SoundHound AI, Inc. — FY 2022 Form 10-K
Reporting period: Year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. Amounts are in U.S. dollars.
Business context
SoundHound develops and licenses an independent conversational Voice AI platform, primarily for automotive and connected-device customers, with additional subscription services and advertising revenue from its music-identification app. The April 2022 SPAC transaction was accounted for as a reverse recapitalization; SoundHound was the accounting acquirer. Management reported Houndify query growth of more than 85% in 2022.
Key financial metrics
| Metric | FY 2022 | FY 2021 | Change |
|---|---|---|---|
| Revenue | $31.1 million | $21.2 million | +47% |
| Gross margin | 69% | 69% | Flat |
| Operating expenses | $136.5 million | $86.5 million | +58% |
| Operating loss | $(105.4) million | $(65.3) million | Loss widened |
| Net loss | $(115.4) million | $(79.5) million | Loss widened |
| Net loss per share, basic and diluted | $(0.73) | $(1.18) | |
| Cash used in operating activities | $(94.0) million | $(66.2) million | Use increased |
| Cash and cash equivalents at year-end | $9.2 million | $21.6 million | |
| Notes payable at year-end | About $35.0 million | About $30.0 million |
Product royalties were $28.4 million, service subscriptions $1.8 million, and monetization $0.8 million. Three customers represented 67% of 2022 revenue; two customers represented 75% of year-end accounts receivable. Revenue from customers outside the United States was approximately 89%.
Current assets were $17.7 million versus current liabilities of $37.5 million. The company reported a $502.1 million accumulated deficit. It received $90.7 million of net proceeds from the Business Combination during 2022.
Material changes and unusual items
- Revenue growth was driven in part by $7.6 million of Houndify Edge licensing revenue tied to minimum-guarantee units over the contract’s life; this increased contract assets. Total licensing revenue was $8.3 million in 2022, versus none in 2021.
- Product royalties grew 55%, while monetization revenue fell 35%, primarily due to lower advertising impressions in the music app. Service subscriptions increased 19%.
- Sales and marketing expense rose 380% to $20.4 million, research and development expense rose 29% to $76.4 million, and general and administrative expense rose 83% to $30.2 million. Higher staffing, stock-based compensation, growth investment, and public-company costs contributed. Stock-based compensation totaled $28.8 million, compared with $6.3 million in 2021.
- Operating cash use increased by $27.8 million year over year, including an $8.7 million increase in contract assets. Financing cash flow included the Business Combination proceeds and $11.5 million of note repayments.
- Gross margin remained 69%; management said near-term margins may vary with product mix.
Outlook, liquidity, and risks
Management gave no quantified revenue or earnings guidance. It expects to continue investing in product development and customer growth, while anticipating operating expenses to moderate following restructuring. Management said the company expects to fund operations for at least the next 12 months using year-end cash, subsequent financing, ELOC proceeds, possible additional financing, expense reductions, or a combination of these. It cautioned that sufficient funding on acceptable terms is not assured; the financial statements are prepared on a going-concern basis.
- On January 5, 2023, the company announced a restructuring that reduced its then-current workforce by approximately 40%. Estimated charges are $4.5–$5.5 million, mostly expected in Q1 2023, including $2.0–$3.0 million in cash expenditures. The company planned to focus more on SoundHound for Restaurants and reduce investment in certain new verticals and completed language-development work.
- In January 2023, it issued $25.0 million of Series A convertible preferred stock. Under its equity line, it had sold about 8.8 million shares for approximately $24.9 million through March 17, 2023; the company receives 97% of the applicable volume-weighted average price. These financings provide liquidity but involve potential dilution.
- The company committed to at least $98.0 million in cloud costs over seven years, subject to usage-based increases. Disclosed non-cancelable future minimum payments totaled $96.0 million at year-end.
- Key risks include recurring losses and cash burn, reliance on major customers and automotive demand, long customer implementation cycles, competition from larger technology companies, financing and dilution risk, cybersecurity and privacy exposure, international and foreign-exchange risks, and execution risks following restructuring. The filing also describes inflation and geopolitical uncertainty.
- Management reported disclosure controls and internal control over financial reporting were effective at December 31, 2022. The independent auditor issued an unqualified opinion on the financial statements but did not provide an opinion on internal control effectiveness.
Most important facts for investors to verify
- Whether recurring revenue growth can continue apart from the Houndify Edge minimum-guarantee licensing item, and whether contract assets convert to cash as expected.
- Whether the 2023 financing and cost reductions sufficiently extend liquidity, given $94.0 million of 2022 operating cash use and the company’s stated uncertainty about obtaining future funding.
- Whether the restructuring achieves its intended cost, margin, and cash-flow improvements without impairing product delivery, customer retention, or hiring of critical staff.
- How customer concentration, accounts-receivable exposure, and the $98.0 million cloud commitment affect future revenue quality, cash needs, and gross margins.
- The dilution and governance implications of subsequent equity financing, outstanding equity awards, and the dual-class structure, under which Class B shares carry ten votes each.