Veritone, Inc. (VERI) Earnings Call Transcript

They're absolutely both great growth drivers. We're big fans and we've -- it's really where our career started is the media and entertainment and advertising side. Content is king. It always has been. Different things come and go. Whether that again is represented as a social post or it's a new feature on Netflix. But we do a lot of business and we think it's a continued huge growth opportunity for us to continue to service, create and deploy and sell unique and novel applications and services for the media and entertainment space. So we're going to continue to dive into that and focus on that and invest in that category. And we'll talk a little bit more later, I would imagine, about what we're doing with synthetic content, really, I'll call the next-generation AI derivatives of content production and distribution as just another example. It's a fast, it's a $1 trillion industry worldwide and growing. It changes over time, but we love change, right? Change in the way that content is created and distributed affords us a better ability to leverage our technology. So that's area one of great interest and focus. On the government regulated industry side, same passion. We love it. It's a huge opportunity for us. Again we think aiWARE, because of aiWARE's platform-agnostic approach, meaning aiWARE can be deployed on-prem. aiWARE can be deployed and it has been deployed on a multiple of different hyperscale infrastructures. So it's available on Azure. It's available on both on the commercial side and the government side. It's available on AWS, again, on commercial and government side. And so that -- again, that extensibility and being platform independent affords us to do a ton of business and really penetrate deep within both SIV groups like the Department of Justice, but also working with the joint AI centers and which we call the JAIC at the Department of Defense. So the only -- the big difference between, say, the go-to-market between what we're doing in commercial enterprise and media and entertainment as compared to GRI and really energy is we have a much more engaged partner ecosystem and partners that are -- we're going to market with, in those more regulated industries. What's exciting about that is that it really allows us to scale and grow cost effectively because, again, we don't have to go out and build or overbuild and invest in a large sales force. We can take advantage of these groups that already are doing billions of dollars of business with different segments of the U.S. government, for example, and we can leverage their relationships, their existing contracts, and so we're able to slot right in. So those are kind of the 2 areas. But again, the go-to-market is radically different between our commercial enterprise focus, which is more direct sales and marketing as compared to a more partnership focused approach with government regulated industries.

Got it. And Ryan, just to dig in a little bit more on the government side, whenever we hear government from software vendors, one of the first questions that pop up is, are you FedRAMP-certified? Do you have any existing contracts in place? How do we think about those contracts turning in from a commitment to actual revenue on the P&L?

Yes. It's not for the faint of heart to move into the Fed space. So this is actually a very strategic decision we made years ago that we started to look at the technology stack and start the effort to get our platform certified to be deployed and stood up in the secure environments. You mentioned FedRAMP. FedRAMP is the only approved federal cloud ecosystem that allows companies -- sorry, that allows divisions and agencies within the federal government to use cloud-based services. I'm excited that we have released this a while ago, but aiWARE is one of very few platform companies that have deployed their software in FedRAMP. So we are fully FedRAMP certified. Our primary sponsor in FedRAMP is the Department of Justice, and our platform has been deployed not just on AWS, Gov and FedRAMP, but also Azure. So for those companies that are looking to build applications and leverage everything we're doing with aiWARE and our applications, we are already in FedRAMP with an ATO, authorization to operate, at a very high level of security that we can do at scale. So that is an investment that you have to make early on and shortly thereafter is when you start the sales process. So the point is, unlike commercial enterprise businesses, the federal government has a multitude of different contract vehicles. Some were able to bid on directly as an independent. Others, it's really like a teaming agreement with the Deloitte that we're both bidding, right, on a contract. So over the last few years, we've continued to increase our pipeline for -- and what we call the workflow of awards, task orders and ultimately contracts that generate revenue. As we sit here today, we've done multiple activations. We've announced some of these large blank purchase orders that we've been awarded. We've also talked about a few of the task orders that we've actually successfully won and have deployed services. So we like the space. It's growing. We're still very focused on the software aspects. We're not a services company. Yet, I mean, primarily, we're mostly a pure software company, what we're bidding on and pitching in the federal government. And we're very pleased about where we are right now with the pipeline and that waterfall. So although it may not be -- it may be a little bit more lumpy and amorphous as compared to the commercial enterprise business. Again, we feel that we have a very unique product offering. We have a great partnership ecosystem and the right technology structure and employment capabilities that we are still strong believers in what we are going to be doing in the federal government both at the state and local level, but also at the federal level.

Got it. Thanks, Ryan. Government sounds like a pretty big opportunity for you guys in the future. So excited to see what you guys do there. I wanted to shift the conversation a little bit to a different growth vector. The metaverse and the Veriverse, this is something you guys announced earlier this year. Clearly, very exciting from a long-term perspective, you definitely can't deny all the investments out there going on in the world with Web3 and metaverses and NFTs and cryptocurrencies and all of that kind of stuff. So how do you think about this opportunity from a long-term perspective? And what, in your view, needs to happen from the end market perspective, the enterprises and the mid-markets out there to really bring Web3 and metaverses to the forefront of everyone's agendas out there?

Yes. Well, we can talk about this topic for hours, but I'll bring it back to kind of in the context of Veritone and aiWARE. We look at the metaverse as just a different level of immersion for the individual or the business or others as it relates to interactive experience. I personally feel that we've been in the metaverse to a certain degree, right? I may not be in it 24 hours a day, but when I choose to go into a multiplayer game of World of Warcraft or Call of Duty. These are little -- we've had little snippets and insights of what this metaverse could look like. We've all -- many of us have seen the movie Ready Player One, right, where if this one monolithic world, where all of us are engaged, they're storefronts, I can be any person I want. Well, it is going to be similar somewhat to that, except there's going to be thousands of different worlds, right? So as it relates to businesses and our clients when they're thinking about the metaverse, they really need to think about, again, as an extension or an amplification or the next phase of mobilizing their brands and their assets. This is not a binary jump into a brand-new world. Our clients have very successful businesses offline and I'll call Web 1, right, Web 1.0 and even Web 2. But this whole metaverse, you really need to think strategically of why a company like CBS News, one of our kind of multifaceted customers. What do they want to do in the metaverse, right? What's the purpose of being there? Who is there going to be their audience. So I think it really starts with companies need to understand, again, and it starts 100% with their audience and customer base, right? Know who your audience and customer base is. Know what your proprietary assets are in IP in the instance of CBS News, their content and their catalogs of content and then come up with a very strategic plan of what you're trying to achieve in these more immersive Web3 ecosystems. And that's where Veritone steps in. We already -- we're in the middle of all of these discussions with all of our clients and actually have done a lot of work really on -- as it relates to synthetic content creation development for our customers for this future metaverse. But we're in the middle because we've already been ingesting and indexing their content for years now, for many of these customers. And so us working with our customers is we are able to quickly ideate and provision and deploy, solutions and applications that span both offline, all the way into the metaverse in a seamless experience. Give you one example. What I'm talking about is in the world of synthetic voice, where again, when I say synthetic voice, this is the ability for you to drive the voice creation by inputting text. And so we'll call it text to speech. Many of you used the Dragon on your computer or when you dictate, right, you convert, you can type in an app, it will come a voice. In the world of the metaverse, you may want some type of automated bots to have a vocal communication, right, with a customer that's coming up to you and talking into a virtual world. You can have that entire conversation built 100% through synthetic content and conversational AI, right, for example. But the challenge is, okay, great. What is our -- the technology is there, but what again, what is our brand clients trying to achieve? So I really starts with a relationship with the end customer to help them map up strategy or if they have a strategy already, what is the most cost-effective way to leverage aiWARE to make that a reality on a cost-effective basis. So we think all brands, right? And companies should be getting exposure to the metaverse and Web3 opportunities. But again, for a lot of our larger players, you do not have to be first in this one, right? That's kind of our big thing. You have time to wait and see as long as you are protecting your IP and your audience base, you will always have the opportunity to jump in and start really investing heavily in this space. Our strong advice to everybody is gain exposure today, but again, be prudent and most importantly, be very protective of your IP and your customer base or audience base when you are approaching the Web3 opportunity and the metaverse.

Thanks, Ryan. And I want to dig in more on content is king. You mentioned that a couple of times, synthetic voice, and I think that's a huge opportunity. But before that, Mike, I didn't forget about you. I see you sitting over there. I want to bring you into the conversation and give Ryan a little break here for a couple of minutes. With kind of going back to the big picture, you have a couple of different products, different end markets. I wanted to ask you a pricing model question. With all these different types of products and services from a big picture perspective, how do we think about the pricing model? Is it seat space, times products? Is it usage? Are there ELAs, billed monthly, 3-year contracts? Any sort of help here as we think about building models for the business?

Yes, that's a good question. I mean the pricing model is a multitude, for example, in our GRI space, the vast majority of revenue today is really SaaS driven. So these are recurring contracts, et cetera, and in our M&E. And then when you go to our hiring side, the vast majority is consumption based. And so there's a variety here in terms of pricing.

Got it. Got it. Got it. Okay. All right. Ryan, I think I gave you -- we got you about a minute break here. I wanted to go back to this big topic on content is king and synthetic voice. When I first started to do work on Veritone, knowing about your heritage in media, you guys are based in Southern California, right in the heart of Hollywood. I am from Southern California, you're very near and dear to my heart. But I do think sometimes investors sleep on the category than the media opportunity. Content is absolutely king out there. It drives a ton of engagement anywhere from advertising to marketing, to just brand awareness. I mean you got to be able to create the content and more content that's out there is king and key to driving that engagement. So you mentioned synthetic voice. So I guess let's start there. What does this mean from a synthetic voice perspective? You guys do your earnings call, the prepared remarks and synthetic voice, I think that's pretty cool. You're able to translate that into multiple different languages. So you could take a call and make it available to everybody out in the world, and I just think about all the different types of opportunities there are with just that. I mean I could just throw out podcasts, one example. So what is -- what do you mean by content is king and what is synthetic voice? And what could that mean from a media and maybe even a bigger picture perspective?

Sure. Content, it's interesting Amazon with a great successful business in retail, they're early and they're emerging and now dominant AWS platform. They're one of the biggest investors in content, right? And the reason why Amazon and others invest so heavily in content is, yes, we enjoy it, we consume it. It creates a great revenue opportunity for businesses that do it well to generate lots of ad revenue, obviously, with OT and others subscription-based revenue. But it also is more than that, right? Content drives trends, right? Content drives innovation, consciously and subconsciously. Frankly, every device, I can pick up my iPhone right now, right? I mean we all saw these, the original StarTAC phones for those old enough, right? I mean we first saw that in StarTAC. Content is a key driver to the 2 driving the [indiscernible] trends and opinions of people and viewers. So by default, content is king. It's massive. We use it as a tool to communicate. We use it a tool -- it's a resource and a source of entertainment. And some of us give me that just if you look at time spent engaging, it's astronomical. You have to be an investor and embrace all things around content. Advertising, obviously, is one of the derivatives around content, right? You need a proxy for it to look at something or engage with something, so you can then have the opportunity to deliver advertising to that end user. So the ad tech content business area has been something that we really where our career started and have had great success in that in the past. So we are perpetual big believers in content and the derivative business models around content, whether, again, a subscription or advertising. Veritone voice is, again, one of many new applications and tools that's out there. And we feel that Veritone voice, which is our version of synthetic voice creation and utilization is really setting the standard. And I'll just give you a couple of examples. So Veritone voice right now if I'm producing some -- let's start with a very mundane and utility-based use of synthetic voice. But you'll -- I'm doing that at the lowest level because this is not Harry Potter for the future opportunities to start generating material revenue or making an impact. It starts with just automation. So there are millions and millions and millions of pieces of ad creative produced every single day around the world. Some are programmatically made, some are very laboriously made in studios. But take DraftKings, one of our larger ad partners and customers. They produce hundreds of thousands of pieces of advertising copy like every year. It's very expensive when you have to get humans in the studio to produce those reedit, recopy and redubbed over and over again. What we've been able to do is for specifically them is when you now listen to DraftKings ads on streaming audio to traditional broadcaster or other venues. Many of those ads are now completely built by our tech synthetically. So what we're able to do is with their talent, their hosts that they've historically been paid as -- paying as their brand ambassadors and their advertising pitch people, we've created using our tech very hyper realistic versions of their voices. So now not only can we minimize the time that, that talent needs to get into the studio, we can create millions in theory, unlimited number of derivative unique pieces of copy using their real voice, right? And with enough training data, which obviously because of our relationship with these customers, we have a lot of it, you will not be able to distinguish really from the human voice versus the synthetic voice. So the point there is the net result of DraftKings is a ton of savings in terms of cost to produce all this content. And so I'd use that one example is kind of the boring utility aspect. What I'd like to say is at times those singles and doubles ideas, right, pay the bill and create a great baseline business. So that is an area we're in. So right now, DraftKings that was a real example, right? They're a customer of us in a synthetic voice, and we're helping build synthetic, creative opportunities, and we're taking that to all of our advertising customers. Then there's all the new content creation ideas, and I'll go pretty quickly and just give you examples is another one that is kind of a utility derivative, but it's really exciting, and you touched on it earlier, is the programmatic automated way to convert primarily English format content into a multitude of different languages and do this very, very cost effectively and at scale. Podcasting is a big and growing industry. We're a major player in it, both on our technology side and on our media services side. And about -- there's about 500 million worldwide Spanish speakers will they qualify that as their native language. That, again, are having to either recaptioning or they understand -- it's not their native tongue. What we've been able to do cost effectively is take entire English format shows, transcribe and turn those into an English written document and then translate that document into a very accurate and appropriate Spanish script and then our AI actually then reproduces the show in those different languages. So what I just did there was I took, let's say, a leading podcaster like crime junkies, right, that has a great audience here and primarily in North America and English speakers and very cost effectively, I just made that content now available in native tongue in multiple languages. So -- with so technology and AI, then created new impressions and new advertising opportunities for those podcasts. So that's an example of great utility now created a whole new audience, right, programmatically that they can start either up selling new subscriptions too or generating more ad revenue too. And then the third piece is really what I've been talking about is leveraging synthetic voice to, I'll say, recreate things, right? But what you're going to see over the next few years is really complete original content being created by AI, synthetic voice, right? You're going to have, based upon what you're listening to on Spotify and how you're engaging with what channels you program you're walking on Netflix. We are going to be listening to hyper-personalized complete songs that are some by voices that we find appealing that are completely AI driven. So it's a big category. We are excited to be really what we view as the leader in the enterprise voice category. We see it is going to be a major part of our business. We've actually elevated we'd like to say is our synthetic content and voice capabilities is now a primary tenant of aiWARE. That's how bullish we are on that opportunity. So we can talk about this for hours, but I think I gave you a few examples of, A, what synthetic content and content creation can do and what AI -- what Veritone's part is in that equation.

I wanted to ask a follow-up question on synthetic voice here. And one of the things I think about or you just kind of brought to my mind was art, synthetically created art, you could go -- I've seen articles where you can say, "Hey, build me a painting that looks like this, and all of a sudden, it shows up". Are you telling me that Veritone and Veritone voice, which I've seen that one, the prestigious NAB Product of the Year award in 2021, you wanted to plug that for you, you guys are winning awards at the highest level. I mean, are we looking at a future where content creators or even users could be like create neo podcast and it becomes created and is monetizable and it's very personalized to you. I mean, is that -- not just translation of an existing podcast, but just part of AI-driven pocket. Is this the future that you're talking about?

100%. And we see little -- I mean we all see it in financial reporting, right, a lot of the articles that we all get spammed with, right? Many of those are synthetically driven, right? It's simple. It's like pulling in snippets and key topics from earnings releases, and those are using AI tools to great. But no, higher form, absolutely, paining songs, even on the opposite side, you have brilliant authors and songwriters, for example, who can't sing. But they're brilliant with their pros, they're brilliant with their lyrics. But now imagine empowering them to choose the perfect voice in their mind to actually sing their song, right? So that you're going to start to see -- or that same song may be available to you in 25 different voices, right? I want to listen to that in theory that Eminem rap song in the future, sung by somebody else. That those are -- so the tools are going to be there, obviously, how we do that cost effectively and how we're able to communicate effectively and activate the consumer is going to be critical. But yes, that is all coming and we go back and tie back to the metaverses' worlds like Horizon and some of these immersive worlds such as the metaverse, you're going to start to see just because the platform supports all this original distribution is kind of what I'm talking about content here. Is this going to be exciting? It's going to be disruptive. It's going to be scary to some. But one thing for sure is it's coming in a big way, and people will figure out a way to monetize it. And what we hope that Veritone is the entity behind a lot of that activity.

Got it. You hit on that point exactly. I don't know if I'm extremely excited or absolutely terrified, but it's going to be interesting to see it all play out. Okay. We got about a minute here. I wanted to ask you just one last question about maybe the most common misconception about the business. The business is clearly very different from even just 2 years ago, but the company has been public since 2017. So maybe from your view, what is the -- what do you believe is the biggest misconception or maybe the biggest misunderstood part of the Veritone store today?

I think it's -- besides a few key original shareholders, our shareholder base continues to change and evolve. I think early on, just because of our background, you were kind of touching on a little bit, but my brother and I are kind of original pioneers in the ad tech space, right? We built several businesses going back to the mid-90s, right, all the way in selling businesses to Google and others. So I think part of this is when we launched initially focused on deploying and trying to sell aiWARE just to media and entertainment, I think we got put into a bucket, right? And at times, right, AdTech and MarTech interest ebbs and flows. And so I think that, that stigma and that legacy -- by the way, we've been very successful in what we've done in the past. But I think people, when they saw us just applying AI and aiWARE 2 in their minds, advertising, I think people sort of put us in a relatively small box. And as I hope I have articulated today, aiWARE is ubiquitous, right? It is a platform that has great utilization, extensibility and capabilities that span multiple industries? That is what we are focused on. Absolutely we're going to take advantage of our expertise and [ subject matter ] expertise in media and entertainment and advertising, which we've done successfully. But in no way do we want investors to feel that this is limited and myopic to just advertising and Martech. This is an opportunity that -- and let me say it this way. AdTech and MarTech probably was the best training ground for AI of any industry. Why? All it does and has been doing, right, for years is ingest millions and billions of data points in neural time, have to analyze and synthesize a result and then deliver back a perfect ad and do it 100 billion ads per week, for example. Frankly, we're doing the same thing now with AI, except the input functions, right, are unstructured audio and video, right, or Harmonics off the energy grid. It's data ingest, -- it's understanding big data opportunities in consolidating the data lake and being able to deliver fast, scalable and efficient applications and services out fast. Ironically, it's an ad tech original vision, but that same vision has shown great extensibility across a multiple different industries. So that's what investors are -- they're investing in what we believe is a very unique platform, a huge differentiated aiWARE platform. And on benefit, you also get some built-in very subject matter experts, right, in certain fields such as media and entertainment and advertising. So I'm a big believer, and I'm a buyer of my stock.

Got it. Thanks, Ryan. Thanks, Mike. Thanks, Brian. We are all out of time here. Thanks for joining us. Appreciate the time. Best of luck. We'll catch up with you again soon. Thanks so much. Thank you.