Hello, and thank you for standing by. I would like to welcome you to the SoundHound Q3 2024 Earnings Conference Call. At this time, all participants are listen only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would like to turn the conference over to Scott Smith, Head of Investor Relations. Please go ahead.

Good afternoon and thank you for joining our third quarter 2024 conference call. With me today is our CEO, Keyvan Mohajer; and our CFO, Nitesh Sharan. We will begin with some short remarks before moving to Q&A. We would also like to remind everyone that we will be making forward-looking statements on this call. Actual results could differ materially from those suggested by our forward-looking statements. Please refer to our filings with the SEC for a detailed discussion of the risks and uncertainties that could affect our business and for discussion statements that qualify as forward-looking statements. In addition, we may discuss certain non-GAAP measures. Please refer to today's press release for more detailed financial results and further details on the definitions, limitations and uses of those measures and reconciliations from GAAP to non-GAAP. Also note that the forward-looking statements on this call are based on information available to us as of today's date. We undertake no obligation to update any forward-looking statements except as required by law. Finally, this call is being audio webcast in its entirety on our Investor relations website. An audio replay will be available following today's call. With that, I would like to turn the call over to our CEO, Keyvan Mohajer. Please go ahead, Keyvan.

Thank you, Scott, and thank you to everyone for joining the call today. This quarter, we have seen an acceleration of our mission to voice enable the world with conversational intelligence. We have extended our AI engine customer service offering into hundreds of more brands. We are seeing strong demand across all businesses. We increased revenue by 89% year-over-year and exceeded $25 million in a quarter for the first time ever. We achieved a run rate of over 6 billion queries annualized up over 100% year-over-year and that's excluding the impact of our recent acquisition. We are thrilled to be setting records. While we are seeing massive success in our business, our vision has not wavered. We are pioneering the business evolution of AI founded on our two predictions. First, voice is becoming the preferred way for users to interact with billions of devices and is finally meeting the science fiction quality expectations. Users are adopting it enthusiastically and product creators can embrace it with just a small inexpensive microphone and a partner like SoundHound. Second, AI customer service will become as necessary to all businesses as Wi-Fi and electricity. And thanks to the incredible strides Voice AI has made has made in recent years, we believe users will prefer to have their questions and transactions handled by a consistent, accurate conversational AI agent than by a human. SoundHound is a leader in enterprise conversational AI and we are reaching scale as a pure play AI software company, significantly expanding into new verticals with our AI agent customer service solutions which are embedded deep in hundreds of enterprise brands. Moreover, our swift expansion is into end markets that are projected to grow massively over the coming years. So not only are we growing fast, but the markets we operate in…

Thank you, Keyvan, and good afternoon, everyone. Q3 revenue increased 89% year over year. We had over $25 million in revenue this quarter, once again exceeding 50% growth and we are just getting started. Before we dive into the financials for the quarter, let me contextualize how we view the shifting technology landscape and what we are building here. We believe natural language conversations will be the next major interface in how humans interact with technology and generative AI and LLMs are catalyzing that opportunity at an exponential pace. In this new world order, We believe Voice AI is the killer app. This is a generational shift. We are building a foundation for the next five, 10 and 20 years. Our heritage and innovation uniquely positions us to succeed. The basis of our capital activities and investments this year in particular have been to set ourselves up for the shifting reality. As we gear up to finish 2024 and transition into 2025, it is with this lens that we organize and align ourselves. Our financial position remains strong. Throughout 2024, our capital position has been a source of strength and we want to maintain that strength because it affords us the opportunity to grow, invest strategically, extend our reach and deepen our customer footprint. Our cumulative subscriptions and bookings backlog metric is a measure of customer activity and gives value to our current customer contracts. It continues to grow as we further deepen our automotive partnerships and scale the restaurant business. Excluding the Amelia acquisition, it is double what we reported in the prior year period again this quarter and its inclusion substantially increases our enterprise customer base. The Amelia team utilizes their own measure of bookings and we are midstream in aligning all our key metrics. Suffice to say,…

Thank you. At this time, we will conduct the question-and-answer session. [Operator Instructions] Our first question comes from Gil Luria of D.A. Davidson. Your line is now open.

Good afternoon. Three months ago, when you announced the Amelia acquisition, you talked about the fact that you were looking at various parts of the business to decide which ones you're going to incorporate into the future SoundHound and there was a possibility that you may want to discontinue some of those businesses that you had acquired. With the three months’ worth of work and perspective on that, can you give us a sense for how much of the Amelia business you're going to be retaining, how much you may be discontinuing, and then what's the accounting going to be for that?

Sure. Hey, Gil. So to be fair, we're still in the process of that and you're right, we're three months in. In fact, there's a lot that we've been learning and bringing the team together. I think there's a lot we're excited about that we're going to accelerate. There's product cross sell, upsell opportunities we've talked about. There is integration across our technology stacks that we're going to do. And in terms of the composition directly to your question, they have multiple pieces, one of which is this [Technical Difficulty] and this future of agentic sort of space. They have real integrations that we're going to accelerate and that's one we absolutely will keep. High margin, deep integrations, conversations with customers. I think we talked about also last time where one of the big areas they saw a lot of opportunity was voice enablement with our own proprietary tech and sort of displacement of third parties. That is an area absolutely we will double down on and grow and highly excited about that. There is another sort of maybe more employee facing capability. They have a solution called AIOps. That's one where we're probably going to double down and accelerate investment in. And we think that gets us deeper into many of those enterprise brands where we can provide full suite solutions in employee facing conversations, customer facing conversations. The two pieces we talked about previously that we're sort of still admittedly in contemplation around what's the future holds. One is professional services. The second is related to what I'll just call escalation support, pass through support. The professional services is actually strategic and I think the question isn't binary in or out, it's more about where and how. So for example, doing more of these professional services to go…

Yeah. Appreciate it. And then the second question, I'd like to talk about the technology. If you're talking about a foundational model, could you help us understand how you benchmark that model and what the important benchmarks are? How many parameters was it trained on? How big of a cluster of GPUs? What specific benchmarks and what other models are you comparing it to assess how much it can contribute to making your products better?

Yeah. I'll take that one. Thank you for the question. So we've been building models for almost two decades and we have a ton of data. We have data for training, we have data for evaluation, and there are standardized tests out there. But we also have more difficult tests from real life interactions that are actually an asset to give us a better indication of our performance. We have speech recognition benchmarks and then we have natural language understanding benchmarks. Speech recognition, the benchmark is usually word error rate and there's also latency and speed. We beat -- there are not that many companies actually that provide speech recognition. We are one of the few that has that technology in-house and generally, we consistently beat the big tech in accuracy and speed when it comes to speech recognition. And then in terms of natural language understanding, there has been a shift with LLMs. It used to be, you would measure intent recognition and so on. Now we are measuring hallucination because LLMs really always understand, but sometimes they understand incorrectly. And if you look at what OpenAI does, they're one of our vendors, we have our own tech, we use other tech, we arbitrate across LLMs. But what OpenAI does, they put their innovation in front of users in their consumer facing apps and it can work mind blowingly, amazingly, let's say, 70%, 80% of the time. And if it doesn't work, 20%, 30%, that their audience is forgiving because their audience is getting a glimpse of what the future looks like. But our audience is not forgiving. You cannot be 20%, 30% hallucination when you're providing an AI agent for an enterprise. So we spend a lot of time bringing our own IP into the equation and our own innovation to the equation to reduce that hallucination. So our goal is 100% and SoundHound really shines in that area because of the experience and the data that we have. You asked about GPU costs. So again, we've been building models for almost two decades. We have spent a ton collecting data and building models. So if you compare us to a company that's just starting, they have to go and raise hundreds of millions of dollars to get started. That investment is already accumulated for us, but we are increasingly spending more on GPUs to iterate on the models that we have.

Got it. Thank you very much.

Thanks, Gil.

Thank you. One moment for our next question. Our next question comes from the line of Scott Buck of H.C. Wainwright & Co. Your line is now open.

Hi. Good afternoon, guys. Thanks for taking my questions. First of all, I want to say, I appreciate the breakout by kind of industry vertical that you included in the release. But I'm curious as you look towards '25 and the opportunities within each one of those, what your capacity looks like and maybe how you're moving or allocating resources between restaurants and kind of broader retail or auto. Any kind of color you could provide there would be great.

Sure. Thanks, Scott. So we do see a lot of opportunity and we are seeing our long history of building and scaling our relationships with automotive partners is continuing to grow. We've talked about new partners that we've been adding, particularly on the EV side. EVs can scale faster by the way, so that, that gives us confidence. So we want to keep doing that and driving that on the device side. I think where we're really -- if I were to marginally kind of go our -- where we see the outsized pace, we've talked about this, you see this actually in the Misa business is in our pillar two opportunity. And I'll unpack that a bit into the industry dynamics as you -- as you're talking about. But more broadly, just our opportunity to take those AI agents and deploy them across our ecosystem and customer service partners. We absolutely expect that again next year to be outpaced growth. So to double click the restaurant one, it's one that we are very, very excited about. We talked on the prepared remarks here about seven of top 20 QSRs that we're already working with. Many of these when -- we give sort of our indication of scope of opportunity, we talk about the current contracts that we're working with, with sort of a deployment into tens or hundreds of locations. But the reality is across a lot of those QSR fleets, they have thousands of locations. So we see a lot more unlocking and a lot of time in these restaurants there is largely the same menu set. So you get it right, you get to 85 plus order completion rate, you have the structure in place. If it's a drive-thru, you've got the hardware, packaging all combined, you've…

Great. I appreciate all that detail, Nitesh. My second one on the increased outlook. Is it something you're seeing from -- directly from one of the acquisitions? Is it something you're seeing from the legacy business or is it just a combination of the two that's pushing that higher, both for fourth quarter and '25?

It's a combination of the two, both separately, but also them coming together. We continue to be really excited about just even in answering to your prior question, like the automotive business has a lot more scale opportunity. We're still a smaller share of the total market and we're disrupting the major incumbent player and gaining share all the time. So we think there's a lot more that we can deploy and grow. On the restaurant side I mentioned, we're already with enough partners to really get a ton of organic growth just from those partnerships. But we're adding more and more all the time and scaling units across. And then I think with respect to the acquisitions, the cross-sell, upsell opportunity is tremendous. So we absolutely do see great opportunity across all of those, both organic and across the M&A.

Great. Well, I appreciate the added color, guys. Thank you for the time.

Thanks, Scott.

Thank you. One moment for our next question. Our next question comes from the line of Glenn Mattson of Ladenburg Thalmann. Your line is now open.

Hi. Yeah. Thanks for taking the question. So in relation to that guidance, I'm curious, I think I saw in the filing that there was a -- for the quarter, you'd be like $40 million this quarter if you had Amelia for the full quarter. Correct me if I'm wrong there and then so if you were to annualize that, that's like $160 million next year. Can you just square away perhaps, that's kind of like ballpark to midpoint of your range. So maybe there's some cushion built in there, perhaps there's some seasonality. Can you just help me explain -- help me understand the guidance in relation to that number?

Yeah. I think there's a couple of things there. One is, like, we talked about, I think in Gil's question, there are certain things we're actually looking at in terms of how we're going to pursue that going forward and what mix is. It's not just about growth. It's growth and profitability. I also indicated sort of trying to get towards adjusted EBITDA positive. So we're trying to be mindful both the growth and sort of margin profile. But I don't think that's totally off. I think there is still some seasonality in our business, but as we're moving more towards SaaS, a greater share of our business is SaaS. So I think you'll see that stabilize and hopefully, you won't see it, but we are continuing to grow. And if I maybe unpack the guidance this way, sort of at the lower end of it to the higher end of it, we gave a bit of a range. We want to be prudent in the estimates we're giving out there, just so we continue to give ourselves a bit of the room to breathe to deliver and outpace and make the right investments for the long term. So all those sort of coming into the calibration around the numbers. And I will say, yeah, you're starting to see some disclosures. We actually had disclosure come out recently with respect to the details of the business. But, a lot of our acquisitions and for us to get it at the prices that we feel were attractive, there's a lot of things that we have to work on through integration to right-size the ship to invest in the right place to get go to market recalibrated. And so we're doing a lot of that real time. And that's why looking at the past isn't always the best indicator of the future. Those are the things we're driving with the integration. So hopefully that gives you a little more sense of how we're driving it.

Yeah. That's helpful. Thanks. And then just on the business side, I think you said seven of the top 20 QSRs now. Can you just talk -- in the past you talked about, with these larger deployments sometimes it's a little harder to get whatever if it's all the franchisees on board or something like that, or just to procure the equipment and the time to install everything and everything. Can you just talk about your sense of how that process is going from the wind to the actual deployment?

Yeah. There are a lot of different flavors and a lot of different point of sale systems and integrations that are required. I'll maybe repeat something that Keyvan brought up on the prepared remarks that we're excited about. Yeah. There were -- you're right, there were kind of -- if I think of the franchise locations, there's you got to have a second conversation with franchisees. So we've now activated and are investing in franchise sales and getting the right people because that sales motion is different than new customer acquisition. And so we are investing to make sure with big partners that we have MSAs with that have large footprints of franchises, how do we have those multiple conversations with support from corporate to deploy. So that's something we're definitely scaling in. And then Keyvan mentioned White Castle, one of our earliest partners, and one of the really exciting things this last quarter was how our team got very creative because one of the challenges was the hardware footprint and retrofitting a lot of their locations. And frankly, in some cases, they have -- you got to get a permit in a certain location to retrofit the drive-thru and that could be a multi-month, if not year process. And our team was really creative in coming up with a more agile approach with a post and a visual footprint that we could deploy it quickly, get it activated, quickly get to high order completion rate and let customers start using our technology. So it's those types of innovations that we're doing that we're partnering with many of the hardware vendors that Keyvan noted for both headsets, screens, all the capabilities that are required for drive-thru. And that's the way we're going to calibrate it. So I would say our…

That's very helpful, Nitesh. If I could just squeeze in one quick housekeeping on the backlog. I think you said 2x last year, but I don't remember the figure for last year because you had -- you converted to the new backlog number at some point, I think, after that point. Is there a hard dollar you can give us or just -- is that the only…

Yeah. The reason we -- so last year, as reported, it was 300 -- mid-300s. And then you're right. After you normalize it, it's over 400, which I don't think was reported. So the doubling of it, you could just do the rough math. But I think the bigger point I was trying to raise is now we got to conform with what Amelia brings to bear. And they had a very different way of measuring it. So we just -- we'll share more next time. But it's well north of a billion was what I conveyed in the prepared remarks as a combined business. Really nice diversification, I would say, if I were to penetrate -- it's sort of like if I put Amelia to the side, probably the outpaced growth, or not probably, but the outpaced growth continue to be in the restaurant side as we're signing up more customers, but not only that, but activating more locations. But we continue to see strength across multiple parts of that customer base.

Great. Thanks again.

Sure. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Leo Carpio of Joseph Gunnar. Your line is now open.

Good afternoon gentlemen. First, congratulations on the quarter. I have a couple of questions. The first question is what's your M&A appetite? As you seek to consolidate the voice AI space, any industries or sectors that look appealing and could you provide a little more color on the energy and retail sector comment? It sounds like you're wanting to explore a bit more deeper in there.

Sure, Leo. Thanks for the question. I'll take the first part of that. Yeah. We -- I may have mentioned this last quarter, the quarter before, like I really believe that having a programmatic M&A muscle is imperative. It's especially in fast moving industries and quickly calibrating new horizons, which is what we believe we're in with this generative AI LLM and conversational AI space. And we've seen the benefits of that getting really attractive strategic partnerships; SYNQ3, Allset, Amelia. And we're much stronger as I compare, almost like each earnings call when I compare to what we said last time, we're moving so quickly and expanding and growing the business. This is the right thing to have as a toolkit. That doesn't mean that we are dependent on it. That doesn't mean that we're just actively sourcing anything. But we do have dedicated team and we have a lot of great banking partners who are and we have actually now that we've done a few, we get a lot of companies inbounds that are sending ideas. But we're just judicious, ultimately for us we have built, and Keyvan and team, in particular, built an amazing technological foundation, deep rooted hundreds of patents, deep tech stack innovators. We're constantly pushing the envelope. And the question is how do we leverage that to go faster? And driving and getting deep customer relationships was one of the major theses this year and we were able to do that both in restaurants, but also into other verticals. So going forward we'll be mindful. I think we're at a good spot. There's a lot to digest and there's a lot of work in the integration of the ones we've done. So we also want to be measured and thoughtful about how we're -- what…

Okay. And then speaking of partnerships, any plans collaborating with the large AI LLM companies like Anthropic, OpenAI or are there existing relationships with them?

Well, we do use -- we publish that we use OpenAI as one of our vendors and we brought ChatGPT into our digital assistant in cars. And we also have disclosed our architecture that you can arbitrate across multiple LLMs. A lot of the queries are handled by our own models, but for certain things, we can go to, let's say, ChatGPT models to answer historical questions. And then if you have questions about real trends and news, we can use models like Perplexity. So we've tried to build our architecture to be kind of LLM agnostic. And as I mentioned, we are also building our own Polaris foundation model.

Okay. And then in the restaurant pillar, what's the point of the conversations? Last quarter you indicated you're getting a lot of inbound calls and given the roster of restaurants that you've been working with, what do you think is the extra that you need to top -- crack into the top five restaurants, the five on (ph) global chains?

Well, we are in the seven of the top 20 and that number has increased a lot quarter over quarter. So, yeah, we are winning new logos. We also believe we are the leader in AI for restaurants. We recently announced that we surpassed processing 100 million inbound calls purely with AI. And another thing that we have disclosed in the past and we also mentioned during our remarks, is that we are going to bring it all together. So we power automotive and TV products and then we power restaurants and not beyond. We are going to bring those customer service solutions into the devices and we are going to demonstrate that at CES. So when you're driving your car, you're already talking to your car that's powered by our AI. So you ask it to car control, navigation, tune into radio, ask for weather, stock prices, sports course. And if you're also powering the drive-thru -- AI drive-thru off the restaurant, why do you actually have to drive to the drive-thru and get in line? You should be able to talk to your car and you talk to the agent of the car, the agent of the car talks to the agent of the restaurant. It's all powered by us. And you can basically place your order in advance before you get there. So we'll demonstrate that at CES and it won't be just limited to ordering food, you can book appointments, buy tickets, do all sorts of voice commerce.

All right. Well, thanks, gentlemen, and congrats again on the quarter.

Thank you.

Thank you.

Thank you. I'm showing no further questions at this time. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.