Veritone, Inc. Price & Performance (VERI)

Thank you, and good evening. After the market closed today, Baritone issued a press release announcing results for the fourth quarter twenty twenty four and full year fiscal twenty twenty four ending 12/31/2024. The press release and other supplemental information are available on the Investor Relations section of Veritone's website. Joining us for today's call are Baritone's Chairman and Chief Executive Officer, Ryan Steelberg and Chief Financial Officer, Mike Symetra who will provide prepared remarks and then open the call up. For a live question and answer session. Please note that certain information discussed on the call today including certain answers to your questions, will include forward looking statements. This includes without limitation, statements about our business strategy and future financial performance. These forward looking statements are subject to risks uncertainties and assumptions that may cause the actual results to differ materially from those stated. Certain of these risks and assumptions are discussed in Veritone's SEC filings, including its annual report on Form 10 ks. These forward looking statements are based on assumptions as of today, 03/13/2025, and Veritone undertakes no obligation to revise or update them. During this call, the actual and forecasted financial measures, we will be discussing include non GAAP measures.

Reconciliations of these measures to the corresponding GAAP measures are included in the press release we issued today. Finally, I would like to remind everyone that the call today is being recorded and will be made available for replay via a link on the Investor Relations section of Veritone's website. Www.veritone.com. Now I would like to turn the call over to our Chairman and Chief Thank you, Kate, and thank you Veritone for joining us. Are excited to speak with you today and provide an update on our fourth quarter and full year 2024 operations, financial performance, and strategic progress. We are pleased to report our Q4 twenty twenty four and full year fiscal 2024 financial results which reflects solid revenue performance and significant strides our strategic initiatives.

Throughout 2024, we have made decisive moves to optimize our operating structure and strengthen our balance sheet. Allowing us to focus and prioritize investments to drive growth and differentiation in our core AI software and services offerings. Disciplined approach has laid a strong foundation, and we're already seeing the benefit in the early part of 2025. Building on the strong foundation and fueled by mega trends such as the momentum in enterprise wide AI adoption, the exponential growth rate of unstructured data, as well as our growing robust sales pipeline, we're very confident in our ability to accelerate the Baritone strategy. Today, Veritone is positioned to become the leading enterprise AI software applications, and services provider across the commercial and public sectors. And create long term value for our shareholders. Mike Zmetro will cover our quarterly and full year performance in financials in more detail later, but I wanted to start by providing a broader company update and perspective on our current market environment and the opportunity that lies ahead. Over the last ten years, we've grown Veritone into a full service enterprise AI company, We are a market leader in ingesting and managing unstructured data indexing that data, and harnessing the power of our AI platform to transform data into near real time actionable analytics and intelligent workflows.

Which provide support to organizations by bringing clarity to the chaos of this data and ultimately derive increasing yields and revenue from their datasets. Just in 2024 alone, we've cognitively processed over 10 petabytes of data which includes over fifty eight million hours of video and audio. Against this incredible data scale, we utilized over eight sixty two unique AI models, through aiWARE, which include both proprietary Veritone models as well as models from leading third parties. This is proven AI at scale and in full production. This performance all starts with our technology platform, aiWARE. The first AI operating system. [indiscernible] aiWARE is a secure, platform agnostic, open system that leverages and orchestrates hundreds of cognitive and generative AI models. So that unstructured data, including audio and video, can be ingested, indexed, processed, transformed, correlated, and analyzed. On top of this dynamic platform, we have developed purpose built and award winning AI applications to meet the specific needs of the public and commercial sectors. And in 2024, we launched our aiWARE based consulting ProServarm, AISG, assisting both new and existing customers to develop transformative AI solutions for organizations of all backgrounds, through our AI adoption framework phases of assess, realize, and evolve.

I'm proud to say that currently, we deploy and license our end to end platform platform, applications and solutions to over 3,200 customers across the public and commercial sectors.

On the commercial side, our customers include Creative Arts Agency, CBS News, ESPN, the NCAA, the Australian Open, PepsiCo, FedEx, and State Farm. The public sector, actively service the Department of Justice, the Department of Defense, and hundreds of state and local law enforcement agencies nationwide. Including Anaheim Police Department, Pittsburgh PD, Nassau County Sheriff's Department, the California Highway Patrol, the Beverly Hills Police Department. In a rapidly changing AI landscape, we entered 2025 from a position of strength set to unlock shareholder value and reinforce our market leadership. One of the most significant moves we made in 2024 was the sale or divestiture of Veritone One. Our legacy advertising agency. Which accomplished several critical objectives for the company. The divestiture focused our operations and concentrated our resource delivering the most advanced AI solutions to our customers and partners at scale. Secondly, the transaction strengthened our financial foundation, substantially bolstering our balance sheet enabled us to greatly reduce our debt servicing cash burden. As a result, we are now firmly positioned as a pure play AI enterprise software firm, building on top of our existing scale. Again, which boasts over 3,000 customers after the divestiture. Baritone has emerged well positioned relative to customer concentration risk with no single customer accounting for more than 5% of our revenues, while still maintaining gross revenue retention well above the ninetieth percentile.

During the fourth quarter of twenty twenty four, we announced several transformative wins and major product advancements. Not the least of which included the expansion of IDEM's data integration, to enhance public safety and law enforcement efficiency. Product and listing expansion within the AWS Marketplace, and a major multiyear renewal and expansion with CBS News.

On the product and solution front, we recently launched Veritone Data Refinery, or VDR, built in A Hour, that is already in full production and working with many of the largest hyperscalers and generative AI model companies. Helping them train and fine tune their respective models. With our proprietary data aggregation, management, annotation, indexing, and distribution capabilities. [indiscernible] trends we are seeing in the market make our offerings more critical than ever. As AI promises a complete transformation of data workflows, from pipeline construction to unlocking the value of unstructured information. According to Gartner, unstructured data represents an estimated 80% to 90% of all new enterprise data created, and is growing three times faster than structured data. The global unstructured data solution market size is over $30,000,000,000 estimated in 2024 and is expected to expand to over $90,000,000,000 by 02/1933. The largest obstacles to AI adoption are the high cost and complexities of harnessing AI ready data and deploying enterprise AI solutions. Storing and backing up unstructured data exceeds 30% of the IT budgets of more than 50% of organizations surveyed an August 2024 DIS study. However, such enterprises many of whom are already our customers, lack the proper tools to collect, organize, access, and analyze the rapidly growing variety velocity, and volume of data in real time.

Furthermore, legacy systems and manual processes cannot keep up with increasing demands for data driven decision making and compliance. And integrating multiple cognitive engines is expensive and slow. Our open AI ecosystem intelligently utilizes multiple best of breed cognitive and generative AI models within a single cloud based solution to process, analyze, and organize data in volumes that can far exceed human cognitive capabilities. Moreover, our platform is model agnostic, positioned to adapt to the evolving AI model arms race that is currently underway. As we close out fiscal year twenty twenty four, I am proud of our team's unwavering commitment to advancing our strategic business initiatives. These efforts have been critical in purposely repositioning Veritone to harness and unlock the power of our unique capabilities supported by aiWARE. By strategically aligning our investments and resources towards delivering advanced AI solutions in our highest growth verticals, are optimally positioned to leverage the core strengths of Veritone's aiWARE platform applications, and solutions to seize the expanding opportunities in the AI market. Now let me walk you through our performance in our core market verticals. Commercial and public sectors. In the commercial sector, the explosive growth and creation of digital media especially audio and video, is increasing at an unprecedented rate.

Driving up the audience demand for on demand localized, diverse content anytime, anywhere. We are witnessing these trends resulting in fragmented consumption across platforms and devices, with increased expense. Media organizations are grappling with macroeconomic pressures industry mergers, consolidation, remote work, and leaner teams while trying to keep revenue streams intact. As the industry's leading audio and video data experts, we help broadcast, media, sports and entertainment professionals leverage AI to transform content workflows, extend media assets, and unlock value across functions for ongoing profit deeper insights, and wider reach. In short, we are not only helping organize our customers' data, but we are also helping them extend and monetize their data generating both significant efficiencies and new revenue opportunities. During the quarter, we were proud to announce the renewal CBS News will continue to utilize Veritone's aiWARE platform to enhance access to its extensive licensed content across numerous distribution channels. Additionally, we have expanded this partnership to also include their local market properties and stations and those respective data assets. We believe the multiyear renewal is a testament to the value we deliver the commercial marketplace. In addition to the CBS News extension expansion, in media and entertainment, executed over 42 new deals in the quarter.

Other notable deals included agreements with ESPN Bet, Cumulus, Vital Voices, The Game Show Network, A and E Networks, MediaWorks New Zealand, Sony Pictures, Alpha Media and Charlie Rose. Showcasing our continued SaaS growth and a critical nature and stickiness of our AI solutions. Another major announcement for Veritone in the fourth quarter was the launch of our Veritone data refinery platform and service. A groundbreaking offering designed to help enterprises transform vast amounts of unstructured data into high quality, AI ready assets. Leveraging aiWARE, this new solution empowers organizations to transform and manage their video, audio, and text data for training sophisticated AI models, and even optimize revenue opportunities through data monetization. The AI sector's explosive growth has led to an insatiable app appetite and need for high quality training data. But there is a significant shortage of accessible clean unstructured data including audio and video. Veritone's Data Refinery is solving this data gap and we are in a leading position in terms of technical expertise, experience, and scale to quickly grow this new business line. I want to reiterate that VDR is in full production and we are already booking material contracts and revenue. Working with the largest hyperscalers, model developers, and data IP owners.

VDR will be a major contributor to delivering against our revenue growth in 2025 and beyond. I'll now shift to discuss our products and solutions for the HR and Job Recruiting Industries or Veritone Hire, We We successfully completed a transformative year streamlining operations on a global scale and integrating both Panda, Logic and Broadbeam into a common Veritone structure at an accelerated pace. This integration marked a significant milestone leading to the launch of a unified brand and the expansion of our programmatic advertising business beyond North America. [indiscernible] Despite broader macroeconomic challenges in the labor and hiring market, our software and advertising businesses remained stable from the third to the fourth quarter.

However, we continue to see substantial growth potential particularly in the staffing and RPO segment internationally. Many esteemed businesses have extended their initial programmatic advertising pilot campaigns into long term commitments, demonstrating the strength on our performance advertising solutions. During the quarter, we successfully launched our with plans to enter the German market in the coming months. Our expertise in this space was further reinforced at HR Tech Europe, [indiscernible] we presented a compelling case study on our success in partnership with Ronstadt, a global leader in HR services. Additionally, our media buying services expanded its reach beyond North America to global markets. Securing significant deals, including a strategic partnership with CBRE of the largest real estate companies in the world. Meanwhile, our commercial partnership with LinkedIn continues to gain momentum exceeding expectations and broadening the scope of our client offerings. On the software side, we are seeing growing opportunities for expansion through key commercial partnerships. We've strengthened our collaboration with Workday, the global leader in human capital software achieving the highest tier level of partnership, platinum, within their partnership program. Furthermore, we launched a major integration with Bullhorn, Salesforce. Enhancing our ability to work alongside the leading software provider in the staffing industry.

Looking ahead, Veritone Hire is well positioned for continued growth. The progress we achieved in Q4 underscores our ability to execute strategically in adapt to evolving market dynamics. With a strong foundation in place, we are confident in our trajectory for the coming year. Switching to our public sector vertical. Unlike commercial, the public sector requires an elevated level of scrutiny [indiscernible] data protection. Our proven track record of success industry certifications and deep compliance expertise and standards makes us well positioned to serve regulated industries. This past week, the US Defense Secretary, Pete Hegseth issued a clear and direct edict to streamline and accelerate procurement of mission critical commercial software We expect Veritone to be a direct beneficiary of this software focused approach. We believe 2025 will be a breakout year for our public sector business and we remain very bullish on the sector's opportunities The Veritone Intelligent Digital Evidence Management System, or or IDEMS applications have been deployed in AWS and Azure GovClouds. In FedRAMP and also currently being installed by DoD customers in their private on AWS and Azure. IDEMs is unique and differentiating and provides significant value and immediate ROI to end users in state and local law enforcement agencies.

U. S. Higher education institutions, U. S. Federal SIV and Defense and international government agencies. Launched in 2024, iDIMS has exceeded our expectations in terms of its demand and the reception we have received from the market. IDEMS strengthens Veritone's position in the digital evidence management market as a leading system for aggregating, analyzing, and sharing investigation materials with advanced AI powered video and audio analytics. Specifically, the investigative workflow using Veritone items allows detectives and investigators to significantly speed up the investigation process, [indiscernible] dramatically increase case clearance rates. This allows Veritone public sector customers to do more in less time with better outcomes. In local law enforcement, we now service hundreds of customers using items for investigation workflows and or public records requests, PRA, freedom of information request, FOIA, and redaction workflows. Our users include detectives, investigators, and crime analysts. We continue to add new technical partners, integration and new sales opportunities, and are adding opportunities and partnerships weekly. On The U. S. Federal side, we are currently under contract with both Fed SIV and Fed DoD intel agencies and are very active with several material trials and software implementations currently underway. We also recently announced that Veritone has achieved awardable status on the Department of Defense TradeWinds Solutions Marketplace for three of our AI solutions.

This accelerates access to investigation tools with Veritone's Illuminate, Redact, and Track applications added to the Tradewinds marketplace. As a reminder, the Tradewinds solutions marketplace is the premier offering of TradeWinds, the Department of Defense's suite of tools and services designed to accelerate the procurement and adoption of AI and machine learning data and analytics capabilities from organizations such as Veritone. The addition of Tradewind solutions augments our previously disclosed FedRAMP authorization sole source BPA with the DOJ, the T and E BPA with the CDAO, and our aiWARE applications and professional service listings on GSA. We are contract ready to service the federal government. Internationally, we continue to add new items opportunities and are working with large local and national law enforcement agencies who are active in trials in application training or in the final stages of the procurement process. Our public sector solutions are gaining traction both domestically and globally new customer acquisitions and a growing pipeline that is now exceeding $110,000,000 In the fourth quarter, we added 18 new public sector customers to our portfolio. Our market leading AI based items applications built on AIware and professional services are core to our growth opportunity and our future success across all four of the public sector segments we serve, SLED, FedSIV, Fed DoD Intel, international markets.

Before I close, I want to highlight an announcement we made earlier today. This afternoon, we announced the appointment of Francisco J. Morales to our Board of Directors, and in conjunction with this, the resignation of Chad Steelberg from our Board.

Chad will be pursuing other business and philanthropic endeavors. We want to thank Chad for his immeasurable contributions to the company since its founding and inception.

Mr. Morales has been appointed to fill this vacancy and will serve as a strong strategic voice on Veritone's board. Francisco is the co founder and executive chairman of five eleven Tactical, its former CEO. Founded in 02/2003, five point one one Tactical is widely recognized as the global market leader in tactical apparel footwear and gear for law enforcement, military and first responders. Serving thousands of agencies and institutions worldwide. We look forward to welcoming Francisco and leveraging his deep relationships and network. We entered 2025 with strong momentum and look forward to demonstrating our ability to capitalize on the opportunity at hand. I would now like to turn over to Mike Zemetra, who will provide more details on our quarterly performance and future guidance. Mike?

Thank you, Ryan. I'm excited to report that we continue to make substantial financial progress.

Ending the year with revenue in line with expectations, and solid customer metrics and contributions made across our software products and services and managed services. As we exit 2024, year where we streamline our operations, including divesting our media agency in Q4, and exiting historical revenue concentration dependencies, we made improvements in progress in our operations to refocus back to our near and long term growth targets heading into fiscal twenty twenty five. During my prepared remarks, I will discuss fiscal twenty twenty four and Q4 year over year performance and KPIs which exclude the results of our media agency. Which are presented at discontinued operations in the corresponding historical financial periods. Balance sheet and liquidity position pre and post divestiture, including our November 2024 ATM, and January 2025 capital raise. And Q1 and fiscal twenty twenty five guidance, highlighting the scalability of our revenue and business, including risks heading into fiscal twenty twenty five focus on improved profitability and projected full year results. Starting with full year 2024 performance. Revenue was $92,600,000 in line with our guidance and down 7% year over year from $100,000,000 in 2023. Driving this was software products and services, which decreased $7,400,000 or 10.8% while managed service revenue of $31,600,000 was flat year over year.

The software products and service revenue decline was largely attributed to commercial enterprise. Which declined $7,000,000 year over year largely due to the expected declines in based customers over the same period. Including Amazon. And certain one time software revenue in 2023 of approximately $2,200,000 which did not recur in 2024. Offset by the addition of Broadbeam in late Q2 twenty twenty three.

As I will discuss in more detail, we remain bullish on our future and we are on pace for fiscal twenty twenty five to be a breakout year across our commercial enterprise with the public sector on track to grow year over year anywhere from 10150% driven by our IDEMS applications. Full year GAAP gross profit reached $62,700,000 as compared to $70,300,000 in 2023. A decline of $7,600,000 largely driven by the decline in revenue. With GAAP gross margin of 67.6% as compared to 70.4% in 2023. A decline of two eighty basis points that was principally driven by the increase in non cash depreciation and amortization expense largely associated with the June 2023 Broadbeam acquisition. Excluding non cash depreciation and amortization expense, 2024 non GAAP gross margin was 71.6% as compared to seventy two point three percent twenty twenty three. A decline of 70 basis points largely due to the decline in higher margin revenue, from consumption based customers.

Loss from operations was $86,800,000 as compared to $99,600,000.0 improvement of $12,800,000 or 12.9% from 2023 loss from operations. This was primarily driven by improvements made in our operating expense structure over the past twenty four months coupled with declines in acquisition related expenses of $5,000,000 severance and executive transition costs of $1,800,000 purchase consideration of $1,800,000 and non cash stock based compensation of 2,600,000.0 Offsetting these were a lower non GAAP gross profit from the decline in revenue over the same period and higher depreciation and amortization expense of $3,300,000 dollars as a result of the June 2023 Broadbeam acquisition. Non GAAP net loss from continuing operations of $48,800,000 improved $5,400,000 as compared to 2024. Driven by the year over year decline in non GAAP gross margin offset by cost reductions enacted in the first half of twenty twenty four. In 2024, I'm happy to report we did not have a single customer that represented 5% or more our consolidated revenue during the year demonstrating our successful efforts to diversify our revenue base. Next, I would like to discuss our Q4 twenty twenty four performance. Q4 revenue from continuing operations was $22,400,000 down $4,700,000 from Q4 twenty twenty three, principally due to a decline in software products and services, driven largely by commercial enterprise, which declined $4,200,000 year over year due to the expected decrease in consumption based customers over the same period including Amazon Included in Q4 twenty twenty four was approximately $700,000 in revenue from the launch of Veritone Data Refinery or VDR, which today has a near term sales pipeline of over 5,000,000.

Overall, Managed Services, which excludes the divestiture of our legacy media agency, was relatively flat year over year.

Across our software products and services, our key performance metrics for Q4 twenty twenty four show ARR of 58,800,000.0 down year over year as we expected declines in consumption based revenue from customers across our commercial enterprise sector including Amazon, over the trailing twelve months Overall, ARR from recurring subscription based SaaS customers remained relatively flat year over year As of Q4 twenty twenty four, 81% of our ARR was from subscription based customers versus consumption based customers.

Up from 61.3% at Q4 twenty twenty three and seventy six percent sequentially from Q3 twenty twenty four.

Total new bookings of $13,200,000 down $4,300,000 year over year primarily due to the timing of a renewal with one of our larger commercial enterprise customers. Who renewed on a multiyear deal in Q3 twenty twenty four versus a one year extension in Q4 twenty twenty three. Gross revenue retention continued to be above the ninetieth percentile and total software products and service customers of 3,237. Which was down 6% year over year predominantly from our commercial sector.

Which includes lower consumption based customers across Veritone higher the rolling impact of sunsetting legacy CareerBuilder customers post the June 2023 acquisition of Broadbeam, and smaller customers as we focus on larger ARR opportunities. Offset by an increase across public sector largely from growth in public safety customers. Q4 GAAP gross profit $15,300,000 compared to 19,900,000.0 in Q4 twenty twenty three.

A decline of $4,600,000 largely driven by the decline in revenue, with GAAP gross margin of 68.1% as compared to 73.5% in Q4 twenty twenty three. A decline of five forty basis points principally driven by the decline in consumption based revenue which generated over 90% gross margins Excluding non cash depreciation and amortization, 2024 non GAAP gross margin was 70.2% as compared to 76.5% in Q4 twenty twenty three, a decline of six thirty basis points largely driven due to the decline in higher margin revenue from consumption based customers coupled with a higher mix of lower margin revenue. Note that in Q1 twenty twenty four was the initial launch of VDR, where gross margins were approximately 50%. We expect that as the VDR product matures, margins will initially be similar to Q4 but should improve throughout 2025. In addition, certain larger content licensing renewals in Q4 twenty twenty four drove lower margins in the early phases of tiered volume pricing. But are expected to improve throughout 2025 as the volume of revenue increases over time. Q4 loss from operations of $19,700,000 was flat year over year primarily driven by improvements made in our operating expense structure, over the last twenty four months and lower purchase consideration expense as a result of a $1,400,000 gain [indiscernible] of the Veritone One earn out.

Offset by lower non GAAP gross profit from the decline in revenue over the same period and higher non cash depreciation and amortization expense of $1,200,000 Non GAAP net loss from continuing operations $9,700,000 which was relatively flat as compared to Q4 twenty twenty three The year over year change was driven by the decline in non GAAP gross margin, offset by cost reductions enacted in the first half of twenty twenty four.

On the strategic front, as we transition our focus away from the divestiture, we are poised to return to growth with a much more efficient operating structure and laser focus on our AI solutions. Since the beginning of 2023, we have executed over $40,000,000 of annualized cost savings. Which includes over $17,000,000 of annualized cost reductions in fiscal twenty twenty four, The 2024 restructuring include organizational realignments within sales, engineering and corporate, the results of which was a reduction of our global workforce, by 15%. This positions us very well from a cost perspective heading into fiscal twenty twenty. On revenue growth and our outlook, our software products and services revenue pipeline and long term outlook remain at all time highs More specifically, we continue to see strong demand across the global digital evidence management market, which represents an approximate $10,000,000,000 market In the public sector alone, we remain in near term contract phases on several large projects with various facets of the U. S. Federal government and international public safety customers with a sales pipeline of over 100,000,000. These near term growth opportunities coupled with a much improved cost structure heading into fiscal twenty twenty five provide us a pathway to profitability as early as fiscal twenty twenty six.

As a reminder, we divested our media agency, Veritone One, in October 2024. Total consideration from the sale was up to $104,000,000 in cash, which consisted of $86,000,000 in cash at closing and $18,000,000 in cash subject to an earn out based upon Veritone One's revenue for calendar year 2025. Of the total $86,000,000 in cash at closing, the net cash proceeds were $59,100,000 in cash after $6,700,000 in cash was held in escrow and $20,300,000 in purchase price adjustments. Net cash proceeds from the sale were used to pay down $30,500,000 in principal amount of the company's December 2023 term loan plus an additional $3,300,000 in accrued interest and prepayment premiums associated with the debt, and $3,900,000 of deal related expenses. Including amounts held in escrow and the earn out, potential future proceeds include up to $24,700,000 in cash. Which will largely be payable toward the end of twenty twenty five through April 2026 as certain escrows expire Given the media agencies' growth throughout fiscal twenty twenty four, and its forecasted exit of customers and expected bookings for fiscal twenty twenty five, [indiscernible] we feel confident on achieving at least a large portion of the $18,000,000 earn out at this point in time.

Upon closing in Q4 twenty twenty four, we recorded a gain on the sale of the divestiture of $69,600,000 which is included in discontinued operations in Q4 and fiscal twenty twenty four results. Turning to our balance sheet. As of 12/31/2024, we held cash and restricted cash of 17,300,000.0 as compared to $47,500,000 at 12/31/2023. Including the 01/03/2025 registered direct offering, 12/31/2024 cash would have been over $37,000,000 The net change reflects net cash outflows from operations of $31,200,000 principally driven by our non GAAP net loss of $40,800,000 dollars and interest paid on debt of 11,800,000.0 offset by $18,800,000 in net cash inflows largely driven from working capital changes from our media agency divestiture in Q4 twenty twenty four Net cash outflows from investing and financing activities of $32,200,000 driven largely by capital expenditures of $6,000,000 and debt and deferred purchase consideration payments of $38,100,000 offset by net cash proceeds of 7,900,000.0 from the cash sale of our Energy Group and Media Agency in 2024 and $4,500,000 from net proceeds raised through our November 2024 ATM. Turning to liquidity today. In 2024, we executed on our largest strategic initiative set up at the beginning of the year, including material cost reductions, divestiture of non core assets, which included the cash sales of our Energy Group and Media Agency, and establishing a $35,000,000 ATM facility setting us up for optimal growth heading into fiscal twenty twenty five.

In addition to the ATM, we raised $20,300,000 in a registered direct offering in early January twenty twenty five. On top of this, we've reduced our debt carry substantially As of 12/31/2024, our consolidated term debt is down from a peak of $2.00 $1,000,000 December 2021 approximately $132,600,000 today, comprised of term debt of $41,000,000 due by December 2027 and convertible debt of $91,500,000 due November 2026. That said, we are currently in advanced negotiations to further improve our cash position and balance sheet in the near term which we will discuss in more detail as these initiatives progress.

At 12/31/2024, had 40,200,000.0 shares issued and outstanding and 2,400,000.0 warrants outstanding to our debt holders. Total shares of 1,700,000.0 were issued in Q4 twenty twenty four under our $35,000,000 ATM, raising net proceeds of 4,500,000.0 On 01/02/2025, we completed a registered direct offering, selling 4,400,000.0 shares of common stock priced $2.53 per share and $3,600,000 of pre funded warrants priced at $2.52 a share for gross proceeds of approximately $20,300,000 Including the January 2025 offering, we had approximately 44,600,000.0 shares outstanding exclusive of the $3,300,000 pre funded warrants. Now turning to updated fiscal Q1 twenty twenty five and full year 2025 guidance. First, I would like to remind everyone that we have some very large public sector deals that we are expecting to close in early as Q1 twenty twenty five but could close in the coming quarters in 2025. Our confidence in these deals is high. While there has been a lot of scrutiny around government spending under the new presidential administration, these initiatives are not expected to be scrutinized by the current administration. And will drastically improve the federal government's investigative and evidence gathering capabilities in forecasted centralization. These deals range in the seven to mid eight figure level and last anywhere from one to five years in duration.

As the exact timing and rollout of these larger deals are still being actively negotiated today, we have provided a larger range on revenue in our fiscal twenty twenty five outlook. In addition, we are seeing high demand for our VDR initiative. With a pipeline of over $5,000,000 and growing as of today. The most of which we expect to execute in fiscal twenty twenty five. These coupled with an improved outlook on licensing and stability across our Veritone Hire services we remain highly confident in our near term revenue growth prospects across both our commercial and public sectors.

More specifically, in Q1 twenty twenty five, revenue is expected to be between $23,000,000 and $24,000,000 as compared to $24,200,000 for Q1 twenty twenty four, In Q1, we expect the public sector to be flat to slightly up year over year which includes the loss of $300,000 of certain non recurring project related revenue in Q1 twenty twenty four that is not recurring in Q1 twenty twenty five. Commercial revenue is expected to be relatively flat. Driven by $1,000,000 decline in consumption based revenue across our managed services and Veritone higher services offset by $1,000,000 in improvements in commercial SaaS driven in large part from new VDR revenue in Q1 twenty twenty five.

We expect Q1 non GAAP gross margins to be around 71% consistent with Q1 twenty twenty four. Q1 non GAAP net loss is projected to be between $9,500,000 to 8,500,000.0 as compared to $10,400,000 in Q1 twenty twenty four an improvement of 13.5% at the midpoint. Turning to fiscal twenty twenty five outlook.

We are slightly updating our prior guidance for fiscal twenty twenty five which we are expecting revenue to be the same at $107,000,000 to 122,000,000 which at the midpoint represents a 24% increase year over year and non GAAP net loss to slightly change to be between $27,000,000 to 17,000,000 representing a 46% improvement year over year at the midpoint. The slight change is reflective of the earlier though we expect this to improve throughout fiscal twenty twenty five. Key assumptions in our fiscal twenty twenty five guidance include for the public sector, as previously discussed, we are expecting the public sector to grow 100% to 150% year over year led by near term deals across the Department of Defense, Public Safety, including international expansion into Europe, and through more recently announced and expanded partnerships with AWS GTAC and others. We are currently in trials and are early phases of deployments on all of these projects. Which when aggregated are projected to generate substantial revenue over today's baseline. For commercial enterprise, since August 2024, we renewed our partnerships with some of the largest customers. Including multiyear deals and expanded services with the NCAA, CBS, and iHeart. Moreover, we recently renewed ESPN for a multiyear deal that included We are also in the beginning phases of our VDR product offering with exciting new partnerships with some of the largest AI LLMs and cloud providers, expanding our offerings into generative AI.

These existing and newer market opportunities will drive year over year growth across our commercial sector. Turning to our recently launched AI Solutions Group. During the second half of twenty twenty four, we began to focus efforts on more expanded enterprise opportunities. In Q4 twenty twenty four, we upsold a multiyear deal an existing Fortune 500 company to provide AI application services across their hiring platform. In addition, we were recently selected by one of the largest homebuilders in The U. S. To provide deeper AI analytics and tools to accelerate some of their existing manual process Lastly, we are at various stages with the U. S. Senate, assist them in managing their existing data. We are forecasting modest revenue in fiscal twenty twenty five, around our expanded AI solutions, We do believe this will be a larger area of growth beyond fiscal twenty twenty five. For Veritone Hire, given the recent macro environment we continue to expect modest to flat growth across our Veritone in fiscal twenty twenty five. With the exit of consumption based customer dependencies in fiscal twenty twenty four, do expect a more stable year in 2025 with a return back to growth in late twenty twenty five to fiscal twenty twenty six with expected macroeconomic improvements.

On non GAAP gross margins, we are projecting our non GAAP gross margins to be between 71% to 73% To the extent that we approach the higher end of our fiscal twenty twenty five revenue guide, we can see non GAAP gross margins expanding closer to 75% on a blended basis. As we begin to scale and look towards 2026 and profitability, our non GAAP gross margin should return to 75% or better. With a backdrop of significant cost savings enacted over the last two years, we exited 2024 with a much improved cost structure relative to the past three years.

Moreover, we will continue to manage our cost structure throughout fiscal twenty twenty five to ensure we time necessary investments in our cost structure corresponding growth. Today, our largest cost remains headcount. And to a lesser extent, professional services that has recently been higher and driven by transactional volume and integration As we exit 2024, we are not expected to focus on M and A and tactical transactions, which will allow us to become much more efficient with our back end of support services and exit dependencies of higher professional fees over the past several years. Before closing the call, I'd like to remind everyone listening that Veritone will be attending the thirty seventh Annual ROTH Conference taking place from March 16 to the eighteenth in Dana Point, California. That concludes my prepared remarks. Operator, we would like to now open up the call for questions.

The first question comes from Scott Buck with H. C. Wainwright and Co. Please go ahead. Hi, good afternoon guys. Thanks for taking my questions. First off, Chris, when do you fully anniversary some of these consumption customer headwinds trying to get a sense of when the year over year comps improve there?

Yes, I can take that one. Q1 twenty twenty four, So year over year we are going to be out of the consumption comparison.

Okay. Perfect. Then I was curious just in the public sector and specifically federal government, I've heard from some other folks during this earnings season that typically when you have an administration turnover, there's just some disruption and delay kind of normal course of business. Are you guys seeing any of that?

We are not seeing that for a lot of the contracts have been awarded for us previously. A lot of what I alluded to of the recent deployments of aiWARE in our respective applications in DoD areas. Is primarily 2025 money to date. We obviously are all watching closely, which again we don't believe is going be relatively impactful for our 2025 guide. In the short term business. But like others for longer term opportunities, we are taking playing close attention to obviously the upcoming budget cycle and the potential CR that's currently being negotiated. But to be very clear, what we're talking about now in terms of our current and active deployments and revenue opportunities, we're primarily servicing against approved $20.25 dollars Perfect, Ryan. That's very helpful. And then last one for me. I think you signed what 11 new commercial customers during the quarter. [indiscernible] how big of a bite of the apple do you take with that first contract? I guess what I'm trying to do is figure out what the potential upsell opportunities are from those new customers in the future?

Well, let's break them down. So if it's VDR related customers, as Mike alluded to, we're thrilled. I mean, some of the growth in contracting that we've been able to sign for this new service right out of the gates are vastly exceeding our expectations. That being said, some of them initially upfront, as Mike alluded to, is some of the margin is a little bit lower than our stated blended overreaching margin, but we do expect that to normalize Upsell opportunities right now, obviously, if you do some comparisons and some comps, to other companies who have been in the AI ready or asset AI asset preparedness businesses like Shutterstock and others. This is a very big opportunity for us We're obviously in a very ideal situation considering our magnitude and scale with high quality IP based audio and video As we kind of touched on just last year, we processed over fifty eight million hours of audio and video on behalf of our customers.

So we expect that to be again a major contributor for production this year. But again, we are right now I think in VDR in the first phases of a call the first contracting. We do expect over the course of the year consistent with these other companies that we expect multiple SoWs and potential upsell opportunities with these new customers over the course of the year and into 2026.

Great. I appreciate the added color guys. Thank you for the time. Thank you. The next question comes from Jesse Silvielson with D. B. O. Capital. Please go ahead. Hi, everyone. Thanks for taking my questions here. Kind of dovetailing off of the prior question on the timing of consumption headwinds here.

You are guiding to some strong growth this year versus the reported declines. So beyond these consumption headwinds, can you point to any specific drivers that underscore your confidence in this inflection point in growth? Is it just the timing of the large government contract awards or maybe an anticipated acceleration in this VDR segment? Just trying to point to some specific business related catalysts to underscore the confidence here.

As we've stated previously, on some recent calls in public disclosures, VDR and public sector are by far going to be leading the growth and trajectory. In terms of proof points and immediate catalyst, VDR, as we've stated, has kind of come out of the gates significantly farther ahead in terms of where we thought we'd be already. We're under contract and working with and generating revenue from some of the largest hyperscaler and model development companies. While also working with some of the largest IP owners, on the content side. So that is a clear one with clear proof points that we're very excited about. And to be very clear is exceeding our expectations both in terms of contract velocity and revenue growth. The public sector side, as we've touched on already, is we are actively deploying our solutions into DoD facilities and environments and tenants. And we hopefully will be able to continue to publicize those opportunities and expanded contracts here publicly. Through press releases and other mechanisms here over the next several weeks and few quarters. But again, remain very bullish on hard concrete proof points for both VDR and public sector growth.

Awesome. That's exciting. And then just one follow-up for me and then I'll jump back in the queue or connect with you guys. Just curious, we're it's looking like we're getting an inflection point of growth in the business with all the pieces pointing to positive trends. As we look out over the medium to longer term, you give us an idea of where you expect to be breakeven on a cash operating standpoint and what like some longer term profitability targets might be?

Yes, I'll take that one. I think based on our projections, the earliest is going to be in the back half of twenty twenty six.

Great.

Well, thanks for the details and thanks for taking my questions. Thank you. Thank you.

The next question comes from Glenn Matson Ladenburg Thalmann. Please go ahead.

Yes. Hi. Thanks for taking the question. Items opportunity. Could you have just just better understand how the new offering differs from the previous public safety revenue that you produced, just the just the breadth of the product and why that maybe is creating an inflection point there?

I think first is that the number of applications. So IDEMs collectively is a suite of different applications So historically, we primarily have had one application in this suite of solutions. Those historical applications have been primarily Redact, and Illuminate, both very valuable, both still selling at good clips, but the expansion of items is really building up the portfolio of those applications. So in effect, we can start moving much larger diverse data sets and workflows to expand on the investigation process. These newer applications include TRACK, which is an application that we announced last year which provides dynamic and I'll say cross device, cross camera tracking of people of interest as well as the upcoming or in addition to Investigate, which we also announced which is a much more broader, it's more analogous to DMH Digital Media Hub, which we offer, and is one of the dominant products that we sell on the commercial side. This is somewhat analogous on the commercial side but named investigate. And so because of these expanded application product lines, we do expect more additional revenue on a per licensing basis against the application, but also we expect larger contracts because of again the breadth of the opportunity and solutions that we're providing because of the multivariate nature of the diversity of the applications.

That's super helpful. And then I guess just as a terms of competitive landscape, is it could you just describe when you're in the field, what you see versus some of the other offerings that are out there? And and how you're able to differentiate and win in that scenario? [indiscernible] This is really exciting. So unlike the commercial business, where there's been different forms of technology and storage and I'll say more archaic analytic tools for movie content and elements. The public sector space, I mean, it's pretty much greenfield. Your Scenic explosion of new data types being created. And typically, they're really bound in more or less closed environments with certain hardware providers. So for example, if there is a closed there is a security camera, right, that's going to a proprietary VMS system, If there is a single body camera company, right, that's really working with that type of data set is working on the back end with a single vendor. The reality is when you're talking about the diversity of these new data sets, you're talking about multiple different IoT sensor and capture things, meaning data is being produced at an incredibly higher rate now and the diversity of those datasets is making it incredibly challenging for municipalities, sheriff departments and police agencies to ingest, index and organize the breadth of these diverse and disparate datasets.

That's what we do. So IDEM is built on aiWARE is the leading open platform that's going to be able to ingest all these different datasets in any format, which by the way is critical. You can't really follow and progress an investigation long unless you can ingest all these different datasets and create a common narrative in storyline. For example, I like to say crime unfortunately travels. If you're bouncing from drone footage to a close to a security camera to a citizen upload camera, all that has to be taken into a common platform and that's what we're bringing to the market through with items on aiWARE.

Thanks for all that clarification. Very helpful, Ryan, and congrats on the results.

Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Ryan Steelberg for any closing remarks The close of 2024 represented really two years of material change and transition for our business. But I'd like to say as Veritone is back into a very focused and a very strong position for both revenue growth and market expansion for 2025 and beyond. I'm very thankful to our passionate teams and talented Veritone who have led us through this transformation. I mean, we're all excited about 2025 and beyond. But more specifically, it's taken into account again our market leading AI solutions The near term positive impact from BDR and our public sector growth And we couple that with a very large diverse customer base already of over 3,000 global enterprises, This is our year to really flip the switch. I think we've articulated some some very clear proof points why both shareholders and potential new investors should be very bullish about the future of Veritone.

The conference has now concluded.