Good day, and welcome to the SoundHound Q4 2022 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, Mr. Scott Smith, Head of Investor Relations. Please go ahead.

Great. Thank you, Sheri. Hi, everyone. Good afternoon, and thanks for joining our fourth quarter and full year 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 more detailed financial results and further details on the definitions, limitations and uses of those measures and reconciliations from GAAP to non-GAAP. Also note that the forward-looking statements on this call are based on information available to us as of today’s date. We 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're happy to share with you the results and highlights of our first fiscal year as a public company, which we closed out with a strong fourth quarter. Our cumulative bookings backlog increased to $332 million at year-end and our full year 2022 revenue was 31.1 million. Both of these key values exceeded targets we said and communicated in 2021 before we went public and well before the challenging market conditions began. SoundHound user queries using cloud connectivity were also highlighted growing over 85% in 2022, compared to '21, resulting in an annual run rate of approximately 2.2 billion. In Q4, our bookings increased 10% quarter-over-quarter, and our revenue was 9.5 million up 84% year-over-year. Before diving back in, I want to take a moment to reflect on how we got here and share our view of the latest trends and momentum in AI. We started SoundHound in the Stanford University dorm room with the vision that conversational AI will be the next major disruption in computing. We knew our AI vision was long-term and worked for over a decade to build and own the entire technology stack that is transformative. We globalized our technology to over 25 languages, and are starting the year with 332 million in booking from our customers. And now we power tens of millions of devices and services around the world, enabling people to more seamlessly interact and exchange in a more accessible, interconnected world. With the recent popularization of generative AI and large language models, we view to 2023 of an inflection point of conversational AI with a clear intersection between technology readiness, and subsequent demand and adoption, such intersections are rare and SoundHound is in a unique position to create…

What you just heard was a sneak preview of a new product called SoundHound Chat AI. It ushered in a new phase of voice enabled conversational AI that used to only exist in science fiction. By combining the power of software engineering and machine learning with generative AI, we can finally deliver the digital assistant experience that users have been desiring for decades. Please stay tuned for our official launch announcement ready to soon. Let's review our expected business impact of this change as it relates to our three pillar strategy. In our pillar one will be power devices and cars. More users will use their assistance more often. Users no longer limit their interactions to simple control commands, setting timers and playing music. They can have lengthy useful conversations with their assistants. This increasing usage and translates on increasing revenue and licensing fees are SoundHound. Combined with our breakthrough Dynamic Interaction, which I'll talk about shortly, this will further strengthen our position as a leader in voice interfaces by creating more interaction capabilities for users of our products. In addition, more product creators will demand this feature and this increase in adoption will also increase the revenue per SoundHound. In our pillar two, more tasks can be automated and in general customer service, an area of important focus for SoundHound will be transformed with AI being not just cheaper than humans but also better than humans. But incorporating the possibilities that are already proven from generative AI and large language models into customer service applications, we envision that end users will ultimately prefer to speak on AI agents rather than a human representative when talking to a business. We expect our expansion to new customer service verticals to accelerate, and ultimately, AI enabled customer service will be as necessary…

Thank you, Keyvan, and good afternoon everyone. 2022 was our first fiscal year in the public markets. A year when the IPO market stalled, higher interest rates dared investors towards value and sentiment shifted away from disruptive high growth technology companies such as ourselves. Nevertheless, we adjusted fought harder, aggressively took actions and set ourselves up to serve the rapidly increasing demand for our products and on much stronger financial footing. Artificial intelligence is fundamentally about making technology more human like. At SoundHound, we do that by making conversations with machines more natural and seamless and the demand for that has never been stronger. Large language models generative AI to the pervasive, pervasiveness of chatbots are unearthing entirely new use cases every day. The opportunity set and adoption curves will accelerate rapidly. As Keyvan indicated, our time is now. I'll dive deeper into expectations for 2023 shortly. Let me first review our 2022 results. We continue to expand our voice enabled ecosystem have strong growth and deliver full year revenue at the high end of our guidance range. Despite the volatile macro backdrop, we have now outperformed our publicly stated value outlooks for the past two years. The foundation for this consistent over achievement versus our expectations is rooted in strong customer engagement and sound execution that should only further improved from here. Our cumulative bookings backlog establishes that foundation. We closed the air with $332 million, representing a year-over-year growth of 59%. The contracts underlying our bookings backlog now ranged from one year to more than nine years, with the roughly 6.5 year weighted average contract length. Through the year, we saw meaningful lengthening in customer contracts, which demonstrates the deepening strategic partnerships and validates the value we continue to create. Our business model is grounded in the three…

[Operator Instructions] And today's first question will come from the line of Mike Latimore with Northland. Please go ahead.

A lot of interesting developments, obviously, I guess first on the restaurant vertical, you seem fairly positive about that vertical. I guess, can you just give a little bit more color there? I mean, how many restaurants are you currently deployed at? And when you talk about pipeline, is that business that's about to be deployed or is that business that you still need to win? And then, I guess also just seems like this would be applicable to very large chains. Are there any large restaurant chains that are rolling soon?

So, Mike, I think I'll start. So, a couple of points, yes, when I alluded to the pipeline in my prepared remarks, I mean, generally, we -- obviously, we have a lot of conversations going on and we sort of have an initial pipeline and then we kind of ventured into our CRM systems when it's in the more advanced stage. So qualified leads that we really characterizing what I was referencing are ones where there deep conversations going on with decision makers at the restaurant, where there's clear line of sight to a significant opportunity, whether it's small and medium enterprises, it could be one to single digit level locations in the enterprise side, they could be 10s or 100 plus, and we definitely have a suite of both small medium midmarket and enterprise level customers that have hundreds of stores. We've previously mentioned, White Castle, as an example chain that has over 350 stores around the nation, and we're activating and live and several of those and scaling. I would say that, you know, in terms of the number I mentioned, 1,000s, of advanced stage pipeline, so those are ones that are not yet paying us monthly fee, those are pipeline. So that means they're not yet in but those are late stage conversations. In many cases, what happens is, we kind of get a late stage conversation with let say, a pizza restaurant, and there are certain features and facets that they need, maybe they need a customization of doing half this half that. And that's a feature that we develop. So in a lot of cases, there's really active engagement, we may just need to add some features and functionality. We have hundreds of restaurants signed up already so beyond the pipeline stage that are operating, and we're quickly scaling those. So, as I mentioned in the prepared remarks, a time from sort of initial conversation to cash flow or monthly recurring revenue in the case for us can be very rapid, and especially when you get into restaurants that have multiple stores, because once you ingest that menu upfront, and you custom sort of develop the capability and the voice, moving to restaurant number two or three is very, very fast. In some cases, if it's more than the drive thru feature, you might have some acoustic things you have to figure out but generally, especially performer and you don't have any of those complexities of traffic or outside noise, and so it could be much more rapid. I rambled a little bit there, so maybe I'll pause and do that kind of question.

And then, on the Chat AI service, you mentioned, is that both a direct-to-consumer business enabler type of service or how you thinking about kind of the go-to-market there?

Yes, it will be both, to offer that to our existing customers and car makers and other teenagers and so on. And SoundHound, historically, we've had direct-to-consumer applications and products, and our existing applications have received over 300 million downloads. So that's something that is part of our D&A, you're really good at it. And it's good moments to take advantage of that experience.

Right, and just last one, can you provide a little more color on your activities with Qualcomm that seemed like an important partner that you announced last year, maybe just a little bit more feel for how that partnership is going?

Yes, so if you already had a really good demonstration, you had a joint demo at the Snapdragon Summit a few months ago. So, they also showcase CES. So, they are basically bundling our voice AI solution into their chipsets, and they can basically be our channel partner and sell it to our customers on our behalf. So it's a combination of their chipsets and diverse technologies with rapid technologies and our voice AI solutions. So, it's a very meaningful partnership.

[Operator Instructions] One moment for our next question and that will come from the line of Brett Knoblauch with Cantor Fitzgerald. Your line is open.

The first, I guess, is on the profitability guide. And I guess taking a lot of action to kind of improve profitability over the last couple of months. What assumptions do you have to get to the kind of positive just really in the fourth quarter? I guess what can we expect from the gross margin front, absolute off X basis? If we look at the run rate X into the quarter, should we expect you know that to decline by called 10 million on a run rate basis? Or what should we be thinking for that?

So, first of all, start at the top. So we guided 50% growth, and in sort of highlighted that is going to be back end loaded. So, we are expecting to ramp through the year. Part of that is that just seasonality that comes with the pillar one and predominantly auto business. But number two I should say auto and devices. So there's seasonality associated with like TV sales, and so forth as well. But then also with our pillar two and restaurants as we continue to scale, getting traction, and that builds on a monthly subscription basis, that'll compound in a positive way that that should go through the year. So there's a bit of that seasonality. And then with margins, we're not really guiding margins. But I'd say that just overall profile and long-term, we definitely think the levels, you know, the 70% plus level that we've been delivering this year is very achievable, very scalable, as you go into our diversification of products from cloud to edge that we've seen this year, that does have favorable elements to gross margin. I mentioned in my prepared remarks, through the year, we were migrating cloud, and we had that sort of impact a little bit of a drag in 2022's margin, that is now kind of completed. And then, also there's some other actions we're taking to drive efficiencies and margin and then also just with scale, but with respect to cloud versus edge, some of the edge solutions, they tend to have favorable gross margin profile. So, as you put it all together, we expect gross margin continue to be in the zone and positive to what it was in 2022. And then on the OpEx slide, I mentioned, on a full year basis 60 million of savings. And the first quarter will have some of the restructuring costs impact in it, but on an ongoing and we're still for some of our international countries. It just takes time to kind of work through that. But certainly by the end of the year, we'll have worked through entirely in fact, in Q1, by the time we're down with Q1, we should be largely through all the restructuring activity. So we should start to realize those savings in OpEx. And yes, I mean, as you get to the full year Q4 estimation, I think when you look at our OpEx items, R&D, sales and marketing G&A we're taking in the actions we took were north of 40 plus percent reductions on both headcount and discretionary. You can kind of do the math. The other thing I'd say, we and I mentioned this in the prepared remarks in passing as well around the stock comp elements, although that doesn't affect the adjusted EBITDA, but that also we expect to come down. So that's kind of the composition of what gives us confidence that will achieve adjusted EBITDA profitability in Q4.

And then, I guess on the community kind of bookings backlog, I guess the group 10% sequentially. Can you talk about what kind of specific relationships or customers really drove the kind of quarter-over-quarter growth there?

We announced that we have over 70,000 restaurants and one thing that they're unique about our kind of a restaurant is that we could work with single location restaurants. There are a few players that are in the space because of the huge amount of on-boarding requirements. It could take a month to train a model for a new menu. They can only go after brands that have like hundreds of locations, for example. But we could actually work with a restaurant that has a single location because our on-boarding is automated, so you can ingest the menu. And even if they have custom vocabulary on their menu, RFPs recognition automatically gets trained and enhanced to recognize those and they have complex menu structure, all of that can be automated. So that's a very green area for us to go after the long tail and to us the partnership is very keen, because they have -- they opened the doors and 10s of 1000s of restaurants for us. And we partnered with their sales team as well. So, they have a large number of salespeople that can sell our solution on our behalf.

And I guess I could have one follow-up the new kind of generative AI chat product. Is this going to be more like a like a chatbot? Is it going to be more voice driven? And I guess, how do you plan on I guess monetizing that solution and maybe the timeline for when you expect monetization to occur? Is this something that we should expect to contribute to revenues this year?

So, the demo you heard was voice based, so the user was talking to a mobile app and here's the response. And we believe voice really unlocks the power of generative AI. So typing is not as compelling as voice because it can be faster and interact more freely. So, it will be more safe. There will be a text plain text input, as well as like voice we think will be the dominant way and that's one of our differentiators bring our own ASR. And I really think this is the first time we can deliver a voice assistant to the end users that we have been wanting for more than a decade. So if you remember, when Apple launched Siri more than 10 years ago, there were all these ads on TV that made it the promise that you can go and have it open up the conversation with an assistant users, love the idea they rushed to it. And they quickly became disappointed because it was able to only handle a few things like ask questions about weather and maybe stock prices and they use it can set timers. So it was still better than not having it. So people use this and adopted it, but it wasn't what they had imagined. And now more than a decade later, you're finally able to deliver that experience that users have wanted. We know they want it because we've been in this business for a long time for many years and we know that's what the users want. And very few companies can take advantage of this moment. Because just having a voice interface to a large language model is not enough because maybe you can ask them some questions to write you a poem or some long tail questions. But if you ask them questions about real time search queries like I was the weather or sports scores or stock prices, or setting a timer or calling contact or sending messages or sending calendar, navigating to restaurants or addresses, they say that goes. So to really deliver this ultimate assistant experience, you need to have both, you need to have generative AI language model. And you need to have the existing assistant domains that people demand with a voice interface on top of it, and there's only a handful of companies that can take advantage of the situation. And SoundHound is the most agile because we are able to move really fast. So stay tuned for our announcement later this month. The questions, the rest of the questions you asked, we will answer those in our announcements.

And Brett the other thing, just that, for us, the generative AI is certainly the like the demo we shared, but we also talked about Dynamic Interaction and we previously announced the Dynamic Interaction sort of next generation for auto. And there's a kind of interest there. In this space, we think, certainly voice is an important modality. But sort of the multimodal is just as exciting. Sometimes voice input voice output makes a lot of sense. Sometimes it's voice and touch input and audio and visual output. And that's sort of what our Dynamic Interaction capability allows us to do real time. And that's really where the future is going is just going very rapidly. And so, there's a ton of applications use cases that we're very excited about and the monetization will come with those near-term.

Thank you all for participating in today's question-and-answer session. I would now like to turn the call back over to Mr. Keyvan Mohajer for any closing remarks.

Thank you. When we found a SoundHound, we have a vision to see voice enable, voice AI in our lifetime. But we couldn't have fully imagined the vibrant environment of AI innovation we find ourselves in today. Our conversational AI comes to the prominence across industries, we're confident that as the only independent cross industry works AI platform, you are in a strong position to deliver best-in-class technology to even more global brands. We continue to execute and 2022 was a pivotal year for introducing new products and building new partnerships. And you're excited about where we are and where you are looking forward to a strong citizen in '23. With that, I thank you for joining us on the call today. I look forward to speaking with you when we report our first quarter 2023 results. Thank you.

Thank you all for participating. This concludes today's program. You may now disconnect.