What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-10 compared with 2021-11-15 · 154 added, 206 removed, 169 unchanged (68% of the section changed)

1 unchanged sentence

Forward-Looking Statements

The following discussion and analysis of our financial condition and results of operations should be read together with the 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, 2020.

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.

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See “Special Note Regarding Forward-Looking Statements” above at page 1.

Veritone, Inc.

(collectively with our subsidiaries, referred to as “Veritone,” “Company,” “we,” “our,” and “us”) is a provider of artificial intelligence (“AI”) solutions, powered by our proprietary AI platform, aiWARE™, to deliver differentiated products and solutions to our Commercial Enterprise and Government &Regulated Industries customers.

For the three and nine months ended September 30, 2021 we reported total revenue of $22.7 million and $60.2 million, respectively, as compared to $15.7 million and $40.9 million, respectively, in the corresponding prior year period.

Beginning in the third quarter of 2021 and in conjunction with certain organizational realignment with the acquisition of PandoLogic, we began aggregating our revenue reporting into two customer groups:

(i) Commercial Enterprise and (ii) Government &Regulated Industries.

Total revenue from Commercial Enterprise, which represents over 95% of our consolidated revenue, was $21.7 million and $57.5 million for the three and nine months ended September 30, 2021.

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 months ended March 31, 2022, we generated revenue of $34.4 million as compared to $18.3 million during the three months ended March 31, 2021.

Our Software Products & Services grew 288% year over year, and represented 53% and 26% of our consolidated revenue during the three months ended March 31, 2022 and 2021, respectively, and our Managed Services grew 19% year over year, and represented 47% and 74% of our consolidated revenue during the three months ended March 31, 2022 and 2021, respectively.

During the three months ended March 31, 2022 our largest customer represented 31% of our consolidated revenue and during the three months ended March 31, 2021 a different customer was our largest customer, with revenues representing 10% of our consolidated revenue.

Significant Transactions

In September 2021, the Company completed the acquisition of PandoLogic Ltd., a company incorporated under the laws of the state of Israel (“PandoLogic”) for total consideration of $116.6 million (the “Merger Consideration”).

The Merger Consideration consists of upfront payments of $58.7 million in cash and $31.5 million in common stock (1.7 million shares) and up to $65.0 million payable based on earnouts tied to financial performance of PandoLogic in fiscal 2021 and 2022.

At the acquisition date, the earnout was valued at $26.4 million which amount will be paid in a combination of cash and common stock.

In the first nine months of 2021, we received $7.1 million from the exercise of stock options and purchases of shares under our ESPP and $2.3 million in proceeds received from the exercise of warrants to purchase common stock.

In March 2022, we completed an acquisition of an influencer-based management services company for total consideration of $5.8 million (the “Merger Consideration”).

The Merger Consideration consists of upfront payments of $2.0 million in cash and $1.9 million in common stock (0.1 million shares) and deferred compensation of $3.0 million payable in fiscal 2022 and 2023.

Opportunities, Challenges and Risks

In the first nine months of 2021 and 2020, we derived our revenue primarily through Commercial Enterprise and secondarily through Government & Regulated Industries.

Beginning in the second half of 2020 and continuing into 2021, we began to experience significant growth in revenue across Commercial Enterprise, which increased 46% and 47%, respectively, during the three and nine months ended September 30, 2021, compared with the same periods in 2020.

The year-over-year growth in Commercial Enterprise revenue was driven largely by the addition of PandoLogic in September 2021 as well as expanded services to existing and new customers in the media and entertainment markets.

As we are at the early stages of new product introductions in these markets, we expect that our Commercial Enterprise revenue will continue to increase in the near and long term, both in absolute dollars and as a percentage of our total revenue.

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

In addition to the growth in our aiWARE products, we have also demonstrated our ability to grow our Managed Services’ advertising service, with our revenue from these services increasing 10% and 30%, respectively, during the three and nine months ended September 30, 2021, compared with the corresponding prior year periods.

Historically, we have derived a large portion of our aiWARE Product and Services revenue from applications we internally developed from our aiWARE platform and actively sold across certain media and entertainment, government and energy customers.

During the three months ended March 31, 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 288% in our Software Products & Services during the three months ended March 31, 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 three months ended March 31, 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.

While management believes this 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 within, where our AI solutions could add tremendous value in content creation and distribution, including in news, television, and film.

We believe there will be significant near and long term opportunities for revenue growth from Government& Regulated Industries services, including in the energy sector, due to customer adoption of our products and services related to AI technologies and more recently with our official ATO (authorization to operate) of our aiWARE platform across the entire U.S.

Department of Justice .

However, many sales opportunities with these 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 with in the U.S.

g overnment 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 Government & Regulated Industries to help utilities increase profitability and improve grid reliability as they make the transition to renewables.

We believe that our patented technology is uniquely suited to solving some of the most difficult challenges facing utilities today, and we see tremendous near and long term opportunity to grow our revenue within this market, as discussed under “Business - Overview” in our Annual Report on Form 10-K for the year ended December 31, 2020 .

Our aiWARE technology is in the early stages of deployment in the energy market, and we expect to continue making significant investments in product, sales and engineering over the next 12 to 24 months to further develop our current and future technologies to address the opportunities in this market.

At the end of the third quarter of 2021, we reported 433 aiWARE Software Product and Services customers.

To continue to grow our aiWARE product and services customer base, and drive increased sales within our existing customer base, we will need to continue to increase our sales and marketing spending throughout the remainder of 2021 and into 2022 as compared with prior periods.

We believe our software products and services will extend the capabilities of many third-party software platforms and products that are widely used today.

For example, we recently announced the acquisition of PandoLogic, a technology that utilizes machine-learning and AI to accelerate the hiring process for large enterprises.

We believe when integrated with our aiWARE, PandoLogic users will be given greater visibility and transparency in their hiring processes.

In addition, we have historically integrated aiWARE across many platform, including Alteryx and the NVIDIA ® CUDA ® GPU-based platform, enabling dramatic increases in aiWARE’s processing speed and opening up 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.

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.

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 and progress with the Joint Artificial Intelligence Commission (“JAIC”) and Department of Defense (“DOD”).

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.

Our aiWARE platform is in the early stages of deployment in the energy market, and we expect to continue making significant investments in

product, sales and engineering over the next 12 to 24 months to further develop our current and future solutions to address the opportunities in this market.

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

During the first quarter of 2022, our largest customer, Amazon, represented 31% of our consolidated revenue, as compared to 16% in the same quarter of 2021 on a pro forma basis (pro forma basis meaning the inclusion of PandoLogic as if owned by us since January 1, 2021).

Approximately 25% of the first quarter 2022 Amazon revenue was from new services, part of our land-and-expand strategy and helped to drive our customer net retention above 120% in the quarter ended March 31, 2022 as compared to the same quarter of 2021.

Moreover, we continue to grow our Software Products & Services customer base.

At the end of the first quarter of 2022, we reported 559 Software Product & Services customers, which grew 45% from March 31, 2021 on a pro forma basis.

On a pro forma basis, we also grew PandoLogic’s customer base as of March 31, 2022 over 100% year over year, and non-volume hiring revenue for the quarter ended March 31, 2022, which excludes Amazon, grew over 200% year over year.

To continue to grow our Software Product & Services and diversify our customer base, and drive increased sales within our existing customer base, we plan to continue to increase our sales and marketing spending throughout 2022 as compared with prior periods.

Our business has seasonality, driven mostly by hiring patterns across PandoLogic.

Typically, hiring patterns are lowest during the first and second quarters, then increase sequentially each quarter in the second half of the year.

During the quarter ended March 31, 2022, one of our largest customers accelerated hiring in part to manage the January 2022 Omicron virus outbreak.

As a result of this, we do not expect our intelligent hiring platform revenues to sequentially improve substantially from the first quarter of 2022 to the second quarter of 2022, as part of the first half of 2022 planned revenues from this customer accelerated into early 2022.

However, we do expect the platform to normalize starting in the third quarter of 2022, and to grow comparably with prior years’ seasonality trends and in accordance with our prior expectations.

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 plan to hire additional engineers and business development resources in the near term to further accelerate our pursuit of these potential opportunities, as well as other third-party technology integrations.

For the three and nine months ended September 30, 2021, our gross margin (calculated as described in “Non-GAAP Financial Measures” below) improved to 74%, compared with 71% and 72% for the three and first nine months ended September 30, 2020, respectively, driven by growth of new customers across our Software Products and Services, which generated incremental gross margins in excess of 80% during the three months ended September 30, 2021.

Our gross margin is impacted significantly by the mix of our Software Products and Services and our Managed Services revenue, which typically has a lower overall gross margin, in a given period.

With the addition of PandoLogic in September 2021, we expect our consolidated gross margin and related gross profit to improve even further beginning in the fourth quarter of 2021.

Our 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 gross profit, our ability to attract new and retain existing 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.

For the three months ended March 31, 2022, our non-GAAP gross margin (calculated as described in “Non-GAAP Financial Measures” below) improved to 80%, compared with 74% for the three months ended March 31, 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 months ended March 31, 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, historically we have reported operating losses;

however, we expect to report substantial improvements in our consolidated operating results as early as the fourth quarter of 2021, following the acquisition of PandoLogic in September 2021.

The future revenue and operating growth across our platform will rely heavily on our ability to grow and retain our aiWARE Software Products and Services customer base, continue to develop and deploy quality and innovative AI-driven applications, provide unique and attractive content and advertising services to our customers, continue to grow in newer markets such as government and regulated entities, expand our aiWARE platform into larger and more expansive enterprise engagements and manage our corporate overhead costs.

Moreover, we have historically reported GAAP operating losses, driven by certain non-cash and non-recurring items such as stock-based compensation and purchase accounting;

however, we expect to report substantial improvements in our consolidated operating results for the year ending December 31, 2022 as compared to the year ended December 31, 2021, driven by the growth in our software offerings and customers and the growth of PandoLogic.

Our future revenue and operating growth will rely heavily on our ability to grow and retain our Software Products & Services customer base, continue to develop and deploy quality and innovative AI-driven applications and enterprise-level offerings, provide unique and attractive content and advertising services to our customers, continue to grow in newer markets such as Government & Regulated Industries, expand aiWARE into larger and more expansive enterprise engagements and manage our corporate overhead costs.

While we believe we will be successful in these endeavors, we cannot guarantee that we will succeed in generating substantial long term operating growth and profitability.

Since 2017, we have made acquisitions that extended our business and technology reach in several areas, as discussed in more detail in in our Annual Report on Form 10-K for the year ended December 31, 2020.

We believe there are strategic acquisition targets that can accelerate our entry into key strategic markets, such as the acquisition of PandoLogic that accelerates our entry into the intelligent hiring of workers, as well as our ability to grow our business.

As a result, we will continue to prioritize corporate development efforts for the remainder of 2021 and beyond.

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.

If we are successful in identifying and entering into agreements to acquire target companies, we may need to raise additional capital to finance such acquisitions and to continue executing on our growth strategy.

Historically, substantially all of our revenue has been 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

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 growth opportunities.

Impact of the Coronavirus (“COVID-19”) Pandemic

During the three months ended March 31, 2022, we reported a non-GAAP net loss of $5.2 million as compared to $3.9 million during the three months ended March 31, 2021.

While we forecast our full year 2022 to be profitable on a non-GAAP net income basis, we do expect seasonality in our revenue and more losses in operating performance throughout the quarter ended June 30, with increased profitability during the quarters ended September 30 and December 31, driven partly from PandoLogic services.

Moreover, and to continue to grow our revenue in 2022, we will continue to make substantial investments in people, namely software engineers and sales personnel.

Through April 2022, our headcount grew approximately 25% since the beginning of 2022.

In addition, we have made substantial investments in our existing people, including higher annual raises and increased benefits, in order to compete in a challenging and constrained labor environment.

Lastly, we are making investments in our corporate infrastructure, including new ERP and workforce systems to help us better manage the scale and growth of our business.

These investments in people and infrastructure will weigh heavier on our financial results beginning in Q2 2022 and beyond.

If we cannot hire or retain people in a timely manner, and or are incapable of managing the scale of our operations, our growth and ultimate profitability could be accelerated or delayed.

In the three months ended March 31, 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

The COVID-19 outbreak emerged in late 2019 and was declared a global pandemic by the World Health Organization in March 2020.

The COVID-19 pandemic, and the actions being taken by governments worldwide to mitigate the public health consequences of the pandemic, significantly impacted the global economy.

Beginning in March 2020, we began to experience fluctuations in demand for certain services, particularly our Commercial Enterprise Managed Services, a significant amount of revenue from which is typically driven by 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 Commercial Enterprise Managed Services in future quarters.

The pandemic has 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 customers.

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, 2021.

Beginning in March 2020, we began to experience fluctuations in demand for certain services, particularly our Managed Services, a significant amount of revenue from which is typically driven by 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 pandemic has 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.

The extent to which the COVID-19 pandemic and the related macroeconomic conditions may continue to affect our financial condition or results of operations is uncertain.

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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.

In response to the COVID-19 pandemic, we took actions to control expenses, including temporarily discontinuing non-essential services and instituting controls on travel, entertainment and other expenses.

In addition, in compliance with government mandates, we have temporarily closed our offices and initiated a work from home policy.

In response to the COVID-19, we took actions to control expenses, including temporarily discontinuing non-essential services and instituting controls on travel, entertainment and other expenses.

In addition, we have initiated a remote work from home policy.

We expect to continue to enforce these and other actions we deem appropriate until or when the COVID-19 pandemic is officially no longer declared a pandemic by the World Health Organization.

Non-GAAP Financial Measure

In evaluating our cash flows and financial performance, we use certain non-GAAP financial measures, including “non-GAAP gross profit,” “non-GAAP gross margin,” “non-GAAP net income (loss),” and “non-GAAP net income (loss) per share.” Gross profit is the Company’s revenue less its cost of revenue.

In evaluating our cash flows and financial performance, we use certain non-GAAP financial measures, including “non-GAAP gross profit,” “non-GAAP gross margin,” “non-GAAP net income (loss),” and “non-GAAP net income (loss) per share.” Non-GAAP gross profit is the Company’s revenue less its cost of revenue.

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, 2021 and 2020.

The results for non-GAAP net income (loss), are presented below for the three months ended March 31, 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.

Non-GAAP net loss is not a financial measure 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 Non-GAAP net loss differently.

In addition, we have provided additional supplemental non-GAAP measures gross profit, of 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 its industry, Management also uses this information internally for forecasting and budgeting.

In addition, we have provided additional 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.

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.

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(in thousands)

Three Months Ended September 30,

Core Operations ( 1)

Corporate ( 2)

Core Operations ( 1)

Corporate ( 2)

Provision for income taxes

Depreciation and amortization

Stock-based compensation expense

Change in fair value of Contingent consideration

State sales tax reserve

Acquisition and due diligence costs

Non-GAAP Net Income (Loss)

(in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Core Operations (1)

5 unchanged sentences

Stock-based compensation expense

Change in fair value of warrant liability

Change in fair value of Contingent consideration

State sales tax reserve

Gain on sale of asset

Interest expense

Acquisition and due diligence costs

State sales tax reserve

Charges related to sublease

5 unchanged sentences

(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 gross profit and 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, 2021 and 2020.

Three Months Ended

Nine Months Ended

(dollars in thousands)

September 30,

Cost of revenue

1 unchanged sentence

Non-GAAP gross margin

(in thousands)

Three Months Ended

Nine Months Ended

September 30,

Cost of revenue

Non-GAAP gross profit

GAAP cost of revenue

Stock-based compensation expense

Non-GAAP cost of revenue

GAAP sales and marketing expenses

20 unchanged sentences

GAAP other expense, net

Change in fair value of warrant liability

Interest expense

Gain on sale of asset

Non-GAAP other (expense) income, net

Non-GAAP other expense, net

GAAP loss before income taxes

6 unchanged sentences

Shares used in computing non-GAAP basic and diluted net loss per share

Non-GAAP basic and diluted net loss per share

( 1 ) Adjustments are comprised of the adjustments to GAAP revenue, 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.

Non-GAAP diluted net loss per share

(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.

Supplemental Financial Information

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

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 Managed Services include:

(i) average gross billings per active agency client, and (ii) revenue.

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

(i) Software Revenue – Pro Forma, (ii) Ending 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.

Managed Services Supplemental Financial Information

The following table sets forth the results for each of the KPIs for our Commercial 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 client for each quarter reflects the average quarterly billings per active Managed Services client over the twelve-month period through the end of such quarter for Managed Services clients that are active during such quarter.

(2) Managed Services revenue and metrics exclude content licensing & media services.

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 client wins;

(ii) loss of clients who choose to replace our services with new providers or by bringing their advertising placement in-house;

(iii) clients who experience reductions in their advertising budgets due to issues with their own businesses;

and (iv) the seasonality of the campaigns for certain large clients.

We have historically generated a significant portion of our revenue from a few major clients.

As we continue to grow and diversify our client base, we expect that our dependency on a limited number of large clients will be minimized.

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

3 unchanged sentences

Ending Customers (2)

Average Annual Revenue(AAR) ($000) (5)

Total New Bookings ($000) (6)

Average Annual Revenue (AAR) (in 000's) (3)

Total New Bookings (in 000's) (4)

Gross Revenue Retention (5)

(1 ) “Software Revenue - Pro Forma” includes historical Software Products & Services revenue from the past five (5) fiscal quarters of each of Veritone, Inc.

and PandoLogic Ltd.

(unaudited) and presents such revenue on a combined pro forma basis treating PandoLogic Ltd.

as owned by Veritone, Inc.

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 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 Ltd.

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 Ltd.

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).

This also excludes PandoLogic new bookings for Q3 and Q4 2020 as those periods were deemed immaterial and data was not readily available.

( 5 ) “Gross Revenue Retention”:

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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 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 aiWARE SaaS products, 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, the PandoLogic business has 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 proforma basis for comparability.

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.

Managed Services Supplemental Financial Information

The following table sets forth the results for each of the KPIs for our Managed Services.

Quarter Ended

Avg billings per active Managed Services client (in 000's) (6)

Revenue during quarter (in 000's) (7)

( 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.

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, 2021 and 2020, in dollars and as a percentage of our revenue for those periods.

Throughout this discussion regarding our results of operations, certain amounts for the 2020 periods have been reclassified to conform to the presentation for the 2021 periods.

In particular, amortization expense, which was previously presented within cost of revenue, sales and marketing, research and development, and general and administrative operating expenses, has been reclassified and is presented as a single separate line item in operating expenses.

In addition, gross profit, which was previously reflected in the statement of operations and comprehensive loss, is no longer presented, and cost of revenue, which was previously presented within gross profit, is presented as an operating expense.

We believe that this presentation more accurately reflects our cost of revenue and operating expenses.

These reclassifications had no effect on our reported net loss.

The following tables set forth our results of operations for the three months ended March 31, 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,

Operating expenses:

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Three Months Ended

Nine Months Ended

September 30,

Operating expenses:

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Provision for income taxes

Three and Nine Months Ended September 30, 2021 Compared with Three and Nine Months Ended September 30, 2020

Three Months Ended March 31, 2022 Compared with Three Months Ended March 31, 2021

Three Months Ended

Nine Months Ended

September 30, 2021

Software Products & Services (1)

Managed Services

( 1) Software Products & Services consists of aiWARE SaaS Solutions of $4.7M and $19.3M for the three and nine months ended September 30, 2021 respectively as well PandoLogic of $4.3 million for the three months September 30, 2021

Three Months Ended

Nine Months Ended

September 30, 2020

March 31, 2022

March 31, 2021

Software Products & Services (1)

Managed Services

Commercial Enterprise

Commercial Enterprise Software Products and Services revenue increased in the three and nine months ended September 30, 2021 compared with the corresponding prior year periods due primarily to expanded services to existing customers in media and entertainment, in addition to the PandoLogic business in Q3 2021 .

Commercial Managed Services increased in the three months and nine months ended September 30, 2021 compared with the corresponding prior year periods was due to a combination of the addition of new advertising clients and increased business with existing advertising clients.

Revenues from our content licensing Managed Services, which typically has significant revenue driven by major sporting events, were negatively impacted in the first quarter of 2020 due to the cancellation or postponement of substantially all major sporting events in March 2020 as a result of the COVID-19 pandemic.

Many of these sporting events resumed in the first quarter of 2021.

(1) Software Products & Services consists of aiWARE SaaS Solutions revenues of $3.4 million and $4.7 million for the three months ended March 31, 2022 and 2021, respectively, as well PandoLogic revenues of $14.8 million for the three months ended March 31, 2022.

Commercial Enterprise (“CE”)

CE Software Products & Services revenue increased $14.0 million, or 412%, in the three months ended March 31, 2022 compared to the corresponding prior year period 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 $2.6 million, or 19%, in the three months ended March 31, 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.

Government & Regulated Industries (“GRI”)

GRI software Product &Services revenue remained relatively flat in dollars year over year during the three and nine months ended September 30, 2021 as compared to the same periods in 2020.

GRI Software Products and Services revenue from customers in certain markets, particularly with government, legal and energy customers, is often project-based and is impacted by the timing of projects.

As such, and beyond 2021, we expect that our revenue from these markets may fluctuate significantly from period to period.

GRI Software Products & Services revenue decreased $0.5 million or 39% in the three months ended March 31, 2022 compared to the corresponding prior year period primarily due to timing of early stage energy deliverables.

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.

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,

Cost of revenue

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Non-GAAP gross margin

The increase in non-GAAP gross profit and non-GAAP gross margin in the three and nine months ended September 30, 2021 compared with the corresponding prior year period was due primarily to growth in revenue from the addition of PandoLogic as well existing customers across our Software Products and Services, which collectively generated incremental gross margins in excess of 80% during the three months ended September 30, 2021.

The increase in non-GAAP gross profit and non-GAAP gross margin in the three months ended March 31, 2022 compared to the three months ended March 31, 2021 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 months ended March 31, 2022.

Operating Expenses

Three Months Ended

Nine Months Ended

(dollars in thousands)

September 30,

Cost of revenue

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Cost of Revenue.

The increase in cost of revenue in the three and nine months ended September 30, 2021 compared with the corresponding prior year periods was due primarily to our higher revenue level, as discussed above.

The increase in cost of revenue in the three months ended March 31, 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 months ended September 30, 2021 compared with the corresponding prior year periods was due primarily to the addition of PandoLogic.

The increase in sales and marketing expenses in the nine months ended September 30, 2021 compared with the corresponding prior year period includes a $1.1 million increase in personnel-related costs from the addition of new sales and marketing resources and $0.7 million stock-based compensation expense attributable primarily to the accelerated recognition of compensation expense related to the vesting of performance-based stock options as a result of our achievement of the stock price milestones applicable to such options during the nine months ended September 30, 2021 as well as the addition of PandoLogic in Q3 2021.

As a percentage of revenue, sales and marketing expenses declined to 26% and 29% in the three and nine months ended September 30, 2021, respectively, from 33% and 37% in the corresponding prior year periods

The increase in sales and marketing expenses of $4.6 million or 72% in the three months ended March 31, 2022 compared with the corresponding prior year period was primarily due to our acquisition of PandoLogic in September 2021, coupled with a $0.8 million increase in personnel-related costs from the addition of new sales and marketing resources.

As a percentage of revenue, sales and marketing expenses decreased to 32% in 2022 from 35% in 2021.

Research and Development.

The increase in research and development expenses in the three and nine months ended September 30, 2021 compared with the corresponding prior year periods was due primarily to an increase of $1.2 million and $2.0 million, respectively, in personnel-related costs from the addition of new engineering resources as well as the addition of PandoLogic costs in Q3 2021.

Stock-based compensation increased in the three and nine months ended September 30, 2021 compared with the corresponding prior year periods by $0.3 million and $1.4 million, respectively, attributable primarily to awards for new engineering resources and additional expense related to the vesting of performance-based stock options, as discussed above.

As a percentage of revenue, research and development expenses were flat for the three months ended September 30, 2021 and declined to 25% from 26% for the and nine months ended September 30, 2021.

The increase in research and development expenses of $4.9 million or 99% in the three months ended March 31, 2022 compared with the corresponding prior year period was primarily due to an increase of $2.2 million 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 29% in 2022 from 27% in 2021.

General and Administrative.

General and administrative expenses increased in the three months ended September 30, 2021 compared with the corresponding prior year period due to a $1.3 million increase in salaries, bonuses and other personnel-related costs as well as $1.4 million in transaction costs related to the acquisition of PandoLogic.

General and administrative expenses increased in the nine months ended September 30, 2021 compared with the corresponding prior year period due primarily to an increase of $17.7 million in non-cash stock-based compensation expense, attributable primarily to additional expense related to the vesting of performance-based stock options, as discussed above, $3.4 million in one-time charges related to the sublease of our former Costa Mesa corporate office space in the first quarter of 2021, and a $3.9 million increase in salaries, bonuses and other personnel-related costs and $2.2 million in transaction costs related to the acquisition of PandoLogic.

As a percentage of revenue, general and administrative expenses declined to 66% and 103% in the three and nine months ended September 30, 2021 respectively, from 76% and 85% in the corresponding prior year periods

General and administrative expenses decreased $2.6 million or 8% in the three months ended March 31, 2022 compared with the corresponding prior year period principally due to our acquisition of PandoLogic in September 2021.

As a percentage of revenue, general and administrative expenses declined to 84% in 2022 from 172% in 2021.

Amortization Expense.

Amortization expense increased in the three months and nine months ended September 30, 2021 compared with the corresponding prior year period due to certain intangible assets that were acquired in 2017 becoming fully amortized during 2020 offset by the addition of PandoLogic in Q3 2021.

Amortization expense increased in the three months ended March 31, 2022 compared with the corresponding prior year period due to the addition of PandoLogic amortization expense.

Other (Expense) Income, Net

For the three and nine months ended September 30, 2021 , other expense, net was comprised primarily of currency exchange losses.

For the nine months ended September 30, 2020, other income, net was comprised primarily of warrant expense of $0.2 million.

Other expense, net for the three months ended March 31, 2022 was comprised primarily of interest expense of $1.2 million due to the Convertible Notes we issued in November 2021.

Liquidity and Capital Resources

Our principal sources of liquidity are our cash and cash equivalents, which totaled $72.6 million as of September 30, 2021 and $114.8 million as of December 31, 2020.

The decrease in our cash and cash equivalents in the nine months ended September 30, 2021 was due primarily to the cash used to fund the acquisition of PandoLogic Ltd.

that we completed in the third quarter of 2021, partially offset by $9.0 million in cash from financing activities from the exercise of stock options and purchases of shares under our ESPP and from the exercise of stock warrants.

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 $237.6 million as of March 31, 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 in the three months ended March 31, 2022 as compared with December 31, 2021 was primarily due to investments made during the period, taxes paid related to net share settlement of equity awards, and the payment of the PandoLogic 2021 earnout.

We generated $10.1 million through cash provided by operating activities and also generated cash through proceeds from issuances of stock under employee stock incentive plans and stock purchases made under the ESPP of $0.6 million.

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

Nine Months Ended

Three Months Ended

(in thousands)

September 30,

Cash (used in) provided by operating activities

Cash provided by operating activities

Cash used in investing activities

Cash provided by financing activities

Cash (used in) provided by financing activities

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

Operating Activities

Our operating activities used cash of $3.5 million in the nine months ended September 30, 2021, due primarily to our net loss of $54.7 million, adjusted by $41.0 million in non-cash expenses, including $33.5 million in stock-based compensation expense, offset in part by the net working capital increase of $10.2 million of cash received from Managed Services advertising clients for future payments to vendors.

Our operating activities provided cash of $10.1 million in the three months ended March 31, 2022, due primarily to our net loss of $28.4 million, adjusted by $21.5 million in non-cash expenses, including $11.6 million from a change in the fair value of contingent consideration and $4.8 million in stock-based compensation expense, offset in part by the net working capital increase of $17.1 million, primarily due to decreases in our accounts receivable of $19.0 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.

We gauge the amount of cash utilized in these efforts using the Non-GAAP net loss measure, as presented under the heading “Non-GAAP Financial Measures” above.

Our use of cash as measured by Non-GAAP net loss decreased to $16.6 million for the nine months ended September 30, 2021 from $16.7 million for the nine months ended September 30, 2020, due primarily to the increase in our revenues, partially offset by an increase in non-GAAP expenses.

Our operating activities provided cash of $1.3 million in the nine months ended September 30, 2020, due primarily to the net increase of $19.2 million of cash received from Managed Services clients for future payments to vendors, offset in part by the effect of our net loss of $35.5 million, adjusted by $18.8 million in non-cash expenses, including $13.7 million in stock-based compensation expense.

Our use of cash as measured by Non-GAAP net loss decreased to $5.2 million for the three months ended March 31, 2022 from $3.9 million for the three months ended March 31, 2021, due primarily to the increase in our revenues, partially offset by an increase in non-GAAP expenses.

Our operating activities provided cash of $6.2 million in the three months ended March 31, 2021, due primarily to the net increase of $11.1 million of cash received from advertising clients for future payments to vendors, offset in part by the effect of our net loss of $30.6 million, adjusted by $26.0 million in non-cash expenses, including $21.6 million in stock-based compensation expense.

Investing Activities

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 completed in the third quarter of 2021.

Our investing activities consisted of minimal amounts used for capital expenditures and proceeds from the sale of equipment in the nine months ended September 30, 2020.

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

Our investing activities consisted of minimal amounts used for capital expenditures and proceeds from the sale of equipment in the three months ended March 31, 2021.

Financing Activities

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.

Our financing activities provided cash of $9.0 million in the nine months ended September 30, 2020.

Net cash provided by financing activities consisted of $6.5 million in net proceeds received from our sales of common stock, $2.1 million in proceeds received from the exercise of stock warrants and $0.4 million received from the exercise of stock options and purchases of shares under our ESPP.

Proceeds received from loans under the Paycheck Protection Program in April 2020 were repaid in full in May 2020.

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

Our financing activities provided cash of $6.5 million for the three months ended March 31, 2021, consisting of $4.3 million in proceeds received from the exercise of stock options and purchases of shares under our ESPP and $2.3 million in proceeds received from the exercise of stock warrants.

Capital Resources

As of September 30, 2021, we had no outstanding debt obligations.

In September 2021, the Company completed the acquisition PandoLogic for total consideration of $116.6 million, comprised of upfront payments of $58.7 million in cash and $31.5 million in common stock (1.7 million shares) and up to $65.0 million payable based on earnouts tied to financial performance of PandoLogic in fiscal 2021 and 2022.

At the acquisition date, the earnout was valued at $26.4 million which amount will be paid in a combination of cash and common stock.

As of March 31, 2022, our only debt obligations were the Convertible Notes issued in the fourth quarter of fiscal year 2021.

We have $3.0 million in purchase consideration commitments related to our March 2022 acquisition that will be paid 50% in 2023 and 50% 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 for the foreseeable future.

With the acquisition of PandoLogic, which is expected to generate over $25.0 million of operating cash flows in its fiscal year 2021, we believe we have an opportunity to significantly improve our operating income/(loss) as early as Q4 2021.

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.

However, our current cash and cash equivalents may not be sufficient to support the development of our business to the point at which we have positive cash flows from operations, including the acquisition of PandoLogic.

In addition, we intend to continue to evaluate potential new acquisitions of and/or investments in companies or technologies that complement our business and may make such acquisitions and/or investments in the future.

Accordingly, we may need to obtain additional sources of capital in the future.

We plan to meet our future needs for additional capital through equity and/or debt financings.

We currently have no available lines of credit for future borrowings.

We have a shelf registration statement that allows us to sell up to $300 million of our equity or debt securities, at prices and on terms to be determined in the future.

Future equity or debt financing may not be available on favorable terms or at all.

If we are unable to obtain adequate

financing or financing on terms satisfactory to us when required, our ability to continue to support our business growth, including through acquisitions, scale our infrastructure, develop product enhancements and respond to business challenges could be significantly impaired.

If we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.

We have not entered into any off-balance sheet arrangements.

Quantitative and Qualitative Disclosures About Market Risk

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What changed 10-Q

Item 2. Management’s Discussion and Analysis