SOUNDHOUND AI, INC.SOUN
SOUNDHOUND AI, INC. Stock Compensation Disclosure
STOCK INCENTIVE PLANS
2016 Equity Incentive Plan
In April 2016, we adopted the 2016 Equity Incentive Plan (the “2016 Plan”) as a successor and continuation of the 2006 Plan. Under the 2016 Plan, the Company was permitted to grant awards of stock options and Restricted Stock Units ("RSUs"), as well as stock appreciation rights and other stock awards. The Company no longer has shares available for issuance under the 2016 Plan.
2022 Incentive Award Plan
The Company adopted the 2022 Incentive Award Plan (the “2022 Incentive Plan”), effective April 26, 2022. The Company reserved 19,650,371 shares of Class A Common Stock for the issuance of awards under the 2022 Incentive Plan (“the Initial Limit”). The Initial Limit represents 10% of the aggregate number of shares of the Company’s common stock outstanding immediately after the Closing and is subject to increase each year over a ten-year period. As of December 31, 2024, the Company had 417,633 shares remaining for issuance under the 2022 Incentive Plan.
2022 Employee Stock Purchase Plan
The Company adopted the 2022 Employee Stock Purchase Plan (the "ESPP") effective April 26, 2022, An aggregate of 3,930,074 shares of the Company’s Class A Common Stock has been reserved for issuance or transfer pursuant to rights granted under the ESPP (“Aggregate Number”). The Aggregate Number represents 2% of the aggregate number of shares of the Company’s common stock outstanding immediately after the Closing and is subject to increase each year over a ten-year period. The ESPP provides eligible employees with an opportunity to purchase common stock from the Company at a discount through accumulated payroll deductions. The ESPP is being implemented through a series of offerings of purchase rights to eligible employees. Under the ESPP, the Company’s Board of Directors may specify offerings but generally provides for a duration of 27 months. The purchase price will be specified pursuant to the offering, but cannot, under the terms of the ESPP, be less than 85% of the lower of the fair market value per share of the Company’s common stock on either the offering date or on the purchase date. The ESPP also includes a six-month look-back provision for the purchase price if the stock price on the purchase date is less than the stock price on the offering date. The first offering period under the ESPP began on November 1, 2022. As of December 31, 2024, 936,368 shares of Class A Common Stock were issued under the ESPP.
2024 Employment Inducement Incentive Award Plan
The Company adopted 2024 Employment Inducement Incentive Award Plan (the “2024 Inducement Plan”, collectively, with the 2016 Plan and the 2022 Incentive Plan, the “Plans”) effective August 6, 2024. The Company reserved 6,000,000 shares of Class A Common Stock for the issuance of awards under the 2024 Inducement Plan. As of December 31, 2024, 0 shares were issued under the 2024 Inducement Plan.
Stock Options Activity
Options granted generally have a maximum term of 10 years from grant date, are exercisable upon vesting unless otherwise designated for early exercise by the Board of Directors at the time of grant, and generally vest over a four-year period, with a 25% cliff vesting after one year and then ratably on a monthly basis for the remaining three years.
Stock option activity under the Plans was as follows for the years ended December 31, 2024, 2023 and 2022:
| Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value (in Thousands) | |||||||||||||||||||||||
| Outstanding, December 31, 2021 | 30,361,405 | $ | 3.45 | 6.24 | $ | 168,705 | ||||||||||||||||||||
| Granted | 391,619 | 6.17 | ||||||||||||||||||||||||
| Exercised | (3,595,706) | 1.16 | 22,534 | |||||||||||||||||||||||
| Forfeited or cancelled | (1,736,893) | 4.63 | ||||||||||||||||||||||||
| Outstanding, December 31, 2022 | 25,420,425 | $ | 3.74 | 6.32 | $ | 1,448 | ||||||||||||||||||||
| Exercised | (3,585,829) | 2.37 | 5,207 | |||||||||||||||||||||||
| Forfeited or cancelled | (4,993,229) | 5.24 | ||||||||||||||||||||||||
| Outstanding, December 31, 2023 | 16,841,367 | 3.59 | 4.77 | 1,392 | ||||||||||||||||||||||
| Exercised | (9,806,309) | 2.91 | $ | 72,806 | ||||||||||||||||||||||
| Forfeited or cancelled | (1,109,147) | 4.76 | ||||||||||||||||||||||||
| Outstanding, December 31, 2024 | 5,925,911 | $ | 4.44 | 5.08 | $ | 91,268 | ||||||||||||||||||||
| Exercisable, December 31, 2024 | 5,454,004 | 4.16 | 4.92 | 85,529 | ||||||||||||||||||||||
Options exercised early are subject to the vesting provisions mentioned above, and any unvested shares are subject to repurchase at the original price upon termination of employment, death, or disability. There were no option exercises during the years ended December 31, 2024, 2023 and 2022 that were subject to repurchase.
The weighted average grant date fair value per option granted was $3.11 during the year ended December 31, 2022. There were no options granted during the years ended December 31, 2024 and 2023. The total fair value of options vested was approximately $3.0 million, $4.5 million and $9.9 million during the years ended December 31, 2024, 2023 and 2022, respectively. The Company recorded stock-based compensation expense related to options of $3.0 million, $4.0 million and $8.7 million for the years ended December 31, 2024, 2023 and 2022.
As of December 31, 2024, the total unrecognized stock-based compensation expense related to the unvested stock options was approximately $1.4 million, which we expect to recognize over a weighted-average period of 0.68 years.
For the purpose of determining the estimated fair value of share-based payment awards issued in the form of stock options, the Company uses the Black-Scholes option-pricing model. The assumptions under the Black-Scholes option-pricing model during the year ended December 31, 2022 were as follows for option awards:
| 2022 | |||||
| Dividend yield | 0 | % | |||
| Expected volatility | 51 | % | |||
| Expected term (years) | 5.88 | ||||
| Risk free interest rate | 2.58 | % | |||
Restricted Stock Units Activity
RSUs granted generally vest over a four-year period, with 25% cliff vesting after one year and then ratably on a monthly basis for the remaining three years. Besides RSUs with vesting condition tied to requisite service period, the Company also issues RSUs with vesting conditions tied to certain market conditions (“Market-Based RSUs”) and RSUs with vesting conditions tied to certain performance criteria ("Performance-Based RSUs").
In connection with the SYNQ3 Acquisition, the Company granted 1,434,978 RSUs (the "Retention Pool"), 25% of which is subject to service conditions that vest at the end of each of the upcoming fiscal years and 75% of which is subject to both service and performance-based vesting conditions at the end of each of the upcoming fiscal years, respectively.
The performance level for each of the fiscal years 2024, 2025 and 2026 is based on tiered annual revenue targets, subject to a floor of $9.0 million, $21.0 million and $30.0 million, respectively, with vesting ranging from 50% to 100% of the RSUs granted depending on the level of achievement of the specified revenue target in each year.
The Company assesses the probability of vesting of the above performance-based awards from the Retention Pool every reporting period. As of December 31, 2024, performance level of 2024 revenue amount was not met and performance levels of 2025 and 2026 were probable of being met.
The Company also granted 1,952,000 RSUs that vest over a four-year requisite service period to SYNQ3 employees during the year ended December 31, 2024. Additionally, the Company granted 10,622,133 RSUs to other employees of the Company during the year ended December 31, 2024. As a result, the Company granted total of 14,009,111 RSUs during the year ended December 31, 2024.
The activity for unvested Restricted Stock Units under the Plans was as follows for the years ended December 31, 2024, 2023 and 2022:
| Number of Shares | Weighted Average Grant Date Fair Value | ||||||||||
| Unvested, December 31, 2022 | 16,716,383 | 4.14 | |||||||||
| Granted | 11,158,301 | 2.38 | |||||||||
| Vested | (7,678,184) | 3.32 | |||||||||
| Forfeited | (3,852,909) | 3.90 | |||||||||
| Unvested, December 31, 2023 | 16,343,591 | 3.39 | |||||||||
| Granted | 14,009,111 | 4.14 | |||||||||
| Vested | (7,322,556) | 3.44 | |||||||||
| Forfeited | (1,239,891) | 3.15 | |||||||||
| Unvested, December 31, 2024 | 21,790,255 | 3.87 | |||||||||
The Company recorded stock-based compensation expense of $1.1 million, $1.3 million and $0.4 million related to Performance-Based RSUs during the years ended December 31, 2024, 2023, and 2022, respectively. As of December 31, 2024, the total unrecognized stock-based compensation expense related to the unvested Performance-based RSUs was approximately $8.6 million. There were 1,376,234 Performance-Based RSUs granted during the year ended December 31, 2024.
The Company recorded $0.6 million, $1.5 million and $1.1 million in stock-based compensation expense related to Market-Based RSUs during the year ended December 31, 2024, 2023 and 2022, respectively. As of December 31, 2024, the total unrecognized stock-based compensation expense related to the unvested Market-Based RSUs was approximately $10.7 thousand.
To derive the fair value of Market-Based RSUs, the Company applies a Monte Carlo simulation to determine the grant date fair value. The assumptions under the Monte Carlo simulation model and the calculated fair value of the Market-Based RSUs granted to employees during the year ended December 31, 2022 were as follows. The Company did not grant Market-Based RSUs during the years ended December 31, 2024 and 2023.
| Year Ended | |||||
| December 31, 2022 | |||||
| Expected volatility | 52 | % | |||
| Expected term (years) | 4 | ||||
| Drift rate | 2.9 | % | |||
During the years ended December 31, 2024, 2023 and 2022, the fair value of RSUs that vested was $24.1 million, $25.5 million, and $12.0 million. During the years ended December 31, 2024, 2023, and 2022, the Company recorded $27.2 million, $20.4 million, and $19.0 million of stock-based compensation related to RSUs. As of December 31, 2024, the total unrecognized stock-based compensation expense related to the unvested RSUs with service conditions was approximately $$67.6 million.
The total unrecognized stock-based compensation related to unvested RSUs is $76.2 million and this will vest over a weighted average period of 2.29 years.
Restricted Stock Awards Activity
In connection with the SYNQ3 Acquisition, a total of 2,033,156 unvested restricted Class A Common Stock shares ("RSAs") were issued, 25% of which are subject to service conditions that vest at the end of each of the upcoming fiscal years in 3 tranches, and 75% of which is subject to both service and performance-based vesting conditions in tranches.
The performance level for each of the fiscal years 2024, 2025 and 2026 is based on tiered annual revenue targets, subject to a floor of $9.0 million, $21.0 million and $30.0 million, respectively, with vesting ranging from 50% to 100% of the RSAs granted depending on the level of achievement of the specified revenue target in each year.
The Company assesses the probability of vesting of the above performance-based awards every reporting period. As of December 31, 2024, the performance level of the 2024 revenue amount was not met and performance levels of 2025 and 2026 were probable of being met.
The activity for unvested Restricted Stock Awards was as follows for the year ended December 31, 2024:
| Number of Shares | Weighted Average Grant Date Fair Value | ||||||||||
| Unvested, December 31, 2023 | — | — | |||||||||
| Granted | 2,033,156 | 1.98 | |||||||||
| Vested | (169,430) | 1.98 | |||||||||
| Forfeited | — | ||||||||||
| Unvested, December 31, 2024 | 1,863,726 | 1.98 | |||||||||
The Company recorded stock-based compensation expense of $0.8 million related to RSAs during the year ended December 31, 2024.
As of December 31, 2024, the total unrecognized stock-based compensation expense related to the unvested RSAs subject to service-based vesting condition and unvested RSAs subject to performance-based vesting condition was approximately $0.7 million and $2.5 million, respectively, over a weighted average period of 1.76 years. Refer to Note 3 for further information on the SYNQ3 Acquisition.
ESPP Activity
For the purpose of determining the estimated fair value of ESPP shares, the Company uses the Black-Scholes option-pricing model. The assumptions under the Black-Scholes option-pricing model during the years ended December 31, 2024, 2023, and 2022 were as follows for ESPP awards:
| Year Ended | Year Ended | Year Ended | |||||||||
| December 31, 2024 | December 31, 2023 | December 31, 2022 | |||||||||
| Dividend yield | 0 | % | 0 | % | 0 | % | |||||
| Expected volatility | 84 | % | 56 | % | 77 | % | |||||
| Expected term (years) | 0.50 | 0.49 | 0.52 | ||||||||
| Risk free interest rate | 4.40 | % | 5.26 | % | 4.53 | % | |||||
During the years ended December 31, 2024 and 2023, the Company recorded $0.5 million and $0.4 million of stock-based compensation related to its ESPP. There was $0.4 million of unrecognized stock-based compensation expense
for the year ended December 31, 2024, related to the ESPP that is expected to be recognized over an average vesting period of 0.36 years.
Equity Award Modifications
In connection with the Restructuring Plan (as defined in Note 10), the Company entered into severance arrangements with 166 affected employees. Pursuant to these arrangements, these employees received acceleration of vesting of RSUs and extensions of the post-termination exercise period of stock option awards. All award modifications related to restructuring activities were expensed in the year ended December 31, 2023. The total incremental compensation cost resulting from these modifications is $3.2 million. There were no significant modifications during the years ended December 31, 2024 and 2022.
Stock-Based Compensation
The Company’s founders held 7,270,503 of Legacy SoundHound common stock pre-conversion prior to the Business Combination. The founders exchanged their shares for Legacy SoundHound Class B common stock immediately prior to the closing of the business combination. Upon the Business Combination, the founders exchanged their Legacy SoundHound Class B shares in exchange for 40,396,600 shares of Class B Common Stock according to the Conversion Ratio. As the Class B Common Stock shares have ten votes per share, the exchange resulted in incremental stock-based compensation expense of $1.0 million which is included in general and administrative expenses on the consolidated statements of operations and comprehensive loss for the year ended December 31, 2022.
Stock-based compensation is classified in the following expense accounts on the consolidated statements of operations and comprehensive loss for the years ended December 31, 2024, 2023 and 2022 (in thousands):
| Year Ended December 31, | ||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2022 | ||||||||||||||||||||||||||||||
| Cost of revenue | $ | 458 | $ | 412 | $ | 99 | ||||||||||||||||||||||||||
| Sales and marketing | 4,818 | 3,601 | 2,794 | |||||||||||||||||||||||||||||
| Research and development | 16,203 | 11,992 | 13,986 | |||||||||||||||||||||||||||||
| General and administrative | 11,666 | 8,784 | 11,913 | |||||||||||||||||||||||||||||
| Restructuring costs | — | 3,142 | — | |||||||||||||||||||||||||||||
| Total | $ | 33,145 | $ | 27,931 | $ | 28,792 | ||||||||||||||||||||||||||
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.