Veritone, Inc. (VERI) CEO Chad Steelberg on Q1 2021 Results - Earnings Call Transcript

Veritone, Inc. (NASDAQ:VERI) Q1 2021 Results Earnings Conference Call May 4, 2021 4:30 PM ET

Company Participants

Brian Alger - Senior Vice President of Corporate Development and Investor Relations

Chad Steelberg - Chairman and Chief Executive Officer

Ryan Steelberg - President

Mike Zemetra - Chief Financial Officer

Conference Call Participants

Darren Aftahi - Roth Capital Partners

Brad Reback - Stifel

Nick Mattiacci - Craig-Hallum

Aaron Kimson - JMP

Pat Walravens - JMP

Operator

Good day and welcome to the Veritone Inc. First Quarter 2021 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Brian Alger, Senior Vice President of Corporate Development and Investor Relations. Please go ahead.

Brian Alger

Good afternoon and welcome to Veritone's first quarter 2021 conference call. I'm Brian Alger, Senior Vice President of Corporate Development and Investor Relations. After the market closed today, Veritone issued a press release announcing results for the first quarter ended March 31, 2021. This press release is available on the investors 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 second 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 10-K.

These forward-looking statements are based on assumptions, as of today May 4, 2021 and Veritone undertakes no obligation to revise or update them. During this call, the actual and forecasted financial measures will be discussing other than revenue will be presented on a non-GAAP basis unless otherwise noted. Reconciliations of these measures to the corresponding GAAP measures are included in the press release we issued today.

These non-GAAP measures include a breakout 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 the direct costs 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 investor 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

Thank you, Brian. And thanks everyone for joining us on today’s call. We are off to a tremendous start in 2021. Veritone is in the strongest position in our history with over $125 million in cash, no debt and a rapidly growing pipeline of business. Our momentum from last year is accelerating from a revenue, market share and technology perspective.

Our total year-over-year revenue growth accelerated to 54% in Q1 compared with 35% in Q4. Our Q1 performance exceeded both the top and bottom line guidance we provided just two months ago, and our outlook continues to improve. Underpinning this growth and everything we do at Veritone is aiWARE, the world's leading operating system for artificial intelligence aiWARE’s unique architecture enables unparalleled scalability and deployment flexibility, delivering over 500 machine learning models, dozens of applications and a developer suite that accelerates enterprise AI adoption. The market is rapidly shifting their focus to aiWARE as more and more organizations come to realize the need for an operating system for their machine learning applications and solutions.

In March, I highlighted the key factors that are driving Veritone’s leadership role in the AI powered future, to recap and provide further insights. First, we are targeting a large and accelerating market expected to be in excess of $100 billion in just a few years. aiWARE is limitless, capable of serving any industry. We are now selling direct and through channel partner’s aiWARE into a number of new markets and the initial pilot customer feedback has been positive.

Second, aiWARE already orchestrates hundreds of cognitive models, and hosts dozens of applications across a growing set of industries, demonstrating not only the breadth, but depth of our expertise in AI. This includes of course, our patented prediction and optimization models that we expect to accelerate the green energy revolution.

Third, VeriSign provides run AI anywhere solutions with a vibrant ecosystem of technology and channel partners, system integrators and developers. Whether your organization runs on Azure, AWS, or your own servers, aiWARE is there and ready to handle your cognitive computing needs.

And finally, aiWARE is based on a standards driven architecture that is accelerating development and deployment of AI solutions across multiple industries and use cases. This standards based approach creates an open framework for partners to deploy and extend aiWARE with their own models and applications.

Veritone continues to thrive because our customers continue to find value in our AI solutions. The strength we demonstrated last year continues to build as we stay true to our core mission of building a safer, more vibrant, transparent and empowered society through artificial intelligence.

Our -- is expanding rapidly, not only with media and entertainment companies, federal, state and local government agencies and energy industry leaders, but in a wide range of other global markets as well. Our pipeline and visibility into on-going growth opportunities continues to build. And as a result, we are increasing our full year guidance, which we now expect to grow by 40% year-over-year at the midpoint driven by the accelerating growth in our staff services, which we expect to achieve at least 65% year-over-year growth in 2021.

While the M&E and government verticals are the primary drivers of our recent acceleration, Veritone's energy offering are poised to deliver crucial and transformative enhancements to an increasingly complex energy infrastructure. Unlike SCADA and distributed energy resource management systems, Veritone’s energy with this patented AI models and applications is the only solution capable of providing latency free prediction, control and optimization across the geographically distributed power grid.

Industry experts and participants know that as more and more clean energy comes onto the grid at the utility level and at the independent and residential levels, the requirements for autonomous monitoring prediction and control is only going to grow. Our technical progress and sales pipeline gives us tremendous confidence that the energy vertical will rapidly grow to match the strength we're seeing in our other more mature verticals.

For those of you on the call who are new to the energy market, let me break it down. In layman's terms, we make the grid plug and play compatible with new energy generation and storage solutions. So rather than energy providers having to manually reprogram their energy network in a sub optimal way to handle unpredictable energy flow as a result of green energy technology, aiWARE now learns, and manages the supply, distribution, storage and delivery of energy autonomously and in real time.

Bottom line. This means the world can accelerate its march toward the green energy, future, and trust and an AI powered grid will intelligently adjust to ensure the delivery of clean, quality, reliable and cost effective energy to customers.

Next week at our investor day and technology Expo, we'll be providing a much more detailed look into our business, and some of the new technology innovations that we believe will drive additional growth and business opportunities for our partners and customers.

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

Thank you, Chad. And good afternoon, everyone. As Chad mentioned, we had a very strong first quarter, and our momentum is accelerating. AI driven advertising grew by 72% year-over-year, including $2 million from our emerging ad network VeriAds. By comparison, VeriAds contributed $4 million over all of 2020. Our SaaS revenue grew by 51% year-over-year in Q1. M&E generated strong growth sequentially, and was up over 30% year-on-year. The government legal and compliance or GLC vertical, delivered over 60% sequential growth and well over 100% growth versus Q1 of 2020.

As anticipated, Q1 was a period of implementation and initial deployment for our energy vertical, which we expect to deliver meaningful revenues and transformational results this year. I will go into our progress on the energy front in just a bit.

Finally, content licensing posted year-over-year growth for the first time since the pandemic halted sporting events and media production. Q1 was an exceptional quarter for advertising. Overcoming our typical Q1 seasonality, which is particularly notable as our strong Q4 set the bar even higher. As our KPIs illustrate, we continue to drive increasing revenues on a per client basis.

In addition, we have also been successful in adding a number of significant new clients, giving us great confidence that 2021 will be another year of solid double digit growth in advertising. As I mentioned, in Q1, our VeriAds network generated roughly half the revenue that are recorded in all of 2020. We see enormous opportunity for VeriAds to be a meaningful contributor to our overall growth and profitability going forward.

At the current run rate, we expect to more than double our ad network revenue in 2021 versus 2020. Before I detailed SaaS and licensing, I think it is important for everybody on this call to understand why our advertising vertical has been so strong and continue to take market share. It all starts with superior and timely data. Since we started Veritone in 2014, we have been using aiWARE not only for ad verification, but also for search discovery, measurement and attribution. We leverage aiWARE to provide our partners unparalleled results and we do it at huge scale, executing over 75,000 unique ad integrations per month.

On a gross billings basis, we will place more than $300 million in ad this year, with majority going into digital influencers directly. Our VeriAds network leverages our relationships with leading brands, together with our relationships with the broadcaster's that license our technology to provide a unique solution that is further accelerating this growth.

Looking at SaaS. From a financial standpoint, the numbers speak for themselves. What has been more exciting, however, is the acceleration and activity and the broadening of our sales funnel across all of our verticals. M&E SAS grew revenue 9% sequentially. We continue to retain and expand our relationships with key domestic customers like Odyssey and ESPN who are also continuing to add to our international roster of clients, including Nova broadcasting in Australia, world athletics and wireless group in the U.K., and Sony interactive out of Japan.

Our competence and predictability in this vertical remain high. GLC is accelerating and as great as the first quarter was, we believe we are just getting started. At the state and local level, we have very strong product fit, and are seeing accelerating awareness and adoption of our products. On the federal level, our traction within the DOJ and the DOD continues to expand. Without [Indiscernible] Thunder from our upcoming analyst day the new business opportunities we are now seeing with federal customers have grown from six and seven figure contracts to multiple eight figures. Channel partners like Microsoft, Deloitte, CICI, PIE, lighthouse, and others are all expanding our active pipeline of business. While nothing with the government seems to happen quickly, or on a predictable timeline, I'm proud to say that our strategy of technology first augmented by strong partners is beginning to pay off.

In our energy markets, we have made tremendous progress since March. We completed our implementation at our lead customer’s first site, and the data we have been collecting and modeling against is moving that project well along as well as beginning to attract more and more entities. Our energy team is now engaging three to five new potential customers per week. Recall, our solutions for the energy space are multifaceted, and each use case has a different combination of needs. We are finding that our stimulation forecaster controller and optimizer solutions are great fits for more and more applications in this market.

In our content licensing services, where we leverage the power of AI to index, search and reposition premium video and audio content for licensing by advertisers and content creators, we finally saw an uptick in Q1. Sporting events like March Madness and the Masters Golf tournament returned, and broader content production and distribution have improved across the board. Our Q1 content licensing revenue was up 17% over Q1 last year, and we expect that the market to continue to improve.

As the global economy continues to emerge from the various COVID restrictions, we believe that our licensing revenue will continue to increase. In summary, we continue to expect strong momentum and organic growth across all of our verticals in 2021. As we will discuss during our investor day and technology Expo, we believe that our strong product development pipeline will continue to position Veritone as the leader in AI applications, intelligence services and workflows.

And now I will hand it over to Mike Zemetra, our CFO to detail the financial results of the first quarter and outline our financial guidance for the second quarter and full year 2021. Mike?

Mike Zemetra

Thank you, Brian. For the fourth consecutive quarter, we posted record results in KPI’s across the board. During Q1 we delivered $18.3 million in revenue and a non-GAAP net loss of $3.9 million, both of which be our financial guidance. During my prepared remarks, I will discuss our year-over-year performance in Q1 compared with Q1 of 2020 and provide some comments on our sequential performance versus Q4 of 2020.

Turning to Q1 2021 performance, consolidated revenue of $18.3 million increased 54% from Q1 of 2020. Driving this improvement was aiWARE SaaS solutions and advertising revenues. aiWARE SaaS solutions grew 51% year-over-year to $4.7 million principally from GLC, which generated $1.3 million in revenue in Q1 2021, representing approximately 65% of the revenue generated by GLC in all of fiscal 2020 and an increase of over 150% compared with Q1 of 2020.

In Q1 2021, we sold important deliverables across government driven initiatives within both the Department of Justice and Department of Defense. While still in the early stages of deliverables across the energy market, we continue to remain incredibly bullish on our 2021 pipeline and growth prospects in this multibillion dollar market opportunity than we expect to announce material developments and new bookings in 2021.

Overall, our partner driven channel strategy continues to drive results, with our GLC revenue pipeline increasing more than 2x since Q4 2020.

aiWARE enabled advertising services grew by 72% year-over-year to $10.3 million driven by both the ramp of our VeriAd network and growth in our agency services. And content licensing revenues grew to $3.3 million, a 17% improvement over Q1 2020 due primarily to the resumption of sporting events and content production and distribution.

We were reported solid KPI results in Q1. We grew advertising services, gross billings per active client to 713,000 up to 34% year-over-year and up 13% sequentially. This unseasonal Q1 outperformance reflects the timing of one time campaigns from certain clients that are not expected to recur at the same rate in Q2.

As such in Q2, we expect advertising revenues to be slightly lower sequentially, that expect revenue and gross bookings to continue to outpace prior year. Our aiWARE SaaS solutions grew total accounts on the platform by 12% in Q1 versus Q1 of 2020. New bookings are also up year-over-year, even with significant pending deals with GLC in energy customers shifting to the mid to latter part of 2021.

Q1 gross profit for the company reached $13.5 million improving $4.8 million or 56% from Q1 of 2020. This increase was largely driven by the expansion of our aiWARE SaaS solutions gross margins to 72% an improvement of over 55% versus Q1 2020.

Sequentially, aiWARE SaaS margins continue to improve each quarter, driven largely by the higher revenue level, with a blended incremental margin of 80% on new accounts. This reflects both customer growths across the platform and dramatically lower unit costs from efficiencies realized in our aiWARE operating system.

Overall Q1 gross margins increased to 73.6% compared with 72.7% in Q1 of 2020. As we continue to scale over the next 12 to 24 months, we expect to continue to improve gross margins. Our Q1 GAAP net loss was $30.6 million, $17.9 million greater than Q1 2020 due to two large one time charges in Q1 2021. First with a non-cash stock based compensation expense of $16.3 million for investing of performance stock rates, which triggered as a result of the improvement in our stock price.

Second was a onetime $3.4 million charge associated with the subleasing of our corporate space in Costa Mesa. Q1 non-GAAP net loss was $3.9 million, a 41% improvement from Q1 of 2020 driven by an improvement in core operations offset by relatively flat corporate year-over- year.

In Q1 core operations posted record non-GAAP net profit of $1.2 million improving $3.1 million year-over-year personally driven by the $4.8 million gross profit improvement. This was offset in part by higher investments in engineering product sales and marketing to drive our growth plans in 2021.

In Q1, corporate non-GAAP net loss of $5.1 million was incrementally higher than the $4.8 million in Q1 2020 as we responsibly invested in the infrastructure necessary to support our growth outlook, and added new corporate initiatives in Q1 2021 such as Sarbanes-Oxley compliance.

Turning to our balance sheet, we ended Q1 2021 with cash, cash equivalents and restricted cash of $128.3 million, up $12.6 million from December 31, 2020. During Q1, we issued approximately 860,000 shares in connection with the exercise of certain warrants and employee stock options and received net proceeds of $6.5 million.

Net cash inflows from operating activities were $6.2 million in Q1, due principally to positive changes in our working capital of $10.8 million associated primarily with the growth and timing of payments in our advertising services, offset by our non-GAAP net loss of $3.9 million.

As a reminder, a significant portion of our reported cash is essentially held for payments to broadcasters, in connection with our advertising agencies 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 Q1 was over $75 million versus approximately $70 million at the end of Q4. We ended Q1 with 32.7 million shares outstanding.

Turning to Q2 and full year 2021 financial guidance. Given our visibility to and confidence in our revenue pipeline, and more importantly, in our ability to drive renewals and net retention in our existing customer base. We expect Q2 revenue to be between $18.8 million and $19.2 million representing a 43% increase year-over-year at the midpoint and a sequential increase over our strongest quarter ever.

We expect Q2 non-GAAP net loss to be between $5 million $4.5 million, representing a 17% improvement year-over-year at the midpoint. We plan to continue to invest responsibly in resources and key areas to help accelerate our growth throughout 2021. With this, we are forecasting core operations to once again be profitable in Q2 2021 and corporate overhead non-GAAP net loss to be relatively consistent with Q1 2021.

For full year 2021, we are increasing our revenue guidance and narrowing our net loss guidance range. We now expect consolidated revenue to be between $78.5 million and $83.5 million representing a year-over-year increase in over 40% at the midpoint and reflecting aiWARE SaaS revenue growth of over 65% year-over-year. We expect non-GAAP net loss to be between $17 million and $14 million, representing a 25% improvement year-over-year at the midpoint.

Before I turn the call back to Chad. I'd like to invite you to our Virtual Investor and Tech Expo Day on Friday, May 14 at noon Eastern Time. If you have not signed up already, please do so, as we will be showcasing some new and game changing AI applications we plan to release over the next 12 months to 18 months. In addition, we will be speaking at three upcoming investor events on May 18 at Needham Annual Tech & Media Conference and in June at Stifel Cross Sector Insight and ROTH Virtual London Conferences. That concludes my prepared remarks. I will now hand it over to Chad. Chad?

Chad Steelberg

Thanks Mike. To summarize, 2021 is a year of acceleration for Veritone. From the revenue, market share, and technology perspective, our GLC and media related services are rapidly gaining momentum, and our energy solutions are poised for breakout financial performance. The Veritone team remains laser focused on our core mission to harness the power of AI to help build a safer, more vibrant, transparent and empowered society. Our performance over the past several quarters, as well as our increased 2021 guidance and long term outlook demonstrate that aiWARE is delivering on this mission.

Our expansion into the clean energy sector is a prime example of the universal applicability of aiWARE and the types of large and mission aligned that the Veritone will continue to make. We had Veritone see amazing opportunities for our technology to transform the world. And we believe firmly that our aiWARE operating system is fundamental to this endeavor.

With that, we would like to begin the Q&A session. Operator?

Question-and-Answer Session

Operator

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Darren Aftahi with Roth Capital Partners. Please go ahead.

Darren Aftahi

Hey guys, thanks for taking my questions. Congrats on the quarter. A few if I may. First, just on your raised guidance I'm just kind of curious on the AI. aiWARE like where's the marginal confidence coming from I think it's about two months of the day that we last spoke on earning. So I'm just kind of curious. That's question one.

Two, on the aiWARE SaaS bookings number, the 4.1 million in the quarter just kind of curious. That was a pretty strong number, how that's kind of broken out between the three verticals. And then I think last time guys spend some time [Indiscernible]. I'm just kind of curious, both data intelligence software partnerships, and then more broader enterprise software partnerships like where are we with the pipeline on hearing about any more of those coming down the pipe this year? Thanks.

Chad Steelberg

Hey, Darren, thanks so much for the question. This is Chad. At a macro level, I'll address some of it and then I'll tee it up to Mike and Ryan, but probably Ryan next to give a little bit more color on that. But aiWARE just continues to shine. I mean, I think I mentioned in my prepared remarks that the market is coming to us now. I think kind of first generation AI has been out there people have been burned by the consulting practices, they've tried the one-off point solutions. They've even tried to probably integrate some of it themselves into their, their solutions with their own engineering talent. And the complexities involved, it'd be like running software without an operating system on your on your PC right now, nobody does that.

And so the world is moving very quickly to realize that the benefits of an operating system both in terms of reliability, scalability, ease of building applications, across a diverse set of data, is really something that we have alone, pioneered in the market today. And we're reaping the benefits of that. And I think it's across the board. In terms of market segments, we're seeing that impact the M&E side, obviously, the GLC starts a great quarter this quarter, and energy is just getting out of gates. But the success that we're seeing there with the amount of customers, again, inbound calls and meetings and demonstrations we're doing plus the deployment on our existing customers, is going very, very well.

So I don't expect this to slow down at all. I think that we're just starting to hit the stride to where aiWARE becomes, the de facto standard in the industry in terms of building enterprise grade artificial intelligence applications. Ryan, you want to touch on some of the more details of what we're seeing in some of the GPUs?

Ryan Steelberg

Yep. I'll start with, we expect to have another very strong bookings quarter, in the current quarter. Q1 was particularly strong, where we did have a lot of pent up demand from a lot of legacy meeting entertainment customers. And for obvious reasons, with COVID and some of the budget constraints. A lot of those I'd say, interested parties, there were just delays. And so some of that was just, I would say a catch up. From M&E, pent up demand customers, were really starting to authorize spending.

In addition, we're seeing significant increased demand for digital media hub, which is our AI infused, cloud data like application for meeting entertainment specifically. And we put out a few brief recent press releases on that, I think we have a couple more coming in. So we see that as it is continuing to prove it has great product market fit both domestically and internationally. And we're also seeing demand for digital media hub, which obviously is built on aiWARE that is being extensible with an into other BUs, particularly government legal and compliance. So we're very excited about that.

And so I would expect those pillars of demand to continue to increase, and you'll see bookings accordingly. The other thing I would note, and this ties back to what Chad was talking about, is we continue to see customers expand the use of aiWARE with into different use cases, and subscribing to different applications. So we're really been able to show the efficiency gain that if I already have a customer, let's say where I'm indexing all of their audio and video content and M&E, the seamlessness by which to provision and acquire a new application against that same data set that's already been indexed in a time correlated fashion provides great yield. It provides us with additional revenues that are very high margin, and it provides just a lot of a more expanded and in depth value with the end customer. So pretty exhaustive on the on the M&E front. And we're seeing similar opportunities and demand in the other business units as well, particularly in GLC where you're seeing again entities and agencies, police agencies, and others, who have, again invested their assets and data with an into aiWARE, and then it makes it that much easier and more viable for them and more valuable for them to turn on and provisioning and purchase from us additional applications. So I think it's really new logos, which is helping drive the bookings, but also expansion of bookings with existing customers.

Chad Steelberg

Thanks, Ryan, let me just finish the final question you asked because there were three parts to that, which was technology integration. We continue to lean very heavily into both large and small technology partners, not just system integrators. These are the Alteryx, the Snowflakes and others of the world. So expect to see us continue that efforts throughout the balance of this year and probably perennially. The Alteryx relationship continues to grow. We continue to see nice, strong demand primarily through the leading system integrators of Alteryx solutions are now taking the integrated platform to their customers, which we've been focusing on through the balance of Q1 and we're very bullish about what that looks like in terms of some of the expansions and new offerings we're going to be announcing on aiWARE as early as tomorrow.

So, so stay tuned for our Texas Tech Expo, where we'll be having a lot of our customers and partners and new technology partners on stage with us talking about the integrated value proposition that we're bringing to the market.

Darren Aftahi

Okay, thanks.

Operator

The next question comes from Brad Reback of Stifel. Please go ahead Mr. Reback.

Brad Reback

Hi, great thanks very much. Maybe digging in a little deeper on the energy vertical. Can you give us a sense of how you guys actually help customers save money with their legacy infrastructure? Not just optimizing green, but how the tools help them actually optimize their installed assets? Thanks.

Chad Steelberg

Yes, absolutely. Yes. What's happening is, Brad, the energy markets and power grids are quickly changing from kind of their legacy based routes, where they had maybe one or two, power supplies, and a fairly stable customer base of demand. That was easily forecastable. So one of the first things that we bring to the market for even customers that are not even engaged with the green energy movement, but there are very few that aren't. But even in traditional senses, the ability for us to deploy a forecasting technology on the edge that's capable of understanding supply and demand.

In real time, we're talking about sub second forecasting with multiple nines of accuracy, both on the supply and demand side of that curve allows us to reprogram through the dynamic control of volts or inverters and other key infrastructure to ensure that you're maintaining the appropriate power distribution in terms of cleanliness of the power in terms of frequency modulation, and voltage regulation to end customers. And the benefits of doing that really prolong the lifespan of your grid infrastructure, but also allows you to optimize the supply of power to meet the demand in a more tightly narrowband range.

So you're going to be reducing costs across the board. This problem becomes exacerbated as you start having plug and play independent power providers, plugging into those existing legacy grids, as well as the grid operators themselves deploying green energy solutions, such as wind turbines, and PV arrays, couple that was storage arrays, and the problem becomes exponentially more challenging to orchestrate.

And so what Veritone does there is simply it does the problem gets more difficult. aiWARE is able to forecast all of the volt energy supply dynamics, as well as understand when to be charging and discharging battery cycles. And that's what our current solution is really bringing to the table. The challenge that power companies that you now are faced with is twofold. One, as soon as you have unpredictable power, you have to have excess power in the form of spinning reserves that are basically online power that is today just gets dumped into the ground, if it's not being utilized. What we're able to do with dramatically reduced spinning reserves for all customers both for green energy, as well as traditional infrastructure.

The second thing that we're able to do is optimize how we're routing that power to either discharge or charge the battery array, and even now start to push it to third party grid operators through exchanges. So as you're seeing, power spikes in, in, let's say, the Sun Belt, we can now route that energy through arbitrage base Nexus points on a programmatic basis.

So we think about this as literally turning a legacy based circuit based network into almost the equivalent of a packet based network similar to what the internet did. The Legacy telecommunications is what we're bringing to the table for the energy market. Now you'll hear data systems and others have been trying to do this for years but without a holistic infrastructure both for the forecasting supply and distribution control and optimization under one AI control for parameterization system. It was impossible.

So we're seeing just demand on an international basis. Country, Country leaders are now engaged with us. And everyone's really focused on the initial results that we plan on publishing very same summer first major utility customer.

Brad Reback

That's excellent. Thank you very much.

Chad Steelberg

Sure.

Operator

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

Nick Mattiacci

Hi, this is Nick Mattiacci on for Chad Bennett. Thanks for taking our questions. I wanted to ask about the core advertising agency business which looks like it accelerated from about 20% growth we saw in the second half of last year. How should we think about growth going forward for the core advertising agency business excluding contribution VeriAds.

Chad Steelberg

Why don’t we expect Ryan to take that one?

Ryan Steelberg

Sure. I think you can hear me. I would expect growth to be on par or surpass when and what it has over the last 12 months where we have a very solid and diverse client roster. We expect based upon the profile nature of those businesses, that their future investment into advertising, particularly as the investment into influencer based advertising will remain very high. So I would expect growth rates to be very strong going forward for the agency group.

Nick Mattiacci

Okay, and then would you ever be able to talk about kind of like a net dollar expansion rate for the advertising business or any color you can give around customer expansion for that business? Thank you.

Chad Steelberg

Yes, Mike, why don't why don't you take this one, Mike.

Mike Zemetra

We're not going to talk about net retention or net expansion. Hopefully, you'll attend our annual stay in more, some more color then. But I think we do. We did publish our KPIs which shows our increasing revenue per customer continues to increase. And so we expect that trend to continue as well.

Nick Mattiacci

Okay, got it. Thank you.

Operator

[Operator Instructions] The next question comes from Pat Walravens of JMP. Please go ahead.

Aaron Kimson

This is Aaron Kimson on for Pat Walravens. I was wondering on the GLC side. Are you guys seeing any increased momentum as the Biden administration passes the first 100 days the priorities become clear?

Chad Steelberg

Yes, this is Chad, I'll take that question. We're seeing kind of a couple things that I think everyone's aware of infrastructure spending and energy spending are obviously at the top of the stack with defense getting deprioritized. That aligns perfectly with kind of where we have been aligning aiWARE with some of the initial customers that we have in the Fed space, both on the energy infrastructure spending side through that division, as well as our focus has been heavily tailored towards the Department of Justice, and more infrastructure and cost savings, solutions versus defense space spending of AI.

So from our perspective, again, I think that's going to play well for us in the expanding budget. At a macro level, though artificial intelligence, we don't expect the Biden administration to be cutting that budget at all. In fact, we're hearing that they're going to continue to expand that budget, while other defense programs will most likely be significantly curtailed.

Aaron Kimson

Thank you very much.

Operator

The next question comes from Mike Latimore, with Northland Capital Markets. Please go ahead.

Unidentified Analyst

Hi, guys, this is [Indiscernible] on for Mike. Congrats on a great quarter. Could you give me an update on the status of the large energy deal that you're expecting in first half of 21?

Chad Steelberg

Was that question just to clarify the energy was that what the question?

Unidentified Analyst

Yes.

Chad Steelberg

So we have been working with a major utility operator in the south eastern portion of the United States for the last six months, doing a detailed deployment of the full end to end system, which includes the forecaster controller, an optimizer for our energy. And our expectation is that that relationship will continue to expand in Q1 and Q2 into multiple deployment opportunities as they continue to deploy Morgan Energy solutions and battery infrastructure. And simultaneously, the number of both independent power providers as well as other utility companies, both domestically and internationally, are engaged with us and that partner awaiting the results of that deployment and the models so that we can validate from a global standard in terms of how we can roll out that solution to a broader set of customers.

So I think it all is, is kind of rolling as expected. And we're very excited to see the pipeline building and the solution performing as was designed.

So whether it happens, this quarter next quarter will be yet to be determined, but we're very bullish about what we're seeing in the pipeline, and really the product market fit for our energy solutions in this massive infrastructure spend for green energy.

Unidentified Analyst

Okay. And were there any meaningful legal projects in 1Q, and any slate for 2Q?

Mike Zemetra

You know, I'll take this, right. It's, it's just constantly a bouncing ball for us. We see projects coming and going consistently. I think, as Ryan mentioned, what's interesting is just with our continued expansion into the Department of Justice, as well as independent agencies, and the technology providers that provide, legal support services. Our technology is becoming more and more readily adopted, and becoming much more broadly accepted as a solution throughout that legal industry. And so we're just getting more shots on goal from a revenue perspective and the size of the cases coming through, continue to also build. So my anticipation and expectation is, is that that business will continue to grow and accelerate, as we become more and more of a standard as a part of legal process and prosecution.

Unidentified Analyst

Alright, and the last one. The COVID is having a very different and by country. Is a COVID headwind or tailwind at this point for Veritone?

Chad Steelberg

I think COVID from our perspective is sort of a neutral point for us today. I think that we have, in the United States where most of our customers live today, we're not seeing a significant amount of impact. However, as we've expanded internationally, primarily into the European markets, obviously, they have a little bit more challenging situation on him there. And so yes, I think from a global standpoint, we're definitely seeing a slowdown in international expansion just due to focus. But with the majority of our business domestic today, we're not seeing really an impact of COVID on our operations on a broad cycle.

Unidentified Analyst

Okay, helpful. Thank you.

Chad Steelberg

Thank you.

Operator

And I understand that we do have Pat Walravens of JMP. Please go ahead with your question.

Pat Walravens

Oh, great. Thank you, it’s Pat. Hey, Mike, can I ask you, I mean, so it's been six or seven months, since you've been in this role. And part of the reason, you know, that you came on board was to help scale, the financial and operational systems is very tone grows. How's that going?

So, what have you done so far? What's - what are your priorities for the rest of the year in terms of building that kind of stuff out?

Mike Zemetra

Yes, thanks, Pat. I mean, we're, we are in deployment phase in terms of infrastructure. In scale, it's across the board between the balance of people, processes and systems. During the first quarter, we've invested in Sarbanes-Oxley, which are more controls, but there's also a process element associated with that, particularly as we start to go international, we've hired resources on financial systems to help us, spread. And so the back end, whether it's M&E, or international growth, or whatever gets thrown at us, and Sarbanes-Oxley, which is, what we're investing in at the moment. We're definitely planning the seeds to have that, hopefully, somewhat operational and functional by the latter half of this year.

Pat Walravens

Great. And are there things that what what, what prompted this question was the net dollar expansion rate question earlier. Are there things as that as investors, we might look forward to get in? I know, you had rails say, so I don't want to totally know how you can answer this. But are there are there metrics like that, that are pieces of information like that, that you would love to be able to give, but you need to make sure that that all the systems are in place for it before you do?

Mike Zemetra

100%. So we're in the process right now of going through our data, really driving into customer metrics to really understand not just customer performance, but relative performance. And then that allows the company to go back and focus on things like net retention, where we are seeing early data is showing. We're seeing a lot of success across the business on net retention. So we're hopeful to showcase some preliminary metrics during our analyst day which will give better visibility and then as we build out more robust systems and processes to have that just as a part of our DNA when we report.

Pat Walravens

Okay, great. That's super, thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Chad Steelberg for any closing remarks.

Chad Steelberg

Thank you, operator. And thank you all for joining us on today's call. As I said, I am so proud of the way our entire team has performed to achieve these record results. I want to personally thank each of them for their tireless efforts, and for their unwavering focus of continuing to pursue our vision of building the world's leading AI solutions company. We have huge opportunities in all areas of our business, and our teams are better positioned to capture them than they ever have been before. We look forward to seeing you next week at a Virtual Investor Day in Tech Expo. Goodbye.

Operator

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