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    VERI   US92347M1009

VERITONE, INC.

(VERI)
  Report
Delayed Nasdaq  -  04:00:01 2023-02-03 pm EST
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VERITONE, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/14/2022 | 05:50pm EST

Forward-Looking Statements


The following discussion and analysis of our financial condition and results of
operations should be read together with 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. 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"),
including future SEC filings. See "Special Note Regarding Forward-Looking
Statements" above at page 1.

Overview

We are a provider of 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.


During the three and nine months ended September 30, 2022, we generated revenue
of $37.2 million and $105.8 million, respectively, as compared to $22.7 million
and $60.2 million during the three and nine months ended September 30, 2021,
respectively. Our Software Products & Services grew 197% during the nine months
ended September 30, 2022 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. During the three months ended September 30, 2021,
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% of our
consolidated revenue.

Significant Transactions


In August 2022, we acquired certain assets of VSL, a U.K.-based company focused
on AI-powered video analytics 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.

In September 2022, we and PandoLogic entered into an amendment (the "Amendment")
to the PandoLogic Merger Agreement. The Amendment provides that the 2022
PandoLogic Earnout will be no less than $10,825,000 (the "Minimum 2022 Earnout
Amount"), irrespective of the actual financial performance of PandoLogic for 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 during the 2022 PandoLogic Earnout period would
terminate as of the date of the Amendment and provides for the early release 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.

Opportunities, Challenges and Risks


During the nine months ended September 30, 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, 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 continue to see significant opportunities for growth
in cross-selling PandoLogic and aiWARE 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.

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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. However, many
enterprise-level opportunities with GRI 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 as
part of our GRI 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. 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, our aiWARE platform is in the early stages of deployment in
the energy market, and given the current macroeconomic environment, coupled with
the fact that we need to continue making significant investments in product,
sales and engineering to further develop our current and future solutions, we
may opt to slow down our investment in Veritone energy and/or divest our energy
platform altogether.

Growing our existing and new Software Products & Services customer base is
critical for our success. During the nine months ended September 30, 2022,
ending Software Products and Services customers grew to 618, a 43% 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). 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"), which was almost entirely driven by a reduction in hiring
consumption from our largest customer, Amazon. Given Amazon's high concentration
of revenue on our consolidated results, our revenue results may fluctuate
significantly year over year based upon their hiring patterns. To reduce this
risk, we have been aggressively investing in existing and growing new customers
since we acquired PandoLogic in September 2021. On a pro forma basis, we also
grew PandoLogic's customer base as of September 30, 2022 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% year over year.

Beginning in March 2022, and as a result of the recent pullback in the
macroeconomic environment caused by rising interest rates, we have experienced
and are continuing to experience a reduction in hiring consumption from our
largest customer, Amazon, and to a lesser extent from advertisers reducing
spending across our managed services when compared to same periods in the prior
year. To reduce this risk, we have been aggressively investing in existing
customers and acquiring new customers. In order to continue to grow our Software
Product & Services, diversify our customer base and drive increased 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.

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 customers will
be given greater visibility and transparency in their hiring processes. In
addition, we have historically integrated aiWARE across many platforms,
including Alteryx 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, 2022, our non-GAAP gross
margin (calculated as described in "Non-GAAP Financial Measures" below) improved
to approximately 80% compared with approximately 74% for the three and nine
months ended September 30, 2021, driven by growth of new customers across our
Software Products & Services and 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. 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

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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 a strategy of acquiring companies to help accelerate our
organic growth. We believe there are strategic acquisition targets that can
accelerate our entry into 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. 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, we reported a
non-GAAP net loss of $5.7 million and $18.1 million, respectively, as compared
to $2.3 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 31, driven partly from PandoLogic services and Managed Services.
Moreover, and to continue to grow our revenue, we will 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, 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.

In the nine months ended September 30, 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 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 economic and business activities continue to face widespread
macroeconomic uncertainties, including 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, any continued or renewed disruption resulting from these factors could
negatively impact our business. 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 was
necessary due to credit deterioration as of September 30, 2022. 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.

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

                                       29
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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. 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 and 2021. 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,
                                                                 2022                                                      2021
                                          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 )
(Benefit from) provision for income
taxes                                                      20                  6            26                     390                  6           396
Depreciation and amortization                           5,650                174         5,824                   1,698                 81         1,779
Stock-based compensation expense                        2,944              2,158         5,102                     878              4,393         

5,271

Change in fair value of contingent
consideration                                               -            (14,291 )     (14,291 )                     -                303           303
Interest expense, net                                       -              1,305         1,305                       -                  -             -
Acquisition and due diligence costs                         -                839           839                       -              1,426         1,426
State sales tax reserve                                     -                  -             -                       -                 22            22
Severance and executive search                            337                 28           365                       -                  -             -
Non-GAAP Net Income (Loss)               $              1,030     $       (6,746 )   $  (5,716 )   $             2,539     $       (4,833 )   $  (2,294 )



(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 )




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(1) Core operations consists of our aiWARE operating platform of software, SaaS
and related services; content, licensing and advertising agency 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.

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 and 2021.

                           Three Months Ended          Nine Months Ended
(dollars in thousands)        September 30,              September 30,
                            2022          2021         2022          2021
Revenue                  $   37,196     $ 22,655     $ 105,838     $ 60,156
Cost of revenue               7,097        5,808        20,725       15,862
Non-GAAP gross profit        30,099       16,847        85,113       44,294
Non-GAAP gross margin          80.9 %       74.4 %        80.4 %       73.6 %




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                                              Three Months Ended           Nine Months Ended
                                                September 30,                September 30,
                                              2022          2021          2022          2021
Revenue                                    $   37,196     $  22,655     $ 105,838     $  60,156
Cost of revenue                                 7,097         5,808        20,725        15,862
Non-GAAP gross profit                          30,099        16,847        85,113        44,294

GAAP cost of revenue                            7,097         5,808        20,725        15,862
Stock-based compensation expense                  (46 )           -           (90 )           -
Non-GAAP cost of revenue                        7,051         5,808        

20,635 15,862


GAAP sales and marketing expenses              13,920         5,906        37,565        17,586
Stock-based compensation expense                 (538 )        (226 )      (1,728 )      (1,358 )
Severance and executive search                    (86 )           -         

(86 ) (236 ) Non-GAAP sales and marketing expenses 13,296 5,680 35,751 15,992

GAAP research and development expenses 11,784 5,254 32,735 14,860 Stock-based compensation expense

               (1,532 )        (431 )      (3,783 )      (2,016 )
Severance and executive search                   (198 )           -          (198 )         (14 )
Non-GAAP research and development
expenses                                       10,054         4,823        

28,754 12,830

GAAP general and administrative expenses 2,502 15,084 27,127 62,272 Depreciation

                                     (320 )         (95 )        (764 )        (349 )
Stock-based compensation expense               (2,986 )      (4,615 )      (8,978 )     (30,117 )
Change in fair value of contingent
consideration                                  14,291          (303 )      23,076          (303 )
Charges related to sublease                         -             -             -        (3,367 )
State sales tax reserve                             -           (22 )           -          (306 )
Acquisition and due diligence costs              (839 )      (1,426 )      (1,608 )      (2,161 )
Severance and executive search                    (81 )           -           (81 )         (99 )
Non-GAAP general and administrative
expenses                                       12,567         8,623        38,772        25,570

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

GAAP loss from operations                      (3,611 )     (11,080 )     (28,044 )     (54,264 )
Total non-GAAP adjustments (1)                 (2,161 )       8,801         9,970        44,166
Non-GAAP loss from operations                  (5,772 )      (2,279 )     (18,074 )     (10,098 )

GAAP other expense, net                        (1,249 )         (15 )      (3,666 )         (37 )
Interest expense, net                           1,305             -         3,670             -
Non-GAAP other expense, net                        56           (15 )           4           (37 )

GAAP loss before income taxes                  (4,860 )     (11,095 )     (31,710 )     (54,301 )
Total non-GAAP adjustments (1)                   (856 )       8,801        13,640        44,166
Non-GAAP loss before income taxes              (5,716 )      (2,294 )     

(18,070 ) (10,135 )


Income tax (benefit) provision                     26           396        

(1,442 ) 472


GAAP net loss                                  (4,886 )     (11,491 )     (30,268 )     (54,773 )
Total non-GAAP adjustments (1)                   (830 )       9,197        12,198        44,638
Non-GAAP net loss                          $   (5,716 )   $  (2,294 )   $ 

(18,070 ) $ (10,135 )


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


(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.

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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 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
                                 Mar 31,      Jun 30,      Sept 30,      Dec 31,      Mar 31,      Jun 30,      Sept 30,
                                   2021         2021         2021          2021         2022         2022         2022
Software Revenue - Pro Forma
(in 000's) (1)                   $ 10,183     $ 20,072     $  21,860     $ 40,223     $ 18,167     $ 18,379     $  20,812
Ending Software Customers (2)         385          419           433          529          559          594           618
Average Annual Revenue (AAR)
(in 000's) (3)                   $    199     $    203     $     208     $    209     $    207     $    187     $     170
Total New Bookings (in 000's)
(4)                              $  2,442     $  4,896     $   3,356     $  8,317     $  9,574     $ 14,658     $  16,548
Gross Revenue Retention (5)          >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) "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.
(4) "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) "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




                                       33
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                                                                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
                                 Mar 31,      Jun 30,       Sept 30,      Dec 31,      Mar 31,      Jun 30,      Sept 30,
                                   2021         2021          2021          2021         2022         2022         2022
Avg billings per active
Managed Services client (in
000's) (6)                       $    582     $    622     $      615     $    625     $    684     $    736     $     747
Revenue during quarter (in
000's) (7)                       $ 10,327     $  9,968     $    9,647     $ 

10,857 $ 10,735 $ 9,625 $ 10,035




(6) 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) 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.

Results of Operations


The following tables set forth our results of operations for the three and nine
months ended September 30, 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.

                                           Three Months Ended           Nine Months Ended
(dollars in thousands)                        September 30,               September 30,
                                           2022          2021          2022          2021
Revenue                                  $  37,196     $  22,655     $ 105,838     $  60,156
Operating expenses:
Cost of revenue                              7,097         5,808        20,725        15,862
Sales and marketing                         13,920         5,906        37,565        17,586
Research and development                    11,784         5,254        32,735        14,860
General and administrative                   2,502        15,084        27,127        62,272
Amortization                                 5,504         1,683        15,730         3,840
Total operating expenses                    40,807        33,735       133,882       114,420
Loss from operations                        (3,611 )     (11,080 )     (28,044 )     (54,264 )
Other expense, net                          (1,249 )         (15 )      (3,666 )         (37 )
Loss before provision for income taxes      (4,860 )     (11,095 )     (31,710 )     (54,301 )
(Benefit) provision for income taxes            26           396        (1,442 )         472
Net loss                                 $  (4,886 )   $ (11,491 )   $ (30,268 )   $ (54,773 )




                                       34
--------------------------------------------------------------------------------

                                           Three Months Ended          Nine Months Ended
                                              September 30,              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 Compared with Three and Nine Months Ended September 30, 2021

Revenue

                                               Three Months Ended                               Nine Months Ended
                                               September 30, 2022                               September 30, 2022
                                    Commercial      Government &                    Commercial      Government &
                                    Enterprise        Regulated        Total        Enterprise        Regulated         Total
Software Products & Services (1)   $     19,800     $       1,012     $ 20,812     $     54,694     $       2,664     $  57,358
Managed Services                         16,384                 -       16,384           48,480                 -        48,480
Revenue                            $     36,184     $       1,012     $ 37,196     $    103,174     $       2,664     $ 105,838



(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                               Nine Months Ended
                                               September 30, 2021                              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")


CE Software Products & Services revenue increased 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, 2022
compared to the corresponding prior year period due to growth of our licensing
platform, in new advertising customers and in expanded services for existing
advertising customers and in live events coverage as conditions return to
pre-COVID levels.

Government & Regulated Industries ("GRI")


GRI Software Products & Services revenue increased $0.1 million or 6% in the
three months ended September 30, 2022 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 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.

                                       35
--------------------------------------------------------------------------------


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


                                Three Months Ended                                         Nine Months Ended
(dollars in thousands)             September 30,                                             September 30,
                                 2022          2021       $ Change       % Change         2022          2021        $ Change       % Change
Cost of revenue               $    7,097     $  5,808     $   1,289           22.2 %    $  20,725     $  15,862     $   4,863           30.7 %
Sales and marketing               13,920        5,906         8,014          135.7 %       37,565        17,586        19,979          113.6 %
Research and development          11,784        5,254         6,530        

124.3 % 32,735 14,860 17,875 120.3 % General and administrative 2,502 15,084 (12,582 )

 (83.4 )%      27,127        62,272       (35,145 )        (56.4 )%
Amortization                       5,504        1,683         3,821          227.0 %       15,730         3,840        11,890          309.6 %
Total operating expenses      $   40,807     $ 33,735     $   7,072           21.0 %    $ 133,882     $ 114,420     $  19,462           17.0 %




Cost of Revenue. The increase in cost of revenue in the three and nine months
ended September 30, 2022 compared with the corresponding prior year periods was
due primarily to our higher 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 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% in the three and nine months ended
September 30, 2022, respectively, from 26% and 29% in the corresponding prior
year periods.

Research and Development. The increase in research and development expenses in
the three and nine months ended September 30, 2022 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. As a percentage of revenue, research and
development expenses increased to 32% and 31% in the three and nine months ended
September 30, 2022, respectively, from 23% and 25% in the corresponding prior
year periods.

General and Administrative. General and administrative expenses decreased by
$12.6 million or 83% 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,
2022 compared with the corresponding prior year period principally due to a
$23.4 million decrease in the estimated fair value of contingent consideration,
a $21.1 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. As a percentage of revenue, general and
administrative expenses decreased to 7% and 26% in the three and nine months
ended September 30, 2022, respectively, from 67% and 104% in the corresponding
prior year periods.

Amortization Expense. Amortization expense increased in the three and nine months ended September 30, 2022 compared with the corresponding prior year periods 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 was
comprised primarily of interest expense 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.

                                       36
--------------------------------------------------------------------------------

Non-GAAP Gross Profit

As noted above, our non-GAAP gross profit is calculated as our revenue less our cost of revenue, as follows:


                             Three Months Ended                                       Nine Months Ended
(dollars in thousands)          September 30,                                           September 30,
                              2022          2021       $ Change       % Change        2022          2021       $ Change       % Change
Revenue                    $   37,196     $ 22,655     $  14,541           64.2 %   $ 105,838     $ 60,156     $  45,682           75.9 %
Cost of revenue                 7,097        5,808         1,289           22.2 %      20,725       15,862         4,863           30.7 %

Non-GAAP gross profit 30,099 16,847 13,252 78.7 % 85,113 44,294 40,819

           92.2 %
Non-GAAP gross margin            80.9 %       74.4 %                                     80.4 %       73.6 %



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

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 million as of September 30, 2022, compared
with total cash and cash equivalents of $254.7 million as of December 31, 2021.
The decrease in our cash and cash equivalents as of September 30, 2022 as
compared with December 31, 2021 was primarily due to investments made during the
nine months ended September 30, 2022, taxes paid related to net share settlement
of equity awards, and the payment of the PandoLogic 2021 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.

                                                              Nine Months Ended
(in thousands)                                                  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 )




Operating Activities

Our operating activities used cash of $24.6 million in the nine months ended
September 30, 2022, due primarily to our net loss of $30.3 million, adjusted by
$7.5 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 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 million in
stock-based compensation expense, offset in part by the net working capital
increase of $10.1 million of cash received from Managed Services advertising
clients for future payments to vendors.

Investing Activities


Our investing activities for the nine months ended September 30, 2022 used cash
of $11.1 million primarily for $4.6 million to fund a portion of the
consideration for our acquisitions, $3.8 million in capital expenditures and for
an equity investment of $2.8 million in a strategic partner.

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.

                                       37
--------------------------------------------------------------------------------

Financing Activities


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

Our financing activities provided cash of $9.4 million in the nine months ended
September 30, 2021. Net cash provided by financing activities consisted of $7.1
million 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.

Capital Resources

As of September 30, 2022, our only debt obligations were the Convertible Notes
issued in the fourth quarter of fiscal year 2021. We have $5.3 million in
purchase consideration commitments related to the VSL acquisition, the VocaliD
acquisition, and the March 2022 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 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. 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.

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