Q2 2023 SoundHound Inc Earnings Call

August 8, 2023

[music].

Yeah.

Okay.

Good day and welcome to the second quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. After the speaker 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.

Then here an automated message advising your hand is right to withdraw your question Press Star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker, Mr. Scott Smith head of Investor Relations. The floor is yours Sir.

Good afternoon, and thank you for joining our second quarter 2023 conference call.

With me today is our CEO came on the harder and our CFO and a test Sharon.

And with some short remarks before moving to Q&A.

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

Actual results could differ materially from those suggested by our forward looking statements.

Please refer to our filings with the SEC for a detailed discussion of the risks and uncertainties that could affect our business and for a discussion statements that qualify as forward looking statements.

In addition.

We may discuss certain non-GAAP measures.

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

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

We undertake no obligation to update any forward looking statements, except as required by law.

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

Do you replay will be available shortly following todays call.

With that I'd like to turn the call over to our CEO <unk>.

On Mahatir. Please go ahead Kevin.

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

In Q2, we started our second year as a public company.

With our first full year coming to an end we are happy to have reported over 80% revenue growth on a trailing 12 month basis.

Amped up our innovation cycle and at the same time gain efficiencies across the company as seen in the 50% year over year adjusted EBITDA improvement in Q2.

Over the years, you've demonstrated a track record as a leading innovator in AI.

This is one of the main reasons, we've been able to attract strategic investors like Nvidia, Samsung <unk> neighbor, STC, Vizio, Foxconn Oracle and others.

While some organizations have spent billions of dollars trying to build voice and conversational AI technologies in house, we were able to do that with a fraction of that investment with our creative innovation and focus dedication.

As a result, our voice AI powered millions of cars Tvs.

Iot devices generating billions of successful user interactions each year.

Okay.

Because of our routes in deep science over the years, we've created groundbreaking advancements in voice AI from speech, two meaning deepening understanding collective AI dynamic interaction and archival and cognex frameworks and globalize them in dozens of languages.

As an example of another recent innovation, we introduced townhouse at AIG for Automotives. This combines our proprietary voice AI with the latest generative AI deals from large language models in our view.

AI is completely unique in the industry and no one else can claim these type of progress.

Okay.

Within a short timeframe several of our existing customers have started piloting the solution in their products and we have received proposals request from new brands.

We expect the increased performance, resulting from Townhomes that AI.

Will result in faster adoption better user experience more frequency usage and ultimately more revenue per device from our pillar one category of automotive and Iot customers.

In a recent pilot conducted by one of our key customers. The usage increased by an order of magnitude after enabling the features.

We expect adoption of our platform from some of our customers as early as this year.

In pillar, two which offers conversational AI for customer service solutions, our smart ordering continues to benefit from our unique technology advantage on handling complex and compound queries, which is especially important in food ordering conversation over the phone.

In the last quarter, we were able to further improve our solution by applying our regenerative AI integration really taking it to the next level.

Now I would like to pay a sample dialog with our next generation of smart ordering AI that is rolling out in the coming weeks to our existing and new restaurant customers.

What can I get for you.

I'm going to call into place an order.

It is three years old and cumulatively either key Avenue recommendation.

Of course for your taking either I would recommend our kids mcintee, It's a classic favorite among children. We also have kids chicken fingers and kids grilled cheese. She prefers those options. Let me know if you need any more information or if you'd like to place an order, yes can I get the kids Mac and cheese.

Apple juice on yogurt.

I've added a kid's Mac N cheese with Apple juice and yogurt to your order can I get you anything else. Yeah. I was there last week one of those cheeseburger that was really good.

I don't remember, what you call it something like traditional or asset classes.

Clinical but I got one of those was 17.

Sure.

Cheeseburger with tether you order what else can I got you. That's all thank you so much.

Most recently, we are excited to have launched our low tax out of the box AI customer service solution, smart answering which will be formally announced soon.

Answering we expand our AI customer service offering from just restaurants to any business, even a single location Barbara shop that can benefit from Santander AI customer service.

Due to the short term off smart answer it would be the barbershop.

Okay.

Yes.

Thank you for calling Smith brothers luxury grooming Salon for men. This call is recorded and if you need privacy info just ask how can I help you today.

I wanted to surprise, my daughter, who lives in Basel movie by buying my Hedblom like comp.

So can you guys do.

Yes, we offer hair coloring for minutes Smith brothers Salon Macao starts from $250 is there anything else I can help you with today well honestly as another color my horse. So I don't really know how it would react.

I'm wondering if I could schedule something just to ask a few questions just on advice.

Great we offer professional consultation for Haircoloring you can easily make an appointment on our web site would you like me to talk to you a link to make it easy for you sure that sounds great.

Okay I have sent the link to you is there anything else I can help you with today do you have any advice on how to get there should our driver pay public transit.

To get the Smith brothers Salon by a public transit you can take the Brown line to Edison station, which is a five minute walk from our location. If you decide to drive we don't have any dedicated parking but there is usually a street parking available on Lincoln Avenue is there anything else I can help you with today.

Do you allow dogs.

Yes, we allow dogs in our salon, if you'd like to learn more about our policy I'd be happy to take you a link to our website, where you can read additional details would you like me to do that now.

The problem is when you got it.

The rescue she gets a bit rowdy Wayne around other dogs.

One is to get used to going all right.

If there are any other dogs in the salon.

Is it possible to figure out a time when that would work.

Okay, I will pass along a message to owner Jared Smith, so that he can be in touch with you biotechs to discuss arranging a time when no. Other dogs will be present is there anything else I can help you with today.

Thanks for thinking about for your Haircoloring needs have a great day Goodbye.

Awesome. Thanks, Thank you.

These are examples of our AI customer service solutions that are fully autonomous and a key differentiator for us downtown separating us from other vendors that use a human in the background when users engaged with their AI offerings.

As compared to human century, low margin call Center solutions are fully autonomous solution is affordable and can attract brands of all sizes, whether the brand has a single location or thousands of locations.

When a color interacts with our AI.

Only interacting with AI and there is no human involvement is a color specifically asked to talk to a human usually at the beginning of the call. Our medicines have the option to receive the call directly or <unk> agents.

For example, using the last week of July about 93% of orders placed with our smart ordering solution were handled by AI and only 7% of our pump transfers.

We expect the rate of these transfers to decrease over time as colors become more comfortable and confident speaking to an AI. In fact, we expect the colors, where ultimately prefer to speak on NII instead of a human.

Our AI is also always learning both generically and specific to our merchant after going live with a merchant our AI capabilities and accuracy improve as it learns to interact with user specific to a particular business with.

With this technology, we believe we can unlock long term value for businesses.

We've heard from restaurants allows unclear they are hungry for these type of automation as it directly create financial returns by addressing labor shortages overall cost pressure and help them generate revenue.

We are deeply engaged with thousands of brands and have already closed with hundreds of them. Thanks to our direct sales and strong channel partner ecosystem, including toast score Oracle and <unk>.

Last week, we announced that we are significantly expanding our relationship with White castle, where they've committed to provide AI powered ordering to a 100 drive thru lane by the end of 2024.

And because our products are designed to be scalable, we can address a wide variety of restaurants across a diverse array of cuisines and different sizes.

For example.

We're also delighted to be providing voice AI technology to beef operators, which is a part of FSC franchise co as a restaurant company with multiple brands that span 25 states and more than 180 locations and you are adding more customers everyday for instance, neither bakeries Hawk table another color slim on Husky's crust pizza chemo.

No a tie with Italian and dialer cafe, among hundreds of others, not especially the diversity of cuisine types and brand sizes, which give us access to a larger market share than vendors that due to technology and scale limitations into focused on just enterprise customers or specific holdings.

And we'd start answering because we're just getting started allowing any business to handle nearly any inbound customer inquiry using automated and customizable voice assistant.

Using generative AI to automatically incorporate data from their business website.

AI knowledge base smart answering provides quick and easy onboarding, allowing the customer to test it out within minutes and be light on the same day.

The service can handle multiple calls at once 2007, and conveniently filters out spam cost saving hours are placed at time for any business. It can also provide convenient SMS responses. In addition to verbal answers and it can seamlessly transfer to any employee after business if necessary.

Smart ordering and smart answering are complemented by our visually enhanced <unk> dynamic interaction, which is our multimodal full duplex interface for kiosks drive through or any device with a screen.

Dynamic interaction is unmatched as a breakthrough and we believe will mark the next generation of digital assistance and AI interfaces, which allows input b piece, our touch and provides real time responses via visual and audio with not turn taking our way towards.

I encourage everyone to visit our website and watch the Denmark dynamic interaction, we consistently get a viral response anytime somebody to introduce these products for the first time.

When we attended the National Restaurant Association Conference. This year dynamic interaction stole the show trade media selected dynamic interaction as one of the top things to see on the show floor. Among all vendors in all categories. So not just technology.

A typical reaction from our target customers, it's not just if they're interested in it and found amphetamine interaction, but how can we go live with this as fast as possible.

You are already working with a number of potential customers, including our fast growing large franchise. There that operates in 30 states and we plan to start rolling out dynamic interaction in the coming weeks.

Okay.

While we are excited about our pillar two business there is more to share in our club one category, where repower products, such as cars Tvs and Iot devices.

This has been a critical part of our business since launching our voice AI platform in 2016 in particular growth in the automotive industry requires long term investments global reach and it's difficult to penetrate thanks to our track record and differentiated technology, we continue to expand into our large customer base of about 20 brands, including Honda in Atlantis as.

Well as initiate production with new companies, such as tug a transformation of our Turkish electric car manufacturer.

Overall, we are seeing expansion of usage in our categories seeing more inquiries with the device the repower, which have increased our annual run rate to over $2 8 billion.

This frequency of usage increases the performance of our AI systems will continue to get even better and more intuitive as they learned from the new data and large amount of existing data.

Our extensive experience in data so far have already fine tuned machine learning tools to make our products highly valuable to businesses and more useful to users. We now predict pasture adoption new contract used cases, and ultimately more revenue per device.

Our strategic channel partnerships are also generating momentum for example, Qualcomm has integrated <unk> AI on a chipset with the Snapdragon digital Kathy and is showcasing its on the concept vehicle.

These types of channel partnerships are critical in developing growth in the automotive industry.

I also wanted to specifically call out the traction youre seeing in Tvs, where we've increased the usage by over 80% compared to this time last year.

Last quarter, we discussed a new revolutionary TV manufacturer, we signed.

We entered the market with our technology in Q2, and you will hear more about them later this year.

This will drive further usage of our technology in this space, where we believe there is significant opportunity.

For <unk>, we have also either signed extended or gone into production with multiple brands, such as robust printers coffee machines and kiosks.

And we are collaborating with a large home automation Iot company and one of the largest telcos in the U S.

As I mentioned earlier with the launch of <unk> Jaco automotive, we created a number of upsell opportunities and we are in conversation with the majority of our automotive customers as well as quickly gaining interest from new brands New major crime.

We continue to see a surge in enthusiasm for AI, which has brought significant interest from customers and AI followers. We believe the new AI disruption that has catalyzed biogenerative AI will have a larger impact in nearly all industries in the last mobile disruption.

We believe <unk> is uniquely positioned to achieve significant long term success in the new AI era, even our deep voice and conversational AI expertise robust patent portfolio full technology stack and our years of collaborating with major brands within key industries, including automotive smart devices and now customer service.

In line with our track record as a leading innovator in AI townhome is trailing its own foundational motto in generative AI.

But our approach is different in set up yet another large language model.

Combining everything we've learned in nearly two decades to take it to the next level.

Our foundational model will be multimodal supporting audio and text input and audio and text output.

<unk> based instant customization capabilities that used to take significant software engineering and machine learning to achieve.

We will focus on features that we know will change the equation in the numerous applications we are building.

We will be able to use billings of real conversation and over a million hours of audio data in dozens of languages, so carefully accumulated over the years.

The amounts and highly relevant nature of these data gives <unk> a unique advantage our internal name for the foundational model is Polaris matching our ambition to create the brightest star in the constellation of foundational models.

We'll have more to share about Polaris soon.

We have an amazing and passionate team that makes all this possible I want to thank them for their tireless efforts to get us to where we are today and playing a lead role in harnessing the technology at the heart of one of the biggest disruptions any story and making it practical Andrea.

In closing, we are innovating faster than ever we're growing we're on our way to profitability and have significantly increased our cash position we.

We have the core voice and conversational AI technology built from the ground up which gives us a distinct competitive advantage to maintain our leadership position and further add to the AI disruption that will make the world a better place and create tremendous value.

With that I'll now turn the call over to Nick to talk about our financial performance key growth drivers and full year outlook in more detail.

Thank you, Kevin and good afternoon, everyone.

We are pleased to report another strong quarter and solid first six months of the year with 48% year over year top line growth and a 75% gross margin.

All while significantly reducing our operating loss.

We are also vastly improved our cash position and closed the quarter with total cash of approximately $130 million.

The accelerant and AI continue to expand our sales opportunities with existing customers and catalyze new customer interest.

These new opportunities have only further validated our long term vision to voice enable the world by bringing together billions of voice enabled products and services and unleashing the flywheel of their interconnectivity and new monetization streams.

This is the essence of the three pillar business model, we have described before product royalties service subscriptions and monetization.

This quarter, we ended with $339 million in cumulative bookings backlog up 20% year over year.

To reiterate our bookings are derived from committed customer contracts and reflects expected revenue to be realized from those contracts over its life.

These contract can have minimum guarantees or include work completed but amortized revenue not yet recognized due to ASC 606 rules and in many case. They include customer estimates of volumes for auto or device shipments for example, generally supported by historical benchmarks.

The cumulative bookings goes up as new deals are signed or if existing customers extend and goes down as revenue is recognized.

As we have discussed previously cumulative bookings backlog growth can be uneven given the scale of our enterprise customers relative to us.

We've added customers across industries, such as in telecommunications printers, and Tvs to name a few including automotive we have long term contracts spanning up to eight and a half years with an average contract length of roughly six five years and as I've stated before these are backend weighted.

And pillar, one where we voice enabled products, we continue to extend our offering across new units, while adding more features.

And autos, which represents the majority of this pillar, we increased our new units by 60% and our active cloud users increased by close to 70% versus prior year.

Within pillar, two where we've always enabled services.

Expanding our offering beyond restaurants to a much broader customer base with smart answering although it's very early because of the more streamlined onboarding. We are very encouraged with how quickly this can build.

For restaurants, or smart ordering solution is beginning to solidify our strong subscription base.

We have already closed with hundreds of brands, including the White Castle expansion Kayvon highlighted earlier.

Aside from that our current mix is predominantly SMB customers and we are expanding in regional and middle market segments.

Let me give you two quick examples of some of our traction.

Now this is a while has nearly 30 locations spread mainly over the east coast and mid Atlantic region.

A few months into Onboarding two of their locations are products surpassed performance expectations and they have now signed up to rollout across the entire remaining fleet in the next few months.

Hot table is selling delicious panini sandwiches in the new England region and after piloting one location just last week, we have activated four new locations in just one day, John rapid pace to scale across all of their location.

These are tangible examples and when do you envision the opportunity across the million food establishment in the U S alone hopefully you can understand our excitement.

Over time, we will provide more details of the key metrics, we're watching here, but to give you a current sets of the near term opportunities with solely the brands. We have signed up to date at scale and full deployment across these customers groups, we would have over 500 locations and well over $10 million of IRR.

This one specific business opportunity and our pipeline continues to strengthen.

Let me now get specific on our financial results for the second quarter.

In Q2, we generated $8 8 million in revenue up 42% year over year, driven by strong growth in our product royalties primarily in automotive.

The expansion is mainly driven by an increase in auto units overall as well as a slight increase in unit prices.

And on accumulative basis, we saw our Iot cloud units expand both sequentially and year over year.

Additionally, our customer contract modification positively impacted product royalty revenue as the royalty increases from other international customers.

These were partially offset by a decrease in customization services revenue versus the prior year Q2.

In June we finalized an agreement to modify the scope of an existing hosting services contract without changing the contract price.

<unk> involve the addition of new professional services in lieu of a tail support obligations beyond the contractual period, ending 12 31 2023.

Consequently, a portion of the professional services fee that was scheduled to be recognized after 2023 before the contract modification occurred roughly $1 $8 million will be fully recognized in 2023.

In Q2, our gross margin improved to 79% up from 60% in the prior year quarter, which was largely driven by the expanding scale of our business and increased data center efficiency. Also this quarter was there was a positive impact from the previously mentioned contract modification.

Cost of revenue for the quarter was $1 8 million a decrease of 26% year over year.

This improvement is due to the continued efficiency improvements from on premise activities to the cloud migration, helping us to drive further gross margin expansion as we scale the business.

Additionally, in Q2 last year, our datacenter migration weighed on our gross margins.

Operating expenses saw another step function reduction in Q2 compared to the previous quarter as we had our first full quarter after executing our announced corporate restructuring program in Q1.

R&D expenses were $11 7 million in Q2, a decrease of 38% year over year and 45% compared to Q4 last year. This decrease was largely due to the restructuring program, we announced last quarter. However, our investment in key areas has not slowed in this level of R&D spend is where we need to be.

We have the talent and expert engineering to support our growth while remaining at the forefront of innovation.

Sales and marketing expenses were $5 1 million in Q2, an increase of 16% year over year and a decrease of 25% compared to Q4 of last year.

We saw our year over year increase since we went public in Q2 last year and we're still in the beginning stages of ramping up our sales and marketing efforts.

We continue to streamline our focus on digital marketing lead generation and customer acquisition, both direct and through channel partners.

G&A expenses were $6 4 million in Q2, a decrease of 32% year over year and a decrease of 12% compared to Q4 of last year.

We experienced the majority of our going public cost in Q2, and Q3 last year and we saw this already start to taper off as we ended 2022.

Across all operating expenses noncash employee stock compensation was $5 6 million in Q2, excluding the minimal expenses associated with the restructuring as we finalize that program.

As a result, our Q2 operating loss was $16 4 million an improvement of 43% year over year.

Interest expenses, which include ongoing amortization impact in quarterly interest costs were slightly lower than anticipated at $5 6 million in Q2, however, slightly higher than we expect going forward due to one time transaction related fees and other charges incurred as a result of our debt financing in Q2.

Net loss was $21 9 million in Q2, an improvement of 28% year over year.

This led to a net loss per share in Q2 of <unk> compared.

Compared to <unk> 19 in the prior year.

Adjusted EBITDA, which excludes noncash charges of stock compensation, and depreciation and amortization as well as other non operating activities, including restructuring was a loss of $9 9 million.

Which was a 50% year over year improvement.

Yeah.

Net cash used in operating activities for the first six months was $33 7 million, improving roughly 28% year over year and a year over year improvement of 40% in the second quarter.

Okay.

Now onto our capital structure.

Our cash position at quarter end was approximately $130 million up from $47 million at the end of Q1 and Q2.

We raised $100 million of debt financing, which we partially used to pay off our existing debt of approximately $30 million and eliminate the associated principal amortization payments.

Our previously announced committed equity line of credit gave us additional access to capital upon which we raised approximately $43 million in Q2.

In July we filed a three year shelf registration under form S. Three which was not available to US previously. So this is just standard capital management and good housekeeping part of normal ongoing capital programs. The company should have in place and we don't have any immediate needs to raise additional funding off of that shelf that said.

It does allow us to be opportunistic and agile if the right circumstances arise our capital position is now a source of strength and gives us the optionality, we need to drive the business.

Okay.

With that let me discuss our outlook for the remainder of the year.

The first half in aggregate is landed pretty much in line with our expectations. Despite massive organizational and market shifts we are proud of this.

As we look to the second half there are a number of factors at play.

There is tremendous interest in our solutions that are opening many new avenues that we did not fully foresee earlier this year, particularly in generative AI.

That said most of these are in large enterprise deals that can have longer deal cycles and can fluctuate.

The pace and vastness of these deals gives us greater conviction on the potential strength and momentum into 2024 and beyond but we will comment on next year later in the year, when we get closer to that time.

Because of our unique market positioning differentiated tech and massive addressable market. We continue to believe over the longer term, we have the foundation to deliver strong sustained and meaningfully disruptive growth.

In the near term there continues to be a nuance macro picture and volatility in the markets in which we participate with uncertainties in green shoots growing together, mainly attributable to the timing of our large enterprise opportunities.

Ultimately, though we believe the longer term tailwind are largely in our favor.

All that said calibrating the puts and takes we reiterate our 2023 revenue outlook of 43% to $50 million.

As we noted last quarter, our revenue builds throughout the year due to seasonality of pillar, one and the scaling of pillar two.

And we continue to work towards becoming adjusted EBITDA positive in Q4 of this year.

Okay.

Before closing I'd like to note that last week, our auditor Armani.

<unk> notified us that they have made a business decision to exit that public company SEC audit practice.

As such our audit Committee has launched a process to find a new auditor. This is a business decision by our menino that affects dozens of their clients and is not at all a reflection of our financial position or any previously audited financials.

To summarize we are driving significant market differentiation delivering on customer demand and catalyzing disruptive innovation with a high velocity.

Each quarter on our journey brings its own unique dynamics, yet we are steadily piecing together the foundations for sustainable long term growth and profitability.

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

Okay.

Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw your question Press Star One again, one moment, while we compile the Q&A roster.

And our first question will come from the line of Mike Latimore with Northland Capital markets. Your line is open.

Great. Thanks, Yeah congrats on.

Strong results here.

Yes.

In terms of the second half outlook, we should think about that is largely driven by.

License deals out of backlog is that still the key kind of second half driver.

Yeah, Hey, Mike.

Yes, I think it will come from pillar one activity by the <unk>.

Backlog, but also some new deals potentials that I mentioned are sort of in motion.

We do continue to see great traction in the <unk>.

Pillar two as I articulated there is we're building.

Our IRR pipe.

Thank you are alluding to is dose really end up being monthly recurring so those will build and be consistent over time, but as we keep adding more and more restaurants, that's going to be increasingly a 2024 and out story. So.

Yes, I mean, we have and I think I mentioned in the prepared remarks, there has been a seasonality that comes with our business, particularly with respect to auto isn't just the trending of.

<unk>.

Vehicle shipments and so forth.

So it's a composition of a few different things.

But I think that that's kind of the mix.

Yes.

<unk>.

Maybe I missed it but did you say, whether opex should trend down a little bit from here or is this a good kind of run rate level.

It's probably a generally a good run rate level that I'd say is we took most of those restructuring actions in Q1 itself. There was a little bit of restructuring expense in Q2, but largely complete.

At this point, we feel like we're largely in the right place we are being thoughtful about areas, where things are moving around pretty quickly. So we need to be concerned about driving additional investments, we're not going to shy from doing that again, maintaining our commitment to getting to the right place on profitability.

So in a couple of pockets, where making shifts in a couple of places we're moving away from so I'd say by and large as appropriate to kind of think of it as this is a good level.

It really kind of comes to scaling revenue.

And just last one great to see the White castle expansion.

Can you talk a little bit about the ROI they saw in there.

Initial.

Launch and then.

Yes, it is going to rollout over a year and a half.

Assuming it does get our auditors so why why wouldn't they rollout a little faster I think you guys can kind of get twice assay method.

Yes, the 100 number.

Is by the end of next year, but it's not it's actually happening.

Already quite quite fast. So we are in multiple locations and to have an aggregate target to add more and more.

The drive thru requires some hardware upgrade in.

It's not just a swap out the software so it takes a bit of time on.

Your earlier question.

They they had.

The key metrics that we're looking for in terms of.

Order completion rates.

That is correct.

And the by far exceeded the number that they were looking for and we at least are past their human.

Order takers, so theyre very happy with the partnership.

The way on return Mike.

Obviously labor cost.

Benefits of utilizing AI.

There is the opportunity to have upsell, which could generate revenue there is consistency of service.

I think in our press release, we commented it's 24, 7% coverage over.

Place that does operate 24, seven thats meaningful you don't get deterioration of performance because you're tired if your AI as an example, so multiple things from an ROI perspective, I think are very attractive to these these restaurants.

Okay, Alright, great congrats.

Yes.

Thanks, Mike Thank you.

And thank you one moment our next question.

And that will come from the line of Brett Knoblauch with Cantor Fitzgerald. Your line is open.

Hi, guys. Thanks for taking my question I guess the first one.

I think we look at like other AI companies in the market, who attends training models and they are spending a lot of money on the capex in this build out and I guess when we look at kind of your guys capex quite minimal. So could you maybe remind us why maybe you don't need the capital.

The other businesses that are trying to acquire compute and whatnot.

While we have been training models for.

Over 10 years. So some of that has accumulated so we have both AI models in.

Dozens of languages.

So some of it is reflected in that but we have become very efficient in the way, we train models and reducing cost and also.

We have scale.

Already with traffic that we have to serve with a real.

Process billions of queries.

And we are being smart about utilizing our capacity.

Then.

The same hardware is not being used to serve the production traffic. So.

Youre trying to not have additional expenses to trend large models.

Beyond what we have already allocated going forward.

And we've talked about before we've migrated cloud providers utilize Oracle OCI and we have great partnership there that gives us access to Gpus, and all that kind of technology that we need to.

To be able to train our models so.

And the business model already.

Perfect and then.

I guess now that you guys have like ample liquidity, what's going to be the investment strategy as it relates to building out your go to market strategy.

Within the area, where you haven't invested much as you guys kind of an R&D focus on a product led company. So I guess could you just maybe explain what your vision is for what your go to market strategy will look like.

Yes, certainly.

So it depends on the pillar <unk>.

Pillar one we built.

Great set of partnerships and customer base.

With really just a handful of business development resources and that was kind of our history dating back many many years.

And it was on the foundation of Great technology differentiated technology in the marketplace, our capacity to work flexibly and with a lot of agility and scale.

And so that was sort of one I think we will continue to grow we leveraged channel partnerships. We've mentioned Qualcomm example.

An opportunity to leverage it great partner embed the voice AI with Snapdragon chip and get access there's other partners when we talked to pillar two it's a little bit of a mix between direct go to market motion as well as channel partners. So we have our own sales team we've been growing they are very active.

Engaging with small medium enterprises, but also regional and end market and going to conferences getting our dynamic interaction technology in front of people because as Kevin mentioned in the prepared remarks, when we get that out there people see it there while they really want to they want to keep the conversation going.

But we supplement that and really complement that and get a lot of scale with channel partners. So we've talked about how we can now integrate with toast square Oracle, although were adding others.

And those are great because it.

Take.

Toast is an example, I believe they have 100 sales reps that we've been trained we trained the sales reps before to kind of showcase our technology, how we can integrate with them and that just gives us greater reach so that's that's.

That's sort of what we're doing on the go to market motion.

I will say you are right. We are feeling great about where we are from the capital perspective, and it's really around execution and going out and continuing to get scale in.

Waves that we can just quickly get large enterprise franchises are interesting to us and we'll continue to look at both direct and indirect ways of accessing those customers.

Got it and then for your full year Guide I guess, you need any like one time license.

A big one time license deals for you to reach that mid point or do you think that can come just from increase.

Usage or inquiries from product royalties.

We do different in our licensing theres sort of a royalty scaling and then we do have onetime nra's from time, we did various deals we do professional services engagement. So that's all part of the contemplation I don't know that I can break that up too much other than just scaling in units at the pace. We're going that gets you part of the way, but yes.

We need to do some other deals in that but that's part of our overall motion as we work week. If we have to do upfront custom development work, then we get that and if we complete that within a certain period of time, we recognize that if the performance obligations long are we amortize. It. So some of it is the rollout and some of it is we got to go do deals. We've got a lot of deals in motion and I think I mentioned, especially with adjourn.

The AI stuff Theres, just a lot more interesting conversations going on.

But those are large deals and the timing is not always perfect. So.

We're going to keep hammering away at those and.

Showcase to you guys in future quarters, what we've been able to accomplish.

Awesome and then maybe if I could just ask one more.

I guess you guys said auto units were up 60% year over year pricing was also up year over year. So I guess, if im looking at product royalty revenue, which was $5 5 million last year.

I assume that grew 60% were just 60% that gets me to a number.

That's more than the revenue delivered in the quarter. So I guess, what am I missing from that equation.

In terms of units and pricing that kind of gets you to where you guys are at floating scores revenue.

Yes.

When we.

What I conveyed in the prepared remarks was around units and unit activity, which generally on our revenue recognition as we get a royalty report we invoiced off the royalty report we recognize that revenue revenue is also make comprised of previously completed NRA work that might amortize over the life of the support agreement could also include professional services. So.

For example on a year over year comp Thats included in the prior year number last year, we announced that we had with one particular customer in Europe and auto customer that we did some engineering work and that was I think particularly related like language deployments and some engineering work that we had to complete so those aren't necessarily related to.

Shipments.

So you have to sort of adjust for those things Thats why I tried to give the doubleclick of like what's actually going on the ground with units that are shipped because there can be that type of engineering and numbers that they're playing out and I don't want to say <unk> is just changing that number so that was that's a reflection in our prior year numbers.

Awesome. Thanks, guys really appreciate it congrats on the quarter.

Thanks, Brett.

Thank you.

Thank you and Im showing no further questions in the queue. At this time. This concludes today's program. Thank you all for participating you may now disconnect.

[music].

Yes.

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Yeah.

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Yes.

Mhm.

[music].

Good day and welcome to the second quarter 2020.

Three earnings conference call at this time, all participants are in a listen only mode. After the speaker 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 you will then hear an automated message advising your hand is right to withdraw your question Press Star one again.

Please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker, Mr. Scott Smith head of Investor Relations.

Floor is yours Sir.

Good afternoon, and thank you for joining our second quarter 2023 conference call.

With me today is our CEO came on the harder at our CFO and a test Sharon Merrill.

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

I'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 by our forward looking statements.

Please refer to our filings with the SEC for a detailed discussion of the risks and uncertainties that could affect our business and for discussion statements qualify as forward looking statements in.

In addition.

We may discuss certain non-GAAP measures.

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

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

We undertake no obligation to update any forward looking statements, except as required by law.

Finally, this call is being audio webcast in its entirety on our Investor Relations website, an audio replay will be available 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.

In Q2, we started our second year as a public company.

With our first full year coming to an end we are happy to have reported over 80% revenue growth on a trailing 12 month basis.

Ramped up our innovation cycle and at the same time gain efficiencies across the company.

Being in the 50% year over year adjusted EBITDA improvement in Q2.

Over the years is demonstrated a track record as a leading innovator in AI.

This is one of the main reasons, we've been able to attract strategic investors like Nvidia, Samsung Tencent Andi neighbor, HTC, Vizio, Foxconn Oracle and others.

While organizations have spent billions of dollars trying to build voice and conversational AI technologies in house, we were able to do that with a fraction of that investment with our creative innovation and focus dedication.

As a result, our voice AI powered millions of cards Tvs apps, and Iot devices generating billions of successful user interactions each year.

Okay.

Because of our routes in deep science over the years, we've created groundbreaking advancements in voice AI from speech, two meaning deepening understanding collective AI dynamic interaction and archive and cognex frameworks and globalize them in dozens of languages.

As an example of another recent innovation, we introduced townhouse at AIG for Automotives. This combines our proprietary voice AI with the latest generative AI built from large language models in our view.

<unk> AI is completely unique in the industry and no one else can claim these type of progress.

Within a short timeframe several of our existing customers have started piloting the solution in their products and we have received proposals request from new brands.

We expect the increased performance, resulting from Townhomes that AI.

Will result in faster adoption better user experience more frequency usage and ultimately more revenue per device from ocular one category of automotive and Iot customers.

In a recent pilot conducted by one of our key customers. The usage increased by an order of magnitude after enabling the features.

We expect adoption of our platform from some of our customers as early as this year.

In pillar, two which offers conversational AI for customers that these solutions are smart ordering continues to benefit from our unique technology advantage of handling complex and compound queries, which is especially important input corey or they're in conversation over the phone.

In the last quarter, we were able to further improve our solution by applying our generative AI integration really taking it to the next level.

Now I would like to pay a sample dialog with our next generation of smart ordering AI that is rolling out in the coming weeks to our existing and new restaurant customers.

What can I get for you.

I'm going to call into question order them at all.

It is three years old and chemo ticking either do you have any recommendations for her.

Of course for your taking either I would recommend our kids mcintee, It's a classic favorite among children. We also have kids taken fingers and kids grilled cheese FC preferred those options. Let me know if you need any more information or if you would like to place an order, yes can I get the kids Mac and cheese with.

Apple juice.

Okay.

I've added a kid's Mac N cheese with Apple juice and yogurt to your order can I get you anything else. Yeah. I was there last week and had one of those cheeseburger Dallas really Joe.

I don't remember what you call it.

I'll go to like traditional asset.

Absolutely classic.

Clinically.

One of those with 17.

Yes.

Sure I've added a COO.

<unk> cheeseburger with better order what else can I got you.

Thank you so much.

Most recently, we are excited to have launched our low tax out of the box AI customer service solution Smart answer Inc.

Will be formally announced soon.

Smart answering we expand our AI customer service offering from just restaurants to any business, even a single location Barbara shop that can benefit from Sam has AI customer service.

In the short term off smart answer would be the barbershop.

Okay.

Thank you for calling Smith brothers luxury grooming Salon for men. This call is recorded and if you need privacy info.

How can I help you today, yes.

I wanted to surprise, my daughter, who lives in Basel movie by down my hair blond right Ken.

Was hoping you guys do.

Yes, we offer hair coloring for minutes Smith brothers Golan recall starts from $250 is there anything else I can help you with today.

We have another color my hair, so I don't really know how we would react.

I was wondering if I could schedule was hoping just to ask a few questions Jeff and advice.

Great we offer professional consultations for Haircoloring you can easily make an appointment on our web site would you like me to talk to you a link to make it easy for you sure that sounds great.

Okay I have sent the link to you is there anything else I can help you with today do you have any advice on how to get there should our driver take public transit.

To get the Smith brothers Golan via public Transit you can take the Brown line to Edison station, which is a five minute walk from our location. If you decide to drive we don't have any dedicated parking but there is usually street parking available on Lincoln Avenue is there anything else I can help you with today.

Actually yeah do you allow dogs.

Yes, we allow dogs in our salon, if you'd like to learn more about our policy I'd be happy to text you a link to our website, where you can read additional details would you like me to do that now.

The problem is that when you talk to the rescue she gets a bit rowdy winning around other dogs.

What has to get used to going out, but it's not that there aren't any other dogs in the salon.

Is it possible to figure out a time when that would work.

Okay, I will pass along a message to owner Jared Smith, so that it can be in touch with you biotechs to discuss arranging a time when no. Other dogs will be present is there anything else I can help you with today.

Good.

Thanks for thinking about for your hair coloring need have a great day goodbye awesome. Thanks. Thank you.

As compared to human centric low margin call Center solutions are fully autonomous solution is affordable and can attract brands of all sizes, whether the brand has a single location or thousands of locations.

When a color interacts with our AI.

Only interacting with AI and there is no human involvement in the color specifically asked to talk to a human usually at the beginning of the call. Our medicines have the option to receive the call directly or <unk> agents.

For example, using the last week of July about 93% of orders placed with our smart ordering solution were handled by AI and only 7% of our pump transfers.

We expect the rate of these transfers to decrease over time as colors become more comfortable and confident speaking to an AI. In fact, we expect the colors will ultimately prefer to speak on NII instead of a human.

Our AI is also always learning both generically and specific to our merchant after going live with the merchant our AI capabilities and accuracy improve as it learns to interact with user specific to a particular business with.

With this technology, we believe we can unlock long term value for businesses.

We've heard from restaurants allowed unclear we are hungry for these type of automation as it directly create financial returns by addressing labor shortages overall cost pressure and help them generate revenue.

We are deeply engaged with thousands of brands and have already closed with hundreds of them. Thanks to our direct sales and strong channel partner ecosystem, including Toast square Oracle and <unk>.

Last week, we announced that we are significantly expanding our relationship with White castle, where they've committed to provide AI powered ordering to a 100 drive thru lane by the end of 2024.

And because our products are designed to be scalable, we can address a wide variety of restaurants across a diverse array of cuisines and different sizes.

For example, there.

We're also delighted to be providing voice AI technology to beef up <unk>, which is the part of FSC franchise co as a restaurant company with multiple brands that span 25 states and more than 180 locations.

And you are adding more customers everyday for instance, neither bakeries Hot table now this hela schliemann husky's crust pizza chemo sushi Nowy tie Italian.

Italian and dialect cafe, among hundreds of others, not especially the diversity of cuisine types and brand sizes, which give us access to a larger market share than vendors that due to technology and scale limitations into focused on just enterprise customers or specific holdings.

And we'd start answering because we're just getting started allowing any business to handle nearly any inbound customer inquiry using automated and customizable voice assistant.

Using AI to automatically incorporate data from their business website.

Knowledge base.

Answering provides quick and easy onboarding, allowing the customer to test it out within minutes and be light on the same day.

The service can handle multiple calls at once 2007, and conveniently filters out spam calls saving hours are placed at time for any business. It can also provide convenient SMS responses. In addition to bareboat answers and it can seamlessly transfer to any employee after business if necessary.

Smart ordering and smart answering are complemented by our visually enhanced somehow dynamic interaction, which is our multimodal full duplex interface for kiosks drive through or any device with a screen.

I encourage everyone to visit our website and watch the Denmark dynamic interaction, we consistently get a viral response anytime somebody to introduce these products for the first time.

We attended the National Restaurant Association Conference. This year dynamic interaction stole the show trade media selected dynamic interaction as one of the top things to see on the show floor. Among all vendors in all categories. So not just technology.

A typical reaction from our target customers, it's not just if they're interested in it and found out that I'm interaction, but how can we go live with this as fast as possible.

We're already working with a number of potential customers, including our fast growing large franchisor that operates in 30 states and we plan to start rolling out dynamic interaction in the coming weeks.

Okay.

We are very excited about our pillar two business there is more to share in our pillar, one category, where repower products, such as cars Tvs and Iot devices.

This has been a critical part of our business since launching our voice AI platform in 2016 in particular growth in the automotive industry requires long term investment global reach and is difficult to penetrate thanks to our track record and differentiated technology, we continue to expand into our large customer base of about 20 brands, including Honda in Atlantis.

As well as initiate production with new companies such as tug it transformation all purpose electric car manufacturer.

Overall, we are seeing expansion of usage in our categories seeing more inquiries with the device V power, which has increased our annual run rate to over $2 8 billion.

This frequency of usage increases the performance of our AI systems will continue to get even better and more intuitive as they learn from the new data and large amounts of existing data.

Our extensive experience in data so far have already fine tune, our machine learning tools to make our products highly valuable to businesses and more useful to users. We now predict faster adoption new contract used cases, and ultimately more revenue per device.

Our strategic channel partnerships are also generating momentum for example, Qualcomm has integrated voice AI on a chipset with the Snapdragon digital Kathy and is showcasing its on the concept vehicle.

These talks are Santa partnerships are critical in developing growth in the automotive industry.

I also wanted to specifically call out the traction youre seeing in Tvs, where we've increased the usage by over 80% compared to this time last year.

Last quarter, we discussed a new revolutionary TV manufacturer, we signed.

They entered the market with our technology in Q2, and you will hear more about them later this year.

This will drive further usage of our technology in this space, where we believe there is significant opportunity.

For Iot, we have also either signed extended or gone into production with multiple brands, such as robust printers tea coffee machines and kiosks.

And we are collaborating with a large home automation Iot company and one of the largest telcos in the U S.

As I mentioned earlier with the launch of Shanghai Jaco automotive, we created a number of upsell opportunities and we are in conversation with the majority of our automotive customers as well are quickly gaining interest from new brand new major brands.

We continue to see a thirst and enthusiasm for AI, which has brought panhandle significant interest from customers and AI followers. We believe the new AI disruption that has catalyzed by generative AI will have a larger impact in nearly all industries and the last mobile disruption.

I believe <unk> is uniquely positioned to achieve significant long term success in the new AI era, given our deep voice and conversational AI expertise robust patent portfolio full technology stack and our years of collaborating with major brands, we didn't key industries, including automotive smart devices and now customer service.

In line with our track record as a leading innovator in AI. How many training is one foundation of our model in generative AI.

But our approach is different in set up yet another large language model.

Combining everything you've learned in nearly two decades to take it to the next level.

Our foundation, our model will be multimodal supporting audio and text input and audio <unk> output.

<unk> based instant customization capabilities that used to take significant software engineering and machine learning to achieve.

We will focus on features that we know will change the equation in the numerous applications we are building.

We will be able to use billings after your conversation and over a million hours of audio data in dozens of languages, so carefully accumulated over the years.

The amount and highly relevant nature of these data you somehow a unique advantage our internal name for the foundational Malo is polaris matching our ambition to create the brightest star in the constellation of foundational models.

We will have more to share about Polaris soon.

In closing, we are innovating faster than ever we're growing we're on our way to profitability and have significantly increased our cash position.

With that I'll now turn the call over to <unk> to talk about our financial performance key growth drivers and full year outlook in more detail.

Thank you, Kevin and good afternoon, everyone.

We are pleased to report another strong quarter and solid first six months of the year with 48% year over year top line growth and a 75% gross margin.

All while significantly reducing our operating loss.

We are also vastly improved our cash position and closed the quarter with total cash of approximately $130 million.

Okay, the accelerant and AI continue to expand our sales opportunities with existing customers and catalyze new customer interest.

This is the essence of the three pillar business model, we have described before product royalties service subscriptions and monetization.

This quarter, we ended with $339 million in cumulative bookings backlog up 20% year over year.

To reiterate our bookings are derived from committed customer contracts and reflect expected revenue to be realized from those contracts over its life.

The cumulative bookings goes up as new deals are signed or are existing customers extend and goes down as revenue is recognized.

As we have discussed previously cumulative bookings backlog growth can be uneven given the scale of our enterprise customers relative to us.

We've added customers across industries, such as in telecommunications printers, and Tvs to name a few including automotive we have long term contracts spanning up to eight five years with an average contract length of roughly six five years and as I've stated before these are backend weighted.

And pillar, one where we voice enabled products, we continue to extend our offering across new units, while adding more features.

And autos, which represents the majority of this pillar, we increased our new units by 60% and our active cloud users increased by close to 70% versus prior year.

Within pillar, two where we've always enabled services.

We're expanding our offering beyond restaurants to a much broader customer base with smart answering although it's very early because of the more streamlined onboarding. We are very encouraged.

With how quickly this can build.

For restaurants, or smart ordering installation is beginning to solidify our strong subscription base.

We have already closed with hundreds of brands, including the White Castle expansion Kayvon highlighted earlier aside from that our current mix is predominantly SMB customers and we are expanding in regional and middle market segment.

Let me give you two quick examples of some of our traction.

Now this is a while has nearly 30 locations spread mainly over the east coast admitted plant tick region.

A few months into Onboarding two of their locations are products surpassed performance expectations and they have now signed up to rollout across the entire remaining fleet in the next few months.

These are tangible example, and when do you envision the opportunity across the million food establishment in the U S alone hopefully you can understand our excitement.

Over time, we will provide more details of the key metrics. We are watching here, but to give you a current sets of the near term opportunities.

Solely the brands, we have signed up to date at scale and full deployment across these customers groups, we would have over 500 locations and well over $10 million of IRR from this one specific business opportunity and.

Our pipeline continues to strengthen.

Let me now get specific on our financial results for the second quarter.

In Q2, we generated $8 8 million in revenue up 42% year over year, driven by strong growth in our product royalties primarily in automotive.

The expansion is mainly driven by an increase in auto units overall as well as a slight increase in unit prices.

And on accumulative basis, we saw our Iot cloud units expand both sequentially and year over year.

Additionally, our customer contract modification positively impacted product royalty revenue as the royalty increases from other international customers.

These were partially offset by a decrease in customization services revenue versus the prior year Q2.

In June we finalized an agreement to modify the scope of an existing hosting services contract without changing the contract price.

Modification involved. The addition of new professional services in lieu of a tail support obligation beyond the contractual period, ending 12 31 2023.

Cost of revenue for the quarter was $1 8 million a decrease of 26% year over year.

This improvement is due to the continued efficiency improvement from on premise activities to the cloud migration, helping us to drive further gross margin expansion as we scale the business. Additionally.

Additionally, in Q2 last year, our data center migration weighed on our gross margins.

Operating expenses saw another step function reduction in Q2 compared to the previous quarter as we had our first full quarter after executing our announced corporate restructuring program in Q1.

We have the talent and expert engineering to support our growth while remaining at the forefront of innovation.

Sales and marketing expenses were $5 1 million in Q2, an increase of 16% year over year and a decrease of 25% compared to Q4 of last year.

Our year over year increase since we went public in Q2 last year and we're still in the beginning stages of ramping up our sales and marketing efforts.

Continue to streamline our focus on digital marketing lead generation and customer acquisition, both direct and through channel partners.

G&A expenses were $6 4 million in Q2, a decrease of 32% year over year and a decrease of 12% compared to Q4 of last year.

We experienced the majority of our going public cost in Q2, and Q3 last year and we saw this already start to taper off as we ended 2022.

Across all operating expenses noncash employee stock compensation was $5 6 million in Q2, excluding the minimal expenses associated with the restructuring as we finalize that program.

As a result, our Q2 operating loss was $16 4 million an improvement of 43% year over year.

Interest expenses, which include ongoing amortization impacts and quarterly interest costs were slightly lower than anticipated at $5 6 million in Q2, however, slightly higher than we expect going forward due to one time transaction related fees and other charges incurred as a result of our debt financing in Q2.

Net loss was $21 9 million in Q2, an improvement of 28% year over year. This led to a net loss per share in Q2 of <unk> compared to <unk> 19 in the prior year.

Adjusted EBITDA, which excludes noncash charges of stock compensation, and depreciation and amortization as well as other non operating activities, including restructuring was a loss of $9 9 million, which was up 50% year over year improvement.

Net cash used in operating activities for the first six months was $33 7 million, improving roughly 28% year over year and a year over year improvement of 40% in the second quarter.

Yes.

Now onto our capital structure.

Our cash position at quarter end was approximately $130 million up from $47 million at the end of Q1 and Q2.

We raised $100 million of debt financing, which we partially used to pay off our existing debt of approximately $30 million and eliminate the associated principal amortization payments are.

Our previously announced committed equity line of credit gave us additional access to capital upon which we raised approximately $43 million in Q2 and.

It does allow us to be opportunistic and agile if the right circumstances arise our capital position is now a source of strength and gives us the optionality, we need to drive the business.

Okay.

With that let me discuss our outlook for the remainder of the year.

The first half in aggregate Atlanta pretty much in line with our expectations. Despite massive organizational and market shifts we are proud of this.

As we look to the second half there are a number of factors at play.

There is tremendous interest in our solutions that are opening many new avenues that we did not fully foresee earlier this year, particularly in generative AI.

That said most of these are in large enterprise deals that can have longer deal cycles and can fluctuate.

Ultimately, though we believe the longer term tailwind are largely in our favor.

All that said calibrating the puts and takes we reiterate our 2023 revenue outlook of 43% to $50 million.

As we noted last quarter, our revenue builds throughout the year due to seasonality of pillar, one and the scaling of pillar two.

And we continue to work towards becoming adjusted EBITDA positive in Q4 of this year.

Okay.

Before closing I'd like to note that last week, our auditor, our menino LLP notified us that they have made a business decision to exit the public company SEC audit practice.

To summarize we are driving significant market differentiation delivering on customer demand and catalyzing disruptive innovation with a high velocity.

Each quarter on our journey brings its own unique dynamic yet we are steadily piecing together the foundations for sustainable long term growth and profitability.

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

Okay.

Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw your question Press Star one again.

While we compile the Q&A roster.

And our first question will come from the line of Mike Latimore with Northland Capital markets. Your line is open.

Great. Thanks, Congrats on the.

Strong results here.

In terms of the second half outlook, we should think about that is largely driven by.

License deals out of backlog is that still the key kind of second half driver.

Yeah, Hey, Mike.

Yes, I think it will come from pillar one activity.

Backlog, but also some new deals potentials that I mentioned are sort of in motion.

We do continue to see great traction in the <unk>.

Two as I articulated there is we're building.

Our IRR pipe.

I think you are alluding to is dose really end up being monthly recurring so those will build and be consistent over time, but as we keep adding more and more restaurants.

Going to be increasingly a 2024 and out story so yes.

Yes, I mean, we have and I think I mentioned in the prepared remarks, there has been a seasonality that comes with our business, particularly with respect to auto isn't just the trending of.

<unk>.

Vehicle shipments and so forth so.

It's a composition of a few different things.

But I think that's kind of in the mix.

Yes.

And.

Okay, maybe I missed it but did you say, whether opex should trend down a little bit from here or is this a good kind of run rate level.

It's probably a generally a good run rate level that I'd say is we took most of those restructuring actions in Q1 itself. There was a little bit of restructuring expense in Q2, but largely complete.

At this point, we feel like we're largely in the right place we are being thoughtful about areas, where things are moving around pretty quickly, so where we need to be concerned about driving additional investments, we're not going to shy from doing that again, maintaining our commitment to getting to the right place on profitability.

So in a couple of pockets, where making shifts in a couple of places we're moving away from so I'd say by and large as appropriate to kind of think of it as this is a good level.

And it really kind of comes to scaling revenue.

Got it and just last one great to see the waste castle expansion.

Can you talk a little bit about the ROI they saw in there.

Initial.

Launch and then.

I guess, its going to rollout over a year and a half or so.

I'm, assuming it does get <unk>, so why why wouldn't they rollout a little faster I think you guys can kind of take place assay methods.

Yes, the 100 number.

Is by the end of next year, but it's not it's actually happening.

Already quite quite fast so we are in multiple locations.

Patients and to have an aggregate target to add more and more.

It's just a drive thru requires some hardware upgrade in.

It's not just a swap on the software so that takes a bit of time.

On your earlier question.

They they had.

The key metrics that they were looking for in terms of.

Order completion rates.

That is correct.

And the by far exceeded the number that they were looking for and be surpassed their human.

Order takers. So they are very happy with the partnership and.

By the way on return Mike.

There is obviously labor cost.

Benefits of utilizing AI.

There is the opportunity to have upsell, which could generate revenue. There is consistency of service I think in our press release, we commented it's 24, 7% coverage over.

For a place that does operate 24, seven thats meaningful you don't get deterioration of performance because you're tired if your AI as an example, so multiple things from an ROI perspective, I think are very attractive to these these restaurants.

Okay, Alright, great congrats.

Thanks, Mike Thank you.

And thank you one moment for our next question.

And that will come from the line of Brett Knoblauch with Cantor Fitzgerald. Your line is open.

Hi, guys. Thanks for taking my questions I guess, the first one and.

I think when you look at like other AI companies in the market and what kind of training models and they're spending a lot of money on the capex on the build out and I guess when we look at kind of your guys. Capex is quite minimal. So could you maybe remind us why maybe you don't need the capital.

The other businesses that are time will acquire compute and whatnot.

While we have been training models for.

Over 10 years. So some of that is accumulated so we have <unk>.

With AI models in dozens.

Dozens of languages.

So some of it is reflected in that but yes, we have become very efficient.

The way, we train models and reducing cost and also.

We have scale.

Already with traffic that we have to serve that are real.

Process billions of queries.

And we are being smart about utilizing our capacity.

Then.

The same hardware is not being used to serve the production traffic. So.

We are trying to not have additional expenses to trend large models.

Beyond what we have already allocated going forward and.

And Brian we've talked about before we've migrated cloud.

Providers utilize Oracle OCI and we have great partnership there that gives us access to Gpus, and all that kind of technology that we need to.

To be able to train our models.

Sort of in the business model already.

Perfect and then.

I guess now that you guys have like ample liquidity, what's going to be the investment strategy as it relates to building out your go to market strategy.

Shortly then the area, where you haven't invested much as you guys kind of an R&D focus or a product led company. So I guess could you just maybe explain what your vision is for what your go to market strategy will look like.

Yes, certainly.

So it depends on the pillar <unk>.

Pillar one we built.

Great set of partnerships and customer base.

With really just a handful of business development resources and that was kind of our history dating back many many years.

And it was on the foundation of Great technology differentiated technology in the marketplace.

Capacity to work flexibly and with a lot of agility and scale and so that was sort of one I think will continue to grow we leveraged channel partnerships. We've mentioned Qualcomm example of it.

Engaging with small medium enterprises, but also regional and market and going to conferences getting our dynamic interaction technology in front of people because as Kevin mentioned in the prepared remarks, when we get that out there people see it there while they really want to they want to keep the conversation going.

But we supplement that and really complement that and get a lot of scale with channel partners. So we've talked about how we can now integrate with toast square Oracle, although were adding others.

And those are great because.

Take.

That's sort of what we're doing on the go to market motion.

I will say you are right we are.

Great about where we are from the capital perspective, and it's really around execution and going out and continuing to get scale in.

Waves that we can just quickly get large enterprise franchises are interesting to us and we'll continue to look at both direct and indirect ways of accessing those customers.

Got it and then for your full year Guide I guess do you need any like one time license.

A onetime license deals for you to reach that mid point or do you think that can come just from increase.

Usage or inquiries from product royalties.

We need to do some other deals in that but that's part of our overall motion as we work week. If we have to do upfront custom development work, then we get that and if we complete that within a certain period of time, we recognize that if the performance obligations longer we amortize. It. So some of it is the rollout and some of it is we got to go do deals. We've got a lot of deals in motion and I think I mentioned, especially with the <unk>.

<unk> AI stuff Theres, just a lot more interesting conversations going on.

Those are large deals and the timing is not always perfect. So.

We're going to keep hammering away at those and.

Showcase to you guys in future quarters, what we've been able to accomplish.

Awesome and then maybe if I could just ask one more.

I guess you guys said auto units were up 60% year over year pricing was also up year over year. So I guess, if im looking at product royalty revenue, which was $5 5 million last year.

I assume that grew 60% or just 60% that gets me to a number that's more than the revenue delivered in the quarter. So I guess, what am I missing from that equation.

In terms of units and pricing.

Where you guys are at this quarter's revenue.

Yes.

When we.

Ample on a year over year comp Thats included in the prior year number last year, we announced that we had with one particular customer in Europe and auto customer that we did some engineering work and that was I think particularly related like language deployment and some engineering work that we have to complete so those aren't necessarily related to ship.

Shipments.

So you have to sort of adjust for those things Thats why I tried to give the doubleclick of like what's actually going on the ground with units that are shipped because there can be that type of engineering and numbers that they're playing out and I don't want to say, reaching or just changing that number. So that was that's a reflection in our prior year numbers.

Awesome. Thanks, guys really appreciate it congrats on the quarter.

Thanks, Brett.

<unk>.

Thank you and Im showing no further questions in the queue. At this time. This concludes today's program. Thank you all for participating you may now disconnect.

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