AudioEye, Inc. (NASDAQ:AEYE) Q4 2023 Earnings Call Transcript
AudioEye, Inc. (NASDAQ:AEYE) Q4 2023 Earnings Call Transcript March 6, 2024
AudioEye, Inc. misses on earnings expectations. Reported EPS is $-0.04 EPS, expectations were $0.03. 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 Fourth Quarter and Full Year 2023 Earnings Conference Call. Joining us today on 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 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 and other statements about future events; and are based on current expectations and assumptions that are 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 its other reports 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 directly 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 would like to turn the call over to AudioEye's Chief Executive Officer, Mr. David Moradi. Sir, please proceed.
David Moradi: Thank you, operator. Today, I'll discuss a few of the accomplishments since joining AudioEye in 2019 and why we are on the strongest trajectory in our history, but first, I want to thank all of our employees for their hard work to get us here. As the largest investor and shareholder, I initially joined the board in 2019 as Chair of the Strategic Committee of the Board of Directors to address operating efficiency and strategy. While AudioEye was growing off a small revenue base, operating efficiency needed to improve. Growth margins were in the mid-50s. Adjusted EBITDA margins were in the mid-negative 60s and revenue per employee was in the low $100,000 range. The company is in a much stronger position today. We have tripled revenue and dramatically improved operating efficiency.
Growth margins have improved to the high 70s and adjusted EBITDA margins have improved by approximately 80 points, to 17% in the fourth quarter. Revenue per employee is approaching $300,000. These efficiency metrics are now on the top tier of SaaS companies. We are entering 2024 ready to capitalize on all this hard work. Our operating leverage will allow us to drive future revenue growth with only moderate increases in operating expenditures. The fourth quarter was an inflection point. We achieved growth margins of 78% and record adjusted EBITDA of $1.3 million, while generating approximately $900,000 of free cash flow. We delivered solid ARR growth of approximately $700,000 sequentially, and we ended the year with 110,000 paying customers, the most of anyone in the digital accessibility industry.
The product development team has accomplished a lot over this time. After building a new platform and migrating all of our customers over, we invested further into products for enterprise customers. I'm pleased to report that we're seeing this pay off with one of the best enterprise ARR growth quarters to date. Our balance sheet is strong. As Kelly will discuss, we received a $7 million term loan from SG Partners in November of last year. The term loan did not include any warrants or other equity dilution. The board and management remain highly aligned with shareholders. In November, the board announced a stock buyback of $5 million. As of March 05, we have repurchased 437,000 shares at an average price of $47. In addition, under our previous stock buyback announced in June of 2022, we bought 139,000 shares at an average price of $5.44.
Combining both programs, we have repurchased approximately 5% of the shares outstanding over the last two years at a valuation below two times revenue for the benefit of long-term shareholders. Lastly, management and members of the board have purchased approximately 350,000 shares on the open market over the last 2.5 years. We have also invested substantially in R&D, to our knowledge, the most of anyone in the industry. Our investment in R&D allows us to meet customers wherever they are in their accessibility journey, from the smallest businesses to large enterprise customers. We recently announced a few new products and features. AudioEye's Accessibility Testing SDK allows developers to identify and quickly address accessibility issues at the source, empowering them to implement changes in pre-production environments proactively.
Recognizing the need for consistency in issue detection, the SDK employs the same automated test logic utilized by AudioEye's Accessibility experts during customer site audits and automated monitoring. With SSO, we address the stringent security requirements of enterprise clients, providing a deeper level of security and policy adherence. We continue to improve our rules engine and have made ongoing quality improvements to the test suite, incorporating advanced rules that more accurately test the compliance with current legal guidelines, further improving our industry-leading lawsuit protection. Awareness of digital accessibility has grown and private plaintiff attorneys are filing record levels of digital accessibility lawsuits under the ADA.
Further, we expect that a significant driver of future advance will come from the regulatory environment. In 2023, the Department of Justice proposed comprehensive accessibility regulations under Title II at the ADA. We expect further development and updates over the course of 2024. Also, several bills and regulations are currently being considered at the state level. Lastly, the European Accessibility Act requires businesses in the EU to have accessible websites and mobile apps by June of 2025 [indiscernible]. Approximately 96% to 97% of all websites on the internet remain inaccessible. It has become clear that the old way of trying to fix issues at the source does not scale and will not solve the problem. Our approach to combining AI with human-assisted technology is the only way to solve this problem at scale.
One of the most respected leaders in digital accessibility, Mike Paciello, recently joined AudioEye as Chief Accessibility Officer. He also believes that the old way is not working and a new vision is needed to meet the scale of the problem. Mike is a pioneer of digital accessibility with a deep understanding of the challenges faced by individuals with disabilities in the digital world. Mike brings over 40 years of expertise to this critical role including authoring the first book on web accessibility, founding the Paciello Group, a pioneering accessibility solutions provider, and co-founding and co-chairing Accessibility Industry Committees to drive advancements in policies and legislation. As a former co-chair in the United States Federal Access Board Telecommunications and Electronics and Information Technology Advisory Committee and recognized by President, Bill Clinton for his contribution to the W3C Web Accessibility Initiative, I can say this pivotal role in shaping accessibility standards and practices.
Moving on to guidance. For the first quarter, we are guiding for revenue between $8 million and $8.1 million. With Social Security taxes and other beginning-of-year expenses, we expect to generate adjusted EBITDA between $700,000 to $900,000 and adjusted EPS of $0.06 to $0.08 per share. We are entering 2024 with strong business momentum. In addition to continued operating margin improvement, we expect revenue growth to accelerate throughout the year. For 2024, we are guiding for revenue of between $34 million to $34.4 million, with growth rates approaching high teens by the fourth quarter. We expect adjusted EBITDA between $3.5 million and $4.5 million and adjusted EPS between $0.29 and $0.38 per share. I'll now turn the call over to AudioEye's, Kelly.
Kelly Georgevich: Thank you, David. As David discussed, revenue again hit record levels in Q4 2023 with revenue at $7.87 million, a 2% increase from Q4 2022, and a minor increase sequentially from Q3 2023. On a full-year basis in 2023, our revenue grew 5% to $31.3 million from $29.9 million. As we have discussed on previous earnings calls, 2023 was impacted by several contract renegotiations. Turning to channels, 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. For the fourth quarter of 2023, our Partner and Marketplace channel grew 10% year-over-year and represented approximately 59% of revenue and 60% of ARR.
On a full-year basis in 2023, this channel's revenue grew 13% from $16 million of revenue in 2022 to $18 million in 2023. We continue to see expansion of existing customers and additional partners engaging with AudioEye, which continues to fuel growth. AudioEye's Enterprise channel consists of our larger customers and organizations, including those with non-platform custom websites who generally engage directly with AudioEye's sales personnel for pricing and solutions. Last year, the Enterprise channel was impacted by a large Enterprise customer rolling up. However, with the momentum we are seeing in Enterprise growth, we expect to resume year-over-year growth in Q2 2024. In Q4 2023, the Enterprise channel contributed approximately 41% of revenue and 40% of ARR.
Annual recurring revenue, or ARR, at the end of the fourth quarter of 2023 was $31.2 million, a 7% increase over ARR at the end of the fourth quarter of 2022. ARR grew approximately $700,000 sequentially, and as David mentioned, we expect this growth to accelerate going into 2024. On December 31, 2023, our customer count was approximately 110,000, an increase from 107,000 customers on September 30, 2023, and an increase of approximately 24,000 customers from December 31, 2022. The increase in customer count was driven by additions in the Partner and Marketplace channel. Gross profit for the fourth quarter was $6.2 million, or about 78% of revenue, compared to $6 million and 77% of revenue in Q4 of last year. For the full year 2023, our gross margins were approximately 78%, with gross profit increasing from $22.7 million in 2022 to $24.3 million in 2023.
There are several factors that go into cost of revenue, including web hosting, customer support and other costs directly related to delivering the product. In 2023, we were able to drive these costs down, while also growing revenue and adding additional value to our customers. As we continue to implement efficiencies, we believe gross margin has room to expand in future quarters. While revenues were up 2%, operating expenses in the fourth quarter of 2023 decreased 16% to $6.7 million from $7.9 million in the same quarter last year. On a full year basis, revenue increased 5%, while operating expenses decreased $2.8 million from $33.1 million in 2022 to $30.3 million in 2023. The annual year-over-year decrease was driven primarily from efficiencies implemented in sales and marketing, which is continuing to produce impressive lead generation with lower investment needed and lower stock compensation and other non-return expenses, partially offset by investments in R&D.
In Q4 2023, with major R&D initiatives completed, we were able to gain more efficiencies in R&D. Our total R&D spend in Q4 was approximately $1.7 million, with approximately $465,000 reflected as software development costs in the investing section of the cash flow statement. This was down from approximately $2.4 million in Q3 2023. R&D spend for the full year 2023 was $8.9 million, inclusive of $1.9 million reflected as software development costs. The total R&D spend was around 22% of our Q4, and 29% of our full year 2023 revenue, compared to 25% of Q4 2022 revenue, and 24% of full year 2022 revenue. We feel the current investment in R&D is appropriate for 2024. Net loss in the fourth quarter of 2023 was $500,000, or $0.04 per share, compared to a net loss of $1.9 million, or $0.17 per share in the same year-ago period.
On a full year basis, net loss for 2023 was $5.9 million, or $0.50 per share, compared to a net loss of $10.4 million, or $0.91 per share in 2022. This is a dramatic improvement from net loss a few years ago, and as a result of both increases in revenue and efficiencies, including technological investment. In the fourth quarter of 2023, we achieved record profitability, with adjusted EBITDA of approximately $1.3 million, or $0.11 per share, compared to adjusted EBITDA of $200,000, or $0.01 per share in the same year-ago period. On a full year basis, we also produced adjusted EBITDA of approximately $1.3 million, or $0.11 per share, compared to a negative adjusted EBITDA of $900,000, or a loss of $0.08 per share in 2022. The primary adjustments to GAAP earnings and EPS for Q4 2023 and full year 2023 were non-cash share-based compensation, depreciation and amortization, non-cash valuation adjustments to liabilities related to the earn out of BOIA, and other miscellaneous costs.
In November 2023, we partnered with SG Credit Partners for a $7 million term loan. We plan to use the proceeds from the loan for share repurchase and add additional liquidity to our balance sheet. In Q4 2023, we implemented a share repurchase program of up to five million, with 1.1 million of shares repurchased in the fourth quarter of 2023. As David discussed, in the fourth quarter of 2023, we hit a significant milestone, positive free cash flow. In the quarter, we generated $900,000 of free cash flow, calculated as adjusted EBITDA of $1.32 million, that's $465,000 of software development costs. We are pleased we were able to achieve this milestone and expect to continue to generate positive free cash flow in 2024. With the addition of the term loan, our balance sheet is well-capitalized with $9.2 million of cash as of December 31, 2023.
With that, we open up the call for questions. Operator, please give instructions.
Operator: [Operator instructions] And the first question will come from George Sutton with Craig-Hallum. Please go ahead.
See also 12 Best Remote Jobs That Pay at Least $50 an Hour and 17 Worst Bachelor’s Degrees for Student Loan Debt.
To continue reading the Q&A session, please click here.
