to grow our business and future revenue.

Our operating activities used cash of $3.5 million in the nine months ended nine months ended September 30, 2021, due primarily to our net loss of $54.8 million, adjusted by $41.1 million in non-cash expenses, including $33.5$4.8 million in stock-based compensation expense, offset in part by the net working capital increase of ~~$10.1~~$16.9 million, primarily due to decreases in our accounts receivable of ~~cash received from Managed Services advertising clients for future payments to vendors.~~$19.0 million.

Investing Activities

Our investing activities for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 used cash of $2.9 million primarily for $1.5 million in deferred consideration paid for our acquisition in March 2022 of an influencer-based management company, pursuant to a securities purchase agreement, or the March 2022 Acquisition, and $1.4 million in capital expenditures.

Our investing activities for the three months ended March 31, 2022 used cash of ~~$11.1~~$4.1 million primarily for ~~$4.6~~an equity investment of $2.0 million in a strategic partner, $1.3 million to fund a portion of the consideration for ~~our acquisitions, $3.8~~the March 2022 Acquisition, and $0.7 million in capital ~~expenditures and for an equity investment of $2.8 million in a strategic partner.~~expenditures.

Our investing activities for the nine months ended September 30, 2021 used cash of $48.1 million primarily to fund a portion of the consideration for the acquisition of PandoLogic completed in the third quarter of 2021.

Financing Activities

Our financing activities for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 used cash of ~~$22.9~~$8.0 million, consisting of ~~$14.4~~$7.8 million to pay the ~~2021~~2022 earnout for PandoLogic and ~~$9.7~~$0.9 million to pay taxes paid related to the net share settlement of equity awards, partially offset by ~~$1.2~~$0.6 million in proceeds received from the exercise of stock options and purchases of shares under our ESPP.

Our financing activities ~~provided~~used cash of ~~$9.4~~$23.2 million in the ~~nine~~three months ended ~~September 30, 2021. Net cash provided~~March 31, 2022, consisting of $14.4 million to pay the 2021 earnout for PandoLogic and $9.4 million to pay taxes paid related to the net share settlement of equity awards, partially offset by ~~financing activities consisted of $7.1~~$0.6 million in proceeds received from the exercise of stock options and purchases of shares under our ~~ESPP and $2.3 million in proceeds received from the exercise of stock warrants.~~ESPP.

~~Capital Resources~~Contractual Obligations and Known Future Cash Requirements

As of ~~September 30, 2022,~~March 31, 2023, our only debt obligations were the Convertible Notes issued in the fourth quarter of fiscal year ~~2021. We~~2021, net of amounts repurchased in 2022. The remaining principal on the Convertible Notes of $141.25 million will mature on November 15, 2026, unless earlier converted, redeemed or repurchased in accordance with the terms of the Convertible Notes.

As of March 31, 2023, we have ~~$5.3~~future cash requirements to pay $3.8 million in purchase consideration commitments related to the VSL acquisition, the VocaliD acquisition and the March 2022 ~~acquisition~~Acquisition that will be paid in 2023 and in 2024. We have no other present agreements or commitments with respect to any material acquisitions of businesses or technologies or any other material capital expenditures.

We have generated significant losses since inception; however, we do expect to begin generating profits on a non-GAAP basis in the foreseeable future. ~~With the acquisition of PandoLogic, we believe we have an opportunity to significantly improve our operating income/(loss) in 2022 as compared to 2021.~~ We believe that our current cash and cash equivalents balance will be sufficient to fund our operations in the ordinary course of business for at least the next twelve months from the date of this filing. We have not entered into any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions about future events that affect amounts reported in our consolidated financial statements and related notes, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. Management evaluates its accounting policies, estimates and judgments on an on-going basis. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions.

Our critical accounting estimates reflecting management’s estimates and judgments are described in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. We have reviewed recently adopted accounting pronouncements and determined that the adoption of such pronouncements is not expected to have a material impact, if any, on our Consolidated Financial Statements. Accordingly, there have been no material changes to critical accounting policies and estimates as disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, we are not required to provide the information required by Item 305 of Regulation S-K.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of ~~September 30, 2022.~~March 31, 2023. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives of ensuring that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief

Executive Officer and Chief Financial Officer, as appropriate, to enable timely decisions regarding required disclosures, and is recorded, processed, summarized, and reported within the time periods specified in the rules and forms promulgated by the SEC. Our management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and there is no assurance that our disclosure controls and procedures will operate effectively under all circumstances. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~September 30, 2022,~~March 31, 2023, our disclosure controls and procedures were not effective at the reasonable assurance level due to the following material weakness in internal control over financial reporting.

Material Weakness in Internal Control over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. ~~Management~~

During the preparation of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, management identified a material weakness in internal control over financial reporting relating to the appropriate oversight and sufficient review of the work performed by third-party specialists on our behalf and the coordination of work being performed by more than one specialist. Such third-party specialists were usedinformation technology general controls (“ITGCs”) in the ~~preparation~~areas of ~~(i) our valuation of Contingent Consideration, (ii) our valuation of~~user access and change-management over certain ~~identified intangible assets~~information technology (“IT”) systems that support the Company’s financial reporting processes. In addition, the Company’s business process automated and ~~(iii) our purchase price allocation pursuant to ASC 805, Business Combinations, in connection with~~manual controls that are dependent on the ~~acquisition of PandoLogic Ltd. The~~affected ITGCs were also deemed ineffective because they could have been adversely impacted. Although this material weakness ~~resulted~~did not result in ~~the restatement of the unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2022 and immaterial~~any identified misstatements to the ~~consolidated~~ financial statements ~~as of~~ and ~~for the year ended December 31, 2021. Additionally,~~there were no changes to previously released financial results, this material weakness could have resulted in a ~~misstatement of certain accounting estimates or disclosures that would have resulted in a~~ material misstatement ~~of our~~to the Company's annual or interim consolidated financial statements that would not ~~have been~~be prevented or detected on a timely basis.

Remediation of Material Weakness in Internal Control Over Financial Reporting

In order to remediate the material weakness relating to ITGCs, management ~~has implemented~~is taking remediation actions including: (i) developing and enhancing IT compliance oversight capabilities with specific focus over identification and execution of appropriate ITGCs; (ii) developing a training program addressing ITGCs and policies, including educating control owners concerning the principles and requirements of each control, with a focus on those related to user access and change management over IT systems impacting financial reporting; (iii) developing and maintaining documentation of underlying ITGCs to promote knowledge transfer upon personnel and function changes; and (iv) implementing an IT management review and testing plan to monitor ITGCs with a specific focus on systems supporting our financial reporting control changes to address the material weakness relating to the process for evaluating the qualifications of third-party specialists, defining the scope of work to be performed by such specialists and reviewing all estimates and other work product prepared by specialists. Management has taken steps to enhance its evaluation of the qualifications of third-party specialists, more accurately defining the scope of work to be performed by such specialists and improving the review process for all estimates and other work product prepared by specialists, including a detailed review of all work performed by specialists, by our employees with the appropriate level of experience and knowledge and review the specialists’ work for compliance with accounting standards.

processes. To further remediate the existing material weakness identified herein, the management team, including the Chief Executive Officer and Chief Financial Officer, have reaffirmed and re-emphasized the importance of internal controls, control consciousness and a strong control environment. We are committed to maintaining a strong control environment and believe that these remediation efforts represent continued improvement in our control environment. We also expect to continue to review, optimize and enhance our financial reporting controls and procedures. ~~This~~A material weakness will not be considered remediated until the applicable remediated control operates for a sufficient period of time and management has concluded, through testing, that this enhanced control is operating effectively.

Changes in Internal Control over Financial Reporting

We completed the implementation of our new Enterprise Resource Planning (“ERP”) system during the three months ended September 30, 2022. Accordingly, we have modified certain existing internal control processes relating to the implementation of the new ERP system. Other than the remediation efforts described above, ~~and the implementation of the new ERP system,~~ there have been no changes in our internal control over financial reporting during the three months ended ~~September 30, 2022~~March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Management recognizes that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

3934

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. We currently are not a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on our results of operations, financial position or cash flows. Regardless of the outcome, any litigation could have an adverse impact on us due to defense and settlement costs, diversion of management resources and other factors.

Item 1A. Risk Factors

Our Annual Report on Form 10-K for the year ended December ~~31, 2021, as supplemented by Amendment No. 1 to our Quarterly Report on Form 10-Q/A for the three months ended March~~ 31, 2022 contains a discussion of the material risks associated with our business. There have been no material changes to the risks described in such Annual Report on Form ~~10-K and Quarterly Report on Form 10-Q/A.~~10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~None~~None.

Item 3. Defaults Upon Senior Securities

~~None~~None.

Item 4. Mine Safety Disclosures

Not ~~applicable~~applicable.

Item 5. Other Information

~~None~~None.

4035

Item 6. Exhibits


Exhibit No.		Description of Exhibit

2.1		Agreement and Plan of Merger, dated as of July 21, 2021, by and among Veritone, Inc., Melisandra Ltd., PandoLogic Ltd. and Shareholder Representative Services, LLC, as the Securityholder Representative (incorporated by reference to Exhibit 2.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 filed on August 5, 2021).

3.1		Third Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 23, 2017).

3.2		Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on May 23, 2017).

10.1*		Veritone, Inc. Amended and Restated Inducement Grant Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on March 30, 2023).

10.2*		Employment Agreement, dated January 19, 2023, between Veritone, Inc. and Ryan Steelberg (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on January 20, 2023).

10.3*		Employment Agreement, dated January 19, 2023, between Veritone, Inc. and Michael L. Zemetra (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on January 20, 2023).

10.4†		Consulting Agreement, dated January 3, 2023, between Veritone, Inc. and Steel Holdings, LLC (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on January 6, 2023).

31.1		Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.

31.2		Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.

32.1*32.1+		Certifications pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and 18 U.S.C. Section 1350.

101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document.

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2022,~~March 31, 2023, has been formatted in Inline XBRL.

* Indicates a management contract or compensatory plan or arrangement.

† The Company has omitted portions of the referenced exhibit pursuant to Item 601(b) of Regulation S-K because it (a) is not material and (b) is the type of information that the Company both customarily and actually treats as private and confidential.

+ The certifications furnished inas Exhibit 32.1 accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Subsection 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the ~~Securities~~ Exchange Act ~~of 1934, as amended, or otherwise subject~~and are not to ~~the liabilities of that section, nor shall it~~ be ~~deemed~~ incorporated by reference ininto any ~~filing~~of the Registrant's filings under the Securities Act, irrespective of 1933, as amended, or the Securities Exchange Act of 1934, as amended (including this Quarterly Report on Form 10-Q), unless the Company specifically incorporates the foregoing information into those documents by reference.any general incorporation language contained in any such filing.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Veritone, Inc.

~~November 14,~~May 9, 2022	By:	/s/ Michael L. Zemetra
		Michael L. Zemetra
		Executive Vice President, Chief Financial Officer and Treasurer
		(Principal Financial and Accounting Officer)

4237


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.001 per share	VERI	The NASDAQ Stock Market LLC


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐
~~Non-accelerated filer~~	☒	Smaller reporting company	☒
		Emerging growth company	☒☐


	As of						As of
	September 30, 2022			December 31, 2021			March 31, 2023			December 31, 2022
ASSETS
Cash and cash equivalents	$	196,071		$	254,722		$	139,707		$	184,423
Accounts receivable, net		85,951			85,063			54,071			56,001
Expenditures billable to clients		23,785			27,180			13,035			22,339
Prepaid expenses and other current assets		16,963			12,117			13,585			15,242
Total current assets		322,770			379,082			220,398			278,005
Property, equipment and improvements, net		4,636			1,556			6,394			5,291
Intangible assets, net		85,195			93,872			74,555			79,664
Goodwill		46,465			42,028			46,460			46,498
Long-term restricted cash		857			855			862			859
Other assets		9,868			954			13,901			14,435
Total assets	$	469,791		$	518,347		$	362,570		$	424,752
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	$	31,437		$	46,711		$	38,015		$	36,738
Accrued media payments		107,693			86,923			82,407			102,064
Client advances		13,696			10,561			3,412			19,042
Contingent consideration, current		7,147			20,053			190			8,067
Other accrued liabilities		25,835			27,093			28,123			27,412
Total current liabilities		185,808			191,341			152,147			193,323
Convertible senior notes, non-current		195,984			195,082			137,982			137,767
Contingent consideration, non-current		546			31,533
Other non-current liabilities		16,680			13,891			11,721			13,811
Total liabilities		399,018			431,847			301,850			344,901
Commitments and contingencies (Note 9)
Stockholders' equity
Common stock, par value $0.001 per share; 75,000,000 shares authorized; 36,322,465 and 34,972,256 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively		36			35
Common stock, par value $0.001 per share; 75,000,000 shares authorized; 36,792,812 and 36,321,222 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively								37			36
Additional paid-in capital		446,181			431,606			455,759			451,162
Accumulated deficit		(375,982	)		(345,037	)		(394,234	)		(371,271	)
Accumulated other comprehensive income (loss)		538			(104	)
Accumulated other comprehensive loss								(842	)		(76	)
Total stockholders' equity		70,773			86,500			60,720			79,851
Total liabilities and stockholders' equity	$	469,791		$	518,347		$	362,570		$	424,752


	Three Months Ended March 31,
	2023			2022
Cash flows from operating activities:
Net loss	$	(22,963	)	$	(22,129	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		5,907			5,214
Provision for credit losses		(72	)		194
Stock-based compensation expense		3,917			4,847
Change in fair value of contingent consideration		651			5,045
Change in deferred taxes		(311	)		(465	)
Amortization of debt issuance costs		215			299
Amortization of right-of-use assets		300			251
Imputed non-cash interest (income) expense		(22	)		16
Changes in assets and liabilities:
Accounts receivable		2,002			18,982
Expenditures billable to clients		9,304			7,487
Prepaid expenses and other assets		631			(34	)
Other assets		234			(1,146	)
Accounts payable		1,277			(8,384	)
Accrued media payments		(19,657	)		8,770
Client advances		(15,630	)		(2,593	)
Other accrued liabilities		2,211			(6,104	)
Other liabilities		(1,779	)		(116	)
Net cash (used in) provided by operating activities		(33,785	)		10,134
Cash flows from investing activities:
Minority investment		—			(2,000	)
Capital expenditures		(1,447	)		(735	)
Acquisitions, net of cash acquired		(1,500	)		(1,319	)
Net cash used in investing activities		(2,947	)		(4,054	)
Cash flows from financing activities:
Payment of contingent considerations		(7,772	)		(14,376	)
Taxes paid related to net share settlement of equity awards		(852	)		(9,441	)
Proceeds from issuances of stock under employee stock plans, net		643			569
Net cash used in financing activities		(7,981	)		(23,248	)
Net decrease in cash and cash equivalents and restricted cash		(44,713	)		(17,168	)
Cash and cash equivalents and restricted cash, beginning of period		185,282			255,577
Cash and cash equivalents and restricted cash, end of period	$	140,569		$	238,409
Supplemental Disclosure of Cash Flow Information
Non-cash investing and financing activities:
Shares issued for acquisition of businesses and earn-out consideration		756			8,369
Stock-based compensation capitalized for software development		134			33
Lease liabilities arising from right-of-use assets		499			4,501


	Nine Months Ended September 30,
	2022			2021
Cash flows from operating activities:
Net loss	$	(30,268	)	$	(54,773	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		16,494			4,189
Loss on disposal of fixed assets		—			1,894
Provision for doubtful accounts		(113	)		14
Loss on sublease		—			1,211
Stock-based compensation expense		14,734			33,491
Change in fair value of contingent consideration		(23,076	)		303
Change in deferred taxes		(2,078	)		—
Amortization of debt issuance costs		902			—
Amortization of right-of-use assets		632			—
Changes in assets and liabilities:
Accounts receivable		370			(19,907	)
Expenditures billable to clients		3,395			(6,871	)
Prepaid expenses and other assets		(4,114	)		5,014
Other assets		(4,568	)		—
Accounts payable		(15,298	)		4,288
Accrued media payments		20,136			19,297
Client advances		3,135			1,906
Other accrued liabilities		(3,177	)		7,016
Other liabilities		(1,736	)		(600	)
Net cash used in operating activities		(24,630	)		(3,528	)
Cash flows from investing activities:
Minority investment		(2,750	)		—
Capital expenditures		(3,777	)		(448	)
Acquisitions, net of cash acquired		(4,589	)		(47,602	)
Net cash used in investing activities		(11,116	)		(48,050	)
Cash flows from financing activities:
Payment of contingent considerations		(14,376	)		—
Taxes paid related to net share settlement of equity awards		(9,726	)		—
Proceeds from the exercise of warrants		—			2,279
Proceeds from issuances of stock under employee stock plans, net		1,199			7,127
Net cash (used in) provided by financing activities		(22,903	)		9,406
Net decrease in cash and cash equivalents and restricted cash		(58,649	)		(42,172	)
Cash and cash equivalents and restricted cash, beginning of period		255,577			115,672
Cash and cash equivalents and restricted cash, end of period	$	196,928		$	73,500
Supplemental Disclosure of Cash Flow Information
Non-cash activities:
Shares issued for acquisition of businesses and earn-out consideration		8,369			—
Lease liabilities arising from right-of-use assets		4,501			—


Special Note Regarding Forward-Looking Statements		1
PART I.	FINANCIAL INFORMATION	2
Item 1.	Financial Statements (Unaudited)	2
	Condensed Consolidated Balance Sheets as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022	2
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	3
	Condensed Consolidated Statements of Stockholders’ Equity for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	4
	Condensed Consolidated Statements of Cash Flows for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	65
	Notes to the Condensed Consolidated Financial Statements	76
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2723
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3833
Item 4.	Controls and Procedures	3833
PART II.	OTHER INFORMATION	4035
Item 1.	Legal Proceedings	4035
Item 1A.	Risk Factors	4035
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4035
Item 3.	Defaults Upon Senior Securities	4035
Item 4.	Mine Safety Disclosures	4035
Item 5.	Other Information	4035
Item 6.	Exhibits	4136
Signatures		4237


	Three Months Ended September 30, 2022
												Accumulated
						Additional						Other
	Common Stock					Paid-in			Accumulated			Comprehensive
	Shares			Amount		Capital			Deficit			Income			Total
Balance as of June 30, 2022		36,128,363		$	36	$	440,809		$	(371,096	)	$	472		$	70,221
Common stock issued under employee stock plans		226,577			—		417			—			—			417
Common stock withheld for employee taxes		(32,475	)		—		(217	)		—			—			(217	)
Stock-based compensation expense		—			—		5,172			—			—			5,172
Net loss		—			—		—			(4,886	)		—			(4,886	)
Other comprehensive gain		—			—		—			—			66			66
Balance as of September 30, 2022		36,322,465		$	36	$	446,181		$	(375,982	)	$	538		$	70,773

	Nine Months Ended September 30, 2022
												Accumulated
						Additional						Other
	Common Stock					Paid-in			Accumulated			Comprehensive
	Shares			Amount		Capital			Deficit			Income			Total
Balance as of December 31, 2021		34,972,256		$	35	$	431,606		$	(345,037	)	$	(104	)	$	86,500
Cumulative-effect of accounting change adopted as of January 1, 2022		—			—		—			(677	)		—			(677	)
Common stock issued under employee stock plans, net		1,378,922			1		1,198			—			—			1,199
Common stock withheld for employee taxes		(497,593	)		—		(9,726	)		—			—			(9,726	)
Common stock issued for acquisition		116,550			—		1,929			—			—			1,929
Common stock issued as part of contingent consideration		352,330			—		6,440			—			—			6,440
Stock-based compensation expense		—			—		14,734			—			—			14,734
Net loss		—			—		—			(30,268	)		—			(30,268	)
Other comprehensive gain		—			—		—			—			642			642
Balance as of September 30, 2022		36,322,465		$	36	$	446,181		$	(375,982	)	$	538		$	70,773



	Three Months Ended March 31, 2023
												Accumulated
						Additional						Other
	Common Stock					Paid-in			Accumulated			Comprehensive
	Shares			Amount		Capital			Deficit			Loss			Total
Balance as of December 31, 2022		36,321,222		$	36	$	451,162		$	(371,271	)	$	(76	)	$	79,851
Common stock issued under employee stock plans, net		466,906			1		642			—			—			643
Common stock withheld for employee taxes		(131,116	)		—		(852	)		—			—			(852	)
Common stock issued as part of contingent consideration		135,800			—		756			—			—			756
Stock-based compensation expense		—			—		4,051			—			—			4,051
Net loss		—			—		—			(22,963	)		—			(22,963	)
Other comprehensive loss		—			—		—			—			(766	)		(766	)
Balance as of March 31, 2023		36,792,812		$	37	$	455,759		$	(394,234	)	$	(842	)	$	60,720



	Three Months Ended March 31, 2022
												Accumulated
						Additional						Other
	Common Stock					Paid-in			Accumulated			Comprehensive
	Shares			Amount		Capital			Deficit			Loss			Total
Balance as of December 31, 2021		34,972,256		$	35	$	431,606		$	(345,037	)	$	(104	)	$	86,500
Cumulative-effect of accounting change adopted as of January 1, 2022		—			—		—			(677	)		—			(677	)
Common stock issued under employee stock plans, net		1,073,543			1		569			—			—			570
Common stock withheld for employee taxes		(457,840	)		—		(9,437	)		—			—			(9,437	)
Common stock issued for acquisition		116,550			—		1,929			—			—			1,929
Common stock issued as part of contingent consideration		352,330			—		6,440			—			—			6,440
Stock-based compensation expense		—			—		4,847			—			—			4,847
Net loss		—			—		—			(22,129	)		—			(22,129	)
Other comprehensive gain		—			—		—			—			190			190
Balance as of March 31, 2022		36,056,839		$	36	$	435,954		$	(367,843	)	$	86		$	68,233


	Three Months Ended September 30, 2021
										Accumulated
					Additional					Other
	Common Stock				Paid-in		Accumulated			Comprehensive
	Shares		Amount		Capital		Deficit			Income			Total
Balance as of June 30, 2021		32,870,767	$	33	$	403,768	$	(323,647	)	$	73		$	80,227
Common stock issued under employee stock plans, net		281,574		—		2,332		—			—			2,332
Common stock issued for acquisition		1,704,822		2		31,498		—			—			31,500
Stock-based compensation expense		—		—		5,272		—			—			5,272
Net loss		—		—		—		(11,491	)		—			(11,491	)
Other comprehensive gain		—		—		—		—			(221	)		(221	)
Balance as of September 30, 2021		34,857,163	$	35	$	442,870	$	(335,138	)	$	(148	)	$	107,619


	Nine Months Ended September 30, 2021
										Accumulated
					Additional					Other
	Common Stock				Paid-in		Accumulated			Comprehensive
	Shares		Amount		Capital		Deficit			Income			Total
Balance as of December 31, 2020		31,799,354	$	32	$	368,477	$	(280,365	)	$	66		$	88,210
Common stock issued under employee stock plans, net		1,084,941		1		7,125		—			—			7,126
Common stock issued for acquisition		1,704,822		2		31,498		—			—			31,500
Common stock issued for services		15,828		—		250		—			—			250
Stock-based compensation expense		—		—		33,241		—			—			33,241
Exercise of warrants		252,218		—		2,279		—			—			2,279
Net loss		—		—		—		(54,773	)		—			(54,773	)
Other comprehensive gain		—		—		—		—			(214	)		(214	)
Balance as of September 30, 2021		34,857,163	$	35	$	442,870	$	(335,138	)	$	(148	)	$	107,619


VSL Acquisition Consideration	Preliminary
Cash consideration at closing	$	1,700
Deferred consideration		252
Total	$	1,952


Preliminary allocation of VSL Acquisition Consideration**	Preliminary
Accounts receivable, net	$	57
Property, equipment and improvements, net		13
Intangible assets		1,500
Total assets acquired		1,570
Accrued expenses and other current liabilities		32
Total liabilities assumed		32
Identifiable net assets acquired		1,538
Goodwill		414
Total purchase consideration	$	1,952


Allocation of VSL Acquisition Consideration**	Amount
Accounts receivable, net	$	57
Property, equipment and improvements, net		13
Intangible assets		1,500
Total assets acquired		1,570
Accrued expenses and other current liabilities		32
Total liabilities assumed		32
Identifiable net assets acquired		1,538
Goodwill		414
Total purchase consideration	$	1,952


VocaliD Acquisition Consideration	Preliminary			Amount
Cash consideration at closing	$	1,609		$	1,609
Deferred consideration		1,785			1,785
Net working capital adjustment		(10	)		(10	)
Total	$	3,384		$	3,384


Preliminary allocation of VocaliD Acquisition Consideration**	Preliminary
Allocation of VocaliD Acquisition Consideration**			Amount
Cash	$	216	$	216
Intangible assets		2,700		2,700
Total assets acquired		2,916		2,916
Accounts payable		6		6
Accrued expenses and other current liabilities		33		33
Deferred tax liability		663		663
Total liabilities assumed		702		702
Identifiable net assets acquired		2,214		2,214
Goodwill		1,170		1,170
Total purchase consideration	$	3,384	$	3,384


	~~Contingent Consideration~~
~~Revenue volatility~~		15	%
~~Weighted-average cost of capital~~		38	%
~~Risk-free rate~~		~~4.1~~	%


			September 30, 2022							December 31, 2021									March 31, 2023							December 31, 2022
	Weighted Average Remaining Useful Life (in years)		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Remaining Useful Life (in years)		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Software and technology		0.0	$	3,582	$	(3,582	)	$	—	$	3,582	$	(3,515	)	$	67		0.0	$	3,582	$	(3,582	)	$	—	$	3,582	$	(3,582	)	$	—
Licensed technology		0.0		500		(500	)		—		500		(500	)		—		0.0		500		(500	)		—		500		(500	)		—
Developed technology		2.4		33,800		(13,411	)		20,389		29,600		(7,647	)		21,953		1.8		33,800		(17,592	)		16,208		33,800		(15,512	)		18,288
Customer and supplier relationships		5.1		81,800		(18,766	)		63,034		79,300		(9,449	)		69,851		4.6		81,800		(25,015	)		56,785		81,800		(22,091	)		59,709
Noncompete agreements		0.0		800		(800	)		—		800		(683	)		117		0.0		800		(800	)		—		800		(800	)		—
Trade names		4.2		2,300		(528	)		1,772		2,100		(216	)		1,884
Trademarks and trade names																		3.8		2,300		(738	)		1,562		2,300		(633	)		1,667
Total		4.1	$	122,782	$	(37,587	)	$	85,195	$	115,882	$	(22,010	)	$	93,872		3.6	$	122,782	$	(48,227	)	$	74,555	$	122,782	$	(43,118	)	$	79,664


2022 (3 months)	$	5,499
2023		20,477
2023 (nine months)			$	15,336
2024		17,957		17,957
2025		15,507		15,507
2026		10,574		10,574
2027				8,907
Thereafter		15,181		6,274
Total	$	85,195	$	74,555


March Acquisition Consideration	Preliminary
March 2022 Acquisition Consideration				Amount
Cash consideration at closing	$	1,500		$	1,500
Equity consideration at closing		1,929			1,929
Deferred consideration		2,707			2,707
Acquired cash		684			684
Settlement of pre-existing receivable		(976	)		(976	)
Net working capital adjustment		37			37
Total	$	5,881		$	5,881


Preliminary allocation of March Acquisition Consideration**	Preliminary
Allocation of March 2022 Acquisition Consideration**			Amount
Cash	$	715	$	715
Accounts receivable		1,088		1,088
Prepaid and other current assets		120		120
Property and equipment		53		53
Intangible assets		2,700		2,700
Other assets		247		247
Total assets acquired		4,923		4,923
Accounts payable		18		18
Accrued expenses and other current liabilities		1,788		1,788
Operating lease liabilities, non-current		140		140
Total liabilities assumed		1,946		1,946
Identifiable net assets acquired		2,977		2,977
Goodwill		2,904		2,904
Total purchase consideration	$	5,881	$	5,881


Merger Consideration	Amount
Cash consideration at closing	$	58,733
Equity consideration at closing		31,500
Contingent earnout		39,512
Net working capital adjustment		5,818
Total	$	135,563


Allocation of Merger Consideration**	Amount
Cash	$	11,581
Accounts receivable		21,344
Prepaid and other current assets		8,710
Property and equipment		618
Intangible assets		92,000
Other assets		1,653
Total assets acquired		135,906
Accounts payable		13,183
Accrued expenses and other current liabilities		9,443
Deferred tax liability		12,686
Total liabilities assumed		35,312
Identifiable net assets acquired		100,594
Goodwill		34,969
Total purchase consideration	$	135,563


	Estimated Fair Value		Estimated Useful Lives (in years)
Customer relationships	$	70,000	5 - 7
Developed technology		20,000	4
Trade name		2,000	5
Total intangible assets	$	92,000


			Gross				Cash and				Gross				Cash and
			Unrealized		Fair		Cash				Unrealized		Fair		Cash
	Cost		Losses		Value		Equivalents		Cost		Losses		Value		Equivalents
Cash	$	195,037	$	—	$	195,037	$	195,037	$	138,655	$	—	$	138,655	$	138,655
Level 1:
Money market funds		1,034		—		1,034		1,034		1,052		—		1,052		1,052
Total	$	196,071	$	—	$	196,071	$	196,071	$	139,707	$	—	$	139,707	$	139,707


			Changes in			Amount Paid			Reclass from Non-current to			Fair				Changes in			Amount Paid			Reclass from Non-current to			Fair
	Cost		Fair Value			To Date			Current			Value		Cost		Fair Value			To Date			Current			Value
Level 3:
Contingent consideration, current	$	18,128	$	(11,308	)	$	(20,816	)	$	21,143			7,147	$	18,128	$	(9,979	)	$	(29,343	)	$	21,384		$	190
Contingent consideration, non-current		21,384		305			—			(21,143	)		546		21,384		—			—			(21,384	)		—
Total	$	39,512	$	(11,003	)	$	(20,816	)	$	—		$	7,693	$	39,512	$	(9,979	)	$	(29,343	)	$	—		$	190


			Changes in		Fair		Contingent				Changes in			Amount Paid			Reclass from Non-current to			Fair
	Cost		Fair Value		Value		Consideration		Cost		Fair Value			To Date			Current			Value
Level 3:
Contingent consideration, current	$	18,128	$	1,925	$	20,053	$	20,053	$	18,128	$	(10,629	)	$	(20,816	)	$	21,384		$	8,067
Contingent consideration, non-current		21,384		10,149		31,533		31,533		21,384		—			—			(21,384	)		—
Total	$	39,512	$	12,074	$	51,586	$	51,586	$	39,512	$	(10,629	)	$	(20,816	)	$	—		$	8,067


	Goodwill
Balance at December 31, 2021	$	42,028
March 2022 acquisition		2,904
VocaliD acquisition		1,170
VSL acquisition		414
Foreign currency translation/other		(51	)
Balance at September 30, 2022	$	46,465


	Goodwill
Balance at December 31, 2022	$	46,498
Foreign currency translation/other		(38	)
Balance at March 31, 2023	$	46,460


	Three Months Ended September 30, 2021						Nine Months Ended September 30, 2021
			Government &						Government &
	Commercial		Regulated				Commercial		Regulated
	Enterprise		Industries		Total		Enterprise		Industries		Total
Total Software Products & Services(1)	$	8,069	$	958	$	9,027	$	16,596	$	2,696	$	19,292

Managed Services
Advertising		9,648		—		9,648		29,943		—		29,943
Licensing		3,980		—		3,980		10,921		—		10,921
Total Managed Services		13,628		—		13,628		40,864		—		40,864

Total Revenue	$	21,697	$	958	$	22,655	$	57,460	$	2,696	$	60,156


	December 31, 2021			Adjustments Due to Adoption of New Leasing Standard			January 1, 2022
Assets
Prepaid expenses and other current assets	$	12,117		$	71		$	12,188
Other assets		954			1,983			2,937

Liabilities
Other accrued liabilities	$	27,093		$	1,675		$	28,768
Other non-current liabilities		13,891			1,057			14,948

Stockholders' Equity
Accumulated deficit	$	(345,037	)	$	(678	)	$	(345,715	)


Years ended December 31,
2022 (three months)	$	696
2023		2,263
2023 (nine months)				$	1,818
2024		1,816			2,085
2025					24
Total future minimum lease payments, including short-term leases		4,775			3,927
Less: future minimum lease payments for short-term leases		(326	)		(89	)
Less: imputed interest		(398	)		(210	)
Present value of future minimum lease payments, excluding short-term leases	$	4,051		$	3,628
Less: current portion of operating lease liabilities		(2,096	)		(2,326	)
Non-current portion of operating lease liabilities		1,955			1,302

Years ended December 31,	Sublease Income			Sublease Income
2022 (three months)	$	293
2023		1,297
2023 (nine months)				$	1,001
2024		1,034			1,034
Total sublease income	$	2,624		$	2,035


(in thousands)
	Nine Months Ended September 30,
	2022									2021
	Core Operations(1)			Corporate(2)			Total			Core Operations(1)			Corporate(2)			Total
Net loss(3)	$	(22,172	)	$	(8,096	)	$	(30,268	)	$	(3,933	)	$	(50,840	)	$	(54,773	)
(Benefit from) provision for income taxes(3)		(826	)		(616	)		(1,442	)		390			82			472
Depreciation and amortization(3)		16,054			440			16,494			3,865			324			4,189
Stock-based compensation expense		7,612			6,967			14,579			4,589			28,902			33,491
Change in fair value of contingent consideration(3)		—			(23,076	)		(23,076	)		—			303			303
State sales tax reserve		—			—			—			—			306			306
Interest expense, net		—			3,670			3,670			—			—			—
Acquisition and due diligence costs		—			1,608			1,608			—			2,161			2,161
Charges related to sublease		—			—			—			—			3,367			3,367
Severance and executive search		337			28			365			—			349			349
Non-GAAP Net Income (Loss)	$	1,005		$	(19,075	)	$	(18,070	)	$	4,911		$	(15,046	)	$	(10,135	)

Estimated
Fair Value

Estimated Useful Lives (in years)

Influencer network

Trade name

Brand relationships

Total intangible assets