Veritone, Inc. (VERI) Earnings

Management highlights

### Strategic Restructuring & Cost Reduction - Executed $11.3 million in annualized cost savings (11% of total annualized operating expenses as of Q2 end 2026) via headcount reductions (62 full-time positions eliminated, ~14% of total workforce) and lower non-payroll/consulting expenses, on track to reach a total of $15-20 million in annualized savings (15-20% of total operating expenses) by end of 2026, with up to 30% total savings targeted by early 2027. - Cost cuts focused on eliminating duplicative corporate overhead, while preserving targeted investments in high-growth priority areas: VDR and public sector. The restructuring aligns the company's cost structure with its current revenue base, with a stated goal of reaching break-even profitability in fiscal 2027. ### Product Innovation & Launches - Launched two new AI products built on the company's AIWare platform in Q2: Veritone Assess (agentic AI-powered unstructured data analysis for public safety investigations and compliance) and Veritone Document Redaction (addresses mandatory public sector redaction requirements, expanding the company's total addressable market). - Launched the new Job Acceleration feature for Broadbean, which received positive early customer feedback and is expected to drive incremental recurring revenue. - Migration of company workloads to Oracle Cloud Infrastructure is on schedule, with initial storage migrations expected to begin shortly, and projected 20%+ compute cost savings after full migration is complete. ### Partnership & Commercial Traction - Secured key partner milestones: Official membership in the SAP Partner Edge Build Program to integrate Broadbean into SAP's core talent management ecosystem; deepened integration with Oracle HCM; closed 7 new Workday deals in Q2, bringing year-to-date joint Workday wins to 33 totaling $1.5 million. - Secured high-profile customer wins and renewals: multi-year renewal with Pac-12 Conference as exclusive global content licensing partner; multi-year contract with California Highway Patrol for redaction solutions; agreement with the UK Department for Work and Pensions; down-selection for a large national public sector procurement framework in the UK. - VDR has all major hyperscalers (Google, Amazon, Meta, NVIDIA) under contract, with access to over 50 million hours of licensed video content for AI training, positioning the company to capitalize on fast-growing demand for high-quality AI training data. - Co-selling activity with global partners currently generates over 450 jointly pursued opportunities and over $9 million in active sales pipeline. ### Balance Sheet Improvements - Fully retired all senior secured debt in November 2025, reducing total outstanding debt from ~$130 million at Q2 2025 to ~$45 million at Q2 2026, cutting annual interest costs by more than $13 million. - Raised $9.4 million in net proceeds via the company's ATM program in Q2 2026, with over $40 million of remaining availability under the ATM program as of Q2 end. - All cash holdings ($12.7 million as of Q2 end) are unencumbered, with no restrictive debt covenants remaining on the balance sheet.

Guidance

- **Full-year 2026 revenue guidance**: Revised to a range of $100 million to $150 million, with the midpoint representing 17% year-over-year growth from fiscal 2025. The downward revision from prior guidance reflects temporary delays to both DoD public sector contracts and some large VDR deal closings, though VDR will still contribute revenue in the second half of 2026. - **Full-year 2026 segment growth expectations**: Public sector revenue is expected to grow modestly year-over-year; Broadbean by Veritone revenue is expected to be slightly down year-over-year due to challenging macro hiring conditions; managed services revenue is expected to grow 10-15% year-over-year; all remaining growth will come from the commercial enterprise segment, predominantly from VDR. - **Full-year 2026 profitability guidance**: Non-GAAP gross margins are expected to fall between 60% and 65%, fluctuating with VDR revenue mix; non-GAAP net loss is projected to be between $22 million and $32 million, representing a 34% year-over-year improvement at the midpoint. - **Break-even timeline**: Management reaffirmed that break-even non-GAAP profitability is expected to be achieved as early as the first half of fiscal 2027, assuming full execution of remaining cost cuts by end of 2026 and modest annual revenue growth of ~11% (reaching $125 million to $130 million in annualized revenue). No substantial additional operating expenses are required to hit this revenue target, as all necessary investments have already been made. - **Q3 2026 revenue guidance**: Given a backlog of $15 million in potential active VDR deals, Q3 2026 revenue is projected to be between $24 million and over $28 million, which would represent 5%+ year-over-year growth at the upper end of the range.

Segment performance

Veritone reported total Q2 2026 revenue of $24.3 million, representing a 20% sequential increase from Q1 2026 and a 5% year-over-year increase from Q2 2025. 1. **Veritone Data Refinery (VDR, Commercial Enterprise Segment)**: Combined VDR and licensing services revenue grew 40% quarter-over-quarter, driving the sequential total revenue improvement. Near-term VDR sales pipeline and bookings total over $65 million, with $15 million of active near-term deals (each in the $1 million to high multi-million dollar range) that could close in Q3/Q4 2026. VDR contributed the majority of commercial segment growth, offsetting declines in other segments. 2. **Public Sector**: Public sector revenue declined year-over-year in Q2 2026 due to a temporary DoD budget shift reallocating funds to the Iran conflict. The segment holds a current pipeline of over $200 million, with new Q2 wins including a multi-year contract with California Highway Patrol, a 5-year Washington state agency contract, and an agreement with the UK Department for Work and Pensions. Public sector revenue is expected to see modest year-over-year growth in full-year 2026, with rapid expansion starting in 2027. 3. **Broadbean by Veritone (Hire Division)**: Revenue declined year-over-year in Q2 2026, driven by lower consumption-based revenue from one large hiring platform due to a challenging macro hiring environment. The segment remains a bedrock of high-margin recurring revenue, with 76 new business wins in Q2 and 33 new joint Workday deals year-to-date totaling $1.3 million. Full-year 2026 revenue for the segment is expected to be slightly down year-over-year. 4. **Managed Services (Licensing & Representation)**: Managed services revenue increased $1 million year-over-year in Q2 2026, driven by growth in licensing and representation services. Full-year 2026 managed services revenue is expected to grow 10-15% year-over-year.

Risks & headwinds

- The timing of large VDR deals is not fully within the company's control, as VDR revenue is consumption-based, with typical deal visibility only 2-3 months in advance, and customer order volume and timing can shift based on changing AI model training needs. - Public sector contract timing and funding is uncertain, particularly due to the temporary reallocation of DoD budget to wartime spending for the Iran conflict, which has delayed a key expected DoD contract; the timing of the contract's reactivation remains dependent on the status of the Iran conflict. - The broader macroeconomic hiring environment remains challenging, which is expected to continue to pressure Broadbean by Veritone revenue through the second half of 2026, leading to continued churn among smaller lower-ARR customers. - The company remains in active discussions with convertible debt holders for potential debt restructuring, with no final resolution reached as of the call. - Achieving break-even profitability in H1 2027 is contingent on full execution of remaining cost cuts and the reactivation and ramp-up of delayed public sector contracts, which carry execution risk.

Analyst Q&A

• Q: What is the split of the 2026 revenue guidance downward adjustment between VDR delays and public sector delays, and will VDR still contribute revenue in the second half of 2026? /

  A: Management confirmed that the adjustment is driven by a combination of temporary delays to the DoD public sector contract and modest downward revisions to expected 2026 VDR contributions. VDR will still generate revenue in the second half of 2026, and management remains extremely bullish on VDR's long-term opportunity. They declined to provide an exact percentage breakdown of the adjustment between the two segments.

• Q: When can investors expect an update on the company's outstanding convertible debt restructuring discussions? /

  A: Management stated that they are in active ongoing discussions with debt holders, and expect to provide an update within the coming month, or over the next several months if discussions take longer. Debt restructuring is a top priority for the company.

• Q: Have recent notable public sector wins driven increased pipeline growth and interest from other public sector agencies? /

  A: Management confirmed that high-profile wins like the California Highway Patrol contract create significant ripple and referral effects across the tight-knit public sector ecosystem. Every material public sector win expands pipeline opportunities, and the current public sector pipeline already exceeds $200 million, with new pending awards that could roughly double the pipeline when finalized. Most meaningful revenue contribution from these new wins is expected in 2027.

• Q: How confident is management that break-even will be achieved in the first half of 2027, given that cost cuts are within control but revenue growth is not? /

  A: Management confirmed that break-even on a full-year 2027 basis is achievable with annual revenue of $125 million to $130 million (11% year-over-year growth at the high end of guidance) after full execution of the remaining $3.5 million to $8.5 million in planned cost cuts. While there is some execution risk tied to the reactivation of the delayed DoD project, the cost reduction portion of the plan is firmly within management's control, making the target highly achievable.