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What changed in SOUNDHOUND AI, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of SOUNDHOUND AI, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+387 added−333 removedSource: 10-K (2024-03-01) vs 10-K (2023-03-28)

Top changes in SOUNDHOUND AI, INC.'s 2023 10-K

387 paragraphs added · 333 removed · 216 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeIn parallel, marketing and communications drive our brand equity and narrative through ongoing announcements, campaigns, events, speaking opportunities, and public relations efforts. Our demand generation efforts span the full customer funnel to target prospects across a variety of channels including: advertising, email, social media, and search engines.
Biggest changeOur demand generation efforts span the full customer funnel to target prospects across a variety of channels including: advertising, email, social media, search engines and many other digital channels. Sales and marketing will play a critical role in the next phase of our evolution as a company, with key ongoing investments in our team and leadership.
Technical Development In 2005, when, as recent graduates from Stanford, our founders began envisioning a future where we would be talking to products just as we do other people. Inspired to make their vision a reality, the Company was founded with a simple and powerful mission: Add Voice AI to everything.
Technical Development In 2005, as recent graduates from Stanford, our founders began envisioning a future where we would be talking to products just as we do other people. Inspired to make their vision a reality, the Company was founded with a simple and powerful mission: Add Voice AI to everything.
While our products are already scaling with existing customers, we see significant opportunities to grow into new markets and verticals. Increased sales and marketing efforts will enable us to capitalize on the tremendous momentum we are building and we expect to continue expanding resources to grow our personnel and leadership team focused on sales and marketing.
While our products are already scaling with existing customers, markets and verticals, we see significant opportunities to grow into new ones. Increased sales and marketing efforts will enable us to capitalize on the tremendous momentum we are building and we expect to continue expanding resources to grow our personnel and leadership team focused on sales and marketing.
We strive to provide our customers with the best technology, and we provide a white label solution giving our customers control of their brands. In some industries you may have to choose between technology and brand control.
We strive to provide our customers with the best technology, and we can provide a white label solution giving our customers control of their brands. In some industries you may have to choose between technology and brand control.
Its sophisticated technology learns the menu of each business and can answer questions, accept modifications and even upsell, helping the restaurant process more orders quickly and efficiently. Our vision further includes empowering billions of devices around the world using our technology, with innovation and monetization opportunities for the product creators that integrate the Houndify platform.
Its sophisticated technology learns the menu of each business and can answer questions, accept modifications and even upsell, helping the restaurant process more orders quickly and efficiently. Our vision further includes empowering billions of devices around the world using our technology, with innovation and monetization opportunities for the product creators that integrate to our platform.
Customers who subscribe for this service have full access to their private domains securely on the Houndify platform while retaining the ability to iterate and update content. For example, an automotive manufacturer can make helpful updates about the car’s user manual over time.
Customers who subscribe for this service have full access to their private domains securely on our platform while retaining the ability to iterate and update content. For example, an automotive manufacturer can make helpful updates about the car’s user manual over time.
The contents of our websites are not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.
The contents of our websites are not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only. 9 Table of Contents
Where existing voice technology requires wake words and relies on turn-taking with awkward pauses to process requests, Dynamic Interaction uses the twin technologies of fragment parsing – which breaks speech down to partial-utterances and processes them in real-time – and full-duplex audio-visual integration to create an instantaneous, next-generation experience in human-computer interaction.
Where existing voice technology requires wake words and relies on turn-taking with awkward pauses to process requests, 4 Table of Contents Dynamic Interaction uses the twin technologies of fragment parsing – which breaks speech down to partial-utterances and processes them in real-time – and full-duplex audio-visual integration to create an instantaneous, next-generation experience in human-computer interaction.
Collective AI The third breakthrough is called Collective AI: an architecture that gives potential to SoundHound to improve the understanding capability of its platform exponentially based on linear contributions Most other platforms add skills or domains that are separate and don’t interact with each other. For them, linear contribution results in linear growth in understanding, which is less scalable.
Collective AI is an architecture that gives potential to SoundHound to improve the understanding capability of its platform exponentially based on linear contributions. Most other platforms add skills or domains that are separate and don’t interact with each other. For them, linear contribution results in linear growth in understanding, which is less scalable.
Revenue Model Market Momentum Our entry into the Voice AI space began with 10 years of constant innovation in “stealth” building disruptive technologies in Voice AI using innovative approaches. Our goal was to build a differentiated Voice AI technology that we fully own and which is significantly better than other solutions in the market.
Revenue Model Market Momentum Our entry into the Voice AI space began with 10 years of constant innovation in “stealth” building disruptive technologies in Voice AI using innovative approaches. Our goal was to build a differentiated Voice AI technology that we 6 Table of Contents fully own and which is significantly better than other solutions in the market.
We are creating an inclusive workplace through community-building, training and internal awareness. In 2022, we continued to support our many community partners and employee resource groups that build community for employees from underrepresented groups.
We are creating an inclusive workplace through community-building, training and internal awareness. In 2023, we continued to support our many community partners and employee resource groups that build community for employees from underrepresented groups.
With SoundHound’s technology, users can ask even more complicated questions, such as: “show me Asian restaurants in San Francisco, excluding Chinese and Japanese, and only show the ones that have more than three stars and are open after 9:00 PM on Wednesdays.” In addition, users can follow up and ask it to refine the criteria such as “remove Korean and Vietnamese, sort by rating then by price, and only show the ones that are good for kids and have a patio.” Additionally, through SoundHound's AI-driven restaurant voice ordering solution, SoundHound for Restaurants, automated voice technology can be deployed by any restaurant to take food and drink orders over the phone, via menu kiosks or at the drive-thru.
With SoundHound’s technology, users can ask even more complicated questions, such as: “show me Asian restaurants in San Francisco, excluding Chinese and Japanese, and only show the ones that have more than three stars and are open after 9:00 PM on Wednesdays.” In addition, users can follow up and ask it to refine the criteria such as “remove Korean and Vietnamese, sort by rating then by price, and only show the ones that are good for kids and have a patio.” 2 Table of Contents Additionally, through SoundHound's AI-driven restaurant voice ordering solution, Smart Ordering, automated voice technology can be deployed by any restaurant to take food and drink orders over the phone, via menu kiosks or at the drive-thru.
Instead of the typical two-step process of transcribing speech into text and then passing the text into an NLU model, Houndify can accomplish both of these tasks in one step, delivering faster and more accurate results. Houndify’s ability to process and understand speech the instant a user stops speaking gives voice assistants the ability to respond faster.
Instead of the typical two-step process of transcribing speech into text and then passing the text into an NLU model, Houndify can accomplish both of these tasks in one step, delivering faster and more accurate results. 3 Table of Contents Houndify’s ability to process and understand speech the instant a user stops speaking gives voice assistants the ability to respond faster.
The majority of participants in the Voice AI industry can be characterized as either “big tech” companies (meaning large corporations offering Voice AI as an extension of other services) and “legacy vendors” (meaning long-time Voice-AI industry participants with older technologies). Voice AI offerings from big tech companies are primarily an extension of their services.
Competitive Strengths and Differentiators The majority of participants in the Voice AI industry can be characterized as either “big tech” companies (meaning large corporations offering Voice AI as an extension of other services) and “legacy vendors” (meaning long-time Voice-AI industry participants with older technologies). Voice AI offerings from big tech companies are primarily an extension of their services.
However, with billions of IoT devices that don’t have a keyboard or a mouse or a touch screen, voice will be the preferred or the only way to interact with these devices.
However, with billions of IoT devices that don’t have a keyboard or a mouse or a touch screen, we believe that voice will be the preferred or the only way to interact with these devices.
It means product creators can not only use Voice AI to make their product better they can also generate incremental recurring revenues from customer interactions. 3 Table of Contents Our vision also places a high emphasis on user experience. Before monetization growth can occur, delivering value and delight to end users is paramount.
It means product creators can not only use Voice AI to make their product better; they can also generate incremental recurring revenues from customer interactions. Our vision also places a high emphasis on user experience. Before monetization growth can occur, delivering value and delight to end users is paramount.
We use advanced machine learning algorithms and Deep Neural Networks to provide broad robustness to our high-volume training data, resulting in high accuracy. Custom Domains Our library of over 100 public domains is available with a free Houndify account. Houndify public domains give developers instant access to a broad range of content to fit their unique use cases.
We use advanced machine learning algorithms and Deep Neural Networks to provide broad robustness to our high-volume training data, resulting in high accuracy. Custom Domains Our library of over 100 public domains is available to give developers instant access to a broad range of content to fit their unique use cases.
In our case, we offer our customers the best of both, we enable them to offer disruptive technologies to their users while maintaining control of their brand and user experience. With our disruptive monetization strategy, we also provide a path to monetization.
In our case, we aim to offer our customers the best of both, enabling them to offer disruptive technologies to their users while maintaining control of their brand and user experience. With our disruptive monetization strategy, we also provide a path to monetization.
In some cases, these big tech Voice AI providers even compete with the customers whose products their technologies support, making them increasingly less attractive as a choice for a voice interface. The Voice AI market currently also includes “legacy vendors,” a number of whom offer dated technologies at a high price.
In some cases, these big tech Voice AI providers even compete with the customers whose products their technologies support, making them increasingly less attractive as a choice for a voice interface. The Voice AI market currently also includes “legacy vendors,” a number of whom we believe offer dated technologies.
After the internet became mainstream, every company needed to have a website. After the mobile ecosystem became mature, every company needed to have a mobile strategy. We note that some very successful companies were created purely on the mobile ecosystem.
After the mobile ecosystem became mature, every company needed to have a mobile strategy. We note that some very successful companies were created purely on the mobile ecosystem.
By contrast, using SoundHound, businesses can voice-enable their products so consumers can say things like, “Turn off the air conditioning and lower the windows,” while in their cars, “Find romantic comedies released in the last year,” while streaming on their TV, and even place food orders before arriving at a restaurant by talking to their cars, TVs, or other “internet of things” (“IoT”) devices.
For example, using SoundHound, businesses can voice-enable their products so consumers can say things like, “Turn off the air conditioning and lower the windows,” while in their cars, “Find romantic comedies released in the last year,” while streaming on their TV and even place food orders before arriving at a restaurant by talking to their cars, TVs or other IoT devices.
To harness the capabilities of full cloud connectivity with the reliability of embedded voice technology. Houndify Edge Hybrid solutions are designed to ensure that devices are always-on and responsive to commands. Allows for over-the-air product updates and a broader voice experience with the level of cloud-connectivity that best matches the product and its users.
Houndify Edge Hybrid solutions are designed to ensure that devices are always-on and responsive to commands. Allows for over-the-air product updates and a broader voice experience with the level of cloud-connectivity that best matches the product and its users.
This creates even more usage, 9 Table of Contents and results in a flow of revenue share to product creators, which further encourages even greater adoption and integration with our platform, and the cycle will perpetually continue and expand. This ecosystem has a compound impact on our business.
This creates even more usage, and results in a flow of revenue share to product creators, which further encourages even greater adoption and integration with our platform, and we expect the cycle will perpetually continue to expand and create an ecosystem with a compound impact on our business.
Deep Meaning Understanding Deep Meaning Understanding is our innovative approach to language understanding that allows our Voice AI platform to understand highly complex conversation. 4 Table of Contents For example it can understand: “Show me hotels in San Francisco that are less than $600, but not less than $300, are pet friendly, have a gym and a pool with at least three stars staying for two nights, and don’t include anything that doesn’t have Wi-Fi.” A complex search like this will take many minutes to perform on a website with complex forms, but it can be done within a few seconds using SoundHound technology, which we believe to be unique in its ability to handle complex queries of this nature at scale.
For example it can understand: “Show me hotels in San Francisco that are less than $600, but not less than $300, are pet friendly, have a gym and a pool with at least three stars staying for two nights, and don’t include anything that doesn’t have Wi-Fi.” A complex search like this will take many minutes to perform on a website with complex forms, but it can be done within a few seconds using SoundHound technology, which we believe to be unique in its ability to handle complex queries of this nature at scale.
We strive to create an environment that supports employee success and a culture where everyone has a voice in driving innovation. Employees As of December 31, 2022, we had approximately 430 full-time employees, of which approximately 57% were in the United States and 43% were in our international locations.
We strive to create an environment that supports employee success and a culture where everyone has a voice in driving innovation. 8 Table of Contents Employees As of December 31, 2023, we had approximately 260 full-time employees, of which approximately 54% were in the United States and 46% were in our international locations.
These patents cover areas such as speech recognition, natural language understanding, machine learning, human interfaces, and others, including monetization and advertising. Out of our over 260 patents granted and pending, more than 40 of these patents are in conversational monetization.
Intellectual Property SoundHound’s intellectual property portfolio includes over 155 patents granted and over 115 patents pending worldwide. These patents cover areas such as speech recognition, natural language understanding, machine learning, human interfaces, and others, including monetization and advertising. Out of our 270 patents granted and pending, more than 40 of these patents are in conversational monetization.
We have not experienced work stoppages and believe our employee relations are good. 12 Table of Contents Employee Experience Emerging from the COVID-19 pandemic, we have further increased our focus on delivering a great employee experience, anchored by meaningful work, career opportunities and well-being, to continue to attract and retain high quality talent.
We have not experienced work stoppages and believe our employee relations are good. Employee Experience We focus on delivering a great employee experience, anchored by meaningful work, career opportunities and well-being, to continue to attract and retain high quality talent.
Brands can fully express their personality by choosing the gender, tone, and personality that will become their vocal identity. 6 Table of Contents Our machine learning algorithms transform recorded voices into large databases of spoken sounds to form entire vocabularies of natural language — adapted to the user’s environment.
Brands can fully express their personality by choosing the gender, tone, and personality that will become their vocal identity. Our machine learning algorithms transform recorded voices into large databases of spoken sounds to form entire vocabularies of natural language — adapted to the user’s environment. We can transform any voice to generate a high-quality TTS with a small CPU footprint.
To this day, the Company is still run by its original founding team. 2 Table of Contents SoundHound’s technology represents the evolution of several disruptive breakthroughs in voice-AI and sound recognition developed over the past 15+ years. Using innovative audio and music identification technology, in 2009, our founders launched the SoundHound music identification app.
To this day, the Company is still run by its original founding team. SoundHound’s technology represents the evolution of several disruptive breakthroughs in voice-AI and sound recognition developed over almost two decades. Using innovative audio and music identification technology, in 2009, our founders launched the SoundHound music identification app. Since its inception, the app has received over 300 million downloads.
We can transform any voice to generate a high-quality TTS with a small CPU footprint. Edge (Embedded) A fully-embedded voice solution for brands seeking the convenience of a voice user interface without the privacy or connectivity concerns of the internet. Includes full access to custom commands and the ability to instantly update commands during development.
Edge and Cloud Connectivity 5 Table of Contents With edge (embedded) we offer a fully-embedded voice solution for brands seeking the convenience of a voice user interface without the privacy or connectivity concerns of the internet. Includes full access to custom commands and the ability to instantly update commands during development.
Speech-to-Meaning Speech-to-Meaning refers to SoundHound’s ability to convert speech to meaning simultaneously and in real time. Most traditional approaches first convert speech to text, and then convert text to meaning. This approach can be both slower and less accurate.
These technologies are anchored by three important innovations: Speech-to-Meaning, Deep Meaning Understanding and Collective AI. Speech-to-Meaning refers to SoundHound’s ability to convert speech to meaning simultaneously and in real time. Most traditional approaches first convert speech to text, and then convert text to meaning. This approach can be both slower and less accurate.
From proprietary components to customizable and scalable solutions, we offer tools to build a highly accurate and responsive voice user interface. The suite of Houndify tools includes Application Programming Interfaces (“API”) for text and voice queries, support for custom commands, extensive library of content domains, inclusive Software Development Kit platforms, collaboration capabilities, diagnostic tools, and built-in analytics.
The suite of Houndify tools includes Application Programming Interfaces (“API”) for text and voice queries, support for custom commands, extensive library of content domains, inclusive Software Development Kit platforms, collaboration capabilities, diagnostic tools, and built-in analytics.
In 2022, SoundHound introduced Dynamic Interaction™, a category-level breakthrough in conversational AI that raises the bar for human-computer interaction by not only recognizing and understanding speech, but also responding and acting in real-time.
For enterprises, we also offer a flexible Gateway to integrate with custom POSs. Dynamic Interaction Dynamic Interaction is a category-level breakthrough in conversational AI that we believe raises the bar for human-computer interaction by not only recognizing and understanding speech, but also responding and acting in real-time.
Strategy We believe that Voice AI is poised to be the next disruption in computing and the timing is right for our company and our vision. Human-computer interfaces became popularized through computers offering a keyboard and mouse. After that came mobile devices with touch screens. We now have IoT devices with Voice AI.
Strategy We believe that Voice AI will be the next major technology disruption in computing. 1 Table of Contents Human-computer interfaces became popularized through computers offering a keyboard and mouse. After that came mobile devices with touch screens. We now have IoT devices with Voice AI. After the internet became mainstream, every company needed to have a website.
Our engineers knew that for a true voice engine to flourish, it needed to understand speech directly, just like humans do. In 2015, SoundHound introduced the Houndify Voice AI platform incorporating breakthrough Speech-to-Meaning and Deep Meaning Understanding technologies, which, to SoundHound’s knowledge represented voice interaction technologies not yet broadly available at the time as its foundation.
In 2015, SoundHound introduced the Houndify Voice AI platform incorporating breakthrough Speech-to-Meaning and Deep Meaning Understanding technologies, which, to SoundHound’s knowledge represented voice interaction technologies not yet broadly available at the time as its foundation.
We have achieved this critical momentum in part thanks to a leadership team with deep expertise and proven ability to attract and retain talent. 1 Table of Contents Market Opportunity A significant addressable market To take advantage of opportunities created by the expansion of Voice AI, companies across industries are turning to independent providers with disruptive technology offerings to help them design and build custom voice assistants.
Market Opportunity A significant addressable market To take advantage of opportunities created by the expansion of Voice AI, companies across industries are turning to independent providers with disruptive technology offerings to help them design and build custom voice assistants.
We envision that every product will have its own identity, and they will have Voice AI customized in different ways. They can each tap into a single Collective AI to access the ever-growing set of domains, but the product creators can innovate on top of Collective AI and create value for the end users in their own way.
They can each tap into a single platform to access the ever-growing set of domains, but the product creators can innovate on top of platform and create value for the end users in their own way. Research and Development Research and development have been the foundation of our company since its origin.
SoundHound’s undeniable criteria for adoption When it comes to criteria for adoption, our goal is to win on every dimension. We believe our product will be adopted for the following reasons: 10 Table of Contents The first two criteria customers typically consider are technology and brand control.
SoundHound’s criteria for adoption When it comes to criteria for adoption, our goal is to win on every dimension. We believe our product will be adopted because customers typically choose the best technology and want to own their brand and control their data.
Houndify provides a web API that takes in text queries or audio and returns actionable JavaScript Object Notation to anyone with an internet connection wanting to add Voice AI to any product or application. 5 Table of Contents Automatic Speech Recognition (“ASR”) Our highly optimized, tunable, and scalable ASR engine supports vocabulary sizes containing millions of words.
Houndify provides a web API that takes in text queries or audio and returns actionable JavaScript Object Notation to anyone with an internet connection wanting to add Voice AI to any product or application.
Against this landscape, SoundHound has achieved its successes to date through technology innovation, business model innovation, and global alliances that we believe make us well-positioned to continue to grow and execute our business plan. 7 Table of Contents We view the current environment as an opportunity to provide disruptive technologies with capabilities we believe are superior to existing alternatives, allowing customers to maintain their brand, control the user experience, get access to the data, and define their own privacy policies, while being able to customize, differentiate, innovate, and monetize.
We view the current environment as an opportunity to provide disruptive technologies with capabilities we believe are superior to existing alternatives, allowing customers to maintain their brand, control the user experience, get access to the data, and define their own privacy policies, while being able to customize, differentiate, innovate, and monetize.
Research and Development Research and development have been the foundation of our company since its origin. We have invested significantly over the years in making conversational Voice AI technology by leveraging advanced technologies across signal processing, speech recognition, machine learning and more.
We have invested significantly over the years in making conversational Voice AI technology by leveraging advanced technologies across signal processing, speech recognition, machine learning and more. The complexities of our design and the associated technological breakthroughs has required more than ten years of research and development activities to fine tune our technology for commercial use.
(3) Monetization : This pillar creates an ecosystem that enables monetization services in products and services from both pillar one and pillar two. When users of a voice-enabled product access the voice-enabled monetization, this creates new leads and transactions. SoundHound generates monetization revenue for generating these leads and transactions, and will share revenue with the product creators.
When users of a voice-enabled product access the voice-enabled monetization, this creates new leads and transactions. SoundHound generates monetization revenue for generating these leads and transactions, and will share revenue with the product creators. We expect the disruptive three-pillar business model will create a monetization flywheel.
According to Juniper Research, the broader market for Voice AI transactions will exceed $160 billion by 2026, enabled by a growing need for Voice AI in many industries. All these trends are adding up to exponential growth for Voice AI in a variety of markets, including IoT, automotive, retail, hospitality, enterprise, healthcare, contact center, and banking and finance.
According to Juniper Research, the broader market for Voice AI transactions will exceed $160 billion by 2026, enabled by a growing need for Voice AI in many industries including IoT, automotive, restaurants, Smart TVs, retail, hospitality, enterprise, contact center, home services, personal care, professional services, among many others.
Since its inception, the app has received over 315 million downloads. In parallel, the founding team worked in stealth on a fundamentally new technology — one that had the potential to revolutionize human-to-computer voice interaction. Up until then, all voice interactions relied on speech-to-text and then text-to-meaning.
In parallel, the founding team worked in stealth on a fundamentally new technology — one that had the potential to revolutionize human-to-computer voice interaction. Up until then, all voice interactions relied on speech-to-text and then text-to-meaning. Our engineers knew that for a true voice engine to flourish, it needed to understand speech directly, just like humans do.
Three pillars for growth We have identified three pillars for revenue growth: Royalties, Subscription, and Monetization, and all three pillars contribute to our current revenues today.
Three pillars for growth We have identified three pillars for revenue growth: Royalties, Subscription, and Monetization, and all three pillars contribute to our current revenues today. While the majority of current revenues come from royalties, over time we expect our revenues from subscription and monetization pillars to increase and eventually represent a larger portion of our overall revenues.
Additionally, SoundHound’s technology can address complex user queries such as, “Show me all restaurants within half a mile of the Space Needle that are open past 9pm on Wednesdays and have outdoor seating,” and follow-on qualifications such as “Okay, don’t show me anything with less than 3 stars or fast food.” SoundHound’s technology is currently being used globally by customers that include Hyundai, Mercedes-Benz, Pandora, Snap, VIZIO, Square, Toast, Oracle, KIA, and Stellantis.
Additionally, SoundHound’s technology can address complex user queries such as, “Show me all restaurants within half a mile of the Space Needle that are open past 9pm on Wednesdays and have outdoor seating,” and follow-on qualifications such as “Okay, don’t show me anything with less than 3 stars or fast food.” The SoundHound developer platform, Houndify, is an open-access platform that allows developers to leverage SoundHound’s Voice AI technology and a library of over 100 content domains, including commonly used domains for points of interest, weather, flight status, sports and more.
Our technology is backed by SoundHound’s investments in intellectual property, with over 120 patents granted and over 140 patents pending, spanning multiple fields including speech recognition, natural language, machine learning, monetization, and more.
Our market position is strengthened by the technical barriers to entry in the Voice AI space, which tend to discourage new market participants. Furthermore, our technology is backed by significant investments in intellectual property, with over 155 patents granted and over 115 patents pending, spanning multiple fields including speech recognition, natural language understanding, machine learning, monetization and more.
By choosing our platform, product creators can generate additional revenue while making their product better using Voice AI, providing further incentive to choose our platform. We offer a superior ecosystem with Collective AI along with definable privacy controls, which are becoming increasingly important in the industry of Voice AI.
By choosing our platform, product creators can generate additional revenue while making their product better using Voice AI, providing further incentive to choose our platform.
As a result, the most effective monetizable interactions will be those that flow naturally based on context, create value for the end-user, and would not be perceived by users as intrusive advertisements. We note that today’s voice assistants are far from being able to answer every question and perform every task, and our vision is long-term.
As a result, the most effective monetizable interactions will be those that flow naturally based on context, create value for the end-user, and would not be perceived by users as intrusive advertisements. Products and Technology SoundHound’s momentum in the Voice AI market can, in large part, be attributed to our large number of technology breakthroughs.
In particular, we are continually working to improve the speed and accuracy of our Voice AI solutions and make customer adoption easier and faster. We have protected our innovations throughout with patents and trade secrets, and we have continued to strengthen our competitive positioning by staying on top of the latest advancements in the Voice AI industry.
We have protected our innovations throughout with patents and trade secrets, and we have continued to strengthen our competitive positioning by staying on top of the latest advancements in the Voice AI industry. We expect to continue to keep research and development and, more broadly, innovation and product quality at the forefront of our strategy and core focus.
Additionally, there is no conflict of interest between us and our partners and customers as we do not compete with them (as some other Voice AI vendors do). We also offer edge and hybrid solutions. This means our technology can optionally run without a cloud connection for increased flexibility and privacy.
Additionally, there is no conflict of interest between us and our partners and customers as we do not compete with them (as some other Voice AI vendors do). 7 Table of Contents We believe that product creators know their product and users best.
Available Information Our website is located at www.soundhound.com , and our investor relations website is located at investors.soundhound.com . Access to copies of our SEC filings, corporate governance information, and other items that may be material or of interest to our investors is available via our investor relations website.
Available Information Our website is located at www.soundhound.com , and our investor relations website is located at investors.soundhound.com .
SoundHound collects royalties when Houndify is integrated into a product such as a car, smart speaker, or appliance. (2) Subscription : This involves voice-enabling a service that doesn’t rely on a physical product. Examples include when SoundHound enables customer service or food ordering for restaurants or content management, appointments, or voice commerce, we generate subscription revenue from the service providers.
(1) Royalties : This involves voice-enabling a product. The product creator pays us a royalty based on volume, usage, or duration. SoundHound collects royalties when our platform is integrated into a product such as a car, smart TV, or IoT. (2) Subscription : This involves voice-enabling a service that doesn’t rely on a physical product.
We collect feedback directly from commercial partners to garner insights that help drive the business and product. We also work with analysts and higher education institutions to conduct studies, test and validate technology performance, providing key proof points for commercial partners considering our products.
We also work with analysts and higher education institutions to conduct studies, test and validate technology performance, providing key proof points for those considering our products. In parallel, marketing and communications drive our brand equity and narrative through ongoing announcements, campaigns, events, speaking opportunities, and public relations efforts.
Additionally, in March 2023, we unveiled a new product called "SoundHound Chat AI", which we believe will usher in a new phase of voice-enabled, conversational AI by combining the power of software engineering and machine learning generative AI. SoundHound’s Vision A typical reaction to SoundHound’s technology is “Wow!
SoundHound Chat AI We launched SoundHound Chat AI, which we believe will usher in a new phase of voice-enabled, conversational AI by combining the power of software engineering and machine learning generative AI. SoundHound Chat AI integrates with dozens of knowledge domains, pulling real-time data like weather, sports, stocks, flight status, restaurants, and many more.
The demand for Voice AI technology is growing exponentially as companies compete to lead the market with the best technology, excellent customer relationships, and greatest innovations. Industry sources predict that 90% of new vehicles globally will have voice assistants by 2028 and that there will be 75 billion connected devices worldwide by 2025.
The demand for Voice AI technology is growing exponentially as companies compete to lead the market with the best technology, excellent customer relationships, and greatest innovations. Custom, branded voice assistants are allowing companies to improve their customer interactions at every touchpoint.
With the Collective AI architecture, SoundHound domains can be interconnected and learn from each other. As developers contribute to the platform, the platform’s understanding capability can grow exponentially. SoundHound Products Houndify platform SoundHound’s Voice AI platform combines advanced AI with engineering expertise to help brands build conversational voice assistants.
With the Collective AI architecture, SoundHound domains can be interconnected and learn from each other. As developers contribute to the platform, the platform’s understanding capability can grow exponentially. Smart Ordering SoundHound Smart Ordering offers an easy-to-understand voice assistant for restaurants that takes phone orders and automatically processes them by seamlessly integrating with multiple POS systems.
Our focus is on delivering the most advanced Voice AI in the world and thus allowing our partners to differentiate and innovate their overall experiences for their brands. We strongly believe that product creators know their product and users best. The idea of a single third-party assistant taking over their product is not reflective of our anticipated future.
The idea of a single third-party assistant taking over their product is not reflective of our anticipated future. We envision that every product will have its own identity, and they will have Voice AI customized in different ways.
To ensure that our content domains continue to evolve and grow, our platform is built on our breakthrough Collective AI ® — an architecture for connecting domain knowledge, which encourages collaboration and contribution among developers, is always learning, and is greater than the sum of its parts.
SoundHound's Collective AI is an architecture for connecting domain knowledge that encourages collaboration and contribution among developers. The architecture is based on proprietary software engineering technology, CaiLAN (Conversational AI Language), and machine learning technology, CaiNET (Conversational AI Network) to ensure fast, accurate and appropriate responses.
SoundHound is also committed to enabling product creators to design, customize, differentiate, innovate, and monetize the voice interfaces to their own products and services, as opposed to outsourcing to a third-party assistant. More often than not, we currently interact with voice-enabled third-party assistants using halted speech patterns, consciously dividing queries into limited, broken, and unnatural instructions.
We believe voice-enabled conversational user interface is a more natural interface for nearly all use cases, and product creators should have the ability to design, customize, differentiate, innovate and monetize the interface to their own product, as opposed to outsourcing it to a third-party assistant.
And finally, the car manufacturer delivered value to the end user and generated additional revenue from the usage of their product. We expect the disruptive three-pillar business model will create a monetization flywheel. As more products integrate into our platform, more users will use it, and more services will choose to integrate as well.
As more products integrate into our platform, more users will use it, and more services will choose to integrate as well.
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Company Overview SoundHound is a leading innovator of conversational intelligence, offering an independent Voice AI platform that enables businesses across industries to deliver high quality conversational experiences to their customers. Built on proprietary Speech-to-Meaning ® and Deep Meaning Understanding ® technologies developed over the past 17 years, our advanced Voice AI platform provides exceptional speed and accuracy.
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Company Overview We are a global leader in conversational intelligence, offering independent Voice AI solutions that enable businesses to deliver high-quality conversational experiences to their customers.
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We envision a future where people interact with products on a daily basis through voice-enabled AI. Our technology provides a conversational voice-enabled user interface, allowing a more natural and more productive way of interacting with the products and services we use.
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Built on proprietary technology, SoundHound’s voice AI delivers best-in-class speed and accuracy in numerous languages to product creators across automotive, TV, and IoT, and to customer service industries via groundbreaking AI-driven products like Smart Answering, Smart Ordering, and Dynamic Interaction™, and Employee Assist.
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We have seen significant inflection in customer adoption of our technology, as measured through activity on our Houndify platform, which surpassed 1 billion annual queries in 2021 and experienced over 85% growth during 2022.
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Along with SoundHound Chat AI, a powerful voice assistant with integrated Generative AI, SoundHound powers millions of products and services, and processes billions of interactions each year for world class businesses.
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Our current customers, which in many cases have contractual obligations that average multiple years (often between three to five years), span multiple industries and geographies, and together have an estimated combined reach of over two billion end users.
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We have achieved this critical momentum in part thanks to a long-tenured leadership team with deep expertise and proven ability to attract and retain talent.
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We consider our long-term customers our “partners” and, by growing these strategic relationships, SoundHound’s revenues have grown by more than 45% year over year each fiscal year over the past four years.
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After we went public in 2022, SoundHound rapidly introduced innovation to the market with Smart Ordering, Dynamic Interaction TM , SoundHound Chat AI, and Smart Answering, among others products (see "Products and Technology" hereafter). SoundHound’s Vision A typical reaction to SoundHound’s technology is “Wow!
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We support our customers by providing them access to Houndify ® — an open-access platform that allows developers to leverage SoundHound’s Voice AI technology and a library of over 100 content domains, including commonly used domains for points of interest, weather, flight status, sports, and more.
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Houndify Platform SoundHound’s Voice AI platform combines advanced AI with engineering expertise to help brands build conversational voice assistants. From proprietary components to customizable and scalable solutions, we offer tools to build a highly accurate and responsive voice user interface.
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This architecture allows us to improve the understanding capability of our platform super-linearly and even exponentially based on linear contributions because of how the domains interact with one another. They can be inter-connected and can learn from each other and, as developers contribute to the platform, its understanding capability can grow exponentially.
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CaiNET and CaiLAN Expert Domain Selections SoundHound’s CaiNET software uses machine learning to enhance how domains work together to better handle complex queries including natural language processing, predictive analytics, and building language models, or translation of speech.
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The number of devices with their own voice assistant is expected to surpass the world’s population within four years. Across industries, 94% of large companies expect to use Voice AI within two years, according to a Pindrop Security, Inc. study, indicating the imperative most companies feel to provide a voice user interface to their products and services.
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SoundHound’s proprietary CaiLAN software expertly arbitrates responses so users get better answers from the right domain such as for use with natural language processing, predictive analytics, and building language models, or translation of speech. Automatic Speech Recognition (“ASR”) Our highly optimized, tunable, and scalable ASR engine supports vocabulary sizes containing millions of words.
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Custom, branded voice assistants are allowing companies to improve their customer interactions at every touchpoint. In a recent study by Opus Research (sponsored by SoundHound), 77% of business leaders across eight industries stated that voice assistants drive value through improved customer support and 76% agreed that they help companies to control their brand identity and user experience.
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Deep Meaning Understanding is our innovative approach to language understanding that allows our Voice AI platform to understand highly complex conversation.
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For those already employing a voice assistant, 81% are using the technology to improve customer service and 52% are using them for sales activity.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRisks Related to our Financial Condition • We have generated substantial net losses and negative operating cash flows since inception and expect to continue to do so for the foreseeable future; • We will require additional capital to continue planned business operations but may not be able to obtain such capital when desired on favorable terms, if at all, or without dilution to our stockholders; • Our operating results could be materially and adversely affected if it loses any of its largest customers due to concentration risk; • The loss of one or more key members of our management team or personnel, or our failure to attract, integrate and retain additional personnel in the future, could harm our business and negatively affect our ability to successfully grow our business; Risks Related to our Business • The market in which we operate is highly competitive and rapidly changing and we may be unable to compete successfully; • Adverse conditions in the Voice AI market or the global economy more generally could have adverse effects on our results of operations; • Our operating results could be materially and adversely affected if we lose any of our largest customers, many of which are OEMs; • We depend on skilled employees and the loss of one or more key members of our management team or personnel, or our failure to attract, integrate and retain additional personnel in the future, could harm our business and negatively affect our ability to successfully grow our business; • Cybersecurity and data privacy incidents or breaches may damage client relations and inhibit our growth; • Our business is subject to a variety of domestic and international laws, rules, policies and other obligations, including data protection and anticorruption; • Interruptions or delays in our services or services from data center hosting facilities or public clouds could impair the delivery of services and harm our business; • We rely on third-party telecommunications and internet service providers, including connectivity to our cloud software, and any failure by these service providers to provide reliable services could cause us to lose customers and subject us to claims for credits or damages, among other things; • Our customers rely on third-party telecommunications and internet service providers to provide them with access and connectivity to our cloud software, and changes in how telecommunication and internet service providers handle and charge for access to telecommunications and the internet could materially harm our customer relationships, business, financial condition and operations results; • If we are unable to maintain and enhance our brand or reputation as an industry leader, our operating results may be adversely affected Risks Related to our Intellectual Property and Technology • Our use of open source technology could impose limitations on our ability to commercialize our software; • Third parties have claimed in the past and may claim in the future that we are infringing their intellectual property, and we could be exposed to significant litigation or licensing expenses or be prevented from selling our products or making our technologies available to our customers if such claims are successful; • Unauthorized use of our proprietary technology and intellectual property could adversely affect our business and results of operations; Risks Related to our Securities and our Dual Class Common Stock Structure • Our stock price and trading volume may fluctuate significantly; • Our management has limited experience in operating a public company.
Biggest changeRisks Related to our Business and Financial Condition • We have generated substantial net losses and negative operating cash flows since inception and may never achieve or maintain profitability or generate positive cash flows; • We may require additional capital to continue planned business operations but may not be able to obtain such capital when desired on favorable terms, if at all, or without dilution to our stockholders; • Our operating results could be materially and adversely affected if it loses any of its largest customers due to concentration risk; • The loss of one or more key members of our management team or personnel, or our failure to attract, integrate and retain additional personnel in the future, could harm our business and negatively affect our ability to successfully grow our business; • The market in which we operate is highly competitive and rapidly changing and we may be unable to compete successfully; • Adverse conditions in the Voice AI market or the global economy more generally could have adverse effects on our results of operations; • Our operating results could be materially and adversely affected if we lose any of our largest customers, many of which are OEMs; • We depend on skilled employees and the loss of one or more key members of our management team or personnel, or our failure to attract, integrate and retain additional personnel in the future, could harm our business and negatively affect our ability to successfully grow our business; • Cybersecurity and data privacy incidents or breaches may damage client relations and inhibit our growth; • Our business is subject to a variety of domestic and international laws, rules, policies and other obligations, including data protection and anticorruption; • Interruptions or delays in our services or services from data center hosting facilities or public clouds could impair the delivery of services and harm our business; • We rely on third-party telecommunications and internet service providers, including connectivity to our cloud software, and any failure by these service providers to provide reliable services could cause us to lose customers and subject us to claims for credits or damages, among other things; 10 Table of Contents • Our customers rely on third-party telecommunications and internet service providers to provide them with access and connectivity to our cloud software, and changes in how telecommunication and internet service providers handle and charge for access to telecommunications and the internet could materially harm our customer relationships, business, financial condition and operations results; • If we are unable to maintain and enhance our brand or reputation as an industry leader, our operating results may be adversely affected; • Our acquisition of Synq3, Inc. and any potential future acquisitions or strategic transactions may subject us to various risks that could adversely affect our business and for which we may not achieve the anticipated benefit of such a transaction; • We have identified material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future, which may result in material misstatements of our consolidated financial statements or cause us to fail to meet its periodic reporting obligations and the trading price of our stock could be negatively affected.
SoundHound will require additional capital to continue its planned business operations but may not be able to obtain such capital when desired on favorable terms, if at all, or without dilution to its stockholders. SoundHound will require additional capital to continue its planned business operations.
SoundHound may require additional capital to continue its planned business operations but may not be able to obtain such capital when desired on favorable terms, if at all, or without dilution to its stockholders. SoundHound will require additional capital to continue its planned business operations.
SoundHound currently generates less than $1.0 million annually in revenue from its operations in China, though SoundHound expects to expand its business in China going forward. SoundHound anticipates that additional competitors, both international and domestic, may seek to enter the Chinese market resulting in increased competition.
SoundHound currently generates less than $0.1 million annually in revenue from its operations in China, though SoundHound expects to expand its business in China going forward. SoundHound anticipates that additional competitors, both international and domestic, may seek to enter the Chinese market resulting in increased competition.
As SoundHound increases its international sales efforts it will face risks in doing business internationally that could harm its business, including: • the need to establish and protect SoundHound’s brand in international markets; • the need to localize and adapt SoundHound’s products for specific countries, including translation into foreign languages and associated costs and expenses; • difficulties in staffing and managing foreign operations, particularly hiring and training qualified sales and service personnel; • the need to implement and offer customer care in various languages; • different pricing environments, longer sales and accounts receivable payment cycles and collections issues; • weaker protection for intellectual property and other legal rights than in the U.S. and practical difficulties in enforcing intellectual property and other rights outside of the U.S.; • privacy and data protection laws and regulations that are complex, expensive to comply with and may require that customer data be stored and processed in a designated territory; • increased risk of piracy, counterfeiting and other misappropriation of SoundHound’s intellectual property in its locations outside the U.S.; • new and different sources of competition; • general economic conditions in international markets; • fluctuations in the value of the U.S. dollar and foreign currencies, which may make SoundHound’s products more expensive in other countries or may increase its costs, impacting its operating results when translated into U.S. dollars; • compliance challenges related to the complexity of multiple, conflicting and changing governmental laws and regulations, including employment, tax, telecommunications and telemarketing laws and regulations; • increased risk of international telecom fraud; • laws and business practices favoring local competitors; 26 Table of Contents • compliance with laws and regulations applicable to foreign operations and cross border transactions, including the Foreign Corrupt Practices Act, the U.K.
As 21 Table of Contents SoundHound increases its international sales efforts it will face risks in doing business internationally that could harm its business, including: • the need to establish and protect SoundHound’s brand in international markets; • the need to localize and adapt SoundHound’s products for specific countries, including translation into foreign languages and associated costs and expenses; • difficulties in staffing and managing foreign operations, particularly hiring and training qualified sales and service personnel; • the need to implement and offer customer care in various languages; • different pricing environments, longer sales and accounts receivable payment cycles and collections issues; • weaker protection for intellectual property and other legal rights than in the U.S. and practical difficulties in enforcing intellectual property and other rights outside of the U.S.; • privacy and data protection laws and regulations that are complex, expensive to comply with and may require that customer data be stored and processed in a designated territory; • increased risk of piracy, counterfeiting and other misappropriation of SoundHound’s intellectual property in its locations outside the U.S.; • new and different sources of competition; • general economic conditions in international markets; • fluctuations in the value of the U.S. dollar and foreign currencies, which may make SoundHound’s products more expensive in other countries or may increase its costs, impacting its operating results when translated into U.S. dollars; • compliance challenges related to the complexity of multiple, conflicting and changing governmental laws and regulations, including employment, tax, telecommunications and telemarketing laws and regulations; • increased risk of international telecom fraud; • laws and business practices favoring local competitors; • compliance with laws and regulations applicable to foreign operations and cross border transactions, including the Foreign Corrupt Practices Act, the U.K.
Factors that may contribute to fluctuations in operating results include: • the volume, timing and fulfillment of large customer contracts; 17 Table of Contents • renewals of existing customer contracts and wins of new customer programs; • increased expenditures incurred pursuing new product or market opportunities; • receipt of royalty reports; • fluctuating sales by SoundHound’s customers to their end-users; • contractual counterparties failing to meet their contractual commitments to SoundHound; • introduction of new products by SoundHound or its competitors; • cybersecurity or data breaches; • reduction in the prices of SoundHound’s products in response to competition, market conditions or contractual obligations; • increased costs to raise cash in the market place, including increased borrowing costs as a result of inflation; • accounts receivable that are not collectible; • higher than anticipated costs related to fixed-price contracts with SoundHound’s customers; • change in costs due to regulatory or trade restrictions; • expenses incurred in litigation matters, whether initiated by SoundHound or brought by third-parties against SoundHound, and settlements or judgments it is required to pay in connection with disputes; and • general economic trends as they affect the customer bases into which SoundHound and its customers sell and operate.
Factors that may contribute to fluctuations in operating results include: • the volume, timing and fulfillment of large customer contracts; • renewals of existing customer contracts and wins of new customer programs; • increased expenditures incurred pursuing new product or market opportunities; • receipt of royalty reports; • fluctuating sales by SoundHound’s customers to their end-users; • contractual counterparties failing to meet their contractual commitments to SoundHound; • introduction of new products by SoundHound or its competitors; 14 Table of Contents • cybersecurity or data breaches; • reduction in the prices of SoundHound’s products in response to competition, market conditions or contractual obligations; • increased costs to raise cash in the market place, including increased borrowing costs as a result of inflation; • accounts receivable that are not collectible; • higher than anticipated costs related to fixed-price contracts with SoundHound’s customers; • change in costs due to regulatory or trade restrictions; • expenses incurred in litigation matters, whether initiated by SoundHound or brought by third-parties against SoundHound, and settlements or judgments it is required to pay in connection with disputes; and • general economic trends as they affect the customer bases into which SoundHound and its customers sell and operate.
The market price and trading volume of SoundHound’s Class A Common Stock has fluctuated widely and may continue to fluctuate widely, depending on many factors, some of which may be beyond our control, including: • actual or anticipated fluctuations in our results of operations due to factors related to our business; • success or failure of our business strategies; • competition and industry capacity; • changes in interest rates and other factors that affect earnings and cash flow; • our level of indebtedness, our ability to make payments on or service our indebtedness and our ability to obtain financing as needed; • our ability to retain and recruit qualified personnel, particularly in light of our recent restructuring; • our quarterly or annual earnings, or those of other companies in our industry; • announcements by us or our competitors of significant acquisitions or dispositions; • changes in accounting standards, policies, guidance, interpretations or principles; • the failure of securities analysts to cover, or positively cover, our Class A Common Stock; • changes in earnings estimates by securities analysts or our ability to meet those estimates; • the operating and stock price performance of other comparable companies; 31 Table of Contents • investor perception of the Company and the AI industry; • overall market fluctuations unrelated to our operating performance; • results from any material litigation or government investigation; • changes in laws and regulations (including tax laws and regulations) affecting our business; • changes in capital gains taxes and taxes on dividends affecting stockholders; and • general economic conditions and other external factors.
The market price and trading volume of SoundHound’s Class A Common Stock has fluctuated widely and may continue to fluctuate widely, depending on many factors, some of which may be beyond our control, including: • actual or anticipated fluctuations in our results of operations due to factors related to our business; • success or failure of our business strategies; • competition and industry capacity; • changes in interest rates and other factors that affect earnings and cash flow; • our level of indebtedness, our ability to make payments on or service our indebtedness and our ability to obtain financing as needed; • our ability to retain and recruit qualified personnel, particularly in light of our recent restructuring; • our quarterly or annual earnings, or those of other companies in our industry; • announcements by us or our competitors of significant acquisitions or dispositions; • changes in accounting standards, policies, guidance, interpretations or principles; • the failure of securities analysts to cover, or positively cover, our Class A Common Stock; • changes in earnings estimates by securities analysts or our ability to meet those estimates; • the operating and stock price performance of other comparable companies; • investor perception of the Company and the AI industry; • overall market fluctuations unrelated to our operating performance; • results from any material litigation or government investigation; • changes in laws and regulations (including tax laws and regulations) affecting our business; • changes in capital gains taxes and taxes on dividends affecting stockholders; and • general economic conditions and other external factors.
Accordingly, SoundHound’s future results could be harmed by a variety of factors associated with international sales and operations, including: • adverse political and economic conditions, or changes to such conditions, in a specific region or country; • trade protection measures, including tariffs and import/export controls, imposed by the United States and/or by other countries or regional authorities such as China, Canada or the European Union; • the impact on local and global economies of the United Kingdom leaving the European Union; • changes in foreign currency exchange rates or the lack of ability to hedge certain foreign currencies; • compliance with laws and regulations in many countries and any subsequent changes in such laws and regulations; • geopolitical turmoil, including terrorism and war; • changing data privacy regulations and customer requirements to locate data centers in certain jurisdictions; • evolving restrictions on cross-border investment, including recent enhancements to the oversight by the Committee on Foreign Investment in the United States pursuant to the Foreign Investment Risk Preview Modernization Act and substantial restrictions on investment from China; • changes in applicable tax laws; • difficulties in staffing and managing operations in multiple locations in many countries; • longer payment cycles of foreign customers and timing of collections in foreign jurisdictions; and • less effective protection of intellectual property than in the United States.
Accordingly, SoundHound’s future results could be harmed by a variety of factors associated with international sales and operations, including: • adverse political and economic conditions, or changes to such conditions, in a specific region or country; • trade protection measures, including tariffs and import/export controls, imposed by the United States and/or by other countries or regional authorities such as China, Canada or the European Union; • the impact on local and global economies of the United Kingdom leaving the European Union; • changes in foreign currency exchange rates or the lack of ability to hedge certain foreign currencies; • compliance with laws and regulations in many countries and any subsequent changes in such laws and regulations; • geopolitical turmoil, including terrorism and war; • changing data privacy regulations and customer requirements to locate data centers in certain jurisdictions; 17 Table of Contents • evolving restrictions on cross-border investment, including recent enhancements to the oversight by the Committee on Foreign Investment in the United States pursuant to the Foreign Investment Risk Preview Modernization Act and substantial restrictions on investment from China; • changes in applicable tax laws; • difficulties in staffing and managing operations in multiple locations in many countries; • longer payment cycles of foreign customers and timing of collections in foreign jurisdictions; and • less effective protection of intellectual property than in the United States.
Foreign Corrupt Practices Act; • uncertainties related to geopolitical risks, including the relationship between the U.S. government and the government of other nations; • tariffs, trade barriers and other regulatory or contractual limitations on SoundHound’s ability to sell or develop its solutions in certain foreign markets; • operating in countries with a higher incidence of corruption and fraudulent business practices; • changes in regulatory requirements, including export controls, tariffs and embargoes, other trade restrictions, competition, corporate practices and data privacy concerns; • potential adverse tax consequences arising from global operations; • seasonal reductions in business activity in certain parts of the world, particularly during the summer months in Europe and at year-end globally; • rapid changes in government, economic and political policies and conditions; and 24 Table of Contents • political or civil unrest or instability, terrorism or epidemics or pandemics (including any risks related to or resulting from COVID-19) and other similar outbreaks or events.
Foreign Corrupt Practices Act; • uncertainties related to geopolitical risks, including the relationship between the U.S. government and the government of other nations; • tariffs, trade barriers and other regulatory or contractual limitations on SoundHound’s ability to sell or develop its solutions in certain foreign markets; • operating in countries with a higher incidence of corruption and fraudulent business practices; • changes in regulatory requirements, including export controls, tariffs and embargoes, other trade restrictions, competition, corporate practices and data privacy concerns; • potential adverse tax consequences arising from global operations; • seasonal reductions in business activity in certain parts of the world, particularly during the summer months in Europe and at year-end globally; • rapid changes in government, economic and political policies and conditions; and • political or civil unrest or instability, terrorism or epidemics or pandemics (including any risks related to or resulting from COVID-19) and other similar outbreaks or events.
Any cybersecurity or data privacy incident or breach may result in: • loss of revenue resulting from the operational disruption; • loss of revenue or increased bad debt expense due to the inability to invoice properly or to customer dissatisfaction resulting in collection issues; • loss of revenue due to loss of customers; • material remediation costs to recreate or restore systems; • material investments in new or enhanced systems in order to enhance SoundHound’s information security posture; • cost of incentives offered to customers to restore confidence and maintain business relationships; • reputational damage resulting in the failure to retain or attract customers; • costs associated with potential litigation or governmental investigations; • costs associated with any required notices of a data breach; • costs associated with the potential loss of critical business data; • difficulties enhancing or creating new products due to loss of data or data integrity issues; and • other consequences of which SoundHound is not currently aware but would discover through the process of remediating any cybersecurity or data privacy incidents or breaches that may occur.
Any cybersecurity or data privacy incident or breach may result in: • loss of revenue resulting from the operational disruption; • loss of revenue or increased bad debt expense due to the inability to invoice properly or to customer dissatisfaction resulting in collection issues; 15 Table of Contents • loss of revenue due to loss of customers; • material remediation costs to recreate or restore systems; • material investments in new or enhanced systems in order to enhance SoundHound’s information security posture; • cost of incentives offered to customers to restore confidence and maintain business relationships; • reputational damage resulting in the failure to retain or attract customers; • costs associated with potential litigation or governmental investigations; • costs associated with any required notices of a data breach; • costs associated with the potential loss of critical business data; • difficulties enhancing or creating new products due to loss of data or data integrity issues; and • other consequences of which SoundHound is not currently aware but would discover through the process of remediating any cybersecurity or data privacy incidents or breaches that may occur.
Our Class B Common Stock has multiple votes per share and this ownership will limit or preclude your ability to influence corporate matters, including the election of directors, amendments of 14 Table of Contents our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transactions requiring stockholder approval, and that may adversely affect the trading price of our Class A Common stock; • We are considered a “controlled company” within the meaning of Nasdaq listing standards and, as a result, qualify for, and may rely on, exemptions from certain corporate governance requirements.
Our Class B Common Stock has multiple votes per share and this ownership will limit or preclude your ability to influence corporate matters, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transactions requiring stockholder approval, and that may adversely affect the trading price of our Class A Common stock; • We are considered a “controlled company” within the meaning of Nasdaq listing standards and, as a result, qualify for, and may rely on, exemptions from certain corporate governance requirements.
During the years ended December 31, 2022 and 2021, SoundHound derived approximately 89% and 81%, respectively, of its revenues from customers located in countries outside the United States, and SoundHound plans to increase its international operations in the future. Accordingly, SoundHound expects to increasingly face significant operational risks and expenses from doing business internationally.
During the years ended December 31, 2023, 2022 and 2021, SoundHound derived approximately 85%, 89% and 81%, respectively, of its revenues from customers located in countries outside the United States, and SoundHound plans to increase its international operations in the future. Accordingly, SoundHound expects to increasingly face significant operational risks and expenses from doing business internationally.
The market for SoundHound’s products and technologies is characterized by intense competition, evolving industry and regulatory standards, emerging business and distribution models, disruptive software technology developments, short product and service life cycles, price sensitivity on the part of customers, and frequent new product introductions, including alternatives to certain of SoundHound’s products from other vendors which may be offered at significantly lower costs or free of charge.
The market for SoundHound’s products and technologies is characterized by intense competition, evolving industry and 11 Table of Contents regulatory standards, emerging business and distribution models, disruptive software technology developments, short product and service life cycles, price sensitivity on the part of customers, and frequent new product introductions, including alternatives to certain of SoundHound’s products from other vendors which may be offered at significantly lower costs or free of charge.
Other risks and uncertainties SoundHound faces from its global operations include, but are not limited to: • difficulties in staffing and managing foreign operations; • limited protection for the enforcement of contract and intellectual property rights in certain countries where SoundHound may sell SoundHound’s solutions or work with suppliers or other third parties; • potentially longer sales and payment cycles and potentially greater difficulties in collecting accounts receivable; • costs and difficulties of customizing solutions for foreign countries; • challenges in providing solutions across a significant distance, in different languages and among different cultures; • laws and business practices favoring local competition; • being subject to a wide variety of complex foreign laws, treaties and regulations and adjusting to any unexpected changes in such laws, treaties and regulations; • specific and significant regulations, including, but not limited to, the European Union’s General Data Protection Regulation (“GDPR”), which imposes compliance obligations on companies who possess and use data of EU residents; • differences in analysis of regulatory, legal and tax issues across various countries, such as different interpretations of antitrust and competition laws; • uncertainty and resultant political, financial and market instability arising from the United Kingdom’s exit from the European Union; • compliance with U.S. laws affecting activities of U.S. companies abroad, including the U.S.
Other risks and uncertainties SoundHound faces from its global operations include, but are not limited to: • difficulties in staffing and managing foreign operations; • limited protection for the enforcement of contract and intellectual property rights in certain countries where SoundHound may sell SoundHound’s solutions or work with suppliers or other third parties; • potentially longer sales and payment cycles and potentially greater difficulties in collecting accounts receivable; • costs and difficulties of customizing solutions for foreign countries; 19 Table of Contents • challenges in providing solutions across a significant distance, in different languages and among different cultures; • laws and business practices favoring local competition; • being subject to a wide variety of complex foreign laws, treaties and regulations and adjusting to any unexpected changes in such laws, treaties and regulations; • specific and significant regulations, including, but not limited to, the European Union’s GDPR, which imposes compliance obligations on companies who possess and use data of EU residents; • differences in analysis of regulatory, legal and tax issues across various countries, such as different interpretations of antitrust and competition laws; • uncertainty and resultant political, financial and market instability arising from the United Kingdom’s exit from the European Union; • compliance with U.S. laws affecting activities of U.S. companies abroad, including the U.S.
Risks Related to SoundHound’s Business The market in which SoundHound operates is highly competitive and rapidly changing and SoundHound may be unable to compete successfully. There are a number of companies that develop or may develop products that compete in the Voice AI market.
Risks Related to SoundHound’s Business and Financial Condition The market in which SoundHound operates is highly competitive and rapidly changing and SoundHound may be unable to compete successfully. There are a number of companies that develop or may develop products that compete in the Voice AI market.
As a public company, and particularly after we are no longer an “emerging growth company” or a “smaller reporting company,” we will continue to incur significant legal, accounting and other expenses that SoundHound did not incur as a private company.
As a public company, and particularly since we are no longer an “emerging growth company” or a “smaller reporting company,” we will continue to incur significant legal, accounting and other expenses that SoundHound did not incur as a private company.
SoundHound is subject to the reporting requirements of the Exchange Act, and is required to comply 32 Table of Contents with the applicable requirements of the Sarbanes-Oxley Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as the rules and regulations subsequently implemented by the SEC and the listing standards of the Nasdaq, including changes in corporate governance practices and the establishment and maintenance of effective disclosure and financial controls.
SoundHound is subject to the reporting requirements of the Exchange Act, and is required to comply with the applicable requirements of the Sarbanes-Oxley Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as the rules and regulations subsequently implemented by the SEC and the listing standards of the Nasdaq, including changes in corporate governance practices and the establishment and maintenance of effective disclosure and financial controls.
If the imposition of any of these government actions causes SoundHound to lose its right to direct the activities of its variable interest entity or otherwise separate from it and if SoundHound is not able to restructure its ownership structure and operations in a satisfactory manner, SoundHound would no longer be able to consolidate the financial results of its variable interest entity in its consolidated financial statements.
If the imposition of any of these government actions causes SoundHound to lose its right to direct the activities of its variable 18 Table of Contents interest entity or otherwise separate from it and if SoundHound is not able to restructure its ownership structure and operations in a satisfactory manner, SoundHound would no longer be able to consolidate the financial results of its variable interest entity in its consolidated financial statements.
If a major customer becomes subject to bankruptcy or similar proceedings whereby contractual commitments are subject to stay of execution and the possibility of legal or other modification, or if a major customer otherwise successfully procures protection against SoundHound legally enforcing its obligations, it is likely that SoundHound will be forced to record a substantial loss.
If a major customer becomes subject to bankruptcy or similar proceedings whereby contractual commitments are subject to stay of execution and the possibility of legal or other modification, or if a major customer otherwise successfully procures protection against SoundHound legally enforcing its 13 Table of Contents obligations, it is likely that SoundHound will be forced to record a substantial loss.
SoundHound currently generates less than $1.0 million annually in revenue from its operations in China, though SoundHound expects to expand its business in China going forward. Foreign ownership of certain types of internet businesses, such as internet information services, is subject to restrictions under applicable Chinese laws, rules and 22 Table of Contents regulations.
SoundHound currently generates less than $0.1 million annually in revenue from its operations in China, though SoundHound expects to expand its business in China going forward. Foreign ownership of certain types of internet businesses, such as internet information services, is subject to restrictions under applicable Chinese laws, rules and regulations.
Prospective customers generally must make significant commitments of resources to test and validate SoundHound’s products before including them in a product or vehicle. The development cycles of SoundHound’s products with new customers are 16 Table of Contents approximately six months to two years after a design win, depending on the customer and the complexity of the product.
Prospective customers generally must make significant commitments of resources to test and validate SoundHound’s products before including them in a product or vehicle. The development cycles of SoundHound’s products with new customers are approximately six months to two years after a design win, depending on the customer and the complexity of the product.
Although the source code for SoundHound’s proprietary software is protected both as a trade secret and as a copyrighted work, litigation may be necessary to enforce its intellectual property 30 Table of Contents rights, to protect its trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity.
Although the source code for SoundHound’s proprietary software is protected both as a trade secret and as a copyrighted work, litigation may be necessary to enforce its intellectual property rights, to protect its trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity.
SoundHound has a dual class common stock structure and the holders of SoundHound Class B Common Stock have ten votes per share. SoundHound Founders own shares of Class B Common Stock representing approximately 72% of the voting power of the outstanding capital stock of SoundHound.
SoundHound has a dual class common stock structure and the holders of SoundHound Class B Common Stock have ten votes per share. SoundHound Founders own shares of Class B Common Stock representing approximately 63% of the voting power of the outstanding capital stock of SoundHound.
The design and development of new cloud-connected and embedded products and technologies and the addition of new languages will involve significant expense. SoundHound’s research and development costs have greatly increased in recent years and, together with certain expenses associated with delivering SoundHound’s connected services, are projected to continue to escalate in the near future.
The design and development of new cloud-connected and embedded products and technologies and the addition of new languages will involve significant expense. SoundHound’s research and development costs have greatly increased in recent years and, together with certain expenses associated with delivering SoundHound’s connected services, are projected to continue to escalate in the near 12 Table of Contents future.
SoundHound may not have adequate personnel with the appropriate level of knowledge, experience and training in the accounting policies, practices or internal control over financial reporting required of public companies. SoundHound’s management will need to continually assess its staffing and training procedures to improve its internal control over financial reporting.
SoundHound may not have 33 Table of Contents adequate personnel with the appropriate level of knowledge, experience and training in the accounting policies, practices or internal control over financial reporting required of public companies. SoundHound’s management will need to continually assess its staffing and training procedures to improve its internal control over financial reporting.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), was signed into law making significant changes to the Internal Revenue Code of 1986, as amended (the “Code”). In particular, sweeping changes were made to the U.S. taxation of foreign operations.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), was signed into law making significant changes to the Internal Revenue Code of 1986, as amended (the “Code”). In particular, sweeping changes were made to the 36 Table of Contents U.S. taxation of foreign operations.
Although SoundHound has arrangements with some of its executive officers designed to promote retention, its employment relationships are generally at-will and SoundHound has had key employees leave in the past. SoundHound cannot assure you that one or more key employees will not leave in the future.
Although SoundHound has arrangements with some of its executive officers designed to promote 28 Table of Contents retention, its employment relationships are generally at-will and SoundHound has had key employees leave in the past. SoundHound cannot assure you that one or more key employees will not leave in the future.
A decline in future operating results could provide substantial evidence that a full or partial valuation allowance for deferred 27 Table of Contents tax assets is necessary. This could have a material adverse effect on SoundHound’s results of operations and financial condition.
A decline in future operating results could provide substantial evidence that a full or partial valuation allowance for deferred tax assets is necessary. This could have a material adverse effect on SoundHound’s results of operations and financial condition.
SoundHound will need to hire additional accounting and financial staff, and engage outside consultants, all with appropriate public company experience and technical accounting knowledge and maintain an internal audit function, which will increase its operating expenses.
SoundHound has hired and will continue to need to hire additional accounting and financial staff, and engage outside consultants, all with appropriate public company experience and technical accounting knowledge and maintain an internal audit function, which has and will increase its operating expenses.
SoundHound’s international operating results may be affected by volatility in currency exchange rates and its ability to effectively manage its currency transaction risks. SoundHound would incur currency transaction risks if SoundHound were 23 Table of Contents to enter into either a purchase or a sale transaction using a different currency from the currency in which SoundHound reports revenue.
SoundHound’s international operating results may be affected by volatility in currency exchange rates and its ability to effectively manage its currency transaction risks. SoundHound would incur currency transaction risks if SoundHound were to enter into either a purchase or a sale transaction using a different currency from the currency in which SoundHound reports revenue.
In addition, because of the ten-to-one voting ratio between our Class B and Class A Common Stock, holders of our Class B Common Stock could continue to control a majority of the combined voting power of our Common Stock and therefore control all matters submitted to our stockholders for approval until such time, if any, as a sufficient number of shares of our Class B Common Stock are converted into shares of our Class A Common Stock in accordance with the terms of the Amended Charter.
In addition, because of the ten-to-one voting ratio between our Class B and Class A Common Stock, holders of our Class B Common Stock could continue to control a majority of the combined voting power of our Common Stock and therefore control all matters submitted to our stockholders for approval until such time, if any, as a sufficient number of shares of our Class B Common Stock are converted into shares of our Class A Common Stock in accordance with the terms of the Second Amended & Restated Certificate of Incorporation of the Company (the "Amended Charter").
SoundHound is exposed to fluctuating exchange rates of foreign currencies including the euro, British 21 Table of Contents pound, Canadian dollar, Chinese RMB, Japanese yen, Indian rupee and South Korean won.
SoundHound is exposed to fluctuating exchange rates of foreign currencies including the euro, British pound, Canadian dollar, Chinese RMB, Japanese yen, Indian rupee and South Korean won.
SoundHound may be unable to keep current with changes in foreign government requirements and laws as they change from time to time, which often occurs with minimal or no advance notice. Failure to comply with these regulations could harm its business.
SoundHound may be unable to keep current with changes in foreign 22 Table of Contents government requirements and laws as they change from time to time, which often occurs with minimal or no advance notice. Failure to comply with these regulations could harm its business.
There is a risk that we will not be able to achieve the technological advances that may be necessary for us to be competitive or that certain of its products will become obsolete.
There is a risk that we will not be able to achieve the technological advances that may be necessary for us to be competitive or that 31 Table of Contents certain of its products will become obsolete.
Interpretation, application and enforcement of these laws, rules and regulations evolve from time to time and their scope may continually change, through new legislation, amendments to existing legislation or 20 Table of Contents changes in enforcement.
Interpretation, application and enforcement of these laws, rules and regulations evolve from time to time and their scope may continually change, through new legislation, amendments to existing legislation or changes in enforcement.
The Amended Charter, Amended Bylaws, and Delaware law contain provisions that could depress the trading price of our common stock by acting to discourage, delay, or prevent a change of control of SoundHound or changes in SoundHound that our management or stockholders may deem advantageous.
The Amended Charter, Amended & Restated Bylaws of the Company (the "Amended Bylaws"), and Delaware law contain provisions that could depress the trading price of our common stock by acting to discourage, delay, or prevent a 35 Table of Contents change of control of SoundHound or changes in SoundHound that our management or stockholders may deem advantageous.
If SoundHound raises additional funds through the issuance of equity, including its current equity line of credit arrangement, or convertible debt securities, the percentage ownership of its stockholders could be significantly diluted, and these newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders, including those acquiring shares in this offering.
If SoundHound raises additional funds through the issuance of equity, including its ATM Program, or convertible debt securities, the percentage ownership of its stockholders could be significantly diluted, and these newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders, including those acquiring shares in this offering.
For example, SoundHound did not timely file its Form 10-Q for the quarter ended March 31, 2021 and unless the matters discussed in this risk factor and elsewhere in this Annual Report are mitigated, the risk exists that SoundHound may not be able to file timely in the future.
For example, SoundHound did not timely file its Form 10-Q for the quarter ended March 31, 2021 and had to file an extension for its Form 10-Q for the quarter ended September 30, 2023 and unless the matters discussed in this risk factor and elsewhere in this Annual Report are mitigated, the risk exists that SoundHound may not be able to file timely in the future.
In addition, over the last few years, the stock market more broadly has experienced price and volume fluctuations, including due to factors relating to the ongoing outbreak of COVID-19 and the war in Ukraine, and this volatility has sometimes been unrelated to the operating performance of particular companies.
In addition, over the last few years, the stock market more broadly has experienced price and volume fluctuations, including due to factors relating to the outbreak of COVID-19, inflationary pressures, and the wars in Ukraine and in Gaza, and this volatility has sometimes been unrelated to the operating performance of particular companies.
Even if the restructuring plan is successful, SoundHound may continue to have net losses and negative operating cash flows as SoundHound continues to invest in its development activities, and in sales and marketing. SoundHound also expects to incur the incremental costs of operating as a public company, contributing to SoundHound’s losses and operating uses of cash.
SoundHound may continue to have net losses and negative operating cash flows as SoundHound continues to invest in its development activities, and in sales and marketing. SoundHound also expects to incur the incremental costs of operating as a public company, contributing to SoundHound’s losses and operating uses of cash.
This market and share price volatility relating to the effects of COVID-19 or the war in Ukraine, as well as general economic, market or political conditions, has and could further reduce the market price of our Class A Common Stock in spite of our operating performance and could also increase our cost of capital, which could prevent us from accessing debt and equity capital on terms acceptable to us or at all.
This market and share price volatility relating to these outside effects, as well as 32 Table of Contents general economic, market or political conditions, has and could further reduce the market price of our Class A Common Stock in spite of our operating performance and could also increase our cost of capital, which could prevent us from accessing debt and equity capital on terms acceptable to us or at all.
Given the sustained flow of investment funds into passive strategies that seek to track certain indices, exclusion from certain stock indices would likely preclude investment by many of these funds and could make our Class A Common stock less attractive to other investors.
Given the sustained flow of investment funds into passive strategies that seek to track certain indices, exclusion from certain stock indices would likely preclude investment by many of these funds and could make our Class A Common stock less attractive to other investors. As a result, the market price of our Class A Common stock could be adversely affected.
If SoundHound does not prevail in any such disagreements, its profitability may be affected. SoundHound’s ability to use its net operating loss carryforwards and certain other tax attributes may be limited. As of December 31, 2022, SoundHound had $344.6 million of U.S. federal and $106.9 million of state net operating loss carryforwards available to reduce future taxable income.
If SoundHound does not prevail in any such disagreements, its profitability may be affected. SoundHound’s ability to use its net operating loss carryforwards and certain other tax attributes may be limited. As of December 31, 2023, SoundHound had $395.5 million of U.S. federal and $109.4 million of state net operating loss carryforwards available to reduce future taxable income.
Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including: • changes in the valuation of our deferred tax assets and liabilities; • expected timing and amount of the release of any tax valuation allowances; • tax effects of stock-based compensation; • costs related to intercompany restructurings; • changes in tax laws, regulations or interpretations thereof; or • lower than anticipated future earnings in jurisdictions where we have lower statutory tax rates and higher than anticipated future earnings in jurisdictions where we have higher statutory tax rates.
Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including: • changes in the valuation of our deferred tax assets and liabilities; • expected timing and amount of the release of any tax valuation allowances; • tax effects of stock-based compensation; • costs related to intercompany restructurings; • changes in tax laws, regulations or interpretations thereof; or • lower than anticipated future earnings in jurisdictions where we have lower statutory tax rates and higher than anticipated future earnings in jurisdictions where we have higher statutory tax rates. 37 Table of Contents In addition, we may be subject to audits of our income, sales and other transaction taxes by taxing authorities.
Risks Related to SoundHound’s Class A Common Stock and the Securities Market SoundHound’s stock price and trading volume may fluctuate significantly.
Risks Related to SoundHound’s Class A Common Stock and the Securities Market SoundHound’s stock price and trading volume has fluctuated significantly and may continue to fluctuate significantly in the future.
SoundHound’s business model is predicated, in part, on maintaining a customer base that will generate a recurring stream of revenues. If that recurring stream of revenues is not maintained or does not increase as expected, or if SoundHound’s business model changes as the industry evolves, its operating results may be adversely affected.
If that recurring stream of revenues is not maintained or does not increase as expected, or if SoundHound’s business model changes as the industry evolves, its operating results may be adversely affected. SoundHound’s business model is dependent, in part, on its ability to maintain and increase a customer base that generates recurring revenues.
Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which could have a material adverse effect on our business, financial condition, and results of operations.
Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which could have a material adverse effect on our business, financial condition, and results of operations. Any adverse determination in litigation could also subject SoundHound to significant liabilities.
In addition, this concentrated control may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interest as one of our stockholders. As a result, such concentrated control may adversely affect the market price of our Class A Common Stock.
In addition, this concentrated control may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interest as one of our stockholders.
Third parties have claimed in the past and may claim in the future that SoundHound is infringing their intellectual property, and we could be exposed to significant litigation or licensing expenses or be prevented from selling SoundHound’s products or making its technologies available to its customers if such claims are successful.
If SoundHound is unable to successfully address these challenges, its operating results may be adversely affected, and its development costs may increase . 30 Table of Contents Third parties have claimed in the past and may claim in the future that SoundHound is infringing their intellectual property, and we could be exposed to significant litigation or licensing expenses or be prevented from selling SoundHound’s products or making its technologies available to its customers if such claims are successful.
Shares of Class B Common Stock are convertible into shares of Class A Common Stock and will automatically convert into shares of Class A Common Stock upon the occurrence of certain future events, generally including transfers, subject to limited excepts set forth in the Amended Charter.
As a result, such concentrated control may adversely affect the market price of our Class A Common Stock. 34 Table of Contents Shares of Class B Common Stock are convertible into shares of Class A Common Stock and will automatically convert into shares of Class A Common Stock upon the occurrence of certain future events, generally including transfers, subject to limited excepts set forth in the Amended Charter.
Deficiencies in the design, implementation or maintenance of the cloud-based data centers could materially harm SoundHound’s business. 25 Table of Contents As SoundHound considers approaches for expanding internationally, government regulation protecting the non-discriminatory provision of internet access may be nascent or non-existent.
In addition, the implementation of public cloud-based data centers involves risks, including loss of information and potential disruption to SoundHound’s normal operations. Deficiencies in the design, implementation or maintenance of the cloud-based data centers could materially harm SoundHound’s business. As SoundHound considers approaches for expanding internationally, government regulation protecting the non-discriminatory provision of internet access may be nascent or non-existent.
If SoundHound’s current and future customers purchase a lower volume of subscriptions for SoundHound’s proprietary products or do not continue entering into service contracts with us, SoundHound’s recurring revenue stream relative to its total revenues would be reduced and its operating results would be adversely affected.
If SoundHound’s current and future customers purchase a lower volume of subscriptions for SoundHound’s proprietary products or do not continue entering into service contracts with us, SoundHound’s recurring revenue stream relative to its total revenues would be reduced and its operating results would be adversely affected. 24 Table of Contents SoundHound’s brand, reputation and ability to attract, retain and serve its customers are dependent in part upon the reliable performance of its products and technologies.
Any provision of our Amended Charter, our Amended Bylaws, or Delaware law that has the effect of delaying, preventing, or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock. 35 Table of Contents Risks Related to U.S. and International Taxation Generally Changes in tax laws or exposure to additional income tax liabilities could affect SoundHound’s future profitability.
Any provision of our Amended Charter, our Amended Bylaws, or Delaware law that has the effect of delaying, preventing, or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.
If SoundHound fails to anticipate market requirements or fail to develop and introduce product enhancements or new products to meet those needs in a timely manner, it could cause us to lose existing customers and prevent us from gaining new customers, which would significantly harm its business, financial condition and results of operations. 28 Table of Contents If SoundHound spends significant time and effort on research and development and is unable to generate an adequate return on its investment, its results of operations may be materially and adversely affected.
If SoundHound fails to anticipate market requirements or fail to develop and introduce product enhancements or new products to meet those needs in a timely manner, it could cause us to lose existing customers and prevent us from gaining new customers, which would significantly harm its business, financial condition and results of operations.
Competition in the marketplace may also lead us to win fewer new customers or result in us providing discounts and other commercial incentives.
As a result, it may be difficult for us to add new customers to SoundHound’s existing customer base. Competition in the marketplace may also lead us to win fewer new customers or result in us providing discounts and other commercial incentives.
During the years ended December 31, 2022 and 2021, three customers accounted for the following approximate percentages of SoundHound’s total revenues during the respective applicable period: 67% and 61%. Accounts receivable balances due from two customers collectively totaling 75% of the Company’s consolidated accounts receivable balance at December 31, 2022.
During the years ended December 31, 2023, two customers accounted for 62% of SoundHound's total revenues. During the years ended December 31, 2022 and 2021, three customers accounted for the following approximate percentages of SoundHound’s total revenues during the respective applicable period: 67% and 61%.
Any failure to attract, integrate, motivate and retain such employees could harm SoundHound’s business or impair our ability to timely meet business goals and objectives. SoundHound depends on skilled employees and could be impacted by a shortage of critical skills.
Any failure to attract, integrate, motivate and retain such employees could harm SoundHound’s business or impair our ability to timely meet business goals and objectives.
You will not have the same protections afforded to shareholders of companies that are subject to such requirements. SoundHound qualifies as a “controlled company” within the meaning of the corporate governance standards of Nasdaq.
We are considered a “controlled company” within the meaning of Nasdaq listing standards and, as a result, qualify for, and may rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to shareholders of companies that are subject to such requirements.
Therefore, SoundHound’s failure to meet revenue expectations would seriously harm its operating results, financial condition, and cash flows. SoundHound has generated substantial net losses and negative operating cash flows since its inception and expects to continue to do so for the foreseeable future. To date, SoundHound has generated substantial net losses and negative cash flows from operating activities.
SoundHound has generated substantial net losses and negative operating cash flows since its inception and may continue to do so for the foreseeable future. To date, SoundHound has generated substantial net losses and negative cash flows from operating activities.
Accordingly, the forecasts of market growth included in this Annual Report should not be taken as indicative of its future growth. If SoundHound is unable to acquire new customers, its operating results will be harmed. Likewise, potential customer turnover in the future, or costs it incurs to retain its existing customers, could materially and adversely affect its operating results.
Accordingly, the forecasts of market growth included in this Annual Report should not be taken as indicative of its future growth. 23 Table of Contents If SoundHound is unable to acquire new customers, its operating results will be harmed.
Any adverse determination in litigation could also subject SoundHound to significant liabilities. 33 Table of Contents Risks Applicable to a Dual Class Common Stock Structure SoundHound has a dual class common stock structure that has the effect of concentrating voting control with the holders of our Class B Common Stock.
Risks Applicable to a Dual Class Common Stock Structure SoundHound has a dual class common stock structure that has the effect of concentrating voting control with the holders of our Class B Common Stock.
New regulations or volatility in the stock market could diminish SoundHound’s use, and the value, of its equity awards. This would place SoundHound at a competitive disadvantage in attracting qualified personnel or force it to offer more cash compensation. Cybersecurity and data privacy incidents or breaches may damage client relations and inhibit SoundHound’s growth.
This would place SoundHound at a competitive disadvantage in attracting qualified personnel or force it to offer more cash compensation. Cybersecurity and data privacy incidents or breaches may damage client relations and inhibit SoundHound’s growth. The confidentiality and security of SoundHound’s information, and that of third parties, is critical to SoundHound’s business.
Service disruption or outages, whether caused by SoundHound’s service, the products or services of SoundHound’s third-party service providers, or SoundHound’s customers’ or their customers’ equipment and systems, may result in loss of market acceptance of its products and technologies and any necessary remedial actions may force it to incur significant costs and expenses.
Service disruption or outages, whether caused by SoundHound’s service, the products or services of SoundHound’s third-party service providers, or SoundHound’s customers’ or their customers’ equipment and systems, may result in loss of market acceptance of its products and technologies and any necessary remedial actions may force it to incur significant costs and expenses. 20 Table of Contents If any of these service providers fail to provide reliable services, suffer outages, degrade, disrupt, increase the cost of or terminate the services that SoundHound and its customers depend on, SoundHound may be required to switch to another service provider.
Moreover, the legal uncertainty created by certain of these laws, including the Data Security Law, and recent government actions could materially adversely affect its ability, on favorable terms, to raise capital, including engaging in follow-on offerings of its securities in the U.S. market once SoundHound is a public.
Moreover, the legal uncertainty created by certain of these laws, including the Data Security Law, and recent government actions could materially adversely affect its ability, on favorable terms, to raise capital, including engaging in follow-on offerings of its securities in the U.S. market once SoundHound is a public. 16 Table of Contents Compliance with data security and personal information protection laws, may result in additional expenses to SoundHound and subject it to negative publicity, which could harm SoundHound’s reputation among users and negatively affect the trading price of its shares in the future.
Accounts receivable balances due from five customers collectively totaling 86% of the Company’s consolidated accounts receivable balance at December 31, 2021. In addition to upfront payments pursuant to professional services or custom engineering agreements, SoundHound generally enters into master service agreements with its largest customers and also provides them with engineering and custom services.
In addition to upfront payments pursuant to professional services or custom engineering agreements, SoundHound generally enters into master service agreements with its largest customers and also provides them with engineering and custom services.
In addition, global production and sales trends can be affected by 15 Table of Contents SoundHound’s customers’ ability to continue operating in response to challenging economic conditions, and in response to labor relations issues, regulatory requirements, trade agreements and other factors.
Such factors may also negatively impact consumer demand for products, including automobiles, that incorporate or use SoundHound products or technologies. In addition, global production and sales trends can be affected by SoundHound’s customers’ ability to continue operating in response to challenging economic conditions, and in response to labor relations issues, regulatory requirements, trade agreements and other factors.
Much of SoundHound’s future success depends on the continued service and availability of skilled employees, particularly with respect to technical areas. Skilled and experienced personnel in the areas where SoundHound competes are in high demand, and competition for their talents is intense. Many of SoundHound’s key employees receive a total compensation package that includes equity awards.
Skilled and experienced personnel in the areas where SoundHound competes are in high demand, and competition for their talents is intense. Many of SoundHound’s key employees receive a total compensation package that includes equity awards. New regulations or volatility in the stock market could diminish SoundHound’s use, and the value, of its equity awards.
SoundHound implemented its restructuring plan to reduce the amount of capital required to meet its current business needs, but anticipates that current cash, cash equivalents, cash provided by operating activities and funds available through SoundHound’s equity line of 18 Table of Contents credit, will not be sufficient to meet its future capital needs.
SoundHound anticipates that current cash, cash equivalents, cash provided by operating activities and funds available through SoundHound’s at-the-market offering program (ATM program), will not be sufficient to meet its future capital needs.
The Voice AI market is competitive and many of SoundHound’s competitors have substantial financial, personnel and other resources that they utilize to develop solutions and attract customers. As a result, it may be difficult for us to add new customers to SoundHound’s existing customer base.
If SoundHound is unable to attract a sufficient number of new customers, it may be unable to reduce gross margins at desired rates and its operating results may suffer. The Voice AI market is competitive and many of SoundHound’s competitors have substantial financial, personnel and other resources that they utilize to develop solutions and attract customers.
For example, SoundHound expects to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act, which will increase when SoundHound is no longer an “emerging growth company” or a “smaller reporting company” with revenues of less than $100 million.
For example, SoundHound expects to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act.
We are subject to income taxes in the United States and other jurisdictions, and our tax liabilities will be subject to the allocation of expenses in differing jurisdictions.
Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our financial condition and results of operations. We are subject to income taxes in the United States and other jurisdictions, and our tax liabilities will be subject to the allocation of expenses in differing jurisdictions.
It is also possible for competitors to develop their own solutions using open source software, potentially reducing the demand for SoundHound’s software. If SoundHound is unable to successfully address these challenges, its operating results may be adversely affected, and its development costs may increase .
It is also possible for competitors to develop their own solutions using open source software, potentially reducing the demand for SoundHound’s software.
Of the U.S. federal net operating loss carryforwards, $256.0 million will be carried forward indefinitely for U.S. federal tax purposes and $88.6 million will begin to expire in 2025. SoundHound’s U.S. state net operating loss carryforwards will begin to expire in 2028.
The federal and state net operating loss carryforwards will start to expire in 2025 and 2028, respectively, with the exception of $306.8 million federal net operating loss carryforwards and $5.6 million state net operating loss carryforwards, which can be carried forward indefinitely.
To the extent that these activities yield increased revenue, this revenue may not offset the increased expenses it incurs.
To the extent that these activities yield increased revenue, this revenue may not offset the increased expenses it incurs. If SoundHound does not successfully maintain and enhance its brand and reputation, its operating results may be adversely affected.
You should carefully consider these risk factors and the other reports and documents filed by us with the SEC.
Summary The risk factors described below are a summary of the principal risk factors associated with an investment in us. These are not the only risks we face. You should carefully consider these risk factors and the other reports and documents filed by us with the SEC.
Any cybersecurity or data privacy 19 Table of Contents incidents could have a material adverse effect on SoundHound’s results of operations and financial condition.
SoundHound’s services involve the transmission, use, and storage of customers’ and their customers’ information, which may be confidential or contain personally identifiable information. Any cybersecurity or data privacy incidents could have a material adverse effect on SoundHound’s results of operations and financial condition.
Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations and the market price of our securities. 13 Table of Contents Summary The risk factors described below are a summary of the principal risk factors associated with an investment in us. These are not the only risks we face.
As a result, the trading price of our securities could decline and you could lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations and the market price of our securities.
In addition, certain U.S. states have imposed additional limitations on the use of net operating loss carryforwards not otherwise imposed on the use of U.S. federal net operating loss carryforwards and may impose additional limitations in the future. 36 Table of Contents Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our financial condition and results of operations.
In addition, certain U.S. states have imposed additional limitations on the use of net operating loss carryforwards not otherwise imposed on the use of U.S. federal net operating loss carryforwards and may impose additional limitations in the future.
In addition, we may be subject to audits of our income, sales and other transaction taxes by taxing authorities. Outcomes from these audits could have an adverse effect on our financial condition and results of operations. Item 1B. Unresolved Staff Comments None.
Outcomes from these audits could have an adverse effect on our financial condition and results of operations.
SoundHound’s success depends on its ability to acquire new customers in new and existing verticals, and in new and existing geographic markets. If SoundHound is unable to attract a sufficient number of new customers, it may be unable to reduce gross margins at desired rates and its operating results may suffer.
Likewise, potential customer turnover in the future, or costs it incurs to retain its existing customers, could materially and adversely affect its operating results. SoundHound’s success depends on its ability to acquire new customers in new and existing verticals, and in new and existing geographic markets.
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As a result, the trading price of our securities could decline and you could lose all or part of your investment.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties Our corporate headquarters is located in Santa Clara, California, within a consolidated building covering 61,360 square feet. Our lease began in 2017 and is set to expire in 2024. In addition to our headquarters, we lease offices in Boulder, CO; Toronto, Paris, Tokyo, and Beijing and leverage shared workspace offices in Berlin and Seoul. Item 3.
Biggest changeItem 2. Properties Our corporate headquarters is located in Santa Clara, California, within a consolidated building covering 61,360 square feet. Our lease began in 2017 and is set to expire in 2025. In addition to our headquarters, we lease offices in Toronto, Paris and various other locations in the U.S. and internationally. Item 3.
Legal Proceedings The material set forth in the section titled “Legal Proceedings” in Note 7 of our Notes to Consolidated Financial Statements is incorporated herein by reference. Item 4. Mine Safety Disclosures Not applicable. 37 Table of Contents Part II
Legal Proceedings The material set forth in the section titled “Legal Proceedings” in Note 7 of our Notes to Consolidated Financial Statements is incorporated herein by reference. Item 4. Mine Safety Disclosures Not applicable. 41 Table of Contents Part II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeOur listed redeemable warrants are listed on the Nasdaq Global Market under the symbol “SOUNW.” Stockholders According to the records of our transfer agent, there were 141 holders of record of our Class A common stock, 3 holders of record of our Class B common stock and 31 holders of record of our listed redeemable warrants on December 31, 2022.
Biggest changeOur listed redeemable warrants are listed on the Nasdaq Global Market under the symbol “SOUNW.” Stockholders According to the records of our transfer agent, there were 77 holders of record of our Class A common stock, 3 holders of record of our Class B common stock and holders of record of our listed redeemable warrants on December 31, 2023.
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Dividends We do not anticipate paying any cash dividends in the foreseeable future. Securities Authorized for Issuance Under Equity Compensation Plans See Item 12 for information regarding securities authorized for issuance under our equity compensation plans. Recent Sales of Unregistered Securities None. Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. Item 6. [Reserved]
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Dividends We do not anticipate paying any cash dividends in the foreseeable future.
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Securities Authorized for Issuance Under Equity Compensation Plans The following table sets forth information as of December 31, 2023 relating to all our equity compensation plans: Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options (in thousands) Weighted Average Exercise Price of Outstanding Options Number of Granted Restricted Stock Awards Outstanding (in thousands) Number of Securities Remaining Available for Future Issuance (in thousands) Equity compensation plans approved by security holders 16,841 $ 3.59 16,344 2,362 Equity compensation plans not approved by security holders — — — — Total 16,841 3.59 16,344 2,362 Performance Graph In accordance with Exchange Act Rule 14a-3(b), the disclosure for this item will be included in our annual report to be provided to the Company's stockholders in connection with the Annual Meeting of Shareholders to be held in 2024, which annual report shall be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year.
Added
Recent Sales of Unregistered Securities None that have not already been disclosed in a prior Quarterly Report on Form 10-Q or Current Report on Form 8-K. Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. Item 6. [Reserved] 42 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

73 edited+92 added−75 removed68 unchanged
Biggest changeThe Company’s net operating loss carryforwards and tax credits could expire before utilization if subject to annual limitations. 45 Table of Contents Results of Operations The following table sets forth the significant components of our results of operations ($ in thousands): Year Ended December 31, Change 2022 2021 $ % Revenues $ 31,129 $ 21,197 $ 9,932 47 % Operating expenses: Cost of revenues 9,599 6,585 3,014 46 % Sales and marketing 20,367 4,240 16,127 380 % Research and development 76,392 59,178 17,214 29 % General and administrative 30,178 16,521 13,657 83 % Total operating expenses 136,536 86,524 50,012 58 % Loss from operations (105,407) (65,327) (40,080) 61 % Other expense, net Interest expense (6,893) (8,342) 1,449 (17) % Other expense, net (184) (5,415) 5,231 (97) % Total other expense, net (7,077) (13,757) 6,680 (49) % Loss before provision for income taxes (112,484) (79,084) (33,400) 42 % Provision for income taxes 2,889 456 2,433 534 % Net loss $ (115,373) $ (79,540) $ (35,833) 45 % Revenues The following tables summarize our revenues by type and geographic regions ($ in thousands): Year Ended December 31, Change 2022 2021 $ % Product Royalties $ 28,447 $ 18,356 $ 10,091 55 % Service Subscriptions 1,838 1,550 288 19 % Monetization 844 1,291 (447) (35) % $ 31,129 $ 21,197 $ 9,932 47 % Year Ended December 31, Change 2022 2021 $ % Korea $ 14,530 $ 2,460 $ 12,070 491 % Germany 4,134 7,526 (3,392) (45) % United States 3,344 4,030 (686) (17) % Japan 3,866 3,797 69 2 % France 4,023 2,616 1,407 54 % Other 1,232 768 464 60 % $ 31,129 $ 21,197 $ 9,932 47 % Total revenues increased by $9.9 million, or 47%, in 2022 compared to 2021.
Biggest changeResults of Operations The following table sets forth the significant components of our results of operations ($ in thousands): Year Ended December 31, Change 2023 2022 $ % Revenues $ 45,873 $ 31,129 $ 14,744 47 % Operating expenses: Cost of revenues 11,307 9,599 1,708 18 % Sales and marketing 18,893 20,367 (1,474) (7) % Research and development 51,439 76,392 (24,953) (33) % General and administrative 28,285 30,443 (2,158) (7) % Restructuring 4,557 — 4,557 100 % Total operating expenses 114,481 136,801 (22,320) (16) % Loss from operations (68,608) (105,672) 37,064 (35) % Other expense, net: Interest expense (17,570) (6,893) (10,677) 155 % Other income (expense), net 1,155 (1,259) 2,414 (192) % Total other expense, net (16,415) (8,152) (8,263) 101 % Loss before provision for income taxes (85,023) (113,824) 28,801 (25) % Provision for income taxes 3,914 2,889 1,025 35 % Net loss $ (88,937) $ (116,713) $ 27,776 (24) % 49 Table of Contents The following table summarizes our gross profit and gross margin ($ in thousands): Year Ended December 31, Change 2023 2022 % Revenues $ 45,873 $ 31,129 47 % Cost of revenues 11,307 9,599 18 % Gross profit $ 34,566 $ 21,530 61 % Gross margin 75 % 69 % 6 % Revenues The following tables summarize our revenues by type and geographic regions ($ in thousands): Year Ended December 31, Change 2023 2022 $ % Product Royalties $ 43,299 $ 28,447 $ 14,852 52 % Service Subscriptions 1,940 1,838 102 6 % Monetization 634 844 (210) (25) % $ 45,873 $ 31,129 $ 14,744 47 % Year Ended December 31, Change 2023 2022 $ % Korea $ 22,962 $ 14,530 $ 8,432 58 % United States 6,769 3,344 3,425 102 % Germany 5,950 4,134 1,816 44 % France 4,090 4,023 67 2 % Japan 3,707 3,866 (159) (4) % Other 2,395 1,232 1,163 94 % $ 45,873 $ 31,129 $ 14,744 47 % Total revenues increased by $14.7 million, or 47%, in 2023 compared to 2022 which is principally due to an increase in Product Royalties revenue by $14.9 million, or 52%, during 2023 compared to 2022.
Components of Our Results of Operations Revenues SoundHound generates revenues through: (1) “Product Royalties,” meaning royalties from voice-enabled products which are driven by volume, usage or life of applicable products and are affected by number of devices, users and units of usage time, (2) “Service Subscriptions,” meaning subscription revenues, derived from monthly fees based on usage-based revenue, revenue per query or revenue per user, and (3) “Monetization,” meaning revenues generated from focused ad targeting to users of products and services that employ our technologies.
Components of Our Results of Operations Revenues SoundHound generates revenues through: (1) “Product Royalties,” meaning royalties from voice-enabled products which are driven by volume, usage or life of applicable products and are affected by number of devices, users and units of usage, (2) “Service Subscriptions,” meaning subscription revenues, derived from monthly fees based on usage-based revenue, revenue per query or revenue per user, and (3) “Monetization,” meaning revenues generated from focused ad targeting to users of products and services that employ our technologies.
Interest Expense Interest expense consists of stated interest incurred on our outstanding convertible notes and debt during the relevant periods, as well as the amortization of debt discounts and issuance costs over the life of the instruments or a shorter period if a lender can demand payment in the event certain events occur that are outside of the control of the Company.
Interest Expense Interest expense consists of stated interest incurred on our outstanding convertible notes and term debt during the relevant periods, as well as the amortization of debt discounts and issuance costs over the life of the instruments or a shorter period if a lender can demand payment in the event certain events occur that are outside of the control of the Company.
This creates a great opportunity for SoundHound: we provide disruptive technologies that are superior to the alternatives, with better terms, allowing customers to maintain their brand, control the user experience, get access to the data and define their own privacy policies, while being able to customize, differentiate, innovate and monetize.
This creates a great opportunity for SoundHound: we believe that we provide disruptive technologies that are superior to the alternatives, with better terms, allowing customers to maintain their brand, control the user experience, get access to the data and define their own privacy policies, while being able to customize, differentiate, innovate and monetize.
Currently, our monetization revenue is derived from our music identification application primarily in the form of ad impression revenue — revenue generated when an ad is shown in our music identification app — and, to a lesser extent, affiliate revenue for referrals to music stores for content sales and downloads of our premium music application.
Currently, our monetization revenue is derived only from our music identification application primarily in the form of ad impression revenue — revenue generated when an ad is shown in our music identification app — and, to a lesser extent, affiliate revenue for referrals to music stores for content sales and downloads of our premium music application.
Hosted Services Hosted services, along with non-distinct customization, integration, maintenance and support professional services, allow customers to access the Houndify platform over the contract period without taking possession of the software. The contract terms of hosted services range from one year to twenty years.
Hosted Services Hosted services, along with non-distinct customization, integration, maintenance and support professional services, allow customers to access the Houndify platform over the contract period without taking possession of the software. The contract terms of hosted services range from one to twenty years.
Additionally, SoundHound’s technology can address complex user queries such as, “Show me all restaurants within half a mile of the Space Needle that are open past 9pm on Wednesdays and have outdoor seating,” and follow-on qualifications such as “Okay, don’t show me anything with less than 3 stars or fast food.” 38 Table of Contents The SoundHound developer platform, Houndify, is an open-access platform that allows developers to leverage SoundHound’s Voice AI technology and a library of over 100 content domains, including commonly used domains for points of interest, weather, flight status, sports and more.
Additionally, SoundHound’s technology can address complex user queries such as, “Show me all restaurants within half a mile of the Space Needle that are open past 9pm on Wednesdays and have outdoor seating,” and follow-on qualifications such as “Okay, don’t show me anything with less than 3 stars or fast food.” The SoundHound developer platform, Houndify, is an open-access platform that allows developers to leverage SoundHound’s Voice AI technology and a library of over 100 content domains, including commonly used domains for points of interest, weather, flight status, sports and more.
The combined company incurred $27.7 million of expenses related to the transaction. After giving effect to these transactions, SoundHound received $90.7 million in net proceeds, which are intended to be used for general corporate purposes, including investments in sales, marketing and advancement of product development, but which may also be used to acquire other companies in the Voice AI industry.
The combined company incurred $27.7 million of expenses related to the transaction. After giving effect to these transactions, SoundHound received $90.7 million in net proceeds, which were intended to be used for general corporate purposes, including investments in sales, marketing and advancement of product development, but which may also be used to acquire other companies in the Voice AI industry.
These services are provided either on a usage basis (i.e., variable consideration) or on a fixed fee subscription basis. The Company recognizes revenue as each distinct service period is performed (i.e., recognized as incurred). Hosted services generally include up-front services to develop and/or customize the Houndify application to each customer’s specification.
These services are provided either on a usage basis (i.e., variable consideration) or on a fixed fee subscription basis. The Company recognizes revenue as each distinct service period is performed. Hosted services generally include up-front services to develop and/or customize the Houndify application to each customer’s specification.
Our business model since inception has been to invest significantly in our Houndify platform technology in the form of dedicated research and development. We will continue to invest in the development of our software platform to deliver consumers with continually improving value and delight.
Our business model since inception has been to invest in our technology in the form of dedicated research and development. We will continue to invest in the development of our software platform to deliver consumers with continually improving value and delight.
See Note 4 to our consolidated financial statements included within this Annual Report on Form 10-K for more information. Operating Expenses We classify our operating expenses into the following four categories, which are cost of revenues, sales and marketing, research and development, and general and administrative.
See Note 4 to our consolidated financial statements included within this Annual Report on Form 10-K for more information. Operating Expenses We classify our operating expenses into the following five categories, which are cost of revenues, sales and marketing, research and development, general and administrative and restructuring.
SoundHound generates monetization revenue from the services for generating these leads and transactions, and we will share the revenue with the product creators of pillar one. For example, when the driver of a voice-enabled car places an order to a restaurant that’s also voice enabled, we will have unlocked a seamless transaction.
SoundHound generates monetization revenue from the services for generating these leads and transactions, and we will share the revenue with the product creators of pillar one. For example, when the driver of a voice-enabled car places an order to a restaurant that is also voice enabled, we will have unlocked a seamless transaction.
The Company has determined that it does not act as the principal in monetization arrangements because it does not control the transfer of the service and it does not set the price. Based on these factors, the Company reports revenue on a net basis. Licensing The Company licenses voice solutions that are embedded in customer products.
The Company has determined that it does not act as the principal in monetization arrangements because it does not control the transfer of the service and it does not set the price. Based on these factors, the Company reports revenue on a net basis. 58 Table of Contents Licensing The Company licenses voice solutions that are embedded in customer products.
We believe that SoundHound has extensive technical expertise and a proven track record of innovation and value creation for us to continue to attract customers in the growing market for Voice AI transactions, which is estimated to grow to $160.0 billion by 2026.
We believe that SoundHound has extensive technical expertise and a proven track record of innovation and value creation for us to continue to attract customers in the growing market for Voice AI transactions, which is estimated to grow to $160 billion per year by 2026.
For example, your TV, car or even a coffee machine can answer questions about weather, sports scores, stock prices or flight status, and even search for local businesses. The addition of these public domains further enhances the value proposition of the product.
For example, your TV, car or even a coffee machine can 44 Table of Contents answer questions about weather, sports scores, stock prices or flight status, and even search for local businesses. The addition of these public domains further enhances the value proposition of the product.
Our market position is strengthened by the technical barriers to entry in the Voice AI space, which tend to discourage new market participants. Furthermore, our technology is backed by significant investments in intellectual property, with over 120 patents granted and over 140 patents pending, spanning multiple fields including speech recognition, natural language understanding, machine learning, monetization and more.
Our market position is strengthened by the technical barriers to entry in the Voice AI space, which tend to discourage new market participants. Furthermore, our technology is backed by significant investments in intellectual property, with over 155 patents granted and over 115 patents pending, spanning multiple fields including speech recognition, natural language understanding, machine learning, monetization and more.
As a result of these factors, as well as our mix of revenue streams and billing frequencies, we 43 Table of Contents do not believe that changes in our remaining performance obligations and deferred revenue in a given period are directly correlated with our revenue growth in that period.
As a result of these factors, as well as our mix of revenue streams and billing frequencies, we do not believe that changes in our remaining performance obligations and deferred revenue in a given period are directly correlated with our revenue growth in that period.
Professional Services Revenue from distinct professional services, such as non-integrated development services, is either recognized over time based upon the progress towards completion of the project, or at a point in time at project completion, depending on 51 Table of Contents the nature of the arrangement.
Professional Services Revenue from distinct professional services, such as non-integrated development services, is either recognized over time based upon the progress towards completion of the project, or at a point in time at project completion, depending on the nature of the arrangement.
Equity Line of Credit On August 16, 2022, the Company entered into a common stock purchase agreement (the “Common Stock Purchase Agreement”) and related registration rights agreement (the “CFPI Registration Rights Agreement”) with CF Principal Investments LLC (“CFPI”).
Equity Line of Credit (ELOC) On August 16, 2022, we entered into a common stock purchase agreement (the “Common Stock Purchase Agreement”) and related registration rights agreement (the “CFPI Registration Rights Agreement”) with CF Principal Investments LLC (“CFPI”).
The Black-Scholes option-pricing model requires the use of highly subjective and complex assumptions to determine the fair value of the awards, including the expected term of the award and the price volatility of the underlying stock.
The Black-Scholes option-pricing model requires the use of highly subjective and complex assumptions to determine the fair value of the awards, including the expected term of the award 59 Table of Contents and the price volatility of the underlying stock.
We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. We evaluate our assumptions, judgments and estimates on a regular basis.
We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. We evaluate our 57 Table of Contents assumptions, judgments and estimates on a regular basis.
Additionally, as we build new customer relationships, we continually focus on maintaining and growing our existing relationships through long-term partnerships through significant upfront investment in customer specific engineering projects.
Additionally, as we build new customer relationships, we continually focus on maintaining and growing our existing relationships through long-term partnerships through significant upfront investment in customer specific engineering projects. • Cost of Revenues.
Restructuring On January 5, 2023, SoundHound announced the Restructuring Plan intended to reduce operating costs, improve operating margins, improve cash flows and accelerate the Company’s path to profitability. The Restructuring Plan included a reduction of the Company’s then-current workforce by approximately 40%.
Restructuring On January 5, 2023, SoundHound announced the Restructuring Plan, which intended to reduce operating costs, improve operating margins, improve cash flows and accelerate the Company’s path to profitability. The Restructuring Plan included a reduction of the Company’s then-current workforce by approximately 40% or 180 positions globally.
We have achieved this critical momentum in part thanks to a long-tenured leadership team with deep expertise and proven ability to attract and retain talent.
We have achieved this critical momentum in part 43 Table of Contents thanks to a long-tenured leadership team with deep expertise and proven ability to attract and retain talent.
Upon the Closing of the Business Combination, ATSP changed its name to SoundHound AI, Inc. 41 Table of Contents Cash proceeds of the Business Combination were funded through a combination of $5.4 million in cash held in trust by ATSP (following satisfaction of redemptions by public stockholders) with 532,050 shares of SoundHound AI Class A common stock remaining outstanding, and $113.0 million in aggregate gross proceeds from PIPE investors in exchange for 11,300,000 shares of SoundHound Class A common stock that closed substantially contemporaneously with the Closing of the Business Combination.
Cash proceeds of the Business Combination were funded through a combination of $5.4 million in cash held in trust by ATSP (following satisfaction of redemptions by public stockholders) with 532,050 shares of SoundHound AI Class A common stock remaining outstanding, and $113.0 million in aggregate gross proceeds from PIPE investors in exchange for 11,300,000 shares of SoundHound Class A Common Stock that closed substantially contemporaneously with the Closing of the Business Combination.
The Purchase Agreements contain customary representations, warranties and covenants. The shares of Series A Preferred Stock were issued and sold in a private placement exempt from the registration requirements of the Securities Act. The Company does not intend to register the shares of Series A Preferred Stock or the underlying Common Stock for resale under the Securities Act.
The shares of Series A Preferred Stock were issued and sold in a private placement exempt from the registration requirements of the Securities Act. The Company does not intend to register the shares of Series A Preferred Stock or the underlying Series A common stock for resale under the Securities Act.
Issuance of Preferred Stock On or around January 20, 2023, the Company entered into Preferred Stock Purchase Agreements (the “Purchase Agreements”) with certain investors (the “Investors”) pursuant to which the Company issued and sold to the Investors an aggregate of 835,011 shares of its newly designated Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”) for an aggregate issue price of approximately $25.0 million.
Series A Preferred Stock On January 20, 2023, we entered into Preferred Stock Purchase Agreements (the “Purchase Agreements”) with certain investors (the “Investors”) pursuant to which the Company issued and sold to the Investors an aggregate of 835,011 shares of its newly designated Series A convertible preferred stock with a par value of $0.0001 per share (the “Series A Preferred Stock”), raising approximately $25.0 million in cash proceeds.
When a product is voice enabled, we see three stages of integration and value propositions. The first stage is to enable the core use cases of the product.
This is the future that we are focusing on enabling. When a product is voice enabled, we see three stages of integration and value propositions. The first stage is to enable the core use cases of the product.
The federal and state net operating loss carry forwards will start to expire in 2025 and 2028, respectively, with the exception of $256.0 million in federal net operating loss carryforwards, which can be carried forward indefinitely.
The federal and state net operating loss carryforwards will start to expire in 2025 and 2028, respectively, with the exception of $306.8 million federal net operating loss carryforwards and $5.6 million state net operating loss carryforwards, which can be carried forward indefinitely.
We have and may continue to experience volatility for our remaining performance obligations and deferred revenue as a result of the timing for completing our performance obligations. We had remaining performance obligations in the amount of $20.7 million as of December 31, 2022, consisting of both billed and unbilled consideration.
We have and may continue to experience volatility for our remaining performance obligations and deferred revenue as a result of the timing for completing our performance obligations. We had remaining performance obligations in the amount of $12.7 million as of December 31, 2023.
This creates even more usage, and results in a flow of revenue share to product creators, which further encourages even greater adoption and integration with our platform and the cycle will perpetually continue and expand. This ecosystem increases adoption and increases our addressable market. All three pillars contributed to our revenues during the years ended December 31, 2022 and 2021.
This creates even more usage, and results in a flow of revenue share to product creators, which further encourages even greater adoption and integration with our platform and the cycle will perpetually continue and expand. This ecosystem increases adoption and increases our addressable market.
Although our business has not been materially impacted by this ongoing military conflict, it is impossible to predict the extent to which our operations, or those of our customers’ suppliers and manufacturers, will be impacted in the short and long term, or the ways in which the conflict may impact our business.
Although our business has not been materially impacted by 46 Table of Contents the Russia-Ukraine conflict or the Israel-Hamas war, it is impossible to predict the extent to which our operations, or those of our customers’ suppliers and manufacturers, will be impacted in the short and long term, or the ways in which the conflicts may impact our business.
Research and Development Our research and development expenses are our largest operating expense as we continue to develop our software platforms and produce new technological capabilities.
Advertising costs are expensed to sales and marketing when incurred. Research and Development Our research and development expenses are our largest operating expense as we continue to develop our software platforms and produce new technological capabilities.
The costs of these activities consist primarily of personnel-related expenses, third-party consultants and costs associated with technological supplies and materials, along with other direct and allocated expenses such as facility costs, depreciation and other shared expenses. We expense research and development costs in the periods in which they are incurred.
The costs of these activities consist primarily of personnel-related expenses, third-party consultants and costs associated with technological supplies and materials, along with other direct and allocated expenses such as facility costs, depreciation and other shared expenses.
The Company classifies warrants as liabilities for any contracts that may require a transfer of assets. Warrants classified as liabilities are accounted for at fair value and remeasured at each reporting date until exercise, expiration or modification that results in equity classification.
An equity-linked financial instrument must be considered indexed to the Company’s own stock to qualify for equity classification. The Company classifies warrants as liabilities for any contracts that may require a transfer of assets. Warrants classified as liabilities are accounted for at fair value and remeasured at each reporting date until exercise, expiration or modification that results in equity classification.
The net assets of SoundHound were recognized at carrying value, with no goodwill or other intangible assets recorded. Known Trends, Demands, Commitments, Events or Uncertainties Impacting Our Business SoundHound believes that its performance and future success depend on many factors that present significant opportunities for us but also pose risks and challenges, including the following: • Investments in Technology.
Known Trends, Demands, Commitments, Events or Uncertainties Impacting Our Business SoundHound believes that its performance and future success depend on many factors that present significant opportunities for us but also pose risks and challenges, including the following: • Investments in Technology.
Cash Flows Used in Investing Activities Net cash used in investing activities was $1.3 million during 2022 compared to $0.6 million during 2021. The $0.7 million increase in cash used in investing activities was driven by purchases of property and equipment.
Cash Flows Used in Investing Activities Net cash used in investing activities was $0.4 million during 2023 compared to $1.3 million during 2022. The $0.9 million decrease in cash used in investing activities was driven by reduced purchases of property and equipment during 2023.
Revenue Recognition We recognize revenue with customers in accordance with ASC Topic 606, Revenue from Contracts with Customers . We primarily derive revenue from the following performance obligations: (1) hosted services, (2) professional services, (3) monetization, and (4) licensing.
Revenue Recognition We recognize revenue with customers in accordance with ASC Topic 606, Revenue from Contracts with Customers . We primarily derive revenue from the following performance obligations: (1) hosted services, (2) professional services, (3) monetization, and (4) licensing. We apply significant judgement in identifying and evaluating any terms and conditions in contracts which may impact revenue recognition.
Our investments include continuous enhancements to our ASR and NLU models, investments in data to help refine and improve our underlying algorithms, and other costs to attract and retain a world-class technical workforce. • Revenue Growth.
Our investments include continuous enhancements to our technology we've developed over the last two decades, investments in data to help refine and improve our underlying algorithms and other costs to attract and retain a world-class technical workforce. • Revenue Growth.
Pursuant to the Common Stock Purchase Agreement, the Company, has the right to sell to CFPI up to the lesser of (i) 25,000,000 shares of Class A common stock and (ii) the Exchange Cap (as defined in the Common Stock Purchase Agreement), subject to certain limitations and conditions set forth in the Common Stock Purchase Agreement.
Pursuant to the Common Stock Purchase Agreement, the Company, had the right to sell to CFPI up to the lesser of (i) 25,000,000 shares of Class A common stock and (ii) the Exchange Cap (as defined in the Common Stock Purchase Agreement), subject to certain limitations and conditions set forth in the Common Stock Purchase Agreement at a purchase price equal to 97% of the volume weighted average stock price for a given purchase date (the "ELOC Program" or "ELOC").
They can each tap into a single Collective AI to access the ever-growing set of domains, but the product creators can innovate on top of Collective AI and create value for the end users in their own way. This is the future that we are focusing on enabling.
We envision that every product will have its own identity, and they will have Voice AI customized in different ways. They can each tap into a single Collective AI to access the ever-growing set of domains, but the product creators can innovate on top of Collective AI and create value for the end users in their own way.
The Company also had federal and state research and development credit carry forwards of approximately $11.4 million and $9.1 million, respectively, at December 31, 2022. The federal credits will expire starting in 2029 if not utilized. State research and development tax credits can be carried forward indefinitely.
The Company had federal and state research and development credit carryforwards of $14.4 million and $10.9 million, respectively, as of December 31, 2023. The federal credits will expire starting in 2029 if not utilized. The state credits can be carried forward indefinitely.
In connection with the Closing of the Business Combination, the Company issued $113.0 million of securities in a private placement (the "PIPE") investment.
In connection with the Closing of the Business Combination, the Company issued $113.0 million of securities in a private placement (the "PIPE") investment. Upon the Closing of the Business Combination, ATSP changed its name to SoundHound AI, Inc.
The issuance of debt instruments with direct transaction costs and the bifurcation of embedded derivatives and warrant instruments has resulted in debt discounts. Direct transaction costs consist of various transaction fees, such as bank and legal fees, that are incurred upon issuance.
The issuance of debt instruments with direct transaction costs, embedded derivatives and warrant instruments has resulted in debt discounts. Direct transaction costs consist of various transaction fees and third-party costs, such as bank and legal fees, that are incurred upon issuance. Overall, the discounts from debt issuance costs result in an increased amount of interest expense over the amortization period.
Under Sections 382 and 383 of the Internal Revenue Code of 1986 and similar state tax laws, utilization of net operating loss carryforwards and tax credits may be subject to annual limitations due to certain ownership changes.
The Company also had Canadian SR&ED tax credits of $1.7 million, which expire starting in 2038 if not utilized. Under Sections 382 and 383 of the Internal Revenue Code of 1986 and similar state tax laws, utilization of net operating loss carryforwards and tax credits may be subject to annual limitations due to certain ownership changes.
Cost of Revenues SoundHound’s cost of revenues are comprised of direct costs associated directly with SoundHound’s revenue streams as described above. This primarily includes costs and depreciation related to hosting for cloud-based services, such as data centers, electricity charges, content fees and certain personnel-related expenses that are directly related to these revenue streams.
This primarily includes costs and depreciation related to hosting for cloud-based services, such as data centers, electricity charges, content fees and certain personnel-related expenses that are directly related to these revenue streams. Sales and Marketing Sales and marketing expenses consist of personnel-related costs of the sales and marketing team, promotional campaigns, advertising fees and other marketing related costs.
The $27.8 million increase in cash used in operating activities was primarily due to our increased net loss, adjusted for non-cash expenses, including stock-based compensation and depreciation and amortization, as well as an increase in our contract assets balance of $8.7 million.
The $25.7 million decrease in cash used in operating activities was primarily due to our decreased net loss (refer to the "Results of Operations"), adjusted for non-cash expenses, including stock-based compensation and depreciation and amortization.
We are in a cumulative loss position for tax purposes based on historical earnings. As of December 31, 2022, the Company had net operating loss carry forwards of approximately $344.6 million and $106.9 million available to reduce future taxable income, if any, for both federal and state income tax purposes, respectively.
We are in a cumulative loss position for tax purposes based on historical earnings. As of December 31, 2023, the Company had $395.5 million of U.S. federal and $109.4 million of state net operating loss carryforwards available to reduce future 48 Table of Contents taxable income.
On February 14, 2023, the Company’s Registration Statement on Form S-1 registering the resale of the ELOC Shares was declared effective. The Company expects to utilize proceeds from the ELOC for working capital and other general corporate purposes.
On February 14, 2023, the Company’s Registration Statement on Form S-1 registering the resale of the ELOC shares was declared effective.
Going forward, SoundHound expects monetization revenue to be generated through a combination of advertising revenue from the music identification app and from leads and transactions on voice-enabled products from voice-enabled services.
Going forward, SoundHound expects monetization revenue to be generated through a combination of advertising revenue from the music identification app and, over time, from leads and transactions on voice-enabled products from voice-enabled services, which we expect will provide much more seamless opportunities for consumers to access goods and services that they covet as we further build out and scale the voice-enabled ecosystem.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with our Consolidated Financial Statements and Notes thereto. Unless otherwise indicated or the context otherwise requires, references in this section to “SoundHound,” “we,” “us,” “our” and other similar terms refer to SoundHound AI, Inc. and its consolidated subsidiaries.
Unless otherwise indicated or the context otherwise requires, references in this section to “SoundHound,” “we,” “us,” “our” and other similar terms refer to SoundHound AI, Inc.
Expected Dividend Yield — The Company has not declared or paid dividends to date and does not anticipate declaring dividends. As such, expected dividend yield is zero. Recent Accounting Pronouncements See Note 2 of our Notes to Consolidated Financial Statements for information regarding recent accounting pronouncements that are of significance, or potential significance to us.
Expected Dividend Yield — The Company has not declared or paid dividends to date and does not anticipate declaring dividends. As such, expected dividend yield is zero.
See Note 7, Note 9 and Note 14 to our consolidated financial statements included within this Annual Report on Form 10-K for more information.
The primary types of obligations into which we enter include contractual obligations, operating and finance lease obligations and a diversified spread of debt instruments. See Note 7, Note 9 and Note 15 to our consolidated financial statements included within this Annual Report on Form 10-K for more information.
Excluding cost of revenues, each expense category includes overhead, including rent and related occupancy costs, which is allocated based on headcount.
Excluding cost of revenues, each expense category includes overhead, including rent and related occupancy costs, which is allocated based on headcount. We plan to continue investing to support our go-to-market strategies and customer engagement, develop our current and future applications and support our operations as a public company.
Given that we address markets across several different industry verticals, the associated overall seasonality impact to us may not be consistent year-to-year. • Development of International Markets. We have rapidly expanded our capabilities and global reach. We have globalized our solution from 1 to 25 languages.
For example, in the past, we have seen approximately one third of our revenue in the first half of the year with the remaining two thirds in the second half. Additionally, given that we address markets across several different industry verticals, the associated overall seasonality impact to us may not be consistent year-to-year. • Development of International Markets.
Cash Flows The following table summarizes our cash flows (in thousands): Year Ended December 31, 2022 2021 Net cash used in operating activities $ (94,019) $ (66,177) Net cash used in investing activities (1,329) (636) Net cash provided by financing activities 82,001 44,653 Net change in cash, cash equivalents, and restricted cash equivalents $ (13,347) $ (22,160) Cash Flows Used in Operating Activities Net cash used in operating activities was $94.0 million during 2022 compared to $66.2 million during 2021.
The Company recorded a loss on debt extinguishment of $0.4 million related to the early repayment in interest expense in the consolidated statements of operations and comprehensive loss. 56 Table of Contents Cash Flows The following table summarizes our cash flows (in thousands): Year Ended December 31, 2023 2022 Net cash used in operating activities $ (68,265) $ (94,019) Net cash used in investing activities (392) (1,329) Net cash provided by financing activities 168,237 82,001 Effects of exchange rate changes on cash (20) — Net change in cash, cash equivalents, and restricted cash equivalents $ 99,560 $ (13,347) Cash Flows Used in Operating Activities Net cash used in operating activities was $68.3 million during 2023 compared to $94.0 million during 2022.
Warrants We determine whether to classify contracts, such as warrants, that may be settled in our own stock as equity of the entity or as a liability. An equity-linked financial instrument must be considered indexed to the Company’s own stock to qualify for equity classification.
We subsequently assess the changes in the fair value of the derivative liability and record these changes through profit or loss in the consolidated statements of operations and comprehensive loss. Warrants We determine whether to classify contracts, such as warrants, that may be settled in our own stock as equity of the entity or as a liability.
While our gross margin may fluctuate in the near-term due to revenue contributions from varying product mixes, we expect it will stabilize as we look to expand our revenue from subscriptions and monetization. Sales and Marketing Sales and marketing expenses increased by $16.1 million, or 380%, in 2022 compared to 2021.
Our gross margin may fluctuate in the near-term due to revenue contributions from varying product mixes. Sales and Marketing Sales and marketing expenses decreased by $1.5 million, or 7%, from $18.9 million in 2023 compared to $20.4 million in 2022. In 2022, we began growing these expenses to capture new market opportunities, particularly in the restaurant industry.
Other Expense, Net The following table summarizes our other expense, net, by type ($ in thousands): Year Ended December 31, Change 2022 2021 $ % Interest income $ 390 $ 7 $ 383 5471 % Change in fair value of derivative and warrant liability (606) (4,920) 4,314 (88) % Other income (expense), net 32 (502) 534 (106) % Total other expense, net $ (184) $ (5,415) $ 5,231 (97) % Change in Fair Value of Derivative and Warrant Liability The losses attributable to the change in fair value of derivative and warrant liability decreased by $4.3 million, or 88%, in 2022 compared to 2021.
Other Income (Expense), Net The following table summarizes our other income (expense), net by type ($ in thousands): Year Ended December 31, Change 2023 2022 $ % Interest income $ 2,866 $ 390 $ 2,476 635 % Change in fair value of derivative and warrant liability — (606) 606 * Loss on change in fair value of ELOC program (1,901) (1,075) (826) 77 % Other income, net 190 32 158 493 % Total other income (expense), net $ 1,155 $ (1,259) $ 2,414 (192) % * Not meaningful Interest Income Interest income increased by $2.5 million, or 635%, in 2023 compared to 2022.
Cash Flows Provided by Financing Activities Net cash provided by financing activities was $82.0 million during 2022 compared to $44.7 million during 2021. The $37.3 million increase in cash provided by financing activities was primarily due to the $90.7 million in net proceeds from the Business Combination.
Cash Flows Provided by Financing Activities Net cash provided by financing activities was $168.2 million during 2023 compared to $82.0 million during 2022.
General and Administrative General and administrative expenses consist of personnel-related costs, accounting and legal expenses, third-party consulting costs, insurance and allocated overhead including rent, depreciation and utilities. Our general and administrative expenses may fluctuate from period-to-period due to seasonality.
We expense research and development costs associated with the design and development of new products prior to the establishment of their technological feasibility in the periods in which they are incurred. General and Administrative General and administrative expenses consist of personnel-related costs, accounting and legal expenses, third-party consulting costs, insurance and allocated overhead including rent, depreciation and utilities.
These requirements generally include funding for the research and development of software, the development of applications that enable voice interaction, marketing programs and personnel-related costs. The primary types of obligations into which we enter include contractual obligations, operating and finance lease obligations and a diversified spread of debt instruments.
Cash that is received through these obligations is used to meet both short- and long-term liquidity requirements as discussed above. These requirements generally include funding for the research and development of software, the development of applications that enable voice interaction, marketing programs and personnel-related costs.
The increase is primarily related to incurring additional data center and hosting costs due to system migrations in order to support our revenue growth. Gross margin was consistent at 69% during 2022 and 2021. Gross margin in 2022 benefited from increased margins on the Houndify Edge solution delivered to a customer during the second half of 2022.
In addition, we experienced decreased data center costs, as described above, in 2023 compared to 2022 due to our cloud migration. Lastly, gross margin benefited from the overall scaling of our business. Gross margin in 2022 benefited from increased margins on the Houndify Edge solution delivered to a customer during the second half of 2022.
Of the aggregate amount of charges that the Company estimates it will incur in connection with the Restructuring Plan, the Company expects that approximately $2.0 million to $3.0 million will be in cash expenditures. ATSP Merger On November 15, 2021, Archimedes Tech SPAC Partners Co. (“ATSP”), SoundHound, Inc. (“Legacy SoundHound”) and ATSPC Merger Sub, Inc.
During the year ended December 31, 2023, we recorded $4.6 million of restructuring expenses in connection with the Restructuring Plan, of which $1.4 million were cash payments. The Restructuring Plan was complete as of December 31, 2023. Business Combination On November 15, 2021, Archimedes Tech SPAC Partners Co. (“ATSP”), SoundHound, Inc. (“Legacy SoundHound”) and ATSPC Merger Sub, Inc.
The increase is primarily attributable to $7.6 million of licensing revenue from our Houndify Edge solution, which we delivered to a customer during the second half of 2022, related to minimum guarantee units to be utilized over the life of the contract and resulted in a corresponding increase in our contract assets balance.
First, we recognized an increase of $2.8 million in edge solution ("Houndify Edge") minimum guarantee licensing revenue with a Korean automotive customer which is recognized upfront by the Company for units to be utilized over the life of the contract. Second, we recognized an increase in unit-based Product Royalties of $5.4 million with various customers in Korea.
While the majority of the contribution is currently from our first pillar of royalties, over time, the subscription and monetization portions are expected to grow and make a bigger contribution to our overall revenue 40 Table of Contents Recent Developments Equity Line of Credit On August 16, 2022, the Company entered into a common stock purchase agreement (the “Common Stock Purchase Agreement”) and related registration rights agreement (the “CFPI Registration Rights Agreement”) with CF Principal Investments LLC (“CFPI”).
While all three pillars contribute to our revenues today in 2023, the majority of the contribution is currently from our first pillar of royalties with only a small contribution from pillar three from our music identification app. Over time, the subscription and monetization portions are expected to grow and make a bigger contribution to our overall revenue.
We view opportunities for conversational Voice AI to be global in reach, and we expect our growth to be fueled across multiple geographies. • Industry Risks. In addition to the COVID-19 pandemic as addressed herein, the military conflict between Russia and Ukraine, which began on February 24, 2022, has had an adverse impact on the global economy and financial markets.
We have rapidly expanded our capabilities and global reach. For example, we have globalized our solution to include 25 languages. We view opportunities for conversational Voice AI to be global in reach, and we expect our growth to be fueled across multiple geographies. • Industry Risks.
In connection with the execution of the Common Stock Purchase Agreement, the Company issued CFPI 250,000 shares as consideration for its irrevocable commitment to purchase the shares upon the terms and subject to the satisfaction of the conditions set forth in the Common Stock Purchase Agreement.
In connection with the execution of the Common Stock Purchase Agreement and the side letter on February 14, 2023, the Company issued 250,000 shares of Common Stock (the “Initial Commitment Shares”) and an additional cash commitment fee of $0.3 million.
Company Overview We are a leading innovator of conversational intelligence, offering an independent Voice AI platform that enables businesses across industries to deliver high-quality conversational experiences to their customers.
All relevant prior period amounts affected by these revisions have been corrected in Management’s Discussion and Analysis of Financial Condition and Results of Operation in this Form 10-K. Company Overview We are a global leader in conversational intelligence, offering independent Voice AI solutions that enable businesses to deliver high-quality conversational experiences to their customers.
The combined company incurred $27.7 million of expenses related to the transaction. Contractual and Other Obligations Because we expect to continue investing in software application and development, we enter into various contracts and agreements to increase our availability of capital. Cash that is received through these obligations is used to meet both short and long-term liquidity requirements as discussed above.
The net assets of SoundHound were recognized at carrying value, with no goodwill or other intangible assets recorded. 55 Table of Contents Contractual and Other Obligations Because we expect to continue investing in software application and development, we enter into various contracts and agreements to increase our availability of capital.
Although the Company has incurred recurring losses each year since its inception, with consideration to the Restructuring Plan, the Company expects it will be able to fund its operations for at least the next twelve months through a combination of cash on hand (including as a result of the net proceeds from the recently closed Series A Preferred Stock Transaction (See Issuance of Preferred Stock below)), proceeds from sales of Class A common stock under the ELOC program (see Equity Line of Credit below), securing additional funding through debt or equity financings, implementing incremental expense reduction measures or a combination thereof.
Although the Company has incurred recurring losses each year since its inception, the Company expects it will be able to fund its operations for at least the next twelve months.
Assets and liabilities denominated in foreign currency are remeasured into U.S. dollars at current exchange rates at the balance sheet date for monetary assets and liabilities and at historical exchange rates for non-monetary assets and liabilities. Provision for Income Taxes Income tax expense includes federal, state and foreign taxes and is based on reported income before income taxes.
Other Income (Expense), Net Other income (expense), net consists of the change in fair value related to our derivative liability, interest income and other income (expense). Provision for Income Taxes Income tax expense includes federal, state and foreign taxes and is based on reported income before income taxes.
Houndify’s Collective AI is an architecture for connecting domain knowledge that encourages collaboration and contribution among developers, is always learning, and is greater than the sum of its parts — ensuring the platform continues to become smarter at a faster rate.
SoundHound's Collective AI is an architecture for connecting domain knowledge that encourages collaboration and contribution among developers. The architecture is based on proprietary software engineering technology, CaiLAN (Conversational AI Language), and machine learning technology, CaiNET (Conversational AI Network) to ensure fast, accurate and appropriate responses.
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Built on proprietary Speech-to-Meaning, Deep Meaning Understanding and Collective AI breakthrough technologies developed over the past 17 years, our advanced Voice AI platform provides exceptional speed and accuracy and enables humans to interact with products and services like they interact with each other — by speaking naturally.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of the financial condition and results of operations of SoundHound should be read together with our consolidated financial statements and notes thereto. The fiscal years presented are the periods ended December 31, 2023 (“2023”) and December 31, 2022 (“2022”).
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SoundHound’s technology is live in production and at scale with companies around the globe, including Hyundai, Mercedes-Benz, Pandora, Snap, VIZIO, KIA and Stellantis. As a testament to its capabilities, the Houndify platform surpassed 1 billion annual queries in 2021 and experienced over 85% growth during 2022.
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Information concerning the fiscal year ended December 31, 2021 (“2021”) and a comparison of 2022 and 2021 may be found under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10‑K for 2022, filed with the SEC on March 28, 2023.
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Our current partners span multiple industries and geographies, and together have a combined reach of over 2 billion end users. By growing these strategic relationships, our year-over-year revenues have grown by more than 45% over the past four years.
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Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to SoundHound’s plans and strategy for its business and related financing, includes forward-looking statements that involve risks and uncertainties.
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We envision that every product will have its own 39 Table of Contents identity, and they will have Voice AI customized in different ways.

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