SEC Filing - SoundHound AI

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soun-20240930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from________to________

Commission File No. 001-40193


SOUNDHOUND AI, INC.
(Exact name of registrant as specified in its charter)


Delaware						86-1286799
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


5400 Betsy Ross Drive, Santa Clara, CA 95054
(Address of principal executive offices) (Zip Code)


(408) 441-3200
(Registrant’s telephone number, including area code)


N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, par value $0.0001 per share

SOUN

The Nasdaq Stock Market LLC

Redeemable Warrants

SOUNW

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


x	Large accelerated filer	o	Accelerated filer
o	Non-accelerated filer	o	Smaller reporting company
		o	Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No x

As of November 8, 2024, there were 337,014,817 shares of the Company’s Class A Common Stock, $0.0001 par value per share, issued and outstanding, and 32,735,408 shares of the Company’s Class B Common Stock, $0.0001 par value per share, issued and outstanding.

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SOUNDHOUND AI, INC.

QUARTERLY REPORT ON FORM 10-Q

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PART I. FINANCIAL INFORMATION		1

Item 1.	Condensed Consolidated Financial Statements	1

	Condensed Consolidated Balance Sheets as of September 30, 2024 (unaudited) and December 31, 2023	2

	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2024 and 2023 (unaudited)	3

	Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2024 and 2023 (unaudited)	4

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023 (unaudited)	6

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	59

Item 4.	Controls and Procedures	59

PART II. OTHER INFORMATION		62

Item 1.	Legal Proceedings	62

Item 1A.	Risk Factors	62

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64

Item 3.	Defaults Upon Senior Securities	64

Item 4.	Mine Safety Disclosures	64

Item 5.	Other Information	64

Item 6.	Exhibits	66

SIGNATURES		67

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “report”) of SoundHound AI, Inc. (“we,” “us,” “our,” “SoundHound,” or the “Company”) contains “forward-looking statements” (as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) that reflect our current expectations and views of future events. The forward-looking statements are contained principally in the section of this report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You can identify some of these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions. These forward-looking statements include, but are not limited to, statements concerning our expected financial performance, our ability to implement our business strategy and anticipated business and operations, including our ability to integrate the business and operations of our recent acquisitions and improve our Generative AI Foundation Model, expand our customer partnerships and roll out our AI drive thru service, roll out our Dynamic Interaction, Chat AI for Automotive, and expand the number of platforms on which our voice AI technology will be available, the potential utility of and market for our products and services, including our newly acquired products and services, and our ability to achieve revenue from our bookings backlog. We have based these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy and financial needs. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results of operations or the results of other matters that we anticipate herein could be materially different from our expectations. Accordingly, readers are cautioned that significant known and unknown risks, uncertainties and other important factors may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. Some factors that could cause actual results to differ include:

•our ability to execute our business strategy, including launching new product offerings and expanding information and technology capabilities;

•our market opportunity and our ability to acquire new customers and retain existing customers;

•the timing and impact of our growth initiatives on our future financial performance;

•our ability to integrate the businesses and operations from our recent acquisitions with our current operations to realize the expected benefits of those acquisitions;

•our ability to protect intellectual property and trade secrets;

•our ability to obtain additional capital, as necessary, including equity or debt financing, on terms that are acceptable to us, if at all;

•changes in applicable laws or regulations and extensive and evolving government regulations that impact our operations and business;

•our ability to attract or maintain a qualified workforce;

•level of product service failures that could lead our customers to use competitors’ services;

•investigations, claims, disputes, enforcement actions, litigation and/or other regulatory or legal proceedings, including with respect to our AI technology;

•risks relating to uncertainty of our estimates of market opportunity and forecasts of market growth;

•the possibility that we may be adversely affected by other economic, business, and/or competitive factors; and

•other risks and uncertainties described under the section titled “Risk Factors” herein and in our Annual Report on Form 10-K which was filed with the Securities and Exchange Commission on March 1, 2024.

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You should thoroughly read this report and the documents that we refer to with the understanding that our actual future results may be materially different from, and worse than, what we expect. We qualify all of our forward-looking statements by these cautionary statements.

The forward-looking statements made in this report relate only to events or information as of the date of this report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this report completely and with the understanding that our actual future results may be materially different from what we expect.

iii

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PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

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SOUNDHOUND AI, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)


	September 30, 2024		December 31, 2023
	(Unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	135,606	$	95,260

Accounts receivable, net of allowances of $1,874 and $203 as of September 30, 2024 and December 31, 2023, respectively	13,570		4,050
Contract assets and unbilled receivable, net of allowance for credit losses of $118 and $17 of September 30, 2024 and December 31, 2023, respectively	24,639		11,780
Other current assets	7,394		2,452
Total current assets	181,209		113,542
Restricted cash equivalents, non-current	811		13,775
Right-of-use assets	3,860		5,210
Property and equipment, net	1,541		1,515
Goodwill	111,730		—
Intangible assets, net	182,579		—
Deferred tax asset	30		11
Contract assets and unbilled receivable, non-current, net of allowance for credit losses of $195 and $177 of September 30, 2024 and December 31, 2023, respectively	14,596		16,492
Other non-current assets	3,298		577
Total assets	$	499,654	$	151,122

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	17,758	$	1,653
Accrued liabilities	22,599		13,884
Operating lease liabilities	1,832		2,637
Finance lease liabilities	74		121
Income tax liability	2,677		1,618
Deferred revenue	20,096		4,310
Other current liabilities	5,142		—
Total current liabilities	70,178		24,223
Operating lease liabilities, net of current portion	2,241		3,089
Deferred revenue, net of current portion	7,570		4,910
Long-term debt	39,694		84,312
Contingent acquisition liabilities (Note 17)	74,450		—
Income tax liability, net of current portion	5,004		2,453
Other non-current liabilities	4,530		3,967
Total liabilities	203,667		122,954
Commitments and contingencies (Note 7)

Stockholders’ equity:
Series A Preferred Stock, $0.0001 par value; 1,000,000 shares authorized; 0 and 475,005 shares issued and outstanding, aggregate liquidation preference of $0 and $16,227 as of September 30, 2024 and December 31, 2023, respectively	—		14,187
Class A Common Stock, $0.0001 par value; 455,000,000 shares authorized; 336,481,401 and 216,943,349 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively	33		22
Class B Common Stock, $0.0001 par value; 44,000,000 shares authorized; 32,735,408 and 37,485,408 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively	3		4
Additional paid-in capital	980,150		606,135
Accumulated deficit	(684,461)		(592,379)
Accumulated other comprehensive income	262		199
Total stockholders’ equity	295,987		28,168
Total liabilities and stockholders’ equity	$	499,654	$	151,122

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SOUNDHOUND AI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share data)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Revenues	$	25,094	$	13,268	$	50,150	$	28,726
Operating expenses:
Cost of revenues	12,901		3,590		22,550		7,396
Sales and marketing	8,363		4,471		19,560		14,424
Research and development	19,545		12,806		50,161		38,726
General and administrative	17,031		6,931		36,833		20,644
Change in fair value of contingent acquisition liabilities	(1,356)		—		1,724		—
Amortization of intangible assets	2,377		—		3,603		—
Restructuring	—		—		—		3,751
Total operating expenses	58,861		27,798		134,431		84,941
Loss from operations	(33,767)		(14,530)		(84,281)		(56,215)

Other expense, net:
Loss on early extinguishment of debt	—		—		(15,587)		(837)
Interest expense	(1,109)		(5,442)		(10,859)		(11,273)
Other income (expense), net	2,634		1,336		9,087		(302)
Total other expense, net	1,525		(4,106)		(17,359)		(12,412)
Loss before provision for income taxes	(32,242)		(18,636)		(101,640)		(68,627)
Provision for income taxes	(10,491)		1,561		(9,558)		2,307
Net loss	$	(21,751)	$	(20,197)	$	(92,082)	$	(70,934)
Cumulative dividends attributable to Series A Preferred Stock	—		(647)		(416)		(2,206)
Net loss attributable to SoundHound common shareholders	$	(21,751)	$	(20,844)	$	(92,498)	$	(73,140)

Other comprehensive income:
Unrealized gains on investments	57		168		63		197
Comprehensive loss	$	(21,694)	$	(20,029)	$	(92,019)	$	(70,737)

Net loss per share:
Basic and diluted	$	(0.06)	$	(0.09)	$	(0.28)	$	(0.33)

Weighted-average common shares outstanding:
Basic and diluted	360,385,812		242,022,268		326,166,633		222,760,880

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SOUNDHOUND AI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share and per share data)

(Unaudited)


Three Months Ended September 30, 2024
	Series A Preferred Stock			Class A Common Stock			Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total
	Shares	Amount		Shares	Amount		Shares	Amount
Balance of June 30, 2024	—	$	—	315,153,605	$	31	32,735,408	$	3	$	886,412	$	(662,710)	$	205	$	223,941
Issuance of Class A common stock under the Equity Distribution Agreement	—	—		10,465,581	1		—	—		48,317		—		—		48,318
Issuance of Class A common stock for equity incentive awards	—	—		1,920,971	—		—	—		436		—		—		436
Issuance of Class A common stock upon acquisition of Amelia	—	—		5,959,050	1		—	—		23,919		—		—		23,920
Issuance of Class A common stock to settle obligations under Amelia Debt	—	—		2,943,917	—		—	—		11,817		—		—		11,817
Issuance of Class A common stock in connection with acquisition of SYNQ3	—	—		38,277	—		—	—		189		—		—		189
Stock-based compensation	—	—		—	—		—	—		9,060		—		—		9,060
Net loss	—	—		—	—		—	—		—		(21,751)		—		(21,751)
Other comprehensive income	—	—		—	—		—	—		—		—		57		57
Balances as of September 30, 2024	—	$	—	336,481,401	$	33	32,735,408	$	3	$	980,150	$	(684,461)	$	262	$	295,987


Three Months Ended September 30, 2023
	Series A Preferred Stock			Class A Common Stock			Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total
	Shares	Amount		Shares	Amount		Shares	Amount
Balance of June 30, 2023	835,011	$	24,942	194,336,749	$	20	38,035,408	$	4	$	567,794	$	(554,179)	$	29	$	38,610
Issuance of Class A common stock for equity incentive awards	—	—		2,713,549	—		—	—		659		—		—		659
Issuance of Class A common shares upon conversion of Class B common shares	—	—		550,000	—		(550,000)	—		—		—		—		—
Issuance of Class A common shares upon conversion of Series A Preferred Stock	(353,338)	(10,555)		11,375,090	1		—	—		10,554		—		—		—
Issuance of common stock warrants	—	—		—	—		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		—	—		6,692		—		—		6,692
Net loss	—	—		—	—		—	—		—		(20,197)		—		(20,197)
Other comprehensive income	—	—		—	—		—	—		—		—		168		168
Balances as of September 30, 2023	481,673	$	14,387	208,975,388	$	21	37,485,408	$	4	$	585,699	$	(574,376)	$	197	$	25,932

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Nine Months Ended September 30, 2024
	Series A Preferred Stock			Class A Common Stock			Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total
	Shares	Amount		Shares	Amount		Shares	Amount
Balances as of December 31, 2023	475,005	$	14,187	216,943,349	$	22	37,485,408	$	4	$	606,135	$	(592,379)	$	199	$	28,168
Issuance of Class A common stock under the Sales Agreement and Equity Distribution Agreement	—	—		69,601,417	7		—	—		279,862		—		—		279,869
Issuance of Class A common stock upon acquisition of SYNQ3	—	—		5,794,187	1		—	—		9,875		—		—		9,876
Issuance of restricted shares of Class A common stock, subject to repurchase in connection with acquisition of SYNQ3	—	—		2,033,156	—		—	—		—		—		—		—
Issuance of Class A common stock for equity incentive awards	—	—		9,562,128	—		—	—		11,064		—		—		11,064
Issuance of Class A common stock upon conversion of Class B common shares	—	—		4,750,000	1		(4,750,000)	(1)		—		—		—		—
Issuance of Class A common stock upon conversion of Series A Preferred Stock	(475,005)	(14,187)		16,624,215	1		—	—		14,186		—		—		—
Issuance of Class A common stock in connection with the cashless exercise of warrants	—	—		2,269,982	—		—	—		—		—		—		—
Issuance of Class A common stock upon acquisition of Amelia	—	—		5,959,050	1		—	—		23,919		—		—		23,920
Issuance of Class A common stock to settle obligations under Amelia Debt	—	—		2,943,917	—		—	—		11,817		—		—		11,817
Stock-based compensation	—	—		—	—		—	—		23,292		—		—		23,292
Net loss	—	—		—	—		—	—		—		(92,082)		—		(92,082)
Other comprehensive income	—	—		—	—		—	—		—		—		63		63
Balances as of September 30, 2024	—	$	—	336,481,401	$	33	32,735,408	$	3	$	980,150	$	(684,461)	$	262	$	295,987


Nine Months Ended September 30, 2023
	Series A Preferred Stock			Class A Common Stock			Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total
	Shares	Amount		Shares	Amount		Shares	Amount
Balance of December 31, 2022	—	$	—	160,297,664	$	16	39,735,408	$	4	$	466,857	$	(503,442)	$	—	$	(36,565)
Issuance of Class A common stock for equity incentive awards	—	—		9,802,634	1		—	—		8,836		—		—		8,837
Issuance of Class A common stock under the ELOC program	—	—		25,000,000	3		—	—		73,762		—		—		73,765
ELOC program fee settled in common stock	—	—		250,000	—		—	—		915		—		—		915
Issuance of Series A Preferred Stock	835,011	24,942		—	—		—	—		—		—		—		24,942
Issuance of Class A common shares upon conversion of Class B common shares	—	—		2,250,000	—		(2,250,000)	—		—		—		—		—
Issuance of Class A common shares upon conversion of Series A Preferred Stock	(353,338)	(10,555)		11,375,090	1		—	—		10,554		—		—		—
Issuance of common stock warrants	—	—		—	—		—	—		4,136		—		—		4,136
Stock-based compensation	—	—		—	—		—	—		20,639		—		—		20,639
Net loss	—	—		—	—		—	—		—		(70,934)		—		(70,934)
Other comprehensive income	—	—		—	—		—	—		—		—		197		197
Balances as of September 30, 2023	481,673	$	14,387	208,975,388	$	21	37,485,408	$	4	$	585,699	$	(574,376)	$	197	$	25,932

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SOUNDHOUND AI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended September 30,
	2024		2023
Cash flows used in operating activities:
Net loss	$	(92,082)	$	(70,934)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	8,115		1,941
Stock-based compensation	23,292		20,639
Loss on change in fair value of ELOC program	—		1,901
Amortization of debt issuance cost	1,586		3,532
Non-cash lease amortization	2,218		2,383
Foreign currency gain/loss from remeasurement	(97)		—
Change in fair value of contingent acquisition liabilities	1,724		—
Loss on early extinguishment of debt	15,587		837
Deferred income taxes	(11,494)		—
Other, net	633		262
Changes in operating assets and liabilities:
Accounts receivable, net	(1,247)		38
Other current assets	(3,049)		(461)
Contract assets	(7,018)		(9,987)
Other non-current assets	(1,198)		690
Accounts payable	823		(635)
Accrued liabilities	(2,058)		1,906
Other current liabilities	331		—
Operating lease liabilities	(2,612)		(2,772)
Deferred revenue	(8,993)		(5,532)
Other non-current liabilities	(216)		1,797
Net cash used in operating activities	(75,755)		(54,395)

Cash flows used in investing activities:
Purchases of property and equipment	(560)		(334)
Payment related to acquisitions, net of cash acquired	(11,732)		—
Net cash used in investing activities	(12,292)		(334)

Cash flows provided by financing activities:
Proceeds from the issuance of Series A Preferred Stock, net of issuance costs	—		24,942
Proceeds from sales of Class A common stock under the ELOC program, net of issuance costs	—		71,454
Proceeds from sales of Class A common stock under the Sales Agreement and Equity Distribution Agreement	287,271		—
Proceeds from exercise of stock options and employee stock purchase plan	11,064		8,837
Payment of financing costs associated with the Sales Agreement and Equity Distribution Agreement	(7,182)		—
Proceeds from the issuance of debt, net of issuance costs	—		85,087
Payments on Term Loan and Amelia Debt	(175,602)		(35,029)
Payment to settle contingent holdback liabilities from SYNQ3 acquisition	(17)		—
Payments on finance leases	(89)		(116)
Net cash provided by financing activities	115,445		155,175
Effects of exchange rate changes on cash	(16)		—
Net change in cash, cash equivalents, and restricted cash equivalents	27,382		100,446
Cash, cash equivalents, and restricted cash equivalents, beginning of period	109,035		9,475
Cash, cash equivalents, and restricted cash equivalents, end of period	$	136,417	$	109,921

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SOUNDHOUND AI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


Reconciliation to amounts on the condensed consolidated balance sheets:
Cash and cash equivalents	$	135,606	$	96,146
Non-current portion of restricted cash equivalents	811		13,775
Total cash, cash equivalents, and restricted cash equivalents shown in the condensed consolidated statements of cash flows	$	136,417	$	109,921

Supplemental disclosures of cash flow information:
Cash paid for interest	$	4,448	$	7,945
Cash paid for income taxes	$	1,677	$	1,645

Noncash investing and financing activities:
Conversion of Series A Preferred Stock to Class A common stock	$	14,187	$	10,555
Issuance of Class A Common Stock to settle commitment shares related to the ELOC program	$	—	$	915
Issuance of Class A Common Stock to settle obligations under Amelia Debt	$	11,817	$	—
Issuance of Class A Common Stock to settle contingent holdback consideration of SYNQ3 acquisition	$	189	$	—
Deferred offering costs reclassified to additional paid-in capital	$	220	$	—
Non-cash debt discount	$	—	$	4,136
Property and equipment acquired under accrued liabilities	$	62	$	—
Fair value of Class A common stock and deferred equity consideration issued for SYNQ3 acquisition	$	9,687	$	—
Fair value of contingent earnout consideration under SYNQ3 and Amelia acquisitions	$	73,236	$	—
Fair value of contingent holdback consideration under SYNQ3 acquisition	$	427	$	—
Fair value of deferred cash consideration under other acquisition	$	195	$	—

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SOUNDHOUND AI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. ORGANIZATION

Nature of Operations

SoundHound AI, Inc. (“we," "us," "our," "SoundHound” or the “Company”) turns sound into understanding and actionable meaning. SoundHound’s technology applications enable humans to interact with the things around them in the same way they interact with each other: by speaking naturally to mobile phones, cars, televisions, music speakers, coffee machines, and every other part of the emerging “connected” world. SoundHound's voice AI platform enables product creators to develop their own voice interfaces with their customers. The SoundHound Chat AI voice assistant allows businesses and brands to provide a next-generation voice experience for their users, seamlessly integrating Generative AI and a mix of real-time information domains. Houndify is an open-access platform that allows developers to leverage SoundHound’s Voice AI technology. The Company has developed a range of proprietary technologies on our voice AI platform, including Speech-to-Meaning, Deep Meaning Understanding, Collective AI, Dynamic Interaction and SoundHound Chat AI. The SoundHound music app allows customers to identify and play songs by singing or humming into the smartphone’s microphone, or by identifying the sound playing in the background from external sources. SoundHound also provides edge, cloud and hybrid (Edge+Cloud) connectivity solutions that allow brands to optimize their voice-enabled products and devices with options ranging from fully-embedded to exclusively cloud-connected.

On January 3, 2024, the Company completed the acquisition of Synq3, Inc. ("SYNQ3") in a cash and stock transaction. On June 14, 2024, the Company completed an immaterial acquisition in a cash transaction. On August 6, 2024, the Company completed the acquisition of Amelia Holdings, Inc. ("Amelia") in a cash and stock transaction. Refer to Note 3 for additional information.

Going Concern

Since inception, the Company has generated recurring losses as well as negative operating cash flows and reported a net loss of $21.8 million and $92.1 million, respectively, for the three and nine months ended September 30, 2024. As of September 30, 2024, the Company had an accumulated deficit of $684.5 million. Management expects to continue to incur additional substantial losses in the foreseeable future. The Company has historically funded its operations primarily through equity or debt financings.

Total unrestricted cash and cash equivalents on hand as of September 30, 2024 was $135.6 million. 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 from the date these condensed consolidated financial statements are issued. The Company may seek funding through additional debt or equity financing arrangements to continue financing its operations. Refer to Note 18 for information regarding the Company's equity financing activity subsequent to September 30, 2024. The Company's condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business.

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NOTE 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The (a) condensed consolidated balance sheet as of December 31, 2023, which has been derived from audited financial statements as filed in the Company’s Form 10-K, which was originally filed with the Securities and Exchange Commission ("SEC") on March 1, 2024 and (b) the unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting. Any reference in these notes to applicable accounting guidance is meant to refer to the authoritative U.S. GAAP included in the Accounting Standards Codification (“ASC”), and Accounting Standards Update (“ASU”) issued by the Financial Accounting Standards Board (“FASB”). The unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with the audited annual consolidated financial statements and in the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair statement of its financial position as of September 30, 2024, and its results of operations for the three and nine months ended September 30, 2024, and 2023, and cash flows for the nine months ended September 30, 2024 and 2023 have been included. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results for the fiscal year ending December 31, 2024 or any future interim period.

Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.

Significant Accounting Policies

With the exception of the significant accounting policies related to the SYNQ3 Acquisition and Amelia Acquisition (each as defined in Note 3) which are disclosed below, there have been no material changes to our significant accounting policies disclosed in Note 2 - Basis of Presentation and Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Reclassification

Certain accounts in the prior year condensed consolidated financial statements were reclassified to conform with the current year presentation. The reclassification had an immaterial impact on our consolidated balance sheet and statements of operations and comprehensive loss in the prior year period.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the amounts reported and disclosures in the consolidated financial statements and accompanying notes. Such estimates include revenue recognition, allowance for credit losses, accrued liabilities, derivative and warrant liabilities, calculation of the incremental borrowing rate, financial instruments recorded at fair value on a recurring basis, the accounting for business combinations and allocating purchase price, valuation and estimating the useful life of identifiable intangible assets, probability of achievement of revenue estimates related to contingent earnout consideration and performance-based equity awards, valuation of deferred tax assets and uncertain tax positions and the fair value of common stock and other assumptions used to measure stock-based compensation expense. In connection with the measurement period for the acquisition of SYNQ3, management revised certain significant estimates during the nine months ended September 30, 2024, which include, but are not limited to, the recognition and measurement of assumed contingent liabilities and deferred and contingent holdback consideration. There was no measurement period adjustment for the previous acquisitions during the three months ended September 30, 2024. The Company bases its estimates on historical experience, the current economic environment, and on assumptions it believes are reasonable under the circumstances. The Company adjusts such estimates and assumptions when facts and circumstances dictate. Changes in those estimates resulting from changes in the economic environment will be reflected in the financial statements in future periods. Actual results could differ materially from those estimates.

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Segment Information

The Company has determined that the Chief Executive Officer is its chief operating decision maker. The Company’s Chief Executive Officer reviews discrete financial information on a consolidated basis for purposes of allocating resources and evaluating financial performance. Accordingly, the Company has determined that it operates as a single reportable segment.

Concentrations of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents, the balances of which frequently exceed federally insured limits. The Company regularly monitors its credit risk exposure and takes steps to mitigate the likelihood of these exposures resulting in actual loss.

As of September 30, 2024, there was no customer that exceeded 10% of the Company’s accounts receivable balance. As of December 31, 2023, accounts receivable balances due from Customer A, C, and D accounted for 40%, 32% and 15% of the Company’s accounts receivable balance, respectively.

As of September 30, 2024, unbilled receivables from Customer A, C and E accounted for 35%, 35% and 11% of the Company’s unbilled receivables balance, respectively. As of December 31, 2023, unbilled receivables from Customer A, B and C accounted for 59%, 16% and 11% of the Company’s unbilled receivables balance, respectively.

For the three months ended September 30, 2024, Customer A accounted for 12% of the revenue. For the nine months ended September 30, 2024, Customer A and C accounted for 19% and 16% of the revenue, respectively.

For the three months ended September 30, 2023, Customer A accounted for 72% of revenue. For the nine months ended September 30, 2023, Customer A and D accounted for 46% and 20% of revenue, respectively.

Business Combinations and Contingent Consideration

Business combinations are accounted for using the acquisition method. The Company allocates the fair value of the purchase price of an acquisition to the assets acquired and liabilities assumed, based on their estimated fair values as of the date of acquisition. The excess of the fair value of the purchase price over the fair values of these net tangible and intangible assets acquired is recorded as goodwill. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but the estimates and assumptions are inherently uncertain and subject to refinement. The estimates and assumptions used in valuing intangible assets include, but are not limited to, the amount and timing of projected future cash flows, discount rate used to determine the present value of these cash flows and asset lives. These estimates are inherently uncertain and, therefore, actual results may differ from the estimates made. As a result, during the measurement period of up to one year from the acquisition date, the Company may make adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the measurement period's conclusion or final determination of the fair value of the purchase price of an acquisition, whichever comes first, any subsequent adjustments are recorded to our condensed consolidated statements of operations in the period they are identified. Acquisition-related expenses are recognized separately from the business combination and expensed as incurred.

Certain business combinations include contingent consideration arrangements, which are generally based on achievement of future financial performance or future events. If it is determined the contingent consideration arrangement is not compensatory, the Company estimates fair value of contingent consideration payments as part of the initial purchase price and records the estimated fair value of contingent consideration as a liability in the condensed consolidated balance sheet. The Company reviews and assesses the estimated fair value of contingent consideration each reporting period, and the updated fair value could differ materially from the initial estimates. Adjustments to estimated fair value related to changes in fair value are reported as change in fair value of contingent acquisition liabilities in our condensed consolidated statements of operations.

Goodwill

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Goodwill represents the excess of the purchase price in a business combination over the fair value of net assets acquired. Goodwill is not amortized but tested annually for impairment or when indicators of impairment are present. The test for goodwill impairment involves a qualitative assessment of impairment indicators. If indicators are present, a quantitative test of impairment is performed. Goodwill impairment, if any, is determined by comparing the reporting unit’s fair value to its carrying value. An impairment loss is recognized in an amount equal to the excess of the reporting unit’s carrying value over its fair value, up to the amount of goodwill allocated to the reporting unit. The Company's policy is to review goodwill for impairment annually on October 1st unless a triggering event requires an analysis sooner. There was no goodwill impairment for the three and nine months ended September 30, 2024.

Intangible Assets with Definite Lives

The Company's intangible assets consist principally of developed technology, customer relationships, tradename, and conversation data. The Company assesses the appropriate method of amortization of the intangible assets that reflects the pattern in which the economic benefits of the intangible assets are consumed. The Company determined that a straight-line method of amortization was appropriate for its intangible assets. The remaining useful lives of long-lived assets are re-assessed periodically at the asset group level for any events and circumstances that may change the future cash flows expected to be generated from the long-lived asset or asset group.

Intangible assets with definite lives are tested for impairment whenever events or changes in circumstances indicate the carrying value of a specific asset or asset group may not be recoverable. We assess the recoverability of intangible assets with definite lives at the asset group level. Asset groups are determined based upon the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. For the purpose of the recoverability test, we compare the total undiscounted future cash flows from the use and disposition of the assets with its net carrying amount. When the carrying value of the asset group exceeds the undiscounted future cash flows, the asset group is deemed to be impaired. The amount of the impairment loss represents the excess of the asset or asset group’s carrying value over its estimated fair value, which is generally determined based upon the present value of estimated future pre-tax cash flows that a market participant would expect from use and disposition of the long-lived asset or asset group. There were no intangible asset impairments in any of the periods presented.

Recent Accounting Pronouncements — Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures," which expands disclosures about a public business entity's reportable segments and provides for more detailed information about a reportable segment's expenses. This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. Early adoption is permitted. Preliminarily, the Company will have increased disclosure requirements for its single reportable segment related to its significant segment expenses as well as additional information on its Chief Operating Decision Maker (“CODM”) and its use of reported measures. The Company will continue to evaluate this ASU to determine its impact on disclosures.

In December 2023, the Financial Accounting Standards Board issued Accounting Standards Update No. 2023-09, which requires more detailed income tax disclosures. The guidance requires entities to disclose disaggregated information about their effective tax rate reconciliation as well as expanded information on income taxes paid by jurisdiction. The disclosure requirements will be applied on a prospective basis, with the option to apply them retrospectively. The standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact that the updated standard will have on the financial statement disclosures.

NOTE 3. BUSINESS COMBINATIONS

SYNQ3 Acquisition

On January 3, 2024 (the "SYNQ3 Acquisition Date"), the Company acquired all of the issued and outstanding equity of SYNQ3, a provider of voice AI and other technology solutions to the restaurant industry, for total preliminary purchase consideration of $15.7 million (the “SYNQ3 Acquisition”). The Company’s acquisition of SYNQ3 is expected to expand

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its AI customer service solutions and create a Voice AI provider for restaurants. The acquisition is expected to significantly extend the Company's market reach and accelerate the deployment of generative AI capabilities to the industry.

The total preliminary purchase consideration includes $3.9 million in cash paid and 5,755,910 in shares of the Company’s Class A Common Stock. The Company has also withheld purchase consideration of $0.5 million in cash and 1,179,514 shares of the Company’s Class A Common Stock, subject to customary net working capital adjustments, to partially secure the indemnification obligations of SYNQ3's former stockholders under the merger agreement and agreed to pay up to $0.8 million in cash and 1,434,936 in shares of the Company’s Class A Common Stock to certain former stockholders of SYNQ3 based upon the achievement of specified future milestones. On the SYNQ3 Acquisition Date, the Company also issued 2,033,156 restricted shares of the Company’s Class A Common Stock subject to time and performance-based vesting conditions. The fair value of the preliminary purchase consideration was $15.7 million.

Holdback

The $0.5 million in cash and 1,179,514 shares of the Company's Class A Common Stock is being withheld for a period of 15 months (the "Holdback Amount"). The Company determined that there are two components to the Holdback Amount related to deferred consideration and contingent consideration, each comprised of cash and shares.

The deferred cash holdback consideration of $0.1 million and the deferred share holdback consideration of 361,145 shares of the Company's Class A Common Stock (collectively the "Deferred Consideration") were not recognized as of the SYNQ3 Acquisition Date as such amounts were offset by the indemnification obligations of SYNQ3's former stockholders.

The contingent cash and share holdback consideration to be issued is variable ("Contingent Holdback Consideration"). Final amounts to be issued will be reduced based upon future actions and settlements with third parties to resolve assumed contingent sales tax liabilities and certain other assumed contingent liabilities of SYNQ3 in connection with the SYNQ3 Acquisition. The Company accounted for the Contingent Holdback Consideration as a liability on the condensed consolidated balance sheet. As of the SYNQ3 Acquisition Date, the Contingent Holdback Consideration was estimated to be $0.4 million in aggregate and to be settled in $0.1 million cash and the remainder in shares of the Company’s Class A Common Stock. During the three months ended September 30, 2024, the Company issued 38,277 shares of the Company’s Class A Common Stock and paid an immaterial amount in cash from the Contingent Holdback Consideration to SYNQ3's former stockholders as a result of the net working capital adjustments settled during the quarter. The Contingent Holdback Consideration will be subsequently remeasured at each reporting date with changes in fair value recognized as a component of operating expense on the Company’s condensed consolidated statement of operations and comprehensive loss. See Note 17 to our unaudited condensed consolidated financial statements included within this report for more information on the fair value measurement of shares associated with the holdback.

Contingent SYNQ3 Earnout Consideration

The Company also agreed to pay in aggregate up to $0.8 million in cash and 1,434,936 in shares of Class A Common Stock to certain stockholders of SYNQ3 based on tiered annual revenue targets for each fiscal year 2024, 2025 and 2026 (the “Contingent SYNQ3 Earnout Consideration”). The Company accounted for the Contingent SYNQ3 Earnout Consideration as a liability within contingent acquisition liabilities on the Company's condensed consolidated balance sheets and will subsequently remeasure the liability at each reporting date with changes in fair value recognized as a component of operating expense in the Company’s condensed consolidated statement of operations and comprehensive loss. As of the SYNQ3 Acquisition Date, the Contingent SYNQ3 Earnout Consideration was estimated to be $1.7 million in aggregate and to be settled in $0.2 million cash and the remainder in shares of the Company’s Class A Common Stock. See Note 17 to our unaudited condensed consolidated financial statements included within this report for more information on the fair value measurement of Contingent SYNQ3 Earnout Consideration.

Restricted stock awards

The 2,033,156 restricted shares of the Company's Class A Common Stock issued at the SYNQ3 Acquisition Date to certain continuing employees of SYNQ3 subject to time and performance-based vesting conditions was determined to be a separate transaction from the SYNQ3 Acquisition and therefore is excluded from purchase consideration. See Note 13 to

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our unaudited condensed consolidated financial statements included within this report for more information on stock-based awards issued in connection with the SYNQ3 Acquisition.

Preliminary purchase price allocation

The preliminary purchase price allocation was performed as of January 3, 2024 and allocated to the assets acquired and liabilities assumed based on their respective fair values, as follows (in thousands):


	Preliminary: January 3, 2024
Cash paid	$	3,910
Equity consideration	9,687
Contingent earnout consideration	1,676
Contingent holdback consideration	427
Purchase price	15,700

Assets acquired:
Cash	221
Accounts receivable	1,500
Prepaid expenses	72
Intangible assets	12,705
Total identified assets acquired	14,498

Liabilities assumed:
Accounts payable	440
Accrued liabilities	3,609
Other non-current liabilities	750
Deferred tax liability	38
Total liabilities assumed	4,837

Fair value of identifiable net assets acquired	$	9,661
Goodwill acquired on acquisition	$	6,039

Goodwill recognized includes synergies expected to be achieved from the operations of the combined company and intangible assets that do not qualify for separate recognition. Expected synergies include both increased revenue opportunities and the cost savings from the planned integration of platform infrastructure, facilities, personnel, and systems. The transaction is considered a non-taxable business combination, and goodwill is not deductible for tax purposes.

During the nine months ended September 30, 2024, the Company recorded measurement period adjustments to decrease the deferred revenue by $0.1 million as the revenue recognition criteria had been met at the acquisition date, to increase the accrued liabilities by $1.9 million resulting from a pre-acquisition legal contingency, and to decrease the deferred tax liability assumed by $0.2 million. Refer to Note 7 to these condensed consolidated financial statements for more information on the loss contingencies. These measurement period adjustments resulted in a decrease of $0.1 million in deferred cash consideration, $0.6 million in deferred equity consideration, and $0.6 million in contingent holdback consideration in accordance with the merger agreement. As a result of the adjusted acquisition-date fair value of assets acquired and liabilities assumed, the Company recorded an increase of $0.3 million to the goodwill recognized. The measurement period adjustments were recorded in the consolidated financial statements as of and for the nine months ended September 30, 2024 and were made to reflect facts and circumstances that existed as of the SYNQ3 Acquisition Date. There was no measurement period adjustment recorded during the three months ended September 30, 2024.

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The preliminary purchase price allocation has not been finalized as of September 30, 2024 primarily due to the final assessment of the fair values of the intangible assets, contingent sales tax liability assumed, and fair value of the contingent earnout consideration. The fair value estimates of assets acquired and liabilities assumed is pending the completion of various items, including obtaining further information regarding the identification and valuation of all assets acquired and liabilities assumed, such as the contingent liabilities accrued for a pre-acquisition legal contingency. See Note 7 to our unaudited condensed consolidated financial statements included within this report for more information. Any adjustments to the estimates of purchase price allocation will be made in the periods in which the adjustments are determined, and the cumulative effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition date. The Company expects to finalize the purchase price allocation within 12 months from the SYNQ3 Acquisition Date.

The following table summarizes the preliminary fair values of the identifiable intangible assets acquired (in thousands):


	Useful life	Preliminary fair value
Intangible Assets:	(in years)	January 3, 2024
Developed technology	3.0	$	5,210
Customer relationships	4.0	4,800
Tradename	2.0	1,410
Conversation data	2.5	1,285
		$	12,705

The Company incurred $1.9 million in acquisition related expenses, of which zero and $0.8 million were incurred during the three and nine months ended September 30, 2024, respectively, and recorded as general and administration expenses in its condensed consolidated statements of operations and comprehensive loss.

Amelia Acquisition

On August 6, 2024 (the “Amelia Acquisition Date”), the Company acquired all of the issued and outstanding equity of Amelia Holdings, Inc. (the “Amelia Acquisition”), a privately-held conversational AI software company involved in the development and delivery of AI and automation solutions and related services to improve customer experience and optimize business outcomes. The Company’s acquisition of Amelia is expected to strengthen SoundHound’s position in voice and conversational AI and allow the Company to enter new industries such as healthcare, insurance, financial services, and retail, expanding its market reach.

The total preliminary purchase consideration includes 3,809,520 shares of the Company's Class A Common Stock issued to the selling shareholders. The Company also issued and deposited 2,149,530 shares of Class A Common Stock otherwise owed to the selling shareholders into an escrow account in order to partially secure the indemnification obligations of the selling shareholders to the Company under the purchase agreement (the “Escrow Consideration”). The fair value of equity issued as part of the consideration paid was determined on the basis of the closing market price of the Company’s shares on the Amelia Acquisition Date, which also incorporated a discount for lack of marketability rates caused by the trading restrictions due to the fact that the shares were not registered at issuance. for a six-month holding period. The Company also paid $8.4 million of cash for seller transaction expenses in connection with the closing of the Amelia Acquisition. The Company agreed to issue up to 16,822,429 shares to the selling shareholders based on achievement of certain revenue targets in fiscal years 2025 and 2026 (the "Amelia Contingent Earnout Consideration). The fair value of the preliminary purchase consideration was $103.9 million.

In connection with the Amelia Acquisition, the Company assumed the amended senior secured term loan facility from Amelia in an aggregate principal amount of $121.5 million (“Amelia Debt”). See Note 9 to our unaudited condensed consolidated financial statements included within this report for more information on the Amelia Debt.

Escrow Consideration

The Company accounted for the Escrow Consideration as equity-classified shares issued as part of the consideration transferred. The Company recorded an indemnification asset of $1.4 million under other non-current assets related to

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assumed sales tax and litigation contingent liabilities that existed prior to the Amelia Acquisition Date and are covered by the Company’s indemnification rights provided by the sellers. Upon the settlement of any valid indemnification claims against the selling shareholders, the escrow agent will return a number of shares to the Company equal to the dollar value of the indemnified loss divided by the reference price of $5.35 as stipulated in the purchase agreement. The Company concluded that this variability in settlement value is a derivative that is requirement to be remeasured to fair value due to changes in stock price. This derivative did not have a material impact to the financial statements for the three and nine months ended September 30, 2024. Upon the expiration of the escrow period, any remaining shares within the escrow account will be released to the selling shareholders.

Contingent Amelia Earnout Consideration

The Company also agreed to pay up to 16,822,429 in shares of Class A Common Stock to the selling shareholders based on achievement of certain annual revenue targets in fiscal years 2025 and 2026. The Company accounted for the Contingent Amelia Earnout Consideration as a liability within contingent acquisition liabilities on the Company's condensed consolidated balance sheets and will subsequently remeasure the liability at each reporting date with changes in fair value recognized as a component of operating expense in the Company’s condensed consolidated statement of operations and comprehensive loss. As of the Amelia Acquisition Date, the Contingent Amelia Earnout Consideration had an estimated fair value of $71.6 million. For the three and nine months ended September 30, 2024, the Company recognized a $0.5 million loss related to the Contingent Amelia Earnout Consideration, reflected in the change in fair value of contingent acquisition liabilities in the condensed consolidated statement of operations and comprehensive loss. See Note 17 to our unaudited condensed consolidated financial statements included within this report for more information on the fair value measurement of Contingent Amelia Earnout Consideration.

Preliminary purchase price allocation

The preliminary purchase price allocation was performed as of August 6, 2024 and allocated to the assets acquired and liabilities assumed based on their respective fair values, as follows (in thousands):

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	Preliminary: August 6, 2024
Cash paid	$	8,407
Equity consideration	15,291
Equity consideration in escrow	8,628
Contingent earnout consideration	71,560
Purchase price	103,886

Assets acquired:
Cash and cash equivalents	1,128
Accounts receivable	8,239
Other current assets	1,822
Contract asset - current	4,090
Property and equipment	348
Right-of-use assets	227
Other assets	1,741
Intangible assets	174,500
Total identified assets acquired	192,095

Liabilities assumed:
Accounts payable	14,839
Accrued liabilities	11,420
Income tax liabilities	582
Short-term debt	70,000
Operating lease liability, current	211
Financing lease liability, current	37
Other current liabilities	3,885
Deferred revenue	23,144
Deferred revenue, non-current	4,295
Long-term debt	51,511
Deferred tax liabilities	11,105
Operating lease liability, non-current	16
Other liabilities, non-current	34
Income tax liability, net of current portion	2,821
Total liabilities assumed	193,900

Fair value of identifiable net liabilities assumed	$	(1,805)
Goodwill acquired on acquisition	$	105,691

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The preliminary purchase price allocation has not been finalized as of September 30, 2024 primarily due to the final assessment of the fair values of the intangible assets, contingent tax liability assumed, and fair value of the contingent earnout consideration. The fair value estimates of assets acquired and liabilities assumed is pending the completion of various items, including obtaining further information regarding the identification and valuation of all assets acquired and liabilities assumed. Any adjustments to the estimates of purchase price allocation will be made in the periods in which the adjustments are determined, and the cumulative effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition date. The Company expects to finalize the purchase price allocation within 12 months from the Amelia Acquisition Date.

The following table summarizes the preliminary fair values of the identifiable intangible assets acquired (in thousands):


	Useful life	Preliminary fair value
Intangible Assets:	(in years)	at acquisition
Developed technology	7.0	$	98,900
Customer relationships	7.0	68,600
Trade names	5.0	7,000
		$	174,500

The Company incurred $4.8 million in acquisition related expenses, all of which was incurred during the three months ended September 30, 2024 and recorded as general and administration expenses in its condensed consolidated statements of operations and comprehensive loss.

Unaudited pro forma financial information

The financial results of SYNQ3 and Amelia are included in these unaudited condensed consolidated financial statements from the date of the acquisition. SYNQ3 contributed revenue of $2.8 million and $8.9 million, respectively, and net loss of $1.9 million and $5.2 million, respectively, to the Company for the three and nine months ended September 30, 2024. Amelia contributed revenue of $15.6 million and net loss of $0.4 million to the Company for the three and nine months ended September 30, 2024.

The following table includes unaudited pro forma financial information that presents combined results of the Company as if the business combinations were completed on January 1, 2023, the beginning of the comparable prior annual reporting period.


	Unaudited
	Three Months Ended		Nine Months Ended
	September 30, 2023		September 30, 2023
Revenue	$	39,717	$	109,879
Net loss attributable to SoundHound AI, Inc.	$	(38,337)	$	(121,922)


	Unaudited
	Three Months Ended		Nine Months Ended
	September 30, 2024		September 30, 2024
Revenue	$	33,766	$	104,154
Net loss attributable to SoundHound AI, Inc.	$	(31,943)	$	(123,192)

The unaudited pro forma financial information includes the combined historical operating results of the Company, SYNQ3 and Amelia prior to the acquisitions, with adjustments to give effect for the acquisitions and related events. Pro forma adjustments have been made to reflect the incremental intangible asset amortization to be incurred based on the fair values

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and useful lives of each identifiable intangible asset, incremental stock-based compensation related to inducement equity awards, incremental transaction costs related to the acquisitions, adjustments to interest expense related to previously outstanding debt held by the acquired entities, elimination of amortization expense related to previously recognized goodwill held by SYNQ3, and the related tax effects of pro forma adjustments for the period. These unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations. The unaudited pro forma results are based on the preliminary purchase price allocation and will be updated to reflect the final amounts as the allocation is finalized during the measurement period.

The Company did not have any material nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings.

Other Acquisition

On June 14, 2024, the Company completed an immaterial acquisition for total preliminary purchase consideration of $1.0 million. As part of the acquisition, the Company acquired net assets of $2.2 million, including intangible assets of $2.6 million, and recognized a preliminary gain on bargain purchase of $1.2 million within other income (expense), net in the condensed consolidated statements of operations and comprehensive loss during the nine months ended September 30, 2024, resulting from a favorable fair value of identifiable net assets acquired at the date of acquisition as compared with the Company’s purchase price. The Company was able to negotiate a bargain purchase price as a result of the recurring losses and pre-filing bankruptcy status of the selling entity.

The preliminary purchase price allocation has not been finalized as of September 30, 2024 primarily due to the final assessment of the fair values of the intangible assets. The fair value estimates of assets acquired and liabilities assumed is pending the completion of various items, including obtaining further information regarding the identification and valuation of all assets acquired and liabilities assumed. Any adjustments to the estimates of purchase price allocation will be made in the periods in which the adjustments are determined, and the cumulative effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition date. The Company expects to finalize the purchase price allocation within 12 months from the acquisition date.

The following table summarizes the preliminary fair values of the identifiable intangible assets acquired (in thousands):


	Useful life	Fair value
Intangible Assets:	(in years)	at acquisition
Developed technology	3.0	$	1,530
Customer relationships	3.0	960
Tradename	3.0	60
		$	2,550

The Company incurred $0.1 million in acquisition related expenses, of which zero and $0.1 million were incurred during the three and nine months ended September 30, 2024, respectively, and recorded as general and administration expenses in its condensed consolidated statements of operations and comprehensive loss.

The financial results of the acquired entity are included in these unaudited condensed consolidated financial statements from the date of the acquisition, and are immaterial. The Company has not separately presented unaudited pro forma results of operations reflecting the acquisition or revenue and operating losses of the acquired entity for the period from acquisition date to September 30, 2024 as the impacts were not material to the condensed consolidated financial statements.

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NOTE 4. REVENUE RECOGNITION

Revenue Recognition

The Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Revenues are generally recognized upon the transfer of control of promised products or services provided to customers, reflecting the amount of consideration the Company expects to receive for those products or services.

The Company’s arrangements with customers may contain multiple obligations. Individual services are accounted for separately if they are distinct — that is, if a customer can benefit from it on its own or with other resources that are readily available to the customer and if the service is separately identifiable from other items in the contract.

The Company derives its revenue primarily from the following performance obligations: (1) hosted services, (2) professional services, (3) monetization, and (4) licensing. Revenues are reported net of applicable sales and use taxes that are passed through to customers. The Company applies significant judgement in identifying and evaluating any terms and conditions in contracts which impact revenue recognition.

The Company has the following performance obligations in contracts with customers:

Hosted Services

Hosted services, along with non-distinct customization, integration, maintenance and support professional services, allow customers to access the Houndify and Amelia Software Platform over the contract period without taking possession of the software.

The Company has determined that the hosted services arrangements are a single performance obligation comprised of a series of distinct services, since each day of providing access to hosted services is substantially the same and the customer simultaneously receives and consumes the benefits as access is provided. 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 may include up-front services to develop and/or customize the applications to each customer’s specification. Judgement is required to determine whether these professional services are distinct from the hosted services. In making this determination, factors such as the degree of integration, the customers’ ability to start using the software prior to customization, and the availability of these services from other independent vendors are considered.

In instances where the Company concluded that the up-front services are not distinct performance obligations, revenues for these activities are recognized over the period which the hosted services are provided and is included within hosted services revenue.

All revenues derived as a result of the SYNQ3 Acquisition, and substantial revenues derived as a result of the Amelia Acquisition are categorized as hosted services revenue.

Professional Services

Revenues from distinct professional services, such as non-integrated development services and Managed Services, are either recognized over time based upon the progress towards completion of the project or at a point in time at project completion. The Company assesses distinct professional services to determine whether the transfer of control is over-time or at a point in time. The Company considers three criteria in making their assessment including (1) the customer simultaneously receives and consumes the benefits; (2) the Company’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or (3) the Company’s performance does not create an asset with an

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alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. If none of the criteria are met, revenues are determined to be recognized at a point in time.

For distinct professional services determined to be recognized over-time, measuring the stage of completion of a project requires significant judgement and estimates and is based on either input or output measure. During the three and nine months ended September 30, 2024, $2.8 million and $5.7 million, respectively, of professional service revenue was recognized over time. During the three and nine months ended September 30, 2024, there was immaterial professional service revenue recognized at a point in time when the performance obligation was fulfilled and control of the service was transferred to the customer. During the three and nine months ended September 30, 2023, $0.9 million and $5.9 million, respectively, of professional service revenue was recognized over time. During the three and nine months ended September 30, 2023, there was zero and $0.9 million, respectively, of professional service revenue recognized at a point in time when the performance obligation was fulfilled and control of the service was transferred to the customer.

Monetization

Monetization revenues are primarily derived from advertising payments associated with ad impressions placed on the SoundHound music identification application. The amount of revenue is based on actual monetization generated or usage, which represent a variable consideration with constrained estimates. Therefore, the Company recognizes the related revenues at a point in time when advertisements are placed, when commissions are paid or when the SoundHound application is downloaded. The determination of whether revenue should be reported on a gross or net basis is based on an assessment of whether the Company is acting as a principal or an agent in the 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 and Amelia’s software solutions that are embedded in customer’s products or services. Licensing revenues are a distinct performance obligation that is recognized when control is transferred to the customer, which is at a point in time for non-customized solutions. For licenses with non-distinct customized solutions, revenues are recognized over time based on the progress towards completion of the customized solution. Revenues generated from licensing are on royalty arrangements with a per unit pricing or on fixed considerations. The Company records licensing revenue relating to usage-based royalty arrangements in the same period in which the underlying usage occurs. Licensing revenue on fixed considerations including fixed fee and minimum guarantee from royalty arrangements are recognized when the Company grants the customer the right to use and benefit from the license at the start of the licensing period. Licenses may include post-contract support, which is a distinct performance obligation and revenue from post-contract support is recognized ratably over the licensing period. Revenue from post-contract support was not significant for the periods presented.

When a contract has multiple performance obligations, the transaction price is allocated to each performance obligation based on its relative estimated standalone selling price (“SSP”). Judgments are required to determine the SSP for each distinct performance obligation. SSP is determined by maximizing observable inputs from pricing of standalone sales, when possible. Since prices vary from customer to customer based on customer relationship, volume discount and contract type, in instances where the SSP is not directly observable, the Company estimates SSP by considering the following factors:

•Costs of developing and supplying each performance obligation;

•Industry standards;

•Major product groupings; and

•Gross margin objectives and pricing practices, such as contractually stated prices, discounts offered, and applicable price lists.

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These factors may vary over time, depending upon the unique facts and circumstances related to each deliverable. If the facts and circumstances underlying the factors considered change or should future facts and circumstances lead the Company to consider additional factors, the Company’s best estimate of SSP may also change. When such observable data is not available because there is a limited number of transactions or prices are highly variable, the Company will estimate the standalone selling price using the residual approach.

The Company’s long-term contracts generally do not have significant financing components, as there is normally payment and performance in each year of the contract. The Company has elected the practical expedient to not adjust promised amounts of consideration for the effects of a significant financing component if the Company expects, at contract inception, that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. If there is a period of one year or longer between the transfer of promised services and payment, it is generally for reasons other than financing, thus, the Company does not adjust the transaction price for financing components. In the limited cases where a significant financing component is present, the Company adjusts the promised consideration for the effects of a significant financing component and to recognize revenue to approximate an amount that reflects the cash selling price that a customer would have paid for the promised goods or services.

For the three and nine months ended September 30, 2024 and 2023, revenue under each performance obligation was as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024	2023
Hosted services	$	17,546	$	4,262	$