Q1 2024 AudioEye Inc Earnings Call - Q&A
Operator: Good afternoon, and welcome to AudioEye's first quarter 2024 earnings conference call. Joining us today are our CEO, Mr. David Moradi, and CFO, Ms. Kelly Georgevich.
Good afternoon, and welcome to audio like first quarter 'twenty 'twenty four earnings conference call joining us today.
Our audio line CEO, Mr. David Moroney, and CFO, Ms Kelly, Georgia are at fault.
Operator: 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.audioeye.com. Before I turn the call over to AudioEye's Chief Executive Officer, the company would like to remind all participants that statements made by AudioEye 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, and Anticipate.
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 I saw call.
Before I turn the call over to audio is plenty lives Chief Executive Officer. The company would like to remind all participants that statements made by audio by 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.
Operator: 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. However, actual results can materially differ.
Speaker Change: Estimate confident.
Speaker Change: Well and other similar statements of expectation identify forward looking statements.
Speaker Change: These statements are predictions.
Speaker Change: Projections or other statements about future events and are based on current expectations and assumptions that are subject to risks and uncertainties.
Speaker Change: Actual results could materially differ.
Operator: Because of factors discussed in today's press release, in 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 its other reportings 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 beliefs only as of the date hereof. AudioEye does not undertake any duty to update or correct any forward-looking statements.
Speaker Change: Because of factors discussed in today's press release.
Speaker Change: And the comments made during this conference call and then the risk factors section of the company's annual report on Form 10-K, its quarterly reports on Form 10-Q.
Speaker Change: And in its other Reportings and filings with the Securities and Exchange Commission.
Participants on this call are cautioned not to place undue.
Speaker Change: Reliance on these forward looking statements, which reflect management's beliefs.
Speaker Change: Only as of the date hereof audio why does not undertake any duty to update or correct any forward looking statements.
Operator: Further, management's remarks today will include certain non-GAAP financial measures. Reconciliation of the most direct comparable GAAP financial measures to use these non-GAAP financial measures is available in the company's earnings release or otherwise posted in the investor relations section of its website at www.audioeye.com. Now, I'd like to turn the call over to AudioEye's Chief Executive Officer, Mr. David Moradi. Sir, please proceed.
Speaker Change: Other managements remarks today will include certain non-GAAP financial measures.
Speaker Change: A reconciliation of the most direct comparable GAAP financial measures to use these non-GAAP financial measures is available in the company's earnings release.
Speaker Change: Or otherwise posted in the Investor Relations section of its website at W. W. W. Dot audio I dotcom.
Speaker Change: Now I'd like to turn the.
Audio: Call over to audio is cheap.
Audio: Executive Officer, Mr. David Marathi Sir Please proceed.
David D. Moradi: Thank you operator.
David D. Moradi: Thank you, operator. Well, it's been approximately six weeks since our last earnings call. Several developments have occurred that we are excited to discuss today. As our last earnings call mentioned, the fourth quarter was a significant inflection point.
David D. Moradi: It has been approximately six weeks since our last earnings call. Several developments have occurred that we were excited to discuss today.
As our last earnings call mentioned, the fourth quarter was a significant inflection point.
David D. Moradi: We generated record adjusted EBITDA and positive free cash flow while generating solid ARR growth. We are pleased to report that this momentum is continuing and driving the increase in our full-year guidance, which I will cover later in the call. But first, I'll discuss the changing regulatory landscape, which we expect to impact business significantly in 2025 and beyond. On April 8th, the Department of Justice signed a final rule under Title II of the Americans with Disabilities Act.
David D. Moradi: We generated record adjusted EBITDA and positive free cash flow, while generating solid.
David D. Moradi: Our graph.
David D. Moradi: We are pleased to report that this momentum is continuing and driving the increase in our full year guidance, which I will cover later in the call, but first I'll discuss the changing regulatory landscape, which we expect to impact the business significantly in 2025 and beyond.
On April eight the department of Justice signed a final rule under title II of the Americans with Disabilities Act.
David D. Moradi: These regulations mandate that state and local government entities ensure their websites and mobile applications are accessible to people with disabilities following the Web Content Accessibility Guidelines 2.1 AA. The documents published by the Justice Department estimate $17 billion in implementation costs over the first three years and $2 billion annually after the initial phase. The regulation applies to public schools, community colleges, universities, public hospitals and clinics, state and local police departments, courts, election offices, and state and local government offices that provide benefits or social services like food assistance, health insurance, employment services, libraries, transit agencies, and a range of other government-related entities.
David D. Moradi: He's regulation mandate that state and local government entities to ensure their website and mobile applications are accessible to people with disability. Following the web content accessibility guidelines 2.1 double a.
David D. Moradi: The documents published by the Justice Department estimates 17 billion it implementation costs over the first three years and $2 billion annually. After the initial phase.
David D. Moradi: Eregulation acquires the public schools community colleges universities public hospitals and clinics.
David D. Moradi: And local police department courts election offices, and state and local government offices that provide benefits or social services like food assistance health insurance employment services Library.
David D. Moradi: That agencies and a range of other government related entity.
David D. Moradi: Yeah.
David D. Moradi: The new market opportunity under title II is significant with both publics by not being accessible today.
David D. Moradi: The new market opportunity under Title II is significant, with most public sites not being accessible today. We are uniquely positioned to meet the demand increase with our direct sales team and our reseller channel. On the reseller side, we are already partnered with the leading SaaS platforms that serve cities, municipalities, and K-12 education websites. We estimate that these partners serve over 80,000 websites, which must all become compliant over the next two to three years.
We are uniquely positioned to meet the demand increase with our direct sales team and our reseller channel.
David D. Moradi: On the reseller side, we are already partnered with the leading SaaS platform that serves cities municipalities and K through 12 education website.
David D. Moradi: We estimate that these partners serve over 80000 websites, which must all become compliant over the next two to three years.
David D. Moradi: We are currently penetrated only in the single digits today in these resellers. A scalable approach like ours is required to meet the significant demands. AudioEye continues to improve its best-in-class technology platform, including investments in the latest artificial intelligence and Scaled Infrastructure to serve billions of end-user sessions and millions of potential customers. In addition to the Justice Department, we are excited about the opportunity in Europe. As discussed last quarter, the European Accessibility Act takes effect in June 2025 and requires digital accessibility for websites and mobile apps by that date. We are also seeing regulatory developments in additional jurisdictions, including California's AB 1757 proposal. It passed in its current form.
David D. Moradi: We are currently penetrated only in the single digits today and these resellers.
David D. Moradi: Our scalable approach life or is required to meet the significant demand increase.
David D. Moradi: Audio continues to improve with best in class technology platform, including investments in the latest artificial intelligence and scaled infrastructure to serve billions of end users sessions and millions of potential customers.
David D. Moradi: In addition to the Justice Department, we are excited about the opportunity in Europe.
David D. Moradi: As discussed last quarter, the European Accessibility Act takes up back in June 2025, and required digital accessibility for website and mobile app by that date.
We are also seeing regulatory developments in additional jurisdictions, including California is a b 17 57 proposal.
David D. Moradi: If passed in its current form it would expand and solidify the requirement that businesses operating in California.
David D. Moradi: It would expand and solidify the requirement that businesses operating in California must have accessible websites and mobile devices. As noted, we are not including any benefit from these upcoming requirements in our guidance for this year, but we expect meaningful demand increases in 2025 and beyond. Since joining the company in 2019, the customer count has increased from 3,500 to 112,000, and revenues have more than tripled. We are prepared to support this significant demand increase from the public sector.
Speaker Change: Oh, it's basketball website and mobile devices.
Speaker Change: As noted we are not including any benefit from these upcoming requirements. So in our guidance for this year, but we expect meaningful demand increases in 2025 and beyond.
Speaker Change: Since joining the company in 2019, the customer count has increased from 3500.
Speaker Change: 112000, and revenues that more than tripled.
Speaker Change: We are prepared to support the significant demand increase from the public sector.
David D. Moradi: With the final rule just announced two weeks ago, we are still early in the planning phase, and we will share more about our outlook beyond 2024 as the year progresses. In the first quarter, we achieved system and organizational controls, or SOC 2, type 1 compliance. This important milestone underscores our commitment to upholding the highest security and data privacy standards.
Speaker Change: With the final rule just announced two weeks ago. We are still early in the planning phase and we will share more about our outlook beyond 2024 as the year progresses.
Speaker Change: In the first quarter, we achieved system and organizational controls are thought to type one compliance.
Speaker Change: This important milestone underscores our commitment to upholding the highest security and data privacy standards.
David D. Moradi: Achieving SOC 2 Type 1 compliance was a priority for us as we continue to expand our enterprise channel and service large enterprise organizations. SOC 2 Type 1 attainment and products rolled out this past year will further support the Enterprise Channel's growth initiatives. The board and management remain highly aligned with shareholders.
Speaker Change: Achieving stock to type one compliant was a priority for us as we continue to expand our enterprise channel and service large enterprise organization.
Talk to type one attainment and products rolled out this past year will further support the enterprise channels growth initiatives.
Speaker Change: The board and management remain highly aligned with shareholders.
David D. Moradi: Over the last two and a half years, the number of shares outstanding has remained at similar levels while we have continued to invest and grow. In the current stock buyback, as of April 23rd, we have repurchased 548,000 shares at an average price of $5.73. In addition, under a previous buyback announced in June 2022, we bought 139,000 shares at an average of $544,000. Combining both programs, we have purchased approximately 6% of CommonShare's outstanding shares over the last two years at a valuation of around two times revenue for the benefit of long-term shareholders.
Speaker Change: Over the last two and a half years the number of shares outstanding have remained.
Speaker Change: Levels, while we have continued to invest in growth.
Speaker Change: In the current stock buyback as of April 20, <unk>, we have repurchased 548000 shares at an average price of $505 73.
Speaker Change: In addition, under our previous buyback announced in June 2022, we bought 139000 shares at an average of $5 44.
Speaker Change: Combining both programs, we have purchased approximately 6% of common shares outstanding over the last two years at a valuation of around two times revenue for the benefit of long term shareholders.
Speaker Change: Moving onto guidance.
David D. Moradi: Moving on to guidance, we expect quarterly revenues to accelerate throughout the year without significant additional expense, resulting in increased operating leverage and free cash flow generation. For the second quarter, we are guiding revenue between $8.4 and $8.5 million, representing an annualized growth rate of high teens. We also expect to generate adjusted EBITDA between $1.4 and $1.5 million and adjusted EPS between 12 and 13 cents. We are increasing our 2024 revenue guidance to between $34.3 and $34.7 million.
Quarterly revenues to accelerate throughout the year without significant additional expense, resulting in increased operating leverage and free cash flow generation.
Speaker Change: For the second quarter, we are guiding revenue between $8, four and $8 5 million, representing an annualized growth rate up high teens.
Speaker Change: We also expect to generate adjusted EBITDA between one four and $1 5 million.
Speaker Change: And adjusted EPS between 12 and 13.
Speaker Change: We are increasing 2020 for revenue guidance of between $34, three or $34 7 million.
David D. Moradi: We are also increasing our adjusted EPA guidance by approximately $1 million to between $4.5 and $5.5 million, with adjusted EPS between 38 and 46 cents per share. I'll now turn the call over to AudioEye CFO, Kelly.
Speaker Change: We are also increasing our adjusted EBITDA guidance by approximately $1 million to between four five and $5 5 million with adjusted EPS between <unk> 38, and 46 cents per share.
Speaker Change: I'll now turn the call over to <unk> CFO Kelly.
Kelly Georgevich: Thank you David as David discussed revenue again hit record levels with Q1, 'twenty 'twenty four revenue at $8 1 million, marking a 33rd quarter of record revenue.
Kelly Georgevich: Thank you, David. As David discussed, revenue again hit record levels, with Q1 2024 revenue at $8.1 million, marking our 33rd quarter of record revenue. Annual Recurring Revenue, or ARR, at the end of the first quarter of 2024 was $32 million, an $800,000 increase from the end of the fourth quarter of 2023 and representing an ARR annualized growth rate of 10%. We expect this growth to accelerate notably as 2024 progresses. Our two revenue channels are continuing to deliver strong results.
Kelly: Annual recurring revenue or <unk> at the end of the first quarter of 2024 was $32 million and $800000 increase from the end of the fourth quarter of 2023.
Kelly: Representing an annualized growth rate of 10%.
Kelly: We expect this growth to accelerate notably as 2020 for progressive.
Kelly: Thank you Robin and good channel by continuing to deliver strong results.
Kelly Georgevich: The partner marketplace channel includes all revenue from our SMB-focused marketplace products and revenue from a variety of partners who deploy these same products for their SMB customers. In the first quarter of 2024, this revenue channel grew 9% year-over-year, representing 59% of revenue and around 60% of ARR. We continue to see expansion of existing partners and new partners contracting with AudioEye, which continues to drive growth. AudioEye's enterprise channel consists of our larger customers and organizations, including those with non-platform websites who generally engage directly with AudioEye sales personnel for pricing and solutions.
Kelly: Micro place channel, it's all revenue from our SMB focused marketplace product and revenue from a variety of partners would apply these same products for their SMB customers.
Kelly: In the first quarter and plenty of time for this revenue channel grew 9% year over year, representing 59% of revenue and around 60% of a R. R.
Kelly: We continue to see expansion of existing partners and new partners contracting with anyway, which continues to drive growth.
How do you is the enterprise channel consists of our larger customers and organizations, including those with non stop from websites. We generally engage directly with annualized sales personnel for pricing and solution.
Kelly Georgevich: The enterprise channels grew 4% sequentially, and we expect to resume year-over-year growth in Q2 2024. In the first quarter, the Enterprise Channel contributed 41% of revenue and around 40% of ARR. On March 31st, 2024, our customer count was approximately 112,000, an increase from 95,000 customers on March 31st, 2023 and an increase of approximately 2,000 customers from December 31st, 2023. The increase in customer count is driven by additions in the Partnering Marketplace channel.
Kelly: And our voice channels grew 4% sequentially and we expect to raise down year over year growth in Q2 2024.
Kelly: In the first quarter.
Kelly: Enterprise channel contributed 41% of revenue and around 40% of a R. R.
Kelly: On March 31st 2020 for our customer Count was approximately 112000, an increase from 95000 customers on March 31st 2023, and an increase of approximately 2000 customers from December 31 2023.
Kelly: The increase in customer count was driven by additions from our partner marketplace channels.
Kelly: Gross profit for the first quarter was $6 3 million or 78% of revenue compared to $6 1 million and 78% of revenue in Q1 of last year I believe the gross margin has room to expand in future quarters.
Kelly Georgevich: Gross profit for the first quarter was $6.3 million, or 78% of revenue compared to $6.1 million and 78% of revenue in Q1 of last year. We believe the gross margin has room to expand in future quarters. While revenues increased approximately $300,000 from the first quarter of 2023, operating expenses decreased approximately 14%, or $1.2 million to $7 million. The decrease is primarily due to increased efficiencies in sales and marketing, the completion of significant initiatives in R&D, and lower G&A expenses.
Kelly: Our revenues increased approximately 300000 from the first quarter of 2023 operating expenses decreased approximately 14% or $1 2 million to 7 million.
Kelly: The decrease was primarily due.
Kelly: To increase efficiencies in sales and marketing the completion of significant initiatives in R&D and lower G&A expenses.
Kelly: Our total R&D spend in Q1 2024 was approximately $1 8 million with approximately 490000, reflecting the software development costs and then best infection of the cash flow statement.
Kelly Georgevich: Our total R&D spend in Q1 2024 was approximately $1.8 million, with approximately $490,000 reflected as software development costs in the investing section of the cash flow statement. This was down from approximately $2.2 million in Q1 2023. The total R&D spend is about 22% of our revenue this quarter, versus 29% in the comparable period of the prior year and consistent with Q4 2023 investment. We continue to believe that current investment in R&D is appropriate for 2024.
Kelly: This was down from approximately $2 2 million in Q1 2023.
Kelly: Total R&D spend is about 22% of our revenue this quarter versus 29% in the comparable period of prior year and consistent with Q4 2023 investment.
Kelly: Continue to believe the current investment in R&D is appropriate for 2024.
Kelly: Net loss in the first quarter of 2024, with 800000 or seven cents per share compared to 2 million and 17 cents per share and same year ago period.
Kelly Georgevich: Net loss in the first quarter of 2024 was $800,000, or $0.07 per share, compared to $2,017,000 per share in the same year-ago period. Total net loss decreased by 59%, or $1.2 million, in the prior year's comparable period, driven by an increase in revenue, strategic and efficient spending in all departments, and technological investment. Our Q1 adjusted EBITDA was $920,000 or $0.08 per share, a $1 million improvement year-over-year. The primary adjustments to GAAP earnings and EPS for Q1 2024 were non-cash share-based compensation, depreciation, amortization, interest expense, and other non-recurring items.
Kelly: Net loss decreased by 59% or $1 2 million from the prior year's comparable period, driven by an increase in revenue strategic and efficient spending in all departments and technological investment.
Kelly: Our Q1, adjusted EBITDA was 920000 or eight cents per share a 1 million dollar improvement year over year.
Kelly: Primary adjustments to GAAP earnings and EPS for Q1, 2024, or noncash share based compensation depreciation amortization interest expense and other nonrecurring items.
Kelly Georgevich: Our balance sheet is well-calculated with $7 million of cash as of March 31, 2024. Cash decreased by approximately $2.2 million in the quarter, primarily due to a $1.7 million share repurchase. The remaining decrease was primarily due to the timing of customer payments.
Kelly: Our balance sheet is well capitalized with $7 million of cash as of March 31 2024.
Kelly: <unk> decreased by approximately $2 2 million in the quarter, primarily due to $1 $7 million share repurchase.
Kelly: The remaining decrease was primarily due to the timing of customer payments.
Kelly Georgevich: Free cash flow calculated is $920,000 of adjusted EBITDA plus $490,000 of software development costs plus $430,000 in the first quarter. We expect to generate positive free cash flow throughout 2024 with improvements as the year progresses. With that, we open up the call for questions. Operator, please give instructions. Thank you.
Kelly: Free cash flow calculated was 920000 of adjusted EBITDA of 490000 of software development cost was 430000 in the first quarter, we expect to generate positive free cash flow throughout 2024 with improvements as the year progresses with that we open up the call for questions. Operator, Please give instructions.
Speaker Change: Thank you we will now take questions from the company's publishing analysts to ask a question you May Press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
Operator: Thank you. We will now take questions from the company's publishing analysts. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from George Sutton with Craig Hallam. Please go ahead.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from George Sutton with Craig Hallum. Please go ahead.
George Frederick Sutton: Thank you a very nice results congratulations so.
George Frederick Sutton: Thank you. Very nice results. Congratulations.
David D. Moradi: We're obviously early relative to both the European and the ultimate DOJ opportunities in terms of those going into play. Can you talk about what sorts of things you're doing to prepare for that? You mentioned resellers specifically, but it's interesting you're increasing your EBITDA guidance in spite of the fact we would expect you might invest a little bit more aggressively in that. So any thoughts? Yeah, we're just clicking on all cylinders here with the enterprise and the reseller channel, business as is.
We're obviously early relative to both the European and the ultra Doj opportunities in terms of those going into play when you talk about what sorts of things Youre doing to prep for that you mentioned resellers specifically.
George Frederick Sutton: But it's interesting you're increasing your EBITDA guidance.
George Frederick Sutton: In spite of the fact, we would expect you might invest a little bit more aggressively into that so any thoughts.
Yeah.
George Frederick Sutton: We're just clicking on all cylinders here with the enterprise and the reseller channel.
George Frederick Sutton: Business as is.
David D. Moradi: I think R&D investment's been a major factor. We have a full product suite. You meet the customer wherever they are, a small business or a large enterprise. So the breadth of our offering is a major competitive advantage. We're outgrowing the market, I think. So yeah, we're just clicking along here on business as usual, and I think you're going to see a significant uptick in demand as you go on to 2025 with the multitude of regulations coming.
George Frederick Sutton: R&D investment has been a major factor and we have a full product suite to meet the customer wherever they are a small business or a large enterprise. So the breadth of offering is a major competitive advantage. We're outgrowing the market I think.
George Frederick Sutton: So yes, we're just we're clicking along here.
George Frederick Sutton: As usual and I think youre going to see a significant uptick in demand as you go into 2025 with the multitude of regulations coming.
Okay.
George Frederick Sutton: You mentioned being positioned with some of the key resellers.
David D. Moradi: You mentioned being positioned with some of the key resellers that will ultimately be taking you to market, particularly, I think, in the U.S. with the DOJ impact. Can you walk through some of the reseller relationships that are key, and how are those typically structured? Are you, in many cases, the key player they are going to market with, or are they going with multiple partners? Any help there would be great.
That will ultimately be taking you to market, particularly I think in the U S with the Doj impact.
George Frederick Sutton: Impact can you walk through some of the reseller relationships that are key and how are those typically structured are you and in many cases the key player they are going to market with or are they going with multiple partners.
George Frederick Sutton: Any help there would be great yeah that was very exclusive relationship.
David D. Moradi: Yeah, those are exclusive relationships. So I mentioned our current partners on the government side serve around 80,000 websites, and our penetration rate is in only the single digits, so we think there's a massive opportunity to grow here. We don't see any reason why this is not going to be close to full penetration over the next two to three years, and you can get full penetration with our current reseller partners on the government side.
Impact: So I mentioned, our current partners on the government side sort of around 80000 web site and our penetration rate is only the single digit. So we think there's a massive opportunity to grow here.
Impact: We don't see any reason why this is not going to be close to full penetration over the next two to three years.
Impact: And you can get to full penetration with our current reseller partners on the government side, that's going to dramatically change the current business.
David D. Moradi: That's going to dramatically change the current business. Lastly, for me, Kelly mentioned additions in the partner and marketplace channel being behind the strength you saw this quarter. Can you just give any specificity as to specific partners that drove that, new partners, or new relationships with those?
Impact: Lastly for me Kelly mentioned.
Impact: Tissues in the partner and marketplace channel being behind.
Impact: The strength you saw this quarter can you just give any specificity as to specific partners that drove that new partners or new relationships with those partners.
I don't know.
Kelly Georgevich: Thank you. I have a lot of great questions. Okay, go ahead. We're seeing growth in both the expansion of existing resellers, which we continue to see every quarter and where we think there's additional opportunity there, as David mentioned, but we also are contracting with new resellers, so that growth is coming from both of those buckets, which we're happy to see.
Impact: A lot of things.
Speaker Change: Okay go ahead John.
John: Oh definitely.
John: Seeing growth in boss expansion of existing resellers, which we continue to see every quarter and where we think there's additional opportunity there as David mentioned, but we also are contracting with new resellers. So that growth is coming from both of those buckets, which we're happy to see.
Speaker Change: Beautiful okay. Thanks, guys.
George Frederick Sutton: Beautiful. Okay. Thanks, guys.
Thank you.
Speaker Change: Again, if you have a question. Please press Star then one.
Operator: Again, if you have a question, please press star then 1. Our next question comes from Zach Cummins with B. Reilly Securities. Please go ahead.
Speaker Change: Our next question comes from Zach Cummins with B Riley Securities. Please go ahead.
Zachary Cummins: Hi. Good afternoon, David and Kelly.
Zachary Cummins: Hi, Good afternoon, David and Kelly, Thanks for taking my questions and congrats on the solid results I really just wanted to hone in on the margin leverage that youre seeing in the model here I mean can you just talk about maybe the up the what is really the key underlying factor that's driving kind of the upside in terms of the adjusted EBITDA Mark.
Zachary Cummins: Thanks for taking my questions and congrats on the solid results. I really just wanted to hone in on the margin leverage that you're seeing in the model here. I mean, can you just talk about maybe what's really the key underlying factor that's driving kind of the upside in terms of the adjusted EBITDA margin that we have, especially exiting this year?
Zachary Cummins: We are especially exiting this year.
Zachary Cummins: Yeah, we've we've been able to prove we can be efficient with capital and scale revenue without increasing expenses essentially decrease in expenses as David mentioned, we expect Q2 to have.
Kelly Georgevich: Yeah, we've been able to prove we can be efficient with capital and scale revenue without increasing expenses, essentially decreasing expenses. As David mentioned, we expect Q2 to have just a little bit of margin in the high teens. And if you look at guidance, we expect that to continue in Q3 and Q4. It's really, you know; we've been able to figure out the formula and generate that extra revenue without needing those additional expenses.
Adjusted EBIT margins of the high teens and if you look at guidance, we expect that to continue in Q3 and Q4. Its really you know we've been able to figure out the formula.
And generate that extra revenue without eating those additional expenses.
Speaker Change: Understood and David in terms of incremental investments on hold the direct channel I know you have relationships in place with major partners, especially on the public sector side, but any additional investments that you need to make with with your direct channel to really take full advantage of the growing demand opportunity.
David D. Moradi: Understandable. And David, in terms of incremental investments into the direct channel, I know you have relationships in place with major partners, especially on the public sector side. But are there any additional investments that you need to make with your direct channel to really take full advantage of the growing demand opportunity?
David D. Moradi: Not right now. We're still formulating the plans. We think we're pretty well balanced between growth and profitability, and it's been a tremendous effort to get to this point, to get to the high teens EBITDA margins, so we're happy with that.
Not right now we're still formulating a plan, but we think we're pretty well balanced between growth and profitability and it's been a tremendous effort to get to this point to get to the high teens EBITDA margins. So we're happy with that.
Speaker Change: Understood and final question for me is just around capital allocation I mean, with the business continuing to generate positive free cash flow.
David D. Moradi: And the final question for me is just around capital allocation. I mean, with the business continuing to generate positive free cash flow, how are you thinking about just investing in the organic business versus maybe even potentially looking at incremental M&A?
Speaker Change: How are you thinking about just investments in the organic business versus maybe even potentially looking at incremental M&A.
Speaker Change: Yes, we don't really comment on.
David D. Moradi: Yeah, we don't really comment on incremental M&A. I'm sure you can understand that.
Speaker Change: Mental M&A I.
Speaker Change: I'm sure you can understand that there have been a number of financings and M&A in the space.
David D. Moradi: There have been a number of financings and M&A in the space. The latest acquisition of UserAway was at 8x ARR. We're going to look at LTV to CAT and potentially increase that potentially more on sales and marketing and R&D if we see that go favorably. But we think these operating margins are sustainable going forward, and we like them.
Speaker Change: The latest acquisition of user way was that eight times.
Speaker Change: We're going to look at LTV to CAC and.
Speaker Change: Increased essentially more on sales and marketing and R&D, if we see the HEICO favorably but.
Speaker Change: But we think these operating margins are sustainable going forward and we like that.
Speaker Change: Understood well, thanks for taking my questions and best of luck in the coming quarter.
Zachary Cummins: You understand. Well, thanks for taking my questions and best of luck in the coming quarter.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Scott Buck with H C. Wainwright. Please go ahead.
Operator: Our next question comes from Scott Buck with HC Wainwright. Please go ahead.
Scott Christian Buck: Hey, good afternoon, guys. Thanks for taking my questions.
Scott Christian Buck: Hey, good afternoon, guys. Thanks for taking my questions. David, you guys have obviously been fairly aggressive in repurchasing shares here so far this year. Curious what your thoughts are on the stock today, given the move in shares, versus the opportunity you see here over the next 12 to 24 months.
Scott Christian Buck: But you guys have obviously been fairly aggressive in repurchasing shares here. So far this year curious what your thoughts are on the stock today given.
Scott Christian Buck: Given the move in shares versus the opportunity you see here over the next.
Scott Christian Buck: 12 to 24 months.
David D. Moradi: Yeah, it still seems pretty cheap to me. I think last I checked, it was around four times revenue, and we're approaching the rule of 40 now. And I think we can exceed the rule of 40 as we go on to next year. So those companies tend to trade over 10 times revenue.
Speaker Change: Yeah, it's still seems pretty cheap to me I think last I checked it was around four times revenue and we're approaching rule of 40 now.
Speaker Change: And I think we can exceed rule of 40 as we go into next year. So those companies tend to trade over time clients are up 10 times revenue.
Speaker Change: Yeah, no that makes sense and then second one for me.
Scott Christian Buck: Yep, that makes sense. And the second one for me, you know, it sounds like from the commentary that not only are we looking at accelerating revenue in 24 and likely 25, but it looks like you're actually set up pretty well already for 26. So, you know, this momentum has legs, right?
Speaker Change: It sounds like from the commentary that that not only are we looking at accelerating revenue in 'twenty, four and likely 25.
Speaker Change: Like do you actually set up pretty well already for 26 so.
Speaker Change: I think this is going to go on for a few years with higher growth rates and high EBITDA margins.
David D. Moradi: I think this is going to go on for a few years, with high growth rates and high EBITDA margins.
Speaker Change: Alright, perfect. That's good to hear I appreciate it guys. That's it for me.
Scott Christian Buck: All right. Perfect. That's good to hear. I appreciate it, guys. That's it for me.
Speaker Change: Thank you.
Speaker Change: At this time this concludes our question and answer session.
Operator: At this time, this concludes our question and answer session. I'd now like to turn the call back over to Mr. Moradi for his closing remarks.
Now like to turn the call back over to Mr. Marathi for his closing 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.
David D. Moradi: Yep. 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.
Operator: 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 AudioEye's first quarter 2024 earnings conference call. You may now disconnect.
Speaker Change: Thank you for joining us today for audio was first quarter 'twenty 'twenty four earnings conference call you may now disconnect.