Q3 2022 SoundHound AI Inc Earnings Call

November 10, 2022

Good day and thank you for standing by welcome to the sound Hound AI third quarter earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the session you will need to.

Press Star one one on your telephone please.

Please be advised that today's conference is being recorded.

Now I'd like to hand, the conference over to your Speaker today, Scott Smith head of Investor Relations. Please go ahead.

Great. Thank you Gigi.

Hi, everyone. Good afternoon, and thank you for joining our third quarter 2022 conference call.

With me today is our CEO .

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And our CFO and to test Sharon.

Ill begin with some short remarks before moving to Q&A.

We'd also like to remind everyone that we'll be making forward looking statements on this call.

Actual results could differ materially from those suggested.

Our forward looking statements.

Please refer to our filings with the SEC.

Detailed discussion of the risks and uncertainties that could affect our business and noticed that qualify as forward looking statements.

In addition, we may discuss certain non-GAAP measures.

Please refer to today's press release for further details on the definitions limitations and uses of those measures and reconciliations from GAAP to non-GAAP .

Also note that the forward looking statements on this call are based on information available to us.

As of today's date.

We disclaim any obligation to update any forward looking statements, except as required by law.

Finally, this call is being audio webcast in its entirety on our Investor Relations website.

An audio replay will be available shortly following today's call.

With that I'd like to turn the call over to our CEO Kayvon Mahatir. Please go ahead Kevin.

Thank you Scott and thank you to everyone for joining the call today.

We have achieved a lot this year and today I am extremely excited to report a record quarter across all key metrics.

The demand we're seeing for our innovative AI powered product and solutions is strong and it's only getting stronger as we execute on more opportunities and with more customers.

Even with a softening macroeconomic environment the demand for <unk> solutions continues to grow and our value proposition clearly resonates with businesses.

Our cumulative bookings backlog surpassed the $300 million March resulting in over $200 million in the past 12 months alone.

This key metric for our business has grown at an accelerated pace Act.

239% year over year growth that you reported this quarter is the fourth straight quarter of triple digit growth as we continue to increase market share across key segments.

In Q3 revenue accelerated by two eight times year over year to $11 2 million.

In fact for the first nine months.

Have already exceeded our full year revenue in 2021.

This momentum demonstrates our strong partnerships and the market share we are taking.

Cloud queries, a key measure for customer adoption of our conversational AI platform reached an annual run rate of over $2 billion are currently about 180 million inquiries per month.

Importantly, this growth is driven by increased usage from existing customers and new devices and users alike, reinforcing that our solutions deliver a very attractive value proposition for our customers.

Clearly on the right path to leveraging the opportunities in front of us.

In addition, we continue to aggressively expand our product suite to enable customers deeper access to our voice products and solutions. For example, this quarter, we introduced our full suite of edge and cloud connectivity solutions, along with a new groundbreaking intelligent transcription offering.

These products expand our market reach putting a wider array of customers strengthen their brand derived deeper insights in their own customer conversations and control their most important dataset.

Now let me update you on our product we launched last quarter to show you. How rapidly we are innovating our voice AI solutions, San handful restaurants is experiencing amazing demand and there is a reason for it let me play a short video demand short audio demand highlighting some of the unique strengths of these voice AI technology.

Thank you your classic cheeseburger, the American cheese, but no Mayo and add avocado and the Friday.

Great I've added a classic cheeseburger with American cheese, avocado, and Friday, but without May owe to your order would you like anything else.

Actually can you make that cheddar cheese removed the avocado, but add extra tomatoes.

No problem I've replaced the American tease with Cheddar cheese I've removed the avocado from your order I've added extra tomato to your classic Cheeseburger would you like anything else yes.

Yes, they can order, a French fries and Q orders about hindrance.

Absolutely I've added French fries, and onion rings here order would you like anything else.

I'm, sorry can you remove an order by the hearings and add an order of French fries.

Great I've removed the onion rings from your order I've added French fries tier order can I get you anything else.

Like a dozen cupcakes <unk> chocolate vanilla and three strawberry.

Great I've added six chocolate cupcakes, three vanilla cupcakes and three Strawberry cupcakes here order what else can I get you.

That'll be all thank you.

As you can see our technology can handle the complexity that is unmatched by the incumbent legacy players and the Big Tech our ambition is to make conversational AI, even better than humans in natural language understanding and also ask human life as possible in the right response and attracts.

I am also excited to share with you that on November 17, Panhandle unveiled a breakthrough innovation in artificial intelligence to unlock the next generation of human computer interaction. We expect these category level breakthrough was raised the bar procurement competing direction by not only recognizing understanding speech, but also responding and acting in real time.

We believe just like how Apple's multi touch technology leapfrog touch interface instead of down nine our announcement next week will be a new destruction in human computer interfaces with this new technology, we see the potential to unlock many new applications for conversational AI that were previously less compelling we expect these to increase adoption.

Our innovative AI powered product and solutions, resulting in a significant increase to our Tam we.

We encourage you to look out for our exciting announcement on November 17th.

In a world that is swiftly moving towards widespread voice enablement. It is unavoidable cap the current status quo and familiar shortly stop incumbent players needs to be re examined for Toulon innovation around voice AI has been static. We believed we have taken voice AI technology to the next level. So that users can interact naturally, especially when it comes to more comp.

Next quarter.

Over the past two decades, we have seen many technology vendors trying to create technologies invoice AI, but often more often than not they have not succeeded the reason for that is natural language understanding is an especially challenging form of artificial intelligence. It is complex. It takes a long time to perfect and requires a full technology stack to deliver value.

This creates a very high barrier to entry, which is why there are so few company delivering at Max Sports AI technologies today.

You'd be our proprietary speech tuning deepening understanding and collective AI breakthroughs that we built from the ground up our technology bridges, two major industry gap's legacy in flexible expensive competitors with technology is outdated and big Tech solutions, whose voice assistance of a REIT accompanies most valuable asset that brand and customer data.

Sure.

In addition to our disruptive technology, our disruptive business model is also a contribution to widely.

We generate revenues from three pillars of royalties from both kind of a product subscription thrombosis labor services and monetization from bringing those services two products. For example, so you drive or opt to use the convenience of in vehicle downtown technology to connect with the somehow enabled restaurants, who order a pizza for pickup underway.

When that happens we would make revenue from the transaction the pizza restaurant will benefit from a new customer being channel and the direction and the automaker also takes a share of that revenue.

While other providers that generate licensing revenue from products are under constant pressure to lower their licensing fees and face the risk of declining revenue. Our three pillar model increases revenue per user while increasing adoption. This is due to the revenue share Africa, hormonal, which incentivize this product creators who are able to use our voice technology to create new.

Commerce opportunities and facilitate transactions.

We aim to power billions of devices and services townhouse technology is already voiced enabling millions of cars Tvs mobile apps and Iot devices on a global scale. Thanks to our expansive set of languages and international presence.

We have had great success with the types of partners, we have announced so far and we continue to deliver voice AI technology to some of the most well known brand in the automotive space and grow our relationship with Iot and device manufacturers.

Here are a few highlights with Honda Qian Genesis, we saw significant international market expansion of our existing multi year volume commitments. As a result, we had a strong revenue contribution as we expanded joint delivery in various brands and delivered on aggregate milestones.

Building upon our existing 17 automotive brands, we also announced an expanded relationship with Atlantic in Europe . In addition, we announced our first vendor in solution already in production with Dongfeng Peugeot Citroen automobiles in China.

This indicates a strong relationship in China, which is rare in the technology industry for a non Chinese company.

And this quarter, we announced integrations with LG and Harman as we continue to expand relationships with automotive technology platforms around the world.

With Qualcomm and announcement announced in January of this year, we continue our joint efforts with Snapdragon paving the way with our advanced voice, our technology for new use cases, and innovative experiences to show our strong relationship I will be presenting at several keynote session at the Qualcomm Snapdragon Summit later this month.

It is also important to note that we are very global customers shipping in 25 languages and continues to grow internationally as we scale as an example in addition to our existing global footprint in automotive we are working with some major global brands, including in the Iot hospitality and consumer segments and this continues to grow.

It takes years to build the foundation for such strong relationships and why you're excited about what we have built and the new opportunities you realize this quarter. It is nice to see that this success is also being recognized by our industry. In Q3 speech Technology magazine awarded compound at 222 speech industry award towards driving ambition.

In speech, recognizing Samsung is going to be a top provider of in car voice systems. It is an honor to receive such recognition.

Turning to sound harmful restaurants, our voice AI assistant that allows restaurants to automate the ordering process at drive throughs drive and ordering kiosks and over the phone at.

This technology helps restaurants, automate and innovate their order taking at a time when many are tackling rising food cost staffing shortages of supply chain issues and other headwinds.

For restaurant, resulting businesses, taking more harder and maximize sales because our voice AI technology can help restaurants simultaneously gross sale going to save costs can have a restaurant has been an instant success.

And because of the extremely fast Onboarding, where do we see customers live in a matter of updates I'm pleased to report that our technology is being implemented at a rapid rate our pipeline is easily in the tens of thousands of restaurants and it will only grow since there is over 1 million establishment in the United States alone.

In addition to selling directly to restaurants, we are rapidly building out our ecosystem with point of sale systems providers last quarter, we announced our integration with square and since then we have added integration with Oracle and toast. These integrations allow townhomes for restaurants with seamlessly.

Integrating restaurants to automate voice ordering technology significantly expand.

Expanding our reach to millions of restaurant establishment globally.

We have also been working with Mastercard to jointly develop voice enabled solutions to deliver low touch high engagement experiences for quick service restaurants, while most other attempted solutions use a hybrid of humans and automation to tackle the complex challenges of food ordering our fully automated at mass AI technology is on track to surpass our level of order.

Success on par with units.

Because of these achievements we are taking this partnership into a commercially locked deployment base editing, enabling us to expand in more locations and brands. Our pipeline is expanding both here in the U S and internationally and this is only the beginning as Mastercard trusted partner in retail initiatives, we look forward to expanding into other relatively untapped market to.

River timely innovation for many retail brands around the world.

We found him for restaurants, we are confident these present a significant market opportunity that we believe we are perfectly positioned to address voice enabled food ordering is particularly challenging requiring specialized speech recognition and complex natural language understanding which match perfectly with our key differentiators.

Next year, we expect this opportunity to begin to make a meaningful impact on both bookings and revenue as we are already seeing shorter sales cycles and faster deployment rates.

And over the long term the potential impact is significant.

In closing since launching <unk> initial voice AI platform in 2016, you have a radically defaulted globalized. It reached with 25 languages and began to scale into major enterprises across similar industries large brands, such as Honda Kia Genesis Mercedes Benz Atlantis Dodge Chrysler Vizio.

<unk> and Pandora have helped to build our foundation and while we continue to expand on those foundational relationships you are making meaningful progress in expanding our addressable market and demonstrated as demonstrated with our new stand up a restaurant solution.

Like Amazon starting with books. This is the first of many steps first townhome to enter the enormous voice commerce industry. We are confident in our ability to both create and leverage a huge global addressable market.

Our ability to simultaneously focus and be agile has always been one of our strengths and has enabled us to strategically innovate and bring the right technology to the market at the right time as we look forward, we will remain agile and focus for that reason yesterday, we announced our 500 that you are taking actions to streamline our company.

Including an approximate 10% reduction in workforce, we never take these actions lightly, but we know that success comes from leaning into challenges and the ability to navigate and appropriately respond to the environment around us are genuinely want to tack those departing teammates for all they have done and contributed to for the past five seven.

Yes.

We are in a unique position to maintain our leadership in core voice enabled AI technology with our track record to solve extremely difficult problems with our breakthrough inventions.

Farming right on plan and delivering strong results and while the macroeconomic conditions have proved challenging we are pleased to confidently reaffirm our 2022 revenue targets once again.

Even in tough times, we have not wavered with that I will now turn the call over to an attached to talk about our financial performance for the fourth.

Thank you, Kevin and Hello, everyone.

Q3 was a milestone quarter, we reported record revenue delivered strong gross margin expansion and saw EPS improvement both year over year and sequentially.

With Q3's triple digit bookings growth and strong customer engagement, we are building and executing on the foundation that will fuel our continued expansion.

We closed the quarter with a strong cumulative bookings backlog of $302 million representing.

Representing a year over year growth of 239%.

The contracts underlying our bookings backlog range from one year to more than seven years with a roughly five year weighted average contract length.

Our long term relationships highlight the confidence and commitment our customers have working with us to build the future together.

Yes.

These bookings form a critical foundation for our ongoing top line result, as a quick reminder, we break out our revenue into three distinct pillars.

Pillar, one is where we voice enabled products like cars Tvs and Iot devices, and we book product royalty revenue.

Pillar two is where we've always enabled services like food ordering appointment customer service and we book recurring subscription revenue and.

And in pillar three we create monetization revenue when we connect those voice enabled products in pillar one with a voice enabled services in pillar two.

Much of the example, kayvon shared earlier.

This natural and seamless bridge between voice enabled products and services unlocks value value for all parties involved the end user the restaurant and the product creator.

With whom we share part of the transaction.

These three revenue pillars created positive network platform effect that compounds, expanding our addressable market and increasing customer adoption.

The strategic business model elevates voice AI from a cost component to a new incremental revenue generating pathway for product creators, which is an extremely attractive proposition to our customers.

And accordingly unit economics become increasingly more attractive as this ecosystem scale and expand and we are building this ecosystem with in a massive addressable market.

In Q3, we generated $11 2 million in revenue up 178% year over year.

Revenues were predominantly driven by product royalties, where we continued to scale unit and also saw expanding average price per unit.

This quarter, our product royalty revenue increased significantly thanks to overall customer momentum and including a large edge deal with an automotive partner, whereby we received a multi year minimum guarantee commitment.

This partnership has been steadily expanding and we continue to displace the incumbent provider.

A long term commitment and demonstrates the strong partnerships, we are developing and the continued share gains we are experiencing.

We also saw strong growth in pillar, two up 83% year over year, where we've begun to realize the traction we're seeing with restaurants and voice enabled food ordering.

Theres so much potential in the service sector and we are aggressively pursuing it to meet the strong customer demand and amazing product market fit that cave I mentioned earlier.

While the mix of revenue between royalties and subscriptions will not be linear from quarter to quarter. We expect that over time revenue will become more predictable as we expand more into pillar to subscription and pillar three monetization.

We see subscriptions and monetization is more of a recurring revenue stream that will eventually be measured metrics, such as <unk> and ARPA.

Our gross margin improved to 77% up from 59% in the prior year.

This was largely driven by the mix of higher margin edge solutions and the previously mentioned automotive deal.

It is important to note that this dynamic will not always be the case since different quarters may have different product mixes. Nevertheless, we continue to expect full year gross margin to be over 70%, which we believe is strong and appropriate for a thriving and expanding core software business.

Cost of revenue for the quarter was $2 6 million up 56% from the prior year.

The majority of our cost of revenue is associated with data center costs supporting our customers, which continue to be impacted by a market migration across cloud vendors.

We continue to expect to complete the migration by the end of this year.

Our operating expenses have historically been heavily weighted towards R&D as we built our voice AI platform and deep portfolio of over 260 patents.

We ramped up our sales and marketing investments this year to accelerate growth, while solidifying our G&A functions as a newly public company.

Across our operating expenses noncash employee stock compensation was $9 2 million in Q3 up sequentially and year over year due to increased head count and other adjustments associated with becoming a public entity.

In Q3, R&D was $19 4 million up 35% year over year.

We will continue to invest in R&D to ensure we remain at the forefront of innovation in AI and machine learning, while also helping to develop and scale new products and services.

Some of the key product innovations Kayvon noted earlier were a result of this and prior R&D investments.

Sales and marketing expenses were $6 7 million of 468% year over year coming off a small base in the prior year period.

This has been a focus of investment to fuel lead generation, new customer acquisition expansions into new verticals and ultimately our ability to continue to disrupt and capture market share.

The traction we are seeing in pillar two in particular is benefiting from the spend.

General and administrative expenses were $9 6 million up 138% year over year. This includes a head count growth and non head count spend across our global functions to support the operational activity as needed as we scale as a public company.

We expect this trend to continue over the next few quarters, and then start to become a source of leverage on the P&L.

Please note that much of our stock compensation expense also sits in this opex line item.

Our operating loss was $27 million in Q3.

And adjusted EBITDA, which excludes the noncash charges of stock compensation, and depreciation and amortization and other non operating activities was a loss of $16 million.

Both improved sequentially.

Net loss per share in Q3 was <unk> 15, an improvement from 35 in the prior year period and versus last quarter.

As of September 30th our ending share count was approximately 197 million shares.

Our cash position at quarter end was $33 4 million.

We continue to leverage the proceeds we received from going public in April while continuing to infuse new capital.

For example in Q3, we added a new committed equity line of credit, which once available. We expect will provide ongoing access to incremental capital to help us continue to fuel growth.

In addition, we are currently in late stage discussions to provide additional more immediate cash to the balance sheet.

Okay.

Moving on to guidance.

Yes.

We are certainly mindful of the continued challenging market backdrop and are diligently calibrating our cost structure to ensure we don't overextend ourselves in these dynamic times.

As such we have taken actions to reduce our expenses with impacts to both our people and discretionary spend.

Those are never easy, but these actions will enable us to accelerate our path to profitability without materially impacting our ability to execute our business plan effectively.

We are not immune to the global macroeconomic pressures geopolitical dynamics or foreign exchange headwinds.

That said our solutions are in many ways counter cyclical because in times of inflationary pressures in labor challenges automation and AI are even more critical.

As such for the full year 2022, we reconfirm the midpoint of the revenue outlook. We provided previously and are tightening the range to $28 million to $32 million. This expectation has not changed since we first communicated well before the market conditions worsen throughout this year and we continue to feel confident in this outlook.

With respect to longer term expectations, we will share more specifics on 2023 at our next earnings call that said I wanted to provide some context that will hopefully convey the momentum we are building here.

<unk>.

The $302 million of cumulative bookings backlog that I noted earlier gives us high confidence on revenue that will either automatically roll into the P&L in accordance with software revenue recognition guidance are as a result of expected customer unit volumes upon which we generate royalty revenue streams.

As one reference point the backlog conversion to revenue alone gives us high confidence that without us doing much incremental work, we would still realize sustained year over year growth over the next several years.

Of course, that's not enough for us we are working hard growing markets, adding customers and expanding with existing customers and have substantial pipeline to show for it for.

For example, the food phone ordering we have been discussing at length is effectively not even in our bookings yet so we see a material upside on top of that baseline.

And this new vertical has a better financial profile.

More predictable revenue streams, better scalability, leading to more favorable operating margins and faster cycle from initial initial customer contact to cash flow.

And most importantly customers are all over it.

Given these new product offerings deep pipeline and expansion. We continue to expect we are building the foundation for sustained strong growth over the next few years again more to come as we enter 2023, but we felt it was important to share our confidence and conviction in what we're building here.

We are delivering on near term commitments, while focusing on the long term potential in front of us.

I said this last quarter as well or.

Our progress will not always be linear, but our current momentum is unquestionable.

We are pleased with the progress to date and extremely excited about our path forward.

Thank you and we will now move to Q&A.

As a reminder to ask a question you will need to press star one one on your telephone please standby, while we compile the Q&A roster.

Our first question comes from the line of Mike Latimore from Northland Capital markets.

Yeah, Thanks, Hi, guys.

Great results there and.

Looking forward to November 17th announcement.

Alright. Thanks.

So maybe could you so you've had really strong bookings really strong results at the same time.

You mentioned that the macro backdrop.

I guess.

To the extent there is some more.

Macro effect here.

Does that affect kind of what youre seeing is it seems like youre seeing really good bookings really strong growth.

Some customers just being a little slower or like what's the potential effect if at all.

Sure I can.

Start here, Mike and then ill caveat certainly add.

Maybe I'll make some generic general comments.

And then.

And then try to Doubleclick in a couple of areas.

So first I mentioned in the prepared remarks that.

In a lot of ways, what we're finding is that our solution. Despite sort of the macroeconomic dynamics are very well situated.

If you take again the food ordering example that we talk about that we're seeing a lot of scalability.

One of the major dynamics is <unk>.

Labor shortages, the inflationary pressures on commodity cost of restaurants.

Just overall.

Cost of labor dynamics, and so when we go around and we try to give a demo Little example.

What the technology can do and as our sales team goes around and talks to restaurants. They are seeing so much.

Demand for this that we have just I.

I guess.

Way of saying backlog, but our big pipeline of folks who are trying to get onboard.

So we know that our solutions are very well suited automation and AI is very well suited for this market backdrop and frankly, we believe even despite the market turns here. We still think there is going to be sustained demand there.

So in that sense, it's actually there are some elements of it that are like I said countercyclical or tailwind so the demand for our solutions.

I would say more broadly I'd say macroeconomically the strengthening of the dollar given our international exposure certainly is a pressure point. So in another way I feel confident and we've been able to reconfirm reaffirm the the revenue outlook. Despite throughout the year, we've had actual pressure on the top line that we've had to overcompensate, which is underlying.

Core business growth.

And then maybe the last point I'll just cite.

I think.

That.

If I, if I kind of look at where we're going as a business and the scale that our bookings backlog represent the reason we kind of draw.

Focus to that is.

Sure.

We're disrupting we're changing the market, we're changing our humans interact with technology and and we feel great about the progress, we're making the customers and the enterprises were working with have sort of substantial footprints and while they may sort of recalibrate to address the market. So auto may maybe previously was supply chain.

Pressures that may be sort of recalibrating around high interest rate costs interest rates and impacts on cost, we're penetrating and disrupting so we can still realize more of those bookings into revenue. We can still penetrate more of the market and it's growth for us even if that macro 80 million global light vehicles produced per year kind of don't grow as fast.

Or again the restaurant business has some shifts from drive thru is to sit down to Florida, and we like our solutions can span a lot of those spaces. So I don't want to I don't want to drive by and say like everything Hunky Dory, we're definitely mindful and that's why we took the cost actions that are very difficult.

And we will continue to calibrate and just make sure that we're thoughtful about.

Where we're going but.

But I'd say again, we're feeling generally pretty good.

Yes, I would confirm that.

The pillar two business.

The demand goes up when the economy becomes more challenging so we actually if you're experiencing that wishes.

Very encouraging for us.

And even into the one.

If you look at.

Hum.

Announcements at some of our customers have made.

They are claiming that into next.

10 years, Australia, the long terms, they want to generate revenue from their cars and devices.

But with our solution they can actually accelerate that because thats. The three pillar model very free to services that enforcement of up to the product side, both nimble and creative monetization ecosystem, while delivering value to the end user so we.

Increased demand across.

And all of our customers.

But.

In an environment, where every company is taking.

Reduction in cost and being more mindful of because of the uncertain future Wi for us not to take that action.

We did.

In terms of number it was relatively small but.

Hello reduction important yesterday that was difficult for us to do but.

<unk> doing too many things.

We are very innovative we have lots of technologies that can apply to so many things.

But we have to be a little bit more disciplined.

We took action on August <unk>.

As a leader company comps first tier second myself last and it's very easy for me to put myself last frequently but deciding between company and team those moments are rare, but that was a moment that we have to be high then.

Thinking back to some of our plans.

Yes.

All right got it thanks.

Thanks for the context.

Hi.

On the voice ordering restaurant category you guys definitely are.

A lot more sort of excited about this opportunity I would say than at the start of the year.

Okay can you elaborate a little bit more on it.

Are the end users sort of local restaurants or are there some big chains Rolling this out and then.

It sounds like Youre getting a fair amount of subscription already but maybe I misread that maybe it's more coming next year. So I'm, just a little bit more detail on that would be great.

Okay.

Yes.

<unk>.

What's amazing about what we built is that it can go live intensity, especially when we integrated point of sale systems, because restaurants already have their menu.

In the context of with them.

And they also manage the orders in the fourth outlet southeast them. So when we integrate our solution with that when the restaurants to go live it could be like they could press the button eventually and go live and obviously be more mindful of how we rolled it out we have a huge pipeline up restaurants I'd want to go live and you're kind of doing it gradually.

Be mindful about the quality.

So on but.

We can go after enterprise.

Franchise, that's about one brand that might have thousands of locations.

We can also go after the mom and pop small businesses with one location as long as they are using a <unk>.

System. So we are actually going after.

Smaller.

The locations with through the <unk> Channel and then we are also have a huge pipeline of enterprise applications.

With lots of locations and Thats, where the phone ordering.

Drive throughs on kiosk.

We have announced our partnership with Mastercard on some of the brands.

Lot more of that coming so.

It's kind of a one solution that can apply to so many variations of implementation.

And Mike maybe I could add just a couple of things because you alluded to the fact that maybe we are.

Two and a little bit more than earlier in the year and I think thats.

I think as we've gone through the year and we've gone out.

Improved this solution got feet on the street talking to both the platform the cave on alluded to in the restaurants, there's so much demand and there is such a perfect market product market fit and particularly in this time.

And honestly that side part of the focus that came on day to the end of the last answer we know there is a ton of traction here and we see this ramping substantially and if you think of.

Just the economics part of it.

There is over 1 million food establishment in the U S alone.

The recurring type of pricing on this this is a well north of.

Per year.

The dollars of opportunity so as we penetrate just small market shares this is meaningful to the revenue opportunity in our scale that mean substantive growth.

So yes, we're focused on it we see it also from a business model perspective, very attractive because as you know in the sort of pillar one, particularly in the auto space, where those can be multi year sort of cycles from first contact to cash flow and that has accelerated by the way I'll give a lot of a lot of the autos are realizing that software is very important.

Our cockpit is very strategic and so they are accelerating that pace to 18 months, even a year in many cases. This pillar two is actually almost.

Instantaneous in some ways. It goes from like first conversation to a matter of weeks, where we've on boarded adjusted the menu and we can be live and that's accelerating today's in and frankly as you scale from one cuisine to the next or if it's a franchise that has the exact same menu again that can be instantaneous I'll also make one other.

Sort of a side note of what we're talking about here because when you look at the pillar one and you sort of say who are the who are the players and auto <unk> clearly as an incumbent.

The Big Techs are just trying to play in that space, there really isn't many players in the pillar two particularly food ordering you have the capabilities.

Aperture to go at it there are some other players, but they don't actually have the full core engine the technology to serve this and so therefore, we have massive advantages youll hear some others, who might put benchmarks of one metric that people watches order completion rates, if somebody goes and actually started talking to the AI like. The example, we gave did they actually get what they wanted to consummate a transaction.

Action and we see benchmarks that are in the 20%, 30% range out there and our solutions are targeting 70 plus percent, even higher and just to put a reference point humans themselves. They are not 100% I don't know youre experiencing split, earning but sometimes what the friction in the background.

We have data points in say humans themselves or $85, 90%. So we're just really trying to find alternatives and ultimately it's in service of the customers to try to get what they want when they want it in a in a in a.

Sort of enjoyable manner.

We're so excited about this opportunity.

Yes, yes, yes.

Im often missing a French fry era.

Chicken sandwich in the bag when I when I order stuff.

Last one.

Average length.

Backlog as it was five years can you give a little more detail what percent of the SMC.

Front end or back end of that.

What percentage of that is in the front end or backend. So okay. So got it yes.

Average life is about five years, there is a bit of a back end skewed to it.

Yeah, like we internally, we will use a metric probably won't difficult jaguar, but like a duration metric, which kind of does a weighting of it and so it does skew towards the back end of it north of three years and so it's not ratable. So we did 30 divided by $5 at $60 million.

It has a bit of a back end SKU to it.

Maybe I'll pause there that kind of does that works efficiently on fair enough.

Okay great.

Thanks, Thanks, a lot.

Alright, Thank you Mike.

Thank you.

Thank you as a reminder to ask a question you will need to press star one one on your telephone again to ask a question you will need to press star one one on your telephone our.

Our next question comes from the line of Brett <unk> from Cantor Fitzgerald.

Hi, guys, how it Andre.

Hey, Brad.

Doing well thanks.

Couple of questions on my end I guess as we look at the bookings backlog.

Really kind of strong sequential and year over year growth.

A couple of quarters to compare against.

207% year over growth last year, it gets us to $92 million in Q of last year.

And then the year over year growth. This year it gets us to like $89 million. So I guess what happened in between.

In the fourth quarter to the first quarter, where you saw bookings increase by call. It.

$140 million over the course of four or five months can.

Can you point to anything in specific that kind of drove that.

Yes, let me try out let me try it and then.

Check me here, Brian if this isn't kind of where you're going so first I'd say, Matthew we're doing of last year.

Just to maybe put it out there maybe you already know, but just for the broader audience. The way we cumulative bookings backlog are.

Is sort of represented as these are new gross bookings that we received from customer contract.

Less recognize revenue off of those contracts.

Associated with those in a quarter and.

And then that sort of net becomes the new cumulative bookings backlog. So to the numbers you were talking about between Q3 and Q4.

That could have gone down because we recognize more than a quarter. Then we realize those things can happen from time to time, and then I think you want to sort of like going forward from there at that sort of $90 million level and then we spiked up to 100, sorry, 200, and then and then up to the 300, we are here.

I'll make a couple comments and again.

Sure Keith I'll add.

So we're seeing.

I'll start with maybe just almost like a fundamental.

Customers were going after our major.

Enterprises global manufacturers global businesses that have major reach and we're providing a software solution that can embed into millions and millions of products.

And the way when we sort of sign up a customer.

And like if you take the auto.

For example, <unk>.

<unk> provider for either cloud voice solutions, our edge solutions and the arrangement will be a multi year.

Four.

Basically serving their auto production.

Simple example, five years of auto production and these couple of product sets and then what we do is with those customers will sort of.

And the contracts there may be minimum guarantees and we'll basically just take the minimum guarantee or they may just be volume estimates and we'll try to be conservatively assume sort of what's baked into there and then bake that in as a as a booking.

Or in some cases, we have partners, where we're on a one year sort of recurring revenue base and will book that as the as the as the booking.

But effectively we are just signing up more and more customers and that's both across autos that's across other device manufacturers.

That's across the services pillar.

And pillar two again, just a reminder, I think the spread plus our bookings backlog only represents pillar one and pillar two so we're really talking about.

Colorado's.

Devices, TV manufacturers and services.

So I think that the growth is just reflective of momentum and great conversation one of the things we we.

I think we've talked about before but we built a lot of the foundation of that bookings up until sort of latter part of last year really on the backs of just a handful of business development resources kayvon, including going around the world talking to these major partners. If you look at our history actually a lot of these partners. We're also investors in some cases, they sort of started working with us.

They chose <unk>.

Work with you as a customer but also wanted to invest.

So it talks to the depth of the partnership but one of the things. We've really done. This year is also with bringing onboard our new chief revenue officers who've been Ronnie.

Who himself came formally as the CEO decided to come onboard with US and has really started scaling so he's built out and that's been part of in my prepared remarks, I commented about the sales and marketing expenses going up we are absolutely built out our our sales function and thats. What the team is doing there going out and building partnerships building relationships and.

And I think youre seeing the fruits of that in some of these numbers long way to go.

We believe we're just getting started here but.

But that's a little bit of context, hopefully that kind of covers a little bit of where you go.

Yeah, no no that's extremely helpful.

I guess speaking to the scalability of it say Mcdonald's comes to you tomorrow.

<unk> done out of the restaurant and every location in the U S.

Can you guys do that I guess, what is needed on year end from.

Maybe like a head count perspective, you need to kind of lab testing services to go there and do this or.

Can this be done fully remote.

Walk us through that.

So what do we need it so just just to refresh. The question is for if a Mcdonald's or any restaurant comes on board. What is the step from sort of first conversation for us to get on board with them.

Summarizing spread is that correct.

Yes.

We get the product deployed.

Yes, yes, so we have a standard menu ingestion.

That'd be a streamline that can happen very quickly but weather.

It is easier for change because you kind.

I know you just once and then.

And it works for you.

Have a good locations, but because we were preparing for like 1 million restaurants with different menus you become very good at that.

So as I mentioned yesterday streamline that can be done very quickly and then the question is how do we want to deploy it is at a drive through is it foreign ordering is at all of that Bob and we just.

Worked with them to integrate if you are using.

Systems that we have already integrated with <unk>, that's very easy because that's already done.

One customer or.

Or their own customized hardware.

Little bit aft hardware integration that would happen.

<unk> customers that are really worked there for you.

100 <unk>.

Over 1000 locations one of the things on the drive thru in particular, I know we've talked about in the <unk>.

Mastercard as a partner, we're working with and.

It's great because of their scale first of all and their integration and partnership so we work with them and they help on the sort of implementation.

We bring our core voice AI.

And it just is great because of the reach number one but also just they have a very.

Deepen strong business across.

Across the ecosystem clearly with the drive thru restaurants in and frankly, we see we see that pathway in partnership with them scaling beyond that for phone ordering as an example.

We are working with other platform providers like like toast like square, we announced last quarter Oracle.

Although there are others, where it gives you access immediately to tens of thousands hundreds of thousands of restaurants.

So that's something that we believe is.

Great on top and again once you kind of work with them Youre getting access to what you did in menu ingestion, we're getting faster and faster with that.

And then the other thing that we are we are learning and growing fast every environment is slightly differently acoustic dynamics at each environment can be slightly different so so.

The great thing of owning the core tech end to end and having sort of our ability to do machine learning at the edge to understand the environment to get data and improve.

The accuracy.

Just really makes us able to scale and improve quickly so.

All those things are sort of part of the process.

And I just wanted to ask that.

Also we future proof and so it's very easy to then bring our restaurant integration inside the.

The product that the voice enabled so you're driving a car or you're even with TV gross enable.

And as with Vizio.

Cars that are always in the market.

It would be a click of a button for those product creators.

To bring food ordering on voice ordering in cyber products.

As you are building this amount ecosystem of your future proofing for those things is kind of just automatically happen.

Honestly.

That makes a lot of fun.

Maybe looking at the quarter.

Really strong quarter.

Revenue really exceeded.

Consensus definitely my estimate.

I guess what drove.

The strong quarter and then similarly, I guess why haven't you maybe raise the guidance.

For the full year, given the outperformance in this quarter.

Ed.

Typically like one time deal I know you talked about signing a large edge deal was there a one time payment that led to a big sequential increase in reps.

Yes, maybe I will take your questions.

In reverse order if that's okay. So I think.

We continue to reaffirm guidance, but yes, we have strong confidence in that pathway and we.

We want to we want to establish ourselves as the.

Kind of we keep delivering on what we're saying and we keep raising the bar and that's certainly how we.

We kind of drive the business internally.

So we feel confident about what we see in this year and we have high conviction that we'll be able to deliver upon it.

It was driven.

We saw strength in product royalty as I mentioned in my prepared remarks, we did have.

A large deal.

<unk> was a minimum commitment for multi years and that was a material benefit to the quarter again, we work with these large enterprises. So we expect those will those.

Those will be happening more and more or at least that's what we're shooting for.

But also being able to scale from cloud solutions to edge solutions and offer more things to even existing customers to penetrate into new geographies with existing customers to get down brand into different brands. There's just a lot of ways, we're able to utilize the existing ecosystem and scale further with our customers, but also add.

More customers and we saw a bit of that this quarter. It certainly reflected in the results.

But as we go forward.

We're going to keep trying to do that if we can beat and we're talking next quarter with you Brad about how we beat them, great, but we thought prudent, especially in this backdrop for us to continue to.

Just kind of hold the line.

And hopefully just keep delivering consistently and strongly over time.

Yeah.

Got it perfect.

Thanks, Thanks, I'll answer the question guys congrats on the quarter.

Yes.

Thanks, Brad.

Thank you I would now like to turn the conference back to Kayvon Mohan <unk> CEO for closing remarks.

Thank you Gigi.

When we founded <unk>, we had a vision to see voice AI in our lifetime and make voice AI, even better than humans, even understanding and also as Humana Nashville as possible in the way of responding to act.

We powered the only global independent industry crop industry, both aircraft form and we are focused on rapidly scaling our business we.

We continue to execute in this quarter, our exceptional results demonstrated our business momentum.

We had a record quarter across all key metrics. Let me summarize bookings grew three five times revenue grew two eight times gross profit grew three six times and queries surpassed $2 billion with that I. Thank you for joining us today and I look forward to speaking with you when we report our fourth quarter and full year results next time. Thank you.

This concludes today's conference call. Thank you for participating you may now disconnect.

The conference will begin shortly to raise Johan during Q&A you can dial one one.

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Good day and thank you for standing by welcome to the South Holland AI third quarter earnings Conference call. At this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need.

Press Star one one on your telephone please.

Please be advised that today's conference is being recorded.

I'd now like to hand, the conference over to your Speaker today, Scott Smith head of Investor Relations. Please go ahead.

Great. Thank you Gigi.

Hi, everyone. Good afternoon, and thank you for joining our third quarter 2022 conference call.

With me today is our CEO .

<unk>.

And our CFO and to test Sharon.

We will begin with some short remarks before moving to Q&A.

We'd also like to remind everyone that we will be making forward looking statements on this call.

Actual results could differ materially from those suggested.

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 those that qualify as forward looking statements.

In addition, we may discuss certain non-GAAP measures.

Please refer to today's press release for further details on the definitions limitations and uses of those measures and reconciliations from GAAP to non-GAAP .

Also note that the forward looking statements on this call are based on information available to us as of today's date.

We disclaim any obligation to update any forward looking statements, except as required by law.

Finally, this call is being audio webcast in its entirety on our Investor Relations website.

An audio replay will be available shortly following today's call.

With that I'd like to turn the call over to our CEO Kayvon Malhotra. Please go ahead Kevin.

Thank you Scott and thank you to everyone for joining the call today.

We have achieved a lot this year and today I am extremely excited to report a record quarter across all key metrics.

The demand we're seeing for our innovative AI powered product and solutions is strong and is only getting stronger as we execute on more opportunities and with more customers.

Even with the softening macroeconomic environment the demand for AI fueled solutions continues to grow and our value proposition clearly resonates with businesses.

Our cumulative bookings backlog surpassed the $300 million March resulting in over $200 million in the past 12 months alone.

This key metric for our business has grown at an accelerated pace.

The 239% year over year growth. We reported this quarter is the fourth straight quarter of triple digit growth as we continue to increase market share across key segments.

In Q3 revenue accelerated by two eight times year over year to $11 $2 million.

In fact for the first nine months.

Have already exceeded our full year revenue in 2021.

This momentum demonstrates our strong partnerships and the market share we're taking.

Cloud queries, a key measure for customer adoption of our conversational AI platform reached an annual run rate of over $2 billion are currently about 180 million inquiries per month.

Clearly on the right path to leveraging the opportunities in front of us.

In addition, we continue to aggressively expand our product suite to enable customers deeper access to our <unk> products and solutions. For example, this quarter, we introduced our full suite of edge and cloud connectivity solutions, along with a new groundbreaking intelligent transcription offerings.

These products expand our market reach helping a wider array of customers strengthen their brand derived deeper insights in their own customer conversations and control their most important dataset.

Now let me update you on our product we launched last quarter to show you how rapidly we are innovating our voice AI solutions.

Handful of restaurants is experiencing amazing demand and there is a reason for it let me play a short video demo short audio demo highlighting some of the unique strength of these voice AI technology.

I think the classic cheeseburger, the American cheese, but no Mayo and add avocado and the Friday.

Great I've added a classic cheeseburger with American Ts avocado, and Friday, but without May owe to your order would you like anything else.

Actually can you make that <unk> removed the avocado, but add extra tomatoes.

No problem I've replaced the American tease with Cheddar cheese I've removed the avocado from your order I've added extra tomato to your classic Cheeseburger would you like anything else.

Yes, they can order, a French fries and Q orders of itineraries.

Absolutely I've added French fries, and onion rings here order would you like anything else.

I'm, sorry can you remove an order by the hearings and at an order of French fries.

Great I remove the onion rings from your order I've added French fries tier order can I get you anything else yes.

Like a dozen cupcakes, <unk> chocolate vanilla and III strawberry.

Great I've added six chocolate cupcakes, three vanilla cupcakes and three Strawberry cupcakes here order what else can I get you.

That will be all thank you.

Im also excited to share with you that on November 17th Panhandle unveiled a breakthrough innovation in artificial intelligence to unlock the next generation of human computer interaction. We expect these category level breakthrough the raise the bar for human computer interaction by not only recognizing understanding speech, but also responding and acting in real time.

We believe just like how Apple's multi touch technology leapfrog touch interfaces into 2009, our announcement next week will be annuity struction in human computer interfaces with this new technology, we see the potential to unlock many new applications for conversational AI that were previously less compelling.

We expect this to increase adoption of our innovative AI powered product and solutions, resulting in a significant increase to our Tam.

We encourage you to look out for our exciting announcement on November 17th.

In a world that is swiftly moving towards widespread voice enabled meant it is unavoidable that the current status quo and the familiar shortly stock incumbent players needs to be reexamined for Toulon innovation around voice AI has been static. We believed we have taken voice AI technology to the next level. So that users can interact naturally, especially when it comes to more comp.

Flex queries.

Over the past two decades, we have seen many technology vendors trying to create technologies invoice AI, but often more often than not they have not succeeded the reason for that is natural language understanding is an especially challenging form of artificial intelligence. It is complex takes a long time to perfect and requires a full technology stack to deliver value.

This creates a very high barrier to entry, which is why there are so few companies delivering at Max sports AI technologies today.

You'd be our proprietary speech, two meaning deepening understanding and collective AI breakthroughs that we built from the ground up our technology bridges, two major industry Gap's legacy inflexible expensive competitors with technologies outdated and Big Tech solutions with voice assistance Overwrite, the company's most valuable assets the brand and customer Dave.

Yes.

In addition to our disruptive technology, our disruptive business model is also a contribution to widely.

We generate revenues from three pillars of royalties from both of our product subscription and thrombosis member services and monetization from bringing those services two products for example, say a drive or opt to use the convenience of in vehicle downtown technology to connect you to somehow enabled restaurants, who order a pizza for pickup underway.

When that happens we would make revenue from the transaction the pizza restaurant will benefit from a new customer being China and the direction and the automaker also takes a share of that revenue.

While other providers that generate licensing revenue from products are under constant pressure to lower their licensing fees and face the risk of declining revenue. Our three pillar model increases revenue per user while increasing adoption. This is due to the revenue share aspect of our model, which incentivize us product creators who are able to use our voice technology to create new commerce opera.

Communities and facilitate transactions.

We aim to power billions of devices and services powerhouse technology is already voiced enabling millions of cars TV mobile app and Iot devices on a global scale. Thanks to our expansive set of languages and international presence.

Here are a few highlights with Honda Ikea and Genesis, we saw significant international market expansion of our existing multi year volume commitment as a result, we had a strong revenue contribution as we expanded unit delivery in various brands and delivered on aggregate milestones.

Building upon our existing 17 automotive brands, we also announced an expanded relationship with the Lumpiness in Europe . In addition, we announced our first monitoring solution already in production with Dongfeng Peugeot Citroen automobiles in China.

This indicates a strong relationship in China, which is rare in the technology industry for a non Chinese company.

And this quarter, we announced integrations with LG and Harman as we continue to expand relationships with automotive technology platforms around the world.

With Qualcomm and announcement announced in January of this year, we continue our joint efforts with Snapdragon paving the way with our advanced voice technology for new use cases, and innovative experiences to show our strong relationship I will be presenting at several keynote sessions at the Qualcomm Snapdragon Summit later this month.

It is also important to note that we are very global with customers shipping in 25 languages and continue to grow internationally as we scale as an example in addition to our existing global footprint in automotive we are working with some major global brands, including in the Iot hospitality and consumer segments and this continues to grow.

In speech, recognizing San Juan is going to be a top provider of in car voice systems. It is an honor to receive such recognition.

Turning to sandpiper restaurants, our voice AI assistant that allows restaurants to automate the ordering process at drive throughs drive and ordering kiosks and over the phone. Please.

This technology helps restaurants automate innovate their order taking at a time when many are tackling rising food costs staffing shortages of supply chain issues and other headwinds.

Brown for restaurant, resulting businesses, taking more harder and maximize sales because our voice AI technology can help restaurants simultaneously grocery I'm going to save cost downtime for a restaurant has been an instant success.

And because of the extremely fast onboarding.

We see customers locked in a matter of update I'm pleased to report that our technology has been implemented at a rapid rate our pipeline is easily in the tens of thousands of restaurants and it will only grow sainsburys over 1 million establishment in the United States alone.

Integrating restaurants to automate voice ordering technology significantly expand.

Expanding our reach to millions of restaurants establishment globally.

We have also been working with Mastercard to jointly develop voice enabled solutions to deliver low touch high engagement experiences for quick service restaurants, while most other attempted solutions use a hybrid of humans and automation to tackle the complex challenges of food ordering our fully automated admass AI technology is on track to surpass our level of order.

Success on par with units.

Because of these achievements we are taking this partnership into a commercially locked deployment base editing, enabling us to expand in more locations and brands. Our pipeline. These expanding both here in the U S and internationally and this is only the beginning as Mastercard trusted partner in retail initiatives, we look forward to expanding into other relatively untapped market to dish.

Timely innovation for many retail brands around the world.

We found him for restaurants, we are confident these presents a significant market opportunity that we believe we are perfectly positioned to address voice enabled food ordering is particularly challenging requiring specialized speech recognition and complex natural language understanding which match perfectly with our key differentiators.

Next year, we expect this opportunity to begin to make a meaningful impact on both bookings and revenue as we are already seeing shorter sales cycles and faster deployment rates.

And over the long term the potential impact is significant.

In closing since launching Townhomes initial voice AI platform in 2016, you have a radically defaulted globalized. It reached with 25 languages and began to scale into major enterprises across similar industries large brands, such as Honda Kia Genesis Mercedes Benz Atlantis Dodge Chrysler Vizio.

<unk> and Pandora have helped build our foundation and while we continue to expand on those foundational relationships youre, making meaningful progress in expanding our addressable market and demonstrated as demonstrated with our new sand on our restaurant solution.

Plus Amazon starting with books. This is the first of many steps horse downtown to enter the enormous voice commerce industry. You are confident in our ability to both create and leverage a huge global addressable market.

Yes.

We are in a unique position to maintain our leadership in core voice enabled AI technology with our track record to solve extremely difficult problems with our breakthrough inventions are performing right on plan and delivering strong results and while the macroeconomic conditions have proved challenging we are pleased to confidently reaffirm our 2022.

Revenue targets once again.

Even in tough times, we have not wavered with that I will now turn the call over to <unk> to talk about our financial performance.

Yeah.

Thank you, Kevin and Hello, everyone.

Q3 was a milestone quarter, we reported record revenue delivered strong gross margin expansion and saw EPS improvement both year over year and sequentially.

With Q3 as triple digit bookings growth and strong customer engagement, we are building and executing on the foundation that will fuel our continued expansion.

We closed the quarter with a strong cumulative bookings backlog of $302 million representing.

Representing a year over year growth of 239%.

The contracts underlying our bookings backlog range from one year to more than seven years with a roughly five year weighted average contract length.

Our long term relationships highlight the confidence and commitment our customers have working with us to build the future together.

Okay.

These bookings form a critical foundation for our ongoing top line result, as a quick reminder, we break out our revenue into three distinct pillars.

Pillar, one is where we voice enabled products like cars Tvs and Iot devices. So we booked product royalty revenue.

Pillar two is where we voice enabled services like food ordering appointments customer service and we book recurring subscription revenue.

And in pillar three we create monetization revenue when we connect those voice enabled products in pillar one with the voice enabled services in pillar two similar to the example, kayvon shared earlier.

This natural and seamless bridge between voice enabled products and services unlocks value value for all parties involved the end user the restaurant and the product creator.

With whom we share part of the transaction.

These three revenue pillars created positive network platform effect that compound expanding our addressable market and increasing customer adoption.

And accordingly unit economics become increasingly more attractive as this ecosystem scale and expand and we are building this ecosystem with a massive addressable market.

In Q3, we generated $11 $2 million in revenue up 178% year over year.

Revenues were predominantly driven by product royalties, where we continued to scale unit and also saw expanding average price per unit.

This partnership has been steadily expanding and we continue to displace the incumbent provider.

Our long term commitment demonstrates the strong partnerships, we are developing and the continued share gains we are experiencing.

We also saw strong growth in pillar, two up 83% year over year, where we've begun to realize the traction we are seeing with restaurants and voice enabled food ordering.

Theres so much potential in the service sector and we are aggressively pursuing it to meet the strong customer demand and amazing product market fit that cable I mentioned earlier.

We see subscriptions and monetization is more of a recurring revenue stream that will eventually be measured metrics, such as <unk> and ARPA.

Our gross margin improved to 77% up from 59% in the prior year.

This was largely driven by the mix of higher margin edge solutions and the previously mentioned automotive deal.

It is important to note that this dynamic will not always be the case since different quarters may have different product mixes. Nevertheless, we continue to expect full year gross margin to be over 70%, which we believe are strong and appropriate for a thriving and expanding core software business.

Cost of revenue for the quarter was $2 6 million up 56% from the prior year.

The majority of our cost of revenue is associated with data center costs supporting our customers, which continue to be impacted by a market migration across cloud vendors.

We continue to expect to complete the migration by the end of this year.

Our operating expenses have historically been heavily weighted towards R&D as we built our voice AI platform and deep portfolio of over 260 patents.

We ramped up our sales and marketing investments this year to accelerate growth, while solidifying our G&A functions as a newly public company.

Yeah.

In Q3, R&D was $19 4 million up 35% year over year.

We will continue to invest in R&D to ensure we remain at the forefront of innovation in AI and machine learning, while also helping to develop and scale new products and services.

Some of the key product innovations cable I noted earlier, we are a result of this and prior R&D investments.

Sales and marketing expenses were $6 7 million of 468% year over year coming off a small base in the prior year period.

This has been a focus of investment to fuel lead generation, new customer acquisition expansion into new verticals and ultimately our ability to continue to disrupt and capture market share.

The traction we are seeing in pillar two in particular is benefiting from this spend.

General and administrative expenses were $9 6 million up 138% year over year. This includes the head count growth and non head count spend across our global functions to support the operational activities needed as we scale as a public company.

We expect this trend to continue over the next few quarters, and then start to become a source of leverage on the P&L.

Please note that much of our stock compensation expense also sits in this opex line item.

Our operating loss was $27 million in Q3.

And adjusted EBITDA, which excludes the noncash charges of stock compensation, and depreciation and amortization and other non operating activities was a loss of $16 million.

Both improved sequentially.

Net loss per share in Q3 was <unk> 15, an improvement from 35 in the prior year period and versus last quarter.

As of September 30th our ending share count was approximately 197 million shares.

Our cash position at quarter end was $33 4 million.

We continue to leverage the proceeds we received from going public in April while continuing to infuse new capital.

For example in Q3, we added a new committed equity line of credit, which once available. We expect will provide ongoing access to incremental capital to help us continue to fuel growth.

In addition, we are currently in late stage discussions to provide additional more immediate cash to the balance sheet.

Okay.

Moving on to guidance.

We are certainly mindful of the continued challenging market backdrop and are diligently calibrating our cost structure to ensure we don't overextend ourselves in these dynamic times.

As such we have taken actions to reduce our expenses with impacts to both our people and discretionary spend.

Those are never easy, but these actions will enable us to accelerate our path to profitability without materially impacting our ability to execute our business plan effectively.

We are not immune to the global macroeconomic pressures geopolitical dynamics or foreign exchange headwind that.

That said our solutions are in many ways counter cyclical because in times of inflationary pressures in labor challenges automation and AI are even more critical.

As such for the full year 2022, we reconfirm the midpoint of the revenue outlook. We provided previously and are tightening the range to $28 million to $32 million.

This expectation has not changed since we first communicated well before the market conditions worsen throughout this year and we continue to feel confident in this outlook.

With respect to longer term expectations, we will share more specifics on 2023 at our next earnings call.

That said I wanted to provide some context that will hopefully convey the momentum we are building here.

First.

Of course, that's not enough for us we are working hard growing markets, adding customers and expanding with existing customers and have substantial pipeline to show for it for.

For example, the food phone ordering we have been discussing at length is effectively not even in our bookings yet so we see a material upside on top of that baseline.

And this new vertical has a better financial profile.

More predictable revenue streams, better scalability, leading to more favorable operating margins and faster cycle from initial initial customer contact to cash flow.

And most importantly customers are all over it.

Felt that was important to share our confidence and conviction in what we're building here.

We are delivering on near term commitments, while focusing on the long term potential in front of us.

I said this last quarter as well our.

Our progress will not always be linear, but our current momentum is unquestionable.

We are pleased with the progress to date and extremely excited about our path forward.

Thank you and we will now move to Q&A.

As a reminder to ask a question you will need to press star one one on your telephone please standby, while we compile the Q&A roster.

Our first question comes from the line of Mike Latimore from Northland Capital markets.

Yes, Thanks, Hi, guys.

Great results there.

Looking forward to November 17th announcement.

Alright. Thanks.

So maybe could you so you've had really strong bookings really strong results at the same time.

You mentioned that the macro backdrop.

I guess.

To the extent there is some macro effect here.

Does that affect kind of what youre seeing is it seems like youre seeing really good bookings are really strong right. So.

Some customers just being a little slower or like what's the potential if at all.

Sure I can.

Start here, Mike and then cable I'm certainly add.

Maybe I'll make some generic general comments.

And then.

And then try to Doubleclick in a couple of areas.

So first I mentioned in the prepared remarks that.

In a lot of ways, what we're finding is that our solution. Despite sort of the macroeconomic dynamics are very well situated.

And if.

If you take again the food ordering example that we talk about that we're seeing a lot of scalability.

One of the major dynamics is labor shortages, the inflationary pressures on commodity cost of restaurants.

Just overall.

The cost of labor dynamics, and so when we go around and we tried to give a demo a little example of what the technology can do and as our sales team goes around and talks to restaurants. They are seeing so much.

Demand for this that we have.

I guess.

Way of saying backlog, but a big pipeline of folks who are trying to get onboard.

So so in that sense. It's actually there are some elements of it that are like I said countercyclical or tailwind so the demand for our solutions.

Core core business growth.

And then maybe the last point I'll just cite.

I think.

Debt.

If I, if I kind of look at where we're going as a business and the scale that our bookings backlog represent the reason we kind of.

Draw focus to that is.

We're disrupting we're changing the market, we're changing how humans interact with technology and and we feel great about the progress, we're making the customers and the enterprises were working with have sort of substantial footprints and while they may sort of recalibrate to address a market. So auto may maybe previously was.

<unk> supply chain pressures that may be sort of recalibrating around.

The interest rate costs interest rates and impact on cost.

Penetrating and disrupting so we can still realize more of those bookings into revenue, we can still penetrate more of the market and it's growth for us even if that macro 80 million global light vehicles produced per year kind of don't grow as fast or or again the restaurant business has some.

<unk> from <unk>.

Drive through is to sit down to Florida, and we like our solutions can span a lot of those spaces. So I don't want to I don't want to drive by and say like everything is hunky Dory, we're definitely mindful and that's why we took the cost actions that are very difficult.

And we will continue to calibrate and just make sure that we're thoughtful about.

Where we're going but.

Yes.

Say again.

We're feeling generally pretty good.

Yes, I would confirm that.

The pillar two business actually the demand goes up when the economy becomes more challenging so we actually if you're experiencing that wishes.

Very encouraging for us.

And even in pillar one.

If you look at.

Some of the.

Announcements at some of our customers have made.

They are claiming that in the next.

10 years, Australia, the long terms, they want to generate revenue from their cars and devices.

But we our solution that can actually accelerate that because thats the.

So we feel our model of every three to surfaces that enforcement above to the product side, both renewable and creates monetization ecosystem, while delivering value to the end user.

Increased demand across.

And all of our customers.

But.

In an environment, where every company is taking.

Reduction in cost and being more mindful because of the uncertainty of future on.

Wi for us not to take that action.

Heather.

In terms of number was relatively small but.

We had a reduction.

Yesterday that was difficult for us to do but <unk>.

We're doing too many things.

You are very innovative we have lots of technologies that can apply to so many things.

But we have to be a little bit more disciplined.

We took action on all of us.

As a leader company comes first team myself last.

It's very easy for me to put myself last a frequently but deciding between company and those moments are rare, but that was a moment that we ought to be high then.

Thank you back to some of Heartland.

Yes, yes.

Alright got it thanks.

Thanks for the context.

Hi.

On the voice ordering restaurant category you guys definitely are.

A lot more sort of excited about this opportunity today than at the start of the year.

Okay can you elaborate a little bit more on it.

Are the end users sort of local restaurants or theres, some big chains Rolling this out.

And then.

It kind of sounds like Youre getting a fair amount of subscription already but maybe I misread that maybe it's more coming next year. So I'm, just a little bit more detail on that would be great.

Okay.

Yes.

<unk>.

What's amazing about what we've built is that you can go live intensity, especially when we integrate with point of sale systems, because restaurants already have their menu.

In the point type stuff with them.

And they also manage the orders in the fourth outlet southeast them. So when we integrate our solution with that when those restaurants to go live it could be like they could press the button eventually and go alive and obviously be more mindful of how we rolled it out we have a huge pipeline of restaurants I want to go alive on you're kind of doing it gradually.

Be mindful about the quality.

So on but.

We can go after enterprise.

Franchise.

Brian back might have.

Enzo locations.

We can also go after the mom and pop small businesses with one location as long as they are using a <unk> system.

System. So we are actually going after.

Smaller.

Locations with through the <unk> channel and then we are also have a huge pipeline of enterprise applications.

With lots of locations and that's where the phone ordering.

Drive throughs on kiosk.

We have announced our partnership with Mastercard on some of the brands. There is a lot more about coming so.

It's kind of a one solution that can apply to so many variations of implementation.

And Mike maybe I could add just a couple of things because you alluded to the fact that maybe we are.

Two and a little bit more than earlier in the year and I think thats.

I think as we've gone through the year and we've gone out.

Improved this solution got feet on the street talking to both the platforms. The cave on alluded to in the restaurants. There is so much demand, we and there is such a perfect market product market fit and particularly in this time.

And honestly that side part of the focus that came on day to the end of last answer. We know there is a ton of traction here and we see this ramping substantially and if you think of.

Just the economics part of this.

There is over 1 million food establishments in the U S alone and you think of the recurring type of pricing on this this is a well north of.

Per year.

<unk> dollars opportunity so as we penetrate just small market shares this is meaningful to the revenue opportunity in our scale that mean substantive growth.

That is very strategic and so they are accelerating that pace to 18 months, even a year in many cases. This pillar two is actually almost.

Instantaneous in some ways. It goes from like first conversation to a matter of weeks, where we've on boarded and adjusted the menu and we can be live and Thats accelerating today's in and frankly as you scale from one cuisine to the next or if it's a franchise that has the exact same menu again that can be instantaneous I'll also make one other.

Sort of a side note of what we're talking about here because when you look at the pillar one and you sort of say who are the who are the players in auto sarin as clearly as an incumbent.

The Big Tech startups trying to play in that space, there really isn't many players in this pillar two particularly food ordering you have the capabilities.

Aperture to go at it there are some other players, but they don't actually have the full core engine the technology to serve this and so therefore, we have massive advantages youll hear some others put benchmarks of one metric that people watches order completion rates, if somebody goes and actually started talking to the AI like. The example, we gave did they actually get what they wanted to consummate a transaction.

<unk> and we see benchmarks that are in the 20%, 30% range out there and our solutions are targeting 70%, even higher and just to put a reference point humans themselves. They are not 100% I don't know your experiences food ordering but sometimes with the friction in the background.

We have data points to say humans themselves or $85, 90%. So we're just really trying to find alternatives and ultimately it's in service of the customers to try to get what they want when they want it in a in a in a.

Sort of enjoyable manner.

We're so excited about this opportunity.

Yes, yes, yes.

Im often missing a French fry era.

Chicken sandwich in the bag when I, what I understood.

Very last one.

Average length.

Backlog as it was five years can you give a little more detail like what percent of that.

Front end or back end of that.

What percentage of that is in the front end or backend. So okay. So got it yes.

Average life is about five years, there is a bit of a back end skewed to it.

Yes, like we internally, we will use a metric probably won't difficult jaguar, but like a duration metric, which kind of does a weighting of it and so it does skew towards the back end of it north of three years and so.

It's not ratable. So we did 30 divided by $560 million.

It has a bit of a back end SKU to it.

Maybe I'll pause there that kind of does that work sufficiently then fair enough.

Okay great.

Thanks, Thanks, a lot.

Yes.

Alright, Thank you Mike.

Okay.

Thank you as a reminder to ask a question you will need to press star one one on your telephone again to ask a question you will need to press star one one on your telephone.

Our next question comes from the line of Brett <unk> from Cantor Fitzgerald.

Hi, guys, how it Andre.

Hey, Brad.

Doing well thanks.

Couple of questions on my end I guess as we look at the bookings backlog.

Really kind of strong sequential and year over year growth.

Kind of a couple of quarters to compare against.

207% year over growth last year, it gives us to $92 million in Q of last year.

And then the year over year growth. This year it gets us to like $89 million. So I guess what happened in between.

In the fourth quarter to the first quarter, where you saw bookings increase by call. It.

$140 million over the course of four or five months can.

Can you point to anything in specific that kind of drove that.

Yes, let me try out let me try it and then.

Check me here, Brian if this isn't kind of where you're going so first I'd say to the math you were doing last year just as the.

Just to maybe put it out there maybe you already know, but just for the broader audience. The way we cumulative bookings backlog are.

Is sort of represented as these are new gross bookings that we received from <unk>.

Customer contract less recognized revenue off of those contracts associated with those in a quarter and then that sort of net becomes the new cumulative bookings backlog. So to the numbers you were talking about between Q3 and Q4.

That could have gone down because we recognize more than a quarter. Then we realize so those things can happen from time to time, and then I think you want to sort of like going forward from there at that sort of $90 million level and then we spiked up to 100, sorry, 200, and then and then up to the 300, we are here.

I'll make a couple comments and again.

Sure Keith I'll add.

So we're seeing.

I'll start with maybe just almost like a fundamental the customers we're going after our major.

Enterprises global manufacturers global businesses that have major reach and we're providing a software solution that can embed into millions and millions of products and the way when we sort of sign up a customer.

And like if you take the auto.

For example, we will sign up with the partner and we'll be their voice provider for either cloud voice solutions, our edge solutions and the arrangement will be a multi year.

Sure.

Basically serving their auto production should take simple example, five years of auto production and these couple of product sets.

And then what we do is with those customers, we will sort of.

And the contracts or maybe minimum guarantees and we'll basically just take the minimum guarantee or they may just be volume estimates and we will try to could be conservatively assume sort of what's baked into there and then bake that in as a as a booking.

Or in some cases, we have partners, where we're on a one year sort of recurring revenue base and we will book that as the as the as the booking but.

But effectively we are just signing up more and more customers and that's both across autos that's across other device manufacturers.

That's across the services pillar.

Pillar two again, just a reminder, I think this breakfast our bookings backlog only represents pillar one and pillar two so we're really talking about the sort of Colorado's.

Devices, TV manufacturers and services.

So I think that the growth is just reflective of momentum and great conversation one of the things we we.

They chose <unk>.

Work with you as a customer but also wanted to invest.

So it talks to the depth of the partnership but one of the things. We've really done. This year is also with bringing onboard our new chief revenue officers who've been Ronnie.

Who himself came to formally as the CEO decided to come onboard with US and has really started scaling. So he has built out and that's been part of in my prepared remarks, I commented about the sales and marketing expenses going up we are absolutely built out our our sales function and thats. What the team is doing they are going out and building partnerships building relationships and and.

And I think youre seeing the fruits of that in some of these numbers long way to go.

We believe we're just getting started here but.

But that's a little bit of context, hopefully that kind of covers a little bit of where you go.

Yeah No no that's.

Extremely helpful.

I guess speaking to the scalability of it say Mcdonald's comes to you tomorrow.

Will your dynamic restaurants in every location in the U S.

Can you guys do that I guess, what is needed on year end from.

Maybe like a head count perspective, do you need to kind of lab testing services to go there and do this or.

Can this be done fully remote legacy walk us through that.

So what do we need it so just just to refresh. The question is for if a Mcdonald's or any restaurant comes on board. What is the step from sort of first conversation for us to get on board with them that just to summarize it Brad is that correct.

Yes.

Product deployed.

Yes, so we have a standard menu ingestion.

That'd be a streamline that can happen very quickly because of weather.

Easier for change because you kind of just one.

Then it works for.

I didn't have enough locations, but.

We were preparing for like 1 million restaurants with different menus, we've become very good at that.

So there are many gesture any streamline that can be done very quickly and then the question is how do we want to deploy it is at a drive through is it phone ordering is at all of that Bob and we just work with them to integrate if you are using <unk>.

Systems that we have already integrated with Thats very easy because thats already done if they have their own customized tos or their own customized hardware there is a little bit of hardware integration.

Happen for customers that are really worth the effort.

100, <unk> again.

Again over 1000 locations one of the things on the drive thru in particular, I think we've talked about and I think.

Mastercard as a partner, we're working with and it's.

It's great because of their scale first of all and their integration and partnership so we work with them and they help on the sort of implementation we.

We bring our core voice AI and it's just is great because of the reach number one but also just they have a very.

Deepen strong business across.

Across the ecosystem clearly with the drive thru restaurants in and frankly, we see that pathway in partnership with them scaling beyond that for phone ordering as an example.

We are working with other platform providers like like toast like square, we announced last quarter Oracle.

Although there are others, where it gives you access immediately to tens of thousands hundreds of thousands of restaurants.

So that's something that we believe is.

Great on top and again once you kind of work with them Youre getting access to it you do the menu ingestion, we're getting faster and faster with that.

And then the other thing that we are we are learning and growing fast every environment is slightly differently acoustic dynamics at each environment can be slightly different so so.

The great thing of owning the core tech end to end and having sort of our ability to do machine learning at the edge to understand the environment to get data and improve the accuracy.

Just really makes us able to scale and improve quickly so.

All of those things are part of the process.

I just wanted to ask that.

Also we've future proofed. So it's very easy to then bring our restaurant integration inside the.

The products that are <unk>, so you're driving a car or your arithmetic.

<unk> TV at voice enabled.

And as with Vizio.

Cars that are always in the market.

It would be a click of a button for those product creators.

To bring food ordering and voice ordering in cyber products.

As you are building.

Medical system your future proofing for those things is kind of just automatically happen.

Honestly.

That makes a lot of fun.

Maybe looking at the quarter.

Really strong quarter.

Revenue really exceeded.

Consensus definitely my estimate.

I guess what drove.

The strong quarter and then <unk>.

Really I guess why haven't you maybe raise the guidance.

For the full year, given the outperformance in this quarter.

A specific like one time deal I know you talked about signing a large edge deal was there a onetime payment that led to a big sequential increase in reps.

Yes, maybe I will take your questions.

In reverse order if that's okay. So I think.

We continue to reaffirm guidance, but yes, we have strong confidence in that pathway and we.

We want to we want to establish ourselves as the.

We keep delivering on what we're saying and we keep raising the bar and that's certainly how we.

We kind of drive the business internally.

So now we feel confident about what we see in this year and we have high conviction that we'll be able to deliver upon it.

It was driven we saw strength in product royalty as I mentioned in my prepared remarks, we did have.

A large deal that was a minimum commitment for multi years.

That was a material benefit to the quarter again, we work with these large enterprises. So we expect those will those will be happening more and more or at least that's what we're shooting for.

Just a lot of ways, we're able to utilize the existing ecosystem and scale further with our customers, but also add more customers and we saw a bit of that this quarter. It certainly reflected in the results.

But as we go forward.

Just kind of hold the line.

Hopefully just keep delivering consistently and strongly over time.

Yeah.

Got it perfect.

Thanks, Thanks to answer the question guys congrats on the quarter.

Thanks, Brett.

Thank you I would now like to turn the conference back to Kayvon Mohan <unk> CEO for closing remarks.

Thank you Gigi.

We founded <unk>, we had a vision to see voice AI in our lifetime and make voice AI, even better than humans and understanding and also as Humana Nashville as possible in the raid responding to act.

We powered the only global independent industry crop industry, both of our platform and we are focused on rapidly scaling our business.

We continue to execute in this quarter, our exceptional results demonstrated our business momentum.

Thank you.

This concludes today's conference call. Thank you for participating you may now disconnect.

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