Veritone, Inc.: Form 10-Q for the period ended Mar 31, 2025

The following discussion and analysis of our financial condition and results of operations should be read together with and is qualified in its entirety by reference to the condensed consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q. 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, 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.”

Overview

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 operating system, aiWARE™, to deliver differentiated products and solutions to our Commercial Enterprise and Public Sector (which we previously referred to as Government & Regulated Industries) customers. 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 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 us 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 months ended March 31, 2025, we generated revenue of $22.5 million, as compared to $24.2 million during the three months ended March 31, 2024. Software Products & Services revenue was $14.5 million during the three months ended March 31, 2025, as compared to $15.2 million during the three months ended March 31, 2024, while Managed Services revenue was $8.0 million during the three months ended March 31, 2025, as compared to $8.9 million during the three months ended March 31, 2024. During the three months ended March 31, 2025 and 2024, no customer represented more than 10% of our consolidated revenue.

Recent Developments

Registered Direct Offering

On January 2, 2025, we sold 4,414,878 shares of our common stock, priced at $2.53 per share, and pre-funded warrants to purchase up to 3,608,838 shares of our common stock (the “Pre-Funded Warrants”), priced at $2.52 per pre-funded warrant, with an exercise price of $0.01 per share, to Esousa Group Holdings, LLC, a New York-based family office, in a registered direct offering (the “Registered Direct Offering”). The gross proceeds from the offering were approximately $20.3 million, before deducting estimated offering expenses.

The Pre-Funded Warrants were offered in lieu of shares of our common stock and provide that the holder may not exercise any portion of the Pre-Funded Warrants to the extent that immediately prior to or after giving effect to such exercise the holder (together with its affiliates) would beneficially own more than 9.99% of our outstanding common stock (the “Maximum Percentage”) after such exercise. Subject to the Maximum Percentage, the Pre-Funded Warrants are immediately exercisable and may be exercised at any time until the fifth anniversary of the original issue date of the Pre-Funded Warrants. If, at the time of exercise, there is no effective registration statement registering, or the prospectus contained therein is not available for the issuance or resale of the Warrant Shares, in lieu of making cash payment otherwise contemplated to be made to us upon exercise of a Pre-Funded Warrant in payment of the aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of shares of common stock determined according to a formula set forth in the Pre-Funded Warrants.

Appointment of Francisco Morales to the Board of Directors

On March 12, 2025, our Board of Directors (the “Board”) appointed Francisco Morales as a member of the Board, effective as of March 20, 2025, to fill the vacancy created by Chad Steelberg’s resignation as a director on March 12, 2025. Mr. Morales will serve as a Class III director until our 2026 annual meeting of stockholders and until his successor is elected and qualified, or until his earlier death, retirement, resignation or removal. Mr. Chad Steelberg will continue to serve as a strategic advisor to us following his resignation from the Board.

Limited Consent to Credit Agreement

On March 13, 2025, we entered into a Limited Consent (the “Limited Consent”) to our Credit and Guaranty Agreement, dated December 13, 2023 (the “Credit Agreement”), with the lenders and administrative agent party thereto. Pursuant to the Limited Consent, the lenders consented to the delivery by us of our audited consolidated financial statements for the fiscal year ended December 31, 2024 and a report of our independent certified public accountants relating thereto that do not meet certain requirements of the Credit Agreement requiring, among other things, delivery of audited consolidated financial statements and a report thereon of our independent certified public accountants that are unqualified as to going concern. As consideration for the Limited Consent, we paid an aggregate of $1.0 million in cash to the lenders party to the Limited Consent.

First Amendment to Credit Agreement

On April 24, 2025, we entered into a First Amendment to Credit and Guaranty Agreement (the “First Amendment”). The First Amendment provides that (a) the minimum Consolidated Liquidity (as defined in the Credit Agreement) covenant is reduced from $15 million to $10 million for the period of time beginning on April 24, 2025 and extending through June 16, 2025, and (b) the mandatory prepayment covenant under the Credit Agreement with respect to asset sales is amended to (i) require that 100% of the Net Asset Sale Proceeds (as defined in the Credit Agreement) be used to repay the obligations under the Credit Agreement (increased from 60% of the Net Asset Sale Proceeds prior to the First Amendment), and (ii) clarify the requirement that we use all future proceeds that we receive in connection with the Divestiture, including any earn-out payments and releases of previously escrowed amounts, to repay obligations under the Credit Agreement.

In connection with obtaining the requisite lenders’ consent to the First Amendment, we issued to the consenting lenders 228,311 shares of our common stock, representing a number of shares having an aggregate value equal to $500,000, based on a price per share of $2.19, which was the closing price per share of our common stock on The Nasdaq Stock Market LLC on April 23, 2025, the trading day immediately prior to the effective date of the First Amendment.

Except as set forth in the Limited Consent and the First Amendment, the terms of the Credit Agreement remain unchanged.

Opportunities, Challenges, and Risks

During the three months ended March 31, 2025 and 2024, 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. 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. 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 mid-fiscal year 2022, economic conditions, including those resulting from the pullback in the macroeconomic environment caused by inflation, high interest rates, tariffs and trade tensions, as well as geopolitical factors such as the Russia-Ukraine war and the Israel-Hamas war, negatively impacted parts of our consumption-based operations and financial results. As a result, our Software Products & Services revenue decreased from $84.8 million during the year ended December 31, 2022 to $68.4 million during the year ended December 31, 2023, and decreased further to $61.1 million during the year ended December 31, 2024. These economic and geopolitical factors have continued to impact our financial results, including in the first quarter of 2025, resulting in Software Products & Services revenue of $14.5 million for the three months ended March 31, 2025, a decrease of 4.8% as compared to the prior year period. This decrease in Software Products & Services revenue was also due in part to lower consumption across our Commercial Enterprise customer base, including Amazon and certain one-time software revenue recognized in 2024 that did not recur at the same rate in 2025.

To align our operating structure with this revenue decline, we enacted significant cost reductions during fiscal years 2023 and 2024. In January 2023, we announced our plans to reduce costs through the optimization of our operational structure. In February 2024, we announced additional cost reduction and restructuring initiatives, the result of which was a reduction in our global workforce of approximately 13% during fiscal 2024. From January 1, 2023 through December 31, 2024, our total reduction in workforce was 19%. As of March 31, 2025, we have achieved $40.0 million of net annualized strategic cost reductions since January 1, 2023 as a result of our organizational restructuring and realignment efforts. We increased our sales and marketing spending in the first quarter of 2025, as compared to the trailing twelve months in order to support our efforts to diversify our customer base and increase sales within our existing customer base, and as a result of our acquisition of (a) 100% of the issued and outstanding share capital of (i) Broadbean Technology Pty Ltd I, (ii) Broadbean Technology Limited, (iii) Broadbean, Inc., and (iv) CareerBuilder France S.A.R.L., and (b) certain assets and liabilities related thereto (the foregoing clauses (i) and (ii) together, “Broadbean”) in June 2023; however, these increased investments were partially offset by our 2024 and 2023 cost-reduction initiatives.

As of March 31, 2025, our total Software Products & Services customers declined to 3,156, which was a decrease of 6.7% as compared to March 31, 2024. This change was largely driven by planned migration of legacy CareerBuilder customers off the Broadbean software platform, offset by increases in Public Sector. In addition, smaller hiring agency customers experienced a drop in hiring as a result of the challenging macroeconomic environment, which contributed to the decrease in Software Products & Services customers, but did not have a significant impact on our financial results for the quarter ended March 31, 2025 or year ended December 31, 2024. To continue our effort to grow our customer base and overall revenue, we continue to invest aggressively in existing customers and acquiring new customers.

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, our Veritone Hire solutions customers will be given greater visibility and transparency in their hiring processes. Further and with the recently announced Intelligent Digital Evidence Management System (“iDEMs”) and Veritone Data Refinery (“VDR”) launches, we now offer a suite of aiWARE applications to address the growing issue of unstructured digital data management faced by commercial and public safety and federal government sectors today. In 2025, we expect a substantial portion of our growth to come from our iDEMs and VDR solutions. In addition, we recently announced that we achieved Amazon Web Services (“AWS”) Advanced Tier Services status, advancing the deployment of our AI solutions and capabilities across the AWS platform, and we have historically integrated aiWARE across many platforms, including Alteryx, Snowflake and the NVIDIA® CUDA® GPU-based platform, enabling dramatic increases in aiWARE’s processing speed and providing a wide range of new use cases for our technology. We are in the process of developing and marketing more specific use cases for these and future integrations, which we believe will open new markets for our products and accelerate our long-term revenue growth opportunities.

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. Our near term growth opportunities across our Software Products & Services include VDR and the expansion of our iDEMs platform across our public sector. 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 and our VDR opportunity, 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.

Prior to 2024, we pursued an opportunistic strategy of acquiring companies to help accelerate our organic growth. Our acquisition strategy has been 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. 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 divestitures of our Veritone energy solutions group in the second quarter of 2023 and Veritone One in October 2024.

In October 2024, we divested our wholly-owned subsidiary, Veritone One, for a total purchase price of up to $104.0 million. This strategic decision was made to enhance our focus on our core business and growth initiatives, particularly in Software Products & Services. By divesting non-core assets, we aim to streamline operations, reduce complexity, and allocate resources more effectively toward areas that align with our long-term strategic goals. The Divestiture has allowed us to concentrate on organic growth, enabling greater innovation, operational efficiency, and the ability to respond more swiftly to market opportunities within our primary business segments. As a result of this transaction, we expect to see potential positive impacts, e.g., improved margins, increased operational efficiency, more effective allocation of capital and believe that this sharper focus will drive sustainable growth and value creation for our shareholders moving forward.

For the three months ended March 31, 2025, our total revenues were $22.5 million, as compared to $24.2 million for the three months ended March 31, 2024, a decrease of 7.0% over the prior-year period, driven by a decrease in Software Products & Services revenue from the planned migration of legacy CareerBuilder customers off the Broadbean software platform and a decrease in Managed Services revenue primarily due to lower revenue from licensing customers and representation services, in each case, compared to the prior year period. Our gross profit for the three months ended March 31, 2025 was $13.7 million as compared to $16.3 million for the three months ended March 31, 2024, a decrease of 16.0%, driven by a decrease in revenue and the increase in depreciation of internally developed software costs compared to the prior year period. For the three months ended March 31, 2025, our non-GAAP gross profit (calculated as described in “Non-GAAP Financial Measures” below) decreased to $14.6 million as compared to $17.2 million for the three months ended March 31, 2024, driven by the decrease in revenue and higher cost of revenue compared to the prior year period. Gross profit and non-GAAP gross profit (calculated as described in “Non-GAAP Financial Measures” below) are 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 and 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 months ended March 31, 2025, we reported a net loss of $19.9 million as compared to a net loss of $25.2 million during the three months ended March 31, 2024. During the three months ended March 31, 2025, we reported a non-GAAP net loss of $11.1 million as compared to a non-GAAP net loss of $7.6 million during the three months ended March 31, 2024. To continue to grow our revenue, we will continue to make targeted investments in people, namely software engineers and sales personnel. However, considering the current challenging macro-economic environment throughout 2024 and 2023, we have made and are continuing to make significant cost reductions to our operating structure to better streamline our business and prioritization around our growth and corresponding investments. These cost reduction initiatives began in the latter half of 2022 and have continued through the first quarter of 2025, and include reductions in workforce and certain legacy operating costs, as well as the sale of our energy solutions group. As a result of these initiatives, we believe we will be able to accelerate our pathway toward long term profitability.

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

Global economic and business activities continue to face uncertainty as a result of macroeconomic and geopolitical factors, the imposition of tariffs, trade tensions, and global trade disputes, lingering economic disruption caused by labor shortages, inflation rates and the responses by central banking authorities to control inflation, monetary supply shifts, recession risks, and disruptions from the Russia-Ukraine conflict, the Israel-Hamas war and conflict in surrounding regions. In particular, business operations at our Herzliya, Israel 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 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. In addition, economic recessions have historically resulted in overall reductions in spending on software and technology solutions as well as pressure from customers and potential customers for extended payment terms. If economic, political, or market conditions deteriorate, or if there is uncertainty around these conditions, our customers and potential customers may elect to decrease their software and technology solutions budgets by deferring or reconsidering product purchases, which would limit our ability to grow our business and negatively affect our operating results. Any of these events would likely have an adverse effect on our business, operating results and financial position.

Due to the nature of our business, the effect of these macroeconomic conditions may not be fully reflected in our results of operations until future periods. We have assessed the potential credit deterioration of our customers due to changes in the macroeconomic environment and have determined that no additional allowance for credit losses was necessary due to credit deterioration as of March 31, 2025. 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, 2024.

Non-GAAP Financial Measures and Key Performance Indicators

In evaluating our cash flows and financial performance, we use certain non-GAAP financial measures, including non-GAAP net income (loss), non-GAAP net income (loss) from continuing operations, non-GAAP net income (loss) from discontinued operations, non-GAAP gross profit, and non-GAAP gross margin. We also provide certain key performance indicators (“KPIs”), including Total Software Products & Services Customers, Annual Recurring Revenue (SaaS), Annual Recurring Revenue (Consumption), Total New Bookings and Gross Revenue Retention.

Non-GAAP net income (loss) is calculated as our net income (loss) adjusted to exclude net income from discontinued operations, net of income taxes, interest expense, net, income taxes, depreciation and amortization, stock-based compensation, change in fair value of earnout receivable, contingent purchase compensation expense, foreign currency impact and other, acquisition and due diligence costs, severance and executive transition costs, and non-GAAP net income from discontinued operations. Non-GAAP net income (loss) from continuing operations is calculated as our net loss from continuing operations adjusted to exclude net income from discontinued operations, net of income taxes, interest expense, net, income taxes, depreciation and amortization, stock-based compensation, change in fair value of earnout receivable, contingent purchase compensation expense, foreign currency impact and other, acquisition and due diligence costs, and severance and executive transition costs. Non-GAAP net income (loss) from discontinued operations is calculated as our net income from discontinued operations adjusted to exclude interest expense, net, income taxes, depreciation and amortization, stock-based compensation, acquisition due diligence costs, and severance and executive transition costs.

Non-GAAP gross profit is calculated as gross profit with adjustments to add back depreciation and amortization related to cost of revenue and stock-based compensation. Non-GAAP gross margin is defined as non-GAAP gross profit divided by revenue.

We present non-GAAP net income (loss), non-GAAP net income (loss) from continuing operations, non-GAAP net income (loss) from discontinued operations, non-GAAP gross profit, and non-GAAP gross margin because management believes such information to be important supplemental measures of performance that are commonly used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. Management also uses this information internally for forecasting, budgeting and measuring annual bonus compensation targets for its executive personnel, including its named executive officers. Our non-GAAP net income (loss) provides our management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations, as it eliminates the effect of items that are often unrelated to overall operating performance. Our non-GAAP gross profit and non-GAAP gross margin allow investors and our management team to analyze our operating performance by excluding expenses that are not directly related to the cost of providing goods and services.

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), net income (loss) from continuing operations, net income (loss) from discontinued operations, gross profit, gross margin or any other financial measures so calculated and presented, nor as an alternative to cash flow from operating activities as a measure of liquidity. Other companies (including our competitors) may define these non-GAAP financial measures differently. These non-GAAP measures may not be indicative of our historical operating results or predictive of potential future results. Investors should not consider this supplemental non-GAAP financial information in isolation or as a substitute for analysis of our results as reported in accordance with GAAP.

The following table provides a reconciliation of net loss to non-GAAP net loss:

(1) Other non-recurring items for the three months ended March 31, 2025 consists of fees paid to the lenders in connection with the Limited Consent to the Credit Agreement as described further in Note 4, Debt, included elsewhere in this Quarterly Report on Form 10-Q.

(2) A reconciliation of non-GAAP net income from discontinued operations to GAAP net income from discontinued operations for the three months ended March 31, 2024 is set forth in the table below.

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The following table provides a reconciliation of gross profit to Non-GAAP gross profit and gross margin to Non-GAAP gross margin:

GAAP gross profit of $13.7 million for the three months ended March 31, 2025 declined $2.6 million, or 16.0%, as compared to the three months ended March 31, 2024 primarily due to a decline in revenue, coupled with higher cost of revenue and depreciation and amortization. GAAP gross margin of 61.1% for the three months ended March 31, 2025 declined 650 basis points as compared to the three months ended March 31, 2024 as a result of higher depreciation and amortization, coupled with year-over-year declines in higher gross margin revenue from consumption-based and one-time software revenue.

Non-GAAP gross profit of $14.6 million for the three months ended March 31, 2025 declined $2.6 million, or 15.0%, as compared to the three months ended March 31, 2024 primarily due to a decline in revenue, coupled with higher cost of revenue. Non-GAAP gross margin of 65.1% for the three months ended March 31, 2025 declined 610 basis points as compared to the three months ended March 31, 2024 due to year-over-year declines in higher gross margin revenue from consumption-based and one-time software revenue. Historically, our gross margin and non-GAAP gross margin have been impacted significantly by the mix of our Software Products & Services revenue 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.

Supplemental Financial Information

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

The supplemental financial information for our Software Products & Services includes: (i) Total Software Products & Services Customers, (ii) Annual Recurring Revenue, (iii) Total New Bookings, and (iv) Gross Revenue Retention, in each case as defined in the footnotes to the table below.

Software Products & Services Supplemental Financial Information

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

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(1) “Total Software Products & Services Customers” includes Software Products & Services customers as of the end of each respective quarter set forth above with net revenues in excess of $10 during the last month of the quarter and also excludes any customers categorized by us as trial or pilot status. Management uses Total Software Products & Services Customers and we believe Total Software Products & Services Customers are useful to investors because it more accurately reflects our total customers for our Software Products & Services inclusive of Broadbean.

(2) “Annual Recurring Revenue (SaaS)” represents an annualized calculation of monthly recurring subscription-based SaaS revenue during the last month of the applicable quarter for all Total Software Products & Services customers. Management uses “Annual Recurring Revenue (SaaS)” and we believe Annual Recurring Revenue (SaaS) is useful to investors because Broadbean significantly increases our mix of subscription-based SaaS revenues as compared to consumption-based revenues and the split between the two allows us to delineate between predictable recurring SaaS revenues and more volatile consumption-based revenues.

(3) “Annual Recurring Revenue (Consumption)” represents the trailing twelve months of all non-recurring and/or consumption-based revenue for all active Total Software Products & Services customers. Management uses “Annual Recurring Revenue (Consumption)” and we believe Annual Recurring Revenue (Consumption) is useful to investors because Broadbean significantly increases our mix of subscription-based SaaS revenues as compared to consumption-based revenues and the split between the two allows us to delineate between predictable recurring SaaS revenues and more volatile consumption-based revenues.

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

(5) “Gross Revenue Retention” represents a calculation of our dollar-based gross revenue retention rate as of the period end by starting with the revenue from Software Products & Services Customers as of the three months in the prior year quarter to such period, or Prior Year Quarter Revenue. We then deduct from the Prior Year Quarter Revenue any revenue from 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.

Results of Operations

The following tables set forth our results of operations for the three months ended March 31, 2025 and 2024, 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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Comparison of the Three Months Ended March 31, 2025 and 2024

Revenue

We serve two customer groups: (1) Commercial Enterprise, which today consists of customers in the commercial sector, including media and entertainment customers, representation customers and Veritone Hire solutions customers (inclusive of Broadbean customers); and (2) Public Sector, which consists of customers in the public sector industries, including state, local and federal government, legal, and compliance customers.

Software Products & Services consists of revenue generated from our aiWARE platform, including our VDR product, and Veritone Hire talent acquisition solutions, any related support and maintenance services, and any related professional services associated with the deployment and/or implementation of such solutions.

Managed Services consists of revenues generated from content licensing customers, representation services, and, to a lesser extent, from advertising customers and related services.

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Commercial Enterprise

Commercial Enterprise Software Products & Services revenue decreased $0.6 million, or 4.0%, in the three months ended March 31, 2025 compared to the corresponding prior-year period primarily due to decreases of $1.5 million driven principally by lower consumption-based revenue and, to a lesser extent, foreign exchange rate declines in Europe as compared to the US dollar and and economic and geopolitical factors, partially offset by an approximate $0.9 million increase in VDR revenue. Commercial Enterprise Managed Services revenue decreased $1.0 million, or 10.7%, in the three months ended March 31, 2025 compared to the corresponding prior-year period driven by declines in live event services and VeriAds as a result of the more challening macro environment.

Public Sector

Public Sector Software Products & Services revenue decreased $0.2 million, or 12.1%, in the three months ended March 31, 2025 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. As such, we expect that our revenue from these markets could fluctuate significantly from period to period

Operating Expenses

Cost of Revenue (Exclusive of Depreciation and Amortization)

Cost of revenue increased $0.9 million in the three months ended March 31, 2025 compared to the corresponding prior-year period primarily due to a higher mix of lower margin revenue during the three months ended March 31, 2025, including VDR. During the three months ended March 31, 2025, Software Products & Services products accounted for 64.5% of revenues compared to 63.0% in the prior year period. Cost of revenue as a percentage of revenue increased to 34.9% from 28.8% during the three months ended March 31, 2025.

Sales and Marketing

Sales and marketing increased $0.2 million in the three months ended March 31, 2025 compared to the corresponding prior-year period primarily due to increased advertising expense. Sales and marketing as a percentage of revenue increased to 45.0% from 41.2% during the three months ended March 31, 2025.

Research and Development

Research and development decreased $3.2 million, or 38.2%, in the three months ended March 31, 2025 compared to the corresponding prior-year period primarily due to decreased personnel-related costs resulting from various cost reduction initiatives enacted throughout fiscal year 2024, partially offset by a decrease in capitalized internal-use software costs and an increase in outside consulting services. Research and development as a percentage of revenue decreased to 23.2% from 34.9% during the three months ended March 31, 2025.

General and Administrative

General and administrative decreased $1.8 million, or 11.2%, in the three months ended March 31, 2025 compared to the corresponding prior-year period primarily due to decreased personnel-related costs resulting from various cost reduction initiatives enacted throughout fiscal year 2024.

Depreciation and Amortization

Depreciation and amortization expense decreased $0.5 million, or 6.4%, in the three months ended March 31, 2025 compared to the corresponding prior-year period primarily due to certain long-lived assets being fully depreciated in the latter half of 2024.

Interest Expense, Net

Interest expense, net increased $0.2 million, or 6.7%, in the three months ended March 31, 2025 compared to the corresponding prior-year period primarily due to a decrease in interest income, partially offset by a decrease in interest expense as a result of a decrease in the outstanding principal amount under our senior secured term loan under the Credit Agreement (the “Term Loan”).

Other Expense (Income), Net

Other income, net of $4.1 million for the three months ended March 31, 2025 was primarily due to a $3.7 million favorable change in the fair value of the Veritone One earnout receivable and a favorable foreign currency impact. Other expense, net of $0.4 million for the three months ended March 31, 2024 was primarily due to an unfavorable foreign currency impact.

Net Income From Discontinued Operations

On October 17, 2024, we completed the Divestiture. The Divestiture was strategic, primarily allowing us to focus on our AI solutions, and secondarily improving 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. 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 included elsewhere in this Quarterly Report on Form 10-Q for more information.

Net income from discontinued operations was $1.0 million for the three months ended March 31, 2024 and primarily consisted of (i) revenue of $7.5 million, offset by cost of revenue of $0.1 million, other operating expenses of $4.9 million and $1.5 million of net interest expense allocations primarily due to the repayment of our Term Loan as a result of the Divestiture.

Liquidity and Capital Resources

We have historically generated negative cash flows from operations and have primarily financed our operations through the sale of equity securities and debt. In January 2025, we issued and sold an aggregate of 4,414,878 shares of common stock at a price of $2.53 per share and pre-funded warrants to purchase up to 3,608,838 shares of common stock at a price of $2.52 per pre-funded warrant, with an exercise price of $0.01, in a registered direct offering. The aggregate gross proceeds were approximately $20.3 million, before deducting estimated offering expenses. Additionally, in accordance with the term of that certain sales agreement we entered into with Needham & Company, LLC and H.C. Wainwright & Co., LLC (the “Sales Agents”), we may offer and sell shares of our common stock having an aggregate offering price of up to $35.0 million from time to time through the Sales Agents (the “ATM Program”). As of March 31, 2025, we have received $4.7 million in gross proceeds for sales of 1,707,791 shares of our common stock under the ATM Program.As of March 31, 2025, we had cash and cash equivalents of $16.1 million. We also may receive additional proceeds in connection with the Divestiture, including any earn-out payments and releases of previously escrowed amounts, all of which proceeds, if received, must be used to repay our Term Loan.

As of March 31, 2025, we had $39.2 million aggregate principal amount outstanding under our Term Loan and $91.3 million aggregate principal amount outstanding under our Convertible Notes (as defined in Note 4, Debt). The Term Loan matures on December 13, 2027 and requires prepayment in full if $30.0 million or more of aggregate principal amount of the Convertible Notes are outstanding on August 14, 2026. The Convertible Notes mature on November 15, 2026. See Note 4, Debt, included elsewhere in this Quarterly Report on Form 10-Q for more information regarding the Term Loan and the Convertible Notes

Based on our liquidity position as of March 31, 2025 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. As a result, we will require additional liquidity to continue our operations over the next twelve months.

In the near term, and to meet our obligations as they come due, we are evaluating additional strategies to obtain funding for future operations. 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.

The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business, including having sufficient liquidity in the future to meet, among other things, our covenants under the Credit Agreement (as defined in Note 4, Debt). 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 the minimum liquidity threshold under our Credit Agreement or 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. These actions may cause our stockholders to lose all or part of their investment in our common stock. The condensed consolidated financial statements do not include any adjustments that might result from us being unable to continue as a going concern. If we cannot continue as a going concern, adjustments to the carrying values and classification of our assets and liabilities and the reported amounts of income and expenses could be required and could be material.

Cash Flows

A summary of cash flows from our operating, investing and financing activities is shown in the table below (in thousands):

Operating Activities

Net cash used in continuing operating activities was $17.0 million for the three months ended March 31, 2025, an increase of $1.1 million from $15.9 million for the three months ended March 31, 2024. The increase was primarily due to a $4.4 million unfavorable change in operating assets and liabilities, partially offset by a $3.2 million decrease in net loss from continuing operations excluding non-cash and reconciling items disclosed within our condensed consolidated statement of cash flows. The $4.4 million of unfavorable changes in operating assets and liabilities was primarily driven by unfavorable changes in accrued expenses and other current liabilities and accounts receivable, partially offset by favorable changes in accounts payable, deferred revenue, and other non-current liabilities. The $3.2 million decrease in net loss excluding non-cash and reconciling items was primarily driven by lower operating expenses and favorable changes in non-cash and reconciling items including deferred income taxes, partially offset by lower revenue and unfavorable changes in non-cash and reconciling items including change in fair value of earnout receivable and depreciation and amortization.

Investing Activities

Net cash used in continuing investing activities was $1.4 million for the three months ended March 31, 2025, a decrease of $0.4 million from $1.8 million for the three months ended March 31, 2024. The decrease was due to a $0.4 million decrease in capital expenditures.

Financing Activities

Net cash provided by continuing financing activities was $17.9 million for the three months ended March 31, 2025, an increase of $19.6 million as compared to net cash used in continuing financing activities of $1.7 million for the three months ended March 31, 2024. The increase was primarily due to a $19.9 million increase in proceeds from issuance of common stock and pre-funded warrants under our registered direct offering in January 2025, net of issuance costs, and a $1.8 million favorable impact from the settlement of deferred consideration for acquisitions in 2024, partially offset by a $1.9 million increase in repayment of our senior secured term loan.

Contractual Obligations and Known Future Cash Requirements

As of March 31, 2025, our debt obligations are comprised of our Term Loan and our 1.75% convertible senior notes due in 2026 (the “Convertible Notes”). As of March 31, 2025, we have $39.2 million principal amount outstanding under our Term Loan that matures in December 2027 and $91.3 million aggregate principal amount outstanding of our Convertible Notes that mature in November 2026.

As of March 31, 2025, 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 March 31, 2025, we have recorded $2.3 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.

Critical Accounting Policies and Estimates

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

Our critical accounting estimates reflecting management’s estimates and judgments are described in our Annual Report on Form 10-K for the year ended December 31, 2024. We have reviewed recently issued accounting pronouncements and are evaluating the potential impact, if any, on our condensed consolidated financial statements. Accordingly, there have been no material changes to critical accounting policies and estimates as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of March 31, 2025. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives of ensuring that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to enable timely decisions regarding required disclosures, and is recorded, processed, summarized, and reported within the time periods specified in the rules and forms promulgated by the SEC. Our management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and there is no assurance that our disclosure controls and procedures will operate effectively under all circumstances. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2025, our disclosure controls and procedures were not effective at the reasonable assurance level due to the following material weaknesses in internal control over financial reporting.

Material Weaknesses in Internal Control over Financial Reporting

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

During the preparation of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, management identified a material weakness in internal control over financial reporting relating to a lack of an effective information and communication process that identified and assessed the source of and controls necessary to ensure the reliability of information used in financial reporting and for providing information required for effective activity level controls. This material weakness was not remediated as of March 31, 2025 and could have resulted in a material misstatement to our interim condensed consolidated financial statements that would not be prevented or detected on a timely basis.

During the preparation of our Annual Report on Form 10-K for the fiscal years ended December 31, 2023 and 2022, management identified the following material weaknesses in internal control over financial reporting, which still exist as of March 31, 2025:

• Management identified a material weakness in internal control over financial reporting relating to the consolidation process and review of financial statements specifically pertaining to our design of controls to determine proper accounting for certain foreign exchange transactions and translation between Veritone, Inc. and certain foreign subsidiaries. This material weakness did not result in any identified material misstatements to the financial statements. However, this material weakness could have resulted in a material misstatement to our annual or interim condensed consolidated financial statements that would not be prevented or detected and corrected on a timely basis.
• Management identified a material weakness in internal control over financial reporting relating to information technology general controls (“ITGCs”) in the areas of user access and change-management over certain information technology (“IT”) systems that support our financial reporting processes. Our business process automated and manual controls that are dependent on the affected ITGCs were also deemed ineffective because they could have been adversely impacted. These control deficiencies were a result of user access and change management processes over certain IT systems.

Related to the findings above, management concluded that during the year ended December 31, 2023, we did not maintain appropriately designed entity-level controls impacting the control environment or monitoring controls to prevent or detect material misstatements to the consolidated financial statements. Specifically, these deficiencies were attributed to (i) a lack of a sufficient number of qualified resources to perform control activities and (ii) insufficient risk assessment and monitoring activities as a result of untimely or ineffective identification of internal control risks to properly design, test, implement and assess effective internal controls over financial reporting. This material weakness has not been remediated as of March 31, 2025.

Remediation of Material Weaknesses in Internal Control Over Financial Reporting

In order to remediate the material weaknesses, management is taking remediation actions including:

(i) continued engagement since March 2024 with an outside firm to assist us with our remediation actions;

(ii) development of a more robust plan and risk assessment process around the proper design, testing and assessment of internal controls over financial reporting which has been an ongoing process since April 2024;

(iii) developing a training program addressing ITGCs and policies, including educating control owners concerning the principles and requirements of each control, with a focus on those related to user access and change management over IT systems impacting financial reporting;

(iv) developing and maintaining documentation of underlying ITGCs to promote knowledge transfer upon personnel and function changes;

(v) implementing an IT management review and testing plan to monitor ITGCs with a specific focus on systems supporting our financial reporting processes; and

(vi) hiring and train staff on proper accounting for foreign exchange translation, transactions when consolidating foreign subsidiaries and the proper, accurate and timely evaluation of the realizability of long-lived assets, including goodwill and intangible assets. Management has also hired additional staff to oversee the implementation and testing of these remediation actions.

To further remediate the existing material weakness identified herein, the management team, including the Chief Executive Officer and Chief Financial Officer, have reaffirmed and re-emphasized the importance of internal controls, control consciousness and a strong control environment. We are committed to maintaining a strong control environment and believe that these remediation efforts represent continued improvement in our control environment.

We also expect to continue to review, optimize and enhance our financial reporting controls and procedures. While remediating actions have been implemented to mitigate the material weaknesses identified with regards to foreign transaction consolidation and ITGCs, these material weaknesses will not be considered remediated until the applicable remediated and enhanced control processes have operated for a sufficient period of time and management has concluded, through testing, that this enhanced control is operating effectively.

Changes in Internal Control over Financial Reporting

While management continues to make progress on its remediation efforts, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

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

Risks affecting our business are discussed in Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 10-K”). There have been no material changes to our risk factors as previously disclosed in our 2024 10-K.