Q2 2021 AudioEye Inc Earnings Call
Good afternoon, and welcome to audio is second quarter 2021 earnings conference call.
Joining us today.
Sure.
All our audio line and term CEO David Maher.
Alrighty.
Executive Chairman, Dr Carr, Bettis and CFO Ms.
Kelly Court George match.
Following their remarks, we will open up the call for questions and the company's publishing analysts.
I'd 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 Dot audio like dotcom.
Before I turn the call over to audio is executive Chairman the company would like to remind all participants that statements made by management.
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 well and other similar statements of expectation identify.
Forward looking statements. These statements are predictions projections.
Or other statements about future events that are based on current expectations or assumptions that are subject to risks and uncertainties actual results could materially differ because of factors discussed in today's press release and the comments made during the conference call.
And in risk factors section.
The company's annual report on Form 10-K, its quarterly reports on Form 10-Q.
And in 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 belief only as of the date hereof.
Audio why does not undertake any duty to update or correct any forward looking statements.
Managements remarks today will include certain non-GAAP financial measures a reconciliation of the most directly directly comparable GAAP financial measures. These non-GAAP financial measures is available in the company's earnings release posted in the Investor Relations section of our website at Ww.
W Dot audio dotcom.
Now I would like to turn the call over to Audi is executive Chairman Dr. Carr Bettis, Sir Please proceed.
Thank you operator.
Welcome everyone and thank you again for joining us today.
After the market closed we issued a press release announcing our results for the second quarter ended June 32021.
A copy of the press release is also available in the Investor Relations section of our website at Audi why Dot com.
I'll now begin just as we always do with a brief overview of our business.
How do you why is a leading provider of SaaS based digital content accessibility platform and solutions are mission.
Eradicate all barriers to digital accessibility.
We pride ourselves in addressing the largest range of issues that impact many people around the globe.
And I'll tell you why we also do more than just identify accessibility issues.
We fix maintain and continuously monitor them.
We also certify websites to demonstrate compliance with both the Americans with disabilities Act or a D E and the latest web content accessibility guidelines.
Furthermore, we give our private sector clients an opportunity to gain an ROI from their investments and commitment to a large population of individuals with disabilities.
Before turning the call over to our interim CEO, David Marathi I'll provide a few highlights around our Q2.2001 results.
In the second quarter monthly recurring revenue or <unk> grew approximately 25% year over year to $2 million and in addition, we more than doubled our customer count from prior year Q2, 75000 grew revenue, 14% year over year to $6 million.
Gross margin continued to expand year over year, reaching 74, 9% an increase from 69, 6% a year ago.
We remain proud of our customer retention rate our continued high retention rates speaks to not only the quality stickiness and transparency of our solution.
The excellent service that our team provides to our customers are.
Our balance sheet remains well capitalized with zero debt and $24.8 million of cash at June 32021.
Regarding our two revenue channels.
The partner and marketplace channel includes all revenue for SMB focused marketplace products and revenue from a variety of partners, who deploy these same products for the rest of the customers.
These include content management system partners of all types, such as industry vertical partners like dealer Dot Com recently announced partners like dealer Center and platform partners like Duda and also general digital agencies.
In the second quarter of 2021. This revenue channel represented approximately 56% both revenue and tomorrow.
As the second half of 2021 unfolds, we expect to continue to see this channel contributed the majority of our growth in customer count and ultimately an M. R. R.
The enterprise channel continue to perform in the quarter contributing approximately 44% of revenue and MRI.
While nonrecurring revenue from a P. D F product was down from Q2.2020 recurring revenue from enterprise notable over the same period.
Again added prominent enterprise brands from our direct sales efforts and continue to renew our enterprise clients at a healthy rate.
Before turning the call over to David I want to welcome Kelly GA vision audio why is our recently appointed CFO Kelly has been a true pleasure to work with and has the experience and the skill of audio idea in the next phase of growth David.
Thank you card it is my pleasure to speak with you today.
I want to start by welcoming in a couple of our recent executive hires our CFO.
I think George you pitch and chief architect Mace great.
Kelly's career has been focused on SaaS and technology and she was most recently the CFO of e-commerce platforms sticky that IL <unk>.
She previously served as financial controller at software platform to use and it's been seven years of her career and the audit practice, Eddie and why.
She holds an accounting degree from the University of Northern Iowa and is a CPA.
Makes great has a proven track record of leading engineering teams and delivering industry transforming products.
Was most recently at Facebook, where he served as a product and technical lead for advanced workload and data management infrastructure powering their next generation advertising systems before that he was one of the original architects to Oracle cloud infrastructure and led engineering teams at Amazon and several startups.
As I've said on prior calls one of the reasons I continue to be so confident about the bright future of audio is the strength of the team from top leadership. So the quality of team members across all of the business function.
Simply put our team is the strongest in the industry.
In addition, we have the most advanced patented technology in a market, which we expect will grow substantially over the next few years.
These factors all set us up for success and our mission to eradicate all barriers to digital accessibility.
Now I would like to review our progress year to date and outlined how we see the balance of 2021 unfolding.
I'm pleased with our second quarter results and our continued transition to a higher margin highly scalable fast company.
All of our recurring revenue business lines grew sequentially from the first quarter, we are investing further into R&D and sales and marketing to drive growth.
I want to reiterate what I discussed on our last call. We are in a very strong position.
First the market for accessibility solutions are still in the early innings and growing SEC.
Our technology and transparent approach to solving accessibility for our clients are differentiated.
<unk> audio wise platform is highly scalable.
Fourth we have exceptional talent to execute on our growth plans.
We are very well capitalized.
Finally, and importantly, there are tangible reasons for us to be optimistic about what lies ahead. In addition to the 75000 current customers we have in various subscription tiers. Our current partners have several hundred thousand potential audio by clients that are not yet in our customer count.
Moving onto guidance.
As discussed in our first quarter conference call our guidance for accelerating revenue growth in the back half of the year was based on customer conversions to higher tier offerings and new partnerships. While we have made significant progress in customer account aspects of these initiatives rely on external timelines, which has led us to adjust our own we remain enthusiastic.
Stick about these growth opportunities, but since they're no longer tracking towards calendar year plan, we're converting our forecast to one quarter at a time.
In terms of guidance for the third quarter, we believe revenue will be between 6.1 to $6.3 million, representing 16% growth year over year at the midpoint.
On the cash flow in the first half of the year, we manage the business to have positive cash flow from operations, while setting a foundation for future growth.
Over the last two years, we have demonstrated the ability to manage costs when warranted focusing on long term shareholder value.
The significant growth opportunity ahead, we are now increasing R&D and sales and marketing investment to capitalize on this market.
Such we expect to use cash in the second half of the year, a certain initiatives unfold with the view to revisit our castle investment program for 2022.
It's a great pleasure to turn the call over to our CFO Kelly to walk through additional financial result, welcome Kelly.
Yeah.
Thank you David and Patrick.
Janine.
That's such a high caliber management team have continued to drive significant revenue and MRI grout and play a part in eradicating all barriers to digital accessibility.
And my first weeks at Eddie I think there are two key observations that are worth noting the team is hyper focused on growing MRI setting us up for continued long term success.
We're also focused and have excel in customer retention.
I already summarized most of the results and key metrics for the business, but I wanted to mention a few other items.
In Q2, Opex of $7.6 million.
The increase of about 68% versus Q2 last year.
This increase was strategic and was primarily driven by increases in R&D as we focus on product development and expanding our sales and marketing efforts.
The increase in our G&A I mean, that's an equity compensation expenses.
Our total R&D spend in Q2 with approximately $1.9 million with approximately 600000. It looks like it is software development cost in the investing section of our cash flow statement.
That's total R&D spend is about 32% of our revenue this quarter versus 10% last year and reflects the commitment towards investing for scale in this emerging market.
Net loss in the second quarter of 2021 it was $1.8 million or 17 cents per share compared to one 4 million or 16 cents per share in the same year ago period.
On a non-GAAP basis, our kitchen.
One 3 million or 13 cents per share compared to the same year ago period, a point 2 million Archie.
The primary adjustments to GAAP earnings and EPS for both comparable quarters were noncash share based compensation and in Q2.2021 can forget and that's recorded in connection with the full forgiveness of our PPP loans.
With that we open the call for questions operator, please give instructions.
Thank you we will now take questions from the company's publishing analysts.
To ask a question you May call Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the team.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Now our first question will come from Zach Cummins with B Riley Securities. Please go ahead.
Oh, Hey, Thanks for taking my questions, Hi, Kerr, David and Dan Welcome Alert Kelly.
I guess, David just starting off I.
I mean, if you could give us a sense of kind of what ended up happening really well some of those major partners and kind of why we're seeing this pushed out timeline at this juncture.
Yeah sure Yeah, I've mentioned earlier, we are dependent on external timelines, which are pretty much outside of our control our partners have not ramped up as fast as we initially expected. So we're gonna take a more conservative approach.
By shifting into quarterly guidance, we still feel really confident we'll get these opportunities and partnerships. This is just more based on timing, we did see growth in the quarter in each of our channels and enterprise we had a good quarter.
See in digital began to ramp up as well.
Understood and then just digging into that enterprise channel opportunity I mean, obviously Q2 of last year had to add a lot of that PDF remediation revenue, but can you give us a sense of kind of the core growth rate, but within the recurring revenue.
The enterprise segment.
Sure Kelly do you want to take that one.
Yeah.
Within enterprise in recurring revenue was approximately 13% CT at period over period and kitchen.
And.
With the MRI growth.
Is that the MRI growth in enterprise.
Yeah, that's MRI growth in enterprise over all and with all channels with 25% and two.
2 million in Q2.2021 from one six in Q2.2020.
Understood.
David I mean, do you plan to have any sort of changes into your go to market approach now that you've kind of reset expectations for.
The timeline for some of these other major partnerships.
No I think this is just based on timing.
We're gonna do everything we've been doing to invest into R&D sales and marketing people.
And we think there's a massive opportunity in front of us. So we're not going to change anything that we're doing in fact, we're going to accelerate.
Understood and then just a final question for me I mean have you seen any kind of major changes in the overall competitive landscape. It seems like digital accessibility has become an increasing popular topic here, especially under the new administration.
Yeah, there's definitely a little more competition and we like the competition, we have a differentiated and superior product as you know it is the most transparent solution with an accessibility score continuous monitoring and the highest level of automation.
So we feel very confident.
Understood well, thanks for taking my questions and best of luck here in the coming quarters.
Thank you Beth.
Jan if you'd like to ask a question. Please press Star then one.
Our next question comes from Scott Buck with H C. Wainwright. Please go ahead.
Hi, Good afternoon, guys. Thank you for taking my questions first I'm curious if some of these.
Or maybe asked at the kind of pushed out customer conversion you know what the sales pipeline looks like are you still seeing a fair amount of engagement from potential customers or is this kind of slower pace more effective.
The industry as a whole.
We're still in discussions with all the same folks and so nothing has changed from that respect. It's just more we don't control the timing of when they do things.
Okay, Yeah no understood.
And then second you know some of the increased investment I'm curious, whether we should be thinking about this as something more temporary over the next.
Six quarters or is this reflective of a permanent change in the cost structure of the business.
Hey, this is a massive opportunity here the Tam in the market its probably about 250 million today total with all the consultants and the digital side.
When you think over the next few years, we're going to see a 2.85 billion to 3 billion Tam. So we're gonna be investing into that.
Alright, Thats perfect David I appreciate the color. Thank you guys.
Thank you.
Our next question comes from Allen Klee.
Please go ahead.
Yes, hi for.
For the new platform that you've put out is there any.
Is there an issue or can you explain in terms of the timing of signing up new customers.
How long that takes.
If it's on the marketplace on the website, it's instant and enterprise client. It was also a very quick a platform partner who's going to bring tons of sites is going to take a bit longer from an integration standpoint that could take a few months.
Okay and it looks is it so you used to have.
One one of your guidance one of your things that you.
I don't know what the terms, but just to say that your return our operating cash flow positive I'm not sure. If it was for the year for a certain quarter, but what are the factors that are going to cause that to now be negative in the second half.
Sure Yeah. We believe we're in the early innings of digital accessibility and I expect that this market is going to grow rapidly over the next few years. So we're going to invest to increase our tech lead, which we think is going to maximize the long term shareholder value.
We're already starting to see positive momentum from a sales and marketing investments, we're making and expect to ramp up further there and then on the R&D side.
Okay could you tell me what the share count is as of the latest time you have it.
Yeah as of August six it was $11.3 million.
Thank you and my last question is just how much of.
Or how much do you have left of the a T M or how much did you raise during the quarter and how much is left.
And my tree, we raised $16.5 million and we did not raise again in Q2.2021.
Total cash balance as of now at 24.8 million.
And so it's not bringing to it very quickly.
Okay. Thank you so much.
Thank you.
But this time this concludes our question and answer session.
I'd now like to turn the call back over to Mr. Marotta for his closing remarks.
Thank you for joining us today, and I, especially want to thank our employees partners and investors for their continued support we look forward to updating you on our next call.
The conference has now concluded thank you for attending today's presentation.
Before we conclude today's call I would like to remind everyone better recording.
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 audio our second quarter 2021 earnings Conference call you may now disconnect.