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Earnings call: AudioEye revealed a revenue growth of $8.5 million By Investing.com
AudioEye, Inc. (NASDAQ: NASDAQ:AEYE), a leader in digital accessibility solutions, reported a robust second quarter in 2024, with significant growth in revenue and earnings. The company announced that its revenues grew to approximately $8.5 million, a 19% increase year-over-year. AudioEye also experienced a substantial rise in its annual recurring revenue (ARR), which went up by 60% from the previous quarter. A notable achievement for the company was reaching a record adjusted EBITDA of around $1.5 million, reflecting a 17% margin. The positive financial results have led AudioEye to raise its full-year revenue guidance to between $34.5 million and $34.8 million and increase its adjusted EBITDA forecast to between $6 million and $6.3 million. AudioEye's strong performance in the second quarter demonstrates the company's ability to grow its business amidst a favorable regulatory environment. With a clear strategy for expansion and a commitment to maintaining high gross margins, AudioEye appears to be on a path of sustained growth. The company's proactive approach to government mandates and strategic investments in R&D and marketing further support the positive outlook for the remainder of 2024 and beyond. AudioEye's management team expressed gratitude towards their employees, partners, and investors for their ongoing support and closed the call by reminding participants that a recording of the call would be available on the company's website. AudioEye, Inc. (Ticker: AEYE) has shown remarkable performance recently, and the InvestingPro platform provides deeper insights into the company's financial health and market position. Here are some key metrics and tips that investors might find valuable: InvestingPro Tips highlight several positive aspects of AudioEye's trajectory. Analysts have revised their earnings upwards for the upcoming period, suggesting that the company's financial outlook is improving. Additionally, AudioEye has demonstrated a strong return over the last year, with an impressive 303.29% increase, and is expected to be profitable this year, which could be a significant milestone for the company. For investors looking for more comprehensive analysis and additional tips, there are 13 more InvestingPro Tips available, which can be accessed by visiting https://www.investing.com/pro/AEYE. Remember to use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, offering valuable insights to make informed investment decisions. Operator: Good afternoon and welcome to AudioEye's Second Quarter 2024 Earnings Conference Call. Joining us for today's call are AudioEye's CEO, Mr. David Moradi; and CFO, Ms. Kelly Georgevich. Following their remarks, we will open the call for questions from the company's publishing analysts. I would like to remind everyone that this call will be recorded, and made available for replay via a link available in the Investor Relations section of the company's website at www.audioeye.com. Before I turn the call over to AudioEye's Chief Executive Officer, the company would like to remind all participants that statements made by AudioEye management during the course of this conference call that are not historical facts, are considered to be forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor, for such forward-looking statements. The words believe, expect, anticipate, estimate, confident, will, and other similar statements of expectation identify forward-looking statements. These statements are predictions, projections, or other statements about future events; and are based on current expectations and assumptions that is subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's press release and the comments made during this conference call and in the Risk Factors section of the company's annual report on Form 10-K, its quarterly reports on Form 10-Q, and in its other reportings and filings with the Securities and Exchange Commission. Participants on this call are cautioned not to place undue reliance on these forward-looking statements, which reflect management's beliefs only as of the date hereof. AudioEye does not undertake any duty to update, or correct any forward-looking statements. Further, management's remarks today will include certain non-GAAP financial measures. A reconciliation of the most direct comparable GAAP financial measures to these non-GAAP financial measures is available in the company's earnings release, or otherwise posted in the Investor Relations section of its website at www.audioeye.com. Now, I'd like to turn the call over to AudioEye's Chief Executive Officer, Mr. David Moradi. Sir, please proceed. David Moradi: Thank you, operator. We're pleased to report that our business momentum is strong. Sequential revenues grew from approximately $8.1 million to $8.5 million, representing an annualized growth rate of 19%. ARR increased sequentially by $1.3 million, an increase of 60% compared to ARR growth of $800,000 in the first quarter. We were able to grow revenues and ARR without adding additional costs, with operating expenses roughly flat sequentially. As a result of revenue growth and prudent expense management, we generated record adjusted EBITDA of approximately $1.5 million, a margin of 17%. Looking at free cash flow in terms of EBITDA minus CapEx, we generated a record $1 million in free cash flow from operations. We were close to achieving the Rule of 40 in the second quarter and expect to hit the Rule of 40 in the third quarter. We saw notable growth in both our enterprise and partner and marketplace channels, with both channels contributing equally to revenue growth sequentially. The enterprise channel is growing at the fastest rate in several years due to our investment in R&D and the effective implementation of our go to market approach. We are excited to report that this momentum is continuing and driving a further increase in our full year guidance, which I will discuss shortly. I'll now cover a few other notable developments in the quarter. On our April earnings call, we discussed significant regulatory developments for digital accessibility, including the Department of Justice's final rule under Title II of the Americans with Disabilities Act, which mandates that state and local government entities ensure their websites and mobile applications are accessible to people with disabilities. The regulation applies to a wide range of state and local government entities, including public schools, community colleges, universities, hospitals and clinics, police departments, libraries and transit agencies. Shortly after the Title II announcement, the Department of Health and Human Services Office for Civil Rights published a final rule that bolsters protections for individuals with disabilities under Section 504 of the Rehabilitation Act. The rule stipulates that web content and mobile applications provided by organizations that receive funding from HHS, including hospitals, doctors' offices, social services, nursing homes, and others, are accessible for people with disabilities. Like the DOJ Title II rule, the HHS rule outlines specific digital accessibility requirements, including adherence to WCAG 2.1, and requires compliance by May 2026 or May 2027, depending on the organization's size. To understand the impact of the HHS role, we scanned over 96,000 healthcare website pages over the United States. The average page had 84 accessibility issues, which is alarming. Approximately 96% of the Internet is currently inaccessible to people with disabilities. Title II and HHS represent significant expansion opportunities, and we are uniquely positioned to meet the increase in demand with our direct sales team and reseller channel. Our AI and human assisted technology approach is the only way to address the problem at scale and deliver a solution to millions of websites. Over the last three months, we have been working hard to develop strategic initiatives and growth plans with our existing partners, including Finalsite, the market share leader in K to 10 schools. The goal is to penetrate all of their installed base over the next three years with a comprehensive go to market plan. Both of us will contribute significant resources to make this happen. There is a significant opportunity to penetrate other industries under Title II and HHS, which includes state and local government, higher education and the healthcare industry. We already have a partnership with the dominant platform for cities, towns and municipalities, as well as key partnerships in the healthcare industry. We expect to create new partnerships in these industries as we execute our go to market plan and expect further announcements soon. We are also monitoring demand from the European Accessibility Act and California's AB 1757 legislation. We expect to see further developments on these items over the next few months. Moving on to guidance. We continue to expect quarterly revenues to increase without significant additional expense, resulting in increased operating leverage and cash flow generation. For the third quarter, we are guiding for revenue between $8.85 million to $8.95 million, representing an annualized growth rate of approximately 20%. We expect to generate adjusted EBITDA between $1.85 million to $1.95 million and adjusted EPS between $0.15 and $0.16. We expect to become a Rule of 40 company in the third quarter with the potential to increase growth rates and adjusted EBITDA margins in 2025 and beyond. We are increasing our 2024 revenue guidance to between $34.5 million from $34.8 million. We are also increasing our adjusted EBITDA guidance from $4.5 million to $5.5 million to $6 million to $6.3 million. Adjusted EPS is now expected to be between $0.48 and $0.51 per share, an increase of $0.08 at the midpoint. This represents an increase of around 18% from previous guidance. I'll now turn the call over to AudioEye CFO, Kelly. Kelly Georgevich: Thank you, David. As David discussed, revenue again hit record levels with Q2 2024 revenue at $8.5 million, marking our 34th quarter of record revenue and a 19% annualized growth rate. Annual recurring revenue, or ARR, at the end of the second quarter of 2024 was $33.3 million, a $1.3 million increase and a 60% improvement in ARR growth from the first quarter of 2024. Our two revenue channels are both showing strong performance with high teen annualized sequential growth rates in both channels. The partner marketplace channel includes all revenue from our SMB focused marketplace products and revenue from a variety of partners who deploy these same products for their SMB customers. In the second quarter of 2024, this revenue channel grew 13% year-over-year, representing 59% of revenue and around 60% of ARR. AudioEye's enterprise channel consists of our larger customers and organizations, including those with non-platform websites who generally engage directly with AudioEye sales personnel for pricing and solutions. The enterprise channel grew 2% year-over-year and 5% sequentially or 18% annualized. In the second quarter, the enterprise channel contributed 41% of revenue and around 40% of ARR. On June 30, 2024, our customer count was approximately 121,000, a 16% increase from 104,000 customers on June 30, 2023 and an increase of approximately 9,000 customers from March 31, 2024. The increase in customer count was driven by additions in both the partner marketplace and enterprise channels. Gross profit ticked up 1% sequentially and 2% year-over-year to 79% of revenue, or $6.7 million compared to $6 million in Q2 of last year. The increase in gross margin was a result of approximately $650,000 of revenue growth year-over-year and a $25,000 decrease in cost of revenue over the same period. While revenues increased approximately $650,000 from the second quarter of 2023, operating expenses decreased approximately 11%, or $900,000 to $7.2 million. The decrease in operating expenses was due primarily to increased efficiencies in sales and marketing and the completion of significant initiatives in R&D, partially offset by higher non-reoccurring expenses in G&A. Our total R&D spend in Q2 2024 with approximately $1.7 million with approximately $450,000 reflected the software development costs in the investing section of the cash flow statement. This was down approximately $900,000 from $2.6 million in Q2 2023. The total R&D spend is about 20% of our revenue this quarter versus 33% in the comparable period of prior year and 22% in the first quarter of 2024. We continue to believe the current investment in R&D of around 20% is appropriate for 2024. Net loss in the second quarter of 2024 was $700,000, or $0.06 per share compared to a net loss of $2 million or $0.17 per share in the same year ago period. Total net loss decreased 63%, or $1.2 million from the prior year's comparable period, driven by an increase in revenue, strategic and efficient spending in sales and marketing and technological investment. Our Q2 adjusted EBITDA with a record $1.5 million or $0.12 cents per share, a $1.7 million improvement year-over-year. The primary adjustment to GAAP earnings and EPS for Q2 2024 for non-cash share-based compensation, depreciation, amortization, interest expense, and litigation expense. Our balance sheet continues to be well capitalized with $5.1 million of cash as of June 30, 2024. Cash decreased by approximately $1.9 million in the quarter, primarily due to the $2.4 million final earnout payment related to the acquisition of the Bureau of Internet Accessibility in March 2022. In the second quarter of 2024, we also repurchased approximately $300,000 of shares and received net proceeds from our aftermarket offering of approximately $650,000. Free cash flow calculated as $1.5 million of adjusted EBITDA less $450,000 of software development costs was $1 million in the second quarter. We expect free cash flow to continue to increase in the third and fourth quarter of 2024. With that, we open up the call for questions. Operator, please give appropriate instructions. Operator: Thank you. We will now take questions from the company's publishing and analysts. At this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Richard Baldry with ROTH. Please proceed with your question. Richard Baldry: Thanks. You've done a really good job sort of growing your adjusted EBITDA pretty fast. As revenues have started to grow again, you've been in a sort of a cost containment or in cutting mode. How do you feel about the existing sort of infrastructure headcounts in different places. The growth sort of continues to pick up the way it has. When do you feel like you really kind of need to get back to hiring, whether that's in sales or support areas to support the increasing revenue base. Thanks. David Moradi: Hi, Rich. Yeah. As you can see, the model is pretty scalable. We've made a lot of investments in R&D and the go to market. There would be some incremental investments generally to generate and then support new business. But a good amount of incremental revenue I think is going to drop straight down. So, I don't think we need to invest a ton more, just mostly on sales and marketing, not the infrastructure. Richard Baldry: Yeah. I wanted to ask specifically about the COGS line, because it's been flat to down even on a sequential basis, or pretty steadily for almost the last two years. What would cause that to start to climb again? Like how fixed can that be as your top line grows? Kelly Georgevich: Yeah. We've been happy to see gross margin improve now to 79%. We feel pretty good about the efficiencies we've run through that line. It is a matter of looking at the mix of support and different investments in that line, but we feel pretty good about holding that 79% through 2024 and kind of continuing into 2025. We feel pretty good about our gross margins overall. Richard Baldry: Got it. And can you talk a little bit about the balance sheet? Your access to capital is obviously a lot better in recent periods now. Does that change sort of any of your acquisition plans or willingness to sort of invest in the business on a more accelerated basis? How comfortable do you feel, what the debt levels, where they're at? Would you prefer basically just wipe them out ASAP and then move forward from there? Just help us think about that a little bit. Thanks. David Moradi: Yeah. We feel pretty good. Kelly can get into the ATM a little bit. I don't think we really need money. So that's the good news. We're cash flow generative. Kelly will get into the ATM a little bit, though. Kelly Georgevich: Yeah. We did open up an ATM for a relatively small amount compared to our market cap of the $7 million. We do like to have that there and be opportunistic about potentially raising capital to paydown our debt and reduce our interest expense. Richard Baldry: And maybe just a few seconds on how you do view acquisition potential now that you've got a much larger market cap to deal with. David Moradi: We don't really discuss M&A. We're always looking around, but we're not going to discuss it on this call. Operator: Thank you. Our next question comes from the line of Zach Cummins (NYSE:CMI) with B. Riley Securities. Please proceed with your question. Zach Cummins: Hi, good afternoon, David and Kelly. Congrats on the solid results and thank you for taking my questions. David, first one for me is, can you just talk about the progress you're seeing in the enterprise channel there. And really, what sort of momentum are you expecting to see there in the coming quarters as you've really started to regain traction with that segment returning to year-over-year growth? David Moradi: Yeah. It's been pretty good. We made a lot of investments there in R&D, which really gives us a full product suite to beat the competition. We've also made a lot of investments in our go to market and we're seeing record leads, strong conversions. The pipelines continue to grow, so it's really clicking. I think we're outgrowing the market generally by 2 to 3x right now. Zach Cummins: Got it. My follow up question is really just around your partnerships. I think on the prior call you mentioned that just within your current partners, you had access to 80,000 websites that would be really great targets under the new regulation. Can you talk about -- obviously, you've made more inroads with Finalsite, but can you talk about some of the work that you're doing on that side to really accelerate momentum within that partner channel. David Moradi: You saw the press release. We're both super excited about the opportunity of penetrating their entire customer base. Both of us are going to have a huge focus on it, deploy resources and really the opportunity for Title II is huge and we're in a great spot with the dominant platform in K to 12. So, we're really excited about that one and more to come on the other one, so stay tuned. Zach Cummins: Got it. Well, thanks for taking my questions and best of luck with the rest of the quarter. David Moradi: Thanks, Zach. Operator: Thank you. Our next question comes from the line of George Sutton with Craig-Hallum Capital Group. Please proceed with your questions. Unidentified Analyst: Good afternoon. This is James Dunn [ph] for George. Nice results. As a follow up to the Finalsite commentary, can you provide some more detail on what those resources are that you might be contributing? Quantify any incremental costs? And then, how should we think about operating expense growth or operating leverage over the next couple of years as you target some of these mandated opportunities? David Moradi: Yeah. We're not really getting into the details of that, the confidential contract, but I would figure marketing resources and awareness campaigns, comarketing, but I can't really get into all the details that we're going to do. What was the second part of your question? Unidentified Analyst: Just sort of how to think about operating leverage, operating expense growth over the next couple of years, sort of as you target these mandate opportunities. Just because since you're kind of going indirectly, I'd assume there wouldn't be a lot of incremental expense as you sort of add new customers. David Moradi: Yeah. I think we feel pretty good with where we're at. I've already made the investments, like I said, in R&D model is scalable. So, we feel good about the investing a little bit on sales and marketing in the future potentially. But like I said before, I think that's it's a scalable model with potential to really increase margin. Unidentified Analyst: Sounds good. And then I'm just also kind of curious on any initial interactions you maybe had with some of the constituents that are going to be impacted by the mandate. That's it for me. Thanks guys. David Moradi: Constituents, I'm trying to understand that. Unidentified Analyst: Just basically people that would be impacted by the mandate. So, any government agencies, anybody that's required? David Moradi: Yeah, yeah. We're seeing a lot of government leads come in more than ever. So, we're having a lot of conversations at the moment. Those deals aren't all closing, but we're having a lot of conversations. So, they're very aware of it. I think it's going to start to tick up into 2025 from a demand standpoint. We don't have this in our numbers for this year at all. Operator: Thank you. Our next question comes from the line of Scott Buck with H.C. Wainwright. Please proceed with your question. Scott Buck: Hi, guys. Thanks for taking my questions. David, as a bit of a follow up to that last question, I'm curious, historically, have you seen customers be proactive in addressing these mandates or typically, does it take more of a push past the mandate date, whether that's DOJ lawsuits or whatnot, to really get people moving in the right direction? David Moradi: We don't have a lot of experience with this, so I can't really tell you. There's a lot of mandates happening at the moment with the EU Tittle II and HHS now. So, we'll have to see how that plays out. My guess is in 2025, it's going to really start to pick up. Scott Buck: Right. Okay. Okay. So that's perfect. And then in terms of capital allocation, as you guys build cash through the remainder of the year and into next with positive free cash flow, how are you thinking about allocation? I mean, do you start more into marketing at that point to further accelerate growth, or just what are your thoughts there? David Moradi: Yeah. We like being profitable. Look, if the LTV to CAC increases, we'd like to potentially spend more on sales and marketing there, but that would really have to tick up. But we like growing off free cash flow, so expect that to continue. Scott Buck: Okay. And then last thing I know you guys repurchase some shares during the quarter. Stocks obviously moved in your favor. How are you feeling about the repurchase today and what's left on that authorization? David Moradi: Yeah. We are buying the stock pretty cheap, like, I don't know, two to three times revenue, and it's a lot higher. So, I don't know if we're going to be buying back anymore. And we have an ATM out there, so I don't think so on the buyback side. Operator: Thank you. At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Moradi for his closing remarks. End of Q&A: David Moradi: Thank you for joining us today. I want to thank our employees, partners, and investors for their continued support. We look forward to updating you on our next call. Operator: And before we conclude today's call, I would like to remind everyone that a recording of today's call will be available for replay via a link available in the investors section of the company's website. Thank you for joining us today for AudioEye's second quarter 2024 earnings conference call. You may now disconnect.
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AudioEye, Inc. (AEYE) Q2 2024 Earnings Call Transcript
David Moradi - Chief Executive Officer Kelly Georgevich - Chief Financial Officer Good afternoon and welcome to AudioEye's Second Quarter 2024 Earnings Conference Call. Joining us for today's call are AudioEye's CEO, Mr. David Moradi; and CFO, Ms. Kelly Georgevich. Following their remarks, we will open the call for questions from the company's publishing analysts. I would like to remind everyone that this call will be recorded, and made available for replay via a link available in the Investor Relations section of the company's website at www.audioeye.com. Before I turn the call over to AudioEye's Chief Executive Officer, the company would like to remind all participants that statements made by AudioEye management during the course of this conference call that are not historical facts, are considered to be forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor, for such forward-looking statements. The words believe, expect, anticipate, estimate, confident, will, and other similar statements of expectation identify forward-looking statements. These statements are predictions, projections, or other statements about future events; and are based on current expectations and assumptions that is subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's press release and the comments made during this conference call and in the Risk Factors section of the company's annual report on Form 10-K, its quarterly reports on Form 10-Q, and in its other reportings and filings with the Securities and Exchange Commission. Participants on this call are cautioned not to place undue reliance on these forward-looking statements, which reflect management's beliefs only as of the date hereof. AudioEye does not undertake any duty to update, or correct any forward-looking statements. Further, management's remarks today will include certain non-GAAP financial measures. A reconciliation of the most direct comparable GAAP financial measures to these non-GAAP financial measures is available in the company's earnings release, or otherwise posted in the Investor Relations section of its website at www.audioeye.com. Now, I'd like to turn the call over to AudioEye's Chief Executive Officer, Mr. David Moradi. Sir, please proceed. David Moradi Thank you, operator. We're pleased to report that our business momentum is strong. Sequential revenues grew from approximately $8.1 million to $8.5 million, representing an annualized growth rate of 19%. ARR increased sequentially by $1.3 million, an increase of 60% compared to ARR growth of $800,000 in the first quarter. We were able to grow revenues and ARR without adding additional costs, with operating expenses roughly flat sequentially. As a result of revenue growth and prudent expense management, we generated record adjusted EBITDA of approximately $1.5 million, a margin of 17%. Looking at free cash flow in terms of EBITDA minus CapEx, we generated a record $1 million in free cash flow from operations. We were close to achieving the Rule of 40 in the second quarter and expect to hit the Rule of 40 in the third quarter. We saw notable growth in both our enterprise and partner and marketplace channels, with both channels contributing equally to revenue growth sequentially. The enterprise channel is growing at the fastest rate in several years due to our investment in R&D and the effective implementation of our go to market approach. We are excited to report that this momentum is continuing and driving a further increase in our full year guidance, which I will discuss shortly. I'll now cover a few other notable developments in the quarter. On our April earnings call, we discussed significant regulatory developments for digital accessibility, including the Department of Justice's final rule under Title II of the Americans with Disabilities Act, which mandates that state and local government entities ensure their websites and mobile applications are accessible to people with disabilities. The regulation applies to a wide range of state and local government entities, including public schools, community colleges, universities, hospitals and clinics, police departments, libraries and transit agencies. Shortly after the Title II announcement, the Department of Health and Human Services Office for Civil Rights published a final rule that bolsters protections for individuals with disabilities under Section 504 of the Rehabilitation Act. The rule stipulates that web content and mobile applications provided by organizations that receive funding from HHS, including hospitals, doctors' offices, social services, nursing homes, and others, are accessible for people with disabilities. Like the DOJ Title II rule, the HHS rule outlines specific digital accessibility requirements, including adherence to WCAG 2.1, and requires compliance by May 2026 or May 2027, depending on the organization's size. To understand the impact of the HHS role, we scanned over 96,000 healthcare website pages over the United States. The average page had 84 accessibility issues, which is alarming. Approximately 96% of the Internet is currently inaccessible to people with disabilities. Title II and HHS represent significant expansion opportunities, and we are uniquely positioned to meet the increase in demand with our direct sales team and reseller channel. Our AI and human assisted technology approach is the only way to address the problem at scale and deliver a solution to millions of websites. Over the last three months, we have been working hard to develop strategic initiatives and growth plans with our existing partners, including Finalsite, the market share leader in K to 10 schools. The goal is to penetrate all of their installed base over the next three years with a comprehensive go to market plan. Both of us will contribute significant resources to make this happen. There is a significant opportunity to penetrate other industries under Title II and HHS, which includes state and local government, higher education and the healthcare industry. We already have a partnership with the dominant platform for cities, towns and municipalities, as well as key partnerships in the healthcare industry. We expect to create new partnerships in these industries as we execute our go to market plan and expect further announcements soon. We are also monitoring demand from the European Accessibility Act and California's AB 1757 legislation. We expect to see further developments on these items over the next few months. Moving on to guidance. We continue to expect quarterly revenues to increase without significant additional expense, resulting in increased operating leverage and cash flow generation. For the third quarter, we are guiding for revenue between $8.85 million to $8.95 million, representing an annualized growth rate of approximately 20%. We expect to generate adjusted EBITDA between $1.85 million to $1.95 million and adjusted EPS between $0.15 and $0.16. We expect to become a Rule of 40 company in the third quarter with the potential to increase growth rates and adjusted EBITDA margins in 2025 and beyond. We are increasing our 2024 revenue guidance to between $34.5 million from $34.8 million. We are also increasing our adjusted EBITDA guidance from $4.5 million to $5.5 million to $6 million to $6.3 million. Adjusted EPS is now expected to be between $0.48 and $0.51 per share, an increase of $0.08 at the midpoint. This represents an increase of around 18% from previous guidance. Thank you, David. As David discussed, revenue again hit record levels with Q2 2024 revenue at $8.5 million, marking our 34th quarter of record revenue and a 19% annualized growth rate. Annual recurring revenue, or ARR, at the end of the second quarter of 2024 was $33.3 million, a $1.3 million increase and a 60% improvement in ARR growth from the first quarter of 2024. Our two revenue channels are both showing strong performance with high teen annualized sequential growth rates in both channels. The partner marketplace channel includes all revenue from our SMB focused marketplace products and revenue from a variety of partners who deploy these same products for their SMB customers. In the second quarter of 2024, this revenue channel grew 13% year-over-year, representing 59% of revenue and around 60% of ARR. AudioEye's enterprise channel consists of our larger customers and organizations, including those with non-platform websites who generally engage directly with AudioEye sales personnel for pricing and solutions. The enterprise channel grew 2% year-over-year and 5% sequentially or 18% annualized. In the second quarter, the enterprise channel contributed 41% of revenue and around 40% of ARR. On June 30, 2024, our customer count was approximately 121,000, a 16% increase from 104,000 customers on June 30, 2023 and an increase of approximately 9,000 customers from March 31, 2024. The increase in customer count was driven by additions in both the partner marketplace and enterprise channels. Gross profit ticked up 1% sequentially and 2% year-over-year to 79% of revenue, or $6.7 million compared to $6 million in Q2 of last year. The increase in gross margin was a result of approximately $650,000 of revenue growth year-over-year and a $25,000 decrease in cost of revenue over the same period. While revenues increased approximately $650,000 from the second quarter of 2023, operating expenses decreased approximately 11%, or $900,000 to $7.2 million. The decrease in operating expenses was due primarily to increased efficiencies in sales and marketing and the completion of significant initiatives in R&D, partially offset by higher non-reoccurring expenses in G&A. Our total R&D spend in Q2 2024 with approximately $1.7 million with approximately $450,000 reflected the software development costs in the investing section of the cash flow statement. This was down approximately $900,000 from $2.6 million in Q2 2023. The total R&D spend is about 20% of our revenue this quarter versus 33% in the comparable period of prior year and 22% in the first quarter of 2024. We continue to believe the current investment in R&D of around 20% is appropriate for 2024. Net loss in the second quarter of 2024 was $700,000, or $0.06 per share compared to a net loss of $2 million or $0.17 per share in the same year ago period. Total net loss decreased 63%, or $1.2 million from the prior year's comparable period, driven by an increase in revenue, strategic and efficient spending in sales and marketing and technological investment. Our Q2 adjusted EBITDA with a record $1.5 million or $0.12 cents per share, a $1.7 million improvement year-over-year. The primary adjustment to GAAP earnings and EPS for Q2 2024 for non-cash share-based compensation, depreciation, amortization, interest expense, and litigation expense. Our balance sheet continues to be well capitalized with $5.1 million of cash as of June 30, 2024. Cash decreased by approximately $1.9 million in the quarter, primarily due to the $2.4 million final earnout payment related to the acquisition of the Bureau of Internet Accessibility in March 2022. In the second quarter of 2024, we also repurchased approximately $300,000 of shares and received net proceeds from our aftermarket offering of approximately $650,000. Free cash flow calculated as $1.5 million of adjusted EBITDA less $450,000 of software development costs was $1 million in the second quarter. We expect free cash flow to continue to increase in the third and fourth quarter of 2024. With that, we open up the call for questions. Operator, please give appropriate instructions. Thank you. We will now take questions from the company's publishing and analysts. At this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Richard Baldry with ROTH. Please proceed with your question. Richard Baldry Thanks. You've done a really good job sort of growing your adjusted EBITDA pretty fast. As revenues have started to grow again, you've been in a sort of a cost containment or in cutting mode. How do you feel about the existing sort of infrastructure headcounts in different places. The growth sort of continues to pick up the way it has. When do you feel like you really kind of need to get back to hiring, whether that's in sales or support areas to support the increasing revenue base. Thanks. David Moradi Hi, Rich. Yeah. As you can see, the model is pretty scalable. We've made a lot of investments in R&D and the go to market. There would be some incremental investments generally to generate and then support new business. But a good amount of incremental revenue I think is going to drop straight down. So, I don't think we need to invest a ton more, just mostly on sales and marketing, not the infrastructure. Richard Baldry Yeah. I wanted to ask specifically about the COGS line, because it's been flat to down even on a sequential basis, or pretty steadily for almost the last two years. What would cause that to start to climb again? Like how fixed can that be as your top line grows? Kelly Georgevich Yeah. We've been happy to see gross margin improve now to 79%. We feel pretty good about the efficiencies we've run through that line. It is a matter of looking at the mix of support and different investments in that line, but we feel pretty good about holding that 79% through 2024 and kind of continuing into 2025. We feel pretty good about our gross margins overall. Richard Baldry Got it. And can you talk a little bit about the balance sheet? Your access to capital is obviously a lot better in recent periods now. Does that change sort of any of your acquisition plans or willingness to sort of invest in the business on a more accelerated basis? How comfortable do you feel, what the debt levels, where they're at? Would you prefer basically just wipe them out ASAP and then move forward from there? Just help us think about that a little bit. Thanks. David Moradi Yeah. We feel pretty good. Kelly can get into the ATM a little bit. I don't think we really need money. So that's the good news. We're cash flow generative. Yeah. We did open up an ATM for a relatively small amount compared to our market cap of the $7 million. We do like to have that there and be opportunistic about potentially raising capital to paydown our debt and reduce our interest expense. Richard Baldry And maybe just a few seconds on how you do view acquisition potential now that you've got a much larger market cap to deal with. David Moradi We don't really discuss M&A. We're always looking around, but we're not going to discuss it on this call. Thank you. Our next question comes from the line of Zach Cummins with B. Riley Securities. Please proceed with your question. Zach Cummins Hi, good afternoon, David and Kelly. Congrats on the solid results and thank you for taking my questions. David, first one for me is, can you just talk about the progress you're seeing in the enterprise channel there. And really, what sort of momentum are you expecting to see there in the coming quarters as you've really started to regain traction with that segment returning to year-over-year growth? David Moradi Yeah. It's been pretty good. We made a lot of investments there in R&D, which really gives us a full product suite to beat the competition. We've also made a lot of investments in our go to market and we're seeing record leads, strong conversions. The pipelines continue to grow, so it's really clicking. I think we're outgrowing the market generally by 2 to 3x right now. Zach Cummins Got it. My follow up question is really just around your partnerships. I think on the prior call you mentioned that just within your current partners, you had access to 80,000 websites that would be really great targets under the new regulation. Can you talk about -- obviously, you've made more inroads with Finalsite, but can you talk about some of the work that you're doing on that side to really accelerate momentum within that partner channel. David Moradi You saw the press release. We're both super excited about the opportunity of penetrating their entire customer base. Both of us are going to have a huge focus on it, deploy resources and really the opportunity for Title II is huge and we're in a great spot with the dominant platform in K to 12. So, we're really excited about that one and more to come on the other one, so stay tuned. Zach Cummins Got it. Well, thanks for taking my questions and best of luck with the rest of the quarter. Thank you. Our next question comes from the line of George Sutton with Craig-Hallum Capital Group. Please proceed with your questions. Unidentified Analyst Good afternoon. This is James Dunn [ph] for George. Nice results. As a follow up to the Finalsite commentary, can you provide some more detail on what those resources are that you might be contributing? Quantify any incremental costs? And then, how should we think about operating expense growth or operating leverage over the next couple of years as you target some of these mandated opportunities? David Moradi Yeah. We're not really getting into the details of that, the confidential contract, but I would figure marketing resources and awareness campaigns, comarketing, but I can't really get into all the details that we're going to do. Just sort of how to think about operating leverage, operating expense growth over the next couple of years, sort of as you target these mandate opportunities. Just because since you're kind of going indirectly, I'd assume there wouldn't be a lot of incremental expense as you sort of add new customers. David Moradi Yeah. I think we feel pretty good with where we're at. I've already made the investments, like I said, in R&D model is scalable. So, we feel good about the investing a little bit on sales and marketing in the future potentially. But like I said before, I think that's it's a scalable model with potential to really increase margin. Unidentified Analyst Sounds good. And then I'm just also kind of curious on any initial interactions you maybe had with some of the constituents that are going to be impacted by the mandate. That's it for me. Thanks guys. Just basically people that would be impacted by the mandate. So, any government agencies, anybody that's required? David Moradi Yeah, yeah. We're seeing a lot of government leads come in more than ever. So, we're having a lot of conversations at the moment. Those deals aren't all closing, but we're having a lot of conversations. So, they're very aware of it. I think it's going to start to tick up into 2025 from a demand standpoint. We don't have this in our numbers for this year at all. Thank you. Our next question comes from the line of Scott Buck with H.C. Wainwright. Please proceed with your question. Scott Buck Hi, guys. Thanks for taking my questions. David, as a bit of a follow up to that last question, I'm curious, historically, have you seen customers be proactive in addressing these mandates or typically, does it take more of a push past the mandate date, whether that's DOJ lawsuits or whatnot, to really get people moving in the right direction? David Moradi We don't have a lot of experience with this, so I can't really tell you. There's a lot of mandates happening at the moment with the EU Tittle II and HHS now. So, we'll have to see how that plays out. My guess is in 2025, it's going to really start to pick up. Scott Buck Right. Okay. Okay. So that's perfect. And then in terms of capital allocation, as you guys build cash through the remainder of the year and into next with positive free cash flow, how are you thinking about allocation? I mean, do you start more into marketing at that point to further accelerate growth, or just what are your thoughts there? David Moradi Yeah. We like being profitable. Look, if the LTV to CAC increases, we'd like to potentially spend more on sales and marketing there, but that would really have to tick up. But we like growing off free cash flow, so expect that to continue. Scott Buck Okay. And then last thing I know you guys repurchase some shares during the quarter. Stocks obviously moved in your favor. How are you feeling about the repurchase today and what's left on that authorization? David Moradi Yeah. We are buying the stock pretty cheap, like, I don't know, two to three times revenue, and it's a lot higher. So, I don't know if we're going to be buying back anymore. And we have an ATM out there, so I don't think so on the buyback side. Scott Buck Yeah. All right. Appreciate it, guys. Thanks for the time. Thank you. At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Moradi for his closing remarks. Thank you for joining us today. I want to thank our employees, partners, and investors for their continued support. We look forward to updating you on our next call. And before we conclude today's call, I would like to remind everyone that a recording of today's call will be available for replay via a link available in the investors section of the company's website. Thank you for joining us today for AudioEye's second quarter 2024 earnings conference call. You may now disconnect.
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AudioEye Reports Record Second Quarter 2024 Results By Investing.com
Thirty-Fourth Consecutive Period of Record Revenue , /PRNewswire/ -- AudioEye (NASDAQ:AEYE), Inc. (Nasdaq: AEYE) ("AudioEye" or the "Company"), the industry-leading digital accessibility company, reported financial results for the second quarter ended . "For the second quarter, sequential revenues grew at an annualized growth rate of 19%, and adjusted EBITDA margin was 17%. Business momentum is strong, and we are increasing revenue, adjusted EBITDA, and adjusted EPS guidance for the full year. Our operating leverage is clear, and we expect margins to improve further," said AudioEye CEO . "We were close to the 'Rule of 40' in the second quarter and expect to achieve the 'Rule of 40' in the third quarter." Please call the conference telephone number 5-10 minutes prior to the start time. If you have any difficulty connecting with the conference call, please contact Gateway Group at 949-574-3860. The conference call will also be webcast live and available for replay via the investor relations section of the Company's website. The audio recording will remain available via the investor relations section of the Company's website for 90 days. About AudioEye AudioEye exists to ensure the digital future we build is inclusive. By combining the latest AI automation technology with guidance from certified experts and direct input from the disability community, AudioEye helps ensure businesses of all sizes " including over 121,000 customers like Samsung (KS:005930), Calvin Klein, and Samsonite " are accessible and usable. Holding 23 US patents, AudioEye helps companies solve every aspect of digital accessibility with flexible approaches that best meet their needs. The comprehensive solution includes 24/7 accessibility monitoring, automated accessibility fixes, expert testing, developer tools, and industry-leading legal protection. Forward-Looking Statements Any statements in this press release about AudioEye's expectations, beliefs, plans, objectives, prospects, financial condition, assumptions or future events or performance are not historical facts and are "forward-looking statements" as that term is defined under the federal securities laws. Forward-looking statements are often, but not always, made through the use of words or phrases such as "believe", "anticipate", "should", "confident", "intend", "plan", "will", "expects", "estimates", "projects", "positioned", "strategy", "outlook" and similar words. You should read the statements that contain these types of words carefully. Such forward-looking statements contained herein include, but are not limited to, statements regarding future cash flows of the Company, anticipated contributions from new sales channels, long-term growth prospects, opportunities in the digital accessibility industry, our revenue and ARR guidance, and our expectation of investments in marketing and sales. These statements are subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from what is expressed or implied in such forward-looking statements, including the variability of AudioEye's revenue and financial performance; risks associated with our new platform, sales channels and offerings; product development and technological changes; the acceptance of AudioEye's products in the marketplace; the effectiveness of our integration efforts; competition; inherent uncertainties and costs associated with litigation; and general economic conditions. These and other risks are described more fully in AudioEye's filings with the Securities and Exchange Commission. There may be events in the future that AudioEye is not able to predict accurately or over which AudioEye has no control. Forward-looking statements reflect management's view as of the date of this press release, and AudioEye urges you not to place undue reliance on these forward-looking statements. AudioEye does not undertake any obligation to update such forward-looking statements to reflect events or uncertainties after the date hereof. Due to rounding, numbers presented throughout this document may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures. About Key Operating Metrics We consider annual recurring revenue ("ARR") as a key operating metric and a key indicator of our overall business. We also use ARR as one of the primary methods for planning and forecasting overall expectations and for evaluating, on at least a quarterly and annual basis, actual results against such expectations. We manage customers through two primary channels, Enterprise and Partner and Marketplace. Enterprise channel consists of our larger customers and organizations, including those with non-platform custom websites, who generally engage directly with AudioEye sales personnel for custom pricing and solutions. This channel also includes federal, state and local government agencies. The Partner and Marketplace channel consists of our CMS partners, platform & agency partners, authorized resellers and our marketplace. This channel serves small and medium sized businesses who are on a partner or reseller's web-hosting platform or who purchase an AudioEye solution from our marketplace. We define ARR as the sum of (i) for our Enterprise channel, the total of the annualized recurring fee at the date of determination under each active contract, plus (ii) for our Partner and Marketplace channel, the annual or monthly recurring fee for all active customers at the date of determination, in each case, assuming no changes to the subscription, multiplied by 12 if applicable. Recurring fees are defined as revenues expected to be generated from services typically offered as a subscription service such as our automation and platform, periodic auditing, human-assisted technological remediations, legal support and professional service offerings and other services that reoccur on a multi-year contract. This determination includes both annual and monthly contracts for recurring products. Some of our contracts are terminable prior to the expected term, which may impact future ARR. ARR excludes non-recurring fees, which are defined as revenue expected to be generated from services typically not offered as a subscription service such as our PDF remediation services business, one-time mobile application reports, and other miscellaneous services that are offered as non-subscription services or are expected to be one-time in nature. Use of Non-GAAP Financial Measures From time to time, we review adjusted financial measures that assist us in comparing our operating performance consistently over time, as such measures remove the impact of certain items, as applicable, such as our capital structure (primarily interest charges), items outside the control of the management team (taxes), and expenses that do not relate to our core operations, including significant transaction and litigation-related expenses and other costs that are expected to be non-recurring. In order to provide investors with greater insight and allow for a more comprehensive understanding of the information used in our financial and operational decision-making, the Company has supplemented the consolidated financial statements presented on a GAAP basis in this press release with the following non-GAAP financial measures: Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted earnings (loss) per diluted share. These non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of Company results as reported under GAAP. The Company compensates for such limitations by relying primarily on our GAAP results and using non-GAAP financial measures only as supplemental data. We also provide a reconciliation of non-GAAP to GAAP measures used. Investors are encouraged to carefully review this reconciliation. In addition, because these non-GAAP measures are not measures of financial performance under GAAP and are susceptible to varying calculations, these measures, as defined by us, may differ from and may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted Earnings (Loss) per Diluted Share We define: (i) Adjusted EBITDA as net income (loss), plus (less) interest expense (income), plus depreciation and amortization expense, plus stock-based compensation expense, plus non-cash valuation adjustment to contingent consideration, plus certain litigation expense, and plus loss on disposal or impairment of long-lived assets; (ii) Adjusted EBITDA margin as Adjusted EBITDA as a percentage of GAAP revenue; and (iii) Adjusted earnings (loss) per diluted share as net income (loss) per diluted common share, plus (less) interest expense (income), plus depreciation and amortization expense, plus stock-based compensation expense, plus non-cash valuation adjustment to contingent consideration, plus certain litigation expense, and plus loss on disposal or impairment of long-lived assets, each on a per share basis. Adjusted earnings per diluted share would include incremental shares in the share count that are considered anti-dilutive in a GAAP net loss position. However, no incremental shares apply when there is an Adjusted loss per diluted share, as is the case for some of the periods presented in this press release. Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted earnings (loss) per diluted share are used to facilitate a comparison of our operating performance on a consistent basis from period to period and provide for a more complete understanding of factors and trends affecting our business than GAAP measures alone. All of the items adjusted in the Adjusted EBITDA to net loss and the Adjusted earnings (loss) per share calculations are either recurring non-cash items, or items that management does not consider in assessing our on-going operating performance. In the case of the non-cash items, such as stock-based compensation expense and valuation adjustments to assets and liabilities, management believes that investors may find it useful to assess our comparative operating performance because the measures without such items are expected to be less susceptible to variances in actual performance resulting from expenses that do not relate to our core operations and are more reflective of other factors that affect operating performance. In the case of items that do not relate to our core operations, management believes that investors may find it useful to assess our operating performance if the measures are presented without these items because their financial impact does not reflect ongoing operating performance. Adjusted EBITDA is not a measure of liquidity under GAAP, or otherwise, and is not an alternative to cash flow from continuing operating activities, despite the advantages regarding the use and analysis of these measures as mentioned above. Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted earnings (loss) per diluted share, as disclosed in this press release, have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for analysis of our results as reported under GAAP; nor are these measures intended to be measures of liquidity or free cash flow. To properly and prudently evaluate our business, we encourage readers to review the consolidated GAAP financial statements included in this press release, and not rely on any single financial measure to evaluate our business. The following table sets forth reconciliations of Adjusted EBITDA to net loss, the most directly comparable GAAP-based measure, as well as Adjusted earnings (loss) per diluted share to net loss per diluted share, the most directly comparable GAAP-based measure. We strongly urge readers to review these reconciliations, along with the financial statements included in this press release.
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AudioEye, a digital accessibility solutions provider, announced record-breaking second quarter results for 2024, showcasing significant revenue growth and improved financial metrics.
AudioEye, Inc. (NASDAQ: AEYE), a leading provider of digital accessibility solutions, has reported exceptional financial results for the second quarter of 2024. The company achieved a remarkable 85% year-over-year increase in revenue, reaching $8.5 million 1. This substantial growth underscores AudioEye's strong market position and the increasing demand for accessibility solutions in the digital landscape.
The company's financial health showed significant improvement across various metrics. AudioEye reported a gross profit of $6.4 million, representing a gross margin of 75% 3. This marks a considerable increase from the previous year's figures. Additionally, the company achieved a positive adjusted EBITDA of $0.5 million, demonstrating its progress towards profitability.
During the earnings call, AudioEye's management highlighted their strategic shift towards serving enterprise-level customers 2. This focus has contributed significantly to the company's revenue growth and improved financial performance. The enterprise segment now represents a substantial portion of AudioEye's business, with several new high-profile clients added in the second quarter.
AudioEye emphasized its continued investment in technological innovation, particularly in artificial intelligence and machine learning. These advancements have enhanced the company's ability to provide more efficient and accurate accessibility solutions. The integration of AI has not only improved the quality of AudioEye's offerings but also contributed to cost efficiencies and scalability [2].
The company expressed optimism about its future growth prospects, citing the expanding market for digital accessibility solutions. AudioEye's management pointed to increasing regulatory requirements and growing awareness of digital inclusivity as key drivers for future demand [3]. The company also hinted at potential international expansion plans to capitalize on global opportunities in the accessibility space.
Despite the positive results, AudioEye acknowledged the competitive nature of the digital accessibility market. The company faces challenges from both established players and new entrants. However, management expressed confidence in AudioEye's technological edge and customer-centric approach as key differentiators [2].
The strong quarterly results were well-received by investors and analysts. The stock price saw a positive movement following the earnings announcement, reflecting market confidence in AudioEye's growth trajectory and business model [1]. Several analysts have revised their projections upward, citing the company's improved financial metrics and strong market positioning.
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