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

Great. Thank you, Gigi. Hi, everyone. Good afternoon, and thanks for joining our third quarter 2022 conference call. With me today is our CEO, Keyvan Mohajer; and our CFO Nitesh Sharan. We will begin with some short remarks before moving to Q&A. We’d also like to remind everyone, that we’ll be making forward-looking statements on this call. Actual results could differ materially from those suggested by our forward-looking statements. Please refer to our filings with the SEC for a detail discussion of the risks and uncertainties that could affect our business and those that qualify as forward-looking statements. In addition, we may discuss certain non-GAAP measures. Please refer to today’s press release for further details on the definitions, limitations and uses of those measures and reconciliations from GAAP to non-GAAP. Also note that the forward-looking statements on this call are based on information available to us as of today’s date. We disclaim any obligation to update any forward-looking statements, except as required by law. Finally, this call is being audio webcast in its entirety on our Investor Relations website. An audio replay will be available shortly, following today’s call. With that, I would like to turn the call over to our CEO, Keyvan Mohajer. Please go ahead, Keyvan.

Thank you, Scott, and thank you to everyone for joining the call today. We have achieved a lot this year and today I am extremely excited to report a record quarter across all key metrics. The demand we are seeing for our innovative AI-powered products and solutions is strong and is only getting stronger as we execute on more opportunities and with more customers. Even with a softening macroeconomic environment, the demand for AI field solutions continues to grow and our value proposition clearly resonates with businesses. Our cumulative bookings backlogs surpassed at $300 million mark resulting in over $200 million in the past 12 months alone. This key metric for our business has grown at an accelerated pace. In fact, the 239% year-over-year growth we reported this quarter is the fourth straight quarter of triple-digit growth as we continue to increase market share at our key segments. In Q3, revenue accelerated by 2.8 times year-over-year to 11.2 million. In fact, for the first nine months, we have already exceeded our full year revenue in 2021. This momentum demonstrates our strong partnerships and the market share we are taking. Class queries, a key measure for customer adoption of our conversational AI platform reached an annual run rate of over 2 billion or currently about 180 million queries per month. Importantly, this growth is driven by increased usage from existing customers and new devices and users alike, reinforcing that our solutions deliver a very attractive value proposition for our customers. We are clearly on the right path to leveraging the opportunities in front of us. In addition, we continue to aggressively expand our product suite to enable customers deeper access to our voice AI powered products and solutions. For example, this quarter, we introduced our full suite of Edge and cloud…

Thank you, Keyvan. And hello, everyone. Q3 was a milestone quarter. We reported record revenue, delivered strong gross margin expansion and saw EPS improvement both year-over-year and sequentially. With Q3’s triple-digit bookings growth and strong customer engagement, we are building and executing on the foundation that will fuel our continued expansion. We closed the quarter with a strong cumulative bookings backlog of $302 million, representing a year-over-year growth of 239%. The contracts underlying our bookings backlog range from one year to more than seven years with a roughly five-year weighted average contract length. Our long-term relationships highlight the confidence and commitment our customers have working with us to build the future together. These bookings form a critical foundation for ongoing top line results. As a quick reminder, we break out our revenue into three distinct pillars. Pillar one is where we voice-enabled products like cars, TVs, and IoT devices and we book product royalty revenue. Pillar two is where we voice-enabled services like food ordering, appointments, customer service, and we book recurring subscription revenue. And in pillar three, we create monetization revenue when we connect those voice-enabled products in pillar one with the voice enabled services in pillar two, similar to the example Keyvan shared earlier. This natural and seamless bridge between voice-enabled products and services unlocks value for all parties involved. The end user, the restaurant, and the product creator with whom we share part of the transaction. These three revenue pillars created positive network platform effect that compounds expanding our addressable market and increasing customer adoption. The strategic business model elevates voice AI from a cost component to a new incremental revenue generating pathway for product creators, which is an extremely attractive proposition to our customers. And accordingly, unit economics become increasingly more attractive as this ecosystem scale…

[Operator Instructions] Our first question comes from the line of Mike Latimore from Northland Capital Markets.

Yes, thanks. Hi, guys. Great results there and looking forward to November 17 announcement.

Hey, Mike. Thanks.

So maybe could you – so you've had really strong bookings, really strong results. At the same time, you sort of – you mentioned the macro backdrop. I guess – to the extent there is some macro effect here, how does that affect kind of what you’re seeing? It seems like you’re seeing really good bookings, really strong growth. So are some customers just being a little slower or like what’s the potential effect if at all?

Sure. I can start here, Mike, and then I’ll – Keyvan certainly add. Maybe I’ll make some general comments. And then try to double click in a couple of areas. So first I mentioned in the prepared remarks that in a lot of ways what we’re finding is that our solution despite sort of the macroeconomic dynamics are very well situated. And if you take again the food ordering example that we talk about, that we’re seeing a lot of scalability. One of the major dynamics is labor shortages. The inflationary pressures on commodity cost to restaurants, just overall cost of labor dynamics. And so when we go around and we try to give a demo, little example of what the technology can do. And as our sales team goes around and talks to restaurants, they’re seeing so much demand for this that we have this, I guess another way of saying backlog, but a big pipeline of folks who are trying to get on board. And so we know that our solutions are very well suited. Automation and AI is very well suited for this market backdrop. And frankly, we believe even despite, the market turns here. We still think there’s going to be sustained demand there. So in that sense, it’s actually, there are some elements of it that are, like I said, countercyclical or tailwinds to the demand for our solutions. I would say more broadly, I’d say macroeconomically, the strengthening of a dollar given our international exposure certainly is a pressure point. So in another way, I feel confident we’ve been able to reconfirm, reaffirm the revenue outlook, though, despite throughout the year we’ve had actual pressure on the top line that we’ve had to overcompensate, which is underlying core business growth. And then maybe the…

Yes, I would confirm that the pillar two business actually, the demand goes up when the economy becomes more challenging. So we actually we are experiencing that, which is very encouraging for us. And even in pillar one, if you look at some of the announcements that some of our customers have made, they are claiming that in the next 10 years or so long term, they want to generate revenue from their cars and devices that they’re shipping. But with our solution, they can actually accelerate that because of the three pillar model where we bring the services that invoice enable to the product that goes [indiscernible] and create this monetization ecosystem while they’re even delivering value to the end user. So we see increased demand across all of our customers. But an environment where every company is taking reduction in costs and being more mindful because of this uncertain future, it would be unwise for us not to take that action. And we did have a – in terms of number, it was relatively small, but we had a reduction in force yesterday that was difficult for us to do, but we were doing too many things. Because we just, we are very innovative. We have lots of technologies that can apply to so many things, but we have to be a little bit more disciplined that we took action. And I always think, as a leader, company comes first, team second, myself last, and it’s very easy for me to put myself last frequently. But deciding between company and team, those moments are rare. But that was a moment that we had to decide and say goodbye to some of our friends yesterday.

Yes. Yes. All right. Thanks for the context. On the voice ordering restaurant category, you guys definitely are lot more sort of excited about this opportunity, I’d say, than at the start of the year. Can you elaborate a little bit more on it? Are the end users sort of local restaurants? Are there some big chains rolling this out? And then it kind of sound like you’re getting a fair amount of subscription already, but maybe I misread that maybe it’s more coming next year. So just a little bit more detail on that would be great?

Yes, so that what’s amazing about what we built is that it can go live instantly especially when we integrate with point of sales systems, because restaurants already have their menu in the point of sales system. And they also manage orders in the point of sales system. So when we integrate our solution with that, when the restaurant wants to go live, it could be instant. Like they could press the button eventually and go alive. And obviously you’re be more mindful that how we roll it out. We have a huge pipe of restaurants that want to go alive, and we are kind of doing it gradually just to be mindful about the quality and so on. But we can go after enterprise franchises, like one brand that might have thousands of locations. We can also go after the mom and pop small businesses with one location as long as they’re using one of those POS systems. So we are actually going after smaller locations with through the POS channel. And then we are also have a huge pipeline of enterprise application with lots of locations. And that’s for the phone ordering with drive-thrus and kiosk. We have announced our partnership with MasterCard and some of the brands, and there is a lot more of that coming. So it’s kind of a one solution that can apply to so many variations of implementation.

And Mike, maybe I could add just a couple things, because you alluded to the fact that maybe we are talking to it a little bit more than earlier the year. And I think that that’s, fair, I think as we’ve gone through the year and we’ve gone out, improved the solution, got feed on the street, talking to both the platforms that Keyvan alluded to in the restaurants, there’s so much demand and there’s such a perfect market product, market fit, and particularly in this time, and honestly that’s side part of the focus that came on gate to the end of the last answer. We know there’s a ton of traction here, and we see this ramping substantially. And if you think of sort of just the economics part of this, there’s over 1 million food establishments in the U.S. alone. And you think of the recurring type of pricing on this, this is a well north of per year billions of dollars opportunity. So as we penetrate just small market shares, this is meaningful to the revenue opportunity and our scale, that means substantive growth. So, yes, we’re focused on it. We see it also from a business model perspective, very attractive because as you know, in the sort of pillar one particularly in the auto space where those can be multi-year sort of cycles from first contact to cash flow, and that has accelerated by the way I give a lot of the autos are realizing that software is very important, the cockpit is very strategic, and so they are accelerating that pace to 18 months, even a year in many cases. This pillar two is actually almost instantaneous in some ways. It goes from like first conversation to a matter of weeks where we’ve onboarded,…

Yes. I’m often missing a french fry or a chicken sandwich in a bag when I order. So very, very last one. Average lengths of backlog you said was five years. Can you give a little more detail, like what percent of that’s and say the front end or back end of that?

What percentage of that is in the front end or back end? So, okay. Yes, so, got it. Yes. Average length is about five years. There is a bit of a back end skew to it. Yes, like we internally will use a metric, probably won’t typically try to give, but like a duration metric, which kind of does a weighting of it. And so it does skew towards the back end of it, north of three years and so, it’s not ratable. So if you took 30 divided by five and you said 60 million, it has a bit of a back end skew to it. Maybe I’ll pause there if that’s kind of, does that work sufficiently?

Yes, fair enough. Okay, great. Thanks a lot.

All right. Thank you, Mike.

Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Brett Knoblauch from Cantor Fitzgerald.

Hi, guys. How are you doing today?

Hey, Brett.

Doing well, thanks. It’s a couple questions on my end. I guess as we look at the bookings backlog. Really kind of strong sequential and year-over-year growth now that we have a kind of a couple of quarters to compare against 207% year-over-growth last year gives us to $92 million in 2Q of last year. And then the year-over-year growth this year gets us to like 89 million. So I guess what happened in between in the fourth quarter to the first quarter where you saw bookings increased by call it 140 million over the course of four or five months. Can you point to anything in specific that that kind of drove that?

Yes. Let me try it and then check me here, Brett, if this isn’t kind of where you’re going. So first I’d say to the math you were doing of last year, just as the – just to maybe put it out there, maybe you already know, but just for the broader audience. The way we cumulative bookings backlog is sort of representative. These are new gross bookings that we receive from customer contracts, less recognized revenue off of those contracts associated with those in a quarter. And then that sort of net becomes the new cumulative bookings backlog. So to the numbers you were talking about between Q3 and Q4, that could have gone down because we recognize more in a quarter than we realized so those things can happen from time to time. And then I think you went to sort of like, well, going forward from there at the sort 90 million level, and then we spiked up 100, sorry, 200 and then, up to the 300 we are here. I’ll make a couple of comments and again, I’ll sure, Keyvan add. So we’re seeing, I’ll start with maybe just a – almost like a fundamental, the customers we’re going after are major enterprises, global manufacturers, global businesses that have major reach, and we’re providing a software solution that can embed into millions and millions of products. And the way when we sort of sign up a customer and like if you take the auto example, we’ll sign up with the partner and we’ll be their voice provider for either cloud voice solutions or edge solutions. And the arrangement will be a multi-year for basically serving their auto production should take simple example, five years of auto production and these couple of product sets. And then what…

Yes, no, no, that’s extremely helpful. And I guess speaking to the scalability, right? Say McDonald’s comes to you tomorrow and wants to deploy your SoundHound restaurant in every location in the U.S. How quickly can you guys do that? I guess what is needed on your end from maybe like a headcount perspective? Is it – do you need kind of lot of professional services to go there and do this? Or can this be done fully remote? I guess just walk us through that.

So what do we need? So just to refresh the questions for if a McDonald’s or any restaurant comes on board, what is the step from sort of first conversation for us to get on board with them? Just to summarize, Brett, is that correct?

Yes, get on board, get the product deployed.

Yes. So we have a standard menu ingestion that we have streamlined that can happen very quickly. So whether its easier for change because you kind of ingest once and then it works for I believe have on that applications. But because we were preparing for like a million restaurants with different menus, we’ve become very good at that. So the menu ingestion is streamlined, that can be done very quickly. And then the question is how do they want to deploy it? Is it a drive-thru? Is it a phone ordering? Is it all of the above? And we would just work with them to integrate. If they are using one the U.S. systems that we have already integrated with, that’s very easy because that’s already done. If they have their own customized POS or their own customized hardware, there’s a little bit of hardware integration that would happen for customers that are really worth for, that you integrate once and you go live in, again, over a thousand locations.

One of the things on the drive-thru in particular, we’ve talked about and think, MasterCard is a partner we’re working with and it’s great because of their scale, first of all, and their integration and partnership. So we work with them and they help on the sort of implementation. We bring the core voice AI and it’s just as great because of the reach number one. But also just they have a very deep and strong business across the ecosystem clearly with the drive-thru restaurants. And frankly, we see that pathway in partnership with them, scaling beyond that. For, phone ordering as an example, we are working with other platform providers like Toast, like Square, we announced last quarter Oracle, Olo, [ph] there are others where it gives you access immediately to tens of thousands, hundreds of thousands of restaurants. So that’s something that we believe is great on top. And again, once you kind of work with them, you’re getting access to it. You do the menu ingestion. We’re getting faster and faster with that. And then, the other thing that we are learning and growing fast. Every environment is slightly different. The acoustic dynamics at each environment can be slightly different. So, we – the great thing of owning the core tech end to end and having sort of the our ability to do machine learning at the edge, to understand the environment, to get data and improve the accuracy just really makes us able to scale and improve quickly. So all those things are sort of part of the process.

And I just want to add that it’s also future proof. So it’s very easy to then bring a restaurant integration inside the products that you voice enabled. So you’re driving a car or you’re using a TV, that voice enabled, we announced with VIZIO, lots of cars that are always in market. It would be a click off a button for those product creators to bring food ordering and voice ordering inside their product. So it really, when as we are building this foundation and ecosystem, you’re future proofing for those things, it kind of just automatically happen.

I understand. That makes a lot of sense. Maybe looking at the quarter, really strong quarter, revenue really exceeded consensus definitely my estimate. I guess what drove the strong quarter and then similarly, I guess, why haven’t you maybe raised the guidance for the full year given the outperformance in this quarter? Was it a specific, like one time deal? I know you talked about you signing a large edge deal. Was there like a one time payment that led to a big sequential increase in revs?

Yes, maybe I’ll take your questions a little bit in reverse order, if that’s okay. So I think, we continue to reaffirm guidance, but yes, we have strong confidence in that pathway and we want to establish ourselves as a we kind of, we keep delivering out what we’re saying and we keep raising the bar, and that’s certainly how we kind of drive the business internally. So, we feel confident about what we see in this year and we have high conviction that we’ll be able to deliver upon it. It was driven, we saw strength in product royalties. I mentioned in my prepared marks, we did have a large deal that was a minimum commitment for multi years. And that was a material benefit to the quarter. Again, we work with these large enterprises, so we expect those will be happening more and more, or at least that’s what we’re shooting for. But also being able to scale from cloud solutions to edge solutions and offer more things to even existing customers to penetrate into new geographies with existing customers to get down brand into different brands. There’s just a lot of ways we’re able to utilize the existing ecosystem and scale further with our customers, but also add more customers. And we saw a bit of that this quarter. It’s certainly reflected in the results but as we go forward, sure. We’re going to keep trying to do that. If we can beat and we’re talking next quarter with you, Brett, about how we beat, then great. But we thought prudent, especially in this backdrop for us to continue to just kind of hold the line. Hopefully just keep delivering consistently and strongly over time.

Got it. Perfect. That helps. Thanks for answering the question guys. Congrats on the quarter.

Thanks, Brett.

Thank you. I would now like to turn the conference back to Keyvan Mohajer, CEO for closing remarks.

Thank you, Gigi. When we founded SoundHound, we had a vision to see voice AI in our lifetime and make voice AI even better than humans in understanding, and also as human natural as possible in the way it respond and interacts. We power the only global independent industry – cross industry voice AI platform, and we are focused on rapidly scaling our business. We continue to execute, and this quarter our exceptional results demonstrated our business momentum. We had a record quarter across all key metrics. Let me summarize. Bookings grew 3.5 times, revenue grew 2.8 times, gross profit grew 3.6 times and queries are past 2 billion. With that, I thank you for joining us today, and I look forward to speaking with you when we report our fourth quarter and full your results next time. Thank you.

This concludes today’s conference call. Thank you for participating. You may now disconnect.