SoundHound AI(SOUN) - 2024 Q2 - Quarterly Report

Revenue Performance - Revenue for the three months ended June 30, 2024, was $13.462 million, compared to $8.751 million in the same period in 2023[11] - Revenue for the six months ended June 30, 2024, was $25.056 million, compared to $15.458 million in the same period in 2023[11] - Total revenue for the three and six months ended June 30, 2024 was $13,462 thousand and $25,056 thousand, respectively[72] - Revenue by geographic location for the three months ended June 30, 2024 was highest in France at $4,688 thousand, followed by the United States at $3,844 thousand and Korea at $3,559 thousand[72] - Total revenue for the three months ended June 30, 2024 was $13.462 million, a 53.8% increase from $8.751 million in the same period in 2023[73] - Over time revenue for the six months ended June 30, 2024 was $20.283 million, a 49.9% increase from $13.535 million in the same period in 2023[73] - Product royalties revenue for the six months ended June 30, 2024 was $17.612 million, a 22.7% increase from $14.356 million in the same period in 2023[74] - Service subscriptions revenue for the six months ended June 30, 2024 was $7.221 million, a 802.6% increase from $0.800 million in the same period in 2023[74] - Revenue for the six months ended June 30, 2024, increased by 62% to $25.056 million compared to $15.458 million in 2023[202] - Service subscriptions revenue surged by 789% to $3.638 million for the three months ended June 30, 2024, compared to $409,000 in 2023[205] - Americas region revenue increased by 409% to $7.578 million for the six months ended June 30, 2024, compared to $1.490 million in 2023[204] Net Loss and Operating Performance - Net loss for the three months ended June 30, 2024, was $37.322 million, compared to $23.307 million in the same period in 2023[11] - Net loss for the six months ended June 30, 2024, was $70.331 million, compared to $50.737 million in the same period in 2023[11] - Loss from operations for the three months ended June 30, 2024, was $21.985 million, compared to $16.483 million in the same period in 2023[11] - Loss from operations for the six months ended June 30, 2024, was $50.514 million, compared to $41.685 million in the same period in 2023[11] - Net loss for the three months ended June 30, 2024 was $37.3 million[12] - Net loss for the six months ended June 30, 2024 was $70.3 million[15] - Net loss for the six months ended June 30, 2024, was $70.3 million, compared to $50.7 million in the same period in 2023[18] - Net loss for the three months ended June 30, 2024 was $37.322 million, compared to $23.307 million in the same period in 2023[136] - Net loss for the six months ended June 30, 2024 was $70.331 million, compared to $50.737 million in the same period in 2023[136] - Basic and diluted net loss per share for the three months ended June 30, 2024 was $(0.11), the same as in 2023[136] - Basic and diluted net loss per share for the six months ended June 30, 2024 was $(0.23), compared to $(0.25) in 2023[136] - Net loss for the six months ended June 30, 2024, was $70.331 million, a 39% increase from $50.737 million in 2023[202] Research and Development Expenses - Research and development expenses for the three months ended June 30, 2024, were $15.738 million, compared to $11.736 million in the same period in 2023[11] - Research and development expenses for the six months ended June 30, 2024, were $30.616 million, compared to $25.920 million in the same period in 2023[11] - Research and development expenses increased by 34% to $15.738 million for the three months ended June 30, 2024, compared to $11.736 million in 2023[201] Interest and Debt - Interest expense for the three months ended June 30, 2024, was $4.086 million, compared to $4.735 million in the same period in 2023[11] - Interest expense for the six months ended June 30, 2024, was $9.750 million, compared to $5.831 million in the same period in 2023[11] - The company prepaid the SVB March 2021 Note in full on April 14, 2023, paying a total of $18.5 million, including a prepayment premium of $0.3 million and accrued interest of $0.1 million, resulting in a loss on debt extinguishment of $0.4 million[95] - The company prepaid the SCI June 2021 Note in full on April 14, 2023, paying a total of approximately $11.7 million, including a prepayment premium of approximately $0.2 million, resulting in a loss on debt extinguishment of $0.4 million[97] - The company entered into a Senior Secured Term Loan Credit Agreement on April 14, 2023, providing for a term loan facility of up to $100.0 million, with an effective interest rate of 25.18% for the quarter ended June 30, 2024[99][101] - The company prepaid the Term Loan in full on June 7, 2024, paying a total of $105.6 million, including a prepayment premium of $5.0 million and transaction expenses of $0.6 million, resulting in a loss on debt extinguishment of $15.6 million[102] - Loss on early extinguishment of debt increased by 1762% to $15.587 million for the three months ended June 30, 2024, compared to $837,000 in 2023[201] Cash and Liquidity - Net cash used in operating activities for the six months ended June 30, 2024, was $40.4 million, compared to $34.2 million in 2023[18] - Total cash, cash equivalents, and restricted cash equivalents as of June 30, 2024, were $200.9 million, up from $129.5 million at the end of 2023[18] - Total unrestricted cash and cash equivalents on hand as of June 30, 2024, was $200.2 million, which is expected to fund operations for at least the next twelve months[25] Acquisitions and Goodwill - The company completed the acquisition of Synq3, Inc. on January 3, 2024, in a cash and stock transaction[23] - The company acquired SYNQ3 for a total preliminary purchase consideration of $15.7 million, including $3.9 million in cash and 5,755,910 shares of Class A Common Stock[43][45] - SYNQ3 contributed $6.1 million in revenue and a net loss of $3.1 million from January 3, 2024, to June 30, 2024[54] - The company recorded $1.9 million in acquisition-related expenses, with $0.5 million and $0.8 million incurred during the three and six months ended June 30, 2024, respectively[53] - The preliminary purchase price allocation includes $12.705 million in intangible assets, with developed technology valued at $5.210 million and customer relationships at $4.800 million[53] - The company agreed to pay up to $0.8 million in cash and 1,434,936 shares of Class A Common Stock as contingent earnout consideration based on future revenue targets[48] - Goodwill recognized from the SYNQ3 acquisition is $6.039 million, reflecting expected synergies and intangible assets not separately recognized[50] - The company withheld $0.5 million in cash and 1,179,514 shares of Class A Common Stock as holdback consideration for 15 months[46] - Contingent holdback consideration was estimated at $0.4 million, with $0.1 million in cash and the remainder in shares of Class A Common Stock[47] - The company issued 2,033,156 restricted shares of Class A Common Stock to certain SYNQ3 employees, subject to time and performance-based vesting conditions[49] - The company recorded measurement period adjustments, including a $0.3 million increase in goodwill and a $0.6 million decrease in contingent holdback consideration[51] - The company completed an immaterial acquisition on June 14, 2024, with a total preliminary purchase consideration of $1.0 million, acquiring net assets of $2.2 million and recognizing a preliminary gain on bargain purchase of $1.2 million[57] - Intangible assets acquired in the June 14, 2024 acquisition include developed technology valued at $1,530 thousand, customer relationships at $960 thousand, and tradename at $60 thousand, all with a useful life of 3.0 years[58] - Goodwill balance as of June 30, 2024 was $6.039 million, resulting from the acquisition of SYNQ3[78] Stock and Equity - Total additional paid-in capital as of June 30, 2024 was $886.4 million[12] - Accumulated deficit as of June 30, 2024 was $662.7 million[12] - Total additional paid-in capital as of June 30, 2023 was $567.8 million[13] - Accumulated deficit as of June 30, 2023 was $554.2 million[13] - Issuance of Class A common stock under the Equity Distribution Agreement generated $97.7 million in additional paid-in capital[12] - Stock-based compensation for the three months ended June 30, 2024 was $7.3 million[12] - Issuance of Class A common stock for equity incentive awards added $1.5 million to additional paid-in capital[12] - The company issued and sold 835,011 shares of Series A Convertible Preferred Stock between January 18, 2023 and January 20, 2023, raising approximately $25.0 million in cash proceeds, with all shares converted to Class A Common Stock by June 30, 2024[106][109] - The company converted 70,241 shares and 475,005 shares of preferred stock into 2,553,361 shares and 16,624,215 shares of Class A Common Stock during the three and six months ended June 30, 2024, respectively[110] - The company is authorized to issue 500,000,000 shares of capital stock, consisting of 455,000,000 shares of Class A Common Stock, 44,000,000 shares of Class B Common Stock, and 1,000,000 shares of preferred stock[113] - Each share of Class B Common Stock converts into one share of Class A Common Stock upon mandatory or optional conversion, with automatic conversion upon certain future events, potentially increasing the relative voting power of long-term Class B Common Stock holders[114] - Class B Common Stock conversion: 4,750,000 shares converted to Class A Common Stock in the six months ended June 30, 2024, compared to 1,700,000 shares in the same period in 2023[115] - Equity Line of Credit (ELOC) Program: Company sold 25,000,000 shares for $71.7 million in 2023, with a volume-weighted average stock price ranging from $1.75 to $4.26 per share[118] - Sales Agreement: Company sold 37,907,219 shares under the Sales Agreement in the six months ended June 30, 2024, raising $137.3 million in gross proceeds at a weighted-average price of $3.62 per share[120] - Equity Distribution Agreement: Company sold 21,228,617 shares under the Equity Distribution Agreement in the six months ended June 30, 2024, raising $100.4 million in gross proceeds at a weighted-average price of $4.73 per share[122] - Stock-based compensation: Total unrecognized stock-based compensation expense related to unvested RSUs was $50.9 million as of June 30, 2024, expected to vest over a weighted average period of 2.24 years[130] - Performance-based RSUs: 300,000 and 1,376,234 Performance-Based RSUs granted during the three and six months ended June 30, 2024, respectively, with total unrecognized stock-based compensation expense of $8.9 million[129] - Stock-based compensation expense: Total stock-based compensation expense for the six months ended June 30, 2024, was $14.2 million, compared to $13.9 million in the same period in 2023[133] Other Financial Metrics - Other comprehensive income for the three months ended June 30, 2024 was a loss of $30,000[12] - Accounts receivable balances from Customer A and C accounted for 27% and 17% of the total accounts receivable balance as of June 30, 2024[34] - For the six months ended June 30, 2024, Customer A and C accounted for 27% and 29% of the company's revenue, respectively[34] - The company's Chief Executive Officer reviews financial information on a consolidated basis, and the company operates as a single reportable segment[33] - Professional service revenue recognized over time for the three and six months ended June 30, 2024 was $1.4 million and $2.9 million, respectively[65] - Hosted services revenue for the three and six months ended June 30, 2024 was $8,524 thousand and $17,431 thousand, respectively[72] - Licensing revenue for the three and six months ended June 30, 2024 was $3,413 thousand and $4,506 thousand, respectively[72] - Monetization revenue for the three and six months ended June 30, 2024 was $101 thousand and $223 thousand, respectively[72] - Unbilled account receivables - current as of June 30, 2024 was $9.859 million, a 91.9% increase from $5.138 million as of December 31, 2023[75] - The aggregate amount of the transaction price allocated to remaining performance obligations as of June 30, 2024 was $10.6 million, with $5.5 million expected to be recognized within one year[76] - Intangible assets net carrying value as of June 30, 2024 was $13.147 million, with developed technology accounting for $5.857 million[79] - Accrued litigation liabilities as of June 30, 2024 was $1.932 million, related to the SYNQ3 litigation[82] - The company has a minimum commitment of $98.0 million in cloud costs over a seven-year period with a cloud service provider[83] - The company has 3,665,996 Public Warrants and Private Warrants issued and outstanding as of June 30, 2024, with no exercises during the three and six months ended June 30, 2024 and June 30, 2023[93] - The company sold 10,465,581 shares of common stock in July 2024 at an average price of $4.74 per share, generating $49.6 million in gross proceeds[156] - The company acquired Amelia Holdings, Inc. for approximately $80.0 million, consisting of $10.0 million in cash and 13,084,112 shares of Class A Common Stock[157] - The company paid $70.0 million to retire a majority of the assumed debt from the Amelia Holdings acquisition, leaving a remaining balance of approximately $39.7 million[157] - The company has over 155 granted patents and 115 pending patents, spanning fields such as speech recognition, natural language understanding, and machine learning[163] - The company's Voice AI market is estimated to grow to over $140 billion per year by 2024[163] - The company's Houndify platform offers over 100 content domains, including points of interest, weather, flight status, and sports[162] - The company's Collective AI architecture is based on proprietary technologies CaiLAN and CaiNET, ensuring fast and accurate responses[162] - SoundHound's revenue model consists of three pillars: Product Royalties, Service Subscriptions, and Monetization, with the majority of current revenue coming from Product Royalties[172][176] - The company expects monetization revenue to grow over time, primarily from advertising in the music identification app and leads/transactions on voice-enabled products and services[175][176] - SoundHound acquired SYNQ3 in January 2024, expanding its AI customer service solutions and reaching over 10,000 signed locations in the restaurant industry[177] - The company has remaining performance obligations of $10.6 million as of June 30, 2024, with $5.5 million expected to be recognized within one year[187] - SoundHound's cost of revenues includes cloud hosting, data center expenses, content fees, and personnel-related costs, as well as amortization of technology acquired from SYNQ3[190] - Research and development is the company's largest operating expense, primarily consisting of personnel costs and technological supplies[193] - SoundHound has globalized its solution to include 25 languages and expects growth across multiple geographies[183] - The company experienced a loss on extinguishment of debt related to the repayment of the Senior Secured Term Loan Credit Agreement and other notes in 2023 and 2024[196] - SoundHound's deferred revenue can fluctuate due to billing frequency and other factors, and is not directly correlated with revenue growth[187] - The company anticipates fluctuations in revenue due to factors such as acquisitions, supply and demand of end-user products, and sales force effectiveness[188] - Gross margin decreased to 61% for the six months ended June 30, 2024, from 75% in 2023[203] - The company has $395.5 million of U.S. federal