Good afternoon. Welcome to Veritone's Second Quarter 2017 Earnings Conference Call. Joining us for today's call are Veritone's Chairman and CEO, Chad Steelberg; and the company's Chief Financial Officer, Pete Collins. [Operator Instructions].

Please note that certain information discussed on the call today will include forward-looking statements about future events and Veritone's business strategy and future financial and operating performance.

These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict and may cause the actual results to differ materially from those stated or implied by those statements. Certain of these risks and assumptions are discussed in Veritone's periodic SEC filings.

These forward-looking statements reflect management's beliefs, estimates and predictions as of the date of this live broadcast, August 7, 2017, and Veritone undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call..

During this call, we will discuss certain of our financial results on a non-GAAP basis, including items we believe to be outside of our core operating results.

We believe that the supplemental presentation of non-GAAP financial information provides insight into our core business results as well as a useful comparison of our financial results between periods..

Finally, I would like to remind everyone that this call will be recorded and made available for replay via a link available in the Investor Relations section of the company's website at www.veritone.com..

Now I'd like to turn the call over to Veritone's Chairman and CEO, Chad Steelberg. Sir, please proceed. .

Welcome, everyone, and thank you for joining us today. After the market closed, we issued a press release announcing our results for the second quarter ended June 30, 2017, a copy of which is available in the Investors Relations section of our website..

Q2 marked yet another strong quarter for Veritone, building on the operational momentum we established in Q1. We experienced year-over-year growth across all of our key performance indicators, continued to build and strengthen our AI platform and launched an exciting new business team, Veritone Government.

I will discuss these highlights more fully a bit later on today's call..

As you may remember, I spent a significant portion of our last call giving an overview of our business as well as sharing some of the details under the hood that make Veritone unique. With a company like ours, we think it's incredibly important to understand the fundamentals behind our strategy, execution and results..

But before I do any of that, I'm going to pass the call over to our CFO, Pete Collins, who will walk us through our financial results for the second quarter and first half of 2017.

Pete?.

Thank you, Chad, and good afternoon, everyone..

Tuning to our financial results for the second quarter and 6 months ended June 30, 2017. Our second quarter net revenues increased 103% to $4.1 million from $2.0 million in the same period last year.

The improvement in net revenues was due primarily to the increase in our Media Agency net revenues by $1.8 million or 93% compared with the prior year period. Also contributing to the increase this quarter was a 380% increase in net revenues from our AI platform, which totaled $348,000 for the period..

For the first 6 months of the year, net revenues increased 76% to $7.2 million, up from $4.1 million in the same period in 2016. The increase in net revenues was due primarily to an increase in Media Agency net revenues of $2,664,000 or 67% as well as an increase of $444,000 or 393% in net revenues from our AI platform..

Looking at our AI platform business. The total contract value of new bookings received during the quarter increased to $151,000 compared with $126,000 in the same period last year. In addition, our monthly recurring revenue under agreements in effect at the end of Q2 2017 increased to $132,000 from $24,000 at the end of Q2 of last year..

Consistent with our historical pattern, our revenue mix this quarter was again derived predominantly from our Media Agency business, whose revenue nearly doubled year-over-year. We believe that the growth in this business is a direct result of the unmatched intelligence that the Veritone AI Platform delivers to its customers.

In our other vertical markets, we continue to rapidly grow our AI platform revenue, and we expect it to become the dominant driver of our net revenues in the future..

Our gross profit for the second quarter 2017 increased 119% to $3.8 million or 91.8% of net revenues, up from $1.7 million or 85.1% of net revenues in the second quarter of last year.

For the first 6 months of 2017, our gross profit increased 92% to $6.7 million or 92.6% of net revenues, up from $3.5 million or 84.9% of net revenues in the same period last year. The increase in gross margin for both the second quarter and 6-month period was primarily due to the operating leverage provided by our higher net revenues level..

Our total operating expenses in the second quarter 2017 were $11.6 million, an increase of 41% compared with $8.2 million in the same period last year. Total operating expenses in the first 6 months of 2017 increased 52% to $21.1 million from $13.9 million in the same period last year.

The increase for both the quarter and the first 6 months of 2017 was primarily due to higher investments in software development and engineering as well as in sales and marketing as we continue to expand and enhance our AI platform, including developing new products and functionality..

Our loss from operations was $7.8 million for the second quarter of 2017 and $14.5 million for the first 6 months of 2017. The year-to-date loss from operations reflects an increase of $4 million from the same period last year. The 2017 result includes stock-based compensation of $1.9 million.

And if that amount is added back to loss from operations, our burn for the first 6 months of 2017 was $12.6 million..

In the second quarter of 2017, we incurred other noncash expenses of $13.7 million related primarily to the write-off of debt discounts and issuance costs upon the conversion of our outstanding convertible notes and to the issuance of warrants to Acacia in connection with their additional investment at the time of our IPO..

Our net loss for the second quarter of 2017, which included those $13.7 million of other noncash expenses, was $21.6 million.

And our net loss attributable to common stockholders, which also includes noncash expenses of $3.4 million relating to the accretion of our redeemable preferred stock, was $25.0 million or $2.94 per share compared with $7.3 million or $3.20 per share in Q2 of last year.

The EPS figures are based on 8.5 million weighted average shares outstanding for Q2 2017 compared with 2.3 million weighted average shares outstanding for Q2 of last year..

For the first 6 months of 2017, our net loss attributable to common shareholders totaled $31.9 million or $5.82 per share compared with a net loss attributable to common stockholders of $12.1 million or $6.89 per share in the same period 2016.

These EPS figures are based on 5.5 million weighted average shares outstanding for the first 6 months of 2017 compared with 1.8 million weighted average shares outstanding in the same period last year..

Now turning to our balance sheet. At the end of the quarter, we had cash and cash equivalents of $65.9 million and no debt. Many of our current assets and current liability account balances have increased since year-end, primarily due to the net revenues expansion in our Media Agency business..

That completes my financial summary. I'll now turn the call back over to Chad.

Chad?.

Thanks, Pete. As I mentioned earlier, I'd now like to provide some operational updates related to what we discussed on the last call as well as highlight some new developments that occurred during the second quarter. I'll also provide an update on our AI product development and our expanded engagement with CBS Radio..

the number of new customers added under master services agreements, the total number of active customers and the average media spend per customer..

Our first 2 KPIs, which track the number of new and active customers, provide us with insight regarding our ability to grow the market share of our Media Agency business by winning new customers as well as keeping tabs on customer churn.

During Q2, we added 16 net new customers compared with 12 net new customers in the same period last year, a 33% increase. In terms of active customers, we had a total of 45 as of the end of the quarter compared with 35 at the prior year quarter end, a 29% increase..

Our third KPI, average media spend per customer, allows us to analyze not only spending trends but our ability to grow media spend with existing customers. During Q2, average media spend per customer was $695,000 compared with $499,000 in the same period last year, a 39% increase.

It's important to keep in mind that while this business is mature and provides a solid foundation for Veritone, it can also experience volatility in net revenues from time to time..

Moving to our Artificial Intelligence platform KPIs. Like our media business, we track 3 key metrics to gauge the success of our SaaS business model and the drivers of revenue growth.

Number one, the total hours of video and audio files ingested and processed on our platform; number two, the number of third-party active cognitive engines on our platform; and number three, the number of accounts on our platform.

It's important to keep in mind that while we expect these metrics to grow over time, they will likely grow at different rates and their growth may not always be linear..

At the end of the quarter, we had 38 customers on the platform compared with 5 at the prior year end quarter, an increase of 660%. We had 169 total accounts on the platform at the end of the quarter compared with 8 at the prior year quarter end.

And finally, we had 69 active third-party cognitive engines on the platform at the end of the quarter compared with 19 at the prior year quarter end, which was an increase of 263%. During the quarter, we ingested 438,000 total hours of video and audio files compared with 178,000 in the prior year period, an increase of 146%..

As we grow and expand our AI platform, we will continue to provide goalpost to make it easier to track our success.

With that in mind, we are reiterating our expectations for our AI platform, which include ending the year with approximately 425 accounts and approximately 85 active third-party cognitive engines on our platform and having ingested and processed approximately 3 million hours of video and audio files during the year..

Now I'd like to take a minute to provide an update on another topic we discussed on our last call, Veritone Legal.

Last quarter, we completed the integration of our platform with Relativity, kCura's industry-leading e-discovery software platform, enabling users to perform large-scale e-discovery and analysis of audio and video files using our AI platform within the Relativity environment.

Veritone Legal can render every second and every frame of audio and video content searchable for things like faces, spoken words, both in English and other languages, phrases, sentiment and voice identification, assuming the fidelity, of course, of the content is efficient for our platform to understand.

Our platform has the capability to produce an index of ingested data within minutes, a process that, as recently as 2015, could take thousands of hours. We continue to make solid traction in this market, demonstrated by the 7 new reseller agreements with providers of e-discovery services we secured in Q2, bringing our total reseller base to 22.

We are now generating profitable revenue through these channels both domestically and abroad..

Shifting gears now to Veritone Government. As we've said before, Veritone directly operates within a handful of verticals, specifically media, politics, legal and public safety.

We are continuing to look at new areas where we believe that cognitive computing has the power to transform the way companies, organizations and public agencies use and manage unstructured data.

This quarter, we expanded our public safety initiative with the formation of Veritone Government to provide AI solutions for federal, state and local government agencies to analyze structured data and unstructured audio and video feeds using the vast array of cognitive engines within the Veritone Platform.

There are tens of millions of video feeds and hundreds of millions of audio recording being generated monthly, a volume that makes it impractical, both from a labor and a processing cost perspective, to utilize the data effectively. The Veritone Platform provides a solution to this problem.

Our technology can assist government agency customers in key areas such as investigation and intelligence analysis, full-motion video analysis, public safety, digital evidence management, compliance and public media monitoring.

At the same time, the platform allows government agencies to more rapidly and efficiently respond to public information requests..

Our current initiative being undertaken by the Veritone Government team is to achieve FedRAMP certification. For those of you who don't know FedRAMP, it's a government-wide program that provides a standardized approach to security assessment, authorization and continuous monitoring for cloud products and services.

This certification will be a key component to the expansion of our government business. I'm pleased to report that we're running ahead of schedule on this process, even with an accelerated timetable, and are aiming to achieve certification in early Q1 of 2018. We look forward to providing updates on this process on subsequent calls..

One of the primary uses of the proceeds from our IPO in May was to strengthen and expand our organization by hiring world-class engineering talent and proven business development executives. To that end, I'm excited to introduce a few of the key hires we made during the second quarter.

First, we hired a senior product manager for our Veritone developer application and machine learning core services. This individual was a senior member of Google's machine learning team, previously engaged in their self-driving car project and obviously brings some very valuable technical and project management skills to our team.

He will be working with our engineering team and our data scientists on critical parts of our AI platform..

We also brought on Eric Hansen to lead the strategic business development for the Veritone Government team. Eric is a skilled business leader in the government analytics market with 30 years of experience working with federal government agencies and software companies.

We are confident that Eric's focused leadership in this market will deliver immediate traction and positive results. He will be responsible for expanding Veritone Government through the implementation of competitive strategies, partner relations and community outreach to deliver government agency actionable insights from orchestrated cognition..

And finally, we recently brought on Manuel Monroy to lead our business development efforts in Latin America. Manuel has 17 years of hands-on Silicon Valley experience, most recently at Intel, and has served as an adviser to businesses in the U.S. and Mexico on strategic planning and business development..

Overall, we increased our headcount by 9 people in Q2, including 5 in sales and marketing, 1 in engineering and 3 in general and administration. These welcomed additions put our overall headcount at 159 employees at the end of the quarter.

Additionally, to make room for our team and support our expansion plans, we recently signed a 38,000 square foot office lease in Costa Mesa, California, which will serve as our new corporate headquarters once completed..

Let's transition now to product and engineering, where our team has made tremendous strides to expand our lead in the AI SaaS marketplace. First, I am very excited to announce the imminent launch of our second-generation AI operating system, which we call aiWARE.

It marks a milestone in the company's technology evolution and will be the new foundation of Veritone's product and services offering.

With the rollout of aiWARE, Veritone is no longer a cloud-only AI solution provider; instead, Veritone will offer a decentralized and federated cognitive solution, now capable of running on-premise, on your laptop, in public clouds, in private data centers and someday, maybe even IoT devices.

Delving into the detail of aiWARE is beyond the scope of this call. So let me highlight just a few of the benefits..

It allows the full power of Veritone to be distributed around the world. It alleviates data privacy concerns. It decreases intelligence lag. The newfound insight can be acted upon more effectively and efficiently. It improves network security. It enables cognitive engine isolation, a key feature for our government and public safety customers.

It supercharges our scalability. And lastly, it dramatically reduces costs and improves reliability. We will share more information about aiWARE over the next several weeks with our official product launch..

Another thing that bears repeating from the last call is our unique and proprietary strategy of orchestrated artificial intelligence. Since inception, we have worked with developers around the world to onboard the best cognitive engines onto aiWARE.

Veritone's proprietary orchestration subsystem, called Conductor, uses advanced AI to manage these engines and optimize their execution to deliver unprecedented results in both accuracy and value for our customers.

However, as the demand from third-party engine developers to onboard onto our platform grows, our engineering-heavy method for integrating these engines has become the limiting factor to more rapid expansion of our cognitive capabilities. Our solution to this bottleneck is the Veritone Developer Application, which we call VDA.

Upon its launch in Q3, it will enable third-party cognitive engine developers to join our ecosystem through a self-service model, providing them with a faster path to monetization and access to our training data to enhance the performance of their own engines. For some AI companies, the Veritone Platform is their go-to-market strategy..

Our cognitive engine count is 70. As that number continues to grow, our customer base and the power of the Veritone AI platform are diversifying as well. And that customer base is now reaching out and communicating with us more directly about their needs.

So in addition to our continual onboarding of general intelligence engines, our customers are now able to use our platform to integrate highly targeted engines, in some cases, even proprietary ones, to solve their specific challenges..

In addition to expanding our AI capabilities through new engine integration, we are expanding our customer-facing application suite as well.

To expedite the development of these new applications, Veritone has expanded the scope of VDA to enable third party to develop, test and deploy customer-facing applications that harness the full power of Veritone's AI platform.

An example of this is the efforts we have underway to develop a new application for processing and analyzing audio and video content for local, state and federal law enforcement agencies.

Our research in this market identified a need to organize content from multiple capture sources such as body-worn cameras, dashboard cameras, fixed-location cameras, drones and files submitted from the public, including business surveillance cameras.

Our project will create an application on our platform that can be used by the law enforcement community to analyze and manage these despaired sources of content to improve the accuracy, speed and breadth of their analysis while dramatically reducing costs..

We are pursuing a development partnership with The Safariland Group as well as several other public safety organizations to support this initiative. In the future, we expect that third parties will use our VDA to create applications that will be hosted on our AI platform, similar to salesforce.com's AppExchange model..

Another exciting area of our business is in data storage and management, which we entered into in April through our partnership with Quantum. aiWARE will be offered as an integrated solution with Quantum StorNext workflow storage.

This combination will allow users to leverage the power of our cognitive platform to extract new value from their on-premise video and audio content without having to transfer the content to the cloud..

As I mentioned earlier, aiWARE allows our system to be run on-premise, behind the client's firewall or in a hybrid on-premise cloud model. This approach has 2 significant benefits. For security reasons, some users will not allow their data to be transmitted to a cloud-based service. So aiWARE will bring cognitive engines to them.

And some users have so much data stored in their on-premise locations that it is prohibitively expensive to transmit it to the cloud, so on-premise analysis is their only cost-effective approach. We're extremely excited about this partnership and look forward to reporting to you on its success in the months ahead..

Earlier this year, we signed a group-wide agreement with CBS Radio, one of the largest broadcasters in the U.S. CBS Radio is licensing the Veritone Platform, allowing them to leverage the power of artificial intelligence-based cognitive computing to seamlessly and automatically process, transform and analyze audio data.

We also have access to near-realtime ad and content tracking, comprehensive analytics, faster content extension and smarter media management for their broadcast from 117 radio stations in 26 markets. I'm pleased to report that we've on-boarded 24 of these CBS Radio markets, and the customer feedback so far has been extremely positive.

Not only have they been impressed with our powerful technology, they found it simple and easy to use. One executive has gone so far as to call Veritone, and I quote, "the best new innovative idea they've had at CBS Radio.".

Moving forward, content from CBS Radio's terrestrial stations and podcasts is now being ingested and recorded by Veritone in realtime. And CBS is leveraging the capabilities of the Veritone Platform to index, organize and make this content searchable and accessible in the cloud.

As an example, CBS Radio's digital team in New York City has been accessing content from all stations in the group for the first time ever. They've set up watchlist to monitor topics, and they can access clip and redistribute content with just a few mouse clicks..

On the sales side, a CBS account team in a major market used our analytics application to show a target customer the reporting they would receive as a customer of CBS Radio. The target customer was so impressed with the analytics reports that they launched a 6-figure ad campaign. This is for a new customer, not a renewal..

And it's not just CBS that's experiencing the difference that Veritone can make for our customers. Just recently, another major U.S. broadcaster used our analytics reports to show one of their current customers how they delivered more ads than the contract stipulated as well as more listeners with a detailed summary of the over-delivery.

This led to a $500,000 renewal. These success stories are great to hear, and we expect them to increase in number as we add more customers and expand the capability of our platform..

While organic expansion of our customer base and technology continue to fuel our market success and revenue growth, we're continuing to explore inorganic opportunities as they present themselves.

More specifically, we are looking to acquire businesses that process audio, video or other unstructured data and provide their products in a Software-as-a-Service model to their customers.

Companies that have significant existing customer bases are more interesting to us, particularly where we believe that our platforms, technology and capability will enable those businesses to enhance the value of the solution they offer to their customers. We continue to have discussions with potential targets.

Many of these will have long gestation periods. Nevertheless, we will keep you apprised of any significant developments in this area..

In summary, Veritone's revenue continues to grow at triple-digit rates year-over-year by expanding the value and depth of intelligence we offer to our existing clients while adding new customers through more efficient and cost-effective sales channels.

The caliber of our team continues to improve as we attract key personnel from companies like IBM, Google and Microsoft that share our firm belief that we are building the AI operating platform of the future..

Lastly, we have demonstrated that purpose-driven AI, delivered through a common platform that orchestrates and integrates a wide variety of cognitive engines, yields unprecedented results for our customers..

Let me conclude by paraphrasing William Gibson. The future of AI is here. It's just not evenly distributed..

Again, thank you all for your time today. We look forward to updating you on our progress on future calls. We're now ready to open the line for questions.

Operator?.

[Operator Instructions] And our first question will come from the line of Mike Latimore with Northland Capital Markets. .

I guess a couple of things.

The second generation of aiWARE, is that applicable kind of across the board? Or are there some specific verticals like legal or government where they might have the most applicability?.

It's applicable across the board, Mike. I think with the media companies, it will possibly provide some efficiency in terms of where that content actually gets processed. But it's a universal deployment both in our primary data centers as well as the on-prem solution to our customers. .

Okay. And then you talked about a government app.

Is it -- should we think of this as the new application that will sort of sit on top of your kind of platform and then that you can sell directly to customer? Or can you provide a little more clarity on it?.

Yes. On the call, we discussed sort of a need that we've identified with our partner, both on the dashcam side as well as different government agencies that we're in discussions with.

With regards to processing heterogeneously collected audio and video-based data, whether that's coming, again, from body cams, dashcams or even historical video repositories, what they're looking to do basically is to have a central repository that can process all that content with the search and discovery capabilities at Veritone.

At the same time, they are looking to not only use our existing 70 cognitive engines but also to be able to deploy custom ones that are proprietary to the government agencies. The application would be in addition to the existing 6 applications we have on the platform today and be a dedicated build for the government vertical. .

Got it. And then just on the legal vertical. You talked about adding a redaction feature last quarter.

I guess, is that the main kind of technology update you needed and now it's a matter of just sort of selling through the resellers?.

Correct. I think as we mentioned before, we had a bit of a delay due to the fact that not only redaction but we've also added a feature of translation in addition to, obviously, transcription. So all 3 are fully in production, have passed through QA and are being resold by 22 resellers in the market today.

As I think I also mentioned in the call, we are generating positive revenue in both domestic contracts as well as international. .

Got it. Okay. And then just a data question.

What was stock-based comp in this quarter? And then what would be a good number for next quarter on stock-based comp?.

So those figures will be in the Q, Mike, which will be coming out the next couple of days. But off top of my head, it was $1.9 million for the 6 months, and I think it was about $1.8 million in just the second quarter. That was for a portion of the whole quarter.

So it will be ramping up in the third and fourth quarter, but you'll get -- that will be in the Q itself. .

And our next question comes from the line of Chad Bennett with Craig-Hallum. .

So I guess on the AI platform side of the business, just looking at your monthly recurring revenue there, I think you said you exited at $132,000 this quarter. And I believe last quarter, it was about $111,000. And I know we talked about just doing just under $1.9 million in bookings last quarter and I think $150,000 this quarter.

I guess I just would have thought that there'd be more of a sequential increase in that dollar amount considering the bookings. .

Well, that $111,000 that you're referring to had already -- the way that, that metric was captured was it included all of the contracts that were in effect at the end of the quarter. So that had picked up the revenue from the CBS Radio contract, which was the big booking back in the first quarter.

So that's why on a sequential basis, going Q1 to Q2, that it may look differently than what you were -- I think where you were heading. But that's the explanation, was that the Q1 number was for all contracts that were in effect.

That contract was signed in March, but then the implementation was completed in, I think, 24 out of 26 markets by the end of Q2. .

So if we look at the total account figure, I think 169 total accounts over the $132,000 in recurring revenue, is that a fair way of looking at it? And how much growth should we see and kind of from a same-store sales standpoint on that recurring revenue?.

Well, there's -- there'll be some growth on that $169,000 and the $132,000 because the CBS Radio came on throughout the quarter, and so the revenue was building. There'll be more revenue coming from that particular customer in Q3 than there was in Q2, in particular.

The other thing that -- I think some of those metrics can be a little bit challenging in those -- -- maybe those relationships because, for instance, when we do work with TV or video customers, the amount of engines that we can utilize and the cost of those engines -- the number of engines is higher and the cost of the engines is higher as well.

So we generate more revenue per an account or even per hour of media process when it's focused on video instead of just audio. But the growth that we saw in the quarter, both from an account perspective, from a revenue perspective as well as from an MRR perspective, was significant from Q2 and there's more coming in Q3. .

Okay. And then last one for me.

How should we think about -- and you just alluded to this, but how should we think about the bookings in the second half of the year here in the ramp? And what verticals will really drive that?.

Well, the main verticals that are driving the business today are media, first and foremost. And we called that out as being the primary driver of the revenue in the -- on the SaaS platform. Legal is -- as we kind of talked about, as Chad mentioned on the response to Mike's questions, legal was delayed from what we had originally anticipated.

However, the opportunity funnel there is even bigger than what we had originally expected. It's just taking us longer to close the deals. And part of that is the delay in implementing the technology that we had anticipated.

But we're very confident we can achieve our expectations for the year because we know that the funnel is large and we've got a more accurate service offering that's also more cost effective in that vertical.

So media is the one that's a big driver today, and we're expecting, as we said earlier in the year, that legal would be the big differentiator from a revenue growth year-over-year. And we're especially counting on that in the second half of the year. .

And our final question comes from the line of Sameet Sinha with B. Riley. .

Couple of questions here. So the government initiative, you obviously mentioned the use cases. Can you talk about the education process that you had to undertake there and if there are -- if you're working with resellers, are you trying to go after some opportunity directly? And a second question was on the Media Agency business.

Can you talk about the churn there, customer churn? And what are the reasons for -- if it were to happen, what could be the reasons and things that we could watch out for?.

Sure. So on the government opportunity, a lot of that is going to be through resellers. Although we are in the process of going through the FedRAMP process. Chad mentioned that in his prepared remarks that we're expecting to be completed by the first quarter of 2018.

That will allow us to provide services directly to government agencies as well as be involved with resellers in the government agencies. So it will be a combination of both direct and through resellers.

As far as the churn in media, we haven't really had a lot of churn once we've gotten people past kind of an initial 30-day test on the application, and I think even a lot of that was more -- when I look back in the history, from our tracking tool and sales force, a lot of that was in the past.

So as we've matured and as we've gotten more experience in selling into organizations, we have not experienced a great deal of churn. The one thing that is unique about media, though, is that we're really creating a new solution. We're not so much replacing an existing service, we're bringing something new to the market.

And sometimes, the customers, while they're initially interested and maybe they've got particular users who are interested, the organization just isn't ready for making the investment. But we've also been very successful with organizations like CBS Radio.

We've got other large media broadcasters that are in test or market trials with us, and we're pleased overall with the progress we're making in that vertical. .

And we do have a follow-up question from the line of Mike Latimore with Northland Capital Markets. .

Just on the Media Agency business.

Can you talk a little bit about the influence of kind of having your platform available to these Media Agency customers? Has that become sort of increasingly a factor in the customer's decision there versus sort of a couple of years ago? It seems like from some of your press releases, the commentary was a little bit more focused on the technology that you're offering to media agency customers.

But maybe just sort of qualitatively you can talk about the importance of the technology in those deals and how that has changed over the last couple of years. .

Yes, absolutely. Thanks, Mike. The AI platform is the huge differentiator for us in the Veritone One business. I can say emphatically that without it, we would be just another agency with some great and very talented people. But what's making the needle move for both our customers and for our business there is really a couple of things.

One, we uniquely give our advertisers literally an omniscient view of what's happening in the marketplace, not only with regards to the ads that they're buying and the responses from them but also on the landscape of their competitors.

Being able to understand when the competitors are making buys, what type of messaging they're sending on a global basis and being able to respond to that in nearly realtime is a game-changer for companies like Uber and a [ Casper sleep ] et cetera.

At the same time, we've really upgraded the AI platform's capabilities to hook into third-party data sets.

So not only are we processing and understanding what's happening on the Nielsen ratings and other rating agencies, but we can now correlate that back what's happening on the actual advertiser's website, call centers, Google analytics, et cetera, to give them effectively a realtime dashboard of what their ROI is on a per-buy basis.

No other agency on earth can even compare to this type of level of service that we're aware of, and it's why we continue to win clients and expand budgets. We continue to see that moving forward as being our big differentiator. And we continue to see rapid expansion, near triple-digit growth in that business. .

Got it. Okay.

And then on the -- just on the operating expenses, is the kind of run rate we've seen in this quarter -- or generally, how should we think about operating expenses sort of relative to the run rate you had in this quarter?.

So on a quarter-over-quarter basis, Mike, the stock compensation was $1.4 million higher in Q2 than it was in Q1.

So -- and I think as I mentioned in responding to Chad Bennett's question, that was for basically half of the quarter because a lot of the stock-based compensation that we have now was awarded at the time of the IPO, which was the middle of May.

The other thing is that we have more just regular compensation in part due to headcount and in part due to some other factors related to the IPO and kind of getting ourselves all set up as a public company.

So I think the run rate that you saw in Q2 is a better one, although you're going to need to pick up some additional stock-based compensation, which you'll see in the Q.

And then the other factor that you'll need to take into consideration is we do plan to continue to improve or expand our engineering teams, both from a software development perspective as well as in the sales support area.

So as we grow the business, we'll be utilizing some of that additional net revenue to invest in those 2 categories of resources in the company. .

And at this time, this concludes our question-and-answer session. If your question was not taken, you may contact Veritone's Investor Relations team at veir@liolios.com (sic) [ VERI@liolios.com ]. I'd now like to turn the call back over to Mr. Steelberg for his closing remarks. .

Thank you for joining us on the call today. We want to thank our employees, partners and investors for supporting us through this transition and allowing us to scale our company even further. We look forward to updating you on our progress on our next call.

Operator?.

Thank you for joining us today for Veritone's Second Quarter 2017 Earnings Call. You may now disconnect..