Q4 2021 AudioEye Inc Earnings Call
Good afternoon, and welcome to the audio wise fourth quarter 2021 earnings conference call.
Joining us for today's call are audio I CEO , Mr. David Marathi and CFO Ms. Kelly, Georgia pitch 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 Dot audio our dotcom.
Before I turn the call over to our U I C E O. The company would like to remind all participants that statements made by audio line 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 confidence 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 sections of the company's annual report on form 10.
K and its quarterly report 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.
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 or a dotcom.
Now I'd like to turn the call over to our Chief Executive Officer, Mr. David Marathi Sir Please proceed.
Thank you operator.
Welcome everyone and thank you for joining us after the market closed today, we issued two press releases one our results for the fourth quarter and full year ended December 31, 2021 at one press release on our recent acquisition of the Bureau of Internet accessibility or.
Oh I E.
A copy of both press releases is available in the Investor Relations section of our website at <unk> Dot com.
I first would like to discuss our exciting acquisition of B O y.
This acquisition is another positive step in our ongoing mission of eradicating all barriers to digital accessibility.
We were thrilled that the team is joining forces to provide additional accessibility product options to the entire community of direct customers and ultimately our end users.
We also believe this to be a value enhancing acquisition for our shareholders. We're pulling away from the competition, both product offering and scale through accretive revenue expansion without diluting our shares.
This is a great deal for all stakeholders.
As we have said in previous earnings calls audio why stands apart from the competition in the market with our unique and transparent accessibility solution.
We are combining our patented software, which delivers the highest levels of automation in the industry.
Our human assisted technology, giving our customers full accessibility.
Faction of the cost of traditional approaches.
The acquisition of <unk> as a key dimension to our product suite for those customers who prefer it affects accessible yes you are.
Source, giving us an end to end solution for all customers and their accessibility journey.
With two decades of experience and implementation across hundreds of enterprise clients include.
Including Chipotle Godiva, Deckers killer right Al and Harvard University, B O I as the leader for customers, who want an automated testing platform combined with a step by step guide its effects accessibility issues at the source.
In addition to the product offering we are also excited about the attractive financial profile.
It.
This acquisition will be immediately accretive to audio why.
In terms of top line.
<unk> delivered approximately 3 million of revenue in 2021.
In general 60% of revenues are derived from the initial on boarding of clients and 40% from ongoing subscription maintenance.
I'm, an accretion standpoint at gross margins that are similar to our gross margins and we expect the acquisition will be accretive with the incremental revenue.
We also believe that we can upsell the customer base with new products from our core offering such as continuous monitoring and acquiring B O I E. We gain a very knowledgeable and results oriented team.
I wanted to give a warm welcome to these new members of the audio I team.
In December 2021, we also acquired substantially all assets of square 88, a trusted accessibility solution in the square space ecosystem.
With square 88, we now have a leading position inaccessibility within the square space platform.
I also want to welcome square 80, 18 to audio why.
I will now move on to other key business highlights and a summary of our results for the fourth quarter of 2021.
As noted in our preliminary outlook for fourth quarter result, we are pleased to confirm that we achieved revenue at the high end of the guidance range of $6 5 million representing accelerated growth from prior quarters.
We continue to see recurring revenue growth in all channels and ended the quarter with $2 2 million of M. R. R.
Fourth quarter results included several critical wins Friday July , including the renewal of a significant contract with a global HR and payroll software and service companies.
And newly signed contracts with a substantial agency a large financial institution.
Overall, 2021 was a year of healthy revenue growth and.
And our rapid pace of innovation with our launch of the Nexgen platform issue reporting and continued improvements in software automation.
We have assembled the strongest team in the industry and will continue to raise the bar in product and technology with industry, leading R&D investments.
Moving onto guidance.
We continue to be well capitalized with $19 million of cash on December 31, 2021.
And have the runway to continue investing in the business for the long term.
We expect to continue investing in talent in 2022, but a slower investment rates as compared to 2021 as we gain efficiencies.
We expect that our cash burn in the first half excluding nonrecurring items will remain similar to the fourth quarter, and then trend down sequentially for the remainder of the year.
We are guiding for a revenue growth of 6.7 to $6 9 million, whereas the first quarter, representing 17% year over year growth at the midpoint.
The B O Y acquisition closed yesterday and will contribute approximately three weeks of revenue in the quarter.
Lastly, as we continue to measure performance and revenue growth internally through new Kpis, we will convert to a new operating metric annual recurring revenue versus previously used monthly recurring revenue.
We will begin reporting annual recurring revenue for the first quarter of 2022.
This shift will allow us to better baseline herself against other SaaS companies, who primarily use <unk> as a metric and develop compensation plans similar to those used in the software industry.
With that I.
I'll now turn the call over to audio I CFO Kelly Markovich Kelly.
Thank you David before I begin with a summary of Q4 and full year 2021.
First congratulate David on behalf of Bodyweight.
Chief Executive Officer to CEO in January 2022.
We are very happy to have you continued to lead the audio I can envision for the future.
I would also like to provide some additional financial information on the recent bureau of Internet accessibility transaction.
And March nine 2022, we entered into a stock purchase agreement to acquire all of the outstanding equity interests at zero or Internet accessibility, Inc.
Okay cash purchase price paid at closing was $5 million and is subject to net working capital and other customary adjustments.
In addition, the purchase agreement provides for contingent earn out payments in cash based on BLA its revenue for 2020 , two and 2020 three.
This cash deal is highly accretive and that if all of that the new targets are achieved milestones paid enterprise value to revenue multiple of the acquisition will be around two point to attack.
Due to the timing at the BLA acquisition relative to the date of this report we have not completed a provisional valuation not tangible and intangible assets acquired and liabilities.
We will recognize the disclosed professional allocation of the purchase consideration in the fiscal quarter ended March 31 2022.
Now, providing a summary of Q4 and 2021 following areas.
As David mentioned, we are pleased with our quarter and fiscal year performance.
For the 24th straight quarter of record growth and in the quarter at $6 5 million, which was over 16% growth year over year.
Monthly recurring revenue or MRI at the end of the fourth quarter of 2021 with $2 2 million also a 16% increase over am I are at the end of FY 2020.
On a full year basis in 2020 one.
<unk> grew 20% to $25 5 million from $25 million and putting 20.
As communicated previously we have two revenue channel partner in marketplace and enterprise.
And marketplace channel includes all revenue from our F&B focus marketplace products and revenue from a variety of partners, who deploy these same products for their SMB customers.
In the fourth quarter of 2021, that's revenue channel grew 25% year over year and represented approximately 57% of revenue and MRI. We expect to continue to see this cannot contribute significantly to our growth in customer count and ultimately an MRI and.
On a full year basis in 2021 I partner in marketplace revenue grew 40% from 'twenty to 'twenty.
The enterprise channel continue to perform in the quarter contributing approximately 43% of revenue and MRI.
Project oriented P. D. F revenue was down from Q4 2020 recurring revenue in the enterprise channel grew approximately 15% over the same period in prior year continuing to drive a year over year increase for the channel.
We again added prominent enterprise brands from our direct sales efforts, including a large financial institution and continue to renew our enterprise clients at impressive rates.
And I saw your basis in 2021 are enterprise recurring revenue grew 13% from 2020 and total enterprise revenue remained consistent with 2020 revenue.
We are proud of our customer retention, which remains strong at historical rate our high retention rates not only to the quality stickiness and transparency by solution, but to the excellent customer service that our team provides to our customers.
Customer acquisition growth continued in Q4 2021, we ended Q4 2021 with approximately 82000 customers representing 156% growth year over year.
We continue to see increases in customer accounts across each of our revenue channel.
Gross profit for the fourth quarter was $4 8 million or about 74% of revenue compared to $4 1 million and 73% of revenue in Q4 of last year.
We are pleased with the steady gross margin percent given the significant investment in our platform and research and development and customer success costs, which all play a factor in cost of revenue.
On a full year basis gross profit increased 27% to $18 4 million or about 75% of total revenue from $14 5 million or about 71% of total revenue in the same year ago period, resulting in $3 9 million, a 4 million revenue increase going directly to gross profit.
In Q4, 2021 opex inclusive of $2 2 million of stock compensation and 1 million of litigation expense was $9 8 million, which was an increase of about $2 7 million versus Q4 last year or $1 6 million after adjusting for stock compensation expense and litigation.
The main drivers for this increase is our continued investment in research and development and sales and marketing.
Our total R&D spend in Q4 with approximately $1 6 million with approximately 213000 reflected the software development cost and then best infection of the cash flow statement.
This total R&D spend is about 24% of our revenue this quarter versus 17% last year and continues to reflect the commitment towards investing for scale in this market.
Sales and marketing Q4, 2021 expenses increased approximately 36% from Q4 2022, approximately $4 million, we see great opportunities in this market and are investing in outreach and brand recognition to drive future sales.
Net loss in the fourth quarter of 2021 was 5 million or about 44 cents per share compared to 3 million or <unk> 30 per share in the same year ago period. However, on a non-GAAP basis. Our Q4 net loss was about $1 8 million or 16 cents per share compared to the same year ago period and about 900000 Ma.
Our nine cents per share.
On an annual basis, the net loss for 2021 was $14 2 million or $1 29 per share compared to $7 2 million or <unk> 77 per share for fiscal year 2020.
On a non-GAAP basis for the full year 2021 the net loss was $5 8 million or <unk> 53 per share from $2 6 million or 28 cents per share for fiscal year 2020.
The primary adjustments to GAAP earnings and EPS for both the full year and Q4 with noncash share based compensation litigation expense and severance expense.
Adjustments to GAAP earnings, but litigation is a new line item in our non-GAAP reconciliation in 2020 , one related to a patent litigation.
Our balance sheet remains well capitalized with zero debt and $19 million of cash on December 31st 2021.
Lastly, I would like to highlight the change an artifact of control status on our 2021 10-K from ineffective controls to effective we place value in building robust controls and processes as we grow and this is a tangible outcome of that effort with that we open up the call for questions. Operator, Please give instructions.
Thank you we will now take questions from the company's publishing analysts.
And the question could you you May Press Star then one on your telephone keypad.
Here its own acknowledging your request.
Youre using a speakerphone please pick up your handset before pressing any keys to withdraw your question. Please press Star then two.
Now our first question will come from Zach Cummins with B Riley Securities. Please go ahead.
Hi, Good afternoon, David and Kelly, Thanks for taking my questions and congrats on the solid results here at the end of the year.
Just starting off with the acquisition of <unk>.
Just to confirm.
<unk> said the total compensation paid was $5 million is that all cash or is that a mix of stock being issued along with cash just trying to clarify on that front.
Yeah.
The $5 million in clothing is 100% cash all cash, okay, and <unk> and as we mentioned in the purchase agreement also provides for a contingent earn out payments and cash them based on 2022 and 2023 evidence.
Understood that's helpful.
And just looking at the strategic rationale.
Is there any current customer overlap with B O I E I'm just kind.
Curious in terms of the opportunity for you to immediately upsell because some of their customer base. Once you bring them on board.
No. There's no current overlap as far as I know, they're all separate customers and they fixed things that the source, which is different from the Java script approach that we do so now we have a full end to end solution for all customers, which is really compelling and I think we're the only ones out there doing anything like this.
Understood that's helpful and David can you speak to some of the major partnership opportunities I mean, one that really caught my attention was WP engine.
I mean can you speak about kind of that partnership there are the potential opportunity for you guys going forward and kind of expectations as you start to ramp on that.
Yeah, That's my Saudi mine, we're in the early phases of that partnership with just launched the app on their store and Theres a lot of different ways to sell this to their customer base over time.
It's a long term opportunity, but very exciting for both companies.
Yeah.
Understood. That's helpful and can you give us any update on any of the previous major partnerships that you spoke to and I know, there's quite a few through 2021, but it's kind of got pushed to the right. So any sort of update you can give on those prior partnerships and progress moving forward with those.
Speaking, they're all the same folks are we did upgrade some of the customers who were getting individual tool kit the basic service to automation from what agency.
So we're giving you a little bump on that now, but we also want to sell in services. So it's a long term proposition for us, but it's actually starting to happen.
Yeah.
Got it got it that's good to hear and then finally I appreciate the color on kind of the expected spend rates and the cash burn here.
I mean, any sort of concerns around available cash to execute on your plans over the next couple of years I know you still have some ATM capacity left available to you, but kind of how are you guys thinking about balancing cash versus pursuing this growth opportunity of the business.
Yeah, I can comment on that while the transaction, it's a meaningful investment for how do I, we expect to generate cash and we do not have plans for a capital raise at this time.
Understood. That's helpful. Thanks for taking my questions and best of luck in the coming quarter.
Thank you Jack.
Our next question comes from Scott Buck of H C. Wainwright. Please proceed.
Hi, Good afternoon, guys. Thanks for taking my questions first one on P. O I E. Do you have an idea of how many customers or ongoing customers. They have at any given time and what the.
You know kind of.
Re up is on on those kind of longer term.
Ongoing work is.
Yeah, BLA that was primarily enterprise type customers. It won't have a material impact on the number of customers out there in.
And in terms of our customer count, but they do have a significant number of enterprise customers.
Hmm.
I'm sorry, your second question was.
It just you know when the 60% is upfront and 40% of the revenue opportunity is kind of an ongoing.
Maintenance and an oversight.
How often do they extend that 41st down 40% out another 12 months or so.
Yeah. The majority of the contracts on signing up to the one times purpose customers are also signing up for that reoccurring piece and the reoccurring piece.
Typically continues and retention is good for that support recurring piece.
Okay. Thanks. Thanks, guys. That's helpful. And then second one can you speak a little bit to gross margin I'm just looking at the difference in <unk> 21 versus <unk> 20, and then <unk> 21 versus <unk> 20, you're you're down a little bit sequentially, and then year over year, Europe , but not quite to the extent that you.
You know you were in the third quarter. So just curious if that's you know mix or something else. There, we should be keeping an eye out on.
Yeah overall, we're pleased with our steady gross margin percent of approximately 75% for the whole year, especially given the significant investment in our platform and R&D and customer success costs. We continue to we expect to continue to invest in these areas and expect gross margin to say really just relate to they can sit.
So we are happy with this margin is it if you look at a comparable in the SaaS space and this is kind of comparable with the top performers.
Sure Alright, that's great and then last one for me just on the Opex.
It sounds like there's going to be some more investment spend in 2022, but not quite to the extent that 2021 was.
How should we think about that in terms of you know an annual growth rate.
Yeah, I think in terms of if you're if you're thinking cash burn you can look at Q4 and expect somewhat similar numbers in the first half of the year unexpected cash bearing to go down in the second half of 2022.
Okay. That's helpful. Thanks, a lot guys I appreciate the time.
Thank you.
At this time this concludes our question and answer session.
I'd now like to turn the call back over to Mr. Marathi for his closing remarks.
Thank you for joining us today as always I want to thank our employees partners and investors for their continued support we look forward to updating you on our next call.
Before we conclude today's call I would like to remind everyone that a recording of 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 is fourth quarter and full year 2021 earnings conference call you may now disconnect.
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