SOUNDHOUND AI INC

Previous wording

We have revised the previously issued condensed consolidated statements of operations and comprehensive loss, condensed consolidated balance sheets, condensed consolidated statements of cash flows and condensed consolidated statements of stockholders’ deficit tables as of and for the three months ended March 31, 2023 to correct for such errors as described in Note 18 of our notes to the condensed consolidated financial statements. All relevant prior period amounts affected by these revisions have been corrected in Management’s Discussion and Analysis of Financial Condition and Results of Operation in this Form 10-Q.

Current wording

We have revised the previously issued condensed consolidated statements of operations and comprehensive loss, condensed consolidated balance sheets, condensed consolidated statements of cash flows and condensed consolidated statements of stockholders’ deficit tables as of and for the three and six months ended June 30, 2023 to correct for such errors as described in Note 18 of our notes to the condensed consolidated financial statements. All relevant prior period amounts affected by these revisions have been corrected in Management’s Discussion and Analysis of Financial Condition and Results of Operation in this Form 10-Q.

Previous wording

In December 2023, we entered an Agreement and Plan of Merger (the "Acquisition") with a closing date of January 3, 2024 with Synq3, Inc. ("SYNQ3"), a leading provider of voice AI and other technology solutions to the restaurant industry, to acquire its issued and outstanding equity. The acquisition of SYNQ3 is expected to expand our AI customer service solutions and create the largest Voice AI provider for restaurants. We believe the acquisition will significantly extend our market reach to over 10,000 signed locations and accelerate the deployment of leading-edge generative AI capabilities to the industry — strengthening SoundHound’s leadership as we move to rapidly roll out our proprietary AI solutions to restaurants across the U.S. and beyond. Together, with a total of more than 25 national and multinational chains, the highly complementary businesses will match nearly two decades of SoundHound AI innovation with decades of SYNQ3 industry expertise and established relationships. We have incurred certain significant costs relating to the Acquisition, such as legal, accounting, financial advisory, printing and other professional services fees, as well as other customary payments. Refer to the "Liquidity and Capital Resources" section for discussion on the purchase price and the Acquisition's impact on SoundHound's liquidity and refer to "Item 1A. Risk Factors" in our Form 10-K for a discussion regarding the risks associated with the Acquisition.

Current wording

In December 2023, we entered an Agreement and Plan of Merger with a closing date of January 3, 2024 with Synq3, Inc. ("SYNQ3"), a leading provider of voice AI and other technology solutions to the restaurant industry, to acquire its issued and outstanding equity. The acquisition of SYNQ3 is expected to expand our AI customer service solutions and create the largest Voice AI provider for restaurants. We believe the acquisition will significantly extend our market reach to over 10,000 signed locations and accelerate the deployment of leading-edge generative AI capabilities to the industry — strengthening SoundHound’s leadership as we move to rapidly roll out our proprietary AI solutions to restaurants across the U.S. and beyond. Together, with a total of more than 25 national and multinational chains, the highly complementary businesses will match nearly two decades of SoundHound AI innovation with decades of SYNQ3 industry expertise and established relationships. We have incurred certain significant costs relating to the Acquisition, such as legal, accounting, financial advisory, printing and other professional services fees, as well as other customary payments.

Previous wording

We entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) on April 9, 2024 with Citigroup Global Markets Inc., Barclays Capital Inc., Wedbush Securities Inc., Northland Securities, Inc. and Ladenburg Thalmann & Co. Inc. (collectively, the "Managers") with respect to an at-the-market equity program. Under this program, we may offer and sell aggregate gross sale proceeds up to $150.0 million of shares of our Class A Common Stock ("Class A Common Stock") through the Managers. Refer to the "Liquidity and Capital Resources" section for more information.

Current wording

We entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) on April 9, 2024 with Citigroup Global Markets Inc., Barclays Capital Inc., Wedbush Securities Inc., Northland Securities, Inc. and Ladenburg Thalmann & Co. Inc. (collectively, the "Managers") with respect to an at-the-market equity program. Under this program, we may offer and sell aggregate gross sale proceeds up to $150.0 million of shares of our Class A Common Stock ("Class A Common Stock") through the Managers. As of July 11, 2024, we have fully utilized the capacity to sell common stock under the Equity Distribution Agreement. Refer to the "Liquidity and Capital Resources" section for more information.

Previous wording

We have and may continue to experience volatility for our remaining performance obligations and deferred revenue as a result of the timing for completing our performance obligations. We had remaining performance obligations in the amount of $11.8 million as of March 31, 2024. Given the applicable contract terms, $6.3 million is expected to be recognized as revenue within one year, $3.4 million is expected to be recognized between 2 to 5 years and the remainder of $2.1 million is expected to be recognized after 5 years. Deferred revenue consists of billings or payments received in advance of revenue being recognized and can fluctuate with changes in billing frequency and other factors. As a result of these factors, as well as our mix of revenue streams and billing frequencies, we do not believe that changes in our remaining performance obligations and deferred revenue in a given period are directly correlated with our revenue growth in that period.

Current wording

We have and may continue to experience volatility for our remaining performance obligations and deferred revenue as a result of the timing for completing our performance obligations. We had remaining performance obligations in the amount of $10.6 million as of June 30, 2024. Given the applicable contract terms, $5.5 million is expected to be recognized as revenue within one year, $3.1 million is expected to be recognized between 2 to 5 years and the remainder of $2.0 million is expected to be recognized after 5 years. Deferred revenue consists of billings or payments received in advance of revenue being recognized and can fluctuate with changes in billing frequency and other factors. As a result of these factors, as well as our mix of revenue streams and billing frequencies, we do not believe that changes in our remaining performance obligations and deferred revenue in a given period are directly correlated with our revenue growth in that period.

Previous wording

SoundHound’s cost of revenues are comprised of direct costs associated directly with SoundHound’s revenue streams as described above. This primarily includes costs and depreciation related to hosting for cloud-based services, such as data centers, electricity charges, content fees and certain personnel-related expenses including personnel costs under call centers that are directly related to these revenue streams. Additionally, our cost of revenues also includes the amortization of developed technology acquired from SYNQ3 as an intangible asset.

Current wording

SoundHound’s cost of revenues are comprised of direct costs associated directly with SoundHound’s revenue streams as described above. This primarily includes costs and depreciation related to hosting for cloud-based services, such as data centers, electricity charges, content fees and certain personnel-related expenses including personnel costs under call centers that are directly related to these revenue streams. Additionally, our cost of revenues also includes the amortization of developed technology acquired from SYNQ3 and other acquisition as intangible assets.

Previous wording

The change in fair value of contingent acquisition liabilities is related to contingent consideration from the Acquisition, The contingent consideration was determined to be liability classified and is remeasured as of each reporting period with a corresponding change in fair value recorded.

Current wording

The change in fair value of contingent acquisition liabilities is related to contingent consideration from the SYNQ3 acquisition. The contingent consideration was determined to be liability classified and is remeasured as of each reporting period with a corresponding change in fair value recorded.

Previous wording

Amortization of acquired customer relationships, tradename and conversation data is included within operating expenses and arises from the amortization of assets acquired through the Acquisition. We review intangible assets for impairment at least annually, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If an evaluation of recoverability is required, the estimated undiscounted future cash flows directly associated with the asset are compared with the asset’s carrying amount. If the estimated future cash flows from the use of the asset are less than the carrying value, an impairment charge would be recorded to write down the asset to its estimated fair value.

Current wording

Amortization of acquired customer relationships, tradename and conversation data is included within operating expenses and arises from the amortization of assets acquired through the acquisitions. We review intangible assets for impairment at least annually, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If an evaluation of recoverability is required, the estimated undiscounted future cash flows directly associated with the asset are compared with the asset’s carrying amount. If the estimated future cash flows from the use of the asset are less than the carrying value, an impairment charge would be recorded to write down the asset to its estimated fair value.

Previous wording

Interest expense consists of stated interest incurred on our outstanding convertible notes and term debt during the relevant periods, as well as the amortization of debt discounts and issuance costs over the life of the instruments or a shorter period if a lender can demand payment in the event certain events occur that are outside of our control.

Current wording

Interest expense consists of stated interest incurred on our formerly outstanding convertible notes and term debt during the relevant periods, as well as the amortization of debt discounts and issuance costs over the life of the instruments or a shorter period if a lender can demand payment in the event certain events occur that are outside of our control.

Previous wording

The issuance of debt instruments with direct transaction costs, embedded derivatives and warrant instruments has resulted in debt discounts. Direct transaction costs consist of various transaction fees and third-party costs, such as bank and legal fees, that are incurred upon issuance. Overall, the discounts from debt issuance costs result in an increased amount of interest expense over the amortization period.

Current wording

The issuance of debt instruments with direct transaction costs, embedded derivatives and warrant instruments has resulted in debt discounts. Direct transaction costs consist of various transaction fees and third-party costs, such as bank and legal fees, that are incurred upon issuance. We expect the impact of the discounts from debt issuance costs to the interest expense will decrease due to the repayment of Term Loan in June 2024.

Previous wording

Other income (expense), net consists of the change in fair value related to our derivative liability, interest income and other income (expense).

Current wording

Other income (expense), net consists of the change in fair value related to our derivative liability, interest income, gain on bargain purchase and other income (expense).

Previous wording

The following tables set forth the significant components of our results of operations for the three months ended March 31, 2024 and 2023 ($ in thousands):

Current wording

The following tables set forth the significant components of our results of operations for the three and six months ended June 30, 2024 and 2023 ($ in thousands):

Previous wording

The following tables summarize our revenues by type and geographic regions for the three months ended March 31, 2024 and 2023 ($ in thousands):

Current wording

The following tables summarize our revenues by type and geographic regions for the three and six months ended June 30, 2024 and 2023 ($ in thousands):

Previous wording

Total revenues increased by $4.9 million, or 73%, in the three months ended March 31, 2024 compared to the same period in 2023. The increase of $3.2 million in service subscription revenue, primarily based in the Americas, was driven by the contribution of SYNQ3 revenue. Other factors include an increase of unit-based Product Royalties of $0.8 million from customers in Asia. The increase in the EMEA region is partially offset by the decrease in relation to the termination of a contract.

Current wording

Total revenues increased by $4.7 million, or 54%, in the three months ended June 30, 2024 compared to the same period in 2023. The increase of $3.2 million in service subscription revenue, primarily based in the Americas, was driven by the contribution of SYNQ3 revenue. There was also an increase in product royalties revenue due to unit-based royalty increases from customers in the Asia and EMEA regions.

Previous wording

Cost of revenues increased by $2.7 million, or 136%, in the three months ended March 31, 2024 compared to the same period in 2023. Gross margin decreased to 60% during the three months ended March 31, 2024 from 71% during the same period in 2023 primarily due to the Acquisition, which included a mix of lower margin call center agent business and amortization of acquired intangible assets. In the past, our gross margin has fluctuated and may continue to fluctuate from quarter to quarter due to revenue contributions from varying product mixes. However, we expect to gradually improve gross margins in the mid-term, especially as it relates the integration of SYNQ3.

Current wording

Cost of revenues increased by $3.2 million, or 172%, and $5.8 million, or 154% in the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023. Gross margin decreased to 63% and 61% during the three and six months ended June 30, 2024, respectively, compared to 79% and 75% during the same periods in 2023 primarily due to the acquisition of SYNQ3, which included a mix of lower margin call center agent business and amortization of acquired intangible assets. In the past, our gross margin has fluctuated and may continue to fluctuate from quarter to quarter due to revenue contributions from varying product mixes. However, we expect to gradually improve gross margins in the mid-term, especially as it relates the integration of SYNQ3.

Previous wording

Sales and marketing expenses increased by $0.7 million, or 14%, in the three months ended March 31, 2024 compared to the same period in 2023, primarily due to increases in 2024 of $0.9 million in personnel-related costs and $0.1 million in consulting fees, which were partially offset by a decrease of $0.3 million incurred for information technology and facility allocations.

Current wording

Sales and marketing expenses increased by $1.2 million, or 12%, in the six months ended June 30, 2024 compared to the same period in 2023, primarily due to increases in 2024 of $1.3 million in personnel-related costs and $0.3 million in consulting fees, which were partially offset by a decrease of $0.4 million incurred for information technology and facility allocations.

Previous wording

Research and development expenses increased by $0.7 million, or 5%, in the three months ended March 31, 2024 compared to the same period in 2023. The increase in research and development expenses was primarily due to increased spending on cloud computing services of $1.2 million and personnel-related costs of $0.9 million. This is partially offset by the reduced information technology and facility allocations of $1.0 million, office expenses of $0.2 million, consulting fees of $0.1 million and legal and professional fees of $0.1 million. Included in the research and development expense is an increase of $0.7 million arising from the SYNQ3 acquisition, stemming from increased personnel-related costs.

Current wording

Research and development expenses increased by $4.0 million, or 34%, in the three months ended June 30, 2024 compared to the same period in 2023. The increase in research and development expenses was primarily due to increased personnel-related costs of $3.0 million, spending on cloud computing services of $1.4 million and consulting fees of $0.2 million. This is partially offset by the reduced information technology and facility allocations of $0.3 million, legal and professional fees of $0.2 million and office expenses of $0.1 million. Included in the research and development expense is an increase of $1.1 million arising from the SYNQ3 acquisition, stemming from increased personnel-related costs.

Previous wording

General and administrative expenses increased by $3.0 million, or 41%, in the three months ended March 31, 2024 compared to the same period in 2023. The increase in general and administrative expenses was primarily due to an increase of $2.2 million in legal and professional fees, of which $0.2 million relate to the SYNQ3 Acquisition, $1.2 million in information technology and facility allocations and $1.1 million in personnel-related costs. The Acquisition led to increases in personnel-related costs, amortization expense and office expenses. This increase was offset by reductions of $0.9 million in office expenses, $0.5 million in insurance expense and property-related expenses of $0.1 million. We expect our general and administrative expenses to increase in the short term as we invest in our control environment. However, in the long term, we expect general and administrative expenses to grow at a rate below that of our revenue, aligning with our strategic emphasis on cost effectiveness and sustainable financial performance.

Current wording

General and administrative expenses increased by $6.1 million, or 44%, in the six months ended June 30, 2024 compared to the same period in 2023. The increase in general and administrative expenses was primarily due to an increase of $4.6 million in legal and professional fees, of which $0.8 million relate to the SYNQ3 Acquisition, $1.6 million in information technology and facility allocations, $1.6 million in personnel-related costs and $0.3 million in bad debt expenses. The SYNQ3 Acquisition led to increases in personnel-related costs, amortization expense and office expenses. This increase was offset by reductions of $0.9 million in office expenses, $0.7 million in insurance expense, $0.3 million in consulting fees and $0.1 million in property-related expenses.

Previous wording

The loss from the change in fair value of acquisition related liabilities, which is driven by the increase in our stock price, is $4.2 million for the three months ended March 31, 2024.

Current wording

The change in fair value of acquisition related liabilities, which is driven by the movement in our stock price, was a gain of $1.1 million and a loss of $3.1 million for the three and six months ended June 30, 2024, respectively. We will continue to review our estimates on the quarterly basis over the remaining earnout period until 2026.

Previous wording

There were no restructuring expenses resulting from the Restructuring Plan recorded in the three months ended March 31, 2024 as the Restructuring Plan was complete as of December 31, 2023, compared to $3.6 million of expenses incurred in the same period in 2023.

Current wording

There were no restructuring expenses resulting from the Restructuring Plan recorded in the three and six months ended June 30, 2024 as the Restructuring Plan was complete as of December 31, 2023, compared to $0.2 million and $3.8 million of expenses incurred in the three and six months ended June 30, 2023, respectively.

Previous wording

Interest expense increased by $4.6 million, or 417%, in the three months ended March 31, 2024 compared to the same period in 2023. The increase in interest expense was primarily attributable to higher interest cost of$3.5 million resulting from increased interest rate and higher outstanding balance, plus$1.1 million amortization of debt issuance costs and discounts on the Senior Secured Term Loan Credit Agreement with ACP Post OAK Credit II LLC (the "Term Loan") executed in April 2023 relative to those on our 2021 note payable ("SVB March 2021 Note") and 2021 convertible note ("SCI June 2021 Note"), which were terminated at the time that the Term Loan was obtained.

Current wording

Interest expense increased by $3.9 million, or 67% in the six months ended June 30, 2024 compared to the same period in 2023. The increase in interest expense was primarily attributable to higher interest cost of $6.0 million resulting from increased interest rate and higher outstanding balance, plus $1.5 million amortization of debt discounts on the Term Loan executed in April 2023 in the six months ended June 30, 2024, relative to those on our SVB March 2021 Note and SCI June 2021 Note, which were terminated at the time that the Term Loan was obtained. The increase in the interest expense was partially offset by the decrease in relation to the repayment of Term Loan in June, 2024. We expect interest expense will decrease as a result of the extinguishment of the debt.

Previous wording

Interest income increased by $1.7 million, or 1,056%, in the three months ended March 31, 2024 compared to the same period in 2023. The increase was primarily attributable to interest earned on greater money market and treasury bond balances during the three months ended March 31, 2024, as we engaged in significant transactions that increased our liquidity. Refer to "Liquidity and Capital Resources" for a discussion of the changes in our business that led to an increase in cash for the period ended March 31, 2024.

Current wording

Interest income increased by $2.1 million, or 295%, and $3.8 million, or 432% in the three and six months ended June 30, 2024 compared to the same periods in 2023. The increase was primarily attributable to interest earned on greater money market and treasury bond balances during the three and six months ended June 30, 2024, as we engaged in significant transactions that increased our liquidity. Refer to "Liquidity and Capital Resources" for a discussion of the changes in our business that led to an increase in cash for the period ended June 30, 2024.

Previous wording

We recorded changes in the fair value of the derivative liability associated with the ELOC (as defined below) of $0.9 million for the three months ended March 31, 2023 as other income (expense), net on our consolidated statements of operations and comprehensive loss. There was no change in fair value of the derivative liability associated with the ELOC for the three months ended March 31, 2024 as we sold the entirety of the 25,000,000 shares under the ELOC during the year ended December 31, 2023.

Current wording

We recorded loss on changes in the fair value of the derivative liability associated with the ELOC (as defined below) of $1.3 million and $1.9 million for the three and six months ended June 30, 2023 as other income (expense), net on our consolidated statements of operations and comprehensive loss. There was no change in fair value of the derivative liability associated with the ELOC for the three and six months ended June 30, 2024 as we sold the entirety of the 25,000,000 shares under the ELOC during the year ended December 31, 2023.

Previous wording

Total unrestricted cash and cash equivalents on hand as of March 31, 2024 was $211.7 million. Although we have incurred recurring losses each year since our inception, we expect we will be able to fund our operations for at least the next twelve months. We believe we will meet longer-term expected future cash requirements and obligations through a combination of cash flows from operating activities, available cash balances and sales of common stock under our Equity Distribution Agreement (as defined below). Our condensed consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business.

Current wording

Total unrestricted cash and cash equivalents on hand as of June 30, 2024 was $200.2 million. Although we have incurred recurring losses each year since our inception, we expect we will be able to fund our operations for at least the next twelve months. We believe we will meet longer-term expected future cash requirements and obligations through a combination of cash flows from operating activities, available cash balances and sales of common stock under our Equity Distribution Agreement (as defined below). Our condensed consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business.

Previous wording

Our principal sources of liquidity are our cash and cash equivalents, which are sourced primarily from the Term Loan and sale of marketable securities. The primary uses of cash include the funding of operating expenses, as well as debt service obligations. There were no material changes to our material cash requirements as disclosed in our audited consolidated financial statements for the fiscal year ended December 31, 2023 in our Annual Report on Form 10-K (our “Annual Report”).

Current wording

Our principal sources of liquidity are our cash and cash equivalents, which are sourced primarily from the sale of marketable securities. The primary uses of cash include the funding of operating expenses, as well as acquisition related costs. There were no material changes to our material cash requirements as disclosed in our audited consolidated financial statements for the fiscal year ended December 31, 2023 in our Annual Report on Form 10-K (our “Annual Report”).

Previous wording

During April 2024, we sold 7,239,282 shares of our common stock under the Equity Distribution Agreement at an average price of $4.17 per share for $30.2 million of gross proceeds. After this issuance, we have a remaining capacity to sell up to an additional $119.8 million of our common stock.

Current wording

During July 2024, we sold 10,465,581 shares of our common stock under the Equity Distribution Agreement at an average price of $4.74 per share for $49.6 million of gross proceeds. After deducting approximately$1.2 million of commissions and offering costs incurred by us, thenet proceeds from sales of common stock was $48.4 million. Following this issuance, we have fully utilized the capacity to sell Company's common stock under the Equity Distribution Agreement.

Previous wording

On January 3, 2024 (the "Closing Date"), we acquired all of the issued and outstanding equity of SYNQ3, a leading provider of voice AI and other technology solutions to the restaurant industry, for total preliminary purchase consideration of $17.0 million (the “SYNQ3 Acquisition”).

Current wording

On January 3, 2024 (the "Closing Date"), we acquired all of the issued and outstanding equity of SYNQ3, a leading provider of voice AI and other technology solutions to the restaurant industry, for total preliminary purchase consideration of $15.7 million (the “SYNQ3 Acquisition”).

Previous wording

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

Current wording

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

Previous wording

The deferred cash holdback consideration of $0.1 million was recorded within other non-current liabilities at present value and the deferred share holdback consideration of 361,145 shares of our Class A Common Stock was recorded within stockholders’ equity in the amount of $0.6 million based on the fair value of our Class A Common Stock as of the Closing Date (the “Deferred Consideration”).

Current wording

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

Previous wording

The contingent cash and share holdback consideration to be issued is variable (“Contingent Holdback Consideration”). Final amounts to be issued will be reduced based upon future actions and settlements with third parties to resolve assumed contingent sales tax liabilities in connection with the SYNQ3 Acquisition. We accounted for the Contingent Holdback Consideration as a liability within contingent acquisition liabilities on the condensed consolidated balance sheet. As of the Closing Date, the Contingent Holdback Consideration was estimated to be $1.0 million in aggregate and to be settled in $0.2 million cash and the remainder in shares of our Class A Common Stock. The Contingent Holdback Consideration will be subsequently remeasured at each reporting date with changes in fair value recognized as a component of operating expense on our condensed consolidated statement of operations and comprehensive loss. For the three months ended March 31, 2024, we recognized a $1.6 million loss related to the Contingent Holdback Consideration.

Current wording

The contingent cash and share holdback consideration to be issued is variable (“Contingent Holdback Consideration”). Final amounts to be issued will be reduced based upon future actions and settlements with third parties to resolve assumed contingent sales tax liabilities and certain other assumed contingent liabilities of SYNQ3 in connection with the SYNQ3 Acquisition. We accounted for the Contingent Holdback Consideration as a liability on the condensed consolidated balance sheet. As of the Closing Date, the Contingent Holdback Consideration was estimated to be $0.4 million in aggregate and to be settled in $0.1 million cash and the remainder in shares of our Class A Common Stock. The Contingent Holdback Consideration will be subsequently remeasured at each reporting date with changes in fair value recognized as a component of operating expense on our condensed consolidated statement of operations and comprehensive loss. For the three and six months ended June 30, 2024, we recognized a $1.2 million gain and a $0.3 million loss, respectively, related to the Contingent Holdback Consideration.

Previous wording

We also agreed to pay in aggregate up to $0.8 million in cash and 1,434,936 in shares of Class A Common Stock, to certain stockholders of SYNQ3 based on tiered annual revenue targets for each fiscal year 2024, 2025 and 2026 (the “Contingent Earnout Consideration”). We accounted for the Contingent Earnout Consideration as a liability within contingent acquisition liabilities on our condensed consolidated balance sheet and will subsequently remeasure the liability at each reporting date with changes in fair value recognized as a component of operating expense in our condensed consolidated statement of operations and comprehensive loss. As of the Closing Date, the Contingent Earnout Consideration was estimated to be $1.7 million in aggregate and to be settled in $0.2 million cash and the remainder in shares of our Class A Common Stock. For the three months ended March 31, 2024, we recognized a $2.6 million loss related to the Contingent Earnout Consideration, reflected in the change in fair value of contingent acquisition liabilities in the condensed consolidated statement of operations and comprehensive loss.

Current wording

We also agreed to pay in aggregate up to $0.8 million in cash and 1,434,936 in shares of Class A Common Stock, to certain stockholders of SYNQ3 based on tiered annual revenue targets for each fiscal year 2024, 2025 and 2026 (the “Contingent Earnout Consideration”). We accounted for the Contingent Earnout Consideration as a liability within contingent acquisition liabilities on our condensed consolidated balance sheet and will subsequently remeasure the liability at each reporting date with changes in fair value recognized as a component of operating expense in our condensed consolidated statement of operations and comprehensive loss. As of the Closing Date, the Contingent Earnout Consideration was estimated to be $1.7 million in aggregate and to be settled in $0.2 million cash and the remainder in shares of our Class A Common Stock. For the three and six months ended June 30, 2024, we recognized a loss of $0.1 million and $2.7 million, respectively, related to the Contingent Earnout Consideration, reflected in the change in fair value of contingent acquisition liabilities in the condensed consolidated statement of operations and comprehensive loss.

Previous wording

During the three months ended March 31, 2024, we sold a total of 37,907,219 shares of our common stock under the Sales Agreement at a weighted-average price of$3.62 per share and raised$137.3 million of gross proceeds, which resulted in complete utilization of the Sales Agreement. After deducting approximately$3.4 million ofcommissions and offering costs incurred by us, thenet proceeds from sales of common stock was $133.8 million.

Current wording

During the six months ended June 30, 2024, we sold a total of 37,907,219 shares of our common stock under the Sales Agreement at a weighted-average price of$3.62 per share and raised$137.3 million of gross proceeds, which resulted in complete utilization of the Sales Agreement as of March 31, 2024. After deducting approximately$3.4 million ofcommissions and offering costs incurred by us, thenet proceeds from sales of common stock was $133.8 million.

Previous wording

On August 16, 2022, we entered into a common stock purchase agreement (the “Common Stock Purchase Agreement”) and related registration rights agreement (the “CFPI Registration Rights Agreement”) with CF Principal Investments LLC (the “Counterparty”). Pursuant to the Common Stock Purchase Agreement, we have the right to sell to the Counterparty up to the lesser of (i) 25,000,000 shares of Class A Common Stock and (ii) the Exchange Cap (as defined in the Common Stock Purchase Agreement), subject to certain limitations and conditions set forth in the Common Stock Purchase Agreement (the "ELOC Shares"). On February 14, 2023, our Registration Statement on Form S-1 registering the resale of the ELOC Shares (the "ELOC Registration Statement") was declared effective. On March 31, 2023, a post-effective amendment to the ELOC Registration Statement was declared effective. We have utilized and expect to continue to utilize proceeds from the ELOC for working capital and other general corporate purposes. Through March 31, 2024, we sold the entirety of the 25,000,000 shares under the ELOC program for aggregate proceeds of approximately $71.7 million.

Current wording

On August 16, 2022, we entered into a common stock purchase agreement (the “Common Stock Purchase Agreement”) and related registration rights agreement (the “CFPI Registration Rights Agreement”) with CF Principal Investments LLC (the “Counterparty”). Pursuant to the Common Stock Purchase Agreement, we have the right to sell to the Counterparty up to the lesser of (i) 25,000,000 shares of Class A Common Stock and (ii) the Exchange Cap (as defined in the Common Stock Purchase Agreement), subject to certain limitations and conditions set forth in the Common Stock Purchase Agreement (the "ELOC Shares"). On February 14, 2023, our Registration Statement on Form S-1 registering the resale of the ELOC Shares (the "ELOC Registration Statement") was declared effective. On March 31, 2023, a post-effective amendment to the ELOC Registration Statement was declared effective. We have utilized and expect to continue to utilize proceeds from the ELOC for working capital and other general corporate purposes. During the year ended December 31, 2023, we sold the entirety of the 25,000,000 shares under the ELOC program for aggregate proceeds of approximately $71.7 million.

Previous wording

Each share of Series A Preferred Stock is convertible, at the option of the holder, into such number of shares of Class A Common Stock equal to the liquidation preference per share ("Liquidation Preference") at the time of conversion divided by $1.00 (the “Conversion Price”). In addition, each share of Series A Preferred Stock will automatically convert into shares of Class A Common Stock at the Conversion Price on or after January 20, 2024 if and when the daily volume-weighted average closing price per share of Class A Common Stock is at least 2.5 times the Conversion Price for each of any 90 trading days during any 120 consecutive trading day period, which 120-trading day period may commence (but may not end) prior to January 20, 2024. During the three months ended March 31, 2024, certain Investors optionally converted 404,764 shares of Series A Preferred Stock into 14,070,854 shares of Class A Common Stock. The conversion was pursuant to the original terms of the agreement and therefore the carrying value of Series A Preferred Stock was converted into Class A Common Stock with no gain or loss upon conversion.

Current wording

Each share of Series A Preferred Stock is convertible, at the option of the holder, into such number of shares of Class A Common Stock equal to the liquidation preference per share ("Liquidation Preference") at the time of conversion divided by $1.00 (the “Conversion Price”). In addition, each share of Series A Preferred Stock will automatically convert into shares of Class A Common Stock at the Conversion Price on or after January 20, 2024 if and when the daily volume-weighted average closing price per share of Class A Common Stock is at least 2.5 times the Conversion Price for each of any 90 trading days during any 120 consecutive trading day period, which 120-trading day period may commence (but may not end) prior to January 20, 2024. During the three and six months ended June 30, 2024, 70,241 shares and 475,005 shares, respectively, of preferred stock were converted into 2,553,361 shares and 16,624,215 shares, respectively, of Class A Common Stock. The conversion was pursuant to the original terms of the agreement and therefore the carrying value of Series A Preferred Stock was converted into Class A Common Stock with no gain or loss upon conversion.

Previous wording

The holders of Series A Preferred Stock are entitled to cumulative dividends payable for such share at the rate of 14% per annum, compounding semi-annually to Liquidation Preference on January 1 and July 1 of each year. Total cumulative dividends attributable to Series A Preferred Stock for the three months ended March 31, 2024 is $0.3 million. Additionally, as of March 31, 2024, the Series A Preferred Stock had accrued additional dividends since the last dividend payment date which has the effect of increasing the Liquidation Preference to approximately$35.32.

Current wording

The holders of Series A Preferred Stock were entitled to cumulative dividends payable for such share at the rate of 14% per annum, compounding semi-annually to Liquidation Preference on January 1 and July 1 of each year. Total cumulative dividends attributable to Series A Preferred Stock for the three and six months ended June 30, 2024 were $0.1 million and $0.4 million, respectively.

Previous wording

Net cash used in operating activities was $21.9 million during the three months ended March 31, 2024 compared to $14.5 million during the three months ended March 31, 2023. The $7.4 million increase in cash used in operating activities was primarily due to our increased net loss of $5.6 million and a net decrease in changes in operating assets and liabilities of $5.7 million. This was partially offset by an increase of $4.2 million in the fair value of contingent acquisition liabilities.

Current wording

Net cash used in operating activities was $40.4 million during the six months ended June 30, 2024 compared to $34.2 million during the six months ended June 30, 2023. The $6.2 million increase in cash used in operating activities was primarily due to our increased net loss of $19.6 million, an increase in gain on bargain purchase of $1.2 million, a decrease in loss on change in fair value of ELOC program of $1.9 million and a net decrease in changes in operating assets and liabilities of $2.4 million. This was partially offset by an increase of $14.8 million in loss on early extinguishment of debt, $3.1 million in change in the fair value of contingent acquisition liabilities and $1.3 million in depreciation and amortization.

Previous wording

Net cash used in investing activities was $3.8 million during the three months ended March 31, 2024 compared to $15 thousand during the three months ended March 31, 2023. The $3.8 million increase in cash used in investing activities was primarily driven by the Acquisition.

Current wording

Net cash used in investing activities was $4.8 million during the six months ended June 30, 2024 compared to $293 thousand during the six months ended June 30, 2023. The $4.5 million increase in cash used in investing activities was primarily driven by the acquisitions.

Previous wording

Net cash provided by financing activities was $142.7 million during the three months ended March 31, 2024 compared to $51.6 million during the three months ended March 31, 2023. The $91.1 million increase in cash provided by financing activities was primarily due to an additional $137.3 million in net proceeds from sales of Class A Common Stock under the Sales Agreement during this quarter compared to $28.7 million in net proceeds from sales of Class A Common Stock under the ELOC program during the three months ended March 31, 2023. In addition, we experienced a net increase of $6.5 million in proceeds from the exercise of common stock options during the three months ended March 31, 2024 when compared to the three months ended March 31, 2023. The increase was partially offset by $24.9 million in net proceeds from the one-time issuance of Series A Preferred Stock during three months ended March 31, 2023 and a decrease in payments on our notes payable and financing costs related to the ELOC program of $4.1 million and $0.3 million, respectively, during the three months ended March 31, 2023.

Current wording

Net cash provided by financing activities was $137.0 million during the six months ended June 30, 2024 compared to $154.6 million during the six months ended June 30, 2023. The $17.5 million decrease in cash provided by financing activities was primarily due to $105.5 million in the repayment of Term Loan during the six months ended June 30, 2024 compared to $35.0 million in the repayment of SVB March 2021 Note and SCI June 2021 Note during the six months ended June 30, 2023. The decrease was partially offset by $232.0 million in net proceeds from sales of Class A Common Stock under the Sales Agreement during the six months ended June 30, 2024 compared to $71.5 million in net proceeds from sales of Class A Common Stock under the ELOC program during the six months ended June 30, 2023. In addition, we experienced an increase of $24.9 million in net proceeds from the one-time issuance of Series A Preferred Stock and $85.1 million in net proceeds from the issuance of Term Loan during the six months ended June 30, 2023.

Previous wording

We enter into standard indemnification arrangements in the ordinary course of business. Pursuant to these arrangements, we indemnify, hold harmless and agree to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third party with respect to its technology. The term of these indemnification agreements is generally perpetual any time after the execution of the agreement. The maximum potential amount of future payments we could be required to make under these arrangements is not determinable. Additionally, we have, and may in the future, indemnify third parties in connection with our issuance of securities (including pursuant to our at-the-market offering program) and in connection with acquisitions of other companies (including SYNQ3). Our liability is generally limited to the aggregate amount of consideration actually received in these instances. We have never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the fair value of these agreements is minimal.

Current wording

We enter into standard indemnification arrangements in the ordinary course of business. Pursuant to these arrangements, we indemnify, hold harmless and agree to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third party with respect to its technology. The term of these indemnification agreements is generally perpetual any time after the execution of the agreement. The maximum potential amount of future payments we could be required to make under these arrangements is not determinable. Additionally, we have, and may in the future, indemnify third parties in connection with our issuance of securities (including pursuant to our at-the-market offering program) and in connection with acquisitions of other companies. Our liability is generally limited to the aggregate amount of consideration actually received in these instances. We have never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the fair value of these agreements is minimal.

Previous wording

Goodwill represents the excess of the purchase price in a business combination over the fair value of net assets acquired. Goodwill is not amortized but tested annually for impairment or when indicators of impairment are present. The test for goodwill impairment involves a qualitative assessment of impairment indicators. If indicators are present, a quantitative test of impairment is performed. Goodwill impairment, if any, is determined by comparing the reporting unit’s fair value to its carrying value. An impairment loss is recognized in an amount equal to the excess of the reporting unit’s carrying value over its fair value, up to the amount of goodwill allocated to the reporting unit. Our policy is to review goodwill for impairment annually on October 1st unless a triggering event requires an analysis sooner. There was no goodwill impairment for the three months ended March 31, 2024.

Current wording

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