Good day, and thank you for standing by. Welcome to the SoundHound First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I will now return the conference over to your speaker today, Scott Smith, Head of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining our first quarter 2025 conference call. With me today is our CEO, Keyvan Mohajer; and our CFO, Nitesh Sharan. We'll begin with some short remarks before moving to Q&A. We'd also like to remind everyone that we'll 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, Kavan.

Thank you, Scott, and thank you to everyone for joining the call today. SoundHound had another strong quarter in Q1 with over $29 million in revenue, representing an increase of over 151% year-over-year. Our bold moves with product investments and growth initiatives in 2024 are paying dividends. We've been investing in Polaris, our multimodal, multilingual foundation model, and it has proven to be a real differentiator against our closest peers. We are seeing that our average latency per query is as much as four times better. In noisy environments, we excel and are consistently finding that our sentence accuracy is around twice as good in those environments. Our word error rate is up to 35% better, and we have almost 30 languages in a mature state, which is not only ahead of others, but significantly decreases any barriers to expand internationally, in particular with our customer service solutions. Our growth initiatives in 2024 are taking shape. We acquired SYNQ3 with the objective of introducing innovative and advanced technology to the restaurant partners and customers and driving business expansion beyond that. With Amelia, we similarly saw lots of synergies and huge opportunities, and within less than three quarters, we are seeing outsized growth across the portfolio that has now integrated with SoundHound voice AI technology, generating excitement from our enterprise customers and delivering on the promise of the upsell and cross-sell opportunities we identified as part of the acquisition. And then look at Allset, where the team has been tasked with bringing AI voice commerce to the market, and they're already making great strides in building technology that is attracting interest from huge global brands. To give more precise examples of our success, harvesting the synergies we achieved, our first acquisition in 2024, SYNQ3, has already upgraded the majority of its…

Thank you, Keyvan, and good afternoon, everyone. Q1 revenue was $29.1 million, increasing 151% year-over-year. Each quarter is a passing mile marker, and our pace is increasing at every turn, even when the road may get jagged. Innovation and disruption in our industry is not showing any signs of slowdown, and at SoundHound, we continue to pioneer new breakthroughs. Interest cost reductions and comprehensive model choice that we orchestrate and arbitrate enable us to build new agentic and voice AI solutions using best-of-breed to deliver better outcomes for our customers, and that builds even more customer interest in what we offer. Our technological differentiation, breadth of coverage and capabilities, and scalable infrastructure positions us well for continued share capture. Our Q1 was heavy on enterprise momentum across financial services, healthcare and hospitality. We also gained substantial velocity within the restaurant business. In fact, this was the first quarter where we activated more than 1,000 new live restaurant locations in a single quarter. That pace is roughly ten-fold of what we were seeing slightly more than a year ago. And we are also gaining continued traction with our new generative AI, agentic, and voice commerce platforms. Customer traction continues to be demonstrated, with our bookings metric growing sequentially and at a high double-digit rate versus prior year. That said, given the quarter-to-quarter volatility, we plan to update this metric only at year-end going forward. To give you more flavor of underlying usage momentum of our solutions, let me lay out a few details. Within our product pillar, we continue to see strong 50% plus growth in our active cloud users. And as a reminder, we also sell edge and hybrid offerings, so this only partially reflects what we are delivering for customers. The number of active restaurants using our voice AI…

Thank you. [Operator Instructions]. Thank you. Our first question will come from the line of Gil Luria from D.A. Davidson. Your line is open.

Thank you. Very much appreciate that the business is now across several verticals, not just auto and restaurants. But as you look further where we are now and into the rest of the year, how should we think about the levels that the first verticals are at? So, how much of the business these days is coming from the restaurant vertical, from the automotive vertical versus the rest of the business? And how do you expect the growth to build into the rest of the year? Because even if you do 40% in the first half of the year, that means you're exiting the year probably at closer to 50 million run rate. What are the verticals that are driving us from where we are today to that exit run rate?

Thanks for the question, Gil. So, I'll start by saying what we saw this quarter, what we've been seeing trending for the last couple of quarters is well-balanced contribution across industries, as you noted. So, we are really well split between the contribution that is from automotive, that is from restaurants, that is from financial services, that is from healthcare, that is from insurance, hospitality. So, we're getting contributions across a number of verticals, all with their own unique sort of dynamics and growth opportunities. So, I'll unpack the two you highlighted, but I'll also hit on enterprise if that's okay. So, first within auto, and I noted some of this in the prepared remarks, the auto industry is going through a lot of stuff with the global supply chain dynamics. We continue to steal share and gain and grow, and our royalty business is one that we're very optimistic about because we're very under-penetrated versus the brands that we work with. We've historically talked about 20 brands that we work with that globally comprise 20% roughly of the market share of global light vehicle production annually, as an example. And we are, in terms of unit realization, just a small part of that 20% we expect to continue to grow, and we're continuously adding new and new brands to the portfolio. In fact, last year we talked a lot about how we're seeing outpaced gains with the EV providers, and they tend to sort of operate at the speed that we're used to. Now we're getting a lot more traction also with the ICE guys. And so, really, we're bullish, and I would say that, especially with our voice commerce that we announced earlier this year, there's so much conversation going on because we're providing a new pathway for…

Got it. That's very helpful. Thank you. Second one is for Keyvan, and on agentic technology, it's a source of much controversy these days in terms of where we are in the maturity of that technology. A lot of the technologies you're deploying for your customers are ones that you've been working on for 20 years, and you've refined over time. Agentic AI, as far as I know, is something that we really only started doing a year ago. Are the solutions that we're talking about solutions that we're still experimenting with customers? Are they part of a broader solution? How mature are these solutions given the technology is so new?

Great question. If you look at our 2015 demos, we've been thinking this way for 10 years. We had demonstrations that you can look on YouTube that actually were live products that showed that agentic behavior when you have these complex compound questions and tasks, and we magically performed those tasks, and it was really fast and accurate. The world is just catching up to the adoption of that vision, but we've been at it for more than 10 years because we unveiled it about 10 years ago. The things that make us more mature in that is that we've been doing it. We pioneered a lot of it. We have a lot of those experiences live in production, and we have a ton of data. SoundHound is one of the few companies that has devoted technical founders that from Stanford dorm room are still working on things like this. That's our heartbeat faster than time we innovate and leapfrog others. I agree that it's a new concept that people are talking about, but it's not new for us, and that's why we think we have an advantage in terms of accuracy is an issue for a lot of people. Speed is another issue for a lot of people. Having control over the behavior of these systems is very important because this is not about having a demo that impresses people. This is about really being the AI of a business, so you can't be 70% right. If you're building a demo, you can be 70% right, and then people forgive the rest, but our audience is not forgiving. We have to be closer to 100%, and that's what you're really good at.

That's great. Thank you.

Thank you. One moment for our next question. Our next question comes from Leo Carpio from Joseph Gunner. Your line is open.

Hi. Good afternoon, gentlemen. I actually have two questions. The first question is regarding the restaurant side of business. As we're going into the year, there's uncertainty about recessions and possibly speculation situation in the economy. Could that possibly impact your restaurant business, or is it more a case that potential recession is driving more customer interest in your technology at this point for efficiency gains?

Yes, actually, it's a great question. We get support from both sides of it. So when the economy is good, people invest in innovation that brings them to us, when it's challenging, they want to invest in automation and cost-saving that brings them to us and initially a big part of our pitch for restaurants was cost-saving and quality of the customer experience. Now, we are actually able to show that the ticket size we generate with AI is bigger than the ticket size that non-AI order takers generate. We can also include in our value proposition increased revenue and that's really important for restaurants. They want to increase their revenue, they also want to reduce costs. We think the value proposition is great, regardless of the macro environment and sometimes one force is bigger than the other.

Okay. And then the second question is regarding the competitive environment. Have you seen any changes in the competitive landscape? Any pricing pressures, any competitor that has actually become more aggressive?

Definitely more players in the space. It used to be like before Gen AI, us and the big tech mostly and maybe a couple of smaller providers. But now, we see more new companies enter the market, but they don't have the mature state that SoundHound has in terms of technology, in terms of data, in terms of know-how and in terms of the customer base and integration. We are in a much more mature state and a lot of the other players are creating an ecosystem that benefits us. There are some pieces of a user experience that might be necessary to complete something and other companies might provide that. So we are very open to partnering. For example, today, we included in our earnings announcement a collaboration with Pindrop for authentication and security and there are other examples of that.

Thank you.

[Operator Instructions]. Our next question will come from Mike Latimore from Northland Capital Markets. Your line is open.

Hi. This is Vijay Devar for Mike Latimore. A couple of questions. One, how do we model gross margin for the second quarter and for the rest of the year and secondly, how are the retention rates within Amelia?

Sure. Thanks for your question. On the first one, we're not guiding specifically gross margin, but I think I've noted in this call and prior calls that we're still in sort of the digestion of the acquisitions and we know the business mix and contributions, particularly with relation to the call center business that we acquired and then some of the escalation support business. Including also some of the professional service activities are in the near term affecting our gross margin. And we have been looking through certain acquired contracts to make sure that they have the right profitability composition that we want and we're actively working through. So our expectation certainly over the medium term is to revert back to those sort of pre-acquisition gross margin levels that we're crossing north of 70%. And certainly in the composition of solutions that we're delivering, whether it's edge software, the capabilities or cloud services, cross industry verticals like that's the profile of them. And a lot of our current contracts that are on the lower margin and we have a journey currently we're activating with automation. So we're realizing those improvements are real time. So I think as that business makes shifts, you will see a steady improvement through the year. I mentioned in the prepared remarks, sequential improvement and adjusted EBITDA through the year that we expect. And I would say that's going to happen both through gross margin improvements, but also we continue to look at our overall OpEx footprint and make sure we're managing that carefully and thoughtfully. So that was your first one. Sorry, can you repeat the second question?

Retention rates within Amelia base?

Yes. Retention rates are -- one of the things I'll say we did post the acquisition of Amelia was really it was a company that under prior ownership had to do all the right things from a cost structure and really had to take a close look at a number of areas. And after we acquired them, we saw the massive opportunity in front of us. We have reinvested in a few pockets. In particular, one of those was our customer success capabilities and making sure that we really understood what was working, what wasn't in their customer environments. It was very complicated customer environments, millions and millions of interactions and use cases and making sure we were delivering for those customers. So that team really more robustly has been up and running now for just several months. And I think they're doing a great job to kind of continue to improve retention rates. And I will say that we aren't reporting exact retention levels, but we see a real pathway to strengthen improvement in the gross retention and net retention. We are seeing a lot of, especially with new product releases and so forth, an expansion of our use cases and now with the agentic offering. And I talked about in Gil's question earlier about time to value. We expect great expansion at all of these customers. So we're on a journey. I think we want to get certainly those retention levels to where between that and new offerings and expansion, they're going to be contributing at the rest of the portfolio that's been growing 50% CAGR for several years and we expect that. Right now we bought a company and this was fully in the valuation that was declining and we needed to turn that around and we've started to do that. Similar to what we did with the SYNC3 acquisition and that has turned around and now is growing at a very healthy level. And so we're just mid-journey on that and retention is an important part of that. But also is, you know, our go-to-market motion, we're investing in both direct sales and indirect channel relationships. And all of that is going to help continue to help scale this year. But more importantly, next year and the year after.

Great. Thank you.

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

Hi, good afternoon, guys. Thanks for taking my questions. And apologies, bouncy ground on some calls this afternoon. So you may have already answered these. But I guess first, I'm curious, looking at the reaffirmed guide, should we be assuming, or maybe you can talk just about what the M&A environment looks like. I mean, you guys have done several deals in the past. Are you, is the environment conducive to doing a deal to get you to the current 157 and 177? Or are you thinking of that more as an organic goal?

Yeah, I'll break that question into two. Thanks, Scott. Number one, we don't need M&A to achieve the outlook we provided here. There was no embedded assumption of acquiring anything in that. And I think our organic opportunity across some of the questions I gave earlier and opportunities across our verticals and product sets is quite tremendous. And the outlook for this year will be much smaller than the outlook we give for next year. And so we're really bullish on what we're driving ourselves. That said, I think the opportunity for continued acquisition is there. Like, there is a lot of, and I will say now after having done a few last year, we get a lot of active inbound inquiries for folks looking for sort of another stage in their journey and thinking about partnerships. So I'll just go back to how we frame and think about it. I believe I mentioned this in prior call. As long as an M&A is aligned to the strategic vision of what we're trying to drive, and ultimately this company is about, we're in the new Gen AI LLM era. We believe conversational AI, and in particular, the new way of how humans will interact with technology is just getting going. We're going to create the next major inflection in the human technology interface. And voice AI will be the killer app in that world. And we have built a proprietary stack with deep in patent portfolio. And we have great engineers who have been working on this for a long time. And we're building amazing products around it. And that's the vision we can build ourselves. But we also know in a couple of cases last year, and as we look at the landscape, there might be other partners and…

Great. I appreciate that added color. And second, I'm curious, should investors be thinking about a more challenging macro environment as potentially being a revenue catalyst, given the efficiencies that you bring to the customers? Just given the macro seems, the perception of the macro seems to change every six hours, trying to think about how you guys think about potential slowdown in the economy?

Yeah, I mean, I could jump in. My personal view, a little bit, is that macro kind of ebbs and flows and goes through cyclical, goes through cycles that maybe people measure in months or quarters. We're really talking about a generational shift in how humans are interacting with technology. We believe the next 15 years are going to massively inflect. And again, it's going to be conversational AI led with voice capabilities. It's going to be underpinned by generative AI and large language models and be the architectures that we can orchestrate and arbitrate between. And those are the solutions we're bringing. And so, as Keyvan mentioned to an earlier question, we actually think the AI story has resilience on either upside innovation that's required to help companies scale or on the downside efficient risk protection part. And honestly, the solution with different customers, they have different needs. But I do think what we've seen, even during the last quarter or two quarters of volatility, the AI penetration of the wallet or the IT budgets is not slowing down at all. In fact, it's growing. Again, we don't think that doesn't show signs of abating. And I think what people are more curious about are, and if I take a three year view of what's been going on in AI, we were first like, okay, everybody needs to get the hardware pieces and the GPUs. And then now everybody needs a cloud service provider. We're now clearly in the zone of applications. And how do I get outcomes that really help my customers, my end customers? That's the conversations we're having every day with our customers. And I think that has a lot of resilience. So I don't know relative to where investors' expectations, because certainly there is volatility. But we think we've got a lot of runway ahead. And we're not certainly immune to macro volatility. I don't mean to suggest that. But I think we've still got a ton of opportunity to go after.

I appreciate that and think that makes a ton of sense. That's all I had, guys. I appreciate it. Thank you.

Thank you.

Thank you. And with that, this concludes the question-and-answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.