SOUNDHOUND AI, INC.SOUN
SOUNDHOUND AI, INC. Fair Value Disclosure
FAIR VALUE MEASUREMENT
The following table presents the fair value of the Company's financial instruments that are measured or disclosed at fair value on a recurring basis (in thousands):
| December 31, 2025 | |||||||||||||||||
| Level 1 | Level 2 | Level 3 | |||||||||||||||
| Assets: | |||||||||||||||||
| Cash equivalents: | |||||||||||||||||
| Treasury bills | $ | 39,920 | $ | — | $ | — | |||||||||||
| Money market funds | 21,334 | $ | — | $ | — | ||||||||||||
| Other non-current assets | |||||||||||||||||
| $ | — | $ | — | $ | 4,786 | ||||||||||||
| Total assets | $ | 61,254 | $ | — | $ | — | |||||||||||
| Liabilities: | |||||||||||||||||
| Contingent acquisition liabilities (Current) | |||||||||||||||||
| Contingent earnout consideration | $ | — | $ | — | $ | 4,400 | |||||||||||
| Contingent acquisition liabilities (Non-current) | |||||||||||||||||
| Contingent earnout consideration | $ | — | $ | — | $ | 129,227 | |||||||||||
| Total liabilities | $ | — | $ | — | $ | 133,627 | |||||||||||
| December 31, 2024 | |||||||||||||||||
| Level 1 | Level 2 | Level 3 | |||||||||||||||
| Assets: | |||||||||||||||||
| Cash equivalents: | |||||||||||||||||
| Treasury bills | $ | 38,070 | $ | — | $ | — | |||||||||||
| Money market funds | 131,767 | $ | — | $ | — | ||||||||||||
| Total assets | $ | 169,837 | $ | — | $ | — | |||||||||||
| Liabilities: | |||||||||||||||||
Other current liabilities | |||||||||||||||||
Contingent holdback consideration | $ | — | $ | — | $ | 4,076 | |||||||||||
Contingent acquisition liabilities | |||||||||||||||||
Contingent earnout consideration | $ | — | $ | — | $ | 286,898 | |||||||||||
| Total liabilities | $ | — | $ | — | $ | 290,974 | |||||||||||
Equity Line of Credit
| Liabilities: | Equity Line of Credit | ||||
| December 31, 2022 | 1,075 | ||||
| Change in fair value | 1,901 | ||||
| Settlements | (2,976) | ||||
| December 31, 2023 | $ | — | |||
The Company estimated the Level 3 fair value of the liability related to the ELOC using contractual inputs of the commitment shares and reimbursement fees prior to the settlement. The Company determined that the ELOC was not indexed to the Company’s own common stock and, therefore, should be accounted for in accordance with ASC 815: Derivatives. Accordingly, the Company recorded a derivative liability with an initial fair value of $1.1 million based on the upfront commitment fee and the reimbursement amount to the investor as consideration for its irrevocable commitment to purchase up to 25,000,000 shares of the Company's common stock.
Subsequent changes in the fair value of the derivative liability are dependent upon, among other things, changes in the closing share price of the Company’s common stock, the quantity and purchase price of shares purchased during the reporting period, the unused capacity under the ELOC as of the balance sheet date and the cost of raising other forms of capital. The Company adjusts the previous fair value estimate of the committed equity facility at each reporting period based on changes in the weighted average purchase price of shares purchased during the period, the unused capacity available under the ELOC, expected stock price volatility and other macroeconomic factors which impact the cost of raising comparable forms of capital.
The changes in the fair value of the committed equity facility were an increase of $1.9 million for the year ended December 31, 2023, which is included in , net on the consolidated statements of operations and comprehensive income (loss). The fair value of the liability then is remeasured as of the settlement date equal to the difference between the volume weighted average price at a 3% discount compared to the fair value of the common stock.
Term Loan and Term Loan Warrant
The fair value of the Company's variable rate Term Loan approximates aggregate principal amount as the interest rate of the loan approximates market rates.
The Company issued a Class A Common Stock warrant in connection with the Term Loan (see Note 9 for additional information). The warrant was recorded based on the allocation of its relative fair value of the debt proceeds of $4.1 million. The warrants were classified as equity instruments at inception with a corresponding discount recorded at issuance against the outstanding note payable in connection with the Term Loan. The common stock warrant is not subject to remeasurement at each subsequent balance sheet date due to its classification as an equity instrument as it is considered indexed to the Company’s stock. The Term Loan warrant expires in April 2033.
The Company determined the fair value of the Term Loan common stock warrant at issuance using the Black-Scholes option-pricing model using the following assumptions:
| Expected dividend rate | — | % | ||||||
| Risk-free interest rate | 3.60 | % | ||||||
| Expected volatility | 52 | % | ||||||
| Expected term (in years) | 5 | |||||||
All of the Term Loan Warrants had been exercised during the year ended December 31, 2024. No Term Loan Warrants had been exercised during the year ended December 31, 2023.
Escrow Consideration
Derivative
The reconciliation of the Company's derivative measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows:
| Balance as of December 31, 2024 | $ | 110 | |||
| Change in the fair value of derivative | 4,676 | ||||
| Balance as of December 31, 2025 | $ | 4,786 | |||
The Company accounted for the Escrow Consideration under Amelia acquisition as equity-classified shares issued as part of the consideration transferred. Upon the settlement of any valid indemnification claims against the selling shareholders, the escrow agent will return a number of shares to the Company equal to the dollar value of the indemnified loss divided by the reference price of $5.35 as stipulated in the purchase agreement. The Company concluded that this variability in settlement value is a derivative that is required to be remeasured to fair value due to changes in stock price. During the year ended December 31, 2025, the Company recognized a gain of $4.7 million related to the change in fair value of derivative under other income in the consolidated statement of operations and comprehensive loss.
Contingent Acquisition Liabilities
Contingent Holdback Consideration
The reconciliation of the Company's Contingent SYNQ3 Holdback Consideration measured at fair value, including the effect of measurement period adjustments, on a recurring basis using unobservable inputs (Level 3) is as follows:
| Balance as of December 31, 2023 | $ | — | |||
| Acquisition of SYNQ3 | 981 | ||||
| Change in the fair value of liability | 3,712 | ||||
| (411) | |||||
| Settlement | (206) | ||||
| Balance as of December 31, 2024 | 4,076 | ||||
| Change in the fair value of liability | 44 | ||||
| Settlement | (4,120) | ||||
| Balance as of December 31, 2025 | — | ||||
The fair value of the cash portion of the Contingent Holdback Consideration was estimated based upon the holdback period of 15 months, and discounted using the risk-free interest rate based on the U.S. Treasury zero-coupon yield curve on the valuation date for a maturity similar to the 15-month holdback period. The fair value of the equity portion of the Contingent SYNQ3 Holdback Consideration was estimated based upon the value of the Company’s Class A Common Stock price. The fair value of the Contingent SYNQ3 Holdback Consideration was initially measured on January 3, 2024, the date on which the Company completed the acquisition of SYNQ3. For the years ended December 31, 2025 and 2024, the Company recognized a loss of less than $0.1 million and a loss of $3.7 million related to the Contingent SYNQ3 Holdback Consideration, respectively.
The fair value of the Contingent Holdback Consideration has been estimated as of the Closing Date and December 31, 2024 under the following assumptions:
| January 3, 2024 | December 31, 2024 | |||||||
| Risk-free interest rate | 4.6 | % | 4.0 | % | ||||
| Holdback period | 1.25 years | 0.25 years | ||||||
Contingent Earnout Consideration
The reconciliation of the Company's contingent earnout consideration measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows:
| Balance as of December 31, 2023 | $ | — | |||
| Acquisition of SYNQ3 | 1,676 | ||||
| Acquisition of Amelia | 66,269 | ||||
| Change in the fair value of liability* | 218,953 | ||||
| Balance as of December 31, 2024 | 286,898 | ||||
| Acquisition of Interactions | 9,900 | ||||
| Change in the fair value of liability* | (163,171) | ||||
| Balance as of December 31, 2025 | 133,627 | ||||
*Changes in the Company's year-end stock price resulted in adjustments to the fair value of contingent acquisition liabilities where future Contingent Earnout Consideration is marked-to-market on a quarterly basis, significantly impacting net loss and net loss per share during the years ended December 31, 2025 and 2024. The fluctuation is non-operating and non-cash in nature.
For the years ended December 31, 2025 and 2024, the Company recognized a gain of $163.2 million and a of $219.0 million related to the contingent earnout consideration, respectively, reflected in the change in fair value of contingent acquisition liabilities in the consolidated statement of operations and comprehensive loss.
The Company utilizes a Monte Carlo simulation to value the contingent earnout consideration. The Company selected this model as it believes it is reflective of all significant assumptions that market participants would likely consider in negotiating the transfer of the contingent earnout consideration. Such assumptions include, among other inputs, expected stock price volatility, risk-free rates, and change in control assumptions. The Company estimates the expected volatility of its common stock based on historical volatility of a peer group, considering the remaining term of the contingent earnout consideration. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the valuation date for a maturity similar to the expected remaining life of the contingent earnout consideration. The expected life of the contingent earnout consideration is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates to remain at zero.
The fair value of the Contingent SYNQ3 Earnout Consideration acquired from the SYNQ3 Acquisition has been estimated as of the Closing Date, December 31, 2024, and December 31, 2025, with the following assumptions for the unobservable inputs:
| January 3, 2024 | December 31, 2024 | December 31, 2025 | |||||||||
| Discount rate | 12.6 | % | 12.9 | % | 13.1 | % | |||||
| Expected stock price volatility | 115.3 | % | 130.0 | % | 115.0 | % | |||||
| Risk-free interest rate | 4.2 | % | 4.2 | % | 3.5 | % | |||||
| Expected dividend yield | 0.0 | % | 0.0 | % | 0.0 | % | |||||
| Expected life | 0.5 - 2.5 years | 0.50 - 1.50 years | 1 year | ||||||||
The fair value of the Contingent Amelia Earnout Consideration acquired from the Amelia Acquisition has been estimated as of the Closing Date, December 31, 2024, and December 31, 2025, with the following assumptions for the unobservable inputs:
| August 6, 2024 | December 31, 2024 | December 31, 2025 | |||||||||
| Metric specific discount rate | 8.0 | % | 9.5 | % | 8.5 | % | |||||
| Earnout payment discount rate | 3.8 | % | 4.2 | % | 3.4 | % | |||||
| Expected stock price volatility | 73.0 | % | 68.0 | % | 98.0 | % | |||||
| Expected metric volatility | 11.0 | % | 12.0 | % | 15.0 | % | |||||
| Risk-free interest rate for target revenue | 4.0 | % | 4.2 | % | 3.6 | % | |||||
| Risk-free interest rate for stock price | 3.8 | % | 4.2 | % | 3.5 | % | |||||
| Expected dividend yield | — | % | — | % | — | % | |||||
| Expected life | 1.4 - 2.4 years | 1.0 - 2.0 years | 1.0 year | ||||||||
The fair value of the Contingent Interactions Earnout Consideration acquired from the Interactions Acquisition has been estimated as of the Closing Date and December 31, 2025, with the following assumptions for the unobservable inputs:
| September 3, 2025 | December 31, 2025 | |||||||
| Metric specific discount rate | 8.0 | % | 8.0 | % | ||||
| Risk-free interest rate for target revenue | 3.5 | % | 3.4 | % | ||||
| Expected metric volatility | 15.0 | % | 20.0 | % | ||||
| Earnout payment discount rate | 6.8 | % | 6.2 | % | ||||
| Expected life | 1.3 - 2.3 years | 1.0 - 2.0 years | ||||||
There were no transfers of financial instruments between Level 1, Level 2 and Level 3 during the years ended December 31, 2025 and 2024.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 2, 2026 | Showing above |
| 2024 | Mar 11, 2025 | |
| 2023 | Mar 1, 2024 | |
| 2022 | Mar 28, 2023 | |
| 2021 | Mar 9, 2022 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.