Overview
Veritone, Inc. (collectively with our subsidiaries, referred to as Veritone, Company, we, our,
and us) is a provider of artificial intelligence, or AI, computing solutions. We have developed aiWARE, a proprietary AI operating system that unlocks the power of cognitive computing to transform audio, video and other
unstructured data and analyze it in conjunction with structured data in a seamless, orchestrated and automated manner to generate actionable intelligence. Our aiWARE platform, or A1 platform, integrates and orchestrates an open ecosystem of
best-of-breed
cognitive engines, together with our suite of powerful applications, to reveal valuable multivariate insights from vast amounts of structured and unstructured
data.
Our platform incorporates proprietary technology to integrate and intelligently orchestrate a wide variety of cognitive engine
capabilities to mimic human cognitive functions such as perception, reasoning, prediction and problem solving in order to quickly, efficiently and cost effectively transform unstructured data into structured data. It stores the results in a
time-correlated database, creating a rich, online, searchable index of the structured and unstructured data that users can use and analyze in near real-time through the platforms suite of applications to drive business processes and insights.
Our platform is based on an open architecture that enables new cognitive engines and applications to be added quickly and efficiently, resulting in a future proof, scalable and evolving solution that can be easily leveraged for a broad range of
industries that capture or use audio, video and other unstructured data, including, without limitation, media, legal, government, politics and other commercial and retail vertical markets.
We offer our aiWARE platform through a
software-as-a-service
(SaaS) delivery model, with multiple deployment options, including a fully cloud-based option on both
commercial and secure government cloud instances, and a hybrid
on-premises/cloud
option, which allows users to maintain their data and perform
AI-based
processing using
network-isolated cognitive engines on premises behind the users firewalls, with the ability to perform additional processing using cloud-based cognitive engines and to search and analyze results through our SaaS suite of applications. In
addition, we are currently developing a version of aiWARE that will allow users to utilize certain cognitive engines and substantially all of the other features and functionality of our cloud-based aiWARE in a fully
on-premises
environment.
In December 2017, we acquired the advanced data analytics software and
related intellectual property assets of Atigeo Corporation, including a cooperative distributed inferencing system based on Hamiltonian models and other proprietary algorithms that enables queries within huge bodies of unstructured
data where straight computational, traditional machine learning and manual approaches are impractical, if not impossible. This strategic acquisition adds proprietary machine learning capabilities to our growing body of technology and intellectual
property in data science and will help us further refine our conducted learning. We are in the process of incorporating portions of this technology into our aiWARE platform, which will further advance our intelligent orchestration of cognitive
engines and expand the platforms ability to understand substantially all data types.
We plan to continue to selectively pursue
acquisitions and strategic investments in businesses and technologies that strengthen our AI platform, enhance our capabilities and/or expand our market presence in our core vertical markets or in new markets.
We also operate a full service media advertising agency, which we acquired at the time Veritone was founded in 2014. Our services include
media planning and strategy, media buying and placement, campaign messaging, clearance verification and attribution, and custom analytics. Since our inception, we have generated most of our revenues from this media agency business. We are in the
early stages of developing our AI platform business and, although we intend to focus on our AI platform business, we plan to continue to invest in and grow our media advertising agency business.
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AI Platform Business
Our innovative aiWARE platform intelligently orchestrates an ecosystem of
best-of-breed
cognitive engines within a single software solution to process information in volumes that can far exceed human cognitive capabilities. Our proprietary
technology enables users to run comprehensive, multivariate queries, correlations and analyses in near real-time using multiple cognitive engines and data sets, creating integrated and refined outputs. Our solution can also ingest and analyze
structured data for correlation with the processed data. For example, our media users can use our system to identify instances where advertiser names or logos appear in a broadcast, and then correlate those instances with Nielsen ratings data to
measure the number of impressions generated by the ad, web traffic data to estimate the traffic driven by the ad, or their own sales data, to provide actionable intelligence regarding their advertising campaigns. In addition, by using multiple
cognitive engines from different providers within the same class and/or across different classes, our aiWARE platform can generate extensive and varied training data to more efficiently learn and thereby quickly improve accuracy and analyses. A key
principle of
AI-based
systems is that the more data that is ingested and processed, the better the accuracy and predictive value that can be achieved.
Our aiWARE platform encompasses the following processes, which are discussed in more detail below:
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Ingestion
: Data often exists in a myriad of formats. Our platform captures and ingests public and private media (structured and unstructured data sets in most digital formats and various protocols) through
various adapters that are specific to each ingestion source. In the process, ingested source data is normalized and stored locally, in the cloud or in both locations, depending on the deployment model chosen.
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Orchestration and Processing
: Once source data is captured into our platform through the ingestion process, we transform (transcode) the media into a suitable format for processing. The media is then run
through one or more cognitive engines depending on the information and analysis desired by the end user, which extract and/or add useful metadata from and to the media. Our proprietary Conductor technology analyzes source data files and
intelligently routes them to the most appropriate cognitive engine(s) within one or more cognitive classes to optimize the performance, cost and speed of the data analysis process.
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Proprietary Indexing and Storage
: The metadata produced by our cognitive processing is indexed and stored in a temporal elastic database that correlates disparate metadata derived from various cognitive
engines across our platform and from third-party data sets.
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Applications and Cognitive Analytics
: Once the media has been indexed and stored, cognitive analytics can be deployed to uncover relationships, enable insights and recommend actions. We have developed a suite of
SaaS-based applications to facilitate the use of our platform and enable users to discover patterns across a diverse set of media to correlate data, optimize objectives and provide near real-time insights.
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Ingestion and Adapters
We have
built a scalable, source and type agnostic media ingestion process that utilizes adapters, which are lightweight, pluggable software modules purpose-built to capture media from wherever it resides, to ingest media into our platform for further
processing, actions and analytics. Adapters are specific to the ingestion source type and allow for media from that source to be processed via the Veritone recording infrastructure and flow through our platform. Our ingestion process includes an
adapter module framework that enables aiWARE to dynamically load data from external sources and repositories (i.e. Microsoft OneDrive, DropBox, Box, Google Drive, HTTP/RTSP/RTMP Streams, etc.) automatically. Our solution enables external developers
to write these adapters to extend the platform to be able to ingest additional data sources. We plan to continue to expand our current collection of adapters to enable the capture of an increasingly diverse array of data types and formats, whether
industry-standard or proprietary, over time.
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Cognitive Engine Ecosystem
Our platform includes an open ecosystem that allows third-party developers to easily integrate additional cognitive engines within our
platform, which makes our solution readily scalable for a broad range of processes and vertical markets. We continually seek to add new cognitive engines in a variety of categories to ensure that users can access a broad selection of capabilities
from multiple vendors across many classes of cognition, all of which can be accessed via a simple,
easy-to-use
and tightly integrated platform. Our goal is to create a
broad ecosystem, eventually offering all major cognitive engine capabilities through a single open and integrated platform. We believe that our aiWARE platform incorporates more cognitive engines, across more classes of cognition, than any
competitive offering.
Our innovative AI ecosystem currently incorporates over 180 cognitive engines of various classes and types from
multiple third-party vendors, including Google, IBM, Microsoft, Nuance, Amazon and HPE, among others, in addition to several of our own proprietary cognitive engines. These cognitive engines use advanced algorithms to capture and extract data from
media files for a variety of cognitive capabilities, including transcription, face detection, face recognition, object detection, object recognition, sentiment analysis, language translation, audio/video fingerprinting, geolocation, visual
moderation, optical character recognition, logo recognition, metadata extraction, and media format transcoding. By having a number of engines from different providers within the same class, we are able to benchmark the engines to identify the
optimal engine for a users needs and in some cases use them together to provide better overall accuracy than any single engine can achieve.
Conductor Technology
We have, and
are developing, proprietary Conductor technology to analyze source data files and intelligently route them to the most appropriate cognitive engine(s) within a cognitive class to improve the performance, cost and speed of the data analysis process,
enabling users to achieve higher accuracy and derive more robust intelligence from their media. For example, our Conductor for
speech-to-text
transcription uses multiple
machine learning algorithms, including deep learning neural networks, to train, test and validate datasets to predict the best transcription engine for the users specific media, and in some cases to select and employ multiple engines, to
maximize the accuracy of the transcription results. This capability enables our platform to produce higher transcription accuracy than any single engine solution. We plan to expand this capability to other cognitive classes using the same underling
methodology.
We are in the process of incorporating the proprietary machine learning technology that we acquired from Atigeo Corporation
into our aiWARE platform to further advance the intelligent orchestration of our Conductor technology. We believe that, in the future, the application of our proprietary inter-class Conductor technology will enable our aiWARE platform to derive
contextual meaning from one cognitive class, such as object recognition, and apply this context and understanding to other classes of cognition, including transcription and facial recognition. We consider our Conductor technology to be a key
competitive advantage for Veritone, and we have filed patent applications covering various aspects of this technology.
Temporal Elastic Database
Once media has been processed on our aiWARE platform, we store the results of the cognitive engine processing in a searchable,
time-correlated temporal elastic database, or TED. Utilizing this proprietary database, we have the unique ability to synthesize various disparate cognitive data in a cohesive, time-based format, allowing users to access multivariate intelligence
previously unattainable from their media. We can dissect and analyze any of the media files and metadata therein, producing a multi-dimensional index for ease of search, discovery and analytics. TED provides immediate access to processed media
through a dynamic multivariate toolset that enables queries of all elements within, around and derived from the media. Elements include, but are not limited to, cognitive engine outputs (transcripts, translations, recognized objects and faces,
etc.), file metadata, structured data sets, and user-associated metadata such as content template outputs and freeform tags.
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TEDs architecture leverages several commercial, open source, distributed and
non-relational
databases with proven scalability and performance characteristics. While storage agnostic, TED currently runs on Elasticsearch, leveraging the Apache Lucerne inverted index architecture.
Core Applications
We have
developed a suite of native applications that comprise the base level services of our aiWARE platform and enable users to ingest and manage media files within our platform, run cognitive processes against their media files, access and find the data
they need, share media internally or externally, develop libraries of reference training data, review any chosen media file or clip, and analyze the resulting attributes of any media file processed by its cognitive features. Our core applications
include the following:
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Admin
. Veritone Admin is an application that enables our users to manage their account settings, users, access and features within an account.
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CMS
. Veritone Content Management System, or CMS, is a hosted application that enables our users to ingest, process and search their media. The CMS application provides a common workflow for adding media
sources, such as various cloud drive providers (DropBox, Box, Google Drive), stream protocols (HTTP, RTMP, RTSP) and others by adding the sources to CMS through ingestion adapters. Furthermore, cognitive workflows can be assigned to media sources,
allowing the automated and customized processing of media from each distinct media source. Once media has been ingested into the CMS system, the media can be managed, reviewed, edited and further processed by cognitive engines within the
application.
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Discovery
. Veritone Discovery is an application within our platform that allows users to create and execute direct searches against cognitive engine output, either through predefined queries called Watchlists, or
via
ad-hoc
searches. Once a user has generated a search result from a Watchlist or
ad-hoc
search, they are able to take several permission-controlled actions. These
actions include viewing the media snippet, downloading the snippet, editing the cognitive engine metadata, verifying content in the search results and sharing the search results and associated media clips individually or including them as part of a
Collection.
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Collections
. Veritone Collections is an application within our platform that presents groupings of search results or Watchlists in shareable units called Collections. A Collection of search results can be titled
and described, then shared externally, via email, link or embedded widget. Users can edit the search results within a Collection from the application before sharing.
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Library
. Veritone Library is an application within our platform that enables users to create libraries of reference training data such as known faces, objects, or audio files. Engines can then be trained against
specific private or public libraries to facilitate specialized engine processing for recognition or fingerprinting.
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The
modular structure of our AI platform enables rapid development of applications that convert customer data into actionable insights that are relevant to the specific needs of different markets. We have successfully created and demonstrated
several use cases for our media, law enforcement, politics and legal applications, which enable customers to solve difficult problems such as programmatic ad verification and tracking of audience measurement correlations, transcribing and
translating recorded telephone calls in multiple languages, and finding, selecting and editing long form-media content into short-form media shareable on social media.
Veritone Developer Application
We
recently launched our Veritone Developer application, a self-service development environment that empowers developers to create, submit and deploy cognitive engines and/or user applications directly into the aiWARE architecture. Veritone Developer
enables cognitive engine developers to access our APIs and developer
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toolkits to rapidly integrate their engines onto our aiWARE platform, and enables application developers to access our APIs and developer toolkits to develop new public or private applications
utilizing the metadata produced by our aiWARE platform. This provides developers with a self-service mechanism to build on top of the core Veritone architecture to satisfy specific use cases, or to create software products that can be distributed to
Veritones user base as an extension of our core aiWARE offerings. In the first half of 2018, we intend to launch our AI Marketplace, which will enable end users to purchase licenses to third-party developers public applications in
conjunction with their use of our platform and core applications.
Deployment Models
Our aiWARE platform is deployable on any commercially available cloud instance, virtually anywhere in the world. It currently resides on Amazon
Web Services (AWS) commercial cloud in the United States and in the United Kingdom. We plan to deploy our platform on a variety of cloud infrastructures across varying geographic regions in the future as we expand our business internationally.
Our platform is run and executed within a containerized architecture that is inherently secure, and all transport of data is
encrypted in accordance with industry best practices. Our multi-tenant architecture enables all of our customers to utilize our platform while securely partitioning their application usage and data. This enables our customers to benefit from rapid
computing, reduced costs, and economies of scale that are inherent in cloud-based computing environments.
We also offer secure,
government cloud deployments of our platform within Microsoft Azures and AWS secure government clouds, to support government and public safety related customers. We are currently pursuing CJIS (Criminal Justice Information Services
division of the FBI) compliance and FedRAMP (Federal Risk and Authorization Management Program) certification for our cloud-based platform. We plan to continue to follow industry best practices that govern access to our platform to ensure that
private media remains behind appropriate firewalls.
In addition to our cloud-based version of aiWARE, we recently launched a hybrid
on-premises/cloud
version of the platform that allows users to conduct cognitive processing using certain engines on a network-isolated basis behind the users firewall, so that only the metadata produced by
those engines needs to be moved outside of the users network. Users may elect to conduct processing utilizing additional cloud-based engines and to utilize our cloud-based suite of applications to search and analyze the results. This version
of aiWARE is ideal for users who want their original content to remain on their secure network for security or transmission cost reasons.
We are currently developing a version of aiWARE that will provide users with substantially all of the features and functionality of our
cloud-based platform (including TED and our core suite of applications) in a fully network-isolated,
on-premises
environment. The cognitive engines available through our
on-premises
deployment of aiWARE will initially represent a subset of the engines available in our cloud-based deployment; however, we are working with our cognitive engine partners to expand the classes and
numbers of cognitive engines available for processing on a network-isolated basis.
Media Agency Business
Our founders are pioneers in digital advertising and leaders in the industry, who founded several high-profile businesses in the media industry
including AdForce (acquired by CMGi), 2CAN Media (acquired by CMGi) and dMarc Broadcasting (acquired by Google). At the time Veritone was founded in 2014, we acquired a full service media advertising agency, which is now our wholly-owned
subsidiary, Veritone One, Inc., or Veritone One. Veritone One creates and places native and traditional advertising and specializes in host-endorsed and influencer advertising, providing outstanding service, technology and performance. Our services
include media planning and strategy, media buying and placement, campaign messaging, clearance verification and
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attribution, and custom analytics. In 2017, we placed approximately $114 million in media advertising for our advertising clients, which included The Upside Travel Company, LLC, Uber
Technologies, Inc., SimpliSafe, Inc.,
1-800
flowers.com, Inc., Dollar Shave Club, Inc., DraftKings, Inc., Casper Sleep, Inc., Tommy John, Inc., and others.
We initially used our platform to help our advertisers improve their media placements and maximize the return on their advertising spending
using real-time ad verification and media analytics. Using our platform, we can manage, deliver, optimize, verify and quantify native and spot-based advertising campaigns and content distribution for our clients across multiple channels, including
broadcast radio, satellite audio, streaming audio, broadcast and cable television, digital video services such as YouTube, and podcasting. Although we intend to focus on our AI platform business, we plan to continue to provide advertising placement
services.
Target Markets
Media and
Entertainment
We commenced commercial SaaS licensing of our AI platform in April 2015 with an initial focus on the Media market,
to provide media owners and broadcasters with visibility on ad placements and the effectiveness of their media campaigns. We license access to our platform via a SaaS model directly to such media owners and broadcasters, which include, but are not
limited to, radio and television stations, advertising agencies, advertisers, sports and entertainment properties and networks. In addition, our SaaS customers use our solutions to automatically index and organize their audio and video content so
that they can search, discover and analyze their media for programming and optimization across their broadcasts, streams, websites, podcasts and social media channels. We also license access to our Veritone Public Media Index to broadcasters, media
owners and other advertising agencies.
For broadcasters and media owners, we generally take the actual audio and/or video feeds directly
from the customer and ingest them into our platform. Next, the media is run through various cognitive engines such as transcription and logo detection, enabling the resulting metadata to be searchable and actionable. Our customers can index their
content down to the second or frame, to provide near real-time ad verification, content segmentation and integrated audience analytics. Our platform allows our customers to optimize their advertising spending across various media channels with near
real-time ad verification and integrated audience analysis. Broadcasters and other media customers can also create new short-form and
on-demand
products to extend customer engagement, search and discovery and
monetization. In addition, based on learning generated by our cognitive engines, these media customers can efficiently create new programmatic content, tailored towards specific users.
Legal and Compliance
Within the
Legal market, we are focused initially on eDiscovery, where audio and video content analysis is playing an increasingly important role in litigation. The eDiscovery segment includes a broad range of software and managed service providers with strong
existing capabilities for identifying, collecting and producing electronically stored information, or ESI, primarily from text-based documents, including email. Historically, eDiscovery processing has disregarded audio and video files due to the
high cost and complexity involved in automatically identifying relevant keywords, phrases or other details contained therein. Today, legal professionals must deal with escalating volumes of audio and video content resulting from recorded telephone
calls, voice mails, video recordings and other sources.
Our SaaS solution leverages AI and the scale of the cloud, combined with our
broad cognitive engine ecosystem, to enable professionals to quickly search and analyze audio, video and structured data to identify particular words, phrases, sentiments and voices at a fraction of the cost of other legal eDiscovery solutions. Our
platform provides an easy to use and cost-effective solution for storing, organizing and analyzing evidentiary
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media to help legal professionals quickly find the critical details necessary to win their cases, and to dramatically increase the efficiency of their eDiscovery processes for audio and video
files. We have integrated our platform with Relativity, an industry leading eDiscovery software platform, enabling Relativity users to leverage our AI capabilities to perform large-scale, automated analytics of audio and video files within the
Relativity environment as part of their
e-discovery
efforts. We have entered into agreements with major providers of eDiscovery services and solutions and multinational law firms, pursuant to which they are
using our platform to analyze the vast amounts of audio and video data evidence in current litigation, which was previously too expensive to access and use effectively.
We have also identified a need of customers in a broad range of industries, such as the financial services, insurance, healthcare and other
highly-regulated industries, to utilize AI technology to increase the effectiveness and efficiency of their compliance efforts. For example, our AI platform could be leveraged by users in these industries to monitor recorded audio communications to
identify compliance issues such as improper securities or financial product sales practices or
off-label
marketing of pharmaceuticals, in near real time. We are currently pursuing opportunities with major
financial institutions, and outsourced call monitoring providers serving these customers, which would use our platform to process monitored audio recordings to identify regulatory or policy violations or other suspicious behavior.
Government
We have recently
deployed our platform on Microsoft Azures and AWS secure government clouds, to enable law enforcement agencies and other government authorities to organize and gain insight from the large amount of audio, video and structured data they
accumulate on a daily basis, including from police body cameras, police car recorders, interview room cameras, 911 audio tapes, surveillance cameras and a variety of other digital media technologies. As the volume of video data collected has grown
enormously in recent years, so has the challenge of reviewing that data to assist in investigations. In most cases, due to the unstructured nature of this video data, it currently must be reviewed manually, a task that consumes huge amounts of time
and causes delays in investigations. For example, the BBC reported that it took the police four months to investigate 200,000 hours of surveillance camera footage to identify suspects from the London riots that occurred in 2011. As a result, such
data largely has not been used other than as back up to protect police and government agencies from potential claims. In addition to the challenges of using the huge volumes of video footage being collected, authorities are also faced with the
daunting task of responding to requests for such information from the public. Many states have statutes that require public agencies to provide certain information, including in many cases audio and video files, and several states have passed laws
mandating that video content must be stored and accessible for a specified number of months. Reviewing video footage to identify and authenticate the appropriate footage to be disclosed is currently a time-consuming, largely manual process. As a
result, law enforcement and other public safety agencies are continuing to invest in solutions in this area.
We are actively engaged in
discussions with various police departments and certain related agencies to license our AI platform, and we have processed content for certain departments on a trial basis to validate their use cases. We believe that our platform will enable police
and other government agencies to organize, store, manage and access the huge amounts of audio and video data they are collecting from multiple disparate sources much more efficiently and effectively to assist in investigations, gain insights on
their operations, improve service and training and identify issues, as well as to more quickly and efficiently respond to public records requests for such data.
Politics
In the Politics market,
our platform enables political organizations such as campaigns, political consultants, elected officials, committees, political action committees, or PACs, Super PACs and special interest groups to analyze public and private media, conduct research
and provide access to previously inaccessible data. The historical dominance of the big four national broadcast networks has splintered into thousands of blogs, video
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sites, and social channels with
around-the-clock
coverage of candidates and issues, significantly increasing the
challenge of monitoring media coverage and voter sentiment. Our platform can transform multiple media sources (broadcast radio, TV, digital video services, podcasts and customers own media such as stump speeches and tracker videos) using
multiple cognitive engines to provide previously untapped resources of critical information that can be easily searched and acted upon in near real-time. Users can also ingest and analyze structured data, such as voter registration data and donor
databases, in correlation with the processed data. Our solution, which includes the Veritone Public Media Index, gives political operatives tools to quickly identify a candidates positions on key issues, identify flip-flopping or
inconsistencies, monitor media coverage of issues and trending topics, and understand local voter sentiment. Our platform can be used throughout the life cycle of a political organization, from exploring a candidacy and fundraising, to shaping a
narrative and communicating with voters.
Other Vertical Markets and Applications
The open architecture, modularity and power of our AI platform make it easy to scale and adapt our solutions to a variety of other vertical
markets without significant cost or integration requirements. We are currently developing industry-specific solutions for a broad range of customers to enable them to leverage our platform to analyze public and private audio, video and structured
data. The initial other vertical markets that we are planning to pursue include commercial security and retail.
We believe the
opportunity for our platform in these markets is driven by the industrys migration from analog,
on-premise
security solutions to VSaaSVideo
Surveillance-as-a-Service,
which is a
web-hosted,
wireless security system that allows users to remotely store, manage, record,
play and monitor surveillance footageentirely in the cloud. The footage is not stored
on-site,
and users do not need recording software, only an IP camera system, an Internet connection and a VSaaS
provider. VSaaS is a remote approach to video surveillance systems, as opposed to an
on-site
video security system. With VSaaS, IP cameras are installed at the desired location and then stream security footage
to the providers site. Since VSaaS is managed in the cloud, users can access footage or cameras from anywhere at any time through a desktop, laptop or mobile device. We believe that the commercial security and retail markets can benefit from
being able to access and utilize intelligence embedded in audio, video and structured data captured by a variety of sources from closed-circuit television cameras in public spaces, to video surveillance data collected from security cameras and
in-store
video cameras installed in most major retailers. All of these sources are collecting petabytes of information that can be ingested for analysis, archiving, search and discovery, using machine learning
predictive and analytics software. We believe our platform can be easily modified to address these other vertical markets.
Sales and Marketing
As of February 28, 2018, we had 89 sales and marketing employees. The sales and marketing activities of our AI platform business
are focused on driving awareness and increasing brand recognition of our platform and technologies across our core vertical markets, gaining new customers and increasing revenue from our existing customers. In our media agency business, we continue
to focus our sales efforts on expanding business with our existing advertising clients and gaining new clients.
AI Platform Business
We currently conduct sales and marketing activities related to our AI platform offerings through a combination of our direct sales force and
indirect channel partners such as value-added resellers (VARs) and referral partners. Our direct sales organization is comprised of teams of sales representatives, account executives and sales managers, who are supported by sales
development representatives, sales engineers and other inside sales and customer support personnel. These sales teams are organized based on their specialized knowledge and expertise within each of our target markets. In addition to targeting new
customers, our direct sales team is responsible for driving renewals of existing subscriptions as well as increased adoption of our platform by existing and new customers. Our direct sales teams are currently located in the United States and the
United Kingdom.
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In addition, we have recently formed a strategic accounts group, comprised of business
development and sales managers who are focused on identifying, developing and managing our relationships with strategic accounts, including end customers, technology and
go-to-market
partners, across all of our target markets. This group is pursuing opportunities with strategic accounts including global systems development and
integration providers, managed services providers, government solutions providers, and major media and entertainment properties and networks. Our strategic accounts group collaborates closely with our product management, product development and data
science teams to evaluate and develop solutions to address the needs of these strategic accounts.
We have also established, and we intend
to continue to expand, an indirect sales channel comprised of VARs, distributors and referral partners. We have entered into agreements with channel partners located in the United States, as well as in Asia, Europe, Latin America and the Middle
East. These agreements generally provide the channel partners with discounts below our standard prices for platform licenses, processing and other services, have terms of one year which automatically renew on an annual basis, and are generally
terminable by either party for convenience following a specified notice period. Substantially all of our agreements with channel partners are nonexclusive; however, we allow channel partners to register sales opportunities through our deal
registration program, in which case we may grant a channel partner priority to pursue an opportunity for a specified period of time, subject to certain conditions.
In April 2017, we entered into an agreement with Quantum, Inc. (Quantum,) a leading provider of scaled enterprise storage
solutions, to integrate our platform onto Quantums storage products. In August 2017, Quantum began shipping storage products to customers with our hybrid
on-premises/cloud
version of aiWARE installed.
Quantum markets and sells its storage products directly and indirectly through an extensive network of distributors and resellers. We have entered into agreements with a number of these resellers, to enable them to market and sell cognitive
processing services in conjunction with aiWARE installed on the Quantum storage products, as well as our cloud-based aiWARE offerings.
We
intend to expand our direct and indirect sales channels in the United States and internationally in order to aggressively pursue wider recognition for our technology and capabilities, and to drive greater market penetration in our key target
markets.
From a marketing perspective, we are focused on increasing our brand name recognition within each of our target markets, and have
engaged a third party public relations firm to assist in this process. Our marketing efforts include providing media support to our direct sales force, as well as trade advertising and trade show outreach. Our marketing efforts also include a
branding and digital campaign strategy designed to reach both market influencers and the media.
Media Agency Business
We market and sell our advertising services through a combination of our direct sales and indirect channel sales. We primarily market and sell
directly to advertisers through outbound sales networking and client and partner referrals. Our indirect sales channel consists of referral partners who are mainly advertising agencies or marketing consultants who are unable to provide certain
services to their clients, such as radio, Podcast and YouTube placements. In addition to our sales efforts for new clients, we further expand sales opportunities and upsell through our campaign strategists who work directly with our advertising
clients to optimize and enhance media spending on advertising campaigns. We plan to continue to expand our domestic sales footprint through the addition of direct sales representatives and campaign strategists.
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Customers
In our AI platform business, we market and sell our offerings to the following customers in each of our primary vertical markets:
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In the Media market, media owners and broadcasters, including radio and television stations and networks and sports and entertainment properties;
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In the Legal and Compliance markets, consulting firms, managed services providers, large law firms and corporate legal departments that have significant eDiscovery requirements, as well as financial services, healthcare
and other companies in highly regulated industries that have significant compliance requirements;
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In the Government market, state, local, federal and international law enforcement agencies, intelligence agencies and other governmental agencies, as well as resellers and system integrators who work with such agencies;
and
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In the Politics market, political parties, elected officials and political campaigns, PACs and special interest groups.
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We are in the early stages of developing our AI platform business and, as such, a limited number of customers, primarily in the Media market,
account for a significant portion of the revenues that we have generated from this business. During 2017, two national radio broadcasting customers accounted for approximately 45% of our total revenues from our AI platform business; however, no
single customer of our AI platform business represented a material portion of our consolidated revenues. As we expand our AI platform business both within the Media market and across our other vertical markets, we believe that our dependence on any
single customer or group of customers will be minimized.
In our media agency business, we target customers that make significant
investments in advertising, particularly in native and spot-based advertising campaigns delivered over broadcast radio, satellite audio, streaming audio, digital video services and other social media channels and podcasting. During 2017, ten
customers of our media agency accounted for approximately 67% of our total revenues from this business. Revenues from two of these media agency customers, The Upside Travel Company, LLC and Uber Technologies, Inc., represented approximately 14% and
10% of our consolidated net revenues, respectively.
We believe that our relationships with our key customers in both our AI platform
business and our media agency business are good. However, if our key customers discontinue or reduce their business with us, or suffer downturns in their businesses, it could have a significant negative impact on our financial results on a
short-term basis. If we lose business from key customers and we are unable to sufficiently expand our customer base to replace the lost business, it would have a long-term negative impact on our business, financial condition and results of
operations.
Competition
The market
for
AI-enabled
solutions is rapidly evolving and highly competitive, with new capabilities and solutions introduced by both large established players such as IBM, Google, Amazon, Microsoft and Salesforce
seeking to harness the power of AI across multiple vertical markets or enterprise functions, as well as smaller emerging companies developing point solutions that generally only address a single cognitive category or a specific industry segment.
AI Platform Business
. We believe the following competitive attributes are necessary for our AI platform offering to
successfully compete in the AI industry for corporate, institutional and government customers:
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Breadth and depth of cognitive capabilities;
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Ability to seamlessly utilize multiple cognitive engines in the same and different classes;
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Performance of cognitive engines, particularly accuracy and speed;
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Applications to enable the platform to be effectively leveraged for a wide variety of use cases;
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Availability of cloud-based and
on-premises
deployment models and functionality;
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Ease of deployment and integration;
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Platform scalability, reliability and security;
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Ability to deploy
state-of-the
art AI capabilities;
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Strength of sales and marketing efforts; and
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Cost of deploying and using our products.
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We believe that we compete favorably on the basis
of the factors listed above. We believe that few of our competitors currently compete directly with us across all of our cognitive capabilities and vertical markets, and that none of our competitors currently deploy an AI operating system with an
open ecosystem comprised of a comparable number of multiple third party cognitive engines that can be accessed by customers from a single integrated platform.
Our competitors fall into five primary categories:
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Infrastructure-based cloud computing vendors offering cognitive APIs, such as IBM Watson via Bluemix, Microsoft Cognitive Services via Azure and Amazon Machine Learning via AWS; typically, these solutions provide raw
computing and storage solutions in conjunction with cognitive categories such as translation, transcription and object detection from which customers can build their own solutions;
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Large established media services companies with global advertising reach that are also deploying new media analytics technologies to best service the needs of major brands; these include the major ad agencies and their
affiliates;
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Smaller
AI-focused
vendors offering solutions within a single cognitive category such as Clarifai (object detection), VoiceBase (natural language processing) or Gracenote (audio
fingerprinting);
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Data management and/or analytics vendors that offer solutions that recognize patterns, anomalies, and correlations from customer data sets, such as Alpine Data Labs, Alteryx, Angoss Software, Dell, FICO, IBM, Microsoft,
Oracle, SAP and SAS;
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System integrators that aggregate and integrate solutions from multiple underlying providers of cognitive services for clients, such as Accenture and Deloitte Consulting; and
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SaaS software providers focused on a particular industry segment, such as eDiscovery, politics, digital asset management or law enforcement.
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Many of the same potential competitors listed above participate in our AI ecosystem, enabling their services to be accessed by our customers
through our platform. For example, we leverage cloud computing solutions and storage from Amazons AWS and Microsofts Azure, and also deploy and integrate cognitive engines from such vendors as IBM, Google, Microsoft, VoiceBase and
Clarifai. Further, within our target vertical markets, we are collaborating with companies within the above categories, such as platform providers within eDiscovery.
Media Agency Business
.
Competitors of our advertising services are mainly traditional advertising agencies
that are either large full-service agencies or smaller niche agencies with a particular specialization or focus, such as radio media placement. We believe that we currently are, and will continue to, compete successfully against our competitors on
several key factors. We are a leader in endorsed radio advertising services and expect to be
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able to command more of our clients advertising budgets as we expand our media services further within digital and television. In addition, we leverage our platform to provide our clients
with innovative technology that we believe provides them with better analytics and insights into their advertising campaigns than our competitors for better advertising performance and optimization. Lastly, due to our reputation and strength within
the industry, we have exclusive relationships with most of our advertising clients for audio related media placement.
Some of our
competitors have greater financial, technical and other resources, greater name recognition, larger sales and marketing budgets and larger intellectual property portfolios. As a result, certain of our competitors may be able to respond more quickly
and effectively than we can to new or changing opportunities, technologies, standards or customer requirements. In addition, some competitors may offer products or services that address one or a limited number of functions at lower prices, with
greater depth than our products or geographies where we do not operate. With the introduction of new products and services and new market entrants, we expect competition to intensify in the future. Moreover, as we expand the scope of our platform,
we may face additional competition.
Research and Development
As of February 28, 2018, our research and development organization consisted of 66 employees, who are responsible for the design,
development, testing and certification of our platform. The team is comprised of dedicated research employees, software engineers, quality engineers, data scientists, data engineers, site operations engineers, mobile app developers, product managers
and user experience designers. We focus our efforts on developing new features and expanding the core technologies that further enhance the usability, functionality, reliability, performance and flexibility of our platform, as well as allow us to
operate in new vertical markets. In addition, we contract with select third-party engineering services to support development and quality assurance testing.
Our research and development expenses were approximately $14.0 million and $7.9 million in 2017 and 2016, respectively. We plan to continue to
invest in building new software capabilities and extending our platform to bring the power of contextual communications to a broader range of applications, with expanded functionality and capabilities. In 2017, we added over 100 cognitive engines to
our platform and are planning to expand our Conductor technology capabilities to work with additional classes of cognitive engines. We also plan to further expand the feature sets of our platform for specific markets and enhance our overall
capabilities.
Intellectual Property
We rely on a combination of patent, copyright, trademark and trade secret laws in the United States and other jurisdictions, as well as license
agreements and other contractual protections, to protect our proprietary technology. We also rely on a number of registered and unregistered trademarks to protect our brand.
As of February 28, 2018, in the United States, we had 18 issued patents, which expire between 2027 and 2031, and had 38 patent
applications pending for examination. As of such date, we also had 12 issued patents and 46 patent applications pending for examination in foreign jurisdictions (including international PCT applications), all of which are related to our U.S. patents
and patent applications. In addition, as of February 28, 2018, we had five registered trademarks in the United States, and we have filed applications to register several additional marks. We seek to protect our intellectual property rights by
implementing a policy that requires our employees and independent contractors involved in development of intellectual property on our behalf to enter into agreements acknowledging that all works or other intellectual property generated or conceived
by them on our behalf are our property, and assigning to us any rights, including intellectual property rights, that they may claim or otherwise have in those works or property, to the extent allowable under applicable law.
Despite our efforts to protect our technology and proprietary rights through intellectual property rights, licenses and other contractual
protections, unauthorized parties may still copy or otherwise obtain and use our software and other technology. In addition, we intend to continue to expand our international operations, and
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effective intellectual property, copyright, trademark and trade secret protection may not be available or may be limited in foreign countries. Any significant impairment of our intellectual
property rights could harm our business or our ability to compete. Further, companies in the communications and technology industries may own large numbers of patents, copyrights and trademarks and may frequently threaten litigation, or file suit
against us based on allegations of infringement or other violations of intellectual property rights. We may face allegations in the future that we have infringed the intellectual property rights of third parties, including our competitors and
non-practicing
entities.
Regulatory Environment
We are subject to a number of U.S. federal and state and foreign laws and regulations that involve matters central to our business. These laws
and regulations involve privacy, data protection, intellectual property, competition, consumer protection and other subjects. Many of the laws and regulations to which we are subject are still evolving and being tested in courts and could be
interpreted in ways that could harm our business. In addition, the application and interpretation of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which we operate. Because global laws and
regulations have continued to develop and evolve rapidly, it is possible that we may not be, or may not have been, compliant with each such applicable law or regulation.
Employees
As of February 28, 2018,
we had a total of 219 employees, all of which were full-time employees. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We have not experienced any work stoppages, and we consider our
relations with our employees to be good.
Company Information
We were incorporated as a Delaware corporation on June 13, 2014 under the name, Veritone Delaware, Inc., and changed our name to Veritone,
Inc. on July 15, 2014. Our corporate headquarters are located at 575 Anton Boulevard, Costa Mesa, California 92626. Our telephone number is (888)
507-1737.
Our principal website address is
www.veritone.com. The information provided on, or accessible through, our website is not a part of this Annual Report on Form 10-K, nor is such information incorporated by reference herein, and such information should not be relied upon in
determining whether to make an investment in our common stock.
Available Information
This Annual Report on Form
10-K
and our quarterly reports on Form
10-Q,
current reports on Form
8-K
and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended,
are available free of charge on the investor relations section of our website at investors.veritone.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We will also provide electronic or
paper copies of such reports free of charge, upon request made to our Corporate Secretary at 575 Anton Boulevard, Costa Mesa, California 92626. All such reports are also available free of charge via EDGAR through the SEC website at www.sec.gov. In
addition, the public may read and copy materials filed by us with the SEC at the SECs public reference room located at 100 F Street, NE, Washington, DC 20549. Information regarding operation of the SECs public reference room can be
obtained by calling the SEC at
1-800-SEC-0330.
We use our investor relations website as a channel of distribution for important company information. For example, webcasts of our earnings
calls and certain events we participate in or host with members of the investment community are on our investor relations website. Additionally, we announce investor information, including news and commentary about our business and financial
performance, SEC filings, notices of investor
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events, and our press and earnings releases, on our investor relations website. Investors and others can receive notifications of new information posted on our investor relations website in real
time by signing up for email alerts. Further corporate governance information, including information regarding our board of directors, our board committee charters and code of ethics, is also available on our investor relations website under the
heading Corporate Governance. The information provided on, or accessible through, our investor relations website is not a part of this report, nor is such information incorporated by reference herein, and such information should not be
relied upon in determining whether to make an investment in our common stock.
Item 1A. Risk Factors.
The following is a summary of certain risks we face in our business. They are not the only risks we face. Additional risks that we do not
yet know of or that we currently believe are immaterial may also impair our business operations. If any of the events or circumstances described in the following risks actually occurs, our business, financial condition or results of operations could
suffer, and the trading price of our common stock could decline. In assessing these risks, investors should also refer to the other information contained or incorporated by reference in our other filings with the Securities and Exchange Commission.
Certain statements contained in this section constitute forward-looking statements. See the information included in Cautionary Note Regarding Forward-Looking Statements on page ii of this Annual Report on Form
10-K.
Risks Related to Our Business, Industry and Financial Condition
Most of our revenues are currently generated by our media agency business, and our effort to expand our AI platform business may not succeed.
In the fiscal years 2017, 2016 and 2015, most of our revenues were advertising-related revenues generated from media placement
services performed under advertising contracts with our media clients. We typically receive a percentage of the total advertising placement by these clients with selected media sources. We did not commence licensing of our AI platform until April
2015, and revenue from our AI platform business was $1.5 million for the year ended December 31, 2017, $0.5 million for the year ended December 31, 2016, and less than $0.1 million for the year ended December 31, 2015.
In order for us to grow our business and achieve profitability, we must expand our revenue base by ramping up our AI platform business and entering into additional licensing agreements. However, we are currently in the early stages of developing our
AI platform business, and we may not be able to succeed with respect to these efforts.
Many factors may adversely affect our ability to
establish a viable and profitable SaaS licensing business for our AI platform, including but not limited to:
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Failure to add cognitive engines with sufficient levels of capability into our platform, difficulties integrating cognitive engines, or loss of access to cognitive engines;
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Inability to expand the capabilities of our Conductor technology and extend it to other classes of cognitive engines;
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Difficulties in adding technical capabilities to our platform and ensuring future compatibility of additional third party providers;
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Inability to expand the number of cognitive engines in different classes that can operate in a network-isolated manner, which would limit the capabilities of our hybrid
on-premises/cloud
and fully
on-premises
versions of aiWARE;
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Failure to add market-specific applications to our AI platform with sufficient levels of capability to provide compelling benefits to users in our vertical markets;
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Failure to articulate the perceived benefits of our solution, or failure to persuade potential customers that such benefits justify the additional cost over competitive solutions or technologies;
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Introduction of competitive offerings by larger, better financed and more well-known companies;
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Inability to enter into satisfactory agreements relating to the integration of our platform with products of other companies to pursue particular vertical markets, or the failure of such relationships to achieve their
anticipated benefits;
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Failure to provide adequate customer support;
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Long sales cycles, particularly for customers in the government and law enforcement markets;
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Failure to generate broad customer acceptance of or interest in our solutions;
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Increases in costs or lack of availability of certain cognitive engines;
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Challenges in operating our platform on secure government cloud platforms and complying with government security requirements;
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Inability to continue to access public media for free; and
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Higher data storage and computing costs.
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If we fail to develop a successful SaaS licensing
business for our AI platform, or if we are unable to ramp up our SaaS operations in a timely manner or at all, our business, results of operations and financial condition will suffer.
The AI market is new and unproven, and it may decline or experience limited growth, which would adversely affect our ability to fully realize the
potential of our platform.
The AI market is relatively new and evaluating the size and scope of the market is subject to a number
of risks and uncertainties. We believe that our future success will depend in large part on the growth of this market. The utilization of our platform by customers is still relatively new, and customers may not recognize the need for, or benefits
of, our platform, which may prompt them to cease use of our platform or decide to adopt alternative products and services to satisfy their cognitive computing search and analytics requirements. In order to expand our business and extend our market
position, we intend to focus our marketing and sales efforts on educating customers about the benefits and technological capabilities of our platform and the application of our platform to the specific needs of customers in different market
verticals. Our ability to access and expand the market that our platform is designed to address depends upon a number of factors, including the cost, performance and perceived value of our platform. Market opportunity estimates are subject to
significant uncertainty and are based on assumptions and estimates, including our internal analysis and industry experience. Assessing the market for our SaaS solutions in each of the vertical markets we are competing in, or are planning to compete
in, is particularly difficult due to a number of factors, including limited available information and rapid evolution of the market. The market for our platform, or for AI cognitive computing in general, may fail to grow significantly or be unable
to meet the level of growth we expect. As a result, we may experience lower-than-expected demand for our products and services due to lack of customer acceptance, technological challenges, competing products and services, decreases in spending by
current and prospective customers, weakening economic conditions and other causes. If our market does not experience significant growth, or if demand for our platform does not increase in line with our projections, then our business, results of
operations and financial condition will be adversely affected.
We rely on third parties to develop cognitive engines for our platform and in some
cases to integrate them with our platform.
A key element of our platform is the ability to incorporate and integrate cognitive
engines developed by multiple third-party vendors, and we plan to continue to increase the number of third-party cognitive engines incorporated into our platform in order to enhance the performance and power of our platform. As we work to add new
cognitive engines to our platform, we may encounter difficulties in identifying additional high-quality cognitive engines, entering into agreements for their inclusion in our ecosystem on acceptable terms or at all
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and/or in coordinating and integrating their technologies into our system. We may incur additional costs to modify and adjust existing functionalities of our platform to accommodate multiple
classes of third-party cognitive engines, without the assurance that such costs can be recouped by the additional revenues generated by the new capabilities. As our platform becomes more complex due to the inclusion of various third-party cognitive
engines, we may not be able to integrate them in a seamless or timely manner due to a number of factors, including incompatible software applications, lack of cooperation from developers, insufficient internal technical resources, platform security
constraints, and the inability to secure the necessary licenses or legal authorizations required. In addition, we have established a self-service development environment in which such third party developers integrate their engines onto our platform,
and we will be dependent in part upon their ability to do so effectively and quickly. We may not have full control over the quality and performance of third-party providers, and therefore, any unexpected deficiencies or problems arising from these
third-party providers may cause significant interruptions of our platform. The failure of third party developers to integrate their cognitive engines seamlessly into our platform and/or provide reliable, scalable services may impact the reliability
of our platform and harm our reputation and business, results of operations and financial condition.
Our competitors, partners or others may
acquire third party technologies, which could result in them blocking us from using the technology in our platform, offering it for free to the public or making it cost prohibitive for us to continue to incorporate their technologies in our
platform.
Our success depends in part on our ability to attract and incorporate
best-of-breed
cognitive engines into our platform. If any third party acquires a cognitive engine that is integral to our platform, they may preclude us from using it as a component of our platform or make it
more expensive for us to utilize, and our revenues could decline if the interruption causes us to lose customers. It is also possible that a third party acquirer of such technology could offer the cognitive engines and technologies to the public as
a free
add-on
capability, in which case our customers would have less incentive to pay us for the use of our platform. If a key third party technology becomes unavailable to us or is impractical for us to
continue to use, the functionality of our platform could be interrupted, and our expenses could increase as we search for an alternative technology. As a result, our business, results of operations and financial condition could be adversely affected
through the loss of customers, reputational harm and/or from increased operating costs.
Our continuous access to public media may be restricted,
disrupted or terminated, which would reduce the effectiveness of our platform.
We continuously ingest and process large amounts of
public media, creating an index of such media that our clients can search by keyword. Our ability to offer this service depends on our ability to continuously ingest and process large amounts of data available in the public media, and any
interruption to our free access to such public media will adversely affect the performance and quality of our platform for such users. Public media sources may change their policies to restrict access or implement procedures to make it more
difficult or costly for us to maintain access. In February 2018, the U.S. Court of Appeals for the Second Circuit held in a recent case,
Fox News v. TVEyes
, that TVEyes indexing and keyword search capabilities constituted fair use,
but that its display of portions of the public media identified in searches, as well as its downloading, emailing and date-time search capabilities, did not. This decision may limit our ability to display portions of the public media identified in
searches in the absence of licenses to such media, which would significantly limit the capability and quality of our platform for some users, which in turn could cause us to lose customers. Furthermore, we may be forced to pay significant fees to
public media sources in order to maintain access, which would adversely affect our financial condition and results of operations.
If we are not
able to develop a strong brand for our platform and increase market awareness of our company and our platform, then our business, results of operations and financial condition may be adversely affected.
We believe that the success of our platform will depend in part on our ability to develop a strong brand identity for our Veritone,
Veritone Platform, aiWARE and other service marks, and to increase the market
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awareness of our platform and its capabilities. The successful promotion of our brand will depend largely on our continued marketing efforts and our ability to offer high quality cognitive
engines on our platform and ensure that our technology provides the expected benefits to our customers. We also believe that it is important for us to be thought leaders in the
AI-based
cognitive computing
market. Our brand promotion and thought leadership activities may not be successful or produce increased revenue. In addition, independent industry analysts often provide reviews of our platform and of competing products and services, which may
significantly influence the perception of our platform in the marketplace. If these reviews are negative or not as positive as reviews of our competitors products and services, then our brand may be harmed.
The promotion of our brand also requires us to make substantial expenditures, and we anticipate that these expenditures will increase as our
industry becomes more competitive and as we seek to expand into new markets. These higher expenditures may not result in any increased revenue or in revenue that is sufficient to offset the higher expense levels. If we do not successfully maintain
and enhance our brand, then our business may not grow, we may see our pricing power reduced relative to competitors and we may lose customers, all of which would adversely affect our business, results of operations and financial condition.
We expect that our brand and reputation may also be affected by customer reviews and reactions, including reviews and feedback received
through online social media channels. We must consistently provide high quality services to ensure that our customers have a positive experience using our platform. If customers complain about our services, if we do not handle customer complaints
effectively or if we cannot generate positive reviews and feedback on social media channels, then our brand and reputation may suffer, and our customers may lose confidence in us and reduce or cease their use of our platform.
We may not be able to expand the capabilities of our proprietary Conductor technology to optimize our AI platform.
We have enhanced the performance of our platform by adding our proprietary Conductor technology, which automates the selection of cognitive
engines available on our platform within a class from the engines available on our platform. Our Conductor technology is designed to optimize data processing by choosing the best cognitive engine or engines to deploy to generate the ideal results
for each individual search based on performance, cost, and speed. Our Conductor technology currently only works with transcription engines. While we are working on expanding the capabilities of our Conductor technology and extending it to other
cognitive classes, we cannot guarantee that such expansion will be completed on a timely basis or at all. We may not be able to develop the technology to effectively navigate and process multiple complex classes of cognitive engines, particularly
those developed by third parties. Even if we are able to do so, we may not be able to develop Conductor technology for those other classes that achieves the expected performance, which would have an adverse effect on our customer experience and
satisfaction. In addition, we expect to incur significant costs in the further development and deployment of our proprietary Conductor technology, and if we cannot achieve our expected performance goals, it could have an adverse effect on our
financial condition and results of operations.
We currently generate significant revenue from a limited number of key customers and the loss of any
of our key customers may harm our business, results of operations and financial results.
Our ten largest customers by revenue
accounted for approximately 60.5%, 72.2% and 81.0% of our net revenues in fiscal years 2017, 2016 and 2015, respectively. If any of our key customers decides not to renew its contract with us or renews on less favorable terms, suffers downturns in
their business leading to a reduction in their marketing spending, or decides to develop its own platform, our business, revenue and reputation could be materially and adversely affected.
For example, our two largest customers by revenue in 2015, LifeLock, Inc. and DraftKings, Inc., collectively accounted for approximately 42.7%
of our net revenues in 2015, but only 10.5% of our net revenues in 2016. In September 2015, our agreement with LifeLock, Inc. was terminated, which contributed to the
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reduction in our net revenues in 2016 compared with the prior year. Furthermore, as a result of certain legal proceedings in which it was involved, DraftKings, Inc. reduced its marketing
spend in 2016, and our net revenues related to our agreement with DraftKings, Inc. declined significantly. If we lose business with additional key customers, and are not able to gain additional customers or increase our revenue from other customers
to offset the reduction of revenues from those key customers, our business, results of operations and financial condition would be harmed.
Our
quarterly results may fluctuate significantly and
period-to-period
comparisons of our results may not be meaningful.
Our quarterly results, including the levels of our revenue, our operating expenses and other costs, and our operating margins, may fluctuate
significantly in the future, and
period-to-period
comparisons of our results may not be meaningful. Accordingly, the results of any one period should not be relied upon
as an indication of our future performance. In addition, our quarterly results may not fully reflect the underlying performance of our business. Factors that may cause fluctuations in our quarterly results include, but are not limited to:
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the timing of new advertising program wins with our media agency customers;
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our ability to retain our existing customers and to expand our business with our existing customers;
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our ability to attract new customers, the type of customers we are able to attract, the size and needs of their businesses and the cost of acquiring these new customers;
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the timing and level of market acceptance of new products introduced by us and our competitors;
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variations in the timing of licensing revenues from our AI platform as a result of factors such as sales cycles and trends impacting our target vertical markets;
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changes in our pricing policies or those of our competitors;
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the timing of our recognition of revenue and the mix of our revenues during the period;
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the amount and timing of operating expenses and other costs related to the maintenance and expansion of our business, infrastructure and operations;
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the amount and timing of operating expenses and other costs associated with assessing or entering new vertical markets;
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the amount and timing of operating expenses and other costs related to the development or acquisition of businesses, services, technologies or intellectual property rights;
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the timing and impact of security breaches, service outages or other performance problems with our technology infrastructure and software solutions;
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the timing and costs associated with legal or regulatory actions;
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changes in the competitive dynamics of our industry, including consolidation among competitors, strategic partners or customers;
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loss of our executive officers or other key employees;
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industry conditions and trends that are specific to the vertical markets in which we sell or intend to sell our solutions; and
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general economic and market conditions.
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Fluctuations in quarterly results may negatively
impact the value of our common stock, regardless of whether they impact or reflect the overall performance of our business. If our quarterly results fall below the expectations of investors or any securities analysts who follow our stock, or below
any guidance we may provide, the price of our common stock could decline substantially.
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If we are not able to enhance or introduce new products that achieve market acceptance and keep pace with
technological developments, our business, results of operations and financial condition could be harmed.
Our ability to attract
new customers and increase revenue from existing customers depends in part on our ability to enhance and improve our platform, increase adoption and usage of our products and introduce new products and features, including products and services
designed for operation on a network-isolated basis, behind the users firewall, or in a mobile user environment. The success of any enhancements or new products depends on several factors, including timely completion, adequate quality testing,
actual performance quality, market-accepted pricing levels and overall market acceptance and demand. Enhancements and new products that we develop may not be introduced in a timely or cost-effective manner, may contain defects, may have
interoperability difficulties with our platform, or may not achieve the market acceptance necessary to generate significant revenue. If we are unable to successfully enhance our existing platform and capabilities to meet evolving customer
requirements, increase adoption and usage of our platform, develop new products, or if our efforts to increase the usage of our products are more expensive than we expect, then our business, results of operations and financial condition could be
harmed.
The success of our business depends on our ability to expand into new vertical markets and attract new customers in a cost-effective
manner.
In order to grow our business, we plan to drive greater awareness and adoption of our platform from enterprises across new
vertical markets, including the legal, government and retail markets. We intend to increase our investment in sales and marketing, as well as in technological development, to meet evolving customer needs in these and other markets. There is no
guarantee, however, that we will be successful in gaining new customers from any or all of these markets. We have limited experience in marketing and selling our products and services generally, and in particular in these new markets, which may
present unique and unexpected challenges and difficulties. For example, in order for us to offer our products and services to certain government customers, we will be required to operate our platform in a secure government cloud environment or an
on-premises
environment in order to enable our customers to maintain compliance with applicable regulations that govern the use, storage and transfer of certain government data. However, due to the secure nature of
these government cloud and
on-premises
environments, we may not be able to fully perform all functionalities and features of our platform or make available all of the third party cognitive engines within our
non-government
cloud platform ecosystem, which may limit or reduce the performance and quality of our services. Furthermore, we may incur additional costs to modify our current platform to conform to the cloud
providers requirements, and we may not be able to generate sufficient revenue to offset these costs. We will also be required to comply with certain regulations required by government customers, such as FedRAMP and CJIS, which will require us
to incur significant costs, devote management time and modify our current platform and operations. If we are unable to comply with those regulations effectively and in a cost-effective manner, our financial results could be adversely affected.
We use a variety of marketing channels to promote our products and platform, such as digital, print and social media advertising, email
campaigns, industry events and public relations. If the costs of the marketing channels we use increase dramatically, then we may choose to use alternative and less expensive channels, which may not be as effective as the channels we currently use.
As we add to or change the mix of our marketing strategies, we may need to expand into more expensive channels than those we are currently in, which could adversely affect our business, results of operations and financial condition. In addition, we
have limited experience marketing our products and platform and we may not be successful in selecting the marketing channels that will provide us with exposure to customers in a cost-effective manner. As part of our strategy to penetrate the new
vertical markets, we will incur marketing expenses before we are able to recognize any revenue in such markets, and these expenses may not result in increased revenue or brand awareness. We have made in the past, and may make in the future,
significant expenditures and investments in new marketing campaigns, and these investments may not lead to the cost-effective acquisition of additional customers. If we are unable to maintain effective marketing programs, then our ability to attract
new customers or enter into new vertical markets could be adversely affected.
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Failure to manage our growth effectively could increase our expenses, decrease our revenue and prevent us
from implementing our business strategy.
We expect that our ability to achieve profitability will require substantial growth in
our business, which will put a strain on our management and financial resources. To manage this and our anticipated future growth effectively, we must continue to maintain and enhance our platform and information technology infrastructure, as well
as our financial and accounting systems and controls. We also must attract, train and retain a significant number of qualified software developers and engineers, data scientists, technical and management personnel, sales and marketing personnel,
customer support personnel and professional services personnel. Failure to effectively manage our rapid growth could lead us to over-invest or under-invest in development and operations, result in weaknesses in our platform, systems or controls,
give rise to operational mistakes, losses, loss of productivity or business opportunities and result in loss of employees and reduced productivity of remaining employees. Our growth could require significant capital expenditures and might divert
financial resources from other projects such as the development of new products and services. If our management is unable to effectively manage our growth, our expenses might increase more than expected, our revenue could decline or grow more slowly
than expected, and we might be unable to implement our business strategy. The quality of our products and services might suffer, which could negatively affect our reputation and harm our ability to retain and attract customers.
We intend to pursue the acquisition of other companies, businesses or technologies, which could be expensive, divert our managements attention
and/or fail to achieve the expected benefits.
As part of our growth strategy, we intend to acquire businesses, services,
technologies or intellectual property rights that we believe could complement, expand or enhance the features and functionality of our platform and our technical capabilities, broaden our service offerings or offer growth opportunities. The pursuit
of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not such acquisitions are consummated. Acquisitions also could
result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results and financial condition. In addition, we may experience difficulties in integrating the acquired personnel, operations
and/or technologies successfully or effectively managing the combined business following the acquisition. We also may not achieve the anticipated benefits from the acquired business and may incur unanticipated costs and liabilities in connection
with any such acquisitions. If any of these results occurs, our business and financial result could be adversely affected.
We depend on our
executive officers and other key employees, and the loss of one or more of these employees or an inability to attract and retain highly skilled employees could adversely affect our business.
Our success depends largely upon the continued services of our Chief Executive Officer, Chad Steelberg, our President, Ryan Steelberg, and our
other executive officers. We rely on our leadership team in the areas of strategy and implementation, research and development, operations, security, marketing, sales, support and general and administrative functions. We do not currently have any
employment agreements with our executive officers that require them to continue to work for us for any specified period, and, therefore, they could terminate their employment with us at any time. The loss of Chad Steelberg or Ryan Steelberg, or one
or more of the members of our management team, could adversely impact our business and operations and disrupt our relationships with our key customers.
If we are unable to hire, retain and motivate qualified personnel, our business will suffer.
Our future success depends, in part, on our ability to continue to attract and retain highly skilled personnel. We believe that there is, and
will continue to be, intense competition for highly skilled management, engineering, data science, sales and other personnel with experience in our industry. We must provide competitive compensation packages and a high-quality work environment to
hire, retain and motivate employees. If we are
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unable to retain and motivate our existing employees and attract qualified personnel to fill key positions, we may be unable to manage our business effectively, including the development,
marketing and sale of our products, which could adversely affect our business, results of operations and financial condition. To the extent we hire personnel from competitors, we also may be subject to allegations that they have been improperly
solicited or that they have divulged proprietary or other confidential information.
Volatility in, or lack of performance of, our stock
price may also affect our ability to attract and retain key personnel. Many of our key personnel are, or will soon be, vested in a substantial number of shares of common stock or stock options. Employees may be more likely to terminate their
employment with us if the shares they own or the shares underlying their vested options have significantly appreciated in value relative to the original purchase prices of the shares or the exercise prices of the options, or, conversely, if the
exercise prices of the options that they hold are significantly above the trading price of our common stock. If we are unable to retain our employees, our business, results of operations and financial condition could be adversely affected.
We expect to require additional capital to support our business, and this capital might not be available on acceptable terms, if at all.
We intend to continue to make investments to support our business and may require additional funds. In particular, we expect to seek additional
funds to develop new products and enhance our platform, expand our operations, including our sales and marketing organizations and our presence outside of the United States, improve our infrastructure or acquire complementary businesses,
technologies, services, products and other assets. Accordingly, we expect to engage in equity and/or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our
stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing that we may secure in the future could involve
debt service obligations and restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. We
may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth,
scale our infrastructure, develop product enhancements and to respond to business challenges could be significantly impaired, and our business, results of operations and financial condition may be adversely affected.
Media agency clients periodically review and change their advertising requirements and relationships. If we are unable to remain competitive or retain
key clients, our business, results of operations and financial position may be adversely affected.
The media placement industry is
highly competitive, and certain advertising clients periodically put their advertising, marketing and corporate communications business up for competitive review. Clients also review the cost and benefit of servicing all or a portion of their
advertising and marketing needs
in-house.
We have won and lost accounts in the past as a result of these reviews. In addition, from time to time, clients cancel media campaigns for their internal business
reasons. Because our media agency contracts generally can be cancelled by our clients upon 30 to 90 days prior written notice, clients can easily change media providers or cancel media commitments on short notice without any penalty. In order
to retain existing clients and win new clients, we must continue to develop solutions that meet client needs, provide quality and effective client service, and achieve clients requirements for return on advertising investment and pricing. In
addition, our media agency business is primarily engaged in the placement of endorsed media, and we may face increased competition in this business in the future from other advertising agencies that provide a more comprehensive range of advertising
services to their clients. To be able to offer a broader range of services, we would need to add additional capabilities, such as television buying, and we may not be able to do so effectively. To the extent that we are not able to remain
competitive or retain key clients, our revenue may be adversely affected, which could have a material and adverse effect on our business, results of operations and financial position.
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Our media agency business is dependent on growth in demand for endorsed media and the availability of
sufficient media personalities to deliver such content.
Our media agency business is primarily engaged in the placement of
endorsed media, which depends on the availability of media personalities to deliver the endorsed media content. The endorsed media market is still at a relatively early stage of development, and its future growth is uncertain. Our ability to grow
our sales in this business will be dependent in part upon the level of interest in endorsed media among advertisers, and upon the number of available media personalities and our ability to identify and engage an increasing number of such
personalities on a cost-effective basis. If demand for endorsed media fails to grow, or if we are unable to identify sufficient appropriate media personalities to deliver the endorsed media content, our ability to grow our media agency business
would be impacted materially.
Acquiring and retaining media agency clients depends on our ability to avoid and manage conflicts of interest arising
from other client relationships and attracting and retaining key personnel.
Our ability to acquire new media agency clients and to
retain existing clients may, in some cases, be limited by clients perceptions of, or policies concerning, conflicts of interest arising from other client relationships. If we are unable to manage these client relationships and avoid potential
conflicts of interest, our business, results of operations and financial position may be adversely affected.
Our ability to acquire new
media agency clients and to retain existing clients is dependent in large part upon our ability to attract and retain our key personnel in that business, who are an important aspect of our competitiveness. If we are unable to attract and retain key
personnel, our ability to provide our services in the manner clients have come to expect may be adversely affected, which could harm our reputation and result in a loss of clients, which could have a material adverse effect on our business, results
of operations and financial position.
Interruptions or performance problems associated with our technology and infrastructure may adversely affect
our business and operating results.
Our continued growth depends in part on the ability of customers to access our platform at any
time and within an acceptable amount of time. We have experienced, and may in the future experience, disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, introductions of new applications
and functionality, software errors and defects, capacity constraints due to an increasing number of users accessing our platform simultaneously, or security related incidents. In addition, from time to time we may experience limited periods of
server downtime due to server failure or other technical difficulties (as well as maintenance requirements). Because we also incorporate diverse software and hosted services from many third-party vendors, we may encounter difficulties and
delays in integrating and synthesizing these applications and programs, which may cause downtimes or other performance problems. It may become increasingly difficult to maintain and improve our performance, especially during peak usage times and as
our platform becomes more complex and our user traffic increases. If our platform is unavailable or if our users are unable to access our platform within a reasonable amount of time or at all, our business would be adversely affected and our brand
could be harmed. In the event of any of the factors described above, or certain other failures of our infrastructure, customer or consumer data may be permanently lost. To the extent that we do not effectively address capacity constraints, upgrade
our systems as needed, and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, customers and consumers may cease to use our platform and our business and operating results may be
adversely affected.
Our business depends on customers increasing their use of our services and/or platform, and we may experience loss of customers
or decline in their use of our services and/or platform.
Our ability to grow and generate revenue depends, in part, on our ability
to maintain and grow our relationships with existing customers and convince them to increase their usage of our platform. If our customers
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do not increase their use of our platform, then our revenue may not grow and our results of operations may be harmed. Our revenue model for advertising contracts is generally structured as a
percentage of the total fees for the advertisement. If our customers reduce their spending on the placement of advertisements with media vendors, or if they decide to use other marketing or selling strategies, we will experience a decline in our
revenue. In addition, many of our SaaS licensing contracts include a usage-based license fee that is based upon our customers level of usage of our platforms cognitive engines. It is difficult to accurately predict customers usage
levels and the loss of customers or reductions in their usage levels may have a negative impact on our business, results of operations and financial condition. If a significant number of customers cease using, or reduce their usage of, our platform,
then we may be required to spend significantly more on sales and marketing than we currently plan to spend in order to maintain or increase revenue from customers. These additional expenditures could adversely affect our business, results of
operations and financial condition. Most of our customers do not have long-term contractual financial commitments to us and, therefore, most of our customers may reduce or cease their use of our platform at any time without penalty or termination
charges.
We rely upon AWS and Iron.io to operate our platform, and any disruption of or interference with our use of such third party services
would adversely affect our business operations.
We use AWS to host our platform and for our storage needs. We also utilize Iron.io
(a unit of Oracle) for certain computing processes related to our services. Users of our platform need to be able to access our platform at any time, without interruption or degradation of performance. AWS and Iron.io run their own platforms that we
access, and we are, therefore, vulnerable to service interruptions at AWS and Iron.io. We do not have control over the operations of AWS or Iron.io, and we may experience interruptions, delays and outages in service and availability from time to
time due to a variety of factors, including infrastructure changes, human or software errors, website hosting disruptions and capacity constraints. In addition, if our security, or that of AWS or Iron.io, is compromised, our platform is unavailable
to our customers, or our customers are unable to use our platform within a reasonable amount of time or at all, then our business, results of operations and financial condition could be adversely affected. In some instances, we may not be able to
identify the cause or causes of these performance problems within a period of time acceptable to our customers.
AWS and Iron.io provide
us with hosting, computing and storage capacity pursuant to agreements that may be cancelled by providing 30 days prior written notice, and in some cases, the agreements can be terminated immediately for cause without notice. If any of
these agreements are terminated with little or no notice, we could experience interruptions on our platform and in our ability to make our platform available to customers, as well as delays and additional expenses in arranging alternative cloud
infrastructure services.
While we have deployed our platform to work on Microsofts Azure and AWS secure government clouds,
the secure nature of these secure government clouds limits certain features of our platform, which could impact a users experience on our site and may make it harder to achieve broad acceptance of the cloud-based version of our platform among
government users.
Any of the above circumstances or events may harm our reputation, cause customers to stop using our platform, impair
our ability to increase revenue from existing customers, impair our ability to grow our customer base, subject us to financial penalties and liabilities under our service level agreements and otherwise harm our business, results of operations and
financial condition.
The security of our platform, networks or computer systems may be breached, and any unauthorized access to our customer data
will have an adverse effect on our business and reputation.
The use of our platform involves the storage, transmission and
processing of our customers private data as well as public media, and this private media may contain confidential and proprietary information of our customers or other personal or identifying information regarding our customers, their
employees or other persons. Individuals or entities may attempt to penetrate our network or platform security, or that of our third-
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party hosting and storage providers, and could gain access to our customers private media, which could result in the destruction, disclosure or misappropriation of proprietary or
confidential information of our customers or their customers, employees and business partners. If any of our customers private media is leaked, obtained by others or destroyed without authorization, it could harm our reputation, we could
be exposed to civil and criminal liability, and we may lose our ability to access private media information, which will adversely affect the quality and performance of our platform.
In addition, our platform may be subject to computer malware, viruses and computer hacking, fraudulent use attempts and phishing attacks, all
of which have become more prevalent in our industry. Though it is difficult to determine what, if any, harm may directly result from any specific interruption or attack, they may include the theft or destruction of data owned by us or our customers,
and/or damage to our platform. Any failure to maintain the performance, reliability, security and availability of our products and technical infrastructure to the satisfaction of our customers may harm our reputation and our ability to retain
existing customers and attract new users.
While we have implemented procedures and safeguards that are designed to prevent security
breaches and cyber-attacks, they may not be able to protect against all attempts to breach our systems, and we may not become aware in a timely manner of any such security breach. Unauthorized access to or security breaches of our platform, network
or computer systems, or those of our technology service providers or third party cognitive engines, could result in the loss of business, reputational damage, regulatory investigations and orders, litigation, indemnity obligations, damages for
contract breach, civil and criminal penalties for violation of applicable laws, regulations or contractual obligations, and significant costs, fees and other monetary payments for remediation. If customers believe that our platform does not provide
adequate security for the storage of sensitive information or its transmission over the Internet, our business will be harmed. Customers concerns about security or privacy may deter them from using our platform for activities that involve
personal or other sensitive information.
If we are not able to compete effectively, our business and operating results will be harmed.
While the market for
AI-based
systems for search and analysis of audio, video and other unstructured
data is still in the early stages of development, we face competition from various sources, including large, well-capitalized technology companies such as Google and IBM. These competitors may have better brand name recognition, greater financial
and engineering resources and larger sales teams than we have. As a result, these competitors may be able to develop and introduce competing solutions and technologies that may have greater capabilities than ours or that are able to achieve greater
customer acceptance, and they may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements. In addition, we may also compete with smaller competitors, including
developers of cognitive engines, who may develop their own platforms that perform similar services as our platform for specific use cases. We expect that competition will increase and intensify as we continue to expand our serviceable markets and
improve our platform and services. Increased competition may result in pricing pressures and require us to incur additional sales and marketing expenses, which could negatively impact our sales, profitability and market share.
Privacy and data security laws and regulations could require us to make changes to our business, impose additional costs on us and reduce the demand for
our software solutions.
Our business model contemplates that we will store, process and transmit both public media and our
customers private media. Our customers may store and/or transmit a significant amount of personal or identifying information through our platform. Privacy and data security have become significant issues in the United States and in other
jurisdictions where we may offer our software solutions. The regulatory framework relating to privacy and data security issues worldwide is evolving rapidly and is likely to remain uncertain for the foreseeable future. Federal, state and foreign
government bodies and agencies have in the past adopted, or may in the future adopt, laws and regulations regarding the collection, use, processing, storage and disclosure of
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personal or identifying information obtained from customers and other individuals. In addition to government regulation, privacy advocates and industry groups may propose various self-regulatory
standards that may legally or contractually apply to our business. Because the interpretation and application of many privacy and data security laws, regulations and applicable industry standards are uncertain, it is possible that these laws,
regulations and standards may be interpreted and applied in a manner inconsistent with our existing privacy and data management practices. As we expand into new jurisdictions or verticals, we will need to understand and comply with various new
requirements applicable in those jurisdictions or verticals.
To the extent applicable to our business or the businesses of our customers,
these laws, regulations and industry standards could have negative effects on our business, including by increasing our costs and operating expenses, and delaying or impeding our deployment of new core functionality and products. Compliance with
these laws, regulations and industry standards requires significant management time and attention, and failure to comply could result in negative publicity, subject us to fines or penalties or result in demands that we modify or cease existing
business practices. In addition, the costs of compliance with, and other burdens imposed by, such laws, regulations and industry standards may adversely affect our customers ability or desire to collect, use, process and store personal
information using our software solutions, which could reduce overall demand for them. Even the perception of privacy and data security concerns, whether or not valid, may inhibit market acceptance of our software solutions in certain verticals.
Furthermore, privacy and data security concerns may cause our customers customers, vendors, employees and other industry participants to resist providing the personal information necessary to allow our customers to use our applications
effectively. Any of these outcomes could adversely affect our business and operating results.
Any failure to offer high-quality customer support
may adversely affect our relationships with our customers.
Our ability to retain existing customers and attract new customers
depends in part on our ability to maintain a consistently high level of customer service and technical support. Our customers depend on our service support team to assist them in utilizing our platform effectively and to help them to resolve issues
quickly and to provide ongoing support. If we are unable to hire and train sufficient support resources or are otherwise unsuccessful in assisting our customers effectively, it could adversely affect our ability to retain existing customers and
could prevent prospective customers from adopting our platform. We may be unable to respond quickly enough to accommodate short-term increases in demand for customer support. We also may be unable to modify the nature, scope and delivery of our
customer support to compete with changes in the support services provided by our competitors. Increased demand for customer support, without corresponding revenue, could increase our costs and adversely affect our business, results of operations and
financial condition. Our sales are highly dependent on our business reputation and on positive recommendations from customers. Any failure to maintain high-quality customer support, or a market perception that we do not maintain high-quality
customer support, could adversely affect our reputation, business, results of operations and financial condition.
We plan to expand our
international operations, which exposes us to significant risks.
As part of our growth strategy, we recently opened an office in
the United Kingdom, and are also planning to expand in other countries to help us increase our revenue from customers outside of the United States. We expect, in the future, to open additional foreign offices and hire employees to work at these
offices in order to reach new customers and gain access to additional technical talent. Operating in international markets requires significant resources and management attention and will subject us to regulatory, economic and political risks in
addition to those we already face in the United States. Because of our limited experience with international operations as well as developing and managing sales in international markets, our international expansion efforts may not be successful. In
addition, we will face risks in doing business internationally that could adversely affect our business, including, but not limited to:
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the difficulty of managing and staffing international operations and the increased operating, travel, infrastructure and legal compliance costs associated with numerous international locations;
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our ability to effectively price our products in competitive international markets;
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the need to adapt and localize our products for specific countries;
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the need to offer customer support in various languages;
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difficulties in understanding and complying with U.S. laws, regulations and customs relating to U.S. companies operating in foreign jurisdictions;
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difficulties in understanding and complying with local laws, regulations and customs in foreign jurisdictions, particularly in the areas of data privacy and personal privacy;
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difficulties with differing technical and environmental standards, data privacy and telecommunications regulations and certification requirements outside the United States, which could prevent customers from deploying
our products or limit their usage;
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more limited protection for intellectual property rights in some countries; and
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political or social unrest or economic instability in a specific country or region in which we operate.
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Our failure to manage any of these risks successfully could harm our international operations, and adversely affect our business, results of
operations and financial condition.
We may be sued by third parties for alleged infringement of their proprietary rights, which could adversely
affect our business, results of operations and financial condition.
There has been considerable patent and other intellectual
property development activity in the AI industry, which has resulted in litigation based on allegations of infringement or other violations of intellectual property rights. Our future success depends, in part, on not infringing the intellectual
property rights of others. In the future, we may receive claims from third parties, including our competitors, alleging that our platform and underlying technology infringe or violate such third partys intellectual property rights, and we may
be found to be infringing upon such rights. We may be unaware of the intellectual property rights of others that may cover some or all of our technology. Any such claims or litigation could cause us to incur significant expenses and, if successfully
asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering some portion of our platform, or require that we comply with other unfavorable terms. We may also be obligated to indemnify our
customers or business partners in connection with any such litigation and to obtain licenses or modify our platform, which could further exhaust our resources. Patent infringement, trademark infringement, trade secret misappropriation and other
intellectual property claims and proceedings brought against us, whether successful or not, could harm our brand, business, results of operations and financial condition. Litigation is inherently uncertain, and any judgment or injunctive relief
entered against us or any adverse settlement could negatively affect our business, results of operations and financial condition. In addition, litigation can involve significant management time and attention and be expensive, regardless of the
outcome. During the course of litigation, there may be announcements of the results of hearings and motions and other interim developments related to the litigation. If securities analysts or investors regard these announcements as negative, the
trading price of our common stock may decline.
We could incur substantial costs in protecting or defending our intellectual property rights, and
any failure to protect our intellectual property could adversely affect our business, results of operations and financial condition.
Our success depends, in part, on our ability to protect our brand and the proprietary methods and technologies that we develop under patent and
other intellectual property laws of the United States and foreign jurisdictions so that we can prevent others from using our inventions and proprietary information. As of February 28, 2018, in the United States, we had 18 issued patents, which
expire between 2027 and 2031, and had 38 patent applications pending for examination. As of such date, we also had 12 issued patents and 46 patent
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applications pending for examination in foreign jurisdictions (including international PCT applications), all of which are related to our U.S. patents and patent applications. We may not be
issued any additional patents and any patents that have been issued or that may be issued in the future may not provide significant protection for our intellectual property. In addition, as of February 28, 2018, we had five registered
trademarks in the United States, and we have filed applications to register several additional marks. If we fail to protect our intellectual property rights adequately, our competitors might gain access to our technology and our business, results of
operations and financial condition may be adversely affected.
The particular forms of intellectual property protection that we seek, or
our business decisions about when to file patent applications and trademark applications, may not be adequate to protect our business. We could be required to spend significant resources to monitor and protect our intellectual property rights.
Litigation may be necessary in the future to enforce our intellectual property rights, determine the validity and scope of our proprietary rights or those of others, or defend against claims of infringement or invalidity. Such litigation could be
costly, time-consuming and distracting to management, result in a diversion of significant resources, lead to the narrowing or invalidation of portions of our intellectual property and have an adverse effect on our business, results of operations
and financial condition. Our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights or alleging that we infringe the
counterclaimants own intellectual property. Any of our patents, copyrights, trademarks or other intellectual property rights could be challenged by others or invalidated through administrative process or litigation.
We also rely, in part, on confidentiality agreements with our business partners, employees, consultants, advisors, customers and others in our
efforts to protect our proprietary technology, processes and methods. These agreements may not effectively prevent disclosure of our confidential information, and it may be possible for unauthorized parties to copy our software or other proprietary
technology or information, or to develop similar software independently without our having an adequate remedy for unauthorized use or disclosure of our confidential information. In addition, others may independently discover our trade secrets and
proprietary information, and in these cases we would not be able to assert any trade secret rights against those parties. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and the
failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
In addition, the laws of
some countries do not protect intellectual property and other proprietary rights to the same extent as the laws of the United States. To the extent we expand our international activities, our exposure to unauthorized copying, transfer and use of our
proprietary technology or information may increase.
Our means of protecting our intellectual property and proprietary rights may not be
adequate or our competitors could independently develop similar technology. If we fail to meaningfully protect our intellectual property and proprietary rights, our business, results of operations and financial condition could be adversely affected.
We have a limited operating history, which makes it difficult to evaluate our current business and future prospects.
We were founded in 2014 and launched our AI platform in April 2015. As a result of our limited operating history, our ability to forecast our
future results of operations is limited and subject to a number of uncertainties, including our ability to plan for future growth. We have encountered and will encounter risks and uncertainties frequently experienced by growing companies in rapidly
changing industries, such as:
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market acceptance of our platform and new products;
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reliability and scalability of our platform and services;
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adding new customers and new vertical markets;
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retention of customers;
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the successful expansion of our business;
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our ability to control costs, particularly our product development and sales and marketing expenses;
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network outages or security breaches and any associated expenses;
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executing acquisitions and integrating acquired businesses, technologies, services, products and other assets; and
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general economic and political conditions.
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If we do not address these risks successfully, our
business, results of operations and financial condition may be adversely affected.
We have had a history of losses and we may be unable to achieve
or sustain profitability.
We experienced net losses of $59.6 million, $27.0 million and $6.2 million in fiscal
years 2017, 2016 and 2015, respectively. As of December 31, 2017, we had an accumulated deficit of approximately $109.3 million. We may not achieve profitability in the near future or at all. We expect to continue to expend substantial
financial and other resources on, among other things:
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investments to expand and enhance our platform and technology infrastructure, make improvements to the scalability, availability and security of our platform, and develop new products;
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sales and marketing, including expanding our direct sales organization and marketing programs, and expanding our programs directed at increasing our brand awareness among current and new customers;
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hiring additional employees;
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expansion of our operations and infrastructure, both domestically and internationally; and
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general administration, including legal, accounting and other expenses related to being a public company.
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These investments may not result in increased revenue or growth of our business. We may not be able to generate net revenues sufficient to
offset our expected cost increases and planned investments in our business and platform. As a result, we may incur significant losses for the foreseeable future, and may not be able to achieve and sustain profitability. If we fail to achieve and
sustain profitability, then we may not be able to achieve our business plan, fund our business or continue as a going concern.
Our business is
subject to the risks of earthquakes, fire, floods and other natural catastrophic events, and to interruption by
man-made
problems such as power disruptions, computer viruses, data security breaches or
terrorism.
Our corporate headquarters are located in Southern California, a region known for seismic activity. A significant
natural disaster, such as an earthquake, fire or a flood, occurring at our headquarters, at one of our other facilities or where a business partner is located could adversely affect our business, results of operations and financial condition.
Further, if a natural disaster or
man-made
problem were to affect Iron.io and/or AWS, our network service providers or Internet service providers, this could adversely affect the ability of our customers to
use our products and platform. In addition, natural disasters and acts of terrorism could cause disruptions in our business, or the businesses of our customers or service providers. We also rely on our network and third-party infrastructure and
enterprise applications and internal technology systems for our engineering, sales and marketing and operations activities. Although we maintain incident management and disaster response
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plans, in the event of a major disruption caused by a natural disaster or
man-made
problem, we may be unable to continue our operations and may endure
system interruptions, reputational harm, delays in our development activities, lengthy interruptions in service, breaches of data security and loss of critical data, any of which could adversely affect our business, results of operations and
financial condition.
Risks Related to the Ownership of Our Securities and Our Public Company Operations
Our officers, directors and principal stockholders have significant voting power and control over our company and may take actions that could conflict
with the interests of our other stockholders.
As of February 28, 2018, our officers and directors, and our principal
stockholders that were known by us to hold more than 5% of our common stock, collectively control approximately 60% of our voting securities. If any of our officers, directors and principal stockholders purchases additional shares of common stock,
the aggregate percentage of their equity ownership may increase further. As a result, these stockholders, if they act together, will be able to control the management and affairs of our company and most matters requiring stockholder approval,
including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change of control and might adversely affect the market price of our common
stock. This concentration of ownership may not be in the best interests of our other stockholders. Due to such concentration of ownership, we may take actions with respect to our business that may conflict with the desire of other stockholders.
Furthermore, pursuant to a voting agreement (Voting Agreement), Acacia Research Corporation (Acacia) and entities
affiliated with our executive officers and directors (the Holders) have the right to designate all nine directors on our board of directors (the Board). In addition, pursuant to the Voting Agreement, each of Acacia and the
Holders has the right to appoint three designees to attend and participate in the meetings of our Board in a
non-voting
capacity. In addition, so long as our Board includes three directors designated by
Acacia, unless approved by a majority of our Board, including at least one director designated by Acacia, we cannot take any corporate action, and the Holders cannot take any stockholder action, to effect any (i) merger, consolidation or other
business combination involving our company, (ii) sale, transfer or other disposition of any capital stock or assets of our company, or (iii) acquisition, license out of the ordinary course of business, or merger or other business
combination with a subsidiary of our company, in each case of (i) through (iii), in which the transaction value exceeds $50 million.
As a result of these arrangements, Acacia and the Holders will be able to exercise significant control over our business operations and on all
matters requiring stockholder approval. This voting control may also discourage transactions involving a
change-of-control
of our company, including transactions in
which our stockholders might otherwise receive a premium for their shares.
We are a controlled company within the meaning of the NASDAQ
Marketplace Rules and, as a result, are exempt from certain corporate governance requirements. Therefore, our stockholders may not have the same protections afforded to stockholders of companies that are subject to such requirements.
Acacia and the Holders collectively beneficially own more than 50% of our voting power. Pursuant to the Voting Agreement, Acacia and the
Holders (acting as a group) can designate and elect all nine directors on our Board. As a result, we are considered a controlled company within the meaning of the corporate governance standards of NASDAQ.
Under these rules, a listed company of which more than 50% of the voting power is held by an individual, group or another company is a
controlled company and may elect not to comply with certain corporate governance requirements, including, the requirements that, among others:
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a majority of our Board consist of independent directors as defined by the applicable rules and regulations of NASDAQ;
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the compensation of our executive officers to be determined, or recommended to our Board for determination, by independent directors constituting a majority of the independent directors of our Board in a vote in which
only independent directors participate or by a compensation committee comprised solely of independent directors; and
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director nominees be selected, or recommended to our Board for selection, by independent directors constituting a majority of the independent directors of our Board in a vote in which only independent directors
participate or by a nomination committee comprised solely of independent directors.
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At this time, we are unable to comply
with certain of NASDAQs corporate governance requirements with respect to our Board, as a majority of our Board does not consist of independent directors, and as such, are electing to avail ourselves to the exemptions afforded to controlled
companies. We intend that our Compensation Committee and our Corporate Governance and Nominating Committee will continue to be comprised solely of independent directors. We may not be able to comply with all of NASDAQs other corporate
governance requirements. As a controlled company, our stockholders will not have the same protections afforded to stockholders of companies that are subject to all of NASDAQs corporate governance requirements.
If Acacia or the Holders sell a controlling interest in our company to a third-party in a private transaction, our other stockholders may not realize
any
change-of-control
premium on shares of our common stock and we may become subject to the control of a presently unknown third-party.
Acacia and the Holders control a majority of the voting power of our outstanding common stock, and have the ability to sell some or all of
their shares of our common stock in a privately negotiated transaction, which, if sufficient in size, could result in a
change-of-control
of our company without the
approval of other stockholders and without providing for a purchase of their shares. The ability of Acacia and the Holders to privately sell their shares of our common stock, with no requirement for a concurrent offer to be made to acquire the
shares of other stockholders, could prevent other stockholders from realizing any
change-of-control
premium on their shares of our common stock that may otherwise accrue
to Acacia and the Holders on their private sale of our common stock. Additionally, if either Acacia or the Holders privately sell their equity interest in our company, we may become subject to the control of a presently unknown third-party. Such
third-party may have conflicts of interest with those of other stockholders. In addition, if Acacia or the Holders sell a controlling interest in our company to a third-party, any future indebtedness we have may be subject to acceleration, and our
other commercial agreements and relationships could be impacted, all of which may adversely affect our ability to run our business as described herein and may have a material adverse effect on our operating results and financial condition.
Our common stock price has been extremely volatile and could continue to fluctuate widely in price, which could result in substantial losses for
investors.
The market price of our common stock has been, and we expect will continue to be, subject to extreme fluctuations over
short periods of time. For example, the closing price of our common stock since May 12, 2017, has ranged from a low of $7.76 to a high of $65.91. These fluctuations may be due to various factors, many of which are beyond our control, including:
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the volume and timing of our revenues and quarterly variations in our results of operations or those of others in our industry;
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announcement of new contracts with customers or termination of contracts with customers;
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the introduction of new services, content or features by us or others in our industry;
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disputes or other developments with respect to our or others intellectual property rights;
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media exposure of our products or of those of others in our industry;
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changes in governmental regulations;
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additions or departures of key personnel;
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sales of our common stock;
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speculative trading practices of certain market participants;
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changes in earnings estimates or recommendations by securities analysts; and
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general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors.
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In recent years, the stock markets generally have experienced extreme price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of the listed companies. Broad market and industry factors may significantly affect the market price of our common stock, regardless of our actual operating performance. These fluctuations have been, and
may continue to be, even more pronounced in the trading market for our common stock.
In addition, in the past, class action litigation
has often been instituted against companies whose securities have experienced periods of volatility in market price. Securities litigation brought against us following volatility in our stock price, regardless of the merit or ultimate results of
such litigation, could result in substantial costs, which would hurt our financial condition and operating results and divert managements attention and resources from our business.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business, our market or our competitors, or if
such analysts adversely change their recommendations regarding our common stock, the market price and trading volume of our common stock could decline.
The trading market for our common stock will be influenced by the research and reports that securities or industry analysts may publish about
us, our business, our market or our competitors. If any of the analysts who cover us adversely change their recommendations regarding our common stock or provide more favorable recommendations about our competitors, the market price of our common
stock may decline. If any of the analysts who cover us were to cease coverage of us or fail to publish reports on us regularly, visibility of our company in the financial markets could decrease, which in turn could cause the market price or trading
volume of our common stock to decline. These concerns may be exacerbated by the relatively small size of our public float, which limits the trading volume of our common stock.
We have incurred and will continue to incur increased costs as a result of becoming a public company, including costs related to compliance with the
Sarbanes-Oxley Act and other regulations.
As a public company, we have incurred and will continue to incur significant legal,
accounting, insurance and other expenses that we had not incurred as a private company, including costs associated with public company reporting requirements. We also have incurred and will continue to incur costs associated with compliance with the
Sarbanes-Oxley Act and related rules implemented by the SEC. The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to continue to increase our
legal and financial compliance costs and to make some activities more time-consuming and costly. If we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions and other
regulatory action and potentially civil litigation.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective
internal control over financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the
effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. In addition, we will be required to have our independent registered public accounting firm attest to the
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effectiveness of our internal control over financial reporting in the later of our second annual report on Form
10-K
or the first annual report on Form
10-K
following the date on which we are no longer an emerging growth company. Our compliance with Section 404 of the Sarbanes-Oxley Act will require that we incur substantial accounting expense and expend
significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. If we are not able to
comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the
market price of our stock could decline and we could be subject to sanctions or investigations by NASDAQ, the SEC or other regulatory authorities, which would require additional financial and management resources.
Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate
financial statements. We expect that we will need to continue to improve existing, and implement new operational and financial systems, procedures and controls to manage our business effectively. Any delay in the implementation of, or disruption in
the transition to, new or enhanced systems, procedures or controls, may cause our operations to suffer and we may be unable to conclude that our internal control over financial reporting is effective and/or to obtain an unqualified report on
internal control our financial reporting from our auditors as may be required under Section 404 of the Sarbanes-Oxley Act. This, in turn, could have an adverse impact on trading prices for our common stock, and could adversely affect our
ability to access the capital markets.
We had identified a material weakness in our internal control over financial reporting for the years ended
December 31, 2016 and 2015, and we may not be able to successfully maintain effective internal control over financial reporting.
We identified control deficiencies in our financial reporting process that constituted a material weakness for the years ended
December 31, 2016 and 2015. The material weakness related to the lack of competent accounting personnel with the appropriate level of knowledge, experience and training in generally accepted accounting principles and SEC reporting requirements
with respect to equity transactions, resulting in several adjustments to the interim financial statements and also a restatement of our previously issued financial statements as of and for the years ended December 31, 2016 and 2015.
We have implemented certain measures to remediate this material weakness. For example, we hired a new Chief Financial Officer in October 2016,
a new Corporate Controller in March 2017 and a new Senior Director of Financial Reporting in June 2017. We have also engaged outside consultants with requisite experience to assist us in the financial reporting process and utilized interim
professionals to strengthen our accounting and financial reporting team. We believe that the actions we have taken remediated the material weakness.
However, we may suffer from other material weaknesses in the future. If we fail to maintain effective internal control over financial
reporting in the future, such failure could result in a material misstatement of our annual or quarterly financial statements that would not be prevented or detected on a timely basis and which could cause investors and other users to lose
confidence in our financial statements, limit our ability to raise capital and have a negative effect on the trading price of our common stock. Additionally, failure to maintain effective internal control over financial reporting may also negatively
impact our operating results and financial condition, impair our ability to timely file our periodic and other reports with the SEC, subject us to additional litigation and regulatory actions and cause us to incur substantial additional costs in
future periods relating to the implementation of remedial measures.
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Substantial future sales of our common stock, or the perception in the public markets that these sales may
occur, may depress our stock price.
Our common stock is traded on NASDAQ and, despite certain increases of trading volume from
time to time, there have been periods when our common stock could be considered thinly-traded, meaning that the number of persons interested in purchasing our common stock at or near bid prices at any given time may be relatively small. Equity or
equity-related financing transactions that result in a large amount of newly issued shares that become readily tradable, or other events that cause current stockholders to sell shares, could place downward pressure on the trading price of our stock.
In addition, the lack of a robust resale market may require a stockholder who desires to sell a large number of shares of common stock to sell the shares in increments over time to mitigate any adverse impact of the sales on the market price of our
stock.
If our stockholders sell, or the market perceives that our stockholders intend to sell (for various reasons, including the ending
of restrictions on resale), substantial amounts of our common stock in the public market, including shares issued upon the exercise of any outstanding options or warrants, the market price of our common stock could fall. Sales of a substantial
number of shares of our common stock may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate. In the event that the price of our stock falls, we may
become involved in securities class action litigation that could divert managements attention and harm our business.
Certain
holders of our common stock had previously entered into
lock-up
agreements, which expired on February 15, 2018. If the holders of these previously restricted shares sell them or are perceived by the
market as intending to sell them, the market price of our common stock could drop significantly.
Further, we have registered all common
stock issuable under our 2014 Stock Option/Stock Issuance Plan, our 2017 Stock Incentive Plan and our Employee Stock Purchase Plan. As a result, these shares can be freely sold in the public market once issued. If a large number of these shares are
sold in the public market, the sales could reduce our trading price.
In the future, we may also issue our securities if we need to raise
additional capital or in connection with acquisitions. The number of shares of our common stock issued in connection with a financing or acquisition could constitute a material portion of our then-outstanding shares of our common stock.
We are an emerging growth company and a smaller reporting company under the U.S. federal securities laws, and the reduced
reporting requirements applicable to emerging growth companies and smaller reporting companies could make our common stock less attractive to investors.
We are an emerging growth company and a smaller reporting company under U.S. federal securities laws. For as long as we
continue to be an emerging growth company and/or a smaller reporting company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies or smaller
reporting companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy
statements and (to the extent we continue to qualify as an emerging growth company) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not
previously approved. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our common stock held by
non-affiliates
exceeds $700 million as of any June 30 date before that time, in which case, we would no longer be an emerging growth company as of the following December 31. Even if we do not
qualify as an emerging growth company, we may still qualify as a smaller reporting company, which would allow us to take advantage of many of the same exemptions from disclosure requirements that are applicable to emerging growth companies.
Investors may not find our common stock attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may
be more volatile.
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We do not currently expect to pay any cash dividends.
The continued operation and expansion of our business will require substantial funding. Accordingly, we do not currently expect to pay any cash
dividends on shares of our common stock. Any determination to pay dividends in the future will be at the discretion of our Board and will depend upon results of operations, financial condition, contractual restrictions, restrictions imposed by
applicable law and other factors our Board deems relevant. Additionally, we expect these restrictions to continue in the future. Accordingly, realization of a gain on an investment in our common stock will depend on the appreciation of the price of
our common stock, which may never occur. Investors seeking cash dividends in the foreseeable future should not purchase our common stock.
Our
anti-takeover provisions could prevent or delay a change in control of our company, even if such change in control would be beneficial to our stockholders.
Provisions of our amended and restated certificate of incorporation and amended and restated bylaws as well as provisions of Delaware law could
discourage, delay or prevent a merger, acquisition or other change in control of our company, even if such change in control would be beneficial to our stockholders. These include:
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authorizing the issuance of blank check preferred stock that could be issued by our Board to increase the number of outstanding shares and thwart a takeover attempt;
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a provision for a classified board of directors so that not all members of our Board are elected at one time;
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the removal of directors only for cause;
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no provision for the use of cumulative voting for the election of directors;
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limiting the ability of stockholders to call special meetings;
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requiring all stockholder actions to be taken at a meeting of our stockholders (i.e. no provision for stockholder action by written consent); and
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establishing advance notice requirements for nominations for election to the Board or for proposing matters that can be acted upon by stockholders at stockholder meetings.
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In addition, the Delaware General Corporation Law prohibits us, except under specified circumstances, from engaging in any mergers,
significant sales of stock or assets or business combinations with any stockholder or group of stockholders who owns at least 15% of our common stock.
Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for
certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.
Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an
alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for:
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any derivative action or proceeding brought on our behalf;
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any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or to our stockholders;
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any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws; or
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any action asserting a claim against us governed by the internal affairs doctrine.
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Any person or entity purchasing or otherwise acquiring any interest in shares of our capital
stock shall be deemed to have notice of and consented to this provision of our amended and restated certificate of incorporation. This
choice-of-forum
provision may
limit a stockholders ability to bring a claim in a judicial forum that it finds favorable or convenient for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors,
officers and other employees. Alternatively, if a court were to find these provisions of our amended and restated certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or
proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition or results of operations.