SoundHound AI(SOUN) - 2023 Q1 - Quarterly Report

Financial Performance - Total revenues for Q1 2023 were $6,707,000, representing a 56.5% increase from $4,290,000 in Q1 2022[17] - The net loss for Q1 2023 was $26,369,000, compared to a net loss of $25,103,000 in Q1 2022, indicating a slight increase in losses year-over-year[17] - The company reported a basic and diluted net loss per share of $0.13 for Q1 2023, an improvement from a loss of $0.36 per share in Q1 2022[17] - The company reported a net loss of $26.4 million for the three months ended March 31, 2023, compared to a net loss of $25.1 million for the same period in 2022[22] - For the three months ended March 31, 2023, the company reported a loss before income taxes of $26,040,000, compared to a loss of $24,751,000 in the same period of 2022, reflecting an increase in losses of approximately 5.2%[150] Cash and Liquidity - Cash and cash equivalents rose significantly to $46,331,000 as of March 31, 2023, compared to $9,245,000 at the end of 2022, reflecting improved liquidity[15] - Total cash and cash equivalents as of March 31, 2023, amounted to $46.3 million, a significant increase from $9.2 million at the end of the same period in 2022[22] - The company generated net cash provided by financing activities of $51.6 million during the three months ended March 31, 2023, compared to $2.0 million in the same period of the previous year[22] - Operating cash flows showed a net cash used of $14.5 million for the three months ended March 31, 2023, slightly improved from $15.0 million in the prior year[22] Operating Expenses - Operating expenses increased to $31,745,000 in Q1 2023, up from $25,007,000 in Q1 2022, primarily driven by higher sales and marketing costs[17] - Research and development expenses were $14,184,000 in Q1 2023, a decrease from $16,650,000 in Q1 2022, reflecting a strategic focus on cost management[17] - The company incurred stock-based compensation expenses of $8.2 million in Q1 2023, up from $2.5 million in Q1 2022[22] - Total operating expenses increased by $6.738 million, or 27%, to $31.745 million, reflecting higher sales and marketing and restructuring costs[208] Shareholder Equity and Capital Structure - The weighted-average common shares outstanding increased to 205,082,328 in Q1 2023, compared to 69,604,188 in Q1 2022, indicating significant dilution due to new share issuances[17] - The company issued 10,948,552 Class A common shares under the ELOC program, raising approximately $28,360,000 in additional capital[20] - The Company issued 835,011 shares of Series A Convertible Preferred Stock for approximately $25.0 million on January 20, 2023[66] - A total of 12,767,950 shares of Class A Common Stock were redeemed at a value of $10.00 per share, amounting to $127.7 million[75] Assets and Liabilities - Total assets increased to $72,803,000 as of March 31, 2023, up from $38,251,000 at the end of 2022, indicating strong growth in the company's asset base[15] - Total liabilities decreased to $70,421,000 as of March 31, 2023, down from $73,476,000 at the end of 2022, showing a reduction in overall debt[15] - The accumulated deficit as of March 31, 2023, reached $528.5 million, indicating ongoing financial challenges[29] Business Operations and Market Presence - The company has developed proprietary technologies on its voice AI platform, including Speech-to-Meaning and Deep Meaning Understanding, to enhance its product offerings[24] - SoundHound's technology is live with major companies including Hyundai, Mercedes-Benz, and Oracle, indicating a strong market presence[168] - The Voice AI market is projected to grow to $160 billion per year by 2026, presenting a significant opportunity for SoundHound[170] - The company has over 120 patents granted and 140 patents pending, reinforcing its competitive advantage in the Voice AI space[170] Future Outlook and Strategic Plans - The company expects to continue incurring substantial losses primarily due to research and development activities in the foreseeable future[29] - The company plans to seek additional funding through debt or equity financing arrangements to support its operations[30] - The company announced a restructuring plan in January 2023, which included a workforce reduction of approximately 40%, equating to 180 positions globally, aimed at reducing operating costs and improving cash flows[130][131] - The company expects interest expenses to increase substantially starting in Q2 2023 due to the Term Loan entered into on April 14, 2023[202] Revenue Breakdown - Hosted services revenue increased to $4.745 million in Q1 2023 from $3.344 million in Q1 2022, representing a 41.9% growth[96] - Professional services revenue rose to $1.643 million in Q1 2023, compared to $0.567 million in Q1 2022, marking a 189.4% increase[96] - Product royalties revenue grew to $6.176 million in Q1 2023 from $3.709 million in Q1 2022, reflecting a 66.5% increase[97] - SoundHound's revenue model consists of three pillars: Product Royalties, Service Subscriptions, and Monetization, with the majority of revenue currently coming from Product Royalties[182][185] Customer and Market Dynamics - For the three months ended March 31, 2023, four customers represented 77% of total revenue, up from 59% for the same period in 2022[46] - The customer retention rate as of December 31, 2022, was greater than 80%, indicating strong ongoing relationships with clients[187] - Revenue growth was particularly strong in Germany (162% increase) and Korea (138% increase), reflecting successful market expansion strategies[210]