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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from       to       

Commission File Number: 001-38093

 

Veritone, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

47-1161641

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

2420 17th St., Office 3002, Denver, CO 80202

(Address of principal executive offices, including zip code)

(888) 507-1737

(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock, par value $0.001 per share

 

VERI

 

The NASDAQ Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2) of the Exchange Act.  Yes   No

As of April 30, 2022, 36,067,923 shares of the registrant’s common stock were outstanding.

 

 

 


 

VERITONE, INC.

QUARTERLY REPORT ON FORM 10-Q

March 31, 2022

TABLE OF CONTENTS

 

Special Note Regarding Forward-Looking Statements

 

 

PART I.

 

FINANCIAL INFORMATION

 

2

Item 1.

 

Financial Statements (Unaudited)

 

2

 

 

Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

 

2

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2022 and 2021

 

3

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2022 and 2021

 

4

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021

 

5

 

 

Notes to the Condensed Consolidated Financial Statements

 

6

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

23

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

32

Item 4.

 

Controls and Procedures

 

32

PART II.

 

OTHER INFORMATION

 

33

Item 1.

 

Legal Proceedings

 

33

Item 1A.

 

Risk Factors

 

33

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

33

Item 3.

 

Defaults Upon Senior Securities

 

33

Item 4.

 

Mine Safety Disclosures

 

33

Item 5.

 

Other Information

 

33

Item 6.

 

Exhibits

 

34

Signatures

 

35

 

 

 


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and we intend that such forward-looking statements be subject to the safe harbors created thereby. For this purpose, any statements made in this Quarterly Report on Form 10-Q that are not historical or current facts may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “anticipates,” “believes,” “seeks,” “estimates,” “expects,” “intends,” “continue,” “can,” “may,” “plans,” “potential,” “projects,” “should,” “could,” “will,” “would” or similar expressions and the negatives of those expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Such forward-looking statements include, but are not limited to, any statements that refer to projections of our future financial condition and results of operations, capital needs and financing plans, competitive position, industry environment, potential growth and market opportunities, acquisition plans and strategies, compensation plans, governance structure and policies and/or the price of our common stock.

The forward-looking statements included herein represent our management’s current expectations and assumptions based on information available as of the date of this report. These statements involve numerous known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Factors that may cause or contribute to such differences include, but are not limited to, those discussed in more detail in Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of Part I, and Item 1A (Risk Factors) of Part II, of this Quarterly Report on Form 10-Q, and in Item 1 (Business) and Item 1A (Risk Factors) of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 17, 2022. Readers should carefully review these risks, as well as the additional risks described in other documents we file from time to time with the Securities and Exchange Commission. In light of the significant risks and uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by us or any other person that such results will be achieved, and readers are cautioned not to place undue reliance on such forward-looking information, which speak only as of the date of this report.

Moreover, we operate in an evolving environment. New risks and uncertainties emerge from time to time and it is not possible for our management to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual future results to be materially different from those expressed or implied by any forward-looking statements.

Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. We qualify all of our forward-looking statements by these cautionary statements.

1


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

VERITONE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share and share data)

(Unaudited)

 

 

 

As of

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

237,553

 

 

$

254,722

 

Accounts receivable, net

 

 

66,975

 

 

 

85,063

 

Expenditures billable to clients

 

 

19,693

 

 

 

27,180

 

Prepaid expenses and other current assets

 

 

12,519

 

 

 

12,117

 

Total current assets

 

 

336,740

 

 

 

379,082

 

Property, equipment and improvements, net

 

 

2,137

 

 

 

1,556

 

Intangible assets, net

 

 

86,563

 

 

 

88,247

 

Goodwill

 

 

36,630

 

 

 

34,058

 

Long-term restricted cash

 

 

856

 

 

 

855

 

Other assets

 

 

6,078

 

 

 

954

 

Total assets

 

$

469,004

 

 

$

504,752

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Accounts payable

 

$

38,345

 

 

$

46,711

 

Accrued media payments

 

 

96,327

 

 

 

86,923

 

Client advances

 

 

7,968

 

 

 

10,561

 

Contingent consideration, current

 

 

134

 

 

 

19,988

 

Other accrued liabilities

 

 

22,993

 

 

 

27,093

 

Total current liabilities

 

 

165,767

 

 

 

191,276

 

Convertible senior notes, non-current

 

 

195,381

 

 

 

195,082

 

Contingent consideration, non-current

 

 

35,416

 

 

 

24,737

 

Other non-current liabilities

 

 

16,440

 

 

 

13,078

 

Total liabilities

 

 

413,004

 

 

 

424,173

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Common stock, par value $0.001 per share; 75,000,000 shares authorized; 36,056,839 and 34,972,256 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

 

 

36

 

 

 

35

 

Additional paid-in capital

 

 

435,954

 

 

 

431,606

 

Accumulated deficit

 

 

(380,076

)

 

 

(350,958

)

Accumulated other comprehensive income (loss)

 

 

86

 

 

 

(104

)

Total stockholders' equity

 

 

56,000

 

 

 

80,579

 

Total liabilities and stockholders' equity

 

$

469,004

 

 

$

504,752

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


VERITONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

(in thousands, except per share and share data)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Revenue

 

$

34,407

 

 

$

18,295

 

Operating expenses:

 

 

 

 

 

 

 

 

Cost of revenue

 

 

6,923

 

 

 

4,823

 

Sales and marketing

 

 

11,069

 

 

 

6,427

 

Research and development

 

 

9,883

 

 

 

4,960

 

General and administrative

 

 

28,917

 

 

 

31,543

 

Amortization

 

 

4,693

 

 

 

1,078

 

Total operating expenses

 

 

61,485

 

 

 

48,831

 

Loss from operations

 

 

(27,078

)

 

 

(30,536

)

Other expense, net

 

 

(1,186

)

 

 

(9

)

Loss before provision for income taxes

 

 

(28,264

)

 

 

(30,545

)

Provision for income taxes

 

 

177

 

 

 

22

 

Net loss

 

$

(28,441

)

 

$

(30,567

)

Net loss per share:

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.80

)

 

$

(0.95

)

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic and diluted

 

 

35,476,948

 

 

 

32,172,038

 

Comprehensive loss:

 

 

 

 

 

 

 

 

Net loss

 

$

(28,441

)

 

$

(30,567

)

Foreign currency translation gain, net of income taxes

 

 

190

 

 

 

7

 

Total comprehensive loss

 

$

(28,251

)

 

$

(30,560

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


VERITONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

(Unaudited)

 

 

 

 

Three Months Ended March 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income

 

 

Total

 

Balance as of December 31, 2021

 

 

34,972,256

 

 

$

35

 

 

$

431,606

 

 

$

(350,958

)

 

$

(104

)

 

$

80,579

 

Cumulative-effect of accounting change adopted as of January 1, 2022

 

 

 

 

 

 

 

 

 

 

 

(677

)

 

 

 

 

 

(677

)

Common stock issued under employee stock plans

 

 

1,073,543

 

 

 

1

 

 

 

569

 

 

 

 

 

 

 

 

 

570

 

Common stock withheld for employee taxes

 

 

(457,840

)

 

 

 

 

 

(9,437

)

 

 

 

 

 

 

 

 

(9,437

)

Common stock issued for acquisitions

 

 

116,550

 

 

 

 

 

 

1,929

 

 

 

 

 

 

 

 

 

1,929

 

Common stock issued as part of contingent consideration

 

 

352,330

 

 

 

 

 

 

6,440

 

 

 

 

 

 

 

 

 

 

 

6,440

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

4,847

 

 

 

 

 

 

 

 

 

4,847

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(28,441

)

 

 

 

 

 

(28,441

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

190

 

 

 

190

 

Balance as of March 31, 2022

 

 

36,056,839

 

 

$

36

 

 

$

435,954

 

 

$

(380,076

)

 

$

86

 

 

$

56,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income

 

 

Total

 

Balance as of December 31, 2020

 

 

31,799,354

 

 

$

32

 

 

$

368,477

 

 

$

(280,365

)

 

$

66

 

 

$

88,210

 

Common stock issued under employee stock plans, net

 

 

608,886

 

 

 

1

 

 

 

4,253

 

 

 

 

 

 

 

 

 

4,254

 

Common stock issued for services

 

 

15,828

 

 

 

 

 

 

119

 

 

 

 

 

 

 

 

 

119

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

21,491

 

 

 

 

 

 

 

 

 

21,491

 

Exercise of warrants

 

 

252,218

 

 

 

 

 

 

 

2,279

 

 

 

 

 

 

 

 

 

 

 

2,279

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(30,567

)

 

 

 

 

 

(30,567

)

Other comprehensive gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7

 

 

 

7

 

Balance as of March 31, 2021

 

 

32,676,286

 

 

$

33

 

 

$

396,619

 

 

$

(310,932

)

 

$

73

 

 

$

85,793

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

4


 

VERITONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(28,441

)

 

$

(30,567

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

4,891

 

 

 

1,253

 

Loss on disposal of fixed assets

 

 

 

 

 

1,894

 

Provision for doubtful accounts

 

 

194

 

 

 

5

 

Loss on sublease

 

 

 

 

 

1,211

 

Stock-based compensation expense

 

 

4,847

 

 

 

21,610

 

Change in fair value of contingent consideration

 

 

11,641

 

 

 

 

Change in deferred taxes

 

 

(426

)

 

 

 

Amortization of debt issuance costs

 

 

299

 

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

18,982

 

 

 

(7,439

)

Expenditures billable to clients

 

 

7,487

 

 

 

2,236

 

Prepaid expenses and other assets

 

 

(18

)

 

 

1,507

 

Other assets

 

 

(895

)

 

 

 

Accounts payable

 

 

(8,384

)

 

 

3,554

 

Accrued media payments

 

 

8,770

 

 

 

9,517

 

Client advances

 

 

(2,593

)

 

 

1,825

 

Other accrued liabilities

 

 

(6,104

)

 

 

(103

)

Other liabilities

 

 

(116

)

 

 

(294

)

Net cash provided by operating activities

 

 

10,134

 

 

 

6,209

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Minority investment

 

 

(2,000

)

 

 

 

Capital expenditures

 

 

(735

)

 

 

(100

)

Acquisitions, net of cash acquired

 

 

(1,319

)

 

 

 

Net cash used in investing activities

 

 

(4,054

)

 

 

(100

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Payment of contingent considerations

 

 

(14,376

)

 

 

 

Taxes paid related to net share settlement of equity awards

 

 

(9,441

)

 

 

 

Proceeds from the exercise of warrants

 

 

 

 

 

2,279

 

Proceeds from issuances of stock under employee stock plans, net

 

 

569

 

 

 

4,254

 

Net cash (used in) provided by financing activities

 

 

(23,248

)

 

 

6,533

 

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

 

 

(17,168

)

 

 

12,642

 

Cash and cash equivalents and restricted cash, beginning of period

 

 

255,577

 

 

 

115,672

 

Cash and cash equivalents and restricted cash, end of period

 

$

238,409

 

 

$

128,314

 

Supplemental Disclosure of Cash Flow Information

 

 

 

 

 

 

 

 

Non-cash activities:

 

 

 

 

 

 

 

 

Shares issued for acquisition of businesses and earn-out consideration

 

 

8,369

 

 

 

 

Lease liabilities arising from right-of-use assets

 

 

4,501

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


VERITONE, INC.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except share and per share data and percentages)

(Unaudited)

NOTE 1. DESCRIPTION OF BUSINESS

Description of Business

Veritone, Inc., a Delaware corporation (“Veritone”) (together with its wholly owned subsidiaries, collectively, the “Company”), is a provider of artificial intelligence (“AI”) computing solutions. The Company’s proprietary AI operating system, aiWARETM, uses machine learning algorithms, or AI models, together with a suite of powerful applications, to reveal valuable insights from vast amounts of structured and unstructured data. The aiWARE platform offers capabilities that mimic human cognitive functions such as perception, prediction and problem solving, enabling users to quickly, efficiently and cost effectively transform unstructured data into structured data, and analyze and optimize data to drive business processes and insights.  aiWARE is based on an open architecture that enables new AI models, applications and workflows to be added quickly and efficiently, resulting in a future-proof, scalable and evolving solution that can be leveraged by organizations across a broad range of business sectors, serving commercial enterprises as well as government and regulated industries.

In addition, the Company operates a full-service advertising agency that leverages the Company’s aiWARE technologies to provide differentiated Managed Services to its clients. The Company’s advertising services include media planning and strategy, advertisement buying and placement, campaign messaging, clearance verification and attribution, and custom analytics, specializing in host-endorsed and influencer advertising across primarily radio, podcasting, streaming audio, social media and other digital media channels. The Company’s advertising services also include its VeriAds Network, which is comprised of programs that enable broadcasters, podcasters and social media influencers to generate incremental advertising revenue. The Company also offers cloud-native digital content management solutions and licensing services, primarily to customers in the media and entertainment market. These offerings leverage the Company’s aiWARE technologies, providing customers with unique capabilities to enrich and drive expanded revenue opportunities from their content.

On March 1, 2022, the Company acquired an influencer-based management company, as discussed in more detail in Note 3. On September 14, 2021, the Company acquired PandoLogic Ltd. (“PandoLogic”), a company incorporated under the laws of the state of Israel, and a leading provider of intelligent hiring solutions, as discussed in more detail in Note 3. PandoLogic’s software platform, PandoIQ, is an AI-enabled talent acquisition and recruitment platform. 

NOTE 2. PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Preparation

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial statements and the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not contain all information and footnotes required by GAAP for annual financial statements. Such unaudited condensed consolidated financial statements and accompanying notes are based on the representations of the Company’s management, who is responsible for their integrity and objectivity. The information included in this Form 10-Q should be read in conjunction with the information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 17, 2022. Interim results for the three months ended March 31, 2022 are not necessarily indicative of the results the Company will have for the full year ending December 31, 2022.

The accompanying condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which are normal, recurring and necessary to fairly state the Company’s financial position, results of operations and cash flows. All significant intercompany transactions have been eliminated in consolidation. The financial data and the other information disclosed in these notes to the condensed consolidated financial statements reflected in the three month periods presented are unaudited. The December 31, 2021 balance sheet included herein was derived from the audited financial statements but does not include all disclosures or notes required by GAAP for complete financial statements.

 

Liquidity and Capital Resources

During the years ended December 31, 2021 and 2020, the Company generated cash flows from operations of $7,234 and $1,433, respectively, and incurred net losses of $70,593 and $47,876, respectively. In the three months ended March 31, 2022, the Company generated cash flows from operations of $10,134 and incurred a net loss of $28,441. As of March 31, 2022, the Company had an accumulated deficit of $380,076. Historically, the Company has satisfied its capital needs with the net proceeds from sales of equity securities, issuances of convertible debt, and the exercise of common stock options and warrants. In the first three months of 2022, the Company received net proceeds of $569 from the issuance of common stock under the Company’s employee stock plans, and used $9,441 for taxes paid related to net share settlement of equity awards and $14,376 for payment of the 2021 earnout for PandoLogic.

In 2022, driven by the acquisition of PandoLogic in September 2021, the Company expects to generate positive consolidated cash flows from its operations. As a result, management believes that the Company’s existing balances of cash and cash equivalents, which totaled $237,553 as of March 31, 2021, will be sufficient to meet its anticipated cash requirements for the foreseeable future.

6


 

Use of Accounting Estimates

The preparation of the accompanying condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the accompanying condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The principal estimates relate to the accounting recognition and presentation of revenue, allowance for doubtful accounts, purchase accounting, impairment of long-lived assets, the valuation of contingent consideration, the valuation of stock awards and stock warrants and income taxes, where applicable.

There has been uncertainty and disruption in the global economy and financial markets due to the COVID-19 pandemic and the war in Ukraine. The Company is not aware of any specific event or circumstance that would require an update to its estimates or assumptions or a revision of the carrying value of its assets or liabilities as of the date of filing of this Quarterly Report on Form 10-Q.

These estimates and assumptions may change as new events occur and additional information is obtained. As a result, actual results could differ materially from these estimates and assumptions.

 

Significant Customers

One individual customer accounted for 10% or more of the Company’s revenue for the three months ended March 31, 2022 and one individual customer accounted for 10% of the Company’s net revenues for the three months ended March 31, 2021. Two individual customers accounted for 10% or more of the Company’s accounts receivable as of March 31, 2022 and two individual customers accounted for 10% or more of the Company’s accounts receivable as December 31, 2021.

 

Remaining Performance Obligations

 

As of March 31, 2022, the aggregate amount of the transaction prices under the Company’s contracts allocated to the Company’s remaining performance obligations was $8,798, approximately 57% of which the Company expects to recognize as revenue over the next twelve months, and the remainder thereafter. This aggregate amount excludes amounts allocated to remaining performance obligations under contracts that have an original duration of one year or less and variable consideration that is allocated to remaining performance obligationsExcluded based on this policy are balances related to PandoLogic representing gross purchase orders to be satisfied in less than one year. Revenues will be recognized net of costs to fulfill these orders.

 

 

Significant Accounting Policies

There have been no material changes in the Company’s significant accounting policies from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021, other than those associated with the recently adopted leasing guidance as further described in Note 9.

 

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments under this pronouncement change the way all leases with duration of one year or more are treated. Under this guidance, lessees are required to capitalize virtually all leases on the balance sheet as a right-of-use asset and an associated financing lease liability or operating lease liability. On January 1, 2022, the Company adopted the new leasing standard using the modified retrospective transition method applied at the adoption date of the standard. See Note 9 for further details.

In December 2019, the FASB issued ASU No. 2019-12 to simplify the accounting in ASC 740, Income Taxes. This standard removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. This guidance also clarifies and simplifies other areas of ASC 740. The Company adopted this guidance on January 1, 2022 using the prospective transition method. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

 

Recently Issued Accounting Pronouncements

In September 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) which requires measurement and recognition of expected credit losses for financial assets held. This standard will be effective for the Company beginning in the first quarter of fiscal year 2023, and early adoption is permitted. The Company is currently evaluating the impact that this standard will have on its consolidated financial statements and related disclosures as well as the timing of adoption.

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers, in order to align the recognition of a

7


contract liability with the definition of a performance obligation. This standard will be effective for the Company beginning in the first quarter of fiscal year 2023, and early adoption is permitted. The Company is currently evaluating the impact that this standard will have on its financial statements and related disclosures as well as the timing of adoption.

NOTE 3. BUSINESS COMBINATIONS

 

March 2022 Acquisition

 

On March 1, 2022, the Company acquired 100% of an influencer-based management company, which is a California limited liability company, pursuant to a securities purchase agreement (the “Purchase Agreement”) dated as of March 1, 2022. The entity is an influencer management company that works with a select group of social media influencers to create content and custom marketing campaigns for brand partners and agencies.

 

The total purchase consideration was $5,844 (the “Acquisition Consideration”), which consisted of upfront consideration of $1,500 in cash, $1,929 for the fair value of the Company’s 116,550 shares of common stock, and deferred cash payments to be made in 2023 and 2024 totaling $3,000, which was estimated to have a fair value of $2,707 on the acquisition date. The total purchase price was decreased by $976 for the settlement of a preexisting receivable and increased by $684 to adjust for the cash on hand at the time of the transaction closing. The total purchase consideration is preliminary and subject to net working capital adjustments that the Company expects to finalize and settle in the measurement period. In addition, the sellers may receive up to $4,500 in contingent earnout consideration based on achieving certain milestones tied to the entity’s financial performance in fiscal 2022 and 2023, which amount will be paid in cash (the “Earnout”). The fair value of the Earnout was estimated to be $3,015 as of March 1, 2022, all of which was deemed to be compensation to the seller which will be recognized as compensation expense over the earnout period in the general and administrative expenses on the condensed consolidated statement of operations and comprehensive loss. The Company incurred $270 in acquisition-related expenses and has recorded them in general and administrative expenses in the condensed consolidated statement of operations and comprehensive loss.

 

The following table summarizes the fair value of the purchase price consideration (in thousands):

 

Acquisition consideration

Preliminary

 

 

Cash consideration at closing

$

1,500

 

 

Equity consideration at closing

 

1,929

 

 

Deferred consideration

 

2,707

 

 

Acquired cash

 

684

 

 

Settlement of pre-existing receivable

 

(976

)

 

Total

$

5,844

 

 

 

The preliminary allocation of the purchase consideration to tangible and intangible assets acquired and liabilities assumed is based on estimated fair values and is as follows (in thousands):

 

Preliminary purchase price allocation**

Preliminary

 

 

Cash

$

715

 

 

Accounts receivable

 

1,088

 

 

Prepaid and other current assets

 

120

 

 

Property and equipment

 

53

 

 

Intangible assets

 

3,000

 

 

Other assets

 

247

 

 

Total assets acquired

 

5,223

 

 

Accounts payable

 

18

 

 

Accrued expenses and other current liabilities

 

1,793

 

 

Operating lease liabilities, non-current

 

140

 

 

Total liabilities assumed

 

1,951

 

 

Identifiable net assets acquired

$

3,272

 

 

Goodwill

 

2,572

 

 

Total purchase consideration

$

5,844

 

 

 

 

**The excess of the total consideration over the tangible assets, identifiable intangible assets, and assumed liabilities is recorded as goodwill. Goodwill is primarily attributable to opportunities to cross-sell into our Commercial Enterprise customer base. For income tax purposes, the Company elected to treat the transaction as an asset acquisition. Tax deductible goodwill generated from the acquisition is $2,842 (including transaction costs of $270).

 

 

Identifiable Intangible Assets

 

8


 

The identifiable intangible assets acquired consisted of the influencer network, trade name and brand relationships with estimated useful lives of 2-10 years. The Company amortizes the fair value of these intangible assets on a straight-line basis over their respective useful lives.

 

The fair value of the intangible assets has been estimated using an income approach. Under the income approach, the after-tax cash flows associated with the asset are discounted to present value. The key assumptions include the Company’s estimates of the projected cash flows and discount rates.

The valuation of the intangible assets acquired along with their estimated useful lives, is as follows (in thousands):

 

 

Estimated

Fair Value

 

 

Estimated Useful Lives (in years)

 

Influencer network

$

1,500

 

 

 

5

 

Trade name

 

200

 

 

 

10

 

Brand relationships

 

1,300

 

 

 

5

 

Total intangible assets

$

3,000

 

 

 

 

 

PandoLogic Acquisition

 

On September 14, 2021, the Company acquired 100% of PandoLogic., a company incorporated under the laws of the state of Israel, pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) dated as of July 21, 2021. PandoLogic is a leading provider of intelligent hiring solutions and utilizes its proprietary platform to accelerate the time and improve the efficiency in the process for employers hiring at scale for both mass market and difficult-to-source candidates. PandoLogic’s fully autonomous recruiting platform helps employers source talent faster and more efficiently with predictive algorithms, machine learning and AI.

 

The total purchase consideration for PandoLogic was $122,451 (the “Merger Consideration”), which consisted of upfront consideration of $58,733 in cash and $31,500 for the fair value of the Company’s 1,704,822 shares of common stock, up to $65,000 in contingent consideration based on achieving certain earnouts tied to financial performance of PandoLogic in fiscal 2021 and 2022, which amount will be paid in a combination of cash and common stock (the “Earnout”) and a net working capital adjustment of $5,818 paid in cash. The Company utilized a Monte Carlo simulation model to estimate the fair value of the Earnout. The fair value of the Earnout was estimated to be $30,000 as of September 14, 2021, $26,400 of which was deemed to be purchase consideration and recorded within contingent consideration current and contingent consideration non-current on the condensed consolidated balance sheet. The remaining $3,600 will be recognized as compensation expense over the earnout period in the general and administrative expenses on the condensed consolidated statement of operations and comprehensive loss. Subsequent to the acquisition date, the Company is required to reassess its estimate of the fair value of the Earnout, including certain future Earnout obligations triggered on the employment status of certain PandoLogic management, and record any changes in earnings when the estimate is based on information not known as of the acquisition date (See Note 5). The Company incurred $2,161 in acquisition-related expenses in 2021 and has recorded them in general and administrative expenses in the condensed consolidated statement of operations and comprehensive loss.

 

The following table summarizes the fair value of the purchase price consideration (in thousands):

 

Acquisition consideration

Amount

 

Cash consideration at closing

$

58,733

 

Equity consideration at closing

 

31,500

 

Contingent earnout

 

26,400

 

Net working capital adjustment

 

5,818

 

Total

$

122,451

 

 

9


 

The preliminary allocation of the purchase consideration to tangible and intangible assets acquired and liabilities assumed is based on estimated fair values and is as follows (in thousands):

 

Purchase price allocation**

Amount

 

Cash

$

11,581

 

Accounts receivable

 

21,344

 

Prepaid and other current assets

 

8,710

 

Property and equipment

 

618

 

Intangible assets

 

86,000

 

Other assets