Prepared remarks
Hello, and welcome to SoundHound Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to turn the conference over to Scott Smith. Sir, you may begin.
Good afternoon, and thank you for joining our fourth quarter 2024 conference call. With me today is our CEO, Keyvan Mohajer; and our CFO, Nitesh Sharan. We will begin with some short remarks before moving to Q&A. We'd also like to remind everyone that we'll be making forward-looking statements on this call. Actual results could differ materially from those suggested by our forward-looking statements. Please refer to our filings with the SEC for a detailed discussion of the risks and uncertainties that could affect our business and for discussion statements that qualify as forward-looking statements. In addition, we may discuss certain non-GAAP measures. Please refer to today's press release for more detailed financial results and further details on the definitions, limitations and uses of those measures and reconciliations from GAAP to non-GAAP. Also, note that the forward-looking statements on this call are based on information available to us as of today's date. We undertake no obligation to update any forward-looking statements, except as required by law. Finally, this call is being audio webcast in its entirety on our Investor Relations website. An audio replay will be available following today's call. With that, I'd like to turn the call over to our CEO, Keyvan Mohajer. Please go ahead, Keyvan.
Thank you, Scott, and thank you to everyone for joining the call today. We had our strongest quarter on record with $35 million in revenue, representing an increase of over 100% year-over-year. With that, we reached the top end of our revenue guidance range for the full year, which we raised just last quarter. This speaks to the continued acceleration of our business. In fact, in the last five years, we have grown our top-line at a compound annual growth rate of more than 50%. And since going public less than three years ago, we have achieved significant growth in numerous key metrics; revenue increased by 8 times, queries increased by 7 times and bookings increased by 5 times. But the success we are achieving today didn't start three years ago. It began 20 years ago with a vision that is now becoming a reality. We made bold predictions early on and stayed committed to the path we envisioned.
We built an enterprise-grade platform that powers some of the world's largest organizations. This laid the foundation for us to capitalize on the fast-growing voice AI market. Our ability to innovate at a rapid pace and maintain the agility of a pure-play high-growth disruptor allows us to deliver cutting-edge solutions with speed, accuracy and reliability. We are incredibly excited that we recently unveiled the third pillar of our business, our voice commerce ecosystem. SoundHound has pioneered this vision for years and the concept is simple yet powerful. The users of products powered by our voice assistant, our pillar one, can transact with businesses that are powered by our AI customer service offering, our pillar two. This forms the foundation of SoundHound's three-pillar business strategy and we expect it will increase our momentum further. At CES, we demonstrated the complete end-to-end experience of a driver discovering food options and placing an order via their in-vehicle voice assistant using natural speech.
This ecosystem creates value for all stakeholders. For the end user, it enhances convenience and safety. For merchants, it delivers new leads and it creates a monetizable moment for SoundHound with revenue-sharing opportunities for the OEMs. The traction we received could not have been better. Within just a few weeks, two notable Japanese automakers are pursuing POCs. Two German automakers are pursuing POCs. Several other notable OEMs in the US and Korea are pursuing POCs, and multiple national chain restaurants are eager to be participating merchants, which will add to our existing portfolio of prominent brands. We expect this concept to create a flywheel effect for SoundHound with more OEMs and device makers adopting our voice assistant and more businesses adopting our AI customer service. Let me share more highlights and business wins. In automotive, our pipeline has never been this strong.
We are in more and more RFPs and POCs with new logos, including some of the largest automotive brands in the world. We have won four EV brands, including Lucid and Togg, and our existing customers are upgrading to SoundHound Chat AI Automotive with generative AI for additional royalties per unit. In healthcare, we had a very strong quarter, landing four notable wins, including Duke Health, Englewood Health and Wellstar Health System. We are especially excited since we are seeing strong repeatable business in this industry. In restaurants, Burger King, one of the largest QSRs in the world, went live in the UK. We also saw expansions and wins with Whataburger, Peet's Coffee, Torchy's Tacos, Church's Texas Chicken, among others. We continue our expansion in four of the top five pizza brands. We believe the pace of adoption of AI customer service in restaurants is increasing, with SoundHound already being the largest provider with dozens of prominent brands and well over 10,000 locations.
In government and military, we signed a contract with the City of Coral Springs and continue to roll out our conversational AI capabilities with federal government agencies such as a branch of the US military together with General Dynamics. In retail, we are expanding our reach across multi-location retail brands in clothing, fitness, vehicle maintenance, home services, waste management and more. Some of our customers include Torrid, multiple Planet Fitness franchise groups, and My Gym, among others. Our largest deal in Q4 was in energy. We were happy to add a new industry to our portfolio this quarter and signed with one of the largest electric utilities in the United States. We also recently announced a partnership with Rekor, a leader in state-of-the-art roadway intelligence technology to develop a first-of-its-kind audio-visual AI to bring hands-free voice control to emergency vehicle technology.
Moving to Agentic AI. SoundHound is a leader in enterprise conversational AI and our scale as a pure-play AI software company positions us at the forefront of the Agentic AI revolution. With our proven conversational AI platform, deep AI expertise and AI-driven customer service solutions already embedded into hundreds of enterprise brands across industries, we are uniquely equipped to drive this next wave of innovation and capture this growing market opportunity. Agentic AI is widely discussed, but many are still defining what it means and how it will be applied. At its core, Agentic AI is a network of autonomous agents working together to achieve complex goals and execute actions. Each agent operates independently. They make decisions, execute tasks and collaborate to optimize performance. When a user sets a goal, the system intelligently identifies the necessary steps, orchestrates them in sequence, and applies reasoning to deliver the best outcome.
This shift allows businesses to focus on defining objectives while AI handles the execution, unlocking new capabilities and efficiencies. We believe the world is transforming from an ecosystem of APIs to an ecosystem of agents. Agentic AI introduces a new dimension to our platform, expanding its capabilities and impact. It is an inevitable evolution in AI functionality for our customers. This evolution comes as AI adoption moves from experimentation to necessity. Businesses are rapidly embracing AI, and as they do, SoundHound is in a position of strength. We have seen exciting results in the Agentic AI tools we've created and are building and testing Agentic use cases in every major vertical. We will bring these to commercial deployment soon and this will be a game changer for our customers and the industry. More to come in the near future. I'm also pleased to share that SoundHound had a strong presence at CES, where we showcased groundbreaking technologies and AI solutions in our first-ever booth at the show.
The buzz around our booth was electric with non-stop traffic from industry leaders and innovators eager to come and demo our latest advancements. In addition to unveiling the first-ever in-vehicle voice commerce ecosystem, our CES participation also featured collaborations with NVIDIA, Perplexity, Lucid Motors, LG and a broad range of restaurant partners. These partnerships highlight our leadership in delivering innovative voice solutions that are transforming customer experiences across industries. In addition, SoundHound was featured in NVIDIA's Partner Passport Program at CES. Across the event, select partners were chosen to present their innovative work with NVIDIA and we were honored to demonstrate our voice AI work with them. This collaboration continues with our upcoming participation at NVIDIA GTC 2025, where we will be showcasing demos of our voice assistant, leveraging generative AI on the edge with NVIDIA DRIVE AGX, as well as our voice commerce ecosystem.
We look forward to bringing more exciting updates and demos to GTC this year. Previously, I had talked about opportunities with Polaris, our multimodal, multilingual foundation model. Let me share some of the impressive results of this groundbreaking technology. We compare ourselves against all the major players and prominent benchmarks, both public and private. We do this in different real-world settings; high-noise environments and in settings where speed and low latency are critical. We know that humans don't speak uniformly, so we consider accents and background disruptions. The results have been amazing. Against Google, for example, we outperformed by more than 20% better accuracy. We also beat them on speed with four times better latency. Against OpenAI's Whisper model, we are 26% to 36% more accurate on various benchmarks, and we are able to do this on models one-tenth of the size of what OpenAI uses.
This is because of our ability to balance the right portions of data science and machine learning. And we continue to innovate to keep extending our lead. This is exciting technology and, as more customers begin to adopt it, the power of our AI only gains more interest in the market, positioning us as a leader in innovation and performance. Our ongoing advancements strengthen our competitive edge, driving further interest and accelerating our growth in the market. In closing, it's becoming increasingly clear that the AI revolution we predicted is now here. We are seeing strong growth, our customers love our solutions, and our entire ecosystem is expanding rapidly. Within automotive and pillar one, we continue to add new logos, including with the EVs. Thanks to our innovations, such as SoundHound Chat AI Automotive and our newly unveiled voice commerce ecosystem, we are seeing massive interest.
In pillar two, across customer service, we are gaining momentum with drive-thru and phone ordering rollouts for major QSR brands. We are excited to have just announced our breakthrough Dynamic Drive-Thru platform that extends the restaurant ordering experience into calling, texting, scanning and directly into cars. Our AI agents are seeing strong adoption across SMBs, regional chains and enterprise brands. We've brought meaningful depth and breadth to conversational AI capabilities along with a diverse range of verticals. And with the acceleration of our Agentic AI capabilities, our customer service offering will continue to see accelerated growth. We are proud to have introduced our third pillar, voice commerce, last month, fulfilling our vision of merging products and customer service into a powerful new product offering. We have a winning position in all pillars of our business. As we bring another successful year to a close, I want to express my sincere gratitude to all SoundHound employees for their exceptional achievements and contributions in making this all possible. With that, I'll now turn the call over to Nitesh to talk about our financial performance, key growth drivers and business outlook.
Thank you, Keyvan, and good afternoon, everyone. Q4 revenue was $34.5 million, increasing more than 100% year-over-year. For the full year, we grew by 85%, reaching the high end of our guidance range with $85 million in revenue. Before we dive into the financials for the quarter, I'd like to reflect on 2024 and what we accomplished. Within the most dynamic and fastest-growing market in tech, we continue to execute our game plan, added to our portfolio of solutions and innovated with distinction in one of the most significant technological shifts in over a decade and quite possibly in our lifetime. 2024 was a breakthrough year for SoundHound as we diversified our business across products and industries, laying the foundation for scalable growth. The time for voice AI is now. Today, we work with 30% of the top quick-service restaurants and 70% of the top financial institutions in the world.
We added new automotive customers, grew in healthcare, and this quarter, we entered a new high seven-figure deal with a large energy customer. We have significantly reduced our customer concentration. Our largest customer represented slightly more than 14% of revenue in 2024 versus comprising nearly half in 2023. We have transformed our business towards more predictable recurring revenue streams and have positioned ourselves for sustainable growth in 2025 and beyond. We continue to innovate with high velocity, further reinforcing our leadership in voice AI. The balance sheet is strong. We have capital flexibility to do the right things and our vision is now being realized. We finished the year with cumulative subscriptions and bookings backlog of nearly $1.2 billion, up over 75% year-over-year. As mentioned before, this metric is a measure of customer activity and gives current value to our existing contracts.
The measure is based on contracts signed and gives a snapshot of the revenue we expect to realize over the coming several years. In and of itself though, it is an incomplete measure as we have been noting new deals each quarter as well as significant cross-sell and upsell opportunities we're seeing, having added new SKUs and use cases across verticals. We have a very diverse product portfolio with a massive addressable market that is growing rapidly. We see a number of near-term serviceable markets where we have great product-market fit, and we are going after these with accelerating momentum. Let me give you a few examples. In automotive, the 90 million-plus global light vehicles produced each year gives us billions of dollars of repeatable revenue opportunity. We continue to gain share in this space and with GenAI and now voice commerce, we believe it will only further accelerate. In restaurants, there are millions of global food establishments representing tens of billions of dollars of serviceable market, with over 75 billion transactions that can be automated for pickup, delivery and drive-thru orders.
Just looking at one small but attractive and rapidly growing slice US-based drive-thrus, we see roughly $5 billion in annual revenue available. We are expanding partnerships and catalyzing scale and we are leading the competition. In healthcare, retail and energy sectors, there are trillions of interactions occurring annually across customer service, scheduling and operational workflows. With millions of businesses and consumers relying on these industries daily, this creates a massive pool of mission-critical recurring revenue streams to enhance efficiency, reduce cost and drive engagement at scale. Agentic AI will play a key role here. There are several other industries where we can point to $1 billion-plus TAMs and the fact that we have scalable products, strong reference customers and direct and indirect sales motivated to win gives us great confidence in our ability to continue our hyper-growth for years to come.
To summarize, our product platform is in the sweet spot of a massive technological shift happening right now. We have a differentiated competitive position and the markets we are targeting are extremely large. And so, we are executing with tenacity to capture as much of these opportunities as we can. With that, let me now discuss the fourth quarter financials in more detail. Q4 revenue was $34.5 million, up 101% year-over-year. In automotive, we continued to see double-digit unit price expansion in the quarter, driven by our generative AI solutions and overall product expansion. The automotive unit growth was hampered in Q4 by some of the overall macro pressures facing the industry, but our projections in 2025 are for continued strong growth based on the positive signs we are seeing already this year. And we are seeing strong double-digit year-over-year growth in active cloud users, which in effect is our most important measure as it represents our ongoing most committed user base.
Within customer service, we continue to scale, signing meaningful new logos such as Burger King in the UK, and the aforementioned large energy company based in the US. The quarter also benefited from the previously discussed acquisitions. As mentioned last quarter, our scale and increased SaaS-like revenue enables us to reduce our reliance on certain large point-in-time deals going forward, directly improving price stability and which will benefit the diversity and predictability of our revenue in future periods. Similar to what I noted last quarter, our customer concentration has significantly improved. In the prior year, we had well over 90% of our revenue from just five customers. Now that ratio is roughly one-third. In Q4, our GAAP gross margin was 40%, down year-over-year, primarily due to the impact of the business and product mix of recent acquisitions. Adjusted for non-cash amortization of purchased intangibles and employee stock compensation, our non-GAAP gross margin was 52%.
Both GAAP and non-GAAP gross margins were down sequentially due to the inclusion of Amelia for a full quarter compared to only partial quarter in Q3. We are executing on the synergies identified from our acquisitions and are already starting to realize some of these efficiencies. Additionally, as we automate more workflows, we expect our product mix to drive meaningful improvement in our gross margins, ultimately driving us back to the 70%-plus levels we have historically realized. Last quarter, I mentioned we would review acquired customer contracts and move away from deals that didn't meet our long-term profit objectives, and we started to prune that portfolio in the quarter. The impacts will be seen over time and we have more to do. There will be revenue impacts, but it will drive healthier margins and a better long-term profitable growth profile. R&D expenses were $20.4 million in Q4, reflecting a 60% year-over-year increase, primarily driven by our acquisitions.
We are committed to innovating our products to stay at the cutting edge of this fast moving market. We have developed an architecture capable of arbitrating multiple LLMs, both our internally-trained models and knowledge domains, as well as third-party LLMs to deliver the best possible customer experiences. Investing in our key initiative, Polaris, is a priority and you can see why based on the differentiation against peers that Keyvan talked about. The massive amount of data we have is another focus area where we continue to invest. We use this data to consistently train our models in various industries, which we see as a key differentiator versus our competition, further deepening our moat. Sales and marketing expenses were $9.6 million in Q4, reflecting a 114% year-over-year increase, primarily driven by acquisitions. We are investing in growth with increased marketing campaigns and overall brand and demand generation efforts.
This includes targeted investments in the go-to-market motion of Amelia to attack the tremendous enterprise opportunity we see across multiple verticals. We are continuing to invest in direct and indirect sales capabilities and customer success to go after new customers, incubate existing relationships and ensure we effectively cross-sell and upsell across our full portfolio, where we've seen some really promising early signals. G&A expenses were $16.4 million in Q4, reflecting a 115% year-over-year increase, primarily driven by our acquisitions. On a sequential basis, we were up by 8%, mainly due to Amelia's full-quarter impact. Over the long-term, we expect leverage in our G&A line, although we will continue to invest in system and process improvements to enhance our control environment and modernize our capabilities, including the consolidation and integration of multiple ERPs and other systems that have stemmed from our different acquisitions in 2024.
Our financials also show a charge related to the change in fair value of contingent liabilities, significantly impacting our GAAP loss from operations in Q4 by approximately $220 million. Let me give you some context here. While this is not a new line item, this stems from the acquisitions we have completed. To note, this is a non-operating and non-cash expense. The significant change is due to the required mark-to-market accounting and reflects the strong increase of our stock price at the end of 2024. This balance will fluctuate from quarter to quarter, sometimes as significantly as was in Q4, and as such, is excluded in our non-GAAP results. We also had non-cash employee stock compensation of $9.9 million and non-cash depreciation and amortization, including the amortization of intangibles of $7.9 million in Q4, all of which are included in our GAAP results. Please note that we expect stock-based compensation to increase in 2025 with the full impact of the acquired employees' equity awards.
As a result, adjusted EBITDA was a loss of $16.8 million in Q4. The year-over-year change was driven primarily by strategic acquisitions, of which we are still early in our integration efforts and growth investments we have been making across the business. OI&E was $1.2 million expense for the quarter. This includes interest expense of $1.3 million. GAAP net loss and EPS were impacted by the change in fair value of contingent liabilities mentioned before. Non-GAAP net loss was $19 million and non-GAAP net loss per share was $0.05 in the quarter. This also adjusts for non-cash depreciation and amortization, M&A transaction costs, stock-based compensation and other non-cash items. Our cash and equivalents at year-end was $198 million. We paid down the remaining outstanding debt from the acquisition in Q4, so we ended 2024 with no debt on the balance sheet. Last month, we announced a new S3 and at-the-market equity program to opportunistically raise capital and to provide flexibility.
We will be thoughtful about when we execute on the program. And as I've said before, our capital position is strong and we do not need incremental capital to achieve the breakeven operating profile we expect to deliver this year. With that, let me discuss our financial outlook. We are starting 2025 with momentum. We have a strong pipeline and are scaling across our product and business areas. We are adding new capabilities and delivering for our existing customer base. Our customer demand continues to grow and our pace in capturing that demand at scale is accelerating. And our visibility into the near-term opportunities is improving. So, even though it is early in the year, for 2025, we feel confident increasing our revenue outlook to $157 million to $177 million. There will be a ramp in revenue through the year given the nature of our customer base, underlying seasonality and expected large deal timing.
In prior years, we delivered roughly 30% of our annual revenue in the first half. We think we will deliver closer to 40% in the first half of this year, so the quarterly mix will continue to be back-end loaded, but less so than in prior years as our mix of recurring subscription business has increased. Overall, this outlook affirms our expectation of another year of very strong growth. We also remain committed to our path to profitability. We will get there through continued scale and through surgical high ROI investments. We will also continue to drive the acquisition cost synergies and build on the positive early integration progress we have seen. Accordingly, we continue to expect to achieve adjusted EBITDA profitability by the end of 2025. In closing, 2024 was a catalyzing year for us in many ways and our business is much stronger as a result. We entered 2025 with tailwinds within a market that is ripe for our AI solutions.
In this new GenAI LLM world, we believe natural language conversations are the next major transformation in how humans will interact with technology and voice AI is the killer app. Voice AI is what we do. We have pioneered and innovated in this space since our origins. As we look forward, we will continue to bring new groundbreaking offerings to our customers to help them excel in this new technology era. Thank you. And now, we will move to Q&A.
Questions and answers
Thank you. Our first question comes from Gil Luria with D.A. Davidson. Your line is open.
Yes, thank you. Good afternoon. Keyvan, there has been some pretty big breakthroughs recently in the efficiency of AI models. And those models are open-source and getting a lot smaller. I know you develop your own models, you use other models as well. Does the advances in this technology make it possible for you, especially in the restaurant drive-thru business to put more of the intelligence on the device and therefore, maybe reduce latency, make it more efficient and improve the performance? Is this something where you can leverage the recent advances?
Absolutely. In fact, we predicted this two years ago when we created our architecture to use LLMs to bring LLM into our conversational AI. We predicted that the models will become better and cheaper, and there will be multiple models that will be good at different things. Some of them will be made by SoundHound, some of them by third-party, some of them will be open-source. So, we created the architecture in a way that we can benefit from it as these advances are realized. So, those are absolutely good for us. The most immediate impact is that our platform becomes more accurate and the running cost goes down. But a lot of our reliance on third-party APIs, we bring those in-house, including our own models or the open-source ones that we fine-tune. But as you said, also, we can bring this to the edge. We had a great demo at CES showing the entire large language model experience and generative AI without cloud connection.
Yeah. Lucky was very impressed when he was there. I'm sorry, I wasn't able to make it. Nitesh, for you that backlog number has grown quite a bit. Can you give us a couple more parameters around it? What's the duration of that backlog number? Maybe by vertical or by pillar, what are the different pieces in that? I think you said $1.2 billion.
The duration remains consistent with previous quarters, around six years, possibly slightly more. By sector, we maintain a solid balance. A year and a half ago, we were heavily focused on the automotive sector, which continues to grow and gain traction, especially after our announcements at CES regarding voice commerce, where we're seeing significant interest and numerous deals. Keyvan highlighted some of those in his prepared remarks. The restaurant sector has shown particularly strong growth over several quarters. The deals we are signing are increasing, and it’s primarily about how we scale and accelerate those efforts. With Amelia now part of our offerings, we're excited about new clients and industries, predominantly in healthcare and financial services, demonstrating real strength. We recently secured a new deal in the energy sector, which offers considerable growth potential. This year's metrics reflect two key improvements compared to last year.
First, there’s greater diversity across industries, with voice AI proving beneficial for a wide range of clients. Second, there has been a shift towards more recurring revenue, which is growing as indicated by our increasing pillar two revenue. This overall strength and potential bode well for us moving forward. As I noted in the call, this is only the beginning. We are aggressively pursuing new deals not yet captured in our metrics. Following recent acquisitions, we have underway promising cross-sell and upsell opportunities. Our restaurant clients are increasingly taking advantage of our conversational AI solutions stemming from the Amelia acquisition, as well as leveraging our smart answering capabilities from SoundHound. This allows us to further develop our relationships with our existing clients while continuing to expand and add new ones.
Got it. Thank you very much.
Thanks, Gil.
Thank you. Please standby for our next question. Our next question comes from the line of Thomas Blakey with Cantor. Your line is open.
Hey guys, thanks for taking my questions here. It's great to hear about all those POCs off of CES and probably even work you've done prior to that. Could we maybe click there and just talk about what the typical time to revenue is for POC? And I have a follow-up.
I'll start and Nitesh might add. With automotive, we can run proofs of concept very quickly, particularly with those that we already have in the market. For instance, last year, we executed several proofs of concept with Stellantis, integrating generative AI and ChatGPT into their vehicles, and the outcome was remarkable. As a result, they decided to implement the SoundHound Chat AI across all their units. Currently, we have several new original equipment manufacturers, including two from Japan and two from Germany, along with multiple manufacturers from the US and Korea who will be running proofs of concept. Most of these will take place in the first half of this year. Occasionally, we charge for these proofs of concept, but the potential is so significant in this case that we want to demonstrate it as swiftly as possible. Regarding the revenue impact, we don't have the third pillar monetization revenue fully realized yet, but the effects of our three-pillar vision are becoming evident. Our first and second pillar customers are increasingly eager to adopt our platform because they recognize the potential for monetizable opportunities from the third pillar.
I'm not sure if your question was specific to the POCs we discussed from CES, so I'll broaden it to explain how we see the ramp-up of our customer base, which varies by industry and product vertical. In the automotive sector, we typically enter a deal, roll it out, and earn royalties based on the number of cars shipped, which is how we generate revenue as more units hit the market. This has been our traditional model. For restaurants, it really depends on the customer. In cases where there are drive-thrus, we often face hardware requirements and must ensure that the proper equipment, like microphones and display boards, are installed. We have innovated in this area to help our restaurant customers scale; for instance, we've developed smaller footprint posts with display boards that don’t require extensive permitting, allowing for quicker deployment. There is significant experimentation and collaboration with our hardware partners to achieve this scale.
For phone ordering in restaurants, the integration with point-of-sale systems allows for rapid technological scaling. However, expanding in restaurants can be slowed by corporate structures; we need to determine if franchisees are involved or if corporate has influence over all locations. In the enterprise sector, we can quickly sell and deploy our product, supported by a professional services team that specializes in ramping up the implementation. The pace of scaling depends on the nature of interactions. As we develop more use cases, we can transition from customer-facing to internal employee-facing solutions, which enhances our interaction base and generates recurring revenue. I apologize for expanding your question, but there are various factors across all verticals.
I really appreciate the great review. I was asking Keyvan about the POCs from pillar three, and it was exciting to see the flywheel already impacting pillar one. I'm looking forward to seeing how that unit ramp develops in pillar one over the next year. The mention of a seven-figure deal in the energy vertical is also very exciting as it indicates our expansion into new areas. From an administrative standpoint, Nitesh, could you share the economic impact for the current quarter or early 2025? It would also be helpful to understand what this means for SoundHound’s opportunities beyond our core verticals of automotive, restaurants, financial services, and healthcare. Thank you.
Sure, I'll address the first part. This is a multi-year agreement, and the scale of this deal is significantly larger than our typical contracts. The interactions and capabilities we're offering are appealing to customers who tend to pay upfront. This allows for accelerated cash collection which strengthens our position. Overall, this enterprise deal has enabled us to penetrate the financial services sector, where we are present in seven of the top ten financial institutions. In healthcare, we see a substantial opportunity and are investing accordingly due to the potential. The personal interactions involved, such as setting appointments and obtaining results, can be quite complex through traditional means, which is what we are modernizing to simplify for users. In the energy sector, the use cases are vast; for example, checking the status of power. Our platform handles this scaling effectively. We are enthusiastic about these multi-year agreements, as they allow for long-term benefits from these relationships, with hopes for further expansion.
We have a highly repeatable offering that allows us to approach other similar companies with a more efficient solution. We're proud and excited to be extending our reach beyond the restaurant sector. Our AI customer service initiatives began with restaurants, which we liken to how Amazon started with books before diversifying. We aimed to excel in the restaurant field and now we're moving into various other sectors. Currently, we're engaged in healthcare, financial services, government, military, retail, and now we've also included energy. All these sectors are proving to be repeatable, and the rate of adoption is increasing rapidly.
Great to see the successes. Thank you for answering my questions.
You're welcome.
Thank you. Please standby for our next question. Our next question comes from the line of Mike Latimore with Northland Capital Markets. Your line is open.
Yeah, great. Thank you. On Amelia, they have both kind of customer engagement and then more internal IT support use cases. Are either one of those sort of more pronounced in the pipeline?
The customer service aspect is more significant, which aligns well with SoundHound's core technology and history. Additionally, the IT automation is very strategic since many of those customers can benefit from both services, allowing us to package, upsell, and provide incentives for them to adopt both.
There are a couple of important dimensions to consider. One is the customer-facing aspect, as well as the employee-facing internal opportunities within enterprises. Additionally, the IT Service Management (ITSM) component is significant. We are investing and appreciate the SaaS-like software growth profile they offer, but they also provide professional services that enable us to scale into enterprises and customize implementations. Furthermore, they offer escalation support, which is essential for us to ensure that all contracts align with our long-term profitability goals. A key advantage is the real-time production data we receive, which helps us enhance our models and automate processes over time.
Got it. Good. Regarding the pricing or contracting model, is it primarily based on an annual subscription under the SaaS model, or is there a component that is usage-based?
It's a bit of a mix, but definitely includes interactions. Depending on the vertical and the customer, there are interaction-based, containment-based, and success-based approaches. Generally speaking, we are creating AI outcomes to help deliver value to the customer. Often, customers are willing to pay more for solutions that successfully address their queries. The trend is moving towards SaaS-like subscription models, but there is a certain number of interactions included up to a specific volume, after which pricing increases.
Yeah. Okay. Thank you.
Thanks, Mike.
Thank you. Please standby for our next question. Our next question comes from the line of Scott Buck with H.C. Wainwright & Company. Your line is open.
Hey, good afternoon, guys. Thanks for taking my questions. I guess the first one, when I think about these secondary verticals, whether it's financial services, retail, telecom, healthcare, how are you prioritizing those? And do you have the capacity to go after all at once?
I will start by saying that we originated as a voice AI company. Keyvan, along with our founding team and engineers, has developed an impressive engine and platform that we can now scale across various sectors. We consider ourselves a platform technology company, and the key question is where we choose to focus our efforts for maximum customer benefit. Early on, we recognized that the automotive sector offers significant advantages, particularly in enabling safe communication with vehicles while driving, which attracted investment from original equipment manufacturers. As Keyvan noted, we ventured into customer service, beginning with the restaurant industry. This area was particularly logical since our technology stands out in accuracy; when ordering food, customers have specific preferences, and our product excels in fulfilling those needs. As we broadened our reach into enterprise sectors and integrated new capabilities through acquisitions, we identified substantial growth potential.
Although we didn't feel the need to rush into new verticals, we found the timing and unique assets available to us made expanding worthwhile. In terms of investment strategies, particularly regarding our platform, we are in a strong position with the product. We will continue to enhance our integration capabilities and focus on automating processes with real production data to improve our software. The primary investment will be in our go-to-market strategy. When we see revenue and market opportunities, it's essential to pursue them while ensuring metrics reflect a strong return on investment. We analyze various metrics, such as lifetime value to customer acquisition cost, to determine our scaling potential and how to approach the market. This includes deciding whether to hire direct sales representatives or leverage channel partners, especially in the enterprise sector, where indirect channels can help us capture market share with less investment.
We are confident that there is considerable demand for our solutions. With the acquisition of Amelia, a crucial consideration was the potential for synergy across our product sets. Feedback from enterprise customers indicated that our voice capabilities generate significant strategic interest. Similar to our experience with SYNQ3, we aim to replace third-party voice engines with our own, as we know our product well and can meet customer needs effectively, all while benefiting from cost advantages and fostering long-term product development. In essence, our priorities center around identifying opportunities that will yield the most significant returns. We are focused on deepening our voice technology integration into the ecosystem, creating a cohesive three-pillar architecture, and developing use cases that align with everyday activities, such as driving, grabbing coffee, or ordering pizza while watching sports. These interactions fit seamlessly within our strategy, and we are committed to advancing our conversational intelligence in the market.
Great. I appreciate all that. And then, I want to follow up on the earlier question about cross-selling and upselling. It sounds like you're already starting to see some momentum there. I'm curious, where is the sweet spot? Is that nine months out, 18 months out? I mean, what does that look like, I guess, the ramp or the cadence of how that's executed?
It really depends. I wish I could give you a precise answer, but we're already in discussions about a few very interesting opportunities that could be significant for us, though they aren't far enough along for me to provide a clear timeline. There are people engaged with other companies that have upcoming renewals this year, and we want to seize that opportunity to achieve a competitive win. Currently, there are deals in progress, and we're either waiting for renewal timelines or exploring ways to break through. I see near-term opportunities, but looking at the next six to nine months and into next year, we believe there are many prospects. Part of the upsell strategy involves integrating our product stacks. We have a smart answering solution that we're excited about, which is an advanced answering capability that we mentioned is being rolled out in fitness centers across the U.S. This solution helps with upselling memberships and similar initiatives.
Amelia had a similar product, and now we are merging and integrating those offerings to scale across enterprises and into retail markets we are already targeting. There are numerous opportunities to pursue, and I'm hesitant to provide a specific timeline. However, I can assure you that we are actively working on it. One more point I'd like to make is that, architecturally, we're still in the early stages of our integration plan, and things are progressing well. However, to make everything work on the ground, we need to align compensation plans and ensure that our teams are properly incentivized. Generally speaking, we are eager to move quickly to capture customer opportunities. If it means slightly double paying between two groups in the short term, that’s acceptable as we normalize it over the medium term. Ultimately, our goal is to capture scale, which we've been focused on recently and will continue to prioritize moving forward.
Perfect. I appreciate all the added detail, and thanks for taking my questions, guys.
Thank you.
Thank you. Please standby for our next question. Our next question comes from Glenn Mattson with Ladenburg. Your line is open.
Hi, thank you for taking my question. Keyvan, I'm interested in the military aspect you mentioned a couple of times. Could you elaborate on what you are doing in that area? I'm also curious about how the military and the large energy deal fit into the sales funnel. Are you exploring new verticals that haven’t traditionally been your focus?
It's all fundamentally about conversational AI and voice technology, which presents numerous opportunities to enhance safety and efficiency. Recently, we announced a partnership that enables us to deliver our solution to government and military sectors. We also formed a partnership with a company named Rekor to implement voice AI in police vehicles and fire trucks. As I mentioned before, we thrive when the economy is strong, as that encourages investment in AI and innovation, drawing clients to us. Conversely, during tough economic times, there's a push for automation and cost savings, which also leads clients to us. As a result, you will observe both types of agreements. For instance, in the restaurant sector, we generate new leases, boost revenue, and conduct upselling, while also achieving some cost savings through automation of routine calls and interactions, which contributes to those savings.
Thank you, Keyvan. I'm curious about the guidance. I know the business has shifted significantly toward SaaS compared to a few years ago when large on-prem auto deals created some instability. Has that issue been resolved, or should we still be mindful of it? Additionally, with the integration of Amelia and other developments, how confident are you about the overall forecast?
The increased mix of SaaS definitely enhances predictability. In terms of historical deals, they are still present. During conversations with customers, especially when deploying our edge product, we seek commitments because we're investing in the product and need sufficient volume for a good return. For such commitments, customers often want to negotiate the price, and those discussions are ongoing. A diversified revenue base gives us more leverage in these conversations, allowing us to set a clearing price. If the discussions don’t meet our thresholds, we can pause or shift focus to other discussions. Overall, we see a significant increase in SaaS and recurring revenue. With the acquisition of Amelia, we gained a professional services business that plays a crucial role in activation, implementation, and customization, though the scale and complexity of deals may vary, creating quarter-to-quarter fluctuations.
Our goal is to standardize and streamline these implementation packages to improve efficiency and scalability. We are thoroughly examining contracts for escalation support to determine long-term suitability. Additionally, some potential customers, especially those requiring substantial capital investment, prefer licensing deals, which can introduce variability in our results. However, this is manageable. Compared to a year ago, the diversity of our revenue allows us to approach deal-making more thoughtfully and minimize compromises on price to ensure we receive full value for our solutions. At the same time, we want to explore new markets, and if a customer requests a specific type of contract that has real value for us, we don’t want to be rigid about only doing SaaS deals. Licensing contracts, although lumpier than SaaS, may also make sense strategically. To summarize, we have strong visibility, a solid backlog, and a robust pipeline, and we believe there are significant growth opportunities ahead as we target substantial total addressable markets. I hope this provides insight into our current position.
Great. Very helpful. Thanks very much.
Thank you.
Thanks, Glenn.
Please standby for our next question. Our next question comes from the line of Leo Carpio with Joseph Gunnar. Your line is open.
Good afternoon, gentlemen. I've got two questions. The first question is regarding your platform. When you look at the platform, are there any missing technologies or systems that you think you still need that you need to go and acquire? And then, secondly, and on the auto POC contracts, how quickly can those POCs move from testing to full contracts and revenue? Could it be like a 12- to 18-month horizon? Thank you.
Yes. In response to your first question, we aim to be a one-stop shop for our customers, providing everything they need. Over the past 20 years, we have developed most of our technologies in-house and take pride in surpassing many competitors. For instance, our latest Polaris speech recognition model outperforms Google by over 20%, among others. However, we are open to partnerships as well. If a partner offers a superior text-to-speech solution that some customers prefer, we make that available to them. Therefore, while we may not have our own text-to-speech system, we collaborate with partners to offer third-party options to our customers. This approach, combining in-house development with partnerships, is a key strength for SoundHound. Ultimately, our customers receive everything from us, even if some technologies are sourced from third parties. Now, what was your second question? I'm sorry.
The second question was...
Yes, the proof of concept. If they are already using our system in production, it's usually just a matter of enabling the feature quickly. We take a number of units based on their unique IDs to activate the new feature, and this can be done very swiftly. We can conduct pilots, perform audits, and obtain results, allowing us to go live with additional units efficiently. This approach was used when we integrated generative AI and large language models into Stellantis vehicles in Europe last year. For new original equipment manufacturers that do not have our voice assistant as a standard feature, the process will take longer. However, this highlights the strength of our third pillar, which attracts more OEMs to select us as their default assistant, thanks to the monetization potential.
All right. Thank you.
Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. That concludes today's conference call. Thank you for your participation. You may now disconnect.