Good day, and welcome to the Veritone Inc. Second Quarter 2025 Financial Results Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Cate Goldsmith. Please go ahead.

Thank you, and good afternoon. After the market closed today, Veritone issued a press release announcing results for the second quarter 2025, which ended June 30, 2025. The press release and other supplemental information are available on the Investor Relations section of Veritone's website. Joining us for today's call are Veritone's President and Chief Executive Officer; Ryan Steelberg; and Chief Financial Officer, Mike Zemetra, who will provide prepared remarks and then open the call up for a live question-and-answer session. Please note that certain information discussed on the call today, including certain answers to your questions, will include forward-looking statements. This includes, without limitation, statements about our business strategy and future financial and operating performance. These forward-looking statements are subject to risks, uncertainties and assumptions that may cause the actual results to differ materially from those stated. Certain of these risks and assumptions are discussed in Veritone's SEC filings, including its annual report on Form 10-K. These forward-looking statements are based on assumptions as of today, August 7, 2025, and Veritone undertakes no obligation to revise or update them. During this call, the actual and forecasted financial measures we will be discussing include non-GAAP measures. Reconciliations of these measures to the corresponding GAAP measures are included in the press release we issued today. Finally, I would like to remind everyone that the call today is being recorded and will be made available for replay via a link on the Investor Relations section of Veritone's website at www.veritone.com. Now I would like to turn the call over to our President and Chief Executive Officer, Ryan Steelberg.

Thank you, Cate, and thank you, everyone, for joining us this afternoon. I'm excited to speak with you about our recent quarter and our overall progress we've made against our strategic business priorities. I will start with an update on our exciting results and progress against our growth plans and then Mike will cover our financials in more detail. We are thrilled to report that our revenue of over $24 million for the quarter came in at the high end of our updated guidance in June and is a testament to the demand for our aiWARE platform and our market-leading AI applications and solutions. Our results demonstrate strong organic non-Veritone Hire software revenue growth of over 45% in the quarter and we expect this growth rate to continue through the balance of the year. Veritone is definitively growing again and this growth is being led by our core AI software solutions spanning both commercial and public sector business lines. Since co-founding Veritone in 2014, I can confidently say that there has never been a more exciting moment for our company than right now. We are translating demand into tangible and sustainable growth and what makes this even more compelling is that our fastest growth areas including Veritone Data Refinery, or VDR, and public sector, not only delivered strong results, but also represent our largest pipelines and most expansive addressable markets in our history. We are building momentum in all the right areas and the opportunity ahead of us has never been greater. In the quarter, we secured 104 new software customers and grew our VDR pipeline by over 100% from Q1 and over 33% just since our late June business update. The near-term VDR pipeline now surpasses $20 million as the demand for high-quality training data across both our commercial and public sector verticals remains very strong. We have also broken through with yet another major DoD agency with the signing of our sole source contract with the U.S. Air Force in June. This deal is already contributing revenue in 2025 and we expect it to ramp significantly in 2026 and beyond. Our public sector pipeline is now up to $189 million, up from $110 million at the end of the first quarter. Overall, it has been a fantastic momentum building quarter as we transition into the second half of the year. Our recently announced cost-saving initiatives which are expected to generate $10 million in annualized savings, together with our $10 million equity offering we completed in June have strengthened our financial position and enhanced our ability to execute our strategy and focus on driving growth. Mike will provide more detail on these efforts and their impact across our core commercial and public sector verticals shortly. Now I want to provide an updated perspective on the AI landscape and our market opportunity. The AI landscape is indeed evolving rapidly. While enterprise-wide generative tools like copilots and chatbots have scaled quickly, function-specific applications remain mostly in pilot mode. This GenAI paradox, as McKinsey describes it, underscores a gap between broad adoption and truly transformative use cases. Agentic AI aims to close this gap, shifting from reactive LLM-centric tools to proactive goal-driven agents capable of autonomous workflow execution. These agents combine planning, memory and reasoning capabilities, but also pose new challenges around governance, data fragmentation and effective monitoring and control. Scaling them effectively requires an infrastructure designed for trust, interoperability and flexibility across different vendors. This has been and remains Veritone's clear opportunity. Our aiWARE platform provides a scalable, secure and model-agnostic foundation for ingesting and operationalizing both structured and unstructured data across disparate enterprise systems securely and at scale. This architecture aligns directly with the emerging Agentic AI mesh where multiple AI agents interact, collaborate and continuously learn while maintaining visibility and control. As organizations move towards more adaptive workflow-driven AI, Veritone offers the infrastructure and purpose-built aiWARE platform to power that evolution, unlocking operational agility, smarter operations and new revenue opportunities. aiWARE also uniquely positions Veritone to capture one of the most compelling opportunities in the evolving AI value chain, training data. As reported just last week, Big Tech will spend over $400 billion this year on AI CapEx and OpEx in what has become a new tech arms race. As next-generation LLMs and multimodality models become more sophisticated, demand for high-quality domain-specific training datasets has surged. Industry estimates suggest that approximately $3 billion will be spent this year alone by fewer than 50 companies, including the major hyperscalers, on acquiring and preparing training data and this is expected to grow to over $17 billion by 2032. Veritone is uniquely equipped to serve this market through our VDR solution which transforms massive volumes of unstructured video, audio and text into centralized license-ready datasets for internal use or external model training. In the first half of 2025, VDR greatly exceeded our expectations in both adoption and revenue contribution. Data customers across both our commercial and public sector verticals ranging from major media networks to public institutions are using VDR to extract new value from both current and legacy data archives, which often are underutilized, some dating back over a decade. On the buy side, VDR is now directly supplying clean, structured training data to some of the world's largest hyperscalers and AI model developers. In many ways, VDR represents the next-generation solution for unstructured training data, building on what data labeling companies like Scale AI, recently acquired by Meta for over $30 billion, and Shutterstock, have done for the training data economy. Veritone's differentiation lies in our ability to process complex and diverse media types and modalities like audio and video at tremendous scale. In the second quarter alone, Veritone aiWARE processed millions of hours of video and audio, or in data science speak, over 5 trillion tokens. Through multimodal tokenization, Veritone efficiently transforms these millions of hours of unstructured video and audio assets into the foundation training blocks of intelligent systems. Our aiWARE powered pipeline enables transformer-based sequence modeling and other training methods using discrete audio and video tokens, bringing enterprise-grade media into the era of AI. Whether it's leveraged for third-party model training, fine-tuning enterprise customers models or even for training Veritone's proprietary internal models, we are providing a modern-day Agentic stack for customers around their audio, video and text data. As I mentioned earlier, our qualified VDR pipeline now exceeds $20 million, up from $15 million at the end of June and more than doubling since early May. This growth reflects both expansion with existing customers as well as new agreements with leading hyperscalers and foundational model developers. We expect to formalize partnerships with nearly all of the major hyperscalers by the end of 2025. The growth in our commercial business continues to accelerate driven by a growing demand for our differentiated AI-powered software and managed services. We enable IP owners to unlock the full value of all of their media libraries by making them searchable, discoverable and monetizable across a range of channels including advertising, broadcasting, documentary production, TV and film projects and internal initiatives. In the second quarter, Veritone Commercial successfully closed 11 software enterprise deals with clients such as Inter Milan, Laver Cup, United States Soccer Federation, Alpha Media, St. Louis Zoo, ESPN and the Big Ten Network. These agreements underscore the continued expansion of Veritone's Software-as-a-Service offerings and highlight the critical role of our AI solutions and AI differentiated managed services in supporting our customers. Turning to the public sector. The major highlight this quarter is our multiyear agreement with the U.S. Air Force to deploy our aiWARE platform and Intelligent Digital Evidence Management System, or iDEMS. We will provide the Air Force with advanced investigative and information capabilities to enhance and accelerate data analysis for investigative activity across diverse mission areas. This contract represents a material portion of our sales pipeline and represents a strong alignment between our capabilities and the mission-critical needs of our federal partners. We have already begun recognizing revenue from this contract in 2025, with revenue contributions expected to accelerate meaningfully in 2026. This latest sole source award with the Air Force represents our third contract with this agency and greatly expands the scope of our partnership. Our work with the DoD's Defense Logistics Agency also continues to expand. Our task orders with the DLA funded under the Jet 2.0 IDIQ specifically require contractors to be competent in the use of Veritone applications, which has resulted in a number of contracted service providers entering into reseller agreements with Veritone iDEMS for new opportunities. In conjunction with our recently achieved awardable status through the Department of Defense's P1 Solutions Marketplace, we are realizing accelerated opportunities to expand our work with the DoD in other areas of federal, state and local government and agencies. In the second quarter, we signed 35 new public sector customers, including the Riverside County Sheriff's Department and a top 5 police agency in the United States. Additionally, we signed 95 renewal contracts in the quarter, further validating the mission-critical nature of our aiWARE software and strong customer retention. We are confident that Veritone is well positioned to take advantage of the surge in AI spend by our government as use cases and demand for our solutions and AI continue to grow. Our direct public sector pipeline has grown to nearly $200 million. With defense technology spending projected to approach $1 trillion and the administration's prioritization of AI innovation, highlighted by the White House's recent AI action plan, we see significant additional business opportunities in the public sector both this year and beyond. Turning to our Hire division. The second quarter delivered solid performance across multiple key areas. The strategy is implemented to navigate the challenging hiring market yielded positive outcomes resulting in year-over-year growth for our SaaS and media services formerly known as Broadbean, and exceeding our Q2 revenue targets. We also surpassed annual sales targets and achieved record growth in media service revenue in our inaugural year as a LinkedIn gold partner. With our programmatic business slated to conclude its LinkedIn Pay-for-Performance and Apply Connect integrations in early Q3, we expect to benefit from these efforts across our entire portfolio. These investments with LinkedIn will enable us to continue delivering substantial value to clients and strengthen our collaboration with LinkedIn, the new global market leader. We signed 58 new software deals in the quarter, including some of our most significant deals to date, while also building a more robust pipeline that could lead to even more positive results in the second half of the year, particularly in Q4, which traditionally is our strongest quarter for media deals in the Hire division. Another major Hire initiative focused on expanding our SaaS revenue through enhanced ATS partnerships and integrations is also gaining momentum and shows considerable promise for SaaS revenue growth. At the close of Q1, we executed our most critical partnership agreement to date with Workday. This elevated us to the highest platinum level of partners and created substantial opportunities for co-selling and lead generation with a global leader in the market. In our first active quarter, our lead pipeline with Workday clients exceeds $1 million in contract value despite the nascent stage of lead and deal flow. We finalized 11 new Workday client deals this quarter. Furthermore, new integrations with major global ATSs and as well as our partnership with the integrations marketplace combo will provide Veritone Hire access to over 100 new ATS integrations in Q3 and beyond. We successfully concluded several notable deals this quarter with global corporations such as KPMG, Bauer, Faden, CBRE and Suncorp, among others. Before turning things over to Mike, I want to congratulate our team for their strong performance and perseverance. Veritone is growing again and we remain very bullish on our future. Our pipeline is the largest it has ever been led by public sector and VDR and our AI software revenue growth is accelerating. Now Mike, over to you.

Thank you, Ryan. We continued our strong momentum in the first half of 2025 with solid financial results in Q2. Revenue came in at the top end of our recent guidance with our software products and services, excluding Veritone Hire, growing over 45% year-over-year driven by strong performances across our public sector and commercial enterprise. We ended Q2 with solid customer metrics and contributions made across our software products and services and managed services. As we enter the second half of 2025, we remain very confident on the future growth prospects across our core software products and services, which I will explain in more detail. During my prepared remarks, I will discuss Q2 year-over-year performance and KPIs, which exclude the results of our media agency which are presented as discontinued operations in the corresponding historical financial periods, balance sheet and liquidity position and Q3 and fiscal 2025 guidance. Starting with Q2 2025 performance. Q2 revenue was slightly over $24 million, which was flat from Q2 2024 principally due to a $1.8 million increase from our software products and services offset by a $1.9 million decline in our managed services. The $1.8 million revenue growth in our software products and services was driven by our public sector which grew over 90% year-over-year, coupled with the commercial enterprise software products and services revenue that improved $0.8 million year-over-year. The growth in the public sector was driven by execution of larger deals in Q2 2025 including the Department of Defense and larger public safety agencies, including a top 5 law enforcement agency in the U.S. and Riverside County. We expect these larger public sector deals coupled with our expanding public sector pipeline to generate substantial growth in the second half of 2025 which I will explain in more detail. The growth in commercial enterprise was led by Veritone Data Refinery, or VDR. VDR, which launched in Q4 2024 is one area where we anticipate substantial year-over-year growth throughout the remainder of fiscal 2025 and today has a near-term sales pipeline over $20 million up over 100% from our guidance in Q1 2025. The $1.9 million decline in Q2 managed services was principally driven by a $2 million decline in representation services driven by declines in our VeriAds services and a one-time live event campaign of $1 million in Q2 2024 which did not recur in Q2 2025 offset by $0.1 million improvement in licensing. As we previously discussed, we expect this negative trend in representation services to continue throughout 2025 or until the macroeconomy shows demonstrated improvements over 2024. Overall, Veritone Hire remained relatively flat year-over-year driven largely by the hiring softness in the macroeconomy. Excluding Veritone Hire, our software products and services grew over 45% year-over-year. Turning to key performance metrics across our software products and services in Q2 2025. ARR of $62.6 million, up 7% from Q1 2025 of $58.7 million and down year-over-year from the expected declines in consumption-based revenue from customers across our hiring software products and services over the trailing 12 months. Overall, ARR from recurring subscription-based SaaS customers was up slightly by 2% year-over-year. As of Q2 2025, 81% of our ARR was from subscription versus consumption-based customers, up from 74% at Q2 2024 and flat sequentially from Q1 2025. Total new bookings of $15.8 million, up $1.8 million or 13% year-over-year primarily due to larger renewals across our software customer base. Gross revenue retention continued to be above the 90th percentile and total software product and service customers at 3,067 which was down 9% year-over-year predominantly from our commercial enterprise sector which includes lower consumption-based customers from Veritone Hire and the continuing impact of sunsetting legacy CareerBuilder customers post the June 2023 acquisition of Broadbean and a smaller customers as we focus on larger ARR opportunities offset by an increase across public sector, largely from growth in public safety customers. Q2 GAAP gross profit was $15.3 million compared to $16.4 million in Q2 2024, a decline of $1.1 million largely driven by the higher mix of lower margin revenue in Q2 2025 with GAAP gross margins of 63.9% as compared to 68.2% in Q2 2024. Excluding noncash depreciation and amortization expense, 2025 non-GAAP gross margins were 68.9% as compared to 73.6% in Q2 2024, a decline of 470 basis points largely due to the decline in higher-margin consumption-based revenue coupled with a higher mix of lower margin revenue. Note that in Q2 2025 VDR gross margins were approximately 40%. We expect that as the VDR product matures, margins will initially be similar to Q2 but should expand into late 2025 and 2026 as we grow and diversify the mix of our content offerings. Q2 operating loss of $19.3 million improved by $1 million or 5% year-over-year, primarily driven by lower operating expenses offset by a lower non-GAAP gross profit from the decline in revenue over the same period. Net loss from continuing operations was $26.8 million, an increase of $3.4 million or 14.5% as compared to Q2 2024. The year-over-year increase was principally driven by a $3.4 million change in the estimated fair value of earnout from the divestiture of Veritone One recorded in Q2 2025. Non-GAAP net loss from continuing operations was $8.7 million as compared to $9.7 million in Q2 2024 and $11.1 million in Q1 2025. The improvement was principally due to lower operating losses driven by increased discipline on cost management offset by lower non-GAAP gross profit. Further, in June 2025 we initiated up to $8 million of a targeted $10 million annualized cost reduction through reductions in personnel and improvements in our operating structure, including our platform costs. These cost reductions were initiated in part due to the softness in our managed services coupled with delays in certain public sector deals that were expected to close earlier in 2025. As I will explain further, these reductions should provide us a more efficient cost structure as we manage towards our planned growth in the second half of 2025 and profitability into 2026 and beyond. Turning to our balance sheet. As of June 30, 2025, we held cash and restricted cash of $13.9 million as compared to $17.3 million at December 31, 2024. The net change in cash reflects net cash outflows from operations of $25.2 million principally driven by our non-GAAP net loss of $19.8 million, deferred purchase consideration of $1.2 million and interest paid on debt of approximately $3 million coupled with the timing of working capital in the quarter offset by net cash inflows from investing and financing activities of $23 million driven by net cash inflows of $29.9 million from our January and June 2025 registered direct offerings partially offset by $3.9 million in debt principal payments and $2.3 million in capital expenditures. Turning to liquidity today. On June 30, 2025, we completed a registered direct offering, selling 6.5 million shares of common stock priced at $1.09 per share and 1.8 million of pre-funded warrants priced at $1.08 per share for gross proceeds of approximately $10 million. Of the total funding, approximately $3 million of the gross proceeds was received in July 2025. Included in the funding was $1 million from our CEO, Ryan Steelberg, which will price at the greater of $1.41 per share which was the closing price of Veritone's stock on June 27, 2025, or the closing price of Veritone stock 2 trading days following the filing of our Q2 Form 10-Q. At June 30, 2025, our consolidated debt is down from a peak of $201 million in December 2021 to approximately $128 million today, comprised of term debt of approximately $37 million maturing in December 2027 and convertible debt of $91.3 million due November 2026. As of today, we have over $25 million available across our $35 million ATM which was established in November 2024. That said, we are currently exploring potential financing structures including discussions with our current debt holders, which we believe could improve our current liquidity position and balance sheet. At June 30, 2025, we had 47.6 million shares issued and outstanding and 2.5 million warrants outstanding to our debt holders. Now turning to updated fiscal Q2 2025 and full year 2025 guidance. Our software products and services revenue pipeline and long-term outlook continue to be at all-time highs. More specifically, we continue to see strong demand across the approximate $10 billion global digital evidence management market. In the public sector alone, we are beginning to march towards our 100% to 150% revenue growth target for fiscal year 2025. In Q2, we announced we were awarded a sole source contract with the Air Force Office of Special Investigations, or OSI. Under the contract, the company's AI-powered solutions, including iDEMS, will provide OSI with advanced investigative, intelligence and counterintelligence capabilities in support of the DoD and interagency mission requirements. During Q2 2025, we began to recognize revenue on the award. This is the initial deployment with plans to roll out our iDEMS solution across the broader DoD investigative and counterintelligence branches over the next several years. While we cannot discuss the magnitude or exact specifics of this deal, it will serve as a substantial growth driver of our public sector revenue in 2025 and '26. We also remain a near-term contract basis on several large projects with various facets of the U.S. federal government and international public safety customers with a near-term sales pipeline in excess of $180 million. As previously noted, on the commercial side, we are seeing strong and increasing demand for our VDR product. More specifically, we are in active discussions with the largest hyperscalers on various VDR initiatives, some of which are near-term agreements that approach or exceed $10 million individually and others are longer-term partnerships where we are being positioned to serve as their provider of choice across their VDR initiatives. Our near-term sales pipeline on VDR which launched in the second half of 2024 is now over $20 million, which is an increase of 100% or $10 million since March 2025 and $5 million since the end of June 2025. More specifically, in Q3 2025, revenue is expected to be between $28 million and $30 million as compared to $22 million from Q3 2024, a 32% increase at the midpoint and 21% sequentially from Q2 2025. In Q3, we expect our software products and services to increase over 45% year-over-year, led by growth in the public sector and commercial enterprise. Specifically, we expect our public sector revenue to grow over 50% year-over-year and our commercial revenue led by VDR to grow over 45%. Included in this growth is our hiring products and services which we expect to be relatively flat year-over-year given the current macroeconomic environment. Consistent with Q2 2025, our managed services is expected to be down year-over-year, principally due to the representation side of our business, which has experienced some slowness as a result of the more challenging macro environment. We expect Q3 non-GAAP gross margins to be around 61% to 63%, driven by the forecasted higher mix of VDR revenue in the period. Q3 non-GAAP net loss is projected to be between $6 million to $6.5 million as compared to $11.1 million in Q3 2024 representing 43% improvement at the midpoint and a 28% improvement sequentially from Q2 2025. Turning to fiscal 2025 outlook. We are updating our prior guidance for fiscal 2025, which we are expecting revenue to be between $108 million to $115 million, which at the midpoint represents a 20% increase year-over-year. The change in our outlook is principally driven by the confidence in some of our more larger growth initiatives across the public sector and commercial VDR coupled with a forecasted decline in managed services reflecting the more challenging macro market today. And non-GAAP net loss to be between $30 million to $25 million, representing a 33% improvement year-over-year at the midpoint. The change is reflective of the timing shifts in revenue coupled with the compression in gross margins on VDR in 2025, which we expect to improve upon fiscal 2026. Before closing the call, I'd like to remind everyone listening that Veritone will be attending H.C. Wainwright's 27th Annual Global Conference, September 8 through the 10, in New York City. That concludes my prepared remarks.

And your first question comes from Scott Buck with H.C. Wainwright. Your next question comes from Jesse Sobelson with D. Boral Capital.

I believe this has been an impressive quarter, achieving exactly what you aimed for. The guidance for the remainder of the year indicates a notable acceleration in the growth rate, with the midpoint approaching 30% year-over-year. While you've shared extensive details about expanding the business and securing contracts within the public sector, as well as growth in the pipeline, could you clarify what specifically needs to convert? Are you referring to revenue recognition from the Air Force contract or other VDR pipeline signings that must occur to support this expected acceleration in top-line growth? I'm also interested in understanding what gives you confidence in the visibility regarding that acceleration.

Thank you, Jesse. At this moment, we have our smallest gap in expected revenue to meet our guidance for Q3. A lot of that is already evident in terms of bookings and visibility for the remainder of the year. As we look at the beginning of August, the difference between our expected revenue to reach the midpoint of our guidance—and hopefully the higher end—is the smallest it has ever been. In other words, the contracted opportunities and the businesses we are currently servicing will fulfill the remaining revenue opportunity. We have the customers in place, and we are already generating revenue from these new Department of Defense contracts and from new customers with VDR. We are very excited about this progress. We have been anticipating this, and everything is aligning perfectly right now.

That's really great detail and it's exciting to see. We're thrilled as well. I'll start with a broader question and take a step back. With everything moving very fast in AI, especially in generative AI, how do you see Veritone's differentiation in regulated industries like defense and law enforcement compared to broader AI platforms such as Palantir, Microsoft, or other open-source options?

I believe that from the very beginning of our journey, we recognized that AI-based models would eventually become widely available. There would be numerous vision models, speech models, and today we see hundreds of next-generation LLMs and multimodal models. The crucial element is our platform, aiWARE, which can effectively manage the entire stack while remaining neutral to these various models. This means that our long-term clients like iHeartMedia continue to depend on us. We own the software application interface for these clients, allowing them to keep relying on Veritone and aiWARE as technology evolves without needing to switch platforms. An important aspect of this is the culmination of our experience and data scale over the last decade, illustrated by the recent developments from OpenAI in their open-source initiatives. This highlights how pivotal our role is as a strategic partner, not only in maintaining strong customer relationships but also in acquiring new significant clients. Our expertise extends beyond just managing AI models; it includes a deep understanding of unstructured data on a large scale. For instance, we have tokenized over 5 trillion pieces of audio and video data just in the second quarter, which is monumental when considering what was required to build other foundational models. This scale was achieved in a single quarter. Our unique advantage lies not just in our early recognition of the future prevalence of numerous AI models, but also in the orchestration of these models with a comprehensive understanding of both unstructured and structured data. It's also worth mentioning that we are platform-agnostic, which means we are not limited to a singular cloud provider. Our platform has been successfully used in isolated environments as well as in public and government clouds, which is a significant advantage.

And your next question comes from Glenn Mattson with Ladenburg.

Congratulations on the quarter. First, regarding iDEMS, you've mentioned before that there are several multiyear deals, typically in the seven or eight-figure range. The recent win with the Air Force is clearly significant. I'm curious if you'll need to secure more deals of that type to achieve the guidance you've reiterated for the year. I assume you feel confident in that regard. Additionally, can you discuss what winning that contract means for future contracts? Does it become easier to close them with more reference customers of that caliber? Any insights would be appreciated.

Yes. I'll address those points. Firstly, our ability to highlight a substantial contract with the Air Force is gaining traction. We are witnessing a wide range of new opportunities and increasing demand not only within the Department of Defense but also beyond, as a result of the Air Force contract announcement. This is comparable to other aspects of our business; having public recognition is crucial. Secondly, the OSI Air Force contract presents a significant opportunity for us in the coming years. The Air Force and the team we are collaborating with is not only starting with OSI, but is also leading efforts to enhance the government’s law enforcement and counterterrorism capabilities across various agencies. This contract marks just the beginning of our potential expansion, particularly regarding investigations and counterterrorism applications. We anticipate growth into other agencies as well. Our pipeline remains strong, with connections to numerous other areas within the Department of Defense. In terms of your question, we have ample opportunities as long as we can effectively engage with our existing customers, which gives us confidence in achieving our goals. Additionally, we have seen a significant increase in our pipeline size, bringing in 35 new public sector customers in the prior quarter, and we expect this trend to continue accelerating in the upcoming quarters.

You mentioned the top five public safety customers. I'm not sure if you brought that up before, but could you provide more details about the type of agency and the current use cases?

It's an iDEMS' customer. It's one of the biggest law enforcement agencies in the world. We're not at liberty to give specific names, but let's just say, hopefully, we're closing some homicide and murder investigations, leveraging our next-generation AI-based software here. But we're thrilled and we're all excited about our DoD efforts, but our state and local law enforcement business continues to grow and thrive as well. And the Sheriff's Department, which we talked about and also this police agency is kind of a good representation of the demand for our solutions in SLED as well.

Can you provide more detail on how you arrived at the $20 million pipeline figure and what it translates to in terms of revenue? I noticed that in the pie chart on your presentation, you increased the higher end of your range. Could you clarify the connection between that and revenue, as well as the timing involved?

Yes. As Mike mentioned, the near-term pipeline is estimated at $20 million with strong visibility over the next 3 to 12 months. VDR has the potential to continue growing significantly. We have identified an ideal use case that aligns perfectly with our offerings. I truly believe Veritone has developed a more advanced technology approach for handling unstructured data, similar to what Scale AI has done in legacy data labeling to facilitate data training. We are currently collaborating with many of the largest hyperscalers and model development companies to assist in training their next-generation AI models, and the budget allocations are substantial. I'm particularly excited about the public sector and the Department of Defense, but VDR could be a major breakthrough. There is still a lot of work ahead, but we currently have an excellent product-market fit, which fuels our optimism for VDR.

Congrats.

Thank you.

And your next question comes from Seth Gilbert with UBS.

The full year guide by $4 million and reduced the high end of the non-GAAP net loss by $5 million. So just curious if you could talk about where you're making investments or is there anything didn't anticipate in 2H cost?

Yes, I can take this.

I didn't catch the first part of the question, but if you could repeat it.

I didn't hear the first part, but yes, I think I can articulate it. Just in terms of the non-GAAP net loss, what I explained is just kind of the velocity of VDR and the compression on margins. And so while we raised the top end of the revenue guide, we tightened on the lower end or I guess the higher end on the non-GAAP net loss as a result of that margin compression.

Got it. Sorry, I was switching between a few calls. Maybe one more. If the public sector grows 50% in 3Q, which I believe I heard you say on the call, then in order to get to the 100% to 150% year-over-year guide for the year, you need to grow the public sector by about $3 million quarter-over-quarter or maybe almost 300%. So I'm just wondering if that's fair to assume a big uptick in 4Q. And is it all from the DoD revenue kind of maybe hitting in 4Q?

Yes. On 4Q, I mean we're not giving specific guidance, but I think your math is probably directionally accurate and it's not dependent on a single contract, but that contract obviously is a vehicle for a good portion of that growth.

And your next question comes from Scott Buck with H.C. Wainwright.

The 3Q guide suggests a nice sequential step-up in revenue. I'm curious, what do you think you kind of have in hand versus what you have to go out and earn here over the next couple months to meet the midpoint of that guide?

Scott, as I kind of mentioned earlier, you may have been off the call, but I said right now we probably have the smallest delta of go-get that we've really had in any quarter. We have a lot of the deal flow kind of in the works already, either under contract and just delivering, executing against such as VDR or areas that again, we had to get over the hump to get the Air Force contract done with initial phases deployed. But now that, that contract and award is live and our initial software has been deployed again, now it's just ramping and scaling. So again, to be very clear, I would say our contracted opportunity provides us probably the best resolution for us to, I'd say, perform against the guide with the smallest delta of go-get that we've had in a very long time.

That's great and very helpful. Did you disclose what revenue from the Air Force was during the quarter?

No, we do not.

Can you?

No, we're not going to. We're not going to break down specific contracts or specific line items.

Fair enough. On the VDR pipeline, are there significant customer concentrations in there or is it fairly evenly dispersed?

The overall market is primarily influenced by around 50 key players, making it a large category but heavily concentrated among these major companies. Unlike other areas of our business where we serve thousands of customers, we don't have a single dominating customer in this space. This concentration has its advantages and disadvantages. Most of the spending is centered on these 50 leading tech firms and AI model development companies. On the positive side, we are already involved with nearly all of them, even if we're not yet doing business with every one. Our goal is to actively collaborate with all the major hyperscalers by the end of the year. While there is a risk of concentration within this group, our strong offerings and valuable assets mean we are already engaged with a significant number of them.

Okay. And as you guys have gone out and sold VDR or spoken to customers on VDR, are you getting better in that sales process? I mean I imagine each incremental opportunity your sales team was able to learn a little something new and might be more efficient moving forward.

Yes. I'll say empirically the answer is yes, based upon the data we provided where we continue to increase our pipeline. A lot of that pipeline increase is not just net new customers, but it's repeat business or expanded business with existing customers in VDR. So I would say that is a good testament to not just us getting better on the sales process, but people getting through trials, building confidence and trust in our VDR products and solutions to accelerate. So I'd say that's exciting. On the flip side, audio and video and unstructured data as a training data class is relatively newer. So again, part of it is just familiarity with a lot of different groups who are, let's say, first time really trying to think about what their next-generation multimodality video-based models may look like or groups who are trying to fine-tune legacy multimodality models. So not only I would say it's two sides, not only are we learning more about what these different groups are trying to achieve with their next-generation models, but on the flip side they are learning more about us. And I can say confidently we're building great trust. People know that Veritone can deliver at scale and I did touch on kind of this scale and size of tokens that we are dealing with. And we're talking about hundreds of millions, billions and obviously potentially trillions of tokens in the context of just the scale of the audio and video that we're dealing with. So we're bullish, and I'd say it's really two sides. One, we're getting more confident. And two, our customers who we're working with and selling to are getting more confident in a higher level of trust in us.

This concludes our question-and-answer session. I would like to turn the conference back over to President and Chief Executive Officer, Ryan Steelberg, for any closing remarks.

I want to thank everyone for joining us. I'm really excited about this quarter. We've put in a lot of effort to address many issues, and as we've been hinting at for a few quarters now, there's significant excitement regarding some key assets in our AI software business and VDR that we anticipated. This quarter marked a pivotal moment, highlighted by overcoming the major OSI Air Force contract and gaining momentum with VDR's growth, which will significantly boost our progress for the remainder of this year and into the future. Achieving 45% year-over-year growth in our core AI software in the second quarter is outstanding, and I see tremendous potential ahead. As we transition from this quarter into the second half of the year, looking ahead to next year, we're optimistic. Execution remains crucial, but our pipeline is strong. We are collaborating with some of the largest tech companies, and ultimately, the opportunities for Veritone are vast. Mike mentioned this earlier, but please visit our IR sites or register, as we will be participating in several financial conferences throughout the rest of this year and into the first quarter of next year. We look forward to engaging with both our current and prospective investors. Thank you all for your time today.

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