SOUNDHOUND AI INC

Previous wording

The following discussion and analysis of the financial condition and results of operations of SoundHound should be read together with our unaudited interim condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q ("Form 10-Q") and the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operation as of and for the year ended December 31, 2023 (“2023”) included in our Annual Report on Form 10‑K for 2023 filed with the SEC on March 1, 2024 ("Form 10-K"). Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to SoundHound’s plans and strategy for its business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” and “Cautionary Statement Regarding Forward Looking Statements” section of this report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Unless otherwise indicated or the context otherwise requires, references in this section to “SoundHound,” “we,” “us,” “our” and other similar terms refer to SoundHound AI, Inc.

Current wording

The following discussion and analysis of the financial condition and results of operations of SoundHound should be read together with our unaudited interim condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q ("Form 10-Q") and the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operation as of and for the year ended December 31, 2023 included in our Annual Report on Form 10‑K for 2023 filed with the SEC on March 1, 2024 ("Form 10-K" or the "Annual Report). Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to SoundHound’s plans and strategy for its business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” and “Cautionary Statement Regarding Forward Looking Statements” section of this report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Unless otherwise indicated or the context otherwise requires, references in this section to “SoundHound,” “we,” “us,” “our” and other similar terms refer to SoundHound AI, Inc.

Previous wording

Our market position is strengthened by the technical barriers to entry in the Voice AI space, which tend to discourage new market participants. Furthermore, our technology is backed by significant investments in intellectual property, with over 155 patents granted and over 115 patents pending, spanning multiple fields including speech recognition, natural language understanding, machine learning, monetization and more. We have achieved this critical momentum in part thanks to a long-tenured leadership team with deep expertise and proven ability to attract and retain talent. We believe that SoundHound has extensive technical expertise and a proven track record of innovation and value creation for us to continue to attract customers in the growing market for Voice AI transactions, which is estimated to grow to over $140 billion per year by 2024.

Current wording

Our market position is strengthened by the technical barriers to entry in the Voice AI space, which tend to discourage new market participants. Furthermore, our technology is backed by significant investments in intellectual property, with over 155 patents granted and over 115 patents pending, spanning multiple fields including speech recognition, natural language understanding, machine learning, monetization and more. We have achieved this critical momentum in part thanks to a long-tenured leadership team with deep expertise and proven ability to attract and retain talent. We believe that SoundHound has extensive technical expertise and a proven track record of innovation and value creation for us to continue to attract customers in the growing market for Voice AI transactions.

Previous 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.

Current wording

We have incurred certain significant costs relating to the SYNQ3 and Amelia Acquisitions, such as legal, accounting, financial advisory, printing and other professional services fees, as well as other customary payments. Refer to "Item 1A. Risk Factors" in our Form 10-K for a discussion regarding the risks associated with the acquisitions.

Previous wording

•Investments in Technology. Our business model since inception has been to invest in our technology in the form of dedicated research and development. We will continue to invest in the development of our software platform to deliver consumers with continually improving value and delight. Our investments include continuous enhancements to our technology we've developed over the last two decades, investments in data to help refine and improve our underlying algorithms and other costs to attract and retain a world-class technical workforce.

Current wording

•Investments in Technology. Our business model since inception has been to invest in our technology in the form of dedicated research and development. We will continue to invest in the development of our software platform to deliver consumers with continually improving value and delight. Our investments include continuous enhancements to our technology we've developed over the last two decades or acquired from acquisitions, investments in data to help refine and improve our underlying algorithms and other costs to attract and retain a world-class technical workforce.

Previous wording

•Revenue Growth. Our commercial success, including acceptance and use of our applications, will depend on a number of factors, some of which are beyond our control, such as size of the market opportunity, successful integration with original equipment manufacturers (“OEM”), competition and demand from the public and members of the conversational AI community. Our product offerings have disruptive effects in the ways human interact with computers and we are developing new, innovative economic models that we believe will enhance value to customers, partners and shareholders. For our revenue growth to continue, we will need to invest in sales and marketing to ensure our messaging, capabilities and offerings are well understood and valued by customers. With our primary focus on enterprise customers, we also need to align with enterprise sales cycles, which can be longer than consumer cycles. As we build new customer relationships, we continually focus on maintaining and growing our existing relationships through long-term partnerships through significant upfront investment in customer specific engineering projects. Additionally, we may look to acquire other companies in the industry to develop synergies with our existing business.

Current wording

•Revenue Growth. Our commercial success, including acceptance and use of our applications, will depend on a number of factors, some of which are beyond our control, such as size of the market opportunity, successful integration with original equipment manufacturers (“OEM”), competition and demand from the public and members of the conversational AI community. Our product offerings, including those offerings that we have acquired, have disruptive effects in the ways human interact with computers and we are developing new, innovative economic models and acquiring companies such as SYNQ3 and Amelia which have synergistic businesses to ours that we believe will enhance value to customers, partners and shareholders. For our revenue growth to continue, we will need to invest in sales and marketing to ensure our messaging, capabilities and offerings are well understood and valued by customers. With our primary focus on enterprise customers, we also need to align with enterprise sales cycles, which can be longer than consumer cycles. As we build new customer relationships, we continually focus on maintaining and growing our existing relationships through long-term partnerships through significant upfront investment in customer specific engineering projects. Additionally, in addition to our acquisitions of SYNQ3 and Amelia, we may look to acquire other companies in the industry to develop synergies with our existing business.

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 $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.

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 $66.9 million as of September 30, 2024. Given the applicable contract terms, $40.9 million is expected to be recognized as revenue within one year, $24.1 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 and other acquisition as intangible assets.

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, Amelia and other acquisition as intangible assets.

Previous 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.

Current wording

The change in fair value of contingent acquisition liabilities is related to contingent consideration from the SYNQ3 and Amelia acquisitions. 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

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):

Current wording

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

Previous 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):

Current wording

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

Previous 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.

Current wording

Total revenues increased by $11.8 million, or 89%, in the three months ended September 30, 2024 compared to the same period in 2023. The increase of $18.5 million in service subscription revenue, primarily based in the Americas, was driven by the contribution of Amelia and SYNQ3 revenue. This is offset by a decrease in product royalties revenue in the Asia region, due to the minimum guarantee licensing revenue relating to the edge solution ("Houndify Edge") recognized in the previous period.

Previous wording

Total revenues increased by $9.6 million, or 62%, in the six months ended June 30, 2024 compared to the same period in 2023. The increase of $6.4 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 and professional services from customers in the Asia and EMEA regions.

Current wording

Total revenues increased by $21.4 million, or 75%, in the nine months ended September 30, 2024 compared to the same period in 2023. The increase of $25.0 million in service subscription revenue, primarily based in the Americas, was driven by the contribution of Amelia and SYNQ3 revenue. This is offset by a decrease in product royalties revenue in the Asia region, due to the minimum guarantee licensing revenue relating to Houndify Edge recognized in the previous period. We also saw an increase of professional service and unit-based Product Royalties, including SoundHound Chat AI, in both the Asia and EMEA region.

Previous 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.

Current wording

Cost of revenues increased by $9.3 million, or 259%, and $15.2 million, or 205% in the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023. Gross margin decreased to 49% and 55% during the three and nine months ended September 30, 2024, respectively, compared to 73% and 74% during the same periods in 2023 primarily due to the acquisitions of Amelia and SYNQ3, which included a mix of lower margin call center agent business from SYNQ3 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 Amelia and SYNQ3.

Previous 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.

Current wording

Sales and marketing expenses increased by $3.9 million, or 87%, in the three months ended September 30, 2024 compared to the same period in 2023, primarily due to increases in 2024 of $3.2 million in personnel-related costs, $0.5 million in legal and professional fees, $0.2 million in consulting fees, $0.1 million in office expense, and $0.1 million in travel expenses, which were partially offset by a decrease of $0.3 million incurred for information technology and facility allocations. Included in the sales and marketing expense is an increase of $1.7 million arising from the Amelia acquisition, stemming from increased personnel-related costs.

Previous wording

Sales and marketing expenses increased by $0.6 million, or 11%, in the three months ended June 30, 2024 compared to the same period in 2023, primarily due to increases in 2024 of $0.5 million in personnel-related costs, $0.2 million in consulting fees and $0.1 million in travel expenses, which were partially offset by a decrease of $0.2 million incurred for information technology and facility allocations.

Current wording

Sales and marketing expenses increased by $5.1 million, or 36%, in the nine months ended September 30, 2024 compared to the same period in 2023, primarily due to increases in 2024 of $4.5 million in personnel-related costs, $0.5 million in consulting fees, $0.5 million in legal and professional fees, $0.2 million in office expense, and $0.2 million in travel expense, which were partially offset by a decrease of $0.7 million incurred for information technology and facility allocations.

Previous 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.

Current wording

Research and development expenses increased by $6.7 million, or 53%, in the three months ended September 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 $4.3 million, spending on cloud computing services of $2.7 million, office expense of $0.1 million and consulting fees of $0.1 million. This is partially offset by the reduced information technology and facility allocations of $0.5 million, and legal and professional fees of $0.1 million. Included in the research and development expense is an increase of $1.0 million arising from the Amelia acquisition and $1.1 million arising from the SYNQ3 acquisition, stemming from increased personnel-related costs.

Previous wording

Research and development expenses increased by $4.7 million, or 18%, in the six 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 $3.9 million and spending on cloud computing services of $2.6 million. This is partially offset by the reduced information technology and facility allocations of $1.2 million, office expenses of $0.3 million, legal and professional fees of $0.2 million and equipment rental fee of $0.1 million. Included in the research and development expense is an increase of $1.7 million arising from the SYNQ3 acquisition, stemming from increased personnel-related costs.

Current wording

Research and development expenses increased by $11.4 million, or 30%, in the nine months ended September 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 $8.2 million, spending on cloud computing services of $5.3 million, $0.2 million in property-related expenses and consulting fees of $0.2 million. This is partially offset by the reduced information technology and facility allocations of $1.8 million, legal and professional fees of $0.4 million, and office expenses of $0.2 million. Included in the research and development expense is an increase of $2.8 million arising from the SYNQ3 acquisition and $1.0 million arising from the Amelia acquisition, stemming from increased personnel-related costs.

Previous wording

General and administrative expenses increased by $3.1 million, or 48%, in the three 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 $2.5 million in legal and professional fees, of which $0.5 million relate to the SYNQ3 Acquisition, $0.5 million in personnel-related costs, $0.4 million in information technology and facility allocations, and $0.2 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 $0.2 million in consulting fees, $0.2 million in insurance expense and $0.2 million in property-related expenses.

Current wording

General and administrative expenses increased by $10.1 million, or 146%, in the three months ended September 30, 2024 compared to the same period in 2023. The increase in general and administrative expenses was primarily due to an increase of $6.0 million in legal and professional fees, of which $4.8 million relate to the Amelia Acquisition, $2.8 million in personnel-related costs, $0.8 million in information technology and facility allocations, $0.6 million in consulting fees, $0.4 million in office expenses, and $0.2 million in bad debt expense. The SYNQ3 and Amelia Acquisitions led to increases in personnel-related costs, amortization expense and office expenses. This increase was offset by reductions of $0.6 million in equipment rental expense, and $0.2 million in property-related expenses. Included in the general and administrative expense is an increase of $0.7 million arising from the Amelia acquisition, stemming from increased personnel-related costs.

Previous 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.

Current wording

General and administrative expenses increased by $16.2 million, or 78%, in the nine months ended September 30, 2024 compared to the same period in 2023. The increase in general and administrative expenses was primarily due to an increase of $10.7 million in legal and professional fees, of which $4.8 million relate to the Amelia Acquisition and $0.8 million relate to the SYNQ3 Acquisition, $4.4 million in personnel-related costs, $2.5 million in information technology and facility allocations, $0.4 million in bad debt expense, $0.3 million in consulting fees, and $0.1 million in travel expense. The SYNQ3 and Amelia Acquisitions led to increases in personnel-related costs, amortization expense and office expenses. This increase was offset by reductions of $0.8 million in insurance expense, $0.7 million in equipment rental cost and $0.5 million in office expense, and $0.3 million in property-related expenses. Included in the general and administrative expense is an increase of $0.7 million arising from the Amelia acquisition, stemming from increased personnel-related costs.

Previous 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.

Current wording

The change in fair value of acquisition related liabilities, which is driven by the movements in our stock price and changes in the assessed probability of achieving certain future revenue targets, was a gain of $1.4 million and a loss of $1.7 million for the three and nine months ended September 30, 2024, respectively. We will continue to review our estimates on the quarterly basis over the remaining earnout period until 2026. See Note 17 to our unaudited condensed consolidated financial statements included within this report for more information.

Previous 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.

Current wording

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

Previous wording

Loss on extinguishment of debt increased by $14.8 million, or 1762% in the three and six months ended June 30, 2024 compared to the same periods in 2023. The increase in loss on extinguishment of debt was attributable to a $15.6 million loss on repayment of Term Loan in June 2024 compared to a $0.8 million loss on repayment of SVB March 2021 Note and SCI June 2021 Note in April, 2023. See Note 9 to our unaudited condensed consolidated financial statements included within this report for more information.

Current wording

The $15.6 million increase in loss on extinguishment of debt during the nine months ended September 30, 2024 was attributable to a loss on repayment of Term Loan in June 2024. See Note 9 to our unaudited condensed consolidated financial statements included within this report for more information.

Previous wording

Interest expense decreased by $0.6 million, or 14% in the three months ended June 30, 2024 compared to the same period in 2023. The decrease in interest expense was primarily attributable to the early repayment of Term Loan in June, 2024, resulting in the decrease in interest expense.

Current wording

Interest expense decreased by $4.3 million, or 80% in the three months ended September 30, 2024 compared to the same period in 2023. The decrease in interest expense was primarily attributable to the early repayment of Term Loan in June, 2024, resulting in the decrease in interest expense, which was partially offset by the increased interest expense of $1.0 million from Amelia Debt in the period.

Previous 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.

Current wording

Interest expense decreased by $0.4 million, or 4% in the nine months ended September 30, 2024 compared to the same period in 2023. The decrease in interest expense was primarily attributable to the early repayment of Term Loan in June, 2024 and the interest expense from on our SVB March 2021 Note and SCI June 2021 Note in the nine months ended September 30, 2023, which were terminated at the time that the Term Loan was obtained in April 2023. The decrease in interest expense was partially offset by the increased interest expense of $1.0 million from Amelia Debt in the three months ended September 30, 2024. We expect interest expense will decrease as a result of the extinguishment of the Term Loan.

Previous 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.

Current wording

Interest income increased by $1.1 million, or 88%, and $4.8 million, or 232% in the three and nine months ended September 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 nine months ended September 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 September 30, 2024.

Previous 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.

Current wording

We recorded loss on changes in the fair value of the derivative liability associated with the ELOC (as defined below) of $1.9 million for the nine months ended September 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 nine months ended September 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

The gain on bargain purchase was $1.2 million recorded within other income (expense), net in the condensed consolidated statements of operations and comprehensive loss in the three and six months ended June 30, 2024 as a result of a favorable fair value of identifiable net assets acquired from an immaterial acquisition at the date of acquisition as compared with the purchase price. See Note 3 to our unaudited condensed consolidated financial statements included within this report for more information.

Current wording

The gain on bargain purchase of $1.2 million was recorded within other income (expense), net in the condensed consolidated statements of operations and comprehensive loss in the nine months ended September 30, 2024 as a result of a favorable fair value of identifiable net assets acquired from an immaterial acquisition at the date of acquisition as compared with the purchase price. See Note 3 to our unaudited condensed consolidated financial statements included within this report for more information.

Previous wording

Provision for income taxes increased by $221 thousand, or 53%, and $187 thousand, or 25% in the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023. This increase was primarily attributed to increased withholding tax that resulted from increased billing to foreign customers partially offset by the increased tax benefit from acquisitions.

Current wording

Provision for income taxes decreased by$12.1 million, or 772%, and$11.9 million, or 514% in the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023. This decrease was primarily attributed to increased tax benefit from acquisitions.

Previous 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.

Current wording

Total unrestricted cash and cash equivalents on hand as of September 30, 2024 was $135.6 million. Alth ough 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 and available cash balances. 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

We entered into the Equity Distribution Agreement with the Managers on April 9, 2024 with regards 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 from time to time through the Managers. Sales of Class A Common Stock, if any, under the Equity Distribution Agreement will be made at market prices by any method that is deemed to be an “at the market offering” as defined in Rule 415 under the Securities Act. The Managers will be entitled to commission at a fixed rate of 2.5% of the gross sales price per share for their services in acting as agent in the sale of our Class A Common Stock. We will reimburse the Managers for certain specified expenses in connection with the execution of the Equity Distribution Agreement.

Current wording

We entered into the Equity Distribution Agreement with the Managers on April 9, 2024 with regards 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 from time to time through the Managers. Sales of Class A Common Stock under the Equity Distribution Agreement were made at market prices by any method that is deemed to be an “at the market offering”

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 $15.7 million (the “SYNQ3 Acquisition”).

Current wording

On January 3, 2024 (the "SYNQ3 Acquisition 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.

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 SYNQ3 Acquisition 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

We incurred $1.9 million in acquisition related expenses, of which $0.5 million and $0.8 million were incurred during the three and six months ended June 30, 2024, respectively, and recorded as general and administration expenses in its condensed consolidated statements of operations and comprehensive loss.

Current wording

We incurred $1.9 million in acquisition related expenses, of which $0.5 million and $0.8 million were incurred during the three and nine months ended September 30, 2024, respectively, and recorded as general and administration expenses in its condensed consolidated statements of operations and comprehensive loss.

Previous 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.

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 SYNQ3 Acquisition 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 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.

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 SYNQ3 Acquisition Date, the Contingent Holdback Consideration was estimated to be $0.4 million in aggregate and to be settled in $0.1 million cash and the remainder in shares of our Class A Common Stock. During the three months ended September 30, 2024, we issued 38,277 shares of the Company’s Class A Common Stock and paid an immaterial amount in cash from the Contingent Holdback Consideration to SYNQ3's former stockholders as a result of the net working capital adjustments settled during the quarter. The Contingent Holdback Consideration will be subsequently remeasured at each reporting date with changes in fair value recognized as a component of operating expense on our condensed consolidated statement of operations and comprehensive loss. For the three and nine months ended September 30, 2024, we recognized a loss of $0.2 million and $0.5 million, 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 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.

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 SYNQ3 Earnout Consideration”). We accounted for the Contingent SYNQ3 Earnout Consideration as a liability within contingent acquisition liabilities on our condensed consolidated balance sheets and will subsequently remeasure the liability at each reporting date with changes in fair value recognized as a component of operating expense in our condensed consolidated statement of operations and comprehensive loss. As of the SYNQ3 Acquisition Date, the Contingent SYNQ3 Earnout Consideration was estimated to be $1.7 million in aggregate and to be settled in $0.2 million cash and the remainder in shares of our Class A Common Stock. For the three and nine months ended September 30, 2024, we recognized a gain of $1.5 million and a loss of $1.2 million, respectively, related to the Contingent SYNQ3 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

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

Current wording

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

Previous wording

During the three months ended June 30, 2024, we recorded measurement period adjustments to decrease the deferred revenue by $0.1 million as the revenue recognition criteria has been met at the acquisition date, to increase the accrued litigation liabilities by $1.9 million resulting from a pre-acquisition legal contingency, and to decrease the deferred tax liabilities assumed by $0.2 million. Refer to Note 7 to these condensed consolidated financial statements for more information on the loss contingencies. These measurement period adjustments resulted in a decrease of $0.1 million in deferred cash consideration, $0.6 million in deferred equity consideration, and $0.6 million in contingent holdback consideration in accordance with the merger agreement. As a result of the adjusted acquisition-date fair value of assets acquired and liabilities assumed, we booked an increase of $0.3 million to the goodwill recognized. The measurement period adjustments were recorded in the consolidated financial statements as of and for the three months ended June 30, 2024 and was made to reflect facts and circumstances that existed as of the acquisition date.

Current wording

During the nine months ended September 30, 2024, we recorded measurement period adjustments to decrease the deferred revenue by $0.1 million as the revenue recognition criteria had been met at the acquisition date, to increase the accrued litigation liabilities by $1.9 million resulting from a pre-acquisition legal contingency, and to decrease the deferred tax liabilities assumed by $0.2 million. Refer to Note 7 to these condensed consolidated financial statements for more information on the loss contingencies. These measurement period adjustments resulted in a decrease of $0.1 million in deferred cash consideration, $0.6 million in deferred equity consideration, and $0.6 million in contingent holdback consideration in accordance with the merger agreement. As a result of the adjusted acquisition-date fair value of assets acquired and liabilities assumed, we booked an increase of $0.3 million to the goodwill recognized. The measurement period adjustments were recorded in the consolidated financial statements as of and for the nine months ended September 30, 2024 and was made to reflect facts and circumstances that existed as of the SYNQ3 Acquisition Date.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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