Q3 2020 AudioEye Inc Earnings Call
Good afternoon, and welcome to <unk> third quarter 2020 earnings conference call joining.
Joining us for today's call are audio interim CEO.
Mr. David Marotta.
Executive Chairman Dr., Carbella, <unk> CFO Mr. Scottsboro follow.
During their remarks, we will open up the call for questions from the company's publishing analysts.
I would like to remind everyone that this call is being recorded and made available for replay via a link available in the Investor Relations.
Section of the company's website at Www Dot audio why dotcom.
Before I turn the call over to audio as executive Chairman the company would like to remind all participants that statements made by the audio why management. During the course of this conference call that are not historical facts are considered to be forward looking statements.
The private securities.
Reform Act of 1995 provides a safe harbor for such forward looking statements the.
The words believe expect anticipate estimate confidence will and other similar statements of expression identify forward looking statements.
These statements are predictions projections or other statements about future events and are based on current expectations and.
Options that are subject to risks and uncertainties.
Actual results could differ materially from those factors discussed in today's press release and in the comments made during the conference call and in the risk factor section of the Companys annual report on form 10-K, its quarterly reports on form 10-Q, and its other reports and filings with.
A little Dirty and Exchange Commission.
Participants on the call are cautioned not to place undue reliance on these forward looking statements, which reflect management's beliefs only as of the date hereof.
Audio to the eye does not take.
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 posted in the Investor Relations section of the company's website at Www <unk> audio I Dot Com Oh.
I would now like to turn the call over to audio as executive Chairman Dr. Carl better.
Thank you Sir please begin.
Thank you operator, welcome everyone and thank you for joining us today.
After the market closed we issued a press release announcing our results for the third quarter ended September Thirtyth 2020.
A copy of the press release is also available in the Investor Relations section.
<unk> web site at all the wide dot com.
I'll now begin as we always do with an overview of our business.
Why is a leading provider of SaaS based digital content accessibility platform and solutions.
Yes.
Eradicate all barriers to digital accessibility.
We pride ourselves in a dress.
Hosting the largest range of issues.
That impact many people around the globe.
And audio wide. We also do more than just identify accessibility issues, we strive to fix maintain 10 continuously monitor them.
We also certify web sites to demonstrate compliance with both the Americans with Disabilities Act.
Correct.
Okay, and the latest web content accessibility guidelines.
Because many of the remediation capabilities, we provide our highly automated our customers can more quickly gain compliance with accessibility standards regulations and laws.
For our managed and enterprise offerings. These automated processes are coupled with manual test.
And remediation by subject matter experts. The result is that we provide our clients with what we believe is the best platform to make their websites and digital content more accessible we keep their content more accessible through continuous monitoring and remediation and we offer a trusted certification.
Yes for many with standards.
Furthermore, for our private sector clients. We also provide them a product that gives them an opportunity to gain an ROI from their investment in and commitment to the large population of individuals with disabilities.
But the overall overview of the business completed I'll move on to highlights around our.
Q3 execution and what we're seeing so far in the fourth quarter.
We had another good quarter Q.
Q3 marks the 19th straight quarter of record revenue, we ended the quarter at just over $5.3 million for the quarter, which was over 90% year over year growth from 2019.
Our results continue to be driven largely by growth.
Growth and adoption in our vertical partner and enterprise channels.
The monthly recurring revenue or EMR at the end of the third quarter of 2020 was about $1.7 million and 67% increase over EMR at the end of the third quarter of 2019.
Gross profit for the second quarter was $3.8 million or about.
71% of revenue, which was an approximately 130% increase from $1.6 million.
Our about 59% of revenue in the third quarter of last year the.
The increase in gross profit and gross margin.
Were a result of our continuous focus on increasing efficiency efficiency and remediation automation has.
As revenues grow.
As mentioned in the past, while it may fluctuate somewhat between quarters overall, we do expect our gross margins to continue to improve on an annual basis. We remain very excited about audio as increasingly scalable SaaS business.
New customer acquisition was still strong in Q3 driven largely.
By traction in our vertical partner channel and some very early results in our marketplace and platform partners.
We ended Q3 with approximately 22000 customers representing over 500% growth year over year, and we more than tripled our customer count since year end.
As you saw in the press release on.
The non-GAAP basis, our EPS loss was two cents. This quarter, we have previously talked about being cash flow positive at some point in 2021 and based on our results. It is now apparent that we have positioned the business towards that goal.
In terms of guidance, we remain committed on growing EMR and becoming cash flow positive.
In 2021 subject to ongoing economic conditions.
Like other businesses, we continue to operate in a challenging economic environment driven by the global pandemic.
Although demand for digital accessibility solutions is strong as discussed in our Q2 conference call. We continue to see some impact due to COVID-19.
Even with our customers and prospects and across all of our channels enterprise vertical partners and the marketplace.
On the new business front, we have seen some deals that have been delayed. We've also continued to extend some more flexible pricing and other options to our customers on a case by case basis to help them manage through the impact on their own businesses.
From the pandemic, so far we have seen some impact on renewals substantially due to events that are out of our control such as bankruptcy proceedings or outright business closures.
Overall, though we are still pleased to see retention levels, new the 90% rate.
We also have a net promoter score or an NPS within our installed enterprise.
Price client base in the top quartile for technology and SaaS companies.
Our priority throughout this period has been to continue to strive to deliver best in class product and service and to focus heavily on customer and partner success.
This is the right thing to do for the long term in any event, but especially during the current economic.
The conditions.
We don't know how long the COVID-19 related economic factors are going to persist, but it is reasonable to expect potential impacts audio wise financial and operating performance going forward.
In short.
We believe the business will improve if and when the covance situation improves but to be clear even in.
In the uncertain cobot environment, we do expect continued growth in EMR in the quarters ahead.
Furthermore, as David will discuss later, we continue to make investments in key areas that we believe will enable us to continue to grow our customer base.
Im now going to provide a brief update of our different sales channels.
Beginning with our.
Enterprise or direct channel.
We continue to bring on new customers, even as the overall business mix has been shifting towards higher growth vertical partners in that channel.
In the third quarter, we added prominent brands and we continued to focus on renewing our contracts.
Our PDF remediation business also contributed to enterprise revenue growth in.
Three but not surprisingly not at the same pace as in Q2.
This business continues to provide a good complement to our core web accessibility offerings.
Just as a reminder, the PDF PDF remediation businesses is a project based service and is not included in our EMR metric.
Moving.
Two our vertical partner or indirect channel.
Customer growth in Q3 continued and we're very pleased with the momentum we're seeing in this channel.
We do expect very strong growth over the next few quarters in the vertical partner channel.
We launched marketplace as part of our strategy to make Audi why more accessible to even more.
More businesses and organizations in the second quarter, we released more clearly defined simplified pricing that enables our marketplace customers to quickly and easily identify the audio wide plan. That's most appropriate for their current needs, making it a much better usability experience for them.
While they remain the.
Emory point of contact for investors as you recall from our last call. David We're already joined as Chief strategy Officer, and interim CEO in mid August I.
I am personally thankful for David's willingness to bring his leadership business acumen and focus as well as his great strategic mind in business in sinks to the daily operations of all of your life.
As a reminder, David is our largest shareholder and a member of our board of directors.
As our CEO. He is fully in charge of the business operations before I turn the call over to David I have a couple of more things worth repeating.
David has had a significant influence on the company's strategy and operations since he joined the board in the fourth quarter of last year and while.
Prior to the chairman of the strategy Committee of the board of directors his guidance and insights significantly help the business scale and gain efficiencies his commitment and confidence in audio I are reflected in the structure of this compensation plan.
David has an annual salary of one dollar he only received his CEO role related equity compensation at.
As discussed the company achieves significant EMR and stock price growth. He is incentivized to grow the business and create value for shareholders.
Im going to turn the call over now to David.
Really happy to have him here. He can provide you with some organizational and personnel updates and briefly discuss some of our strategic initiatives David.
Thank you car and it is my pleasure to speak with you today.
Take on this role, believing that we have a special opportunity, which has captured by a single minded determination to achieve our mission eradicate all barriers to digital accessibility. This is a bold uncompromising mission and one that requires execution and a great team of leaders animal.
Employees.
During my tenure as CEO added depth and experience to our leadership.
Our as was discussed on the last earnings call building on the strategic initiatives put in place last November we have continued to implement organizational changes in order to accelerate our efforts to build out scalable technology and our go to market.
The center for our technology base is now Portland.
This transition has gone very well and our pace of technology innovation has accelerated even during this transition.
Over the past two months, we have added top tier talent of the company, including Brian Rodriguez, Our recently hired CMO most.
Most recently, Brian was vice President.
Isn't of marketing and ecommerce at tile, helping drive significant growth the tiles core business and playing a key role in the company's expansion through partnerships and subscription services.
Prior to tile, Brian was part of Lifeguards Executive management team, where he oversaw the company's marketing E commerce and customer support organizations.
Leading up to its acquisition by a noto a publicly traded Swedish firm.
Last week Russell Griffin joined the leadership team has zero most recently Russell as Vice President of global solution partnerships and head of us sales and Shipstation driving overall revenue growth, 100% year over year prior to that.
Russell was vice President of Enterprise sales and agency partnerships at Bay Commerce, the world's leading cloud.
Cloud ecommerce platform, where increased new sales by 50% year over year and set record revenue numbers.
This Tuesday, we announced the strategic partnership to integrate audio as digital accessibility platform.
Neil Patel Hoover suggest ESCO platform. The over suggests platform has an average of over 100000 yourselves and over 300000 keywords check daily and currently provides constant ideas strategy and ESCO recommendations were giving companies on the platform a free accessibility score and report this one.
Nine tool will give companies unique insights into accessibility of their web sites, providing the knowledge and power to make digital content accessible.
FCO as a top priority in the marketing industry was 64% of marketers actively investing time to learn FCO.
Accessibility is not getting the same spotlight with only 2% of web.
Websites with a million visitors per month fully accessible to people with disabilities. However, things like all texture images transcripts of video and audio proper heading tags and consistent predictable structures can improve both accessibility and FCO a win for both consumers and companies anyone interested in improving their accessibility.
He will have the option to click on a link which will direct them to audio eyesight to signup for a free trial.
Our focus remains on acquiring customers growing EMR, increasing margins and becoming cash flow positive in 2021.
In short we believe our strategy is working and we are well positioned to see explosive growth.
I will now turn the call over to SaaS to walk through some additional financial results Sosh.
Thanks, David.
As Carl mentioned it is great to have you onboard and partner with you to drive long term growth and deliver shareholder value.
I hope everyone continues to be safe and well during this historic and challenge.
In time.
And Scott and David described this was a strong quarter for Roger.
Well the company and our customers continue to find ways to navigate to the ongoing crisis.
Now onto the results starting with revenue.
Revenue in Q3 was a little over 5.3 million.
Inflecting, a 92% increase over Q3 last year.
Our revenue performance continues to be led by improved penetration in our vertical partner channel now also contributions from enterprise shop.
As mentioned earlier.
We continue to better our gross margins, which came in at 71% for this quarter.
Okay.
While this may fluctuate.
We expect our margins continue to grow over time.
Moving to operating expenses in Q3, Opex was $5.4 million.
Which was an increase of about 43% versus Q3 last year.
The drivers of the increase in Opex are mostly the same as the.
The last few quarters.
That is increase investment in talent across various functions.
Infrastructure and product development.
And sales and marketing to drive further growth.
Q3. This year also had about $360000 of costs related to severance for our teams restructuring.
Turning towards the bottom line.
Net loss available to common stockholders for the third quarter of 2020 total $1.1 million.
Or a loss of 12 cents per share.
This compares with a net loss of $2.2 million or a loss of 27 cents per share in Q2 last year.
This improved.
The net loss reflects the increase in our gross profit as we scale and also includes a reversal of warrant liability costs as.
As a line of credit related warrants were exercised in August.
This net loss also reflects higher equity comp and severance related charges.
Probably non-GAAP perspective, our net.
Loss was about $200000 and EPS was a loss of two cents.
The non-GAAP earnings and EPS reflects adjustments for share based compensation.
Costs associated with warrant accounting interest expense, which mainly includes expense for debt issuance and certain severance costs.
Now onto.
Implementation metrics.
Scott noted as of September Thirtyth.
Monthly recurring revenue or EMR was 1.7 million, which was an increase of about 67% year over year.
We ended the quarter with about 10.2 million in cash compared to about 2.1 million at the end of the second quarter.
Our cash balance reflects contribution of about $900000 from the warrants exercised by superior capital and from the secondary offering we conducted in August.
In closing our.
I would like to thank all our employees customers partners and shareholders for their continued support as we execute against our vision to.
To bring equality in digital access.
And I wish everyone and their family safety and found that with that we'll open the call for questions. Operator, Please give instructions.
Thank you at this time, we will.
The company public scandal.
We would like to ask a question today. Please press.
Thats Star one on your telephone keypad confirmation total indicate your line is in the question queue. You May Press Star. If you do it seems like your with your question from the Q.
First question today is coming from is that coming up B. Riley FBR. Please go ahead Sir.
Oh, Hi, good afternoon, Caren, such an high David Nice to say you're joining.
On the call today.
I guess just first question is really going to be around the progress you've seen with the transitioning your development resources to Portland, It sounds like Thats been relatively smooth then or just additional perspective on that would be helpful.
Yeah, we are upgrading the product and technology stack the transition.
Technology leadership to Portland has gone very very well.
Understood. That's helpful. And then car I know you mentioned in your script, they're a little as a little bit of elevated level of attrition here in some of these recent months it sounds like some of that's out of your control but.
I mean can you give us a sense of how we.
Yes, maybe be thinking about attrition as we go forward from here.
Yes, so thanks Zack.
No again, the overall levels around 90, we have seen some churn.
I would say the primary driven still by economic conditions like you know bankruptcies and business closures and if you think about the retail.
Space and even to some extent some of the automotive space is impacted as well, we do really expect a your renewals to continue to be strong and even strengthened a you know with economic economy shrinking, we we expected to shrink as well.
Understood and then in terms of renewal cycle in sales.
Should close I mean, it sounds like there was a few delays on both of those fronts and giving some flexible pricing to some customers when necessary but.
Can you give us an update on kind of what you've seen here in the first kind of month and a half of Q4. It see I don't know it has there been any improvement in either of those metrics and what we should really be expecting moving forward.
So looking beyond the third quarter, we do feel pretty good about our growth over the coming quarters.
We.
So we're not talking specifically about Q4 numbers right.
Exactly you know us pretty well in that regard, but again.
We are we are expecting we ARX, we'd like to move.
And then in the fourth quarter and we're we're we feel very good about the growth, we expect to see over the coming quarters.
Understood and then kind of just final question from me how geared towards you David can.
Can you outline some of the areas that you think are going to be the biggest opportunity moving forward. We've seen this indirect partner channel really drive a lot of momentum in recent quarters.
But just be curious to hear some of the major growth areas that you're thinking about moving forward and how your new executive hires are going to help play into that strategy.
Yes, I think the digital marketplace is going to be huge. This segment has the biggest potential for our business and fits our mission. So radical all barriers to digital accessibility.
Our technology and platform is the best available and we can deliver at scale. So that's what I'm most excited about.
Absolutely local thanks again for taking my questions Congrats on the strong quarter.
Hey, Thanks, Sam if you.
Thank you. This concludes our question and answer session I'd now like to turn the floor back over.
That's what that is for his closing remarks.
Thank you. Thank you very much everyone for joining us today I do want to especially thank our employees our partners and our investors for their continued support and we are looking forward to updating you on our next call. Thanks, everyone have a good evening.
Thank you before we conclude today's call I'd like to remind everyone that a recording of today's call will be available for replay via link in the Investor section of the company's website. Thank.
Thank you for joining us for audio <unk> third quarter 2020 earnings Conference call you may now disconnect.
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