Veritone, Inc. (VERI) Q2 2021 Earnings Call Transcript

Veritone, Inc. (VERI -2.73%)
Q2 2021 Earnings Call
Aug 03, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Veritone second-quarter 2021 financial results conference call. [Operator instructions] I would now like to turn the conference over to Brian Alger, senior vice president investor relations and capital markets. Please go ahead, sir.

Brian Alger -- Senior Vice President Investor Relations and Capital Markets

Good afternoon, and welcome to Veritone second-quarter 2021 conference call. I am Brian Alger, senior vice president investor relations and capital markets. After the market closed today, Veritone issued a press release announcing results for the second quarter ended June 30, 2021. The press release and other supplemental information is available in the investor section of our website. Joining me for today's call are Veritone's chairman and CEO, Chad Steelberg; president, Ryan Steelberg; and CFO, Mike Zemetra. Following their remarks, we'll open up the call for questions.

Please note that certain information discussed on the call today will include forward-looking statements about future events and Veritone's business strategy and future financial and operating performance, including its expected net revenues and non-GAAP net loss for the third quarter and full year of 2021. These forward-looking statements are subject to risks, uncertainties and assumptions, that may cause the actual results to differ materially from those stated or implied by those statements. Certain of these risks and assumptions are discussed in Veritone's SEC filings, including its annual report on Form 10K. These forward-looking statements are based on assumptions as of today August 3rd 2021, and Veritone undertakes no obligation to revise or update them. During this call, the actual and forecasted financial measures we'll be discussing other than revenue will be presented on a non-GAAP basis, unless noted otherwise.

Reconciliations of these measures to the corresponding GAAP measures are included in the press release we issued today. These non-GAAP measures include a breakup of our results between core operations and corporate. Core operations consist of our aiWARE operating platform of software, SaaS, and related services, our content licensing and advertising services and their supporting operations, including direct cost of sales, as well as the operating expenses for our sales, marketing, and product development, and to a lesser extent, certain general and administrative costs. Corporate consists principally of general and administrative functions such as executive, finance, legal, people and IT, and other areas that support the entire company, including any public company-driven initiatives and supporting functions. Finally, I would like to remind everyone that this call is being recorded and will be made available for replay via a link on the investors section of the company's website at www.veritone.com.

Now, I'd like to turn the call over to our chairman and CEO, Chad Steelberg. Chad?

Chad Steelberg -- Chairman and Chief Executive Officer

Thank you, Brian, and thanks, everyone, for joining us on today's call. Q2 was once again another exceptional quarter for Veritone. From a financial perspective we delivered 45% year-over-year revenue growth. This continues our performance streak as we achieved our fifth consecutive record quarter.

Confidence and visibility in our continued growth are also improving. And as a result, today, we are raising our full-year guidance from $81 million to $100 million in consolidated revenue at the midpoint. This updated guidance represents a 73% increase in revenue and 66% improvement in our bottom line over 2020. On the technology front, we delivered aiWARE 3.0 which significantly expanded our core value proposition of accelerating and simplifying the adoption of artificial intelligence to an AI operating system that's both infrastructure and AI model agnostic. This proprietary technology is foundational to our diversified and differentiated products and services that continue to lead the AI revolution.

Our go-to-market strategy is also maturing. We continue to land new accounts and are rapidly expanding our product penetration within existing customers, which is a direct result of having a mature AI platform with strong go-to-market partners. This organic land and expand strategy has been implemented across our three vertical business units, media entertainment, government, and energy. Our SaaS growth and net revenue retention rates remain over 90% and 120%, respectively. So clearly, our strategy is working.

Ryan will provide more detail on the success of each of our verticals. And I'd like to highlight that we have successfully deployed our energy forecaster and controller solution to our lead energy utility customer in July. This important milestone is a precursor to what we continue to view as an unparalleled and disruptive force in the energy market and an obvious accelerant to Veritone's expansion. Regarding continued expansion, two weeks ago, we signed a definitive agreement to acquire PandoLogic, an AI-enabled talent acquisition platform. As a leading human capital management tool, PandoLogic solution can be applied universally and has the potential to transform talent acquisition and extend the adoption of aiWARE across nearly every industry. We expect this deal to close in late September of 2021 and be instantly accretive.

Immediately after closing, we expect to have over $70 million in cash, no debt, and a P&L at scale.  With this strong foundation, we intend to drive further aiWARE adoption and explosive growth going into 2022. Whether it be through organic development or inorganic combination, we believe we have inherent advantages driven by the power of aiWARE that lower customer acquisition costs increase the total lifetime value of the customer and strengthen both the depth and breadth of our customer relationships to artificial intelligence. So when we announce acquisitions, like PandoLogic, the value creation extends well beyond the obvious financials because we are expanding the integrated reach and penetration of both aiWARE and the PandoLogic platform, and consequently exponentially growing our serviceable market across all verticals. With that, I would like to now hand the call over to Ryan, our president and co-founder, to discuss our operational achievements in greater detail. Over to you, Ryan.

Ryan Steelberg -- Ryan Steelberg

Thank you, Chad, and good afternoon, everyone. We achieved record results in Q2 and in our first half of 2021, reflecting a maturing platform and a business strategy that is gaining significant traction. Our advertising and SaaS solutions revenues continue to post exceptionally strong growth, and our content licensing revenues are recovering from pandemic-constrained conditions. For the six months to date, total revenues are up 49% with SaaS solutions revenues up 68%, advertising revenues up 56% and our content licensing up 15%. Solid growth across the board. In Q2, our SaaS revenue grew by 86% year over year. M&E contributed significantly as both renewals and new customer activity accelerated in the quarter.

And GLC quarterly revenues were up solid triple digits. Yet the real story for SaaS was the bookings, which reached our largest bookings quarter ever, 42% higher than our previously best quarter way back in Q4 2019. Our first half advertising revenue growth at 56% continues to vastly outpace peers. Part of this is driven by gaining market share and signing new accounts. However, it's worth noting that on a year-over-year basis we have also increased our average gross billings per active client by more than 16%. Our ad network, VeriAds, is increasing its contribution, and since it was launched at the end of 2019 has rapidly grown to more than 8 million annualized.

Finally, content licensing also posted year-over-year growth. Although it's still not quite back to pre-pandemic levels, content production around the globe continues to come back online. We expect double-digit growth as we leverage the improving landscape and the market share gains secured over the past 18 months. Looking forward into the second half of the year, we expect to build on the strong momentum already established in the first six months.

Through international expansion, new innovative offerings like Marvel.ai, deeper penetration of federal government agencies, regulatory-driven engagement at the state and local level, or through M&A like PandoLogic, Veritone is accelerating both our tactical and strategic growth. And now, I will hand it over to Mike Zemetra, our CFO, to detail the financial results of the second quarter and outline our financial guidance for the third quarter and full-year 2021. Mike? 

Michael Zemetra -- Chief Financial Officer

Great. Thank you, Ryan. We are so excited about the recent progress at Veritone. For the fifth consecutive quarter, we posted record results and KPI's.

We continue to make excellent progress in more nascent markets, such as GLC and energy, and in July, we signed a definitive agreement for the accretive and strategic acquisition of PandoLogic. During my prepared remarks, I will discuss our year-over-year performance in Q2 of 2021 compared with Q2 of 2020, as well as some commentary on our sequential performance versus Q1 2021. The financial impact from the anticipated closing of PandoLogic in 2021 and annual 2021 guidance which we raised significantly. Turning to Q2 2021 performance. Revenue was 19.2 million, up 45% from Q2 of 2020.

Year over year, aiWARE SaaS Solutions revenue grew an astonishing 86% to 5.6 million in revenue compared with 3 million revenue in Q2 2020. Media and entertainment, and government, legal and compliance services drove this improvement. Our revenue pipeline has never been stronger. Our partner-driven channel strategy continues to deliver results with new bookings of $3.6 million in Q2 2021, exceeding the entirety of the past two quarters combined. In the later delivery stages for energy, we continue to remain incredibly bullish on our pipeline and growth prospects in this multi-billion dollar market opportunity.

And we expect to announce material developments and new bookings in the upcoming months. In addition, our aiWARE enabled advertising services grew by 42% year over year, driven by both the ramp of our VeriAds Network and growth in our agency services. Lastly, content licensing revenue grew to 3.7 million, a 13% improvement over Q2 2021 due in part to the growth in overall users of our content library services and also by COVID-19 timing. We reported solid KPI results in Q2. As mentioned, our Q2 2021 bookings were 3.6 million, up 92% sequentially and over 50% from Q2 2020. Moreover, we continue to see better-than-industry KPI's.

Most notably, Q2 2021 gross retention continues to exceed 90%, and our net retention exceeded 120% when compared to Q2 2020 year over year. During Q2 2021, we also grew advertising agency gross billings per client to 715,000, up 16% over Q2 2020. As we mentioned during our Q1 2021 call, we expected Q2 2021 agency revenue and gross bookings to continue to outpace prior year, although expected slightly lower agency advertising sequentially from Q1 2021 due to the timing of certain onetime nonrecurring campaigns from a customer in Q1. Our aiWARE SaaS Solutions grew total accounts on the platform by 4% in Q2 2021 versus Q2 of 2020. Q2 2021 gross profit reached 14 million, improving 4.5 million or 47% from Q2 of 2020. This increase was driven largely by the expansion of our aiWARE SaaS Solutions gross margins to 73.8%, an improvement of over 27% versus Q2 2020.

Sequentially, aiWARE SaaS margins continue to improve each quarter, driven largely by the higher revenue level, with a blended incremental margin of over 80% on new accounts. This reflects both customer growth across the platform and dramatically lower unit processing costs from efficiencies realized in our aiWARE operating system. Overall, Q2 gross margins increased to 72.8% in Q2 2021 compared with 71.6% in Q2 of 2020. As we continue to scale over the next 12 to 24 months, including the planned addition of PandoLogic in late Q3 2021, we expect aiWARE gross margins to exceed 80% as early as Q4 2021. Excluding the impact from non-cash and nonrecurring charges of 8.8 million, Q2 non-GAAP net loss was 3.9 million, a 1.8 million or 32% improvement from Q2 of 2020.

This was driven by increased core operations net income offset by relatively flat corporate year over year. In Q2, core operations posted record non-GAAP net income of 1.4 million, compared with a non-GAAP net loss of 0.5 million in Q2 2020. This 1.9 million year-over-year improvement was principally driven by the 4.5 million gross profit increase, offset by greater investments across engineering, product, sales and marketing, to drive current-year plan results. In Q2, corporate non-GAAP net loss of 5.3 million was relatively flat when compared with 5.2 million in Q2 of 2020. Turning to our balance sheet.

We ended Q2 2021 with cash and restricted cash of 121.5 million, up 5.8 million from 115.7 million at December 31, 2020. This increase was driven largely by net cash provided by financing activities of 7.1 million, offset by net cash used by operations of 1.0 million. Net cash outflows from operating activities were 1 million during the first half of 2021 due principally to net positive changes in our working capital of 8.6 million, principally associated with the growth and timing of payments in our advertising services during the first half of 2021, offset by net cash usage driven primarily by our 7.8 million non-GAAP net loss during the period. As a reminder, approximately 40% of our reported cash is essentially held for payments at third parties from our advertising agency services, and our working capital will continue to fluctuate depending on the timing and due dates of payments in any given period. Our unencumbered cash at the end of Q2 2021 was over 70 million, consistent with Q4 2020.

We also ended June 30, 2021, with 32.9 million shares outstanding. Turning to PandoLogic. In July, we signed a definitive merger agreement to acquire PandoLogic, an Israeli-based technology platform focused on intelligent hiring at scale for large global enterprises. The deal is subject to customary closing conditions and is expected to close by late September of 2021. Terms of the deal were $150 million acquisition price payable as follows, 50 million in cash and 35 million in stock, or 1.7 million shares on closing, and the remaining 65 million payable in cash and stock based upon PandoLogic meeting financial targets in 2021 and 2022. Immediately after the closing in on a pro forma basis, we project to end Q3 2021 with over 70 million in cash and no debt.

Assuming the entire 150 million is paid out, the impact would be an approximate 7.8% dilution to shareholders. Turning to PandoLogic's financial profile. The acquisition will be immediately accretive to Veritone. More specifically, for fiscal 2021, PandoLogic is projected to generate over 15 million in revenue and over 25 million of EBITDA. This values the transaction at roughly three times revenue.

Gross margins are over 90%. PandoLogic has approximately 140 employees, of which about half are based in Israel and half in the U.S., and more than a third are engineers. On a pro forma basis for fiscal 2021, and assuming we had combined with PandoLogic at the beginning of 2021, we would generate over 130 million in revenue and approximately 10 million of non-GAAP and income, improvements of over 225% versus Veritone's 2020 revenue and over 30 million of non-GAAP net income as compared to Veritone's 2020. PandoLogic does have seasonality in its business with Q2 and Q4 having greater concentrations of revenue and consistent with hiring patterns of its customers. It is important to note that the PandoLogic transaction is subject to customary closing conditions in Israel.

It is not scheduled to close until late September 2021, which is reflected in our updated Q3 and full-year 2021 guidance. Turning to financial guidance. Given our continued high visibility and confidence in our revenue pipeline, and including the projected closing of PandoLogic in late Q3 2021, we expect Q3 revenue to be between 21.5 million to 22.5 million, representing a 40% increase year over year at the midpoint and sequentially up from our strongest quarter ever in Q2 2021, and Q3 non-GAAP net loss to be between 4.5 million and 3.5 million, representing a 90% improvement year over year at the midpoint. We plan to continue to invest responsibly in resources in key areas to help accelerate our growth throughout 2021. With this, we are forecasting our core operations to once again be profitable in Q3 2021 and our corporate overhead non-GAAP net loss to be relatively consistent with Q2 2021. For full-year 2021, including the impact of PandoLogic, we expect consolidated revenue to be between 96.5 million and 103.5 million, representing a year-over-year increase of over 73% at the midpoint and expect our SaaS solutions revenue growth to be over 200% year over year.

And we expect non-GAAP net loss to be between 8.5 million and 5.5 million, representing over 65% improvement year over year at the midpoint. Before I close, I'd like to note that we will be speaking at the following investor conferences. The D.A. Davidson Bison Select Virtual Conference tomorrow and the Oppenheimer 24th Annual Technology, Internet & Communications Conference next week on August 11th. That concludes my prepared remarks, I'll now hand it off to Chad. Chad?

Chad Steelberg -- Founder and Chief Executive Officer

Thanks Mike. We're very pleased with our quarterly results and excited about our PandoLogic acquisition. We view this as a transformative combination that delivers unquestionable financial benefits, changing the operating profile of Veritone overnight, as well as expanding our serviceable market in the human capital management, our first horizontal business unit that will no doubt unlock further growth opportunities. As we wrap up today's call, I'd like to provide a few closing strategic observations that I believe are fundamental to understanding Veritone and my confidence in our continued financial and operational success. aiWARE is now battle proven and has successfully performed and scored of use cases across 1,000 plus clients in a variety of configuration and industries.

aiWARE is the alpha and omega of our strategy where it has the capacity to help organizations with every AI opportunity, and I mean every without hyperbole, by accelerating and improving the development, deployment and management of AI-powered solutions within the enterprise. In Q2, we launched MARVEL.ai, our synthetic voice platform. The entire solution was built on aiWARE in Automate Studio in less than 45 days, including both organic and third party AI engines. The solution went live at our virtual tech expo investor day on a Friday, and had over 1,000 trials over the weekend, proving both the demand in the technology, as well as the scalability of the aiWARE operating system. MARVEL.ai has tremendous momentum and we expect its impact in the market in subsequent quarters.

This proven aiWARE acceleration is the cornerstone of our PandoLogic acquisition. Veritone and PandoLogic share the same echoes about using artificial intelligence to make the world a better place by delivering a better outcomes for people. PandoLogic has been focusing its AI capabilities on human capital management, specifically on talent recruiting, for a number of years now, delivering vastly superior results for some of the most accessible companies in the world. Together, Veritone and PandoLogic will make talent acquisition more predictable and efficient, and we believe this marriage will help remove hidden bias and prejudice, thus helping build more diverse organizations and a stronger society. Veritone will continue to make strategic investments where we believe our financial and mission objectives are aligned and the odds of success are high. We believe now more than ever that humanity's best future is intrinsically dependent on artificial intelligence in delivering better outcomes for people. Now, we would like to open up the call for questions.

Operator?

Questions & Answers:

Operator

[Operator instructions] And the first question will come from Darren Aftahi with ROTH Capital Partners. Please go ahead.

Darren Aftahi -- ROTH Capital Partners -- Analyst

Hi, guys, good afternoon. Thanks for taking my questions. First, on the SaaS bookings number, really strong. Can you just kind of give us a glimpse into what is the buildup with that? Is it M&E, is it GLC, is it energy? Is it all of the above? Just any kind of granularity would be helpful.

Chad Steelberg -- Chairman and Chief Executive Officer

Yes. Hey, Darren. Mike, why don't you take that?

Michael Zemetra -- Chief Financial Officer

Yes. I mean we've had strong bookings kind of across the board. So we obviously represented some material growth in M&E and GLC, and both of those have strong bookings. And so we're seeing both strong bookings in terms of expanded renewals and net new logos.

Darren Aftahi -- ROTH Capital Partners -- Analyst

Great. And then, if my math is correct, I guess the midpoint, your Q4 imply revenues, like 14.5 million. Can you maybe help us get a better sense of kind of what's PandoLogic versus core Veritone, appreciating that the Pando business will seasonally be stronger in 4Q? 

Chad Steelberg -- Chairman and Chief Executive Officer

Mike, why don't you take that?

Michael Zemetra -- Chief Financial Officer

Yes. So I mean, we don't really give that level of detail on our guidance. But what I can tell you is, I think you can infer that, obviously, we have strong momentum. And absent Pando, we would have been raising our guidance on an annualized basis.

And then obviously, the addition of PandoLogic will add some more incremental revenue in Q4.

Darren Aftahi -- ROTH Capital Partners -- Analyst

That's helpful. Thanks. Last one for me, on your utility customer, the East Coast, I assume that's the one we've kind of been speaking about in the past. I know you guys said there was some kind of data readouts that you're waiting on.

So I guess my question really is, what are next steps? Is that data readout there? Are there milestones we're waiting on? And how kind of have dominoes fall through maybe other potential customers in that vertical?

Chad Steelberg -- Chairman and Chief Executive Officer

Yes. I'll take that one. So it's kind of a three-phase approach. First, it is really about forecasting and controlling the inverters that are connected to the solar arrays.

We delivered that software in July successfully to the customer. And that's been again implemented and collecting data. So we're very excited to see that first major milestone achieved in July. The second major is then working on the battery infrastructure, which obviously provides solar smoothing to start to create that holistic system of controlling both your PV array, as well as your solar batteries, in conjunction with the overall energy mix of traditional sources.

And so we expect that to start to hit delivery dates in Q3, and possibly even early Q4. But it's looking all very positive. Still no definitive end date in sight. But this is kind of our sole focus at this point in time with a massive backlog of energy companies all kind of paying close attention to what's happening here.

Darren Aftahi -- ROTH Capital Partners -- Analyst

Great. Thank you.

Chad Steelberg -- Chairman and Chief Executive Officer

Sure.

Operator

The next question will come from Brad Reback with Stifel. Please go ahead. 

Brad Reback -- Stifel Financial Corp. -- Analyst

Great, thanks very much. I know when you announced the Pando deal recently, you talked about the opportunity for cross-sell. What's been the feedback from your existing customers thus far? 

Chad Steelberg -- Chairman and Chief Executive Officer

Yup. Ryan, why don't you take that?

Ryan Steelberg -- Ryan Steelberg

Yes. I think at this stage, obviously, since we haven't closed, we've been operating sort of by the book. So we haven't really entangled too much of a proactive co-marketing, co-sale effort. That being said, we've obviously been contacted inbound by a multitude of different customers, who we're very excited about and think that there's great applicability and immediate demand for PandoLogic's functionality.

But again, we're sort of gearing up. And we expect to be hitting the ground running on a fully integrated co-sale, co-marketing effort when we successfully close the transaction.

Brad Reback -- Stifel Financial Corp. -- Analyst

Great, thanks very much. 

Operator

And the next question will come from Pat Walravens with JMP. Please go ahead. 

Patrick Walravens -- JMP Securities -- Analyst

Great. Thank you. And congratulations to you guys. So No.

1, is there -- in your Q3 guidance does that include any PandoLogic revenue? 

Michael Zemetra -- Chief Financial Officer

Yes. I'll take that one. So what we've said, Pat, is we expect to close PandoLogic late in Q3. And that's really late in September.

And so you can infer that there's a little bit in there, but not a whole lot.

Patrick Walravens -- JMP Securities -- Analyst

OK. And how much risk is there of that? 

Michael Zemetra -- Chief Financial Officer

Yes. There's always risk with timing. This one is, is really customary in Israel. There's a mandatory 50 days stay.

And so does that have risk? We've been told small risk that it could move out. But if it does move out, it shouldn't have a big impact again on the quarter. It's more impactful in Q3 and Q4. Yes.

Patrick Walravens -- JMP Securities -- Analyst

And you may have said this, and I'm sorry if I missed it. I'm sorry. Where does the PandoLogic revenue go? Will it go in SaaS?

Michael Zemetra -- Chief Financial Officer

SaaS. Yup. SaaS revenues.

Patrick Walravens -- JMP Securities -- Analyst

OK. This is very high level. Why is it going SaaS instead of in advertising?

Michael Zemetra -- Chief Financial Officer

Yes. I mean, the way that this is sold and marketed is as a SaaS product. It's not sold and marketed as an advertising product. So we're including it as such.

Patrick Walravens -- JMP Securities -- Analyst

OK, go one level deeper for us. What's the key difference there?

Ryan Steelberg -- Ryan Steelberg

The clients are paying for the use of the software to as their primary platform as compared to agency representation revenues. So it's not a service-based business with humans. They're paying for access to the platform and the use of the platform to manage their acquisition. So it's 100% a SaaS product.

The execution of that is the programmatic placement of job listings. But actually, the budgets don't even come from the same department as well. So it's kind of two clear differentiations why it sits squarely in SaaS.

Patrick Walravens -- JMP Securities -- Analyst

OK, perfect. And so this goes back to a question other investors asked me, and it's not my space, but I'm sure you guys will know in this call. Is this more like the Trade Desk, then the old Rocket Fuel?

Ryan Steelberg -- Ryan Steelberg

There's definitely some parallels to some of the more established DFT's out there. Yes. We do think it's going to be a little different where we've already going to be doing, I say more further integration into the HR systems of the respective clients. But yes, there is a lot of similarities from a functional perspective. 

Patrick Walravens -- JMP Securities -- Analyst

OK, great. And then last one, and I'm not sure, Mike, maybe it's you. But when people asked me, when investors asked me, what sort of long-term durable, organic growth rate for this business? How would you guys answer that?

Michael Zemetra -- Chief Financial Officer

I mean, on our analyst day, we kind of used 44% CAGR to get in the next five years to get us to that $500 million growth rate. I think that's probably a good proxy. I mean, obviously, that will likely be accelerated over the next 18 months with the acquisition of PandoLogic. But I think that's a good long-term growth rate.

Patrick Walravens -- JMP Securities -- Analyst

All right, perfect. Thank you.

Operator

The next question will come from Nick Mattiacci with Craig-Hallum. Please go ahead. 

Nick Mattiacci -- Craig-Hallum Capital Group -- Analyst

Hi, this is Nick on for Chad Bennett. Thanks for taking our questions. Just on advertising revenue. I think this is the first quarter we've seen a sequential decline in quite some time that business.

Just need additional color on what's going on there. And then how should we think about that advertising revenue in Q3 in the back half?

Michael Zemetra -- Chief Financial Officer

So with respect to Q1 and what we mentioned, Nick, is we had one customer, DraftKings, that had an exceptional quarter. And the reason they had an exceptional quarter was largely due to states opening up some of their gambling, etc. That didn't repeat in Q2, it most likely won't repeat in Q3, but we feel really good that there's a possibility it does expand again in Q4. So year over year, the advertising was solid in terms of growth, but sequentially, we forecasted it was going to be down a little bit.

Nick Mattiacci -- Craig-Hallum Capital Group -- Analyst

Got it. And then just one housekeeping item. Where did RPO end up at the quarter? 

Michael Zemetra -- Chief Financial Officer

4.7 million.

Nick Mattiacci -- Craig-Hallum Capital Group -- Analyst

Got it. Thank you.

Michael Zemetra -- Chief Financial Officer

Yup.

Operator

The next question will come from Mike Latimore with Northland Capital Markets. Please go ahead.

Unidentified speaker

Hi, guys. This is [Inaudible] on behalf of Mike Latimore. Thanks for taking my question. Can you give me an update on the prospects for reaching phase 3 of Air Force imagery deal and what would be the timing of that?

Ryan Steelberg -- Ryan Steelberg

Phase 3 of the Air Force contract?

Unidentified speaker

Yes.

Ryan Steelberg -- Ryan Steelberg

I don't think we have an update on timing though I'd say we're still active. Everything looks full speed ahead as we progress through phase 2. But no, we don't have any updated guidance on moving into Q3 -- I mean, phase 3 at this time.

Unidentified speaker

OK. And what has been the biggest of advertising gross billing for active customer growth?

Ryan Steelberg -- Ryan Steelberg

I think part of it is we've been leveraging aiWARE and kind of our data insights to continue to improve results, and therefore, that has afford us the ability to increase spend on behalf of our larger customers. So our ability to maintain and grow larger brands with increased budgets is obviously very accretive. And those net returns usually dropped to the bottom line. So it's been sort of a combination of technology enhancements and AI-driven results, coupled with a hyper focus on larger and bigger brands who have greater propensity to spend.

Unidentified speaker

Thank you.

Operator

[Operator instructions] And this will conclude our question-and-answer session. I would like to turn the conference back over to Chad Steelberg, chairman and CEO, for any closing remarks. Please go ahead, sir. 

Chad Steelberg -- Chairman and Chief Executive Officer

Thank you, operator. And thank you all for joining us on today's call. Once again, our entire team executed exceptionally well and delivered record results. Veritone's strength continues to build as our customers find increasing value in our AI solutions.

Moreover, as the understanding and awareness of the benefits of having an AI platform growth, we see our sales cycles and new market penetration accelerating. We want to personally thank each of our team members for their tireless effort, and for the unwavering belief in pursuit of our mission of building the world's most valuable AI company. Our teams are well-positioned to capitalize on our market and technology advantages as we pursue unprecedented opportunities in all areas of our business. Goodbye.

Operator

[Operator signoff]

Duration: 47 minutes

Call participants:

Brian Alger -- Senior Vice President Investor Relations and Capital Markets

Chad Steelberg -- Chairman and Chief Executive Officer

Ryan Steelberg -- Ryan Steelberg

Michael Zemetra -- Chief Financial Officer

Darren Aftahi -- ROTH Capital Partners -- Analyst

Brad Reback -- Stifel Financial Corp. -- Analyst

Patrick Walravens -- JMP Securities -- Analyst

Nick Mattiacci -- Craig-Hallum Capital Group -- Analyst

Unidentified speaker

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