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Item 2. Management’s Discussion and Analysis

2024-11-12 compared with 2024-08-14 · 208 added, 137 removed, 328 unchanged (51% of the section changed)

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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, 2023, and any updates thereto set forth in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission (“SEC”), including future SEC filings.

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, 2023, “Risk Factors,” set forth in Part I, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, and any updates thereto set forth in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission (“SEC”), including future SEC filings.

See “Cautionary Note Regarding Forward-Looking Statements.”

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Our Software Products & Services consist of revenues generated from Commercial Enterprise and Public Sector customers using our aiWARE platform and Veritone Hire 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 six months ended June 30, 2024, we generated revenue of $31.0 million and $62.6 million, respectively, as compared to $28.0 million and $58.2 million during the three and six months ended June 30, 2023, respectively.

Our Software Products & Services revenue was $15.6 million during the three months ended June 30, 2024 as compared to $14.1 million for the same period in 2023, while our Managed Services revenue was $15.4 million during the three months ended June 30, 2024 as compared to $13.9 million for the same period in 2023.

Our Software Products & Services revenue was $30.8 million during the six months ended June 30, 2024 as compared to $28.2 million for the same period in 2023, while our Managed Services revenue was $31.8 million during the six months ended June 30, 2024 as compared to $30.0 million for the same period in 2023.

During the three and six months ended June 30, 2024, no customer represented more than 10% of our consolidated revenue.

During the three and six months ended June 30, 2023, one customer represented 15% and 17%, respectively, of our consolidated revenue.

Our Managed Services consist of revenues generated from Commercial Enterprise customers using our content licensing and representation services, including influencer management and related operations.

Through October 17, 2024, we operated a full-service advertising agency through a wholly-owned subsidiary, Veritone One (as defined below), that provided Managed Services to its customers.

On October 17, 2024, we sold all of the issued and outstanding equity of Veritone One, LLC (formerly, Veritone One, Inc., referred herein collectively as “Veritone One”) to an affiliate of Insignia Capital Group L.P., pursuant to which, among other things, Purchaser acquired from the Company all of the issued and outstanding equity of Veritone One (such transaction, the “Divestiture”).

The historical financial results of Veritone One are reflected in these condensed consolidated financial statements as discontinued operations and, as such, have been excluded from continuing operations for all periods presented on a retrospective basis, unless otherwise stated.

During the three and nine months ended September 30, 2024, we generated revenue of $22.0 million and $70.2 million, respectively, as compared to $28.0 million and $72.9 million during the three and nine months ended September 30, 2023, respectively.

Our Software Products & Services revenue was $14.7 million during the three months ended September 30, 2024 as compared to $20.4 million for the same period in 2023, while our Managed Services revenue was $7.3 million during the three months ended September 30, 2024 as compared to $7.6 million for the same period in 2023.

Our Software Products & Services revenue was $45.5 million during the nine months ended September 30, 2024 as compared to $48.6 million for the same period in 2023, while our Managed Services revenue was $24.7 million during the nine months ended September 30, 2024 as compared to $24.3 million for the same period in 2023.

During the three and nine months ended September 30, 2024, no customer represented more than 10% of our consolidated revenue.

During the three and three and nine months ended September 30, 2023, our largest customer represented less than 10% and 12%, respectively, of our consolidated revenue.

Recent Developments

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Operational Realignment and Restructuring.

During the first quarter of 2024, we enacted certain operational and restructuring initiatives (the “Q1 2024 Restructuring”), the result of which was an approximate 13% reduction in our global workforce.

As a result of the Q1 2024 Restructuring, we expect to reduce our annualized operating expenses by over $13.0 million.

We incurred $2.5 million in one-time severance and transition expenses in connection with the Q1 2024 Restructuring, of which $2.3 million was paid as of June 30, 2024.

Formal Process to Divest Certain Non-software Assets.

In addition, we have engaged bankers to launch a formal process to sell certain of our non-software assets (the “Asset”).

We currently have received multiple qualified bids and we aim to complete the sale of the Asset within the twelve months following the filing of this Quarterly Report on Form 10-Q.

If consummated, this transaction is expected to generate substantial cash proceeds to be used to repay a portion of our Term Loan and fund future operations.

There can be no assurance that any such transaction resulting from this process will ultimately be completed in the subsequent twelve-month period.

During the first quarter of 2024, we enacted certain operational and restructuring initiatives (the “Q1 2024 Restructuring”).

As a result of the Q1 2024 Restructuring, we expect to reduce our annualized operating expenses by approximately $13.0 million.

We have continued with additional cost reductions in the second half of 2024, which when combined with our Q1 2024 Restructuring, we expect will result in over $40.0 million of net annualized strategic cost reductions.

We incurred $3.9 million in one-time severance and transition expenses in connection with the Q1 2024 Restructuring, all of which was paid as of September 30, 2024 and we have incurred approximately $1.4 million in related one-time severance and transition costs for our cost reduction initiatives after the Q1 2024 Restructuring of which $0.3 million was paid as of September 30, 2024.

The cumulative results of these initiatives was an approximate 19% reduction in our global workforce.

Election of Michael Keithley as a Class I Director .

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Gehl resigned as a member of the Board of Directors immediately prior to the commencement of the Annual Meeting.

Divestiture of Media Agency.

On October 17, 2024, we consummated the Divestiture for a total purchase price of up to $104.0 million.

The Divestiture was strategic, allowing us to focus on our AI solutions, and secondarily to improve our financial liquidity with the net proceeds from the Divestiture.

Net proceeds from the transaction were $59.1 million in cash, which reflected the aggregate purchase price of $104.0

million, less $18.0 million subject to an earnout described below, $20.3 million of purchase price adjustments, and $6.7 million placed in escrow accounts.

We may receive the earnout of up to $18.0 million in cash proceeds based on the achievement of certain net revenue targets by Veritone One between January 1, 2025 and December 31, 2025.

On October 22, 2024, we used net cash proceeds from the Divestiture to repay $30.5 million principal amount of our outstanding Term Loan, plus accrued interest and a prepayment premium in the aggregate amount of $3.3 million, and $3.9 million in deal-related expenses.

As of October 22, 2024, immediately following the repayment of a portion of our Term Loan, we reported cash on hand of $27.3 million.

During the third quarter of 2024, we determined that Veritone One met the criteria to be classified as discontinued operations.

As a result, the historical financial results of Veritone One are reflected in our condensed consolidated financial statements herein as discontinued operations and, as such, have been excluded from continuing operations for all periods presented on a retrospective basis, unless otherwise stated.

See Note 3 on Discontinued Operations for more information.

Opportunities, Challenges and Risks

During the six months ended June 30, 2024 and 2023, we derived our revenue primarily through our Commercial Enterprise customers, and secondarily, through our Public Sector customers.

During the nine months ended September 30, 2024 and 2023, we derived our revenue primarily through our Commercial Enterprise customers, and secondarily, through our Public Sector customers.

We are a leader in AI-based Software Products & Services.

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Historically, we have derived a large portion of our Software Product & Services revenue from applications we internally developed from our aiWARE platform and actively sell to various customers.

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.

While management believes there is a substantial opportunity to increase revenue longer term, current economic conditions have negatively impacted parts of our consumption-based 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.

Nevertheless, we continue to see significant opportunities for growth in Software Products & Services and our aiWARE platform sales to existing and newly acquired customers, and where our AI solutions could add near and long-term value in the Public Sector industries and content creation and distribution across the global media and entertainment industry.

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Growing our existing and new Software Products & Services customer base is critical for our success.

Software Products & Services revenue increased by 9.3% during the six months ended June 30, 2024 as compared to the prior year period due to the addition of Broadbean in the second quarter of 2023, partially offset by lower consumption across our legacy Veritone Hire customer base.

During the six months ended June 30, 2024, no customer represented more than 10% of our consolidated revenue as compared to one customer that represented 17% of our consolidated revenue during the six months ended June 30, 2023.

As a result of the recent pullback in the macroeconomic environment caused by high inflation, high interest rates, higher unemployment and geopolitical factors including the Russia-Ukraine conflict and the war in Israel, some of our customers reduced consumption-based and advertising spending across our Commercial Enterprise customer base, namely of our Veritone Hire solutions and Managed Services.

As of June 30, 2024, our total Software Products & Services customers declined to 3,437, which was a decrease of 7.1% as compared to the end of the second quarter of 2023 on a pro forma basis, giving effect to the acquisition of Broadbean as if it occurred on January 1, 2022.

The decrease in customers was largely driven by planned migration of legacy CareerBuilder customers off the Broadbean software platform, which did not have a significant impact on our financial results in 2023 or for the six months ended June 30, 2024.

The overall impact of this customer decline is insignificant to our financial results in 2024.

Software Products & Services revenue decreased by 6.2% during the nine months ended September 30, 2024 as compared to the prior year period due to lower consumption across our Commercial Enterprise customer base, including Amazon and certain one-time software revenue recognized in 2023 that did not recur at the same rate in 2024, partially offset by the addition of Broadbean in the second quarter of 2023.

During the nine months ended September 30, 2024, no customer represented more than 10% of our consolidated revenue as compared to one customer that represented 12% of our consolidated revenue during the nine months ended September 30, 2023.

As a result of the recent pullback in the macroeconomic environment caused by high inflation, high interest rates, higher unemployment and geopolitical factors including the Russia-Ukraine conflict and the war in Israel, some of our customers reduced consumption-based spending across our Commercial Enterprise customer base, namely from our Veritone Hire solutions.

As of September 30, 2024, our total Software Products & Services customers declined to 3,291, which was a decrease of 6.9% as compared to the end of the third quarter of 2023.

To continue our effort to grow our customer base and overall revenue, we have been investing aggressively in existing customers and acquiring new customers.

In addition, in February 2024, we announced certain cost reduction and restructuring initiatives, the results of which was a reduction in our global workforce of approximately 13%.

Since the first quarter of 2023, we have been actively realigning and restructuring our organization, which, as of June 30, 2024, is expected to result in over $37.0 million of net annualized strategic cost reductions, which includes expected cost reductions from our Q1 2024 Restructuring.

In addition, in February 2024, we announced certain cost reduction and restructuring initiatives, the results of which was a reduction in our global workforce of approximately 13% as of September 30, 2024.

Since the first quarter of 2023, we have been actively realigning and restructuring our organization, which, as of September 30, 2024, is expected to result in over $40.0 million of net annualized strategic cost reductions, which includes expected cost reductions from our Q1 2024 Restructuring along with

additional cost reductions made in the second half of 2024.

As a result of our efforts to diversify our customer base and increase sales within our existing customer base, as well as the June 2023 acquisition of Broadbean, we increased our sales and marketing spending in the near term as compared to the trailing twelve months;

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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.

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 Public Sector, expand aiWARE into larger and more expansive enterprise engagements

and manage our corporate overhead costs.

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 related services to our customers, continue to grow in newer markets such as Public Sector, 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.

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While 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, there is no certainty our historical or future acquisitions will achieve these objectives.

Conversely, we have pursued and may continue to pursue opportunistic sales of certain business operations that are not strategic to us long-term, such as the potential sale of the Asset discussed above and the divestiture of our Energy Group in the second quarter of 2023.

For the three and six months ended June 30, 2024, our total revenues were $31.0 million and $62.6 million, respectively, as compared to $28.0 million and $58.2 million for the three and six months ended June 30, 2023, respectively, an increase of 10.8% and 7.6%, respectively, over the prior year periods.

For the three and six months ended June 30, 2024, our total loss from operations was $17.7 million and $39.5 million, respectively, as compared to $28.2 million and $51.8 million for the three and six months ended June 30, 2023, respectively, a decrease of 37.3% and 23.7%, respectively, over the prior year periods.

For the three and six months ended June 30, 2024, our non-GAAP gross margin (calculated as described in “Non-GAAP Financial Measures” below) increased to approximately 78.8% and 78.2%, respectively, as compared to 72.2% and 75.0% for the three and six months ended June 30, 2023, respectively, driven in large part by increased customer margins and the mix of revenue as compared to the prior year periods.

Conversely, we have pursued and may continue to pursue opportunistic sales of certain business operations that are not strategic to us long-term, such as the divestitures of our Energy Group in the second quarter of 2023 and our media agency in October 2024.

For the three and nine months ended September 30, 2024, our total revenues were $22.0 million and $70.2 million, respectively, as compared to $28.0 million and $72.9 million for the three and nine months ended September 30, 2023, respectively, a decrease of 21.8% and 3.7%, respectively, over the prior year periods.

For the three and nine months ended September 30, 2024, our total loss from operations was $22.5 million and $67.2 million, respectively, as compared to $25.2 million and $79.8 million for the three and nine months ended September 30, 2023, respectively, an improvement of 10.7% and 15.8%, respectively, over the prior year periods.

For the three and nine months ended September 30, 2024, our non-GAAP gross margin (calculated as described in “Non-GAAP Financial Measures” below) was approximately 71.2% and 72.1%, respectively, as compared to 74.9% and 70.7% for the three and nine months ended September 30, 2023, respectively, driven in large part by decreased customer margins and the mix of revenue as compared to the prior year periods.

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.

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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.

During the three and six months ended June 30, 2024, we reported a net loss of $22.2 million and $47.4 million, respectively, as compared to a net loss of $23.3 million and $46.3 million during the three and six months ended June 30, 2023, respectively.

During the three and six months ended June 30, 2024, we reported a non-GAAP net loss of $6.9 million and $14.5 million, respectively, as compared to a non-GAAP net loss of $13.0 million and $22.6 million during the three and six months ended June 30, 2023, respectively.

During the three and nine months ended September 30, 2024, we reported a net loss from continuing operations of $22.6 million and $72.1 million, respectively, as compared to a net loss of $26.8 million and $ 79.8 million during the three and nine months ended September 30, 2023, respectively.

During the three and nine months ended September 30, 2024, we reported a non-GAAP net loss from continuing operations of $11,097 and $31,139, respectively, as compared to a non-GAAP net loss of $10,411 and $36,833 during the three and nine months ended September 30, 2023, respectively.

To continue to grow our revenue, we will continue to make targeted investments in people, namely software engineers and sales personnel.

Historically, we have also 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, 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.

These cost reduction initiatives began in the latter half of 2022 and will continue through 2024, and include reductions in workforce and certain legacy operating costs, as well as the integration of past acquisitions.

However, considering the current challenging macro-economic environment, 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 throughout 2024 and into 2025.

These cost reduction initiatives began in the latter half of 2022 and will continue through 2024 and 2025, and include reductions in workforce and certain legacy operating costs, as well as the integration of past acquisitions.

As a result of these initiatives, we believe we will be able to accelerate our pathway toward long term profitability.

During the three and six months ended June 30, 2023, substantially all of our revenue was derived from customers located in the United States.

With the June 2023 acquisition of Broadbean, we expanded our customer base throughout Europe and Asia Pacific.

During the three and six months ended June 30, 2024, 33.4% and 33.1%, respectively, of our consolidated revenue was from customers outside of the U.S., principally from customers located throughout Western Europe, as compared to less than 10% during the three and six months ended June 30, 2023.

During the three and nine months ended September 30, 2024, 28.9% and 28.4%, respectively, of our consolidated revenue was from customers outside of the U.S., principally from customers located throughout Western Europe, as compared to 23.5% and 10.8% during the three and nine months ended September 30, 2023, respectively.

We believe that there is a substantial opportunity for us to continue expanding our service offerings and customer base in countries outside of the United States.

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Impact of Current Global Economic Conditions

Global economic and business activities continue to face uncertainty as a result of macroeconomic and geopolitical factors, labor shortages, inflation rates and the responses by central banking authorities to control inflation, monetary supply shifts, recession risks, disruptions from the Russia-Ukraine conflict, and the war in Israel.

Global economic and business activities continue to face uncertainty as a result of macroeconomic and geopolitical factors, labor shortages, inflation rates, the U.S.

presidential election and responses by central banking authorities to control inflation, monetary supply shifts, recession risks, disruptions from the Russia-Ukraine conflict, and the war in Israel.

In particular, business operations at our Herzliya office location where we do development work on our Veritone Hire solutions products have been, and may continue to be, impacted by the war in Israel.

A small portion of our Israel-based employees, and a number of their family members, have been conscripted into military service.

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 have

uncertainty and cannot be predicted.

These global economic conditions and any continued or new disruptions caused by these conditions may negatively impact our business in a number of ways.

For example, our Veritone Hire 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.

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.

For example, our Commercial Enterprise 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.

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 consumption-based spending, demand for our products and services may be negatively affected.

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.

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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 credit losses was necessary due to credit deterioration as of June 30, 2024.

The most significant risks to our business and results of operations are discussed in Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for the year ended December 31, 2023, and Part II, Item 1A (Risk Factors) of this Quarterly Report on Form 10-Q.

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Non-GAAP net loss (pro forma) is the Company’s net loss excluding the items set forth 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 provision for income taxes, depreciation expense, amortization expense, stock-based compensation expense, changes in fair value of contingent consideration, interest income, interest expense, foreign currency gains and losses, gain on debt extinguishment, acquisition and due diligence costs, gain or loss on sale of investment assets, loss from business held for sale, variable consultant performance bonus expense, and severance and executive transition costs.

The results for non-GAAP net income (loss), are presented below for the three and six months ended June 30, 2024 and 2023.

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 provision for income taxes,

depreciation expense, amortization expense, stock-based compensation expense, changes in fair value of contingent consideration, interest income, interest expense, foreign currency gains and losses, gain on debt extinguishment, acquisition and due diligence costs, gain or loss on sale of investment assets, loss from business held for sale, variable consultant performance bonus expense, severance and executive transition costs and net income from discontinued operations.

The results for non-GAAP net income (loss), are presented below for the three and nine months ended September 30, 2024 and 2023.

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.

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(in thousands)

Three Months Ended June 30,

Three Months Ended September 30,

Core Operations (1)

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Corporate (2)

Income from discontinued operations, net of income tax

(Benefit from) provision for income taxes

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Foreign currency impact

Gain on debt extinguishment

Acquisition and due diligence costs (4)

Loss (gain) on sale

Contribution of business held for sale (5)

Variable consultant performance bonus expense (6)

Severance and executive transition costs

Non-GAAP net loss from continuing operations

Non-GAAP net income from discontinued operations

Non-GAAP net loss

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Core Operations (1)

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Corporate (2)

Income from discontinued operations, net of income tax

(Benefit from) provision for income taxes

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Stock-based compensation expense

Change in fair value of contingent consideration

Purchase consideration expense (3)

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Severance and executive transition costs

Non-GAAP net loss from continuing operations

Non-GAAP net income from discontinued operations

Non-GAAP net loss

(1) Core operations consists of our consolidated Software Products & Services and Managed Services that include our content licensing and advertising 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.

(1) Core operations consists of our consolidated Software Products & Services and Managed Services that include our content licensing and representation 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) Purchase consideration expense includes consideration related to acquisitions.

(4) For the three and six months ended June 30, 2024, acquisition and due diligence costs are comprised of professional fees related to acquisitions and divestitures.

(4) For the three and nine months ended September 30, 2024, acquisition and due diligence costs are comprised of professional fees related to acquisitions and divestitures.

(5) Contribution of business held for sale relates to the net loss for the periods presented for our Energy Group that we divested during the second quarter of 2023.

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Chad Steelberg as a result of his achievement of the performance goals pursuant to his consulting agreement with us.

For the three months ended June 30, 2024, our loss from operations decreased to $17.7 million compared to $28.2 million in the corresponding prior year period.

For the six months ended June 30, 2024 our loss from operations decreased to $39.5 million compared to

$51.8 million in the corresponding prior year period.

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 six months ended June 30, 2024 and 2023.

(in thousands)

Three Months Ended September 30,

Core Operations

Net income from discontinued operations

Provision for income taxes

Depreciation and amortization

Stock-based compensation expense

Interest expense, net

Acquisition and due diligence costs (1)

Severance and executive transition costs

Non-GAAP net income from discontinued operations

(in thousands)

Nine Months Ended September 30,

Core Operations

Net income from discontinued operations

Provision for income taxes

Depreciation and amortization

Stock-based compensation expense

Interest expense, net

Acquisition and due diligence costs (1)

Severance and executive transition costs

Non-GAAP net income from discontinued operations

(1) For the three and nine months ended September 30, 2024, acquisition and due diligence costs are comprised of professional fees related to acquisitions and divestitures.

For the three months ended September 30, 2024, our loss from operations decreased to $22.5 million compared to $25.2 million in the corresponding prior year period.

For the nine months ended September 30, 2024 our loss from operations decreased to $67.2 million compared to $79.8 million in the corresponding prior year period.

(dollars in thousands)

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Loss from operations

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Non-GAAP gross profit

Non-GAAP gross margin

(dollars in thousands)

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Cost of revenue

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Cost of revenue

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Stock-based compensation expense

Change in fair value of contingent consideration

Purchase consideration expense (3)

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(Benefit from) provision for income taxes

GAAP net loss

GAAP net loss from continuing operations

Total non-GAAP adjustments (1)

Non-GAAP net loss from continuing operations

Non-GAAP net income from discontinued operations

Non-GAAP net loss

Shares used in computing non-GAAP basic and diluted net loss per share (in 000's)

Basic and diluted net loss per share from continuing operations

Basic and diluted net income per share from discontinued operations

Non-GAAP basic and diluted net loss per share

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Chad Steelberg as a result of his achievement of the performance goals pursuant to his consulting agreement with us.

(5) For the three and six months ended June 30, 2024, acquisition and due diligence costs are comprised of professional fees related to acquisitions and divestitures.

(5) For the three and nine months ended September 30, 2024, acquisition and due diligence costs are comprised of professional fees related to acquisitions and divestitures.

Supplemental Financial Information

We are providing the following unaudited supplemental financial information regarding our Software Products & Services and Managed Services as a lookback of prior years to explain our recent historical and year-over-year performance.

We are providing the following unaudited supplemental financial information regarding our Software Products & Services as a lookback of prior years to explain our recent historical and year-over-year performance.

The supplemental financial information for our Software Products & Services includes:

(i) Pro Forma Software Revenue, (ii) Total Software Products & Services Customers, (iii) Annual Recurring Revenue, (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 billings per active Managed Services client, and (ii) revenue.

In the past, we have provided supplemental financial information for our Managed Services including average billings per active Managed Services client, and revenue.

Because Managed Services will comprise a smaller portion of our business after the Divestiture, we no longer will provide this supplemental information.

Prior to the Divestiture, we experienced 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 chose 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 historically generated a significant portion of our revenue from a few major customers.

After the Divestiture, we expect revenue from our Managed Services to continue to experience volatility.

Software Products & Services Supplemental Financial Information

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We then deduct from the Prior Year Quarter Revenue any revenue from Software Products & Services Customers who are no longer customers as of the current period end, or Current Period Ending Software Customer Revenue.

We then divide the total Current Period Ending Software 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 Software Products & Services Customers from our Software Products & Services as of the year prior that is not lost to customer churn.

We then divide

the total Current Period Ending Software 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 Software Products & Services Customers from our Software Products & Services as of the year prior that is not lost to customer churn.

All numbers used to determine Gross Revenue Retention are calculated on a Pro Forma basis.

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Pro Forma Annual Recurring Revenue (in 000’s) (2)

(1) “Pro Forma Software Revenue” includes historical Software Products & Services Revenue from the past ten (10) fiscal quarters of each of Veritone, Inc.

(1) “Pro Forma Software Revenue” includes historical Software Products & Services Revenue from the past eleven (11) fiscal quarters of each of Veritone, Inc.

and Broadbean and presents such revenue on a combined pro forma basis treating Broadbean as owned by Veritone, Inc.

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(2) “Pro Forma Annual Recurring Revenue” represents an annualized calculation of the monthly recurring revenue in the last period of the calculated quarter, combined with the trailing twelve month calculation for all non-recurring and/or consumption based revenue for all active customers.

Managed Services Supplemental Financial Information

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

Quarter Ended

Avg billings per active Managed Services client (in 000's) (1)

Revenue during quarter (in 000's) (2)

(1) 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.

(2) Managed Services revenue and metrics exclude content licensing and media services and Table Rock Management.

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 six months ended June 30, 2024 and 2023, in dollars and as a percentage of our revenue for those periods.

The following tables set forth our results of operations for the three and nine months ended September 30, 2024 and 2023, 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.

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Operating expenses:

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(Benefit from) provision for income taxes

Net loss from continuing operations

Net income from discontinued operations

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Operating expenses:

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(Benefit from) provision for income taxes

Three and Six Months Ended June 30, 2024 Compared with Three and Six Months Ended June 30, 2023

Three Months Ended June 30,

Net loss from continuing operations

Net income from discontinued operations

Three and Nine Months Ended September 30, 2024 Compared with Three and Nine Months Ended September 30, 2023

Three Months Ended September 30,

Software Products & Services

Managed Services

Six Months Ended June 30,

Nine Months Ended September 30,

Software Products & Services

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Commercial Enterprise

Commercial Enterprise Software Products & Services revenue increased $2.0 million, or 16.2%, in the three months ended June 30, 2024 compared to the corresponding prior year period and increased $3.0 million, or 11.8%, in the six months ended June 30, 2024 compared to the corresponding prior year period, in each case, primarily due to the addition of Broadbean in the second quarter of 2023, partially offset by decreased revenue from consumption-based customers, including Amazon.

We also realized a 3.1% increase from recurring subscription-based SaaS revenue customers for the three months ended June 30, 2024 compared to the prior year period.

Commercial Enterprise Managed Services increased $1.5 million, or 10.7%, in the three months ended June 30, 2024 compared to the corresponding prior year period and increased $1.8 million, or 5.9%, in the six months ended June 30, 2024 compared to the corresponding prior year period, in each case, primarily due to increases in advertising revenue driven by the current advertising economic environment.

Commercial Enterprise Software Products & Services revenue decreased $5.8 million, or 30.6%, in the three months ended September 30, 2024 compared to the corresponding prior year period and decreased $2.8 million, or 6.3%, in the nine months ended September 30, 2024 compared to the corresponding prior year period, in each case, primarily due to decreased revenue from one-time software sales and from consumption-based customers, including Amazon, partially offset by the addition of Broadbean in the second quarter of 2023.

Commercial Enterprise Managed Services decreased $0.3 million, or 4.0%, in the three months ended September 30, 2024 compared to the corresponding prior year period primarily due to lower revenue from licensing customers, partially offset by increased revenue from representation services.

Commercial Enterprise Managed Services increased $0.4 million, or 1.5%, in the nine months ended September 30, 2024 compared to the corresponding prior year period, primarily due to lower revenue from licensing customers, partially offset by increased revenue from representation services.

Public Sector

Public Sector Software Products & Services revenue decreased $0.5 million, or 29.9%, in the three months ended June 30, 2024 compared to the corresponding prior year period and decreased $0.4 million, or 11.9%, in the six months ended June 30, 2024 compared to the corresponding prior year period, primarily due to certain one-time service revenues in the three months ended June 30, 2023 that did not recur in three months ended June 20, 2024, partially offset by organic growth in software revenues from public safety and federal customers.

Public Sector Software Products & Services revenue increased $0.1 million, or 8.1%, in the three months ended September 30, 2024 compared to the corresponding prior year period and decreased $0.2 million, or 5.3%, in the nine months ended September 30, 2024 compared to the corresponding prior year period, primarily due to fluctuations in timing and magnitude of spend by public safety and federal customers.

In some cases, Software Products & Services revenue from Public Sector customers in certain markets, particularly our government customers, can be project-based and impacted by the timing of such projects.

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Cost of revenue

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Cost of Revenue.

Cost of revenue decreased by $1.2 million and $0.9 million in the three and six months ended June 30, 2024, respectively, compared to the corresponding prior year periods, in each case, primarily due to improved margins from certain of our customers and a shift in the mix of revenues from lower margin Managed Services products to higher margin Software Products & Services products.

During the six months ended June 30, 2024, Software Products & Services products accounted for 49.3% of revenues compared to 48.5% in the prior year period.

Cost of revenues as a percentage of revenue improved to 21.2% and 21.8% in the three and six months ended June 30, 2024, respectively, as compared to 27.8% and 25.0% in the three and six months ended June 30, 2023, respectively.

Cost of revenue decreased by $0.7 million and $1.8 million in the three and nine months ended September 30, 2024, respectively, compared to the corresponding prior year periods, in each case, primarily due to the decline in revenues, especially in the higher margin Software Products & Services.

During the nine months ended September 30, 2024, Software Products & Services products accounted for 64.9% of revenues compared to 66.7% in the prior year period.

Cost of revenues as a percentage of revenue increased to 28.8% from 25.1%

in the three months ended September 30, 2024, respectively, as compared a decrease to 27.9% from 29.3% in the nine months ended September 30, 2023.

Sales and Marketing .

Sales and marketing expenses decreased by $0.5 million and $1.3 million in the three and six months ended June 30, 2024, respectively, compared to the corresponding prior year periods, in each case, primarily due to cost reduction initiatives announced in the first quarter of 2023 and reduced advertising spend, partially offset by increased sales and marketing expense as a result of the acquisition of Broadbean in June 2023.

As a percentage of revenue, sales and marketing expenses decreased to 40.9% and 39.1% during the three and six months ended June 30, 2024, respectively, from 46.9% and 44.3% during the three and six months ended June 30, 2023, respectively.

Sales and marketing expenses decreased by $0.8 million and $1.7 million in the three and nine months ended September 30, 2024, respectively, compared to the corresponding prior year periods, in each case, primarily due to cost reduction initiatives announced in the first quarter of 2024 partially offset by increased advertising expense and sales and marketing expense as a result of the acquisition of Broadbean in June 2023.

As a percentage of revenue, sales and marketing expenses increased to 46.3% from 39.3% during the three months ended September 30, 2024, and decreased to 44.6% from 45.2% during the nine months ended September 30, 2023.

Research and Development.

Research and development expenses decreased by $3.9 million, or 36.8%, and $6.2 million, or 28.1%, in the three and six months ended June 30, 2024, respectively, compared with the corresponding prior year periods, in each case, principally due to decreased personnel-related costs resulting from various cost reduction initiatives, partially offset by increases in research and development costs from the acquisition of Broadbean in June 2023 and increased capitalized costs for internal use software.

As a percentage of revenue, research and development expenses decreased to 21.4% and 25.3% during the three and six months ended June 30, 2024, respectively, from 37.6% and 37.9% during the three and six months ended June 30, 2023, respectively.

Research and development expenses decreased by $2.9 million, or 27.7%, and $9.1 million, or 27.9%, in the three and nine months ended September 30, 2024, respectively, compared with the corresponding prior year periods, in each case, principally due to decreased personnel-related costs resulting from various cost reduction initiatives, partially offset by increased amortization expenses from increased capitalized costs for internal use software and the acquisition of Broadbean in June 2023.

As a percentage of revenue, research and development expenses decreased to 34.2% and 33.3% during the three and nine months ended September 30, 2024, respectively, from 37.2% and 44.6% during the three and nine months ended September 30, 2023, respectively.

General and Administrative.

General and administrative expenses decreased by $2.3 million, or 11.9% in the three months ended June 30, 2024 compared with the corresponding prior year period, principally due to reductions in non-recurring professional fees largely associated with the Broadbean acquisition and personnel-related costs resulting from various cost reduction initiatives, partially offset by additional costs resulting from the June 2023 Broadbean acquisition.

General and administrative expenses decreased by $0.2 million, or 0.7% in the six months ended June 30, 2024 compared with the corresponding prior year period, primarily due to the decrease in the second quarter

of 2024, described above, partially offset by a net increase in the first quarter of 2024 compared to the prior year period, which was driven by increased costs from the June 2023 Broadbean acquisition, partially offset by expense reductions in stock based compensation and personnel related costs.

General and administrative expenses decreased by $3.8 million, or 21.0% in the three months ended September 30, 2024 compared with the corresponding prior year period, principally due to reductions in non-recurring professional fees largely associated with the Broadbean acquisition and personnel-related costs resulting from various cost reduction initiatives.

General and administrative expenses decreased by $3.7 million, or 7.6% in the nine months ended September 30, 2024 compared with the corresponding prior year period, primarily due to the decrease described above, partially offset by a net increase in the first half of 2024 compared to the prior year period driven by increased costs from the June 2023 Broadbean acquisition.

Amortization Expense.

Amortization expense increased in the three and six months ended June 30, 2024 compared with the corresponding prior year period primarily due to the addition of amortization expense related to our June 2023 acquisition of Broadbean, partially offset by certain assets being fully amortized in the third quarter of 2023.

Amortization expense decreased in the three months ended September 30, 2024 compared with the corresponding prior period primarily due to certain intangible assets being fully amortized in the third quarter of 2023, and increased in the nine months ended September 30, 2024 compared with the corresponding prior year period primarily due to the addition of amortization expense related to our June 2023 acquisition of Broadbean.

Other Income (Expense), Net

Other expense, net of $4.6 million for the three months ended June 30, 2024 was primarily due to interest expense, net of $4.5 million, driven by increased interest expense from our Term Loan.

Other income, net of $3.5 million for the three months ended June 30, 2023 was comprised primarily of a gain on the sale of the energy group of $2.6 million and a foreign exchange gain of $1.7 million, offset by interest expense, net of $0.7 million.

Other expense, net of $9.0 million for the six months ended June 30, 2024 was primarily due to interest expense, net of $8.5 million, driven by increased interest expense from our Term Loan, and a foreign exchange loss of $0.4 million.

Other income, net of 3.9 million for the six months ended June 30, 2023 was comprised primarily of a gain on the sale of the energy group of $2.6 million and a foreign exchange gain of $2.8 million, offset by interest expense, net of $1.5 million.

Other expense, net of $2.6 million for the three months ended September 30, 2024 was primarily due to interest expense, net of $3.0 million, driven by increased interest expense from our Term Loan, partially offset by a foreign translation gain of $0.4 million.

Other expense, net of $2.6 million for the three months ended September 30, 2023 was comprised primarily of a foreign exchange loss of $2.3 million.

Other expense, net of $8.6 million for the nine months ended September 30, 2024 was primarily due to interest expense, net of $8.5 million, driven by increased interest expense from our Term Loan.

Other income, net of $1.1 million for the nine months ended September 30, 2023 was comprised primarily of a gain on the sale of the energy group of $2.6 million and a foreign exchange gain of $0.5 million, offset by interest expense, net of $2.1 million.

Net income from discontinued operations

On October 17, 2024, we consummated the Divestiture.

The Divestiture was strategic, allowing us to focus on our AI solutions, and secondarily to improve our financial liquidity with the net proceeds from the Divestiture.

During the third quarter of 2024, we determined that Veritone One met the criteria to be classified as discontinued operations.

See Note 3 on Discontinued Operations for more information.

Net income from discontinued operations was $0.8 million for the three months ended September 30, 2024 and primarily consisted of (i) revenue of $8.6 million, offset by cost of revenue of $0.3 million, other operating expenses of $5.8 million and $1.7 million of net interest expense allocations primarily due to the repayment of our Term Loan as a result of the Divestiture.

Net income from discontinued operations was $2.9 million for the nine months ended September 30, 2024 and primarily consisted of (i) revenue of $23.0 million, offset by cost of revenue of $0.7 million, other operating expenses of $14.7 million and $4.7 million of net interest expense allocations primarily due to the repayment of our Term Loan as a result of the Divestiture.

Non-GAAP Gross Profit

Our non-GAAP gross profit is calculated as our revenue less our cost of revenue for the three and six months ended June 30, 2024 and 2023.

A reconciliation of non-GAAP gross profit to loss from operations presented in our condensed consolidated financial statements for the three and six months ended June 30, 2024 and 2023 is shown below.

Our non-GAAP gross profit is calculated as our revenue less our cost of revenue for the three and nine months ended September 30, 2024 and 2023.

A reconciliation of non-GAAP gross profit to loss from operations presented in our condensed consolidated financial statements for the three and nine months ended September 30, 2024 and 2023 is shown below.

(dollars in thousands)

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Loss from operations

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Cost of revenue

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Non-GAAP gross margin

The improvement in loss from operations for the three and six months ended June 30, 2024 compared to the prior year periods resulted from our increase in revenue and decrease in total operating expenses for the reasons noted above.

The increase in non-GAAP gross profit and non-GAAP gross margin in the three and six months ended June 30, 2024 compared with the corresponding prior year periods was primarily due to an increases in revenue and improved Non-GAAP gross margins compared to the corresponding prior year periods.

The improvement in loss from operations for the three and nine months ended September 30, 2024 compared to the prior year periods resulted primarily from cost reduction initiatives over the trailing eighteen months, offset by the declines in revenue and corresponding decline in Non-GAAP gross profit.

The decline in non-GAAP gross margin for the three months ended September 30, 2024 compared with the corresponding prior year period was primarily due to the decline in higher margin Commercial Enterprise revenue, including one-time software revenue and consumption based revenue from customers such as Amazon.

Liquidity, Capital Resources and Going Concern

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 $46.0 million as of June 30, 2024, compared with total cash and cash equivalents of $79.4 million as of December 31, 2023.

The decrease in our cash and cash equivalents as of June 30, 2024 as compared with December 31, 2023 was primarily due to cash used in operating activities of $27.8 million during the six months ended June 30, 2024.

Our principal sources of liquidity are our cash and cash equivalents, which totaled $11.4 million as of September 30, 2024, compared with total cash and cash equivalents of $46.6 million as of December 31, 2023.

The decrease in our cash and cash equivalents as of September 30, 2024 as compared with December 31, 2023 was primarily due to cash used in operating activities of $24.2 million during the nine months ended September 30, 2024.

As of September 30, 2024 and December 31, 2023, the Company also had cash from discontinued operations of $34.5 million and $32.8 million, respectively.

In December 2023, we and certain of our subsidiaries, as guarantors, entered into a Credit and Guaranty Agreement (the “Credit Agreement”), by and among the Company and certain of our subsidiaries, as guarantors, and certain funds managed by Highbridge Capital Management, LLC and with certain other lenders (collectively, the “Lenders”) and Wilmington Savings Fund Society, FSB, as administrative agent and collateral agent.

The Credit Agreement provides for a $77.5 million senior secured term loan (the “Term Loan”), which was fully drawn by us on closing of the Term Loan.

Based on our liquidity position at June 30, 2024 and our current forecast of operating results and cash flows, absent any other action, management determined that there is substantial doubt about our ability to continue as a going concern

over the twelve months following the filing of this Quarterly Report on Form 10-Q, principally driven by our current debt service obligations, historical negative cash flows and recurring losses.

On October 17, 2024, we consummated the Divestiture for a total purchase price of up to $104.0 million.

Net proceeds from the transaction were $59.1 million in cash, which reflected the aggregate purchase price of $104.0 million, less $18.0 million subject to the Earnout described below, $20.3 million of purchase price adjustments, and $6.7 million placed in escrow accounts.

We may receive the Earnout of up to $18.0 million in cash proceeds based on the achievement of certain net revenue targets by the Divestiture between January 1, 2025 and December 31, 2025.

On October 22, 2024, we used net cash proceeds from the Divestiture to repay $30.5 million principal amount of the Term Loan, plus accrued interest and prepayment premiums in the aggregate amount of $3.3 million.

As of October 22, 2024, immediately following the Divestiture and the repayment of a portion of our Term Loan, we reported cash on hand of $27.3 million

Based on our liquidity position at September 30, 2024 after giving effect to the impact of the Divestiture and the repayment of a portion of our Term Loan, and our current forecast of operating results and cash flows, absent any other action, management determined that there is substantial doubt about our ability to continue as a going concern over the twelve months following the filing of this Quarterly Report on Form 10-Q, principally driven by our current debt service obligations, historical negative cash flows and recurring losses.

We will require additional liquidity to continue our operations over the next twelve months.

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These strategies may include, but are not limited to, obtaining equity financing, debt and/or further restructuring of operations to grow revenues and decrease operating expenses, which include capturing past cost reductions and potential future cost synergies from our past acquisitions.

In addition, management recently announced a formal process to divest the Asset, which transaction management intends to close within the twelve months following the filing of this Quarterly Report on Form 10-Q.

If consummated, this transaction is expected to generate substantial cash proceeds to be used to repay a portion of our Term Loan and fund future operations.

There is no assurance that such transaction will close in the subsequent twelve-month period, or at all, and as a result these cash flows have been excluded from management’s plans to remediate the doubt of going concern.

The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

We may not be able to access additional equity under acceptable terms, and may not be successful in future operational restructurings or at growing our revenue base.

If we are unable to sell the Asset on terms favorable to us, or at all, our ability to execute on our operating plans may be materially adversely impacted.

The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business, including the ability to meet minimum liquidity thresholds under our Term Loan Credit Agreement.

We may not be able to access additional equity under acceptable terms, and may not be successful in future operational restructurings, earning any of our deferred purchase consideration, meeting our minimum liquidity threshold under our Credit Agreement, growing our revenue base and our ability to execute on our operating plans may be materially adversely impacted.

If we become unable to continue as a going concern, we may have to dispose of other or additional assets and might realize significantly less value than the values at which they are carried on our condensed consolidated financial statements.

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(in thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash used in operating activities

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Operating Activities

Our operating activities used cash of $27.8 million in the six months ended June 30, 2024, due primarily to our net loss of $47.4 million, adjusted by $19.4 million in non-cash expenses, including $14.5 million in depreciation and amortization, $3.7 million in stock-based compensation expense and $3.0 million of amortized debt issuance costs.

Cash generated by operating activities in the six months ended June 30, 2024 was partially offset by a net working capital impact of $0.3 million, primarily due to net cash inflows from changes in accounts receivable of $14.8 million, client advances of $17.9 million, and prepaid expenses and other current assets of $1.6 million, partially offset by net cash outflows due to the timing of accrued media payments of $24.6 million and expenditures billable to clients of $9.3 million.

Our operating activities used cash of $58.5 million in the six months ended June 30, 2023, due primarily to our net loss of $46.3 million, adjusted by $16.2 million in non-cash expenses, including $12.3 million in depreciation and amortization and $6.6 million in stock-based compensation expense, as well as the net working capital decrease of $28.4 million, primarily due to decreases in accrued media payments of $34.6 million, partially offset by decreases in accounts receivable of $16.3 million.

Our operating activities used cash of $24.2 million in the nine months ended September 30, 2024, due primarily to our net loss of $69.2 million, adjusted by $28.1 million in non-cash expenses, including $21.7 million in depreciation and amortization, $5.9 million in stock-based compensation expense and $4.6 million of amortized debt issuance costs, partially offset by $5.0 million from deferred taxes.

Cash used in operating activities in the nine months ended September 30, 2024 was partially offset by a net working capital impact of $16.8 million, primarily due to the timing of accrued media payments of $14.0 million and client advances of $19.7 million, partially offset by net cash outflows from expenditures billable to clients of $17.6 million.

Our operating activities used cash of $48.1 million in the nine months ended September 30, 2023, due primarily to our net loss of $70.8 million, adjusted by $26.7 million in non-cash expenses, including $20.2 million in depreciation and amortization and $8.6 million in stock-based compensation expense, as well as the net working capital decrease of $4.0 million, primarily due to decreases in accrued media payments of $17.7 million, partially offset by decreases in accounts receivable of $14.1 million.

Investing Activities

Our investing activities for the six months ended June 30, 2024 used cash of $1.6 million driven by capital expenditures, partially offset by proceeds from the sale of our interest in GridBeyond Limited, an Ireland-based privately held company.

Our investing activities for the six months ended June 30, 2023 used cash of $55.1 million primarily for $50.2 million in cash paid for the Broadbean acquisition net of cash acquired and $2.7 million in deferred consideration primarily related to our March 2022 Acquisition and the VocaliD acquisition, and $2.7 million in capital expenditures, with these uses of cash partially offset by $0.5 million in proceeds from the sale of our energy group in June 2023.

Our investing activities for the nine months ended September 30, 2024 used cash of $3.3 million driven by capital expenditures, partially offset by proceeds from the sale of our interest in GridBeyond Limited, an Ireland-based privately held company.

Our investing activities for the nine months ended September 30, 2023 used cash of $53.7 million primarily for $50.2 million in cash paid for the Broadbean acquisition net of cash acquired and $4.0 million in capital expenditures, with these uses of cash partially offset by $0.5 million in proceeds from the Energy Sale.

Financing Activities

Our financing activities for the six months ended June 30, 2024 used cash of $4.0 million, driven primarily by $1.9 million of principal paid on our Term Loan and $1.8 million in deferred consideration paid related to the 2022 acquisitions.

Our financing activities for the six months ended June 30, 2023 used cash of $8.1 million, consisting of $7.8 million to pay the 2022 earnout for PandoLogic and $1.0 million to pay taxes paid related to the net share settlement of equity awards, partially offset by $0.6 million in proceeds received from the exercise of stock options and purchases of shares under our ESPP.

Our financing activities for the nine months ended September 30, 2024 used cash of $5.9 million, driven primarily by $3.9 million of principal paid on our Term Loan and $1.8 million in deferred consideration paid related to the 2022 acquisitions.

Our financing activities for the nine months ended September 30, 2023 used cash of $10.5 million, consisting of $7.8 million to pay the 2022 earnout for PandoLogic, $2.7 million in deferred consideration primarily related to the March 2022 Acquisition and the VocaliD acquisition, and $1.1 million to pay taxes paid related to the net share settlement of equity awards, offset by $1.1 million in proceeds received from the exercise of stock options and purchases of shares under our ESPP.

Discontinued Operations

The cash flows related to discontinued operations have not been segregated and are included in the condensed consolidated statements of cash flows.

The total net cash provided by operating activities from discontinued operations was $1.9 million for the nine months ended September 30, 2024, which primarily relates to net income from discontinued operations of $2.9 million and the impact from net working capital of $19.9 million, partially offset by net transfers from the Company of $21.4 million.

Net cash used in operating activities from discontinued operations was $28.6 million for the nine months ended September 30, 2023, which primarily relates to net transfers from the

Company of $21.2 million and net income from discontinued operations of $5.3 million, partially offset by the impact from net working capital of $13.9 million.

Net cash used in investing activities was $0.2 million and $0.3 million for the nine months ended September 30, 2024 and 2023, respectively, related to capital expenditures.

Contractual Obligations and Known Future Cash Requirements

As of June 30, 2024, our debt obligations are comprised of our Term Loan and our 1.75% convertible senior notes due in 2026 (the “Convertible Notes”).

As of June 30, 2024, we have $75.6 million principal amount outstanding under our Term Loan that matures in December 2027 and $91.2 million aggregate principal amount outstanding of our Convertible Notes that mature in November 2026.

As of June 30, 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.

As of June 30, 2024, we have recorded $2.0 million of gross liability for uncertain tax positions, including interest and penalties.

As of September 30, 2024, our debt obligations are comprised of our Term Loan and our 1.75% convertible senior notes due in 2026 (the “Convertible Notes”).

As of September 30, 2024, we have $75.6 million principal amount outstanding under our Term Loan that matures in December 2027 and $91.2 million aggregate principal amount outstanding of our Convertible Notes that mature in November 2026.

On October 22, 2024, we repaid $30.5 million principal amount of our Term Loan and, after such repayment, $43.1 million principal amount remained outstanding under our Term Loan.

As of September 30, 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.

As of September 30, 2024, we have recorded $2.0 million of gross liability for uncertain tax positions, including interest and penalties.

Based upon the information available and possible outcomes, we cannot reasonably estimate the amount and period in which the liability might be paid.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis