Chad Steelberg - Chairman and CEO Pete Collins - CFO.

Lee Krowl - B. Riley FBR Mike Latimore - Northland Capital.

Good afternoon. Welcome to Veritone’s Third 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, including its expected operating performance for the full year of 2017.

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 SEC filings, including its registration statement on Form S-1 and its quarterly reports on Form 10-Q.

These forward-looking statements reflect management’s beliefs, estimates and predictions as of the date of this live broadcast, November 6, 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.

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 would 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 third quarter ended September 30, 2017, a copy of which is available in the Investor Relations section of our website.

The third quarter represented a continuation of the same strong growth and operational momentum we’ve achieved over the last several quarters.

We experienced year-to-year growth across all of our key performance indicators; continued to strengthen and expand our AI platform, including releasing our much-anticipated aiWARE Edge, which is a part of our aiWARE operating system and the Veritone Developer Application.

We also secured several new major wins for our AI platform, including iHeartMedia and FOX Sports Brasil. I will discuss these highlights in more detail in a bit later on today’s call.

But first, I’d like to invite our CFO, Pete Collins, to walk us through our financial results and key performance indicators for the third quarter and first nine months of 2017.

Pete?.

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

The first two of these 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 customer churn.

During Q3, we added nine net new customers, compared with six net new customers in the same period last year, a 50% increase. In terms of active customers, we had a total of 49 as of the end of the quarter compared with 35 at the prior year quarter end, a 40% increase.

Our third KPI for the Media Agency is average media spend per customer, which allows us to analyze not only spending trends, but our ability to grow media spend with existing customers. During Q3, our average media spend per customer was $649,000 compared with $570,000 in the same period last year, which is a 14% increase.

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

Now moving to our Artificial Intelligence platform KPIs; we had 37 customers on the platform at the end of the quarter, compared with 13 at the prior year quarter end, an increase of 185%. We had 170 total accounts on the platform at the end of the quarter, compared with 14 at the prior year quarter end.

And finally, we had 122 third party active cognitive engines on the platform at the end of the quarter, compared with 28 at the prior year quarter-end, which was an increase of 336%. During the quarter, we processed 711,000 total hours of video and audio files, compared with 331,000 in the prior year period, an increase of 115%.

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

With that in mind, we expect to end the year with approximately 425 accounts and approximately 150 active third party cognitive engines on our platform, and having processed approximately 2.75 million hours of video and audio files during the year. That completes my financial summary. I’ll now turn the call back over to Chad.

Chad?.

data science, channel programs, professional services and our partner ecosystem. The other key hire during the quarter was Dr. [Wolf Kahn], a proven data scientist with Ph. D’s in both computer science and electrical engineering from MIT.

In addition to serving as Chief Scientist for an AI related business, Wolf taught at the University of Washington for more than five years, supervising Ph. D students doing research in meta control, optimization and quantum control.

As our new VP, Principal Data Scientist, Wolf is using his expertise to expand the capability of conductor, our orchestration technology that manages cognitive engines across multiple classes, as well as other special projects in the field of second order machine learning.

Including the additions of Wolf and Michael to our team, we increased our headcount by 17 people in Q3. This included adding eight people in sales and marketing, five people in engineering and data science and four in general and administration. These additions put our total headcount at 176 employees at the end of the quarter.

From a sales standpoint, we recently signed our largest AI platform customer agreement to date with iHeartMedia, the leading audio company with the largest reach of any radio or television outlet in America.

This is a two year expansion of our existing relationship that gives iHeartMedia a license to our aiWARE platform for over 200 of its radio stations in the top 50 markets.

Our technology will enable iHeartMedia to seamlessly and automatically process, transform and review audio content in near real time with enhanced ad and content tracking, comprehensive analytics, faster content extension and smarter media management.

Our platform will support iHeart’s initiatives to enhance advertising and content to increase the value of radio advertising. Previously, iHeart spent hours reviewing ad placements in addition to indexing, packaging, extending and distributing content. In 2017, the US radio industry, as a whole is projected to have 17.8 billion in advertising revenue.

Though verifying and organizing ad verification and performance data is imperative, Veritone enables iHeartMedia to focus on more creative marketing strategies, rather than on monotonous analysis of data.

Using advanced AI based metadata creation and analytics, iHeartMedia will now be able to provide near real time reporting, performance and verification for its advertisers, showing concrete metrics and ad spend ROI.

Our media and entertainment pipeline continues to grow, including radio and television broadcasters, sports leagues and teams and media and digital asset management providers, both domestically and abroad. Our sales pipeline in this market has also extended to infrastructure and service providers, such as telephone, wireless and cable operators.

Our legal and compliance business unit continues to make inroads, expanding its revenue base and sales pipeline. We expect to begin production on a six figure contract for Veritone Legal, which represents our largest contract to date in this vertical.

We continue to invest in this market and are bullish on its prospects, as we are hearing from the initial legal and compliance customers currently on the platform that aiWARE is the most accurate, cost effective and feature rich solution currently available for unstructured content analysis.

We continue our FedRAMP and secured cloud deployment efforts within the government vertical, with initial pilot partners now using aiWARE. We expect this to be a significant contributor to our revenue base in the second half of 2018.

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.

As I’ve talked about on our prior calls, we are looking to acquire businesses that process audio, video and other unstructured data and provide their products via a SaaS model to their customers.

Companies that have significant existing customer bases are more interesting to us, particularly where we believe that aiWARE will enable those businesses to enhance the value of the solution they offer to their customers.

We have had a very active pipeline of synergistic targets that we are talking with, and we hope to sign at least one by year’s end. We’ll keep you apprised of any significant developments in this area.

So, in summary, Veritone SaaS revenue continues to grow at triple digit rate 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 strengthen, as we attract key personnel from companies like IBM, Google, Amazon and Microsoft that share our firm belief that we are building the AI operating system of the future. 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] Now our first question will come from Mike Latimore with Northland Capital. Please proceed. .

Just on the Media (inaudible) business, can you talk a little bit about the seasonality in that business? I think last year you had more positive seasonality on the third quarter, and given the composition of the customers there, how do you think about the holiday seasonal once there? [Technical Difficulty].

[Operator Instructions]..

[Operator Instructions] Our next question will come from Sameet Sinha with B. Riley FBR..

This is actually Lee Krowl filling in for Sameet. Real quick, just on the FedRAMP progress, I know you guys had a few milestone certifications that were on slate for Q1 approval.

With this pilot program you mentioned, does that you mean you have the necessary certifications to kind of ramp that whole opportunity?.

There’s some work we can do prior to getting that certification. So that’s the type of work we are doing at this point. We think that we’re going to be complete with our development and self-assessment by the end of Q1 of ’18, and then the third party assessment and certification will be coming in the summer of ‘18.

So in the remarks we made, we said that we see it being a second half ‘18 revenue opportunity for us..

Can you just talk about the AWS relationship, is that pre-revenue, and then can you just talk about the ramp opportunity with that as third party integration?.

Sure. AWS and our integration with one of their partner is a new development. We don’t want to go into too much speculation as to what that will actually afford us.

However; given Amazon’s dominant position as the leading cloud provider, growing at double-digit rates, we’re extremely excited about what it means, both domestically and abroad for us, in 2018..

And then just one last question, on the FOX opportunity you guys announced, you kind of suggested that there are incremental opportunities to be had in the Latin American market.

Will that require any incremental investment or can you tackle those opportunities with the existing sales force you have today?.

No incremental investment, right now we’re activating all of those sales through new channel partners that were brought to us through the Quantum relationship.

Part of our expansion plan is really enabling that channel distribution on a global basis which we’re now solving for in Q4, and anticipate that being a major contributor to our growth in 2018..

[Operator Instructions] Our next question is from Mike Latimore with Northland Capital Market..

Just in terms of the account, I think you said, you expect 425 accounts by year end versus (inaudible) in the third quarter or so can you talk a little bit about the drivers to get there?.

So the main driver for that Mike is going to be the on boarding of the iHeart station. So we mentioned that there are over 200 stations that will be coming onto the platform here in Q4. So that’s the majority of it.

And then we do have other, mostly radio broadcasters that are in the sales pipeline that we’re expecting to bring on board which will allow us to go from 170 up to that 425..

And then how is CBS Radio, is that fully deployed now? And then I think there is a chance they get acquired or (inaudible) here? Is that an opportunity for you guys or how do you think about that?.

CBS Radio is fully deployed, and as far as their upcoming merger with Entercom, yes there is an opportunity for us to pick up some additional business as they merge their two businesses together. That’s one of the items that’s in our pipeline..

And then you mentioned, I think, in the legal vertical, you’re in production on a six figure deal, I believe.

Can you talk just a little bit more about that, is that (inaudible) like a specific case or what’s driving that opportunity?.

Yes, it’s through a reseller that our team has been working with, and there’s one particular litigation matter that, that project will be based on, that we’ll be bringing on. We’re expecting it to be a project that will span more than one quarter. It’s kind of a large project.

But the six figure sales opportunity in the fourth quarter is in not that we’ll be performing this quarter here, and we think it will continue on into our next year..

What should we model for stock comp in the fourth quarter?.

So we don’t really give guidance, but if you think about what we’ve talked about on the call, we had $11.6 million as a stock based comp in the third quarter, with $8.9 million of that related to the performance based stock options that were vested in the quarter.

So that leaves you with a run rate of about $2.7 million, which is probably the right run rate to think about for this quarter. There will be I’m expecting some options to get awarded at the board meeting, coming up later in the quarter. So it might be 2.8 or so. But in that vicinity is what I’m thinking of..

[Operator Instructions] 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 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 today’s call. We want to thank our employees, partners and investors for supporting us, as we pursue our mission for building the AI operating system of the future. We look forward to updating you on our progress on our next call.

Operator?.

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