AudioEye, Inc. (NASDAQ:AEYE) Q1 2024 Earnings Call Transcript April 23, 2024
AudioEye, Inc. misses on earnings expectations. Reported EPS is $-0.0708 EPS, expectations were $0.06. AEYE isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon and welcome to AudioEye’s First Quarter 2024 Earnings Conference Call. Joining us today 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. In 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 use 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. Well, it’s been approximately six weeks since our last earnings call. Several developments have occurred that we are excited to discuss today. As our last earnings call mentioned, the fourth quarter was a significant inflection point. We generated record adjusted EBITDA, and positive free cash flow while generating solid ARR growth. We are pleased to report that this momentum, is continuing and driving the increase in our full year guidance, which I will cover later in the call. But first, I’ll discuss the changing regulatory landscape, which we expect to impact the business significantly in 2025, and beyond. On April 8, the Department of Justice signed a final rule under Title II of the Americans with Disabilities Act.
These regulations mandate that state and local government entities, ensure their websites and mobile applications are accessible, to people with disabilities following the Web Content Accessibility Guidelines 2.1 AA. The documents published by the Justice Department estimate $17 billion in implementation costs, over the first three years and $2 billion annually, after the initial phase. The regulation applies to public schools, community colleges, universities, public hospitals and clinics, state and local police departments, courts, election offices, and state and local government offices that provide benefits, or social services like food assistance, health insurance, employment services, libraries, transit agencies, and a range of other government-related entities.
The new market opportunity under Title II is significant, with most public sites not being accessible today. We are uniquely positioned to meet the demand increase, with our direct sales team and our reseller channel. On the reseller side, we are already partnered with the leading SaaS platforms that serve cities, municipalities, and K-12 education websites. We estimate that these partners serve over 80,000 websites, which must all become compliant over the next two to three years. We are currently penetrated only in the single-digit today in these resellers. A scalable approach like ours, is required to meet this significant demand increase. AudioEye continues to improve its best-in-class technology platform, including investments in the latest artificial intelligence and scaled infrastructure, to serve billions of end-user sessions, and millions of potential customers.
In addition to the Justice Department, we are excited about the opportunity in Europe. As discussed last quarter, the European Accessibility Act takes effect in June 2025, and requires digital accessibility for websites and mobile apps by that date. We are also seeing regulatory developments in additional jurisdictions, including California’s AB 1757 proposal. If passed in its current form, it would expand and solidify the requirement that businesses operating in California, must have accessible websites and mobile devices. As noted, we are not including any benefit from these upcoming requirements in our guidance for this year, but we expect meaningful demand increases in 2025, and beyond. Since joining the company in 2019, the customer count has increased from 3,500 to 112,000, and revenues have more than tripled.
We are prepared to support this significant demand increase from the public sector. With the final rule just announced two weeks ago, we are still early in the planning phase, and we will share more about our outlook beyond 2024, as the year progresses. In the first quarter, we achieved system and organizational controls, or SOC 2 Type 1 compliance. This important milestone underscores our commitment, to upholding the highest security and data privacy standards. Achieving SOC 2 Type 1 compliance was a priority for us, as we continue to expand our enterprise channel, and service large enterprise organizations. SOC 2 Type 1 attainment and products rolled out this past year, will further support the Enterprise channel’s growth initiatives. The board and management remain highly aligned with shareholders.
Over the last two and a half years, the number of shares outstanding has remained at similar levels while we have continued to invest and grow. In the current stock buyback, as of April 23, we have repurchased 548,000 shares at an average price of $5.73. In addition, under our previous buyback announced in June 2022, we bought 139,000 shares at an average of $5.44. Combining both programs, we have purchased approximately 6% of common shares outstanding, over the last two years at a valuation of around two times revenue, for the benefit of long-term shareholders. Moving on to guidance, we expect quarterly revenues to accelerate, throughout the year without significant additional expense, resulting in increased operating leverage and free cash flow generation.
For the second quarter, we are guiding revenue between $8.4 million and $8.5 million, representing an annualized growth rate of high teens. We also expect to generate adjusted EBITDA, between $1.4 million and $1.5 million and adjusted EPS, between $0.12 and $0.13. We are increasing 2024, revenue guidance to between $34.3 million and $34.7 million. We are also increasing our adjusted EBITDA guidance, by approximately $1 million to between $4.5 million and $5.5 million. With adjusted EPS, between $0.38 and $0.46 per share. I’ll now turn the call over to AudioEye’s CFO, Kelly.
Kelly Georgevich: Thank you, David. As David discussed, revenue again hit record levels with Q1, 2024 revenue at $8.1 million, marking our 33rd quarter of record revenue. Annual recurring revenue, or ARR, at the end of the first quarter of 2024, was $32 million, an $800,000 increase from the end of the fourth quarter of 2023, and representing an ARR annualized growth rate of 10%. We expect this growth to accelerate notably as 2024 progresses. Our two revenue channels, are continuing to deliver strong results. The Partner and 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 first quarter of 2024, this revenue channel grew 9% year-over-year, representing 59% of revenue and around 60% of ARR.
We continue to see expansion of existing partners, and new partners contracting with AudioEye, which continues to drive growth. AudioEye’s Enterprise channel consists of our larger customers and organizations, including those with non-platform websites, who generally engage directly with AudioEye’s sales personnel for pricing and solutions. The Enterprise Channel grew 4% sequentially, and we expect to resume year-over-year growth in Q2, 2024. In the first quarter, the Enterprise channel contributed 41% of revenue and around 40% of ARR. On March 31, 2024, our customer count was approximately 112,000, an increase from 95,000 customers on March 31, 2023, and an increase of approximately 2,000 customers from December 31, 2023. The increase in customer count, is driven by additions in the Partner and Marketplace channels.
Growth profit for the first quarter was $6.3 million, or 78% of revenue, compared to $6.1 million and 78% of revenue in Q1, of last year. We believe the growth margin has room to expand in future quarters. While revenues increased approximately $300,000 from the first quarter of 2023, operating expenses decreased approximately 14%, or $1.2 million to $7 million. The decrease is primarily due to increased efficiencies in sales and marketing, the completion of significant initiatives in R&D, and lower G&A expenses. Our total R&D spend in Q1, 2024, was approximately $1.8 million, with approximately $490,000 reflected as software development costs, in the investing section of the cash flow statement. This was down from approximately $2.2 million in Q1, 2023.
The total R&D spend is about 22% of our revenue this quarter, versus 29% in the comparable period of prior year, and consistent with Q4, 2023 investment. We continue to believe the current investment in R&D, is appropriate for 2024. Net loss in the first quarter of 2024 was $800,000, or $0.07 per share, compared to $2 million and $0.17 per share in the same year-ago period. Total net loss decreased by 59%, or $1.2 million, in the prior year’s comparable period, driven by an increase in revenue, strategic and efficient spending in all departments, and technological investment. Our Q1 adjusted EBITDA was $920,000, or $0.08 per share, a $1 million improvement year-over-year. The primary adjustments to GAAP earnings and EPS for Q1, 2024 were non-cash share-based compensation, depreciation, amortization, interest expense, and other non-recurring items.
Our balance sheet is well-capitalized with $7 million of cash as of March 31, 2024. Cash decreased by approximately $2.2 million in the quarter, primarily due to $1.7 million share repurchased. The remaining decrease was primarily due to the timing of customer payments. Free cash flow, calculated as $920,000 of adjusted EBITDA, plus $490,000 of software development costs, plus $430,000 in the first quarter. We expect to generate positive free cash flow throughout 2024, with improvements as the year progresses. With that, we open up the call for questions. Operator, please give instructions.
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