SoundHound AI(SOUN) - 2024 Q3 - Quarterly Report

Cash and Cash Equivalents - Cash and cash equivalents increased to $135.6 million as of September 30, 2024, compared to $95.3 million as of December 31, 2023[11] - Total unrestricted cash and cash equivalents as of September 30, 2024 was $135.6 million[25] - Total cash, cash equivalents, and restricted cash equivalents increased to $136.417 million as of September 30, 2024, from $109.035 million at the beginning of the period[18] Accounts Receivable and Contract Assets - Accounts receivable, net of allowances, rose to $13.6 million as of September 30, 2024, from $4.1 million as of December 31, 2023[11] - Contract assets and unbilled receivable, net of allowance for credit losses, increased to $24.6 million as of September 30, 2024, from $11.8 million as of December 31, 2023[11] - Unbilled receivables from Customer A and C accounted for 35% each of the company's unbilled receivables balance as of September 30, 2024[35] Total Assets and Liabilities - Total current assets grew to $181.2 million as of September 30, 2024, compared to $113.5 million as of December 31, 2023[11] - Total liabilities increased to $203.7 million as of September 30, 2024, from $123.0 million as of December 31, 2023[11] - Stockholders' equity significantly rose to $296.0 million as of September 30, 2024, from $28.2 million as of December 31, 2023[11] - Total assets measured at fair value increased from $90.5 million as of December 31, 2023, to $117.7 million as of September 30, 2024, primarily driven by growth in cash equivalents and treasury bills[184] Revenue and Net Loss - Revenues for the three months ended September 30, 2024, were $25.1 million, an increase of 89% compared to $13.3 million in the same period in 2023[13] - Net loss for the three months ended September 30, 2024, was $21.8 million, compared to a net loss of $20.2 million in the same period in 2023[13] - Net loss for the nine months ended September 30, 2024, was $92.082 million, compared to $70.934 million for the same period in 2023[18] - The company reported a net loss of $21.8 million for the three months ended September 30, 2024, and $92.1 million for the nine months ended September 30, 2024[24] - Revenue for the three months ended September 30, 2024 was $25.094 million, compared to $13.268 million for the same period in 2023, representing an 89.2% increase[95] - Revenue for the nine months ended September 30, 2024 was $50.150 million, compared to $28.726 million for the same period in 2023, representing a 74.6% increase[95] - Hosted services revenue for the three months ended September 30, 2024 was $17.546 million, compared to $4.262 million for the same period in 2023, representing a 311.7% increase[95] - Service subscriptions revenue for the three months ended September 30, 2024 was $19.029 million, compared to $0.491 million for the same period in 2023, representing a 3775.6% increase[99] - The United States accounted for $13.471 million of revenue for the three months ended September 30, 2024, compared to $0.792 million for the same period in 2023, representing a 1601.1% increase[96] Operating Expenses and Loss from Operations - Research and development expenses for the three months ended September 30, 2024, were $19.5 million, an increase of 53% compared to $12.8 million in the same period in 2023[13] - Total operating expenses for the three months ended September 30, 2024, were $58.9 million, an increase of 112% compared to $27.8 million in the same period in 2023[13] - Loss from operations for the three months ended September 30, 2024, was $33.8 million, compared to a loss of $14.5 million in the same period in 2023[13] - Net cash used in operating activities for the nine months ended September 30, 2024, was $75.755 million, compared to $54.395 million for the same period in 2023[18] - Depreciation and amortization expenses for the nine months ended September 30, 2024, were $8.115 million, up from $1.941 million in the same period in 2023[18] Stock-Based Compensation and Equity Issuance - Stock-based compensation for the three months ended September 30, 2024, was $9.1 million[14] - Stock-based compensation for the nine months ended September 30, 2024, was $23.292 million, up from $20.639 million in the same period in 2023[18] - Issuance of Class A common stock under the Equity Distribution Agreement resulted in $48.3 million in additional paid-in capital[14] - Issuance of Class A common stock for equity incentive awards resulted in $436,000 in additional paid-in capital[14] - Issuance of Class A common stock upon acquisition of Amelia resulted in $23.9 million in additional paid-in capital[14] - Proceeds from sales of Class A common stock under the Sales Agreement and Equity Distribution Agreement were $287.271 million for the nine months ended September 30, 2024[18] - Total additional paid-in capital increased to $980.150 million as of September 30, 2024, from $585.699 million as of September 30, 2023[16] - The company sold 37,907,219 shares of common stock under the Sales Agreement, raising $137.3 million in gross proceeds and $133.8 million in net proceeds[156] - Under the Equity Distribution Agreement, the company sold 31,694,198 shares of common stock, raising $150.0 million in gross proceeds and $146.2 million in net proceeds[159] - The company granted a total of 9,254,425 and 13,646,611 RSUs during the three and nine months ended September 30, 2024, respectively[171] - Total unrecognized stock-based compensation expense related to unvested RSUs with service conditions was approximately $76.5 million as of September 30, 2024[172] - Total unrecognized stock-based compensation expense related to unvested Performance-based RSUs was approximately $8.6 million as of September 30, 2024[173] - Stock-based compensation expense for the three months ended September 30, 2024, was $9.06 million, compared to $6.69 million for the same period in 2023[178] Acquisitions and Goodwill - Goodwill and intangible assets, net, were recorded at $111.7 million and $182.6 million, respectively, as of September 30, 2024, following recent acquisitions[11] - The company completed the acquisition of Synq3, Inc. on January 3, 2024, and Amelia Holdings, Inc. on August 6, 2024[23] - The fair value of contingent earnout consideration under SYNQ3 and Amelia acquisitions was $73.2 million[20] - 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[45][47] - The SYNQ3 acquisition is expected to expand the company's AI customer service solutions and accelerate the deployment of generative AI capabilities in the restaurant industry[46] - The company agreed to pay up to $0.8 million in cash and 1,434,936 shares of Class A Common Stock to certain SYNQ3 stockholders based on tiered annual revenue targets for fiscal years 2024, 2025, and 2026[51] - The company acquired Amelia Holdings for a total preliminary purchase consideration of $103.9 million, including 3,809,520 shares of Class A Common Stock and $8.4 million in cash for seller transaction expenses[59] - The Amelia acquisition is expected to strengthen the company's position in voice and conversational AI and allow entry into new industries such as healthcare, insurance, financial services, and retail[58] - The company agreed to issue up to 16,822,429 shares of Class A Common Stock to Amelia selling shareholders based on achievement of certain revenue targets in fiscal years 2025 and 2026[59] - The company recognized $1.9 million in acquisition-related expenses for the nine months ended September 30, 2024, primarily related to the SYNQ3 and Amelia acquisitions[57] - The company recorded goodwill of $6.039 million from the SYNQ3 acquisition, reflecting expected synergies from increased revenue opportunities and cost savings[54] - The company assumed $121.5 million in senior secured term loan facility from Amelia as part of the acquisition[60] - The company recorded a $0.5 million loss related to the Contingent Amelia Earnout Consideration for the three and nine months ended September 30, 2024[63] - The preliminary purchase price for the acquisition is $103.886 million, including $8.407 million in cash paid, $15.291 million in equity consideration, $8.628 million in equity consideration in escrow, and $71.560 million in contingent earnout consideration[65] - Identified assets acquired total $192.095 million, including $174.500 million in intangible assets, $8.239 million in accounts receivable, and $1.128 million in cash and cash equivalents[65] - Liabilities assumed total $193.900 million, including $70.000 million in short-term debt, $23.144 million in deferred revenue, and $14.839 million in accounts payable[65] - Goodwill acquired on the acquisition is $105.691 million, which includes expected synergies from increased revenue opportunities and cost savings[65] - SYNQ3 contributed revenue of $2.8 million and $8.9 million, and net loss of $1.9 million and $5.2 million, for the three and nine months ended September 30, 2024, respectively[68] - Amelia contributed revenue of $15.6 million and net loss of $0.4 million for the three and nine months ended September 30, 2024[68] - Unaudited pro forma revenue for the three and nine months ended September 30, 2024, is $33.766 million and $104.154 million, respectively, with net losses of $31.943 million and $123.192 million[70] - The Company incurred $4.8 million in acquisition-related expenses during the three months ended September 30, 2024[67] - Developed technology, customer relationships, and trade names acquired have preliminary fair values of $98.900 million, $68.600 million, and $7.000 million, respectively, with useful lives of 7.0, 7.0, and 5.0 years[67] - The Company completed an immaterial acquisition on June 14, 2024, for a total preliminary purchase consideration of $1.0 million, recognizing a preliminary gain on bargain purchase of $1.2 million[73] - Goodwill increased by $111.730 million during the nine months ended September 30, 2024, primarily due to the acquisitions of SYNQ3 and Amelia[105] - Intangible assets had a net carrying value of $182.579 million as of September 30, 2024, with developed technology accounting for $102.067 million of the total[107] - Future amortization expense of intangible assets is expected to be $30.334 million in 2025 and $29.372 million in 2026[109] Debt and Financing - Long-term debt decreased to $39.7 million as of September 30, 2024, from $84.3 million as of December 31, 2023[11] - Contingent acquisition liabilities were recorded at $74.5 million as of September 30, 2024[11] - Payments on Term Loan and Amelia Debt totaled $175.602 million for the nine months ended September 30, 2024[18] - The company incurred $6.0 million in stated interest and $1.5 million in interest expense related to the debt discount for the nine months ended September 30, 2024, under the Term Loan[131] - The company prepaid $105.6 million on June 7, 2024, to fully settle the Term Loan, including a $5.0 million prepayment premium and $0.6 million in transaction expenses, resulting in a $15.6 million loss on debt extinguishment[132] - The company assumed $121.5 million in debt from the Amelia Acquisition, with $70.0 million paid in cash and 2,943,917 shares of Class A common stock issued to settle fees. The remaining balance is $39.7 million, maturing on June 30, 2026[134] - As of September 30, 2024, the company's long-term debt carrying value was $39.7 million, down from $84.3 million as of December 31, 2023[135] Customer Concentration - Customer A accounted for 12% of revenue for the three months ended September 30, 2024, and 19% for the nine months ended September 30, 2024[36] - Customer C accounted for 16% of revenue for the nine months ended September 30, 2024[36] Contingent Liabilities and Litigation - Contingent holdback consideration decreased from $2.55 million as of March 31, 2024, to $731,000 as of September 30, 2024, due to measurement period adjustments and settlements[186] - Contingent earnout consideration increased significantly from $4.41 million as of June 30, 2024, to $74.45 million as of September 30, 2024, largely due to the acquisition of Amelia[188] - The company recognized a loss of $0.5 million related to contingent holdback consideration for the nine months ended September 30, 2024[186] - The company recognized a gain of $1.5 million and a loss of $1.2 million related to contingent earnout consideration for the three and nine months ended September 30, 2024, respectively[188] - The risk-free interest rate used for fair value measurement of contingent holdback consideration decreased from 4.6% in January 2024 to 3.9% in September 2024[187] - The company recorded a $1.9 million liability for accrued litigation liabilities as of September 30, 2024, related to a reversed judgment in favor of TEBO[114] - A $3.4 million liability was recorded for potential sales tax exposure as of September 30, 2024, up from $0.2 million as of December 31, 2023[115] Stock and Warrants - Total Class A common stock shares outstanding as of September 30, 2024, were 336,481,401, compared to 208,975,388 as of September 30, 2023[16] - The company issued 2,269,982 shares of Class A Common Stock in March 2024 from the cashless exercise of Term Loan Warrants, with no warrants outstanding as of September 30, 2024[117] - As of September 30, 2024, there were 3,665,996 Public Warrants and Private Warrants issued and outstanding, with no exercises during the three and nine months ended September 30, 2024 and 2023[123] - The company raised $25.0 million by issuing 835,011 shares of Series A Convertible Preferred Stock, all of which were converted to Class A Common Stock by September 30, 2024[138] - During the nine months ended September 30, 2024, 475,005 shares of preferred stock were converted into 16,624,215 shares of Class A Common Stock[143] - As of September 30, 2024, the company had 284,248 shares remaining for issuance under the 2022 Incentive Plan[161] - 816,479 shares of Class A Common Stock were issued under the 2022 Employee Stock Purchase Plan as of September 30, 2024[162] - The company adopted the 2024 Employment Inducement Incentive Award Plan, reserving 6,000,000 shares of Class A Common Stock, with no shares issued as of September 30, 2024[163] - Total unrecognized stock-based compensation expense related to unvested stock options was approximately $1.9 million, expected to be recognized over a weighted-average period of 0.91 years[166] Technology and Intellectual Property - The company's voice AI technology processes billions of interactions annually and powers millions of products and services globally[197] - SoundHound holds over 155 granted patents and has more than 115 patents pending, covering areas such as speech recognition and natural language understanding[199] - The company's Houndify platform offers over 100 content domains, enabling developers to leverage its voice AI technology for various applications[198] - SoundHound provides disruptive technologies superior to alternatives, offering better terms, brand control, user experience customization, and data access[203] - The company aims to win on technology and brand control dimensions, offering a white-label solution for customers to maintain brand and user experience[204] - SoundHound's platform enables product creators to generate additional revenue through Voice AI, incentivizing platform adoption[205] Future Commitments and Obligations - The company committed to pay a minimum of $98.0 million in cloud costs over a seven-year period under an exclusive agreement with a cloud service provider[111] - Aggregate non-cancelable future minimum payments as of September 30, 2024, total $80,750 thousand, with $24,000 thousand due in both 2027 and 2028[113] - The aggregate amount of the transaction price allocated to the remaining performance obligations related to customer contracts was $66.9 million as of September 30, 2024, with $40.9 million expected to be recognized within one year[104] Restructuring and Other Expenses - The company recorded $