Q4 2020 AudioEye Inc Earnings Call
Good afternoon, and welcome to all of your Wise fourth quarter 2020 earnings Conference call.
Joining us for today's call are audio wise interim CEO, Mr. David Marathi Executive Chairman, Dr. Carr, Bettis and CFO, Mr such burrowed.
Following 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 will be recorded and made available for replay via a link available on the Investor Relations section of the company's website at Www Dot audio on Dot com.
Before I turn the call over to or do you why is the executive Chairman the company would like to remind all participants that statements made by audio on management during the course of this call.
That are non historical facts are considered to be forward looking statements.
The private Securities Litigation Reform Act of 1095 provides the safe harbor for such forward looking statements.
The words belief 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 not based on current expectations and assumptions that are subject to risks and uncertainties.
Actual results could differ materially because of factors discussed in today's press release and the comments made during the conference call and in the risk factors section of the company's annual report on form 10-K, and its quarterly reports.
Filing with the U S 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 belief only as the date hereof <unk> 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 posted in the Investor Relations section of our website at Www Dot audio dot com.
Now I'd like to turn the call over to <unk> Executive Chairman Dr. Carr Bettis, Sir Please proceed.
Thank you operator of welcome everyone and thank you for joining us today.
After the market close we issued a press release announcing our results for the fourth quarter ended December 31 on its money.
A copy of the press release is available in the Investor Relations section of the website that all the wide dot com.
I'll now begin as we always do here with the business overview.
For the leading provider of SaaS based digital content accessibility of platform and solutions are mission erratic.
Eradicate all barriers to digital accessibility.
We pride ourselves in addressing the largest range of issues that impact many people around the globe.
And all of the of why we do more than just identify accessibility issues we.
We strive to fix maintain and continuously monitor of them.
We also certify websites to demonstrate compliance with both the Americans with disabilities Act or Ada and the latest web content accessibility guidelines for <unk> $2 one.
Furthermore, for our private sector clients, we give them an opportunity to gain an ROI from their investment in and commitment to the large population of individuals with disabilities.
Before turning the call over to our interim CEO, David minority I'll provide a few highlights around our Q4 and for 2020 results.
We had another truly excellent quarter and fiscal year.
Q4 marks the 20th straight quarter of record revenue.
Ending the quarter at about $5 6 million, which was over 57% growth year over year.
The recurring revenue or MLR at the end of the fourth quarter of 2020 was about $1 9 million a 54% increase over <unk> at the end of the fourth quarter of 2019 on a full year basis in 2020 of.
Our revenue grew 90% of $25 million from $10 8 million in 2019.
Gross profit for the fourth quarter was $4 1 million or about 73% of revenue compared to $2 4 million and 66% of revenue in Q4 of last year.
It's worth looking back a bit further on our margins and gross margin progress into context.
Gross margin was 54% in the second quarter of 2019 again in the fourth quarter gross margin was up materially to 73%.
This is a result.
Of the company's strategy to increase automation and reflects the benefit of scale.
As we mentioned in the past, we expect of gross margins to continue to improve.
On the full year basis gross profit increased 128% to $14 5 million of about 71% of total revenue from $6 4 million for about 59% of total revenue in the same year ago period.
New customer acquisition was also very strong in Q4.
We ended Q4 with approximately 32000 customers representing about 370% growth year over year.
We are also very proud of our customer retention, which remains strong at historical rates are high retention rates speak to not only the quality.
Heinous and transparency of our solution to.
The excellent service that our team provides to our customers.
Net loss in the fourth quarter of 2020 was $3 million of about 30 cents per share compared to $1 4 million or <unk> 16 per share in the same year ago period. However, on a non-GAAP basis, our Q4 net losses of about 900000 of <unk> per share compared to the same year ago period of about $1 3 billion.
The loss of 14 <unk> per share.
On an annual basis, the net loss for 2020 was $7 2 million or <unk> 77 per share compared to $7 8 million for 97 per share for fiscal year 2019.
On a non-GAAP basis for the full year 2020, net loss improved to $2 6 million for 28 cents per share from $6 6 million or <unk> 81 per share for fiscal year 2019.
The primary adjustments to GAAP earnings and EPS for both the full year and Q4 with noncash share based compensation and amortization of interest expense related to the debt issuance.
In a recent past we provided an update on three revenue channel enterprise vertical partners and other which has included the marketplace. However, our growth and strategy has evolved over the last six quarters to focus on two primary channels today.
The partner in marketplace channel.
And secondly, the enterprise channel.
The partner in marketplace Channel includes all revenue from our SMB focused marketplace products and revenue from a variety of partners, who deploy the same products for their SMB customers.
These include CMS partners of all types, such as industry vertical partners like dealer Dot com.
Platform partners like Duda and general digital agencies.
In the fourth quarter of 2020 of this revenue channel represented more than 50% of our revenue and our MLR is.
As 2021 unfolds, we expect to continue to see this channel contribute explosive growth in customer count and the MRI.
We also remain excited of better enterprise channel in the fourth quarter. We continued to add prominent enterprise brands from our direct sales efforts and continue to renew our enterprise clients at a healthy rate.
Large enterprises also benefit from our focus on automation and transparency.
We are proud of that large multinational corporations and government agencies, both large and small trust <unk> with their digital accessibility solution.
Finally, just a word about COVID-19 since the spring of 2020, we discussed the uncertain impact of the global pandemic and its negative impact on our business. While there is still uncertainty about the impact of it depends on the general.
We're pleased to say youre seeing the COVID-19 driven headwinds being replaced with new business opportunities is commercial activity picks up.
I'll now turn the call over to David who will provide a brief update on the platform and leadership development David.
Thank you for car, it's my pleasure to speak with you today I.
I am pleased with the excellent fourth quarter and the results for 2020.
But we are not resting or of patting ourselves on the back.
Instead, we of a single minded determination to achieve our mission eradicate all barriers to digital accessibility.
Our bold uncompromising mission requires execution and a great team of leaders and employees.
I wanted to speak with you about two important things first are the wise differentiated platform second our team, which will execute on the strategy.
First I will discuss the platform.
<unk> platform is the most comprehensive technology first answer to accessibility period, yes, we are trusted by tens of thousands of smbs by some of the world's biggest brands and by some of the largest U S government agencies, but we also have a truly differentiated product offering.
On February 2nd we announced our next generation platform, representing a significant advancement for digital accessibility the.
New platform features always on accessibility of monitoring coupled with the most advanced artificial intelligence and the industry.
We've provided an accessibility of score that shows customers, what we do and do not fix we can improve our clients successfully score by up to 30 points on day one are.
Our <unk> certified subject matter experts are available to help clients further improve the accessibility with human assisted technology.
At present, there is no 100% fully automated solution on the market. We believe that transparency is paramount to adjusted addressing issues of web accessibility.
Customers should and will demand it.
We think that as the industry develops opaque products, making unsubstantiated unsubstantiated claims will be left behind.
It is worth remembering that we not only build great technology that is robust cost effective and highly scalable, but we create the technology to help our clients and partners meet the needs of individuals with disabilities without full transparency. This is not possible.
About the team during my tenure as CEO, we have continued to add depth and experience to our leadership.
I believe that without question today, we have the strongest leadership team in audio is history.
Since we spoke last quarter, we have out of two additional key members to our leadership team.
In December where all of the leveling joined as Chief business Officer.
Rob was most recently of Pinterest, where he led the platform integration strategy day.
Oliver and significant revenue growth and new client acquisition.
Before Pinterest, he led platform integration partnerships of Facebook, creating integrations with dozens of platforms globally.
The partnership's drove the acquisition of hundreds of thousands of clients for Facebook and billions of dollars in revenue.
He also served as VP of business development and sales at the find where he helped steer the company through of Facebook acquisition.
At the beginning of this month, we announced the Alco, Okay on joined as Chief product Officer, Zach was most recently.
At Facebook, where he led their offsite data products like the Facebook pixel and conversions API.
<unk> products serve millions of customers and power of tens of billions of dollars on revenue.
Before of Facebook, He led product teams at Oracle cloud infrastructure, Amazon Web services and several high growth startups.
Our ability to attract exceptional talent, such as Rob and Jack is because day to believe that audio is posed for explosive growth.
And they can help us achieve our full potential.
That said audio of success is not about a single individual but about a complete team of leadership and staff working together and it's an honor to work with such a talented leadership team and with our mission driven employees.
And in February we fall on S. Three shelf registration and implemented an ATM program to raise additional capital. We're pleased to report that we have raised over $14 million and net cash at an average price of around 38 of share. This cash strengthens our balance sheet and gives us the flexibility to take.
Advantage of new market opportunities in this rapidly growing space.
In terms of guidance, we remain focused on growing <unk> and becoming cash flow positive in 2021, we're off to a good start in 'twenty, one and reiterate our full year guidance range of 30 of $32 million, we expect growth to accelerate in the second half of the year as we began converting customers to higher tier offerings.
The announced new partnerships.
Before I turn the call over to Sasha to walk through some additional financial results I want to take a minute to thank him for his contributions at Audi of y.
We have improved critical systems and processes during the last two years out of talent and necessary infrastructure. These achievements have been significant given our growth and.
And we have set a strong foundation for the future.
We are confident of a smooth transition and wish sauce. Good luck in his future endeavors.
Again, thank you Sasha.
Okay.
Thank you David.
Let me start by saying I really enjoyed my time at out of Iraq, and I'm proud of all our collective successes and achievements over the past two years on <unk>.
<unk> delivered on our view on it and its mission and how you continue to cheer on the company and its future success.
As you heard from current David we had a great Q4.
The main focus on enhancing our capabilities.
Diving top line revenue growth with expanding gross margins and drive shareholder value.
Even with the ongoing pandemic and related macroeconomic challenges is of major need for our solutions.
We are continuing to provide immense value for our customers in an increasingly digital world.
Now onto the results.
Colorado the summarized most of the results and key metrics of the business, but I wanted to mention a few of the items.
First of all the operating expenses.
In Q4, Opex of $7 1 million.
Which was an increase of about 84% versus Q4 last year.
The primary drivers of the increase in Opex for increased investments in talent across various functions.
Specifically in sales marketing and product and an increase of noncash equity compensation costs.
On the full year basis, Opex was $21 6 million all of about 53% higher than prior year the.
The drivers for this increase of similar to that for the fourth quarter.
Yeah.
If you also like to highlight I would also like to highlight additional information about our total research and development spend.
Total R&D spend in 2020 was $2 4 million.
But due to accounting rules approximately one $1 million of lot of it runs through the cash flow statement as capital investment for.
For comparison purposes, the $2 4 million of investment represents 12% of revenue in 2020 compared to 900000 on 9% in 2019.
We think it is important for shareholders to understand that youre enthusiastic really investing for scale in this emerging market.
We ended the quarter.
With approximately $9 1 million in cash compared to about $2 million at the end of last year.
In closing.
I would like to thank all of our employees customers partners and shareholders for their continued support as we execute against our vision to bring a quality and digital access.
And that can change the wish everyone on their families of safety and sound health and try and joining him on.
With that we'll open the call for questions operator, please give instructions.
Thank you ladies and gentlemen at this time, we will be conducting a question and answer session. If you'd like to ask the question you May Press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
You May press star two if he would like to remove your question from the queue core participants using speaker equipment. It may be necessary to pick up of your handset before pressing the star key. Our first question comes from the line of Allen Klee with Maxim Group. Please proceed with your question.
Yes, congratulations on the strong results the.
The question.
The new customer that you signed in January that.
The digital advertising agency can you talk about how that's progressed in the how you think about the potential of Upselling.
The.
To a.
The higher price point plans to that customer.
Hi, Alan.
Yes, we added the 33000 customers you mentioned in January.
Expect to begin upgrades in the coming months and think of it could be.
<unk> revenues.
Yeah.
Okay and then the.
To do platform that you signed that you've.
Rolled out.
Could you talk about the feedback you've got and if there's a different price point associated with it.
Yeah, you know, we're the category leader and we will continue to invest in tech and R&D.
Fact that we hired somebody of the category of Zach of CPO makes clear our commitment to audio wise product and its customers.
The new platform as part of our commitment to scale with increasing efficiency and also demonstrates our commitment to transparency.
$1 on the objective accessibility of score at the show clients, where they are today, how far of technology can take them and they are ex escalator journey and the opportunity for a few other further improvement using our certified accessibility experts.
Great feedback on the platform so far people love the score a lot of knowing where they're at and so it's been going on well.
Thank you in the last quarter or two you've mentioned that some of your smaller customers where the.
A little challenged with Covid in terms of.
Some things that is the.
That happening at the same pace in the fourth quarter or did you see any change.
Hey, Alan the society, we saw some impact, but I wouldn't call it material.
Uh huh.
I think some.
Some of the cleansing has happened Q4 was better than the first three quarters from that perspective.
Great and then one follow up.
You mentioned, you've raised money through March with the ATM could could you tell us what as a result of that with the current share count is.
Okay.
We expect it to be.
Close to.
10.4 million ish.
As of what time period is that.
Well couple of things right I can't give you a specific date, but it's about 10 point for a million and a Q will detail it for.
If you look at my first if you want my shift it will be 10, 7%.
But okay.
It was around 371000 shares may be 380000 share somewhere in that range.
Okay and my last question.
My last set of such it's been a pleasure working with you could could you guys just explain how you're thinking about the transition of <unk>.
For the new CFO.
All of the sources, not leaving US right now and we really appreciate his commitment to ensuring we have a smooth transition.
And for conducting a search.
Yes.
Great. Okay. Thank you for everything congrats on the quarter.
Thank you thanks, a lot of thanks Alan.
Our next question comes from the line of Zach Cummins with B Riley. Please proceed with your question.
Oh, Hey, good afternoon, Kerr, David and the thought yes. Thanks for taking my question then thought best of luck on your new endeavors, and it's really been of pleasure working with you over the past year.
David I wanted to ask about the overall environment for digital accessibility.
Seeing a rebound in lawsuits here in January and expect this this incoming the.
Current administration on is likely going to be much more aggressive in terms of enforcement of web accessibility.
I wanted to get your perspective are you baking in any sort of tailwind around kind of of the current improving environment or how are you thinking about that as we progress through the next couple of years.
I think thats upside with the current administration.
We'll see what they do and unfortunately that the Doj or not.
But we're just running our business on and executing on plan at the moment.
Understood and then of course with the talent upgrades that we've seen over the past couple of months.
Pretty big names with impressive backgrounds.
Can you give us some insight into kind of the direction, you're going with your strategy and how this is going to play into that for I guess, we would call audio is the next phase of growth.
Well, it's clearly an integration strategy with the major platforms.
The major customers that have hundreds of thousands of sites if not millions. So that's the direction. This is going.
Why we're hiring people like <unk> and Rob to execute.
Understood and with the realignment to your two segments I appreciate the disclosure there.
I mean, how should we be thinking about that mix moving forward with it is clearly moving towards the integration type of strategy. It seems like it's a little bit of like a 50 50 mix I'm just trying to get a sense of the pace of that move towards of what would be more of the SMB in the marketplace type of segment.
I think it will accelerate really of the market for us.
Smbs going forward enterprises of good market, we like it but the explosive growth is on SMB market.
Understood and then I guess with the $14 million of extra proceeds that you got on under the ATM.
And how are you thinking about deploying the extra cash that you have right now whether it would be just accelerating investments in inorganic initiatives or potentially even exploring any sort of M&A that that could help accelerate the strategy.
We like having the cash on the balance sheet.
Think it is kind of help us attract more customers and partners.
But we're really focused on maximizing value for all shareholders and always evaluating risk reward opportunistically. So wherever we can invest in we think we're going to maximize value. That's what we're going to do.
Yeah.
Understood and then I guess just final question for me around the new platform that you've rolled out is this automatically disseminated to the every customer or is that something that you have to have somewhat of a transition through the existing customer base to upgrade to the X to the new platform that you launched.
There is the transition going on Thats happening over the next.
Two or three months.
Got it and is that part of the kind of upgraded subscription plans that are kind of flat in there for the second half of the year.
That's not really a part of that now this is just the difference of the technology and not the pricing points.
Understood. That's helpful. Great well. Thanks again for you for taking my questions I really appreciate it and the best of luck going forward.
Thank you Zack.
Thanks, a lot back.
We have a follow up question from the line of Allen Klee with Maxim Group. Please proceed with your question.
Yes, hi, it's the two questions I think you answered the first one but I want to confirm it.
So what I heard you say that you expect.
Gross margins to continue to improve as the true based on where they were this quarter that you think they can continue to approve and then secondly.
How do we think about kind of of the run rate of operating expenses.
For for 2021, thank you.
So I'll take both.
From a gross margin perspective, right Island, we have always always mentioned this that we expect based on our increased automation.
The Mediations and new technology, we continue to expect to for gross margins to improve over time.
They may fluctuate, but over time over the next year to two years.
One of them to be.
And now <unk> and even more.
And you saw in Q4 with debt seventy-three. So over the next few quarters. We expect it to we continue to grow I can't give you a specific number it comes down to.
Contract tenants that want to implement but you should for your modeling purposes, you should expect us to kind of change into the margins for sure not only in 2020, one but beyond as well.
Thank you and operating expenses.
Yeah look as you have mentioned are of a talked about this before from an opex perspective right.
We expect opex to increase a bit.
Especially driven you saw in my prepared remarks.
We are investing a lot in out of D. We are hiring talent in sales and marketing as well as product and we are investing to take advantage of of this emerging market. We have a lot of runway in front of us so from that perspective, we should expect sales and marketing.
Costs to increase over the next few quarters.
And the G&A should more or less start plateauing outside of non.
Non cash equity Tox.
Which by the way will fluctuate based on.
No no. So many different factors that play and come into play including.
Prices of share.
Share prices when the when the stocks of issue so that that will be.
That will be of a.
Fluctuating number as well as we go but overall from an Opex perspective expect share.
Sales and marketing to be one of the big drivers.
That's great. Thank you so much.
Youre welcome.
Yes.
There are no further questions in the queue I'd like to hand, the call back to management for closing remarks.
Yes, thank you for joining us today, especially one of the thank our employees partners and investors for their continued support we look forward to updating you on our next call.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
Yes.