Veritone, Inc. Q2 FY2020 Earnings Call

Good day and welcome to the Veritone Second Quarter 2020 Financial Results Conference Call. All participants will be in a listen-only mode. Please note that this event is being recorded. I would now like to turn the conference over to Brian Alger. Please go ahead.

Good afternoon, and welcome to Veritone's second quarter 2020 conference call. I'm Brian Alger, Senior Vice President of Corporate Development and Investor Relations. After the market closed today, Veritone issued a press release announcing results for the second quarter ended June 30, 2020. The press release is available on the investors section of our website. Joining me for today's call are Veritone's Chairman and CEO, Chad Steelberg; President, Ryan Steelberg; and CFO, Pete Collins. Following their remarks, we'll open up the call for questions. Please note that certain information discussed on the call today will include forward-looking statements about future events and Veritone's business strategy and future financial and operating performance, including its expected net revenues and non-GAAP net loss for the third quarter of 2020. These forward-looking statements are subject to risks, uncertainties and assumptions that may cause the actual results to differ materially from those stated or implied by those statements. Certain of those risks and assumptions are discussed in Veritone's SEC filings, including its Annual Report on Form 10-K and its quarterly report on Form 10-Q filed today. These forward-looking statements are based on assumptions as of today, August 10, 2020, and Veritone undertakes no obligation to revise or update them. During this call, the actual and forecasted non-GAAP financial measures will be discussed, including gross margins, operating expenses and net loss, which will be presented on a non-GAAP basis. 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 this call is being recorded and will be made available for replay via a link available on our investor section of the company's website at www.veritone.com. Now, I'd like to turn the call over to our Chairman and CEO, Chad Steelberg. Chad?

Thank you, Brian. Veritone posted our strongest financial results ever this quarter, despite the unprecedented and turbulent times. The success was driven by our talented team, which has worked together with ingenuity, resilience and determination. Helping our customers leverage our AI technology to improve efficiency and transform their operations. As a result, we posted second quarter revenues of $13.3 million, up 8% year-over-year and 11.5% sequentially. And we are forecasting Q3 results that effectively accelerate street estimates by a full quarter for the midpoint goal of $14.4 million, which would represent growth of 12.5% year-over-year and 8.5% sequentially. Our record Q2 results demonstrate the power of our AI operating system and world-class AI applications and the value of our differentiated and diverse portfolio of AI-powered services. On the cost side, we continue our march to profitability and shifting our operational focus in the fourth quarter of last year towards achieving cash flow breakeven. We have seen our quarterly non-GAAP net loss improve by 40% since Q3 of 2019 to $5.7 million. We're committed to continuing to reduce our non-GAAP net losses moving forward, while simultaneously growing our revenues at double-digit rates. Now that the fog has lifted somewhat from the earlier days of the pandemic, it is clear that our customers are accelerating their AI implementation across critical parts of their operations to execute more effectively and efficiently. We are delivering the technology that is making that possible, from helping businesses optimize the impact of their advertising spend, giving content owners the ability to quickly and easily search and monetize their audio and video archives, to enabling government agencies to more effectively and transparently protect and serve the communities and even helping energy companies deliver cleaner, more reliable, and affordable power. Our customers see an opportunity to reimagine their operations and help reinvent an increasingly automated and virtual world. They recognize that Veritone is the best AI partner to help them achieve their ambitious goals, with our revolutionary and proprietary technology. Since Veritone's inception six years ago, we have been solely focused on building AI solutions that deliver immediate and measurable value to an initial set of targeted industries while simultaneously developing the AI operating system of the future. Veritone's AI-only focus has resulted in a powerful and growing technology base, with over 75 issued and pending patents worldwide. As a result of this investment and clarity of purpose, Veritone is poised to transform every industry across every geography, and we are not alone. We are aligning and executing together with some of the world's best technology and system integrator partners like Microsoft, CDW-G and Carahsoft. The flexibility of aiWARE and our developer tools allows us to deepen and build out our existing customer relationships, while innovating and exploring new global markets and fields such as energy, where we are making tremendous inroads and generating revenues, despite only a short time in the market. In the coming weeks, we will be sharing more about how Veritone is leveraging aiWARE and its suite of energy applications based on our cognitive technology to drive unprecedented efficiency, reliability, and cost-savings for macro and micro grid operators. Veritone's AI energy applications are addressing many of the key technical challenges that have impaired the progress of the renewable energy movement and have cost U.S. energy companies billions and damaged infrastructure and energy loss. By helping to solve these issues, we believe we can accelerate the use of renewable energy, which will reduce global warming and positively impact our planet now and for future generations. Our solutions in public safety are helping to create more transparent and efficient police forces that will maintain public safety more effectively while increasing accountability and public trust. These are important goals that are aligned with our founding belief that artificial intelligence is key to building a safer, more vibrant, transparent, and empowered society. We are determined to be an active contributor to shaping our future for the better. AI-powered solutions are increasingly seen as necessary to compete, and in some cases to simply survive. We see them as a gateway to a better future. The AI revolution is not some far-off idea; it’s happening now everywhere and Veritone is leading the way. With that, I would like to hand the call over to Ryan, our President and Co-Founder, to discuss our operational progress in greater detail. Over to you, Ryan.

Thank you, Chad, and good afternoon, everyone. As Chad indicated, we had a strong second quarter, much better than we expected when we spoke with all of you in May. We are immensely proud of our team's performance during this truly unprecedented business environment. They have responded very well, staying focused and agile and are continuing to generate strong results. I'm going to spend a few minutes discussing our second quarter revenues and outlook in each of our businesses before passing the baton back to Pete. In our advertising business, we had a record quarter of just over $7 million, up 20.5% year-over-year, including a strong contribution from our VeriAds network. Our agency business was up 5.1% year-over-year and 4.4% sequentially. It continues to significantly outperform most peers in this space by a wide margin due to our strong focus on digital and social platforms and our ability to leverage aiWARE to demonstrate ROI across multiple platforms to optimize our clients' advertising programs. Our agency team did a great job of winning new business and expanding our business with existing clients in the second quarter, which more than offset reductions in ad spending by some clients due to the pandemic. We have also started to see great traction in our VeriAds network. While we launched just this past November, these networks open up new opportunities for media partners to easily generate incremental advertising revenue without impacting their existing ad sales and create new native ad and influencer advertising opportunities for advertisers. We now have over 250 radio stations participating in our spot network and over 3,000 unique digital influencers active on our influencer bridge program this year. Looking forward, we expect our advertising revenues to show strong growth in Q3 from both our Agency business and our VeriAds network as digital and social platforms continue to outperform other segments of the advertising market. In our content licensing business, where we leverage the power of aiWARE to index, search and reposition premium video content for licensing by advertisers and content creators, our team overcame tremendous macro headwinds to deliver a much better second quarter than we had originally expected. While many of the headwinds, including canceled sporting events and slowness in film and television production continue to challenge this business, the team has added new content libraries and broadened our customer base. As a result, we believe we will be able to sustain the traction we created in the second quarter, and when content production restarts and college and professional sports come back, we will have a larger base to grow revenues from. In terms of performance highlights within content licensing, revenues were down 13.9% year-over-year, including $300,000 in lost revenue from live event services due to canceled sporting events. Excluding live event services, licensing revenues were only down 6.6% year-over-year. We continue to expand and diversify our licensing base of content, including new and expanded relationships with a number of premium content partners and new agreements with digital influencer firms like Collab and Studio71 that have expanded our served market in this business. While we expect the pandemic to continue to impact our content licensing revenues in Q3, we believe the team has stabilized the business, and if college professional sports are able to start during Q3, we could see slight growth sequentially. Shifting to our SaaS businesses, revenues were just over $3 million, up 12.1% year-over-year, reflecting continued growth with media and entertainment customers and revenues from our new energy solutions. While they were down 3.4% sequentially due to timing issues, we had very strong bookings in the second quarter, including a seven-figure subcontract under a Department of Defense development program that we expect to start generating revenues beginning in Q3. Within M&E SaaS, as our KPI tables reflect, we saw continued account growth in Q2, largely through expansion of our relationships with existing customers. In Q3, we expect to begin to attribute across a number of our customer station portfolios, including iHeart Media. As we highlighted in our recent WideOrbit press release, Attribute is also generating increasing attention among TV station operators in addition to the radio networks. Finally, within our M&E SaaS group, we are increasingly finding synergies with our agency and VeriAds partners, which we believe gives us greater insights to develop new products and features and increase our differentiation. We also see the potential to expand our addressable market by linking on-premise MEMS with aiWARE's cloud-based cognitive capabilities. Our GLC SaaS business had a foundational quarter of bookings. Their new bookings in the second quarter exited all GLC revenues generated in 2019. Additionally, we have formed multiple technology partnerships that vastly expand our reach and revenue potential. Companies like Relativity and OpenText have integrated their eDiscovery tools with aiWARE, further enabling legal MSPs like Epic Oasis, ProSearch and Xact Data Discovery to cognitively process large quantities of both unstructured and structured data. We have also recently signed agreements with a leading provider of security and surveillance systems, as well as with a software provider specializing in processing Freedom of Information Act requests, adding to our list of channel partners. Importantly, our GLC business activity has begun to shift from being primarily project based to more strategic and sustainable long-term contracts. While projects will continue to be an important component of our GLC revenues, we expect to see further expansion of GLC's bookings pipeline through our technology and channel partners. This quarter, we are introducing a new revenue subset of our aiWARE SaaS revenues called Other Markets. Since we founded Veritone, we have said that aiWARE would find application and use across multiple industries and verticals. Other Markets represents those other industries and opportunities within our SaaS revenue line. As shown in our supplemental tables, Other generated $251,000 of net revenues in the second quarter. These revenues were associated with an initial project with a regional U.S. energy utility. We believe that our technology can be used in many other renewable energy projects around the world. I encourage everyone to visit the energy solutions page on our website at veritone.com to learn more. In addition to our organic growth initiatives, we continue to look for potential acquisition targets, where we see opportunities to accelerate our entry into new markets and transform and grow their businesses by integrating aiWARE into their products and solutions. Pete Collins will now review our financial results for the second quarter and provide details around our financial guidance.

Thank you, Ryan, and good afternoon, everyone. Each of you should have access to the results we released earlier this afternoon, and Ryan has already provided significant color on the second quarter revenues of our business units. Our growth strategies are beginning to offset the impact of the COVID-19 pandemic, which resulted in our total net revenues increasing 11.5% sequentially and 8.1% year-over-year. As I review the financial results, a couple of items warrant further discussion. As Ryan mentioned previously, VeriAds contributed to the strong growth in our advertising revenues in the second quarter. We account for the VeriAds revenues on a gross basis, while our agency revenues are reported on a net basis. In the second quarter, our non-GAAP gross margins were 71.6%, which is an improvement of more than 400 basis points year-over-year. The year-over-year upward trend is due primarily to the enhancements we have made to our aiWARE software, which are not only reducing our computing costs, but also improving performance and stability, and we expect these benefits to continue. Regarding our operating costs, we initiated aggressive cost reductions in the fourth quarter of 2019 and additional actions in March, 2020. Since then, we have maintained strict cost discipline. These initiatives have been very effective and continue to deliver significant cost reductions. Our second quarter of 2020 cash operating expenses decreased by 1.2% compared with the first quarter of 2020, and decreased by 13.2% compared with the second quarter of 2019. With our cost reductions and focus on cash flow breakeven, we have lowered our non-GAAP operating expenses by $12.6 million on an annualized basis since the third quarter of 2019. Our gross margin improvement, coupled with tight expense controls, helped us to reduce our second quarter non-GAAP net loss to $5.7 million, despite the revenue disruption caused by the pandemic. Shifting our focus toward reaching cash flow breakeven, our quarterly non-GAAP net losses have dropped 40% since the third quarter of 2019, and we have reduced them sequentially each of the past three quarters, achieving the lowest level since we have been a public company. We are committed to continuing our drive to cash flow breakeven going forward. While we continue to see efficiency gains in our cloud compute and cognitive engine costs, we don't expect to see further reduction in our overall operating expenses as we are now selectively adding incremental talent to support our growth outlook. As of June 30, 2020, we had no long-term debt and cash and cash equivalents of $50.1 million, including $24.2 million of cash received from advertising clients for future payments to vendors compared with $44.1 million at December 31, 2019. During the second quarter, we received $2.1 million from the exercise of warrants, and we raised $3.1 million through the sale of shares at an average price of $16.07 per share. Our lowered non-GAAP net losses have allowed us to significantly reduce the amount of cash we have needed to raise. We expect the combination of revenue growth, compute cost reductions, and operating expense control to continue to reduce our cash burn and to minimize the amount of cash we'll need to raise until we reach cash flow breakeven from operations. Turning to our guidance for the third quarter of 2020. We expect to see sequential growth in our advertising and GLC SaaS businesses. As a result, we now expect our total net revenues for the third quarter of 2020 to be in the range of $14.2 million to $14.6 million, assuming that major sporting events, such as the NFL and College Football seasons and the U.S. Tennis Open will occur in line with current schedules and that our advertising clients do not experience further supply chain disruptions. Revenues midpoint of this range would represent growth of 8.5% sequentially and 12.5% year-over-year. Based on this revenue projection and continuing cost controls, we believe we should be in a position to reduce our cash burn sequentially yet again. We expect a third quarter non-GAAP net loss to be in the range of $5.7 million to $5.3 million, and non-GAAP net loss at the midpoint of that range would represent a 42.9% improvement over the third quarter of 2019. We look forward to connecting directly with our investors and analysts at the Oppenheimer Virtual Conference tomorrow, August 11. To arrange meetings at this event, we encourage institutional investors to reach out to their respective brokers or to contact Brian Alger. Now, I'll hand the call back to Chad to summarize.

Thank you, Pete. Despite the unprecedented environment we find ourselves in, we at Veritone are driven with a renewed sense of urgency to pursue our core mission of helping to build a safer, more transparent and empowered world through artificial intelligence, and more specifically aiWARE. Veritone is leading the next wave of AI innovation with a number of new products in the pipeline, and a few of which I'd like to highlight briefly before we open the floor to questions. First this month, we will be publicly launching Automate Studio, our low-code workflow designer that helps organizations quickly and easily go production-ready with AI-enriched applications and business processes at scale. Without the need for AI expertise, we have used Automate Studio internally to accelerate our development of new applications. We see it bringing AI to product out process automation and enabling the development of hyper-automation applications across a wide range of industries. We believe this tool will set a new standard for low-code AI process automation, and we thank our beta customers that have helped us over the past six months to prepare Automate Studio for widespread release. Now that Veritone has reached critical mass in both the number of cognitive engines and customers running on aiWARE, we felt an imperative that we begin to shed much-needed clarity on the performance, accuracy, and potential hidden bias of AI models. Our Veritone Clarity application, which is scheduled for release this fall, is an important new addition to the aiWARE suite of practical AI solutions that our customers can trust and rely on. Whether you're a chief risk officer or an end user, Veritone Clarity will give you the visibility you need to harness the full potential of artificial intelligence with confidence and peace of mind. Lastly, we are acutely aware of the current COVID crisis and have been working with external partners to reimagine what health and safety standards on a global scale should look like in an AI-first society. With support from Veritone, our partners have been developing a new framework on top of aiWARE for health and safety monitoring and information sharing. I look forward to sharing more details on this exciting new program, which we have code-named VeriSafe as it rolls out to beta customers this quarter. As we continue to augment human intelligence with artificial intelligence and reap the financial benefits of our continued success, we acknowledge the inherent responsibility that comes with a technology that is redefining the global balance of power economically, socially and geopolitically. We at Veritone are committed and determined to be on the right side of history by pioneering ethical artificial intelligence. At this time, we would like to begin the Q&A session. Operator?

Thank you. We will now begin the question-and-answer session. Our first question comes from Darren Aftahi with ROTH. Please go ahead.

Hi, everyone. I hope you're doing well. Thank you for answering my questions. First, regarding the energy revenue you reported for the quarter, Chad, you mentioned a utility company. Can you explain what services you are providing for the utility company and how your products are differentiated? Based on your comments, it seems there is significant potential here; could you elaborate on the size of that opportunity? Secondly, I noticed your sequential revenue growth was just over a million from quarter to quarter. Can you break down the growth components for advertising and SaaS? I understand you mentioned GLC and your advertising business, so any additional details would be helpful. Lastly, did you receive any revenue from the DOJ during the quarter? Thank you.

Perfect. Hey Darren, thanks so much for the questions. So, our energy initiative, we mentioned it briefly on the last quarterly call and we've finally rolled that out in Q2. Our main focus is about delivering and enabling greater resiliency and efficiency through our proprietary AI. Others in this industry over the years, as you know, have focused on disruptive innovation when dealing with new renewable energy sources, such as wind and solar, which are oftentimes incompatible with existing energy infrastructure, and sometimes even at odds with the economic realities of public utilities. As a result, they have found significant resistance from a number of vectors. Veritone's energy forecaster and our optimization solution, as well as our controller technology help mitigate these systemic hurdles and accelerate our path to cleaner and more reliable energy. What's important to note is that Veritone and our artificial intelligence is not a clean energy technology per se. But our proprietary model running on aiWARE can help create an intelligent and coordinated backbone that supports the entire energy ecosystem from macro and micro grid operators to equipment and infrastructure suppliers, such as batteries, solar inverters, controllers, all the way down to end-user devices such as smart meters. So, our potential customer base in energy is extremely diverse and poses some significant growth in the future. That makes sense.

Yeah. It does. Thanks. Perfect.

Certainly. The revenue growth we discussed is concentrated on a few areas of the business. In advertising, we have seen continual revenue growth from many of our existing customers. Once this revenue is secured at the beginning of the quarter, we have a clear understanding of what the quarter's revenue will look like for this segment. We are optimistic about the revenue growth with our existing advertising agency customers in Q3 compared to Q2. In GLC, as Ryan mentioned, we had a solid bookings quarter in the second quarter, which sets the stage for the revenue growth we anticipate in the third quarter for that part of the business. We also believe that with some favorable conditions, particularly in content licensing, and if the expected sporting events do not fall through, we will see revenue growth across all business segments in the third quarter. Some sporting events are outside our control and can be unpredictable, so while we cannot be entirely certain about that, we are confident about the sequential revenue growth in advertising and GLC.

Great. That's helpful. And then just lastly, any revenue from the DOJ?

There was no revenue recorded in Q2 from the DOJ, as it was just signed in May. The second quarter was focused on training and ramping everything up, but we expect to see revenue from the DOJ in Q3.

Great. Thank you.

Yeah.

Great. Thank you. And congratulations in particular on the guidance for Q3. Hey, Chad, I want to ask you a really big picture question, which is sort of around what spending is like for AI projects in general. I realize that yours tend to be more focused and that's helpful. But for context, we were talking to the CEO of another big public AI company and for whom things slowed this quarter and his comment was, look, the number one spending priority of companies is enabling their employees to work-from-home. Number two is now around making sure that when they enable everyone to work-from-home, they're doing that in a safe way. And so, it's around cybersecurity. A lot of our projects, which used to be number one are now number three. And I just love to hear your reaction. And it sounds like things are different for you and how your sales team is working around those kinds of issues?

Veritone operates in a unique segment of the AI ecosystem. We have dedicated a significant amount of time to developing an AI operating system that can seamlessly function in any cloud environment while also allowing for local deployment with remote access, ensuring customer data security. This infrastructure has enabled us to build specific applications tailored for various use cases, particularly in human-in-the-loop processes, as the workplace landscape has transformed dramatically due to the shift to remote work. This change has altered job processes and enhanced the necessity for effective communication between employees, staff, and clients—something that companies like Zoom have successfully addressed. The second crucial aspect is cybersecurity; as remote work becomes standard, ensuring the safety and security of both corporate and customer information has become paramount. Veritone focuses on a significant opportunity in effectively utilizing remote systems to automate and enhance collaboration and operational efficiency, where human involvement was previously necessary to solve communication issues and identify crime suspects. With our aiWARE applications, these tasks can now be performed remotely. We are witnessing a substantial increase in interest from corporations and institutions recognizing AI as a pivotal technology to help them advance. The adoption rate of our technology is growing rapidly, with companies experiencing significant success during its rollout.

Got it. That's super helpful. Thank you.

Yes. Good afternoon. Thanks for letting me ask a few questions here. So, first one, Chad, I was wondering if you could follow up on what you talked about as far as responsible AI going forward. I'm curious what the impact has been from some of these companies deciding to pull the facial recognition programming off of their networks and off of their systems? A big picture view of what AI looks like from a facial recognition perspective would be great.

Yeah. No. Great question. That's been obviously at the forefront of the news lately with all the models that have been flying around. As you know, and we've stated it and been front and center on our website, we founded this company on the belief that AI is the key to solving some of society's most challenging problems. AI can ethically help create a more transparent, efficient and justified world. AI is not like other technologies or technical innovations we've seen, like Microsoft Word or a hammer for that matter. AI is uniquely responsible for the outcome, not just the action. The outcome is something that humans were held accountable and responsible for, not the machine. AI is starting to shift that responsibility to a more shared basis. Veritone sees itself as a partner with industries we serve. If we can provide better outcomes, we expect not only to share in the financial benefits but also, we live in the same society. As we look at what's happening in public safety and the use of facial recognition, I think all that from a cybersecurity standpoint, like Pat’s last question, being able to identify suspects and process information remotely, the world is changing and AI and facial recognition are part of that mix. We lean into it, but we do so in a very ethical, transparent way that conforms with all necessary laws and protects individual rights.

Yeah. No. That's great. I'm curious, how much is there to expand in your land-and-expand strategy across your domestic radio stations, and what is the international opportunity for you?

Hi, this is Ryan. I can take that. I believe there are still significant growth opportunities both in the U.S. and globally in terrestrial broadcasters as well as online streaming platforms and OTT networks. For several reasons, which relate to what Chad mentioned, many of our resources and tools are enhancing productivity and streamlining operations as large companies and their employees adapt to remote work. Just as we help improve remote efficiency in government legal compliance, we are applying the same principles in media and entertainment. Sales teams can analyze complex feeds and confirm ad placements from home, receiving results directly on their mobile devices, for instance. Programmers can access real-time insights on trending topics and much more. We are in the process of not only being a digital transformation solution as more AI is integrated, but we are also fundamentally aiding in enhancing efficiency and creating revenue growth opportunities. We are witnessing a significant increase in opportunities as we keep innovating, and we are already experiencing substantial success.

Okay. Great. That's helpful. Finally, Pete, when you look at the operating expense or cost structure, how has COVID impacted it during the quarter? I assume there was decreased travel, maybe delayed hiring, but just wondering what kind of the one-time impacts of expenses were.

The reduction in our travel and entertainment expenses was approximately $300,000 for the quarter compared to the same period last year. Regarding headcount, we successfully attracted and added new talent during the quarter, increasing our headcount by about 16 people. While things were a bit slow during the late first quarter due to the pandemic, our team managed to find excellent candidates to join us. I'm really pleased with the talented individuals we brought onto the company throughout the second quarter.

Okay. Great. That's good to hear and appreciate your time today. Thanks.

Yeah. Thanks, Tom.

Thanks for answering my questions. I have a question for Pete. It appears that total RPO decreased about 22% sequentially, and current RPO also fell a couple of percent. How does that align with your comments about record bookings, particularly in the GLC vertical?

The GLC vertical, particularly, has been very successful in securing new contracts this quarter due to the rollout of enhanced capabilities, starting from a low base. This quarter marked the first time it reached the seven-figure range in bookings, which is very encouraging. Overall, as we grow the business, we notice that revenue growth is not always uniform each quarter; sometimes one segment grows while another does not keep pace. This was a significant quarter for GLC, as it achieved impressive bookings.

Okay. Regarding the guidance for the September quarter you provided, it seems the advertising business is expected to grow at a strong pace again, and there may be some potential upside in content if we see a return of sports. Additionally, you mentioned that GLC revenues should increase sequentially in the September quarter. What are your overall expectations for aiWARE SaaS revenues? Will they see an overall sequential increase in the September quarter?

Yeah. We're expecting the overall aiWARE to be up in the third quarter sequentially.

Okay, understood. Just one more quick question regarding the potential upside with the DOJ. Since you're in the early stages of ramping them up, could you provide any insights on where we might stand with that contract in six months?

No. Our approach is to focus on extensive training and development, beginning with specific projects in collaboration with various offices within the DOJ. As we establish that pipeline and generate momentum, we look forward to updating our analysts and investors on our progress. We are very pleased and excited about this opportunity, but it is still in the early stages, making it challenging to accurately assess the potential benefits. That is why we are providing updates as we obtain results, rather than rushing and being overly ambitious with our forecasts.

Yeah. Understood. Thanks for taking my questions.

Thanks, Chad.

Our next question comes from Mike Latimore with Northland Capital. Please go ahead.

Hello, this is Anchal Sahu standing in for Mike Latimore. Could you share your perspective on the timeline for the government SaaS segment to reach similar levels as the media and entertainment sector?

I'm sorry. Let me just rephrase that question. You're asking over what timeframe we're going to see the GLC revenues match up with the media and entertainment revenues?

I believe the Q2 bookings indicate strong growth in GLC. Currently, most of the aiWARE SaaS revenue is still generated from the media and entertainment sector. Ryan mentioned some growth opportunities there, particularly with radio station groups. We anticipate ongoing growth in other areas of the media and entertainment business as well. While we expect GLC to grow more rapidly, we have no concerns about it surpassing media and entertainment. Our goal is to serve clients in both markets, which appear to be developing independently. There is no shortage of resources that we need to allocate between the two. We're seeing a quicker growth rate in GLC, but we also recognize long-term opportunities to support the media and entertainment sector. Ryan, would you like to add anything?

I would just say we are in the early stages, but we're optimistic about the potential opportunities ahead. If we take into account other aiWARE-based revenues, which are part of our SaaS offerings, we believe our non-media and entertainment initiatives will continue to grow and may even surpass media and entertainment. However, we are not heavily prioritizing these new areas; we are accepting growth as demand comes in.

Chad, I would like to add some context to that. It's important to recognize that with Automate Studio, Veritone is no longer limited to specific industries as mentioned by Pete and Ryan. We are now a leading player in the emerging hyper-automation category. With aiWARE and our SaaS-based solutions, we are rapidly diversifying into new solutions and industries beyond our traditional focus, utilizing a much more versatile toolset. It's essential to think of us not as a company constrained by verticals but rather as an AI generalist addressing multiple markets at the same time.

What is the size of your pipeline with Microsoft, and how has it evolved since the May launch?

Yeah. I think our pipeline with Microsoft has represented a co-sell focus, almost exclusively on state and local law enforcement. The pipeline does look strong. There are thousands and thousands of local police departments and Sheriff's departments across the United States. That's our main collaboration in terms of sales efforts between Microsoft and Veritone today. The pipeline is quite large. That's primarily focused on our three application suite in public safety: redact, identify, and eliminate. We still see very high demand for all three of those products, so we see a very high ceiling and Microsoft does provide one of the great mechanisms to tap into different potential agency accounts. The pipeline is high, but again, we're not handicapping a specific size of the opportunity.

Okay. Thank you. And last one. How much of the government and legal pipeline is predict vs. another application?

What was the question again?

It was about assumptions in the pipeline. How much of the pipeline is redact in the legal department vs. others? Our legal department is actually not redact. Our GLC part of our business is primarily around eDiscovery of audio and video evidence analysis. That's through a set of tools and integrations we’ve done primarily with Relativity that makes its way down to MSPs like Epic and others. We talk about them as project work, but our team doesn't do quote projects. It's defined more in terms of they're using our software to analyze a specific case for audio and video evidence discovery.

Okay. Thank you.

Thank you.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Chad Steelberg for any closing remarks.

Thank you, operator, and thank you all for joining us on today's call. As I said, I'm so proud of the way our entire team has responded to this very challenging situation. I want to personally thank each and every one of them for their tireless efforts these past five months, and for their unwavering focus on continuing to pursue our vision of building the world's leading AI solutions company. We have huge opportunities in our business and our teams are better positioned to capture them than they ever have been before. While we know that our future is bright, I would be remiss if I did not address the hardships being faced by many in these difficult times. Our prayers are with everyone who has been impacted by this pandemic, especially those who have lost loved ones. At times like these, we are reminded that values matter, that relationships and connections matter. In addition to being in a public health crisis, this pandemic has created mobility crisis and Veritone has committed to helping bring together the customers and the communities we serve. We look forward to reporting to you on our progress. Goodbye.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.