Q1 2022 AudioEye Inc Earnings Call
[music].
Good afternoon, and welcome to <unk> first quarter 2022 earnings conference call joining us for today's call are CEO , Mr. David <unk>.
So 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 dot com before I turn the call over to <unk>, Chief Executive Officer, The company would like to remind all participants that statements made by <unk> management.
During the course of this conference call that are not historical facts are considered to be forward looking statements.
Private Securities Litigation Reform Act of $19 95 provides a safe harbor for such forward looking statements.
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 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.
And the comments made during this conference call and in the risk factors section of the company's annual report on Form 10-K.
Quarterly reports on Form 10-Q, and in other reports and filings with the Securities and Exchange Commission.
Just 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.
<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.
In the Investor Relations section of our website at Www Dot <unk> Dot com.
Now I'd like to turn the call over to <unk>, Chief Executive Officer, Mr. David Mahratti. Sir Please proceed.
Thank you operator.
Welcome everyone and thank you for joining us.
After the market closed we issued a press release announcing our results for the first quarter ended March 31 2022.
A copy of the press release is also available on our website's Investor Relations section at Www Dot <unk> dot.
Dot com.
To begin we'd like to highlight our strong financial performance.
He used to announce we exceeded revenue guidance was $6 9 million in the first quarter.
This continues our accelerating revenue trends with 19% year over year growth in the first quarter.
We also ended the first quarter with accelerated growth in annual recurring revenue or <unk>, which was $28 1 million up 22% from the comparable period.
Our revenue and <unk> increases resulted from continued organic growth across our enterprise partnerships and.
And marketplace channels, and our acquisition of the Bureau Internet accessibility are.
On March nine 2022.
As discussed on the previous earnings call the acquisition of Hawaii.
Thats, a key dimension to our product suite for those customers, who prefer to fix accessibility issues at the source.
US an end to end solution for all customers and Theyre accessibility journey.
In terms of our large strategic partnerships initiative. We are now moving forward with two new significant partners and are already seeing that contribute to revenue.
While these partnerships will take time to develop and meet their full potential. This is an exciting step in achieving one of <unk> goal.
Of expanding partners, who can offer <unk> to their vast customer base.
While building out new partner relationships, we are also reviewing and revisiting existing partnerships, including our lower tier offering and pricing.
As you recall, our partner strategy for increasing <unk> included a land and expand approach.
While this has worked very well with some partners and others continue to have untapped potential.
We are working closely with these partners to update economics that work better for our business, while also providing them a higher level of service.
As a result of a specific renegotiation underway, our customer count decreased in the first quarter from the fourth quarter.
All other revenue channels, continuing to see customer count increased in the quarter.
During the first quarter of 2022, <unk> published an industry first white paper titled building for digital accessibility at scale.
One of the paradoxes and web accessibility today is that while the general awareness is growing fueled by the increase in lawsuits dei initiatives and recent Doj statements. There is still a tremendous lack of practical information and transparency on how to implement accessibility best practices.
This has created a vacuum leading the misguided assumption so important decision making.
Published a white paper to clarify the problems and the role of technology in solving digital accessibility.
We invite you to go to our website and download the full white paper to learn more but I'll get a few key takeaways.
Digital accessibility is still in its early innings and remains a largely unsolved problem.
Based on our market research there are $1 9 billion websites worldwide with more than 250000, new sites going live every day.
Even if society aimed at making only half of the internet accessible we estimate it would need $83 5 billion hours to accomplish.
Using an average workweek approximately 40 million people for a year would be required which would cost roughly four trillion.
Additionally, our research shows that traditional manual approaches to accessibility are leading boat business web sites inaccessible to users with disabilities, even the sites where significant time and money was spent.
<unk> recently conducted Emmanuel audit 55 randomly selected website, but use traditional audit and remediation services offered by consultants.
And we found that 41 of these sites had one or more severe accessibility issue.
Based on <unk> research and considering the overall state of accessibility, it's clear that we need an ongoing sustainable and affordable solution that can enable business owners on web professionals to create inclusive experiences.
While solving for the scale of the Internet.
Today that solution as a hybrid approach that ensures responsible transparent implementation of technology backed by subject matter experts.
Moving on to guidance.
We are guiding for revenue of seven four to $7 6 million for the second quarter, representing year over year growth of 25% at the midpoint.
We continue to be well capitalized with $12 million of cash on March 31, and have the runway to continue investing in the business for the long term.
We expect to make strategic investments in talent going forward, but at slower rates compared to 2021.
We're also running under our previous cash usage assumptions, excluding nonrecurring items.
We expect our second quarter operating cash usage to be relatively consistent with our first quarter and then trend down in the third quarter and be near breakeven by the fourth quarter.
I will now turn the call over to <unk> CFO , Kevin <unk> Kelly.
Thank you David as David mentioned, we are pleased with our first quarter 2022 performing <unk>.
Q1 marks the 25th straight quarter of record revenue ending the quarter at $6 9 million, which was 19% growth year over year.
Annual recurring revenue or AI at the end of the first quarter of 2022 with.
$28 1 million at 22% increase over <unk>.
At the end of the first quarter of 2021.
IQ revenue channels continue to perform with the Bureau of Internet accessibility acquisition also contributing to the enterprise revenue in the quarter.
Looking at our revenue channels and marquee town as discussed in previous earning calls the partner in marketplace Channel includes all revenue from our SMB focused marketplace products and revenue from a variety of partners to deploy the same product for their SMB customers.
In the first quarter of 2022.
Revenue channel grew 20% year over year and represented approximately 55% of revenue and <unk>.
We expect to continue to see this channel contribute significantly to our growth in revenue as we continue to have traction with larger partners.
The enterprise channel inclusive of revenue from the acquisition of Bya on March nine 2020 to continue to perform in the quarter contributing approximately 45% revenue.
Hi.
Decreases in project oriented PDF revenue from Q1, 2021 portfolio offset by contributions from Bya's nonrecurring revenue and.
In addition, reoccurring revenue from the enterprise channel increased 18% over the same period in prior year.
As David mentioned, the total customer count decreased from Q4 2021, as we look to expand our level of service with our partners at an entry level offering.
We view these adjustments to be a positive that for our business, which will increase the average revenue per customer.
On March 31, 2022 customer count with approximately $74000 compared to 68000 customers on March 31 2021.
Gross profit for the first quarter with $5 2 million or about 75% of revenue compared to $4 4 million and 77% of revenue in Q1 of last year.
We are pleased with the consistent gross margin percent given the significant investment in our platform and research and development and customer success Scott.
Which all play a factor in cost of revenue.
We expect gross margin to be relatively consistent throughout the remainder of 2022.
In Q1, 2022, Opex inclusive of $1 1 million of stock compensation and 900000 of litigation expense was $8 8 million, which was an increase of about $1 6 million versus Q1 last year.
Main driver for this increase is our continued investment in research and development and sales and marketing, but G&A expense staying relatively stable to Q1 2021.
Our total R&D spend in Q1 with approximately $1 8 million with approximately 240000 reflected the software development cost in the investing section of the cash flow statement.
Total R&D spend is about 26% of our revenue this quarter versus 22% last year and continues to reflect our commitment towards investing in our product and technology to deliver the best product in the market.
Sales and marketing in Q1, 2022 expenses increased approximately 35% from Q1 2021 to approximately $3 7 million, we continue to be strategic and refine our sales and marketing spend to address the large opportunity in the market gain efficiencies from previous learnings.
Net loss in the first quarter of 2022, with $3 6 million or about 32 cents per share compared to $2 8 million or 27 cents per share in the same year ago period.
On a non-GAAP basis, our Q1 net loss was about $1 4 million or 12 per share compared to a net loss of 700000 or <unk> <unk> per share in the same year ago period.
The primary adjustments to GAAP earnings and EPS for Q1, 2022 were noncash share based compensation litigation and acquisition related expenses.
Cash usage for the quarter was $7 million, which included a $5 million cash outlay for acquisitions and $2 million related to normal business activities.
Our balance sheet remains well capitalized with zero debt and $12 million of cash on March 31 2022.
With that we open up the call for questions operator, please give instructions.
Thank you ladies and gentlemen, the floor is open for questions. If you have any questions or comments. Please indicate so by pressing star one pressing star to where we're moving from the Q should your question to be answered and lastly, while posing your question. Please pickup your handset of listening on speaker phone to provide optimum sound quality. Thank you. We will now take questions from the company's publishing analysts please hold while we.
The call for questions.
Okay.
Okay. The first question is coming from Zach Cummins with B Riley Securities.
Just starting off.
Just starting off can you give us a little more insight into the two partnerships that you mentioned during the transcript it sounds like the relatively early days, but any sort of incremental detail and update you can give us there and kind of what are the next steps that need to happen for this to start meaningfully scaling.
Sure. These are all large platform partnerships.
One's a significant reseller platform, which we've already started generating revenue from in the first quarter.
This has a big opportunity in front of us that produce revenue over the next one to two years.
The other one is.
One of the most significant website platforms in the world.
We're generating revenue from the enterprise side today, and we're now in discussions with them on the platform side. So these are pretty significant.
These deals have been worked on for a long time and are finally, starting to bear fruit.
This is what I came in here to do and we're actually doing it now.
So we're excited to work with these partners I want to thank the <unk> team for all their hard work getting to this point as well, we're unaware of any one else wanting similar deals in the industry right now.
Understood that's great to hear.
In terms of the partner on the flip side of that it seems like youre kind of taking a pause with some of those customers I mean can you give us.
Good morning insight into kind of why you've decided to go that direction and is there still an opportunity to potentially get that partnership back in when some of those customers back.
Yes, it's just being caused by reading the negotiation with the.
The digital agency.
Moving away from that very basic tier two.
A more advanced offerings, offering, which will give the client a much higher level of accessibility. So it's better for them better for us and we expect that to hit later in the year.
Understood that's helpful.
And then in terms of just the acquisition of BLA.
Can you give us some insight into how the integration with thats been going thus far and.
Maybe a question more geared towards Kelly, but could you give me any sort of sense of the contribution that we saw from BLA in Q1, and maybe whats really baked into your Q2 revenue guidance in terms of contribution from <unk>.
Okay.
Yes.
Got it.
It's going very well.
It's a very complementary product what.
What we have.
If customers have more complex sites are using languages like react.
You may prefer to fix accessibility issues at the source. So now we have an end to end solution for any customer coming to us depending on their needs and I'll pass off to Kelly now.
Yes.
<unk> was acquired in late Q1.
Contributing to.
Enterprise revenue and net income.
As David mentioned looking to how do we expect the IAA be integrated into our product suite and expect it to have overlapping services going forward will likely not be splitting out legacy.
Revenue contribution, but instead will be.
Going into the enterprise number so.
Looking at guidance into Q2, we don't provide specific guidance on each by revenue channels, but do you think it will contribute in the quarter.
Understood and.
Finally, just on the cash usage front I think nice to see that from operations was only $2 million in usage. This quarter. I think you were guiding to around 3 million, if I recall correctly from the last quarter.
And it sounds like it should continue to improve in the second half of the year as well as we approach that breakeven number.
Is it safe to assume as you continue to scale, where we're likely going to see this business at least staying near breakeven or potentially generating cash as we get beyond this year.
Yes, we were we were.
Happy to see cash come in lower than expected and our cash burn and the arguments that could in Q1, and we expect that to continue into Q2.
As we mentioned on the call we expected to continue to tick down and get approached breakeven by Q4, we're not commenting specifically on what that looks like for 2023, but we do see efficiencies across all of our departments and we do see it we're adding revenue.
Gross profit, we're not scaling expenses to the same rate so should continue to see efficiencies there.
Understood. That's helpful. Thanks for taking my questions and best of luck with the rest of Q2.
Thanks Zack.
Once again Thats Star one if you have a question or comment of next we have Scott Buck with H C. Wainwright Your line is live.
Hi, Good afternoon, guys. Thank you for taking my questions. The first one just on the renegotiation that you have going on with the digital agency was there any revenue impact from that during the quarter.
It was fairly small kelly can get into that.
Yes, I would say it was nominal.
It was the lowest.
Youre offering that a material impact to revenue.
Okay, I appreciate that and it looks like Opex is up year over year, but you're down from the last couple of quarters is that just.
Seasonal or is there something structurally different.
Different in the way you're looking at Opex going forward.
Yes, overall, we are being strategic with our investment. So we are gaining efficiencies year over year, and so I think thats, what youre seeing there is just efficiencies across all of our departments.
We will continue to invest but just doing better in each of those departments.
Okay very good that's helpful. And then just a bit of a follow up on <unk> question now that you've had a chance to kind of peek behind the curtain with Boa.
Hey.
Do you see a need for increased investment there or we're all there was there a platform kind of up to.
To your expectations pre deal.
Yes.
I'm really excited about the acquisition.
Looking at it that had a little bit.
Integrated we think there's really good upsell opportunity and integration entire product suite.
We don't see significant additional investment needed in the bi space.
Okay, and what's the timeline for integration when could you be out marketing kind of joint services.
Yes, we're moving forward with that currently so we're taking initial steps to.
Do the integration as we speak we actually expect it to be folded into our product suite and upsell and new business offerings sooner than later.
Okay Perfect and then just last one for me could you give a little more color on the pipeline.
Obviously, a lot of distractions in the World. These days I'm curious how conversations are going and then whether you've seen.
There an acceleration or a.
Slowdown in how active people on the other side of the table.
Yes, we're feeling pretty good revenues accelerating.
We are guiding for 25% at the midpoint.
Good about our position in the industry.
The investments, we're making in technology.
As we scale its going to become more and more difficult for the smaller players to compete with us.
When you factor in the R&D budget product development marketing and sales.
So this is kind of a scale game and I think we're winning it.
Okay, great well I appreciate all the added color guys.
Have a good rest of the quarter.
Thank you.
Okay. We have no further questions in queue at the moment.
Like to turn the floor back to management for any remarks.
Yes. 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.
Thank you ladies and gentlemen, this does conclude today's conference call. You may now disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.