SoundHound AI(SOUN) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements This section presents SoundHound AI's unaudited condensed consolidated financial statements for Q2 2025, including balance sheets, statements of operations, and cash flows, with notes on accounting policies and key financial events Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $230,340 | $198,240 | | Total current assets | $282,022 | $255,520 | | Goodwill | $101,210 | $101,704 | | Intangible assets, net | $159,880 | $174,943 | | Total assets | $579,494 | $553,953 | | Liabilities & Equity | | | | Total current liabilities | $58,290 | $67,742 | | Contingent acquisition liabilities | $142,113 | $286,898 | | Total liabilities | $219,735 | $371,300 | | Total stockholders' equity | $359,759 | $182,653 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $42,683 | $13,462 | $71,812 | $25,056 | | Gross Profit* | $16,662 | $8,482 | $27,280 | $15,407 | | Income (loss) from operations | $(78,051) | $(21,985) | $50,046 | $(50,514) | | Net income (loss) | $(74,724) | $(37,322) | $55,208 | $(70,331) | | Diluted EPS | $(0.19) | $(0.11) | $0.13 | $(0.23) | *Gross Profit calculated as Revenues - Cost of revenues - The significant income from operations for the six months ended June 30, 2025, was primarily driven by a non-cash gain of $144.7 million from the change in fair value of contingent acquisition liabilities[17] Condensed Consolidated Statements of Cash Flows Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(43,682) | $(40,440) | | Net cash used in investing activities | $(354) | $(4,788) | | Net cash provided by financing activities | $76,606 | $137,030 | | Net change in cash | $32,360 | $91,932 | - Financing activities in the first six months of 2025 provided $76.6 million, primarily from the sale of Class A common stock under equity distribution agreements, compared to $137.0 million in the same period of 2024, which also included proceeds from stock sales but was partially offset by a $105.5 million repayment of notes payable[24] Notes to Condensed Consolidated Financial Statements This section details the company's accounting policies and financial activities, covering operations, acquisitions, revenue recognition, goodwill, legal proceedings, equity financing, and fair value measurements - The company has a history of recurring losses and negative operating cash flows, with an accumulated deficit of $887.9 million as of June 30, 2025; however, with $230.3 million in unrestricted cash, management believes it can fund operations for at least the next twelve months[29][30] - The company operates as a single reportable segment, with the CEO acting as the chief operating decision maker who reviews financial information on a consolidated basis[36] - Customer concentration risk exists, with three customers (C, F, and G) each accounting for 16%, 13%, and 13% of total revenue for the three months ended June 30, 2025, respectively, while two customers (D and E) accounted for 27% and 35% of revenue for the same period in 2024[40][41] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's business overview, strategic direction, and recent developments, analyzing results of operations, liquidity, capital resources, and cash flow activities, highlighting revenue growth and equity financing Company Overview and Strategy - SoundHound is a leader in conversational intelligence, providing independent Voice AI solutions across automotive, TV, IoT, and customer service industries, emphasizing proprietary technology for brand control[202][205] - The company's revenue model is built on three pillars: Product Royalties from voice-enabled products, Service Subscriptions from customer service or food ordering, and Monetization through an ecosystem model connecting services to products for transaction-based revenue shared with product creators[215][216][217] Results of Operations Revenue by Type (in thousands) | Revenue Type | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Service subscriptions | $32,057 | $3,638 | 781% | | Product royalties | $10,508 | $9,723 | 8% | | Monetization | $118 | $101 | 17% | | Total | $42,683 | $13,462 | 217% | - Total revenue increased by 217% YoY for Q2 2025, primarily driven by a 781% increase in Service Subscriptions, largely due to contributions from recent acquisitions[248] - Gross margin decreased to 39% in Q2 2025 from 63% in Q2 2024, primarily due to the amortization of acquired intangible assets from the Amelia acquisition[250] - Operating expenses increased significantly YoY for Q2 2025, driven by higher personnel-related costs following the Amelia acquisition: sales and marketing increased by 180% to $15.8 million, research and development increased by 64% to $25.8 million, and general and administrative increased by 91% to $18.2 million[251][254][257] - The company recorded a non-cash loss of $31.4 million for Q2 2025 from the change in fair value of contingent acquisition liabilities, driven by an increase in the company's stock price during the quarter[260] Liquidity and Capital Resources - As of June 30, 2025, the company had $230.3 million in unrestricted cash and cash equivalents, which management believes is sufficient to fund operations for at least the next twelve months[272] - The company utilizes an "at-the-market" (ATM) equity program to raise capital, raising $7.9 million in gross proceeds during Q2 2025 under its Second Equity Distribution Agreement, with a remaining capacity to sell up to an additional $174.4 million of common stock as of June 30, 2025[274] - Subsequent to the quarter end, during July and August 2025, the company sold an additional 6.1 million shares for $82.2 million in gross proceeds under the ATM program[275] Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(43,682) | $(40,440) | | Net cash used in investing activities | $(354) | $(4,788) | | Net cash provided by financing activities | $76,606 | $137,030 | Item 3. Quantitative and Qualitative Disclosures About Market Risk This section addresses the company's exposure to market risks, primarily foreign exchange risk, which is not currently considered material to operating results - The company is subject to foreign exchange risk but does not believe a 10% change in the U.S. dollar's value relative to other currencies would have a material effect on its operating results[310] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of June 30, 2025, due to material weaknesses in internal control over financial reporting, with a remediation plan underway - Management concluded that disclosure controls and procedures were not effective as of June 30, 2025, due to identified material weaknesses in internal control over financial reporting[312] - Material weaknesses identified include a lack of sufficient oversight and experience in the control environment, ineffective controls for identifying and accounting for non-routine or complex transactions, ineffective controls to ensure proper segregation of duties, and deficiencies in IT general controls, including user access and change management[313][315] - The company is actively working on a remediation plan, completing actions in Q2 2025 such as updating risk assessments, designing new controls for key business processes, and enhancing IT controls; however, material weaknesses will not be considered fully remediated until new controls have operated effectively for a sufficient period[316][317] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 7 of the financial statements for details on ongoing legal proceedings, including patent infringement, securities class action, and shareholder derivative lawsuits - For details on legal proceedings, the report refers to Note 7 of the Notes to Condensed Consolidated Financial Statements[321] Item 1A. Risk Factors This section notes no material changes to risk factors from the Annual Report on Form 10-K, except for a new risk concerning potential changes in U.S. tax laws - A new risk factor has been added concerning changes to U.S. tax laws, specifically the enactment of the "One Big Beautiful Bill Act" on July 4, 2025; the company is currently evaluating the impact but does not expect a significant change to its tax expense in the near term due to its taxable loss position[323] Item 5. Other Information This section discloses information on insider trading arrangements, noting the CEO's adoption of a new Rule 10b5-1 trading plan during the quarter - On May 16, 2025, CEO Dr. Keyvan Mohajer adopted a new Rule 10b5-1 trading plan, effective until November 30, 2025, for the potential sale of up to 2,400,000 shares of Class B common stock and 728,124 shares of Class A common stock[327]