Q3 2022 AudioEye Inc Earnings Call
Okay.
Good day and welcome to the audio one third quarter 2022 earnings conference call.
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I would now like to turn the conference over to Brian in front of US. Please go ahead.
Thank you operator, joining us for today's call are audio is CEO , Mr. David Marathi and CFO Ms. Kelly GA vision. 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 <unk> Dot com.
Before I turn the call over to audio is Chief Executive Officer. The company would like to remind all participants that statements made by audio wide 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 1995 provides a safe harbor for such forward.
Looking statements the words believe expect anticipate estimate.
<unk> 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, 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 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 .
GAAP financial measures a reconciliation of the most directly comparable GAAP financial measure to these non-GAAP financial measures is available in the company's earnings release posted on the Investor Relations section of our website at Www Dot <unk> Dot com.
Now I will turn the call over to <unk>, Chief Executive Officer, Mr. David Marathi David.
We want to begin by discussing our positive financial results.
Despite the macroeconomic headwinds the third quarter market, 27th straight quarter of record revenue.
Leaving $7 7 million, which was 24% year over year growth.
Gross margins remain consistent at 75%.
Our revenue growth resulted from both our partner and marketplace channel and the enterprise channel.
In addition to achieving revenue and the guidance range. We are pleased to report non-GAAP profitability of approximately 100000.
We had previously guided to near breakeven in the fourth quarter.
We're excited to achieve this milestone ahead of our target.
Beginning in January of this year, we implemented new processes that resulted in efficiencies and reduced operating expenses as a percentage of revenue.
In the quarter were able to drive both our GAAP and non-GAAP year over year operating expenses down on an absolute basis by approximately 13% and 12% respectively.
While increasing revenue by 24%.
We believe this is notable given the inflationary environment most companies are facing.
Cash burn also improved sequentially from two seven to $1 4 million, excluding nonrecurring items, such as litigation and stock repurchases.
Cash burn, including working capital declined to 500000.
Elliot will give further details shortly.
Now I will dive a bit further into your revenue and our business momentum.
We added several new resellers in the quarter, while expanding revenues from existing partnerships.
Partnership and marketplace channel continues to show strong demand.
One of the main drivers of our high retention. Despite economic uncertainty is that we have the best offering in the market due to our industry, leading R&D investment.
Like most other companies resellers are looking for new ways to expand revenue and provide a robust offering compared to their competition.
Our cost effective and comprehensive approach to solving web accessibility issues at scale, while providing services as required continues to drive our high deal winning percentage with the sophisticated resellers.
We continue to see year over year growth in the enterprise revenue channel as well.
While we have seen some elongation in sales cycles, especially for those customers, who do not yet have an accessibility solution. We continue to see high retention for existing customers.
Our product is increasingly viewed as a necessity and the software stack for businesses.
We have also made progress by integrating <unk> product into our core SaaS offering now, providing new and existing <unk> customers the option to purchase complete audit reports and site reviews.
Outside of our positive financial results.
There are a few other business developments I'd like to highlight.
We are pleased to confirm we have migrated the remaining customers who are using the all platform to <unk> next generation platform.
We're excited that customers now have access to our nexgen platform features and functionality.
Platform migrations are never easy.
Especially pleased that over the last couple of years, we were able to stand up the new platform with much more functionality and scale and simultaneously migrated our existing customers and grew revenues substantially.
This was a significant accomplishment I would like to thank the product engineering and operations teams for all their hard work.
In October Senator Tammy Duckworth and representative John Sarbanes introduced the websites and software applications Accessibility Act in the United States Senate and house of Representatives.
While the Bill is still in draft form and changes will likely be made the passage of the bill will put further emphasis on truly solving web accessibility.
If passed we also expect it to have a material impact on digital accessibility demand is only 3% of websites are currently accessible.
In the press release announcing the bill.
<unk> Board member Tony <unk>, the author an architect of the Ada, which past 32 years ago had this to say.
The Bill is as significant as the introduction of the Adi and shows the cooperation and support from the disability community.
As president Bush debt on the signing of the 88.
The walls with exclusive need to be taken down.
This is another step in that direction.
Also in October , we announced <unk> and a competitor have agreed to a global settlement of all pending legal disputes.
We cannot comment further on this announcement, but highlight that cash burn from litigation should trend down materially over the coming quarters.
You may recall in the second quarter of this year that we announced a $3 million stock repurchase program.
We continue to be committed to deploying our capital in a manner that delivers the greatest value for all shareholders.
We continue the buyback in the third quarter.
As of September 30, we have repurchased approximately $750000 under the program.
Moving on to guidance.
We have set ourselves up for success with our growing recurring revenue base high gross margin and operating expense management, we continue to invest in industry, leading R&D and I've heard positive feedback from many happy customers, who have migrated to our nexgen platform.
Simply put we have the most effective offering on the market at the best price.
We are excited to further strengthen our product offering in the near term and delight customers even more.
We are guiding for revenue of between seven seven to $7 9 million in the fourth quarter, representing year over year growth of approximately 20% at the midpoint.
We expect non-GAAP income results for the fourth quarter to remain relatively consistent.
With our solid results in the third quarter.
We ended the third quarter, well capitalized with $7 8 million of cash and have the runway to continue investing in the business for the long term.
I will now turn the call over to <unk> CFO to share further financial information Kelly.
Thank you Bob.
We are pleased with our third quarter 2022 pro forma.
Annual recurring revenue.
At the end of the third quarter of 2020.
With $29 3 million, a 19% increase okay.
Under the third quarter of 2021.
Both revenue channels.
Glenn Mcgrath with <unk>.
Internet accessibility acquisition also contributed income from a product revenue growth in the quarter.
Our partner marketplace channel, which includes revenue from our SMB focus marketplace products and a variety of F&B targeted partners.
Almost 1% year over year and represented approximately 52% of total revenue and 36% of Anr.
On a pro channel.
Our revenue from Nomura.
Ability okay.
Every year and contributed approximately 48% of total revenue and 44% of Anr.
Recurring revenue in Q3 2020 to.
22% from the comparable period in the prior year.
Project based revenue also increased over the same period in prior year with the addition of new products from <unk>, which helped to offset decreases in project based mobile and PDF revenue in 2022.
We are focused on him.
Going forward and we expect non reoccurring revenue.
<unk> as a percentage of sales Hello single, Thank you Pamela.
Thanks Kristen.
Great.
On September 32022, and customer count was approximately 81, an increase from 80000 customers and September 32021.
Uptake of approximately 5000 sequentially.
The uptick was driven by higher enterprise and pregnant.
Customers.
As noted on our last earnings call in August we signed an updated contract with the agency that was burning to renegotiations in Q1.
Out of the customer accounts, we expect this specific deal to start contributing to customer count and revenue in Q4 2022.
Gross profit for the third quarter was $5 7 million or about 75% of revenue compared to four 6 million from 75% of revenue in Q3 of last year.
We are pleased with the consistent gross margin percent given the significant investment in our next generation platform and customer success costs, which play a factor in cost of revenue.
We expect gross margin to be around 75% for the remainder of 2022.
With revenues up 25% year over year operating expenses in the third quarter 2012 decreased 13% to $8 1 million from $9 2 million in the same quarter last year.
From Q2 2022 by approximately 300000.
Both year over year decrease was driven primarily from efficiencies implemented important marketing, which I continue to appreciate with unprecedented lead generation with lower investment.
Partially offset by investments NTIA.
We have decreased expenses from Q2, 2020, Q, primarily as a result of lower G&A expenses and stock compensation.
Our total R&D spend in Q3 with approximately $1 million with approximately 300000 reflective of software development cost and the investing section of the cash flow statement.
This total R&D spend is about 24% of our revenue this quarter versus 32% last year.
Thanks to investments in R&D to maintain our best in class product.
Net loss in the third quarter of 2022 with $2 3 million.
<unk> 21 per share compared to a net loss of $4 7 million or 41 per share in the same whereas all period.
On a non-GAAP basis net income in the third quarter was about 100000 for one cents per share compared to a non-GAAP net loss of $1 9 million or <unk> 17 per share in the same year ago period.
The primary adjustments to GAAP earnings and EPS for Q3, 2020, Q4, noncash share based compensation depreciation and amortization costs and litigation costs.
Cash burn of $1 1 million in Q3 of 2022 was within expectation and an improvement compared to $2 7 million cash burn in Q2 2022.
The decrease in cash of $1 4 million was primarily related to software capitalization of approximately 300000.
100000 for stock repurchase.
100000 per tax payments related to employee share based grants and 600000 from nonrecurring litigation expenses.
As David noted, we expect cash usage to trend down materially with the settlement of litigation.
Our balance sheet remains well capitalized with no debt and $7 8 million of cash on September 32022.
With that we open up the call for questions operator, please give instructions.
Thank you we will now begin the question and answer session to.
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And today's first question comes from Zach Cummins with B Riley Securities. Please go ahead.
Hi, good afternoon, David and Kelly.
Congrats on the solid results here and thanks for taking my questions, David just starting off.
In terms of the <unk> guidance that youre, giving out there I mean can you give us a sense of the different puts and takes it sounds like you have some enterprise customers that are maybe taking a little bit longer in terms of pulling the trigger with purchasing decision but.
Just curious.
Some of the assumptions you've made one when setting the <unk> outlook.
Hey, Zach, Yes, I think thats right, we are seeing some elongation of the sales cycles with the enterprise customers.
I will say, we're seeing record leads so we just got to close these deals coming in we're seeing all time high lead. So the demand is definitely there we're just dealing with some budget constraints from enterprises.
Sellers are doing pretty well.
So that's good and we're growing our penetration within them.
We modeled for leaner economic times, a while ago back in January February So we right size the business.
And we're able to to grow about 24% and reduce absolute costs by 12%. So we think that was pretty good.
Yeah, So our guidance considers all of that.
For about 20% growth at the midpoint.
Understood that's helpful and to that point, our profitability congratulations on getting to your target a quarter ahead of schedule here.
Now that you've hit this key inflection point I know, David you've spoken to pretty challenging operating environment right. Now. So can you just give me a high level sense of how youre thinking about balancing profitability versus continuing to invest for some of these growth opportunities going forward.
Yes, we're guiding for non-GAAP profitability in the fourth quarter, Besides that going into next year, we're not guiding at this point.
Think we're right sized the cost structures in place and we're going to see nice growth with our reseller partners in the future.
Okay.
Understood that's helpful and.
Just from a broader sense I mean, some of these other developments out outside of the business.
With the legislation that was introduced in October .
Can you give us a sense of.
And maybe the timeline of when we start seeing additional steps forward with this.
Getting this past then I mean have you seen any sort of incremental demand uplift, even just with the introduction of legislation I'm just curious of your thoughts on the topic.
I don't think Ive seen additional demand is obviously too early to say, but this could be a huge driver for demand going forward as you know only 3% of websites are accessible today.
There's just a growing trend here with legislation the Doj companies require an accessibility in there.
<unk> contract. So look we look at this as a multibillion dollar Tam opportunity.
The timing of the legislation that could be next year, but I think it's a positive in conjunction with all these other things.
Okay.
Understood well, thanks for taking my questions and congrats again on the solid results.
Thank you Zack.
Thank you and ladies and gentlemen, as a reminder, if you would like to ask a question. Please press Star then one on your Touchtone phone at this time.
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And ladies and gentlemen. This concludes today's question and answer session and today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.