Good day, and thank you for standing by, and welcome to SoundHound Q1 2024 Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Scott Smith, Head of Investor Relations. Please go ahead.

Good afternoon and thank you for joining our first-quarter 2024 conference call. With me today is our CEO, Keyvan Mohajer, and our CFO, Nitesh Sharan. We will begin with some short remarks before moving to Q&A. We'd like to remind everyone that we will be making forward-looking statements on this call. Actual results could differ materially from those suggested by our forward-looking statements. Please refer to our filings with the SEC for a detailed discussion of the risks and uncertainties that could affect our business and for discussion statements that qualify as forward-looking statements. In addition, we may discuss certain non-GAAP measures. Please refer to today's press release for more detailed financial results and further details on the definitions, limitations, and uses of those measures and reconciliations from GAAP to non-GAAP. Also note that the forward-looking statements on this call are based on information available to us as of today's date. We undertake no obligation to update any forward-looking statements except as required by law. Finally, this call is being audio webcast in its entirety on our Investor Relations website. An audio replay will be available following today's call. With that, I'd 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. Once again, we are reporting very strong growth. First-quarter revenue was up 73%. Just a few days ago, we reached the milestone of being a public company for two years. While the tough external conditions of the last two to three years have weakened or eliminated many organizations, we have become stronger. We have nearly tripled our first-quarter revenue in just two years, while better leveraging our expenses, and we have more than doubled our cash position to its record high of approximately $225 million on the balance sheet. Our three-pillar strategy is working. This quarter was a special quarter for our pillar two, where we offer AI customer service solutions for businesses. About 30% of our revenue was from pillar two with over 10,000 locations laid in production and over 100,000 in our pipeline. Just a year ago, these numbers were negligible. And for the first time, our next-generation drive-thru AI service dynamic interaction is now live with one of the top global QSR brands, and the results are incredible beyond expectation. The main challenge our customers face on the first day of being live with dynamic interaction was that our AI was so fast at taking orders that their kitchen could not keep up with the pace. Of course, they're addressing that on their side and are pleased with the results and immediately decided to expand to more locations. As we've said before, our AI solutions save cost for our customers, improves the experience of their users, and also increases revenue by adding throughputs and proactively offering upsells. Dynamic interaction is a SoundHound technological breakthrough like no other. We believe its impact on voice and conversational interfaces will be as meaningful as the Apple multi-touch…

Thank you, Keyvan, and good afternoon, everyone. Q1 revenue increased by 73% year over year. The results indicate another positive mile marker on our growth journey in which we exceeded $11 million in revenue in our seasonally smallest quarter of the year. We like where we are today, and we are excited about what we are quickly becoming. Our AI solutions attractively reside at a critical intersection. Macro factors like persistent inflation and wage pressures drive many of our customers towards automation for productivity. Concurrently, consumer demand for increased speed and convenience drive our customers towards automation to accelerate throughput and increase revenue. AI connects this intersection seamlessly, and generative AI massively extend the value proposition further. The penultimate result is high consumer interest in SoundHound. With our recent acquisitions, SYNQ3, now fully in the mix, the benefits of integrating this pioneering restaurant tech organization with our years of voice AI innovations are clear. And the breadth of coverage we now have in the restaurant sector is so exciting and showing up in overflowing customer activity. One of the measures we use to gauge that traction is backlog. Last quarter, I introduced a combined pillar one and pillar two customer demand metric called cumulative subscriptions and bookings backlog. In Q1, we saw approximately 80% year-over-year growth to $682 million with an average duration of about seven years. As a reminder, this measure includes new subscription revenue streams and our traditional royalty contract. The methodology for our pillar one contracts has not changed. We include only committed customer contracts for exactly the duration of the contract period and capture various facets of the deal and total contract value like construct. These facets include minimum commitment, target volumes, professional services, and other arrangements. We do not include renewals until the renewal takes…

[Operator Instructions]. Our first question comes from the line of Gil Luria from D.A. Davidson.

Yes, good afternoon. A lot of product announcement and advances. Let me focus on a couple of the ones that seem most intriguing. The first one around the NVIDIA in vehicle. It would be a big step forward for the whole technology around AI to do the inferencing without connectivity. What's the timeline do you think that you can deliver this to one of your automotive customers? So that's one. I'll bundle the second one on product, which is on the Perplexity, it sounds like you're going to be leveraging Perplexity AI in the SoundHoundn Chat AI app. Is there a potential down the road for SoundHound technology to be the front-end for the Perplexity app.

Thanks for the great questions. So the NVIDIA announcement, as you noted, very big milestone because these generative AI large language models are very large. Typically, they don't fit on the edge, but with this partnership, we are able to run them on the edge, and a lot of the functionality will not need cloud. You still need cloud, like if you want real-time weather information or sports scores, you need cloud connectivity. But for a lot of the functionalities, whether it's from general knowledge to getting things done inside a car or a device, you actually don't need the cloud connectivity. We think that the use cases are beyond automotive. In automotive, things take longer, especially when you're talking about hardware change. For software, as I mentioned in my comments earlier, we are actually -- we had one case when we went from signing the deal to going to production in a matter of just a few months. But when you talk about the hardware change, that takes longer. But we think it's not just about automotive, even for QSR, dynamic interaction, drive-thru automation, you could actually bring some of that to the edge. So we are excited about things that can happen faster with that partnership. For Perplexity, it is not just about our Chat AI app. Our Chat AI is also a platform we offer to our customers, like automotive customers and beyond. We will offer it to them as well, and it will be for additional -- it's an upgrade feature, right? So they have already upgraded -- a lot of them have already upgraded from our pre-LLM versions to add the Chat AI feature. And as I mentioned again earlier on the call, that's an upsell. So our royalty, we expect, will go up. Now to access to the online LLM, it will be another upgrade moment for us. So it is very much beyond the Chat AI application that's on the phone. Now you also asked if we would power Perplexity properties. We haven't announced anything yet, but it's a beginning of a partnership we're excited about. We are both NVIDIA portfolio companies -- like NVIDIA invested in us, and then we are very complementary. So we think there's a lot more we can do with them.

Thank you, Nitesh, one for you. A little big picture. Last year, you were very effective at changing your overall cost structure to fit, frankly, what the capital markets needed you to do, which is to show a clear path to profitability. You did that very effectively. You reached that point. But as you sit here today, with significant cash on your balance sheet, much lower burn rate, and the long series of opportunities, a couple of which we just discussed, is there a potential or an opportunity for you to to move the lever a little bit the other way and say, hey, we have so many opportunities on the technology front that maybe we need to fund more of those and relax a little bit of that shift to profitability?

Yeah. Thanks, Gil. I'll start by saying principally, we're trying to drive and create long-term value for customers, and we're seeding and hearing the demand. And we're seeing how the technology opportunity is intersecting with that consumer demand real-time and expanding, frankly, every conversation we have with customers. So I think the opportunity in front of us is tremendous. And so I don't think that gives us a carte blanche to just go spend, spend, spend. We do need to be thoughtful about the pathway and have conveyed our directionality towards getting to a breakeven profile next year. But to your point, I think there is more opportunity that we're seeing every day in terms of active conversations with customers to really go faster, to invest in the solutions. I think, certainly, your first question on the opportunities in the auto is certainly there, and we're seeing that, especially with the speed that we're able to move with some of the EV players. But more broadly, on the restaurant side in particular, in customer service, there is just so much demand. We highlighted in our prepared remarks a bit around the traction that we're getting with larger and larger QSRs. The larger and larger QSRs for us could be -- at scale with them hundreds of millions of annual revenue -- recurring revenue. So we see the size of the prize in the short term. And we also know given the ecosystem is so very dynamic, a lot of new players, lot of new technologies that are advancing very quickly, tremendous pace of innovation going on, we need to stay agile. And so that's why the balance sheet is super important for us to have this real arsenal in our back pocket to be thoughtful. We will do it very judiciously and prudently with capital mindfulness around driving strong returns. But there's a balance in all of that. So I can't give a sort of unidirectional statement. I know ultimately the principle that we govern our choices on investments around is it really creating value for customers, and are we hearing that? And as the echoes get louder and louder for that, we're going to go and serve those consumer interests. So I hope that's not too opaque of an answer for you, but that's how we think about it.

Our next question comes from the line of Mike Latimore from Northland Capital Markets.

Thanks, yeah. Congrats on all the developments here. Maybe can you just talk a little bit about the synergies you're seeing with SYNQ3 so far. What kind of cross-sells, opportunities are you seeing and have had? Are you able to leverage some of their data to train your models? And then are you able to use some of their resources to help with deployments?

Yeah, I'll start and maybe Nitesh can add more about. But absolutely, we see the synergy. We are -- it was a fantastic acquisition. We couldn't be more proud of it. Every day, we feel it. They have a ton of data, and we are already using that to make our models better. They have a lot of integration, and it's not just about offering a magical AI model that does everything. You have to go and integrate with POS systems. And a lot of these enterprise customers have their own in-house systems that you have to integrate with. They have to -- analytics and menu management and so on. They have a lot of that we are using to accelerate our scale with are organic customers as well -- so on the technology and data side. But the synergy between the two companies are in terms of experience -- we started as an AI company; we identified restaurant as a very right a business to go into. They started as -- they were restaurant operators, and they identified automation as a good business to get into. And we started nearly 20 years ago each, and then they became more AI. We came into restaurants, but they understand that industry really well. And that's experience is what we needed to improve our scale as we go forward.

Yeah, and I'll just add a couple of points on that. I think I kind of break it up into three categories. Revenue, there's a lot of opportunities in terms of the cross-sell, upsell, Keyvan alluded to. I'd say, on top of that, just the relationships they bring and some of the extended conversations were happening much faster than what we would have been able to do alone. That's happening at accelerated pace. And then just the ability to bring our core engines along with what they've already built, I think is an accelerant with their own customers but also with new customer relationships. So from a revenue standpoint, this is the multi -- sort of medium longer-term opportunities. We just get even more excited several months into the acquisition from the thesis we had going into it. On the cost side, we've talked about a couple of these, Mike, and I'd say these are -- we're in the midst of this journey, but there are some back-end costs in terms of cloud migration that we're in the middle of driving. There are architectural things in the software stack that we can bring our own again, capabilities in. Go faster than what we were doing, learn from learnings on both sides. So there's cost elements that you'd certainly didn't see in the Q1 numbers because the Q1 numbers sort of reflect a lot of both acquisition transactional stuff but also just the, call it, unsynergized cost structure -- that's not even a word -- but that's what we're doing on the cost side. And so I think over the next quarters, you'll see more of that efficiency drive through. One specific thing is the gross margin, and I commented about this in the prepared remarks. But gross margins were depressed…

Sounds like great progress out of the gate. And then just real quick on the restaurant vertical, is there a clear leader here between phone ordering versus drive-thrus in terms of just like what's in the pipeline? Is it skewed to one or to the other very much here? Or is it kind of balanced between phone ordering and driver thrus?

It's pretty -- it's balanced. Well, it is a bit of short-term, long-term answer to that question. It's balanced, and I would extend it to other opportunities, not simply the phone versus drive-thru, but we're excited about some conversations we're having on with the program we called Employee Assist, which is helping in-store employees. And there's in-app conversations going on that a lot of restaurants are excited about. Our Smart Answering capability is sort of front-end vehicle on a lot of this is something else. So there's a suite of opportunities. And part of my last answer on innovation, I mean, those are things that are sort of getting incubated here. And then as we've said before, there's sort of a timeline of deployment. So we know with drive thru, there is hardware requirement. There are hardware requirements. There are cycles we need to go through. We're building great partnerships with many hardware providers to standardize and move faster there. But that is -- we know that as the break through. Nobody else is doing -- I mean, certainly, we don't disparage competition -- we know that there are other players that could come. But right now it's greenfield. We have a unique value proposition that we're driving. And so we want to go really fast. And then even on phone ordering it, they have a lot of great partners, and we're growing in that space. And some -- what we find is in certain cuisine types, you see a heavier weighting of phone volume. And so we're going to service those particular cuisine types, more so in that front. So little balanced, but excited on multiple fronts.

Our next question comes from the line of Glenn Mattson from Ladenburg.

Hi. And I apologize if this is repetitive because I missed part of Keyvan's prepared remarks. But Nitesh, you just kind of talked about some of the gating factors in rolling out the offering in retail like some of the equipment that has to be placed in it. And I think last call you guys also kind of talked about the demand just been a little bit higher than you could handle at the given time and that some customers are kind of put on hold while you decide who best to serve and how quickly and everything. So I guess I'm just trying to figure out or understand if there's been some change there, if you caught up to some of that demand somewhat or if there's more investment needed to make to get to that spot and just just kind of an update on where you are from that point of view.

Yeah. Thanks, Glenn. We're working hard. We are making progress for sure. We don't like that -- last time -- I just want to clarify also, it's not that we're talking about months and months out. We are really trying to address some of these things where we've got a bit of a pipeline that we need to work through with those customers. So there's been a lot of progress. You'll see unpacking our costs this time -- I know it will be a little complicated with the acquisition, but if I break it apart into kind of three pieces: one is just acquisition transitional things, one is the inclusion of sort of acquisition plus other one-time dynamics and seasonal things, and then there's sort of investments that we will continue to make. Again, it would go back to Gil's question like this target of getting to still profitability next year. We are accelerating investment in the right pockets to serve that consumer demand and customer demand. So to Glenn to your question, we are making sure that we are hiring the right people, investing in the right capabilities so that we can quickly get and serve customers the right way. And so I'd say we are making really good progress on that. The challenge in it -- maybe a silver lining challenge is that we're hitting a lot more demand too. Every time we have meaningful innovation and progress, the word gets around pretty quickly, particularly in the restaurant side. We're excited actually. I think it's coming up very soon, the largest restaurant conference show in Chicago, and we've got a big showcase ready to go there, to just get our word out. So while we are making progress with those existing relationships, the dynamic we're faced with as we're getting more and more demand. And that's a good problem to have but we don't -- we can't sit back, rest on our laurels, we got to invest to make sure that we're serving customer demand. And so I mentioned in the prepared remarks, with one of the largest QSRs, hearing feedback about the technology moving really well -- in fact, the challenge in that situation was the dynamic interaction technology was taking the orders too quickly for the back ordering preparation to handle. That's -- obviously, we want to work with them together to get that situation ameliorated. But that's a good sign of the progress we can make. And then hearing comments from our customers about the positivity of working with us, that's what we want to keep fueling. We know that's a virtuous cycle that can keep building. So I think we're trying really hard to keep pace with it. We're investing to make sure we're serving consumer demand -- customer demand. But I will acknowledge we're still faced with a lot of demand that we're trying to work through.

Great. That's very helpful and a good problem to have, of course. Second question just for me. The -- I feel like you've hinted at this in the past, maybe in this call as well. But just the outlook for what you're thinking about for future or further acquisitions beyond SYNQ3. Now I realize you have some digestion to do here for that SYNQ3 acquisitions still. But curious what your thought process is in terms of what kind of attributes you're looking for in future acquisitions? And what -- how big your appetite is I guess? Thanks.

Sure. So I'll start with, our opportunity organically is tremendous. Just -- we're excited about what SYNQ3 is bringing. We're excited about what we're able to address. But just with the capabilities we have right now, we know we can do a lot of great things. So 100%, the organization is focused on driving that, and it could fuel great long-term growth and build an amazing business. The ecosystem around us and the macro landscape and what we're seeing from other players, there's multiple things happening. First, I think the recent shift, GenAI is disrupting a lot of people. Number two, it's bringing a lot of new players into the ecosystem. So we are certainly not going to sit with our head in the sand and kind of just drive our own agenda. We're going to be very mindful because number one, it's not just an acquisition story; it's about partnerships. It's about learning from others. And so we're going to take a very holistic view of being very thoughtful of who are the new players. And we have a team dedicated to being on top of this all the time. And so the architecture, we think about any organic investment or inorganic opportunity is through our three-pillar framework. We are aggressively going out and driving voice-enabled products: autos, IoT, other devices. We're aggressively starting the journey through customer service leading with restaurants, but our Smart Answering is scaling across others Keyvan mentioned in prepared remarks around fitness centers, beauty salons, real estate industry and so forth -- many, many different types of businesses that we are now servicing. And we are now, because of the scale, seeing great opportunities in generating momentum with monetization, which is when we're integrating the voice-enabled services with voice-enabled products. And frankly, we see…

Our next question comes from the line of Brett Knoblauch from Cantor Fitzgerald.

Hi, guys. Thanks for taking my questions. On the restaurant side of the business, it's nice to see kind of demand continue to increase there. Can you talk maybe about where that demand is coming from, from a lead gen perspective? Is it your outbound sales motion? Are they coming to you, for example, like with Applebee's -- it seems like that got deployed very quickly or is it the POS partnerships that you have with Square and Olo? Just to be curious more on that front about the go-to-market strategy on the restaurant side.

Yeah. Thanks for the question. So it's a combination. We have events that we participate in that increases awareness, like the one that's coming up, National Restaurant Association. We have now a good-sized sales team. The SYNQ3 acquisition augmented that. But we have seen a big shift that maybe 18 months ago, we had to knock on these doors and educate them about the value of voice AI automation. But now we see them knock on our door. Like, a lot of these brands that we used to dream about talking to, now they are coming to us knocking on our door, and they want to move fast. So there has been a very big change in the dynamic of the market.

Perfect. Thank you. And then on the partnership side, I guess what partnership are you most excited about from a monetization opportunity over the near term? Would it be in NVIDIA? Would it be Arm? Perplexity? Any insights into how we should be thinking about those translating into financials?

Yeah, I think channel partnerships are very impactful when there is a complementary business that has the same customers offering them something else than our service on top of it, can be very complementary. And they can bring us those opportunities or take our stuff and take it to their customers. Like Olo, for example, is a partnership we are really excited about. Those channel partnerships are a very key. But if we can improve our product, we know that it's going to translate to more adoption and more revenue. So the Perplexity partnership that we announced today was along those lines.

[Operator Instructions]. At this time, I'm showing no further questions. This concludes today's conference call. Thank you for participating. You may now disconnect.