SOUNDHOUND AI, INC. Q3 FY2024 earnings call

Management Statement and Operational Highlights: - Acceleration of mission to voice enable the world with conversational intelligence, extending AI engine customer service to hundreds of brands. - Revenue increased 89% YOY to over $25 million, with a run rate of over 6 billion queries annualized. - Expanded into new verticals like energy and deeper into retail, with wins in telecom, healthcare, insurance, banking, retail, government, and payments. - Automotive portfolio growing, with wins in EV space and partnerships in China and India. - Restaurant portfolio expanding with new logos, drive-thru solutions, and over 100 million interactions handled by phone ordering. - Polaris foundation model powering ~one-third of AI interactions for restaurant customers, expected to power all experiences. - Will have a prominent presence at CES 2025 showcasing automotive and AI solutions.

Segment Performance: Q3 revenue was $25.1 million, up 89% year-over-year. Automotive had double-digit unit growth and price expansion driven by Generative AI solutions. Restaurants scaled with new logos and now count seven of the top 20 quick service restaurants as customers. Enterprise AI's AI agent offerings are over half of the business and growing rapidly. Revenue contribution: Automotive, restaurants, and enterprise AI each contribute to the overall growth, with enterprise AI's agent offerings increasing their share.

Guidance: - 2024 revenue expected to be in the range of $82 million to $85 million. - 2025 revenue expected to be in the range of $155 million to $175 million. - Aim to achieve adjusted EBITDA profitability by the end of 2025. - Scaling automotive, AI agent, and restaurant businesses, with revenue synergies from acquisitions and upsell/cross-sell opportunities.

Risks: - Past concern about customer concentration, but now diversified with top five customers comprising less than a third of business. - Integration challenges from recent acquisitions, impacting gross margin in Q3 but expected to deliver value over time.

Q: Three months ago, when you announced the Amelia acquisition, you talked about possibly discontinuing some businesses. How much of the Amelia business will be retained, discontinued, and accounting for that?

A: Still in process, but will accelerate product cross sell, upsell, and technology stack integration. Will keep high margin, deep integration parts, double down on voice enablement with proprietary tech, and double down on employee facing AIOps. Professional services and some escalation support still under contemplation.

Q: How do you benchmark the Polaris foundation model?

A: Use speech recognition benchmarks (word error rate, latency) and natural language understanding benchmarks, beating big tech in accuracy and speed. Measure against standardized tests and real-life interactions, focusing on reducing hallucination. Spending more on GPUs to iterate models.

Q: What's your capacity look like and resource allocation between restaurants, broader retail, and auto?

A: Automotive relationships continuing to grow, especially in EV space. Restaurant opportunity with seven of top 20 QSRs, seeing outsized growth in AI agent deployments across ecosystem. Healthcare, financial services also have opportunities, with horizontal platform play to deploy technology across industries.

Q: How does the guidance relate to Amelia acquisition and legacy business?

A: Combination of legacy business growth (automotive, restaurant organic growth) and acquisition synergies (cross-sell, upsell opportunities). Focus on growth and profitability, with integration and calibration of investments for long-term success.

Q: What's your M&A appetite and plans with large AI LLM companies?

A: Programmatic M&A important, with focus on strategic partnerships. Use OpenAI as vendor, build LLM agnostic architecture, and developing own Polaris foundation model. Looking at energy, retail, and other sectors for potential M&A, prioritizing highest growth and best fit with capabilities.