Additional Details on Veritone / Wazee Acquisition

Josh Stinehour | August 20, 2018

Last week Veritone announced the acquisition of Wazee Digital.  Veritone decided to not provide details of the acquisition during its second quarter financial release and instead held a dedicated conference call today to discuss the acquisition.

What was disclosed during the initial announcement was Wazee’s 2017 revenue of $19.3 million and the purchase price of $15 million, consisting of 50% Veritone’s stock and 50% cash consideration.

After Veritone’s earnings announcement, the stock declined over 20% from a Monday (8/13) close of $15.80 to a Tuesday (8/14) open at $12.30.  The decline has a negative impact to Wazee shareholders since the number of Veritone shares (in the $7.5 million consideration) is calculated based on the volume weighted trading price for the 20 day period ending three business days prior to the date of the agreement (Monday August 13, 2018).

On the conference call, Veritone’s CFO Pete Collins indicated the stock price used in the Wazee calculation is $15.27.  Veritone’s stock closed today’s trading session at $11.22.  Meaning Wazee will receive about 26.5% less value based on current trading prices versus.  Wazee is then receiving $5.5 million in stock (as opposed to $7.5 million) for a total purchase price of $13 million, equating to a multiple of multiple of 2017 revenue of 0.67x.


Additional Details on Wazee Acquisition

Veritone disclosed additional details on Wazee’s revenue breakdown between its licensing business and its asset management business.  Core (asset management) revenue, was $8 million in 2017 and licensing contributed $11 million.  The slide below from today’s call illustrates the breakdown.



During the call Veritone’s management indicated Wazee benefited from a $1.2 million government project in second half of 2017, which has concluded.

Management did not provide figures or specific commentary on the profitability of Wazee.  Veritone did indicate the combined acquisitions of Wazee Digital and its second acquisition (announced last week) of Performance Bridge Media was profitable on an EBITDA basis, but breakeven when removing the one-time Wazee government project.

Gross margins levels of Wazee were indicated in the range of Veritone’s AI platform business (65% – 70%) and the market growth rate for Wazee cited by management was low single digits.

While Wazee and Veritone have an existing commercial partnership , based on responses to analyst questions it would appear this doesn’t generate any existing revenue today for Veritone (any such OEM revenues would disappear in the combination).


Acquisition Rationale for Wazee Digital

Veritone’s diligence on the MAM segment included direct experience with several suppliers through existing licensing agreements.  The MAM space is quite crowed – there are almost 70 exhibitors at the upcoming IBC Show indicating they sell MAM solutions.

“Veritone entered into several aiWare licensing deals with various MAMs and DAMs in the global marketplace.  What we found was so impressive about Wazee solution is that it is 100% cloud-based unlike others that have on premise components that have to run behind the firewall” stated Veritone’s CEO Chad Steelberg. “From our perspective we think it is the best company in the entire MAM/DAM space” added Steelberg.

The Veritone management team segments the media technology industry into four categories: (1) Create, (2) Distribute, (3) Monetize, and (4) Analyze.  The below slide from Veritone’s investor presentation highlights how the combination with Wazee enables Veritone to participate in the Create, Distribute, and Monetize categories. Or in the words of Veritone management, “Integrate the power of cognition into these functions.”


In more plain terms, Veritone’s AI platform offering today is performing analysis on the broadcasted content by a media company (ESPN is regularly mentioned in the Company’s collateral), whereas Wazee’s MAM solutions are used in the production process to store the vast amounts of content generated in production.

Veritone then makes two points on driving business value through the integration: (1) Veritone’s technology can improve business process workflows starting at the Create segment and (2) the opportunity exists to monetize the vast amount of content generated in the production process that never reaches the consumer.

If this line of reasoning seems familiar, it is because the hope of improving the monetization of content archives is as old as content archives.  Of course, the promise of MAM solutions driving operational efficiency is as old as the category of MAM.  The only difference here is the use of Artificial Intelligence (“AI”).

Veritone does makes some novel points on the usual promise-of-MAM discussion. The management team is passionate on the inherent unstructured data of the media industry (audio, video files) requiring a greater degree of understanding (“cognition”) in order to drive business value, and the processing of the volumes of content produced is only possible through automated techniques.

Mr. Steelberg summarized the investment thesis on today’s call with the following, “The bigger opportunity isn’t so much cross-sales.  It is really about what happens when you have an AI-enabled end-to-end process function for the entire media and entertainment sector…the artificial intelligence that we see is really not about displacing humans, but rather about transforming the power of those historic processes where MAM/DAMS, I think, have been poorly deployed and lack core capabilities, primarily because artificial intelligence wasn’t there at the time those businesses were created.”


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