Prepared remarks
Good day, everyone, and thank you for standing by. Welcome to the SoundHound Q4 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Scott Smith, Head of Investor Relations. Please go ahead.
Good afternoon, and thank you for joining our fourth quarter and full year 2025 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 will 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 would 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. 2025 was a record year for SoundHound, nearly doubling our revenue year-over-year. We also had a record fourth quarter. Revenue was up 59%, while all key profit metrics improved. We broke another record in Q4. We signed over 100 customer deals, making it our biggest quarter yet. We won across different industries in a variety of regions. Just to name a few, we signed a new prominent automotive logo in Japan to use our AI assistant with a seven-digit unit commitment. In the U.S., we signed a multiyear deal with one of the largest telecommunications companies in the world to use our technology. We signed a multiyear global deal with one of the largest athletic shoes and apparel companies to power their AI customer service. We closed deals with health care providers, universities, insurance companies, financial institutions, e-commerce merchants, retail, military, and many more.
Our execution with channel partners was also exceptional with multiple seven-figure deals in 2025. I'll dive into other business highlights specific to Q4 shortly. But first, I wanted to touch on a few recent market dynamics. The power of AI is disrupting traditional software and services companies, and this is creating further tailwinds for SoundHound. In this inevitable AI transformation, companies need a partner like SoundHound to help them rapidly reinvent themselves. We partner with our customers to overcome their challenges and achieve their ambitions, creating incredible end-user experiences for their employees and customers. With the exponential advances in AI, we believe we are entering a new era where companies with deep tech and data moats will create the most value. This makes SoundHound very well positioned with decades of deep tech innovation and data accumulation. SoundHound AI was founded with a mission to deliver voice and conversational AI experiences that are deeply integrated into user environments and deliver value where it matters most.
This early vision now positions us perfectly for the Agentic AI revolution we are seeing today. We believe our Agentic platform is the only solution that is ready to be deployed across a multitude of vertical use cases and a huge and growing range of touch points and modalities from call centers to cars, robots, phones, apps, TVs, and websites, all with a unified AI agent framework. This means that our customers can build an agent once and deploy it anywhere. At SoundHound, we offer the best models and innovation regardless of where they come from. We can give customers access to big tech models, emerging models, other third-party models as well as SoundHound's own models that consistently outperform big tech players. With us, our customers will have access to the latest and greatest technologies as fast as they become available. And because of our deep expertise in conversational AI, we are able to optimize our own technologies to meet customer needs.
This ranges from offering Polaris, our custom speech recognition foundation model to our unique method of arbitrating the conversation across on-device, cloud, on-premise, and even human augmented services. This combination of capabilities is the foundation of our unique and differentiated Agentic Plus framework, which blends agentic, deterministic, and human-assisted understanding, representing the full mix of what our customers want. In addition, SoundHound has a massive amount of data and has processed billions of interactions over the years across all major global languages supported by having a physical presence in multiple markets and geographies. This allows us to compete and win against big tech while new players are faced with the traditional limitations of scale and reach we've long since overcome. With those considerations in mind, we believe SoundHound is the strongest bet in an ever-changing world of AI evolution.
We recently previewed our Agentic platform to public audiences, and they were blown away. The Consumer Technology Association, the body that organizes CES, consistently calls our tech an example of one of the most exciting trends at the whole show. Our customers agree, and we are proud to navigate this exciting and dynamic period by their side. Here are some proof points, as I highlight, some of the many wins in this quarter alone. In automotive, besides the Japanese OEM previously mentioned, other notable customer wins include a new Korean OEM with a global footprint, an iconic Italian manufacturer of high-performance luxury sports cars, as well as a Chinese and Vietnamese manufacturer. We also signed our first two-wheeler and have seen strong interest from at least a half dozen other OEMs. Stellantis also expanded further with the adoption of live generative AI capabilities for real-time responses, and we added an Italian commercial truck company, which will offer SoundHound voice assistant to its wide range of vehicles.
We also signed a multiyear renewal with one of the largest American automobile manufacturers to deploy our enterprise AI solutions. In voice commerce, coming off a successful CES, we are seeing lots of momentum. Thanks to our deep penetration in restaurants, this highly anticipated solution is quickly advancing to go live in the U.S. with a prominent German automotive OEM. The list of engaged OEMs is growing rapidly, and we are now starting to see early signs of the flywheel effect taking shape. In January, we also unveiled our fully agentic voice platform for in-vehicle and on-TV commerce and showcased a leading smart TV manufacturer and a national pizza restaurant working together seamlessly. The solution is expected to go live later this year. And we are quickly building out an ecosystem well beyond food ordering from the car or TV with Parkopedia and OpenTable partnerships announced in Q4 and further plans to extend to events and travel booking very soon.
In restaurants, our Voice Inside solution is seeing high demand with a number of top 25 restaurant chains signing up to collect data for drive-thru efficiency. Panda Express also expanded into dozens more locations, while Casey's General Store agreed to a multiyear renewal and added Smart Answering to handle non-food ordering calls. We had franchise wins with both IHOP and Jersey Mike's. In retail and consumer goods, we signed one of the fastest-growing global health clubs in the U.S. and a multi-hundred unit personal care company to adopt our outbound innovative automated solution for customer retention campaigns. And for managing inbound calls, we signed two nonprofit organizations, one that has a large network of thrift stores and another one with a large number of fitness and health locations. In enterprise AI, we signed a record number of deals across various solutions and verticals, including in financial services, a New York-based global financial services platforms company, a large American multinational payment card services corporation, and BNP Paribas.
In health care, an eyewear and optical retailer, which operates or manages over 700 stores in 40 U.S. states, an independent health care practice that supports more than 1,300 locations in 45 states, and a Virginia-based health care and wellness services company with over 80 health care facilities. In insurance, a Fortune 100 multinational insurance and asset management company headquartered in Germany, a global Japanese insurance company that has offices spread throughout the U.S. and one of the first motor clubs in the U.S. with more than 16 million members across 21 states. In government and education, a U.S. government-sponsored enterprise helping to make housing more accessible and affordable. A large Florida-based university to support their health system. And likewise, we signed on with a local government to a city in Florida. In hospitality, one of the world's leading providers of food and support services operating in over 25 countries and an American ticket sales and distribution company with operations in over 35 countries around the world.
In telecommunications, in addition to the large telco I mentioned previously, we signed a European telecommunications company that provides cable television, broadband internet, and fixed telephony, and a large British broadcast and telecommunications company. I mentioned some of the success we've had with large seven-figure deals in 2025 with our channel partners. And in Q4, we continued to build out our ecosystem with the following partners. With one of the largest telecommunications companies in the world, we are adding SoundHound Agentic AI call center automation to SMBs in their large business marketplace. In addition, we partnered with Bridgepointe, which expands our enterprise AI adoption across their vast network and a large customer experience management company providing services to approximately 150,000 businesses. We renewed our partnership with a global technology and professional services company that delivers technology solutions and mission services to every major agency across the U.S. government and a large multinational professional services firm to provide our solutions to financial services firms across Spain.
Importantly, our enterprise AI technology is making a difference and helping businesses tackle some of their biggest challenges. One large health care network reported that their AI agent built on SoundHound's platform now handles more than one-third of all patient appointment scheduling, helping to unclog the system that gets patients what they need more quickly. This customer is already looking to expand our platform to tackle additional use cases like prescription refills and pharmacy inquiries. In a completely different industry, telecommunications, another customer reported a 20% reduction in the labor costs associated with billing disputes, thanks to AI agents that analyze invoices and execute adjustments. And in auto insurance, our platform was able to help the customer increase containment by 10 percentage points with respect to very complex use cases in under 60 days. In short, we are seeing great traction because our technology is delivering real-world results.
In closing, we had a record 2025. This is happening because we are an AI-first company and customers from a broad range of verticals are coming to us to automate their complex processes and make them more human-like to better serve their customers. We are leading the charge in a market disruption that is in the very early stages. We have a massive TAM, and we are poised to win. 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 was our strongest quarter with $55.1 million in revenue, up 59% and improvements across all profit measures. For the full year, we delivered $169 million in revenue, up 99% versus the prior year, and up more than fivefold in the few years that we have been a public company. We achieved this record performance through our disruptive technology, breakthrough innovation, hyper-responsiveness to customers and by scaling across our broadening enterprise portfolio. And we operationalized this with cost discipline, driving a clear pathway to breakeven profitability. The market momentum in our space continues to accelerate. Generative AI, Agentic AI, and Voice AI are now base-level customer requirements. Customer service is undergoing a once-in-a-generation disruption, and enterprises are clamoring for innovators like us to provide high customer engagement solutions to improve their top and bottom lines.
From the beginning, we have built our business to deliver successful AI-driven outcomes, and our pricing architecture is purpose-built for that. In a world where seat-based pricing models are quickly becoming antiquated because of their deteriorating price/value equations, our Agentic solutions seamlessly drive outcome-focused consumption and success rates that create economic incentives fully aligned with our customers. That's a sustainable model. It's a differentiated moat with our entrenchment deepening. Let me share some examples across our business. We have been growing the automotive installed base for years, and our monthly active users continue to expand rapidly with Q4 growth in excess of 50% year-on-year. More notably, their query activity or usage continues to accelerate with Q4 audio queries up roughly 75% from the prior year. And note that this is only cloud-based queries. We also offer edge-based solutions that don't require internet connectivity, so these volume metrics meaningfully understate the full auto customer engagement.
The volume of queries we deliver in IoT and smart devices is even larger than the automotive base and also growing strongly. Our new voice commerce engines fit so well here, and the idea of ordering a pizza or a salad naturally via voice ordering on your TV while watching the Super Bowl or Olympics personally resonates with me. On that point, in restaurants, we continue to grow locations, but what's even more directly impacting our revenue and our customers' business is order activity, which in Q4, we saw cross 9 million calls for the first time, up strong double digits from the prior year. That's a lot of meals from Chipotle, Casey's, and many others. In our enterprise business, our AI platform is delivering measurably better customer outcomes quarter after quarter. Containment rates hit record highs, now resolving the majority of inbound interactions without any human escalation, and with certain containment levels even crossing 90%.
Our automation intensity crossed a meaningful architectural threshold in Q4, chaining multiple targeted actions per customer engagement into fully autonomous resolutions. Our omnichannel multimodal systems are driving better resolution rates, resulting in compounding returns per interaction. All this comes together in our comprehensive query volume, which now is in the billions per month, up 12x since we went public. With that, let me discuss the fourth quarter financial results in more detail. Q4 revenue was $55.1 million, up 59% year-over-year. The growth was driven across multiple verticals. Our enterprise AI business performed particularly well in healthcare and financial services. We also saw strong year-over-year growth in our restaurant business as our automation rates continue to improve, integrations deepen, and customer adoption continues to expand at a healthy rate. In automotive, we continue to accelerate our Asia business and see traction in the world's fastest-growing markets.
As Keyvan mentioned, we signed a new Japanese automotive OEM in Q4, and we had several deals in Asia in 2025 with commitments of millions of units. This broad-based expansion once again enabled us to realize strong customer diversification with no customers contributing greater than 10% of our revenue for the quarter or full year. In Q4, our GAAP and non-GAAP gross margins were both up year-over-year. Our GAAP gross margin was 48%, and adjusted for noncash amortization of purchase intangibles and employee stock compensation, our non-GAAP gross margin was 61%. We continue to drive efficiencies by modernizing infrastructure, optimizing cloud spend, consolidating legacy systems, and improving the efficiency of our core platforms, such as shifting from third-party solutions to our own home-built ones. And our continued efforts to prune our portfolio of low-margin acquired contracts has been resulting in the sequential improvements in non-GAAP gross margin this year.
We expect to continue focusing on profitable contracts and either adjusting or moving away from those that don't meet our minimum thresholds. That said, there are deals that have a clear near-term path to automation using our AI, and we will not hesitate to make critical investments in them to build long-term sustainable profitable returns. R&D expenses were $24.8 million in Q4, up 22% year-over-year, largely due to acquisitions and related headcount and development costs. We continue to invest in innovation to maintain our technological leadership. For example, we continue building our Agentic AI solutions, leveraging our vast data to further improve our Polaris foundation model and are expanding our in-house real-time audio-to-audio and embedded vertical API integrations into production environments. We also continue to differentiate across the entire voice AI stack, including via best-in-class text-to-speech built on modern architectures for differentiated speed, accuracy, prosody, and with code switching multilingual capability for an increasingly diverse and integrated world.
Sales and marketing expenses were $17.4 million in Q4, reflecting an 82% year-over-year increase, primarily driven by acquisitions. We continue to invest in go-to-market efforts via direct and indirect sales as well as customer success to increase retention. In addition, we continue to elevate our brand and market presence to drive demand and lead generation. G&A expenses were $21.2 million in Q4, reflecting a 29% year-over-year increase, primarily driven by various legal, advisory, and other costs related to our acquisitions. We also continue to drive operational efficiencies throughout the organization and improve our global control environment. We had noncash employee stock compensation of $20.8 million and depreciation and amortization, including the amortization of intangibles of $10 million in Q4, all of which are included in our GAAP results. Adjusted EBITDA was a loss of $7.4 million, an improvement of 56% year-over-year.
GAAP net income of $40.1 million and GAAP net earnings per share of $0.10 were positively impacted by the change in fair value of contingent liabilities of approximately $85 million. This relates to the acquisitions we have completed and is a nonoperating and noncash expense and primarily reflects the quarter-on-quarter fluctuation in our stock price. As such, this item has been excluded in our non-GAAP results. Non-GAAP net loss was $7.3 million and non-GAAP net loss per share was $0.02 in the quarter. This adjusts for items such as noncash depreciation and amortization, M&A transaction costs, and stock-based compensation. Our balance sheet remains strong with cash and equivalents at quarter end of $248 million with no debt. With that, let me discuss our financial outlook. We are starting 2026 with strong momentum. As Keyvan mentioned, we broke a record in Q4 with over 100 customer deals across every industry we operate in.
Our pipeline continues to build across several verticals. We have a strong foundational customer base to expand upon through full portfolio upsell and cross-sell, and we continue to aggressively release new Agentic and voice AI capabilities to dramatically improve customer outcomes. With the greater scale achieved in 2025, we have increased visibility in the near term and expect to continue to grow rapidly over the long term. For 2026, we expect our revenue to be in a range of $225 million to $260 million. As in prior years, there will be a ramp in revenue through the year given the nature of our customer base, underlying seasonality, and expected large deal timing, both for renewals and new deals. That said, we expect the seasonality to improve as our recurring mix of business continues to grow. Overall, this outlook affirms our expectation of another year of very strong growth. We remain committed to delivering accelerated growth while being mindful of the journey to profitability.
Our strong cash position and debt-free balance sheet give us the capacity to remain prudent and appropriately balance growth with profit maximization. We will continue to drive scale through targeted investments. Last quarter, I mentioned that we see additional acquisition cost synergies of $20 million on an annualized basis. And in Q1, we have already executed most of that, the effect of which we expect to appear in future quarters. I also noted last quarter that we are entering our breakeven phase after many years in heavy investment mode. This transition won't be linear or uniform. We expect it should be progressive and ultimately compounding. Our long-term expectation is that we can operate this business at scale with 70% plus gross margins and 30% plus EBIT margins. For the near term, though, we expect to calibrate the investments based on the opportunities in front of us and their expected returns, and we will continue to balance the importance of delivering profitability in the near term with fueling sustainable, profitable growth over the long term. With that, we will now move to Q&A.
Questions and answers
Your first question comes from the line of Scott Buck from H.C. Wainwright & Company.
As we went through the 4Q highlights, clearly, a lot of balls in the air. I'm curious, how are you handling from a deployment and customer service capacity standpoint? Are you starting to feel a little constrained?
Thank you for the question. We are definitely doing a lot. I've mentioned for the past few quarters that this is the time for us to increase our efforts. We operate in many industries, but the components we utilize to enhance these experiences remain consistent. The extensive work we've invested in creating top-tier speech recognition, conversational AI, and Agentic orchestration applies to both automotive and customer service for healthcare or insurance companies. Due to advancements in AI, we can deploy, launch, and develop more quickly. We can meet the rising demand with fewer people and less resources. As demand increases, the resources needed to fulfill these customer expectations are actually decreasing. We anticipate that this trend will further benefit us.
Great. That's helpful. And then I wanted to ask, you called out a number of renewals. Can you talk a little bit about any changes in pricing or upselling you're seeing as you go through the renewal process with customers?
We have established relationships with customers, particularly in the automotive sector, and these renewals present opportunities for upselling as we introduce the Agentic solution. The Gen AI solution we developed three years ago also served as an upsell. With the Agentic solution now available, we see further upsell possibilities. This typically involves renewing contracts with a price increase and occasionally a larger volume commitment. We have witnessed similar trends in customer service, especially with long-term customers where the Agentic platform serves as an upgrade, often at a higher price. For deals tied to containment rates, we anticipate increased revenue due to our ability to handle a greater volume of incoming calls. For instance, we have seen cases where containment rates improved significantly from 30% to 70%, 80%, and even over 90%. This means we are managing more than 90% of incoming calls without involving human agents, leading to higher compensation as we enhance our call containment. Consequently, even without contract renewals or price hikes, upgrading existing customers to the Agentic solution will still drive additional revenue for us.
Your next question comes from the line of Brian Schwartz with Oppenheimer.
Congratulations on a very good year. Keyvan, I want to start with you. And your enterprise AI business clearly has strong momentum, especially in the higher regulated industries that you pointed out. You're building deeper entrenchment. But in the market, certainly over the last three, four, five months, there's been a lot of fear about software companies' long-term growth that these larger LLM providers are going to be able to just build workflows above software companies' platforms and bypass them, and it's going to be much more challenging for companies to grow. So I was hoping you could address that, how you see the durability of the enterprise AI business as we enter this agentic era? And then I have a follow-up for Nitesh.
Sure, that's an important question. There are two parts to consider. First, regarding software and services companies in general, we've actually experienced growth over the past three years due to advancements in generative AI. Automation is on the rise, which is set to disrupt services and SaaS companies. This trend has allowed companies looking to automate their processes to turn to SoundHound for assistance. The second aspect pertains to how businesses like SoundHound will fare with recent advancements in AI that simplify software development. We see this as another growth opportunity. A useful comparison is with early internet companies that relied on dial-up connections. As broadband internet emerged, many internet companies were able to enhance their offerings significantly. While some struggled to adapt quickly, the overall capabilities of the internet improved dramatically. We believe the same is true for us; we can accelerate our delivery thanks to AI, which boosts our ability to serve our numerous customers efficiently. We are confident that our pace and the quality of our solutions will improve by leveraging these AI advancements.
I wanted to ask you, Keyvan, because you are a leader in technology in this industry. I appreciate your insights. My question for Nitesh is about planning for the efficiency of the business. Specifically, I want to know about the operating profile for 2026. It’s clear that the business is speeding up, and you seem to be improving efficiency in your development, as Keyvan mentioned with your own Agentic and AI. How do you view the rest of the investment profile? Are you planning to increase your investments, maintain your current margins, or aim for improvements in efficiency and EBITDA margins by 2026?
Thanks, Brian. I'll approach this from a few different perspectives. Firstly, regarding our focus on AI efficiency, we have multiple ways this is manifesting. Our product development efficiency has improved, and we are noticing enhancements in our deployment and delivery processes as well. Across the company, we're using various tools that may not be central to SoundHound’s operations, but in my General and Administrative function, we're actively finding ways to increase efficiencies. Everyone here understands the importance of leveraging the latest innovations to manage costs responsibly. In terms of our business profile, I refer back to my earlier comments. We are transitioning from a phase heavily focused on innovation and recently on enhancing our go-to-market abilities to now entering a breakeven era. We don’t aim for exact figures each quarter, but we start with the understanding that we are at the beginning of a significant transformation.
This includes LLM-driven capabilities and advancements in voice AI, allowing us to interact with consumers and customers in more effective and seamless ways for various transactions, including customer service solutions that redefine traditional processes. We are just starting this journey and recognize the potential for substantial returns. Our goal is to sustain the hyper-growth we've seen in recent years, and we believe this strong growth will continue for some time. Therefore, every additional dollar should aim to support our growth while ensuring we do so efficiently. As we scale, we expect to see improvements in our operating leverage and year-over-year gains in EBITDA. Specifically, we aim to drive efficiencies in our R&D, as well as through our investment in both direct and indirect sales channels. The indirect channel has proven beneficial, providing additional scale. Overall, we believe there are efficiencies to be gained across R&D, sales and marketing, and G&A, leading us toward the breakeven zone as mentioned earlier.
Your next question comes from the line of Gil Luria with D.A. Davidson.
Great. This is Lucky on for Gil Luria. It seems you had strong traction with auto OEMs, particularly with new business in the quarter, despite prior challenges from tariffs affecting the industry. Is there anything specific that contributed to your notable success in that area this quarter?
Yes, it was a fantastic year for us in the automotive sector. Earlier this year, we finalized a significant deal with a major Chinese OEM, along with several commitments for millions of units. We also partnered with a robot manufacturer in China and secured additional deals in India. We're particularly proud of winning a well-known client in Japan. This success is largely due to the exceptional solutions we have developed over the years. We have established a strong reputation in the automotive industry for providing the best solutions and working collaboratively with our customers to realize their goals. Our Pillar 3 vision is proving effective; we anticipated a flywheel effect from it. To briefly summarize, in Pillar 1, we power cars, TVs, and devices; in Pillar 2, we enhance customer service for merchants; and in Pillar 3, we integrate these elements. This allows drivers to order coffee, make appointments, and reserve tables while on the move, turning those moments into monetizable opportunities.
We refer to this as voice commerce. The ability to provide value to drivers while generating revenue for ourselves and sharing that revenue with the OEM is creating a positive feedback loop for us, attracting many OEMs to collaborate with us. This is a result of our excellent partnerships, cutting-edge technology, and monetization opportunities with our Agentic AI system in vehicles.
And hopefully, Lucky, you're also noticing that we're seeing this growth in the fastest-growing markets, too. Oftentimes in the fastest-growing markets, it's sort of where they want the best-of-breed technology, and I think that's what's playing out here as well.
I think that makes a lot of sense. Maybe the last question from me. As you enter your next phase of growth here, you touched on it already, but can you kind of stack rank the top investment priorities to capture the opportunity in front of you? And any update on your M&A strategy in light of the broad decline in valuations across software here recently?
I will begin by discussing our Agentic platform, which is a major focus of our investment. This platform significantly enhances the user experience and boasts a higher containment rate. The latest iteration also utilizes AI to develop AI, allowing us to streamline the creation process. What previously took numerous developers weeks or months can now be achieved simply by specifying the requirements. This advancement will enable us to operate more swiftly, improve quality, increase containment rates, and attract more customers. We see this technology being applied across various sectors, including automotive and customer service. Furthermore, I want to emphasize our leadership in voice commerce. We have pioneered this vision and remain ahead of the competition. With the largest number of merchants utilizing our voice AI, particularly in restaurants, and a substantial presence in vehicles, televisions, and other devices, we are well-positioned to capitalize on this market opportunity.
Yes, I can discuss the M&A aspect of your question. After a couple of years, I believe our M&A strategy is on the right track. We will remain aware of the marketplace and potential partnerships, looking for opportunities to combine efforts. So far, we've engaged with companies that have exceptional customer relationships, allowing us to jointly innovate and strengthen those connections, using some of those opportunities to expand further in relevant industries. We will keep pursuing such opportunities. Due to our previous transactions, we've noticed increased inbound interest as well. We have a strict and disciplined process for evaluating potential deals to see if they make sense for us, and we will maintain that discipline. There are many opportunities that we assess which ultimately do not fit our criteria, and we apply significant scrutiny to identify the right situations. As conditions are evolving rapidly, we recognize the potential of what we've built but do not want to operate in isolation. Thus, we aim to be aware of all the great opportunities and partnerships that we can explore. Looking ahead over the next few years, I see M&A continuing to play a vital role in our growth strategy.
Your next question comes from the line of Mike Latimore with Northland Capital Markets.
This is Vijay Devar for Mike Latimore. A couple of questions. So one, how many Amelia customers are live on your Agentic AI version 7.3 and are likely to go live this year?
Yes, hello, Vijay. Last time we mentioned that we were making progress with an early adopter program that we started last year, where we worked with around 15 customers. This ramped up over the summer, and we are on track to migrate the majority, over 75%, by the middle of this year. We continue to make incremental progress each quarter, and we are already seeing acceleration in the first quarter. A positive development with our new Agentic platform, which we highlighted at the Consumer Electronics Show, is the strong early traction from customers through our channels. Our Head of Sales has reported excellent customer feedback. We are also implementing automated migration paths to help customers transition from previous versions to Amelia 7.3 smoothly. We are excited about the efficiencies that AI is providing, allowing for quicker migration processes.
Got it. So when the customer moves to 7.3, is there incremental revenue to SoundHound?
Yes. So as I mentioned, just a pure higher containment rate is expected to increase our revenue. Many of our deals, we get paid when we successfully avoid a caller going to a human. And by going to Agentic, we've seen just as an example, numbers going from like a 30% containment to over 90% containment. In some cases, we also get paid more for the upgrading to Agentic. So it's a mix of both, but either way directionally positive for revenue.
The other thing we've seen with the recent versions is sort of interactions that previously fell outside or would have to get escalated or things we can capture now at a much greater rate. So all of that is incremental revenue for us.
Your next question comes from the line of James Fish with Piper Sandler.
Just on the CX side of things, how is Amelia effectively winning new customers versus the contact center pure play, the CRM offerings, and even some of the other stand-alone AI solutions out there? Really, what's making them different that's resonating with customers? And then I've got a follow-up.
SoundHound has a strong background due to the acquisitions we've made, combining teams with decades of experience in customer service. We've developed advanced technology and have extensive data, especially in industries like healthcare, insurance, and banking. Our reputation and relationships enhance our position. If a customer opts for a large tech provider, it's a risky choice since companies like Google or OpenAI are not specialized in customer service; they only provide tools for companies like us. Relying solely on one big tech could restrict access to innovative solutions from others. For example, if a customer uses Google models, they might miss out on advancements from OpenAI, and the reverse is also true. Our approach is to deliver the best technology and solutions to our clients, regardless of origin. Most solutions come from our internally developed models, which we've honed over time to outperform big tech in accuracy, speed, and cost.
However, if a big tech model proves more effective for particular scenarios, we incorporate it into our platform for our clients. Choosing SoundHound ensures customers access the best solutions as they become available, mitigating the risks associated with committing to a major tech provider. Additionally, we acknowledge newer players in the market, which are typically just a couple of years old and may lack their own technology, relying instead on piecemeal solutions. This creates a significant advantage for SoundHound, as we've been refining our models for decades and have demonstrated success in the enterprise sector, serving seven of the top ten banks and handling billions of queries. Our quality of service and strong reputation place us in a favorable position.
I would like to add something, Jim. I mentioned this in the prepared remarks, and it is relevant to your question. Fundamentally, legacy models that were based on seat-based pricing focused on increasing user numbers without being closely linked to customer outcomes are at risk. Our tools are becoming highly effective, and we are developing solutions where our economic model and pricing are directly connected to customers realizing genuine value. For example, questions like whether a prescription was refilled, an appointment was made, or food was ordered directly relate to outcomes. Architecturally, we are better positioned. Additionally, the alignment of economic incentives is a significant advantage for us.
Got it. Thank you for the detailed answer. Nitesh, I have a question that has come up after hours about your annual guide. Is there any mention of further mergers and acquisitions? You have a lot of opportunities and a strategic approach to acquisitions. I want to understand if additional M&A is anticipated in the guide. Also, given the current environment, there is considerable sensitivity regarding stock-based compensation. You seem to be somewhat unique in this area. How are you planning to manage your stock compensation moving forward in light of the historical dilution?
Sure, thanks, Jim. To be clear, our guidance does not include any M&A activities that we have not already completed or that are not factored into our outlook. Our forecast is based on our existing business, the deals currently in progress, and ongoing customer engagements that we are expanding. While there are certainly discussions and ideas about potential M&A opportunities, if anything significant arises that necessitates an update to our outlook, we will communicate that as we have in the past. Regarding stock-based compensation, I want to emphasize that at SoundHound, we take pride in offering equity to all employees, which is not common across every company. We believe that everyone should share in the company's success as owners. Our historical volatility can complicate our financials, particularly concerning the valuation of stock grants. The stock price's fluctuations mean that, by the time these grants are assessed for financial reporting, their value may differ significantly.
We do consider the implications of dilution from stock compensation within our overall compensation strategy, aiming to remain competitive and attract top talent. We are continuously assessing our cost structure to ensure efficiency, and we have made adjustments in the past when necessary. While we remain aware of the dilution impact and recognize that our stock compensation as a percentage of revenue may be higher than average, we anticipate that this will normalize as we grow. Ultimately, we are proud to ensure that all employees at our company are shareholders in the journey and success of what we create together.
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