Q1 2025 AudioEye Inc Earnings Call
Speaker Change: [music].
Good afternoon, and welcome to the audio is first quarter 2025 earnings conference call joining us for today's call are audio <unk> CEO, Mr. David Marathi and CFO, Ms Kelly, Georgia image.
Operator: Good afternoon and welcome to AudioEye's first quarter 2025 earnings conference.
Operator: Joining us for today's call are AudioEye CEO, Mr. David Moradi, and CFO, Ms. Kelly Georgevich. 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 Investors Relations section of the company's website at www.audioeye.com.
Following their remarks, we will open the call for questions from the company's publishing analysts.
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.
Operator: 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 forelooking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward-looking statements. The words believe, expect, anticipate, estimate, confident, 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 and are subject to risks and uncertainty.
Speaker Change: Before I turn the call over to audio <unk>, Chief Executive Officer of the company would like to remind all participants that statements made my audio management. During the course of this conference call. They are not historical facts are considered to be forward looking statements.
Speaker Change: The private Securities Litigation Reform Act of 1095 provides a safe harbor for such forward looking statements. The words believe expect anticipate estimate confident well.
Speaker Change: 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.
Operator: Actual results could materially differ 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 its 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 beliefs only as of the date hereof. AudioEye does not undertake any duty to update or correct any forward-looking statement.
Speaker Change: 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 its other reports and filings with the Securities and Exchange Commission.
Speaker Change: 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 audio <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.
Operator: 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 or otherwise posted in the Investment Relations section of its website at www.audioeye.com.
Speaker Change: GAAP financial measures. These non-GAAP financial measures is available in the company's earnings release or otherwise posted an immigrant investor relations section of its website at www Dot audio I Dot com.
David Moradi: Now I'd like to turn the call over to AudioEye's Chief Executive Officer, Mr. David Moradi. Sir, please proceed. Thank you, Operator, and welcome to everyone joining us today. Several developments have occurred since the last earnings call about six weeks ago, and we will discuss them today. We continue executing, including expanding our product features, realizing our 37th straight quarter of record revenue, and achieving the Rule of 40 for the first quarter of 2025. with 20% year-over-year revenue growth and 20% adjusted EBITDA margin. Our financial discipline and business momentum position us well in an uncertain and challenging economic environment.
David Marathi: Now I'd like to turn the call over to audio is Chief Executive Officer, Mr. David Marathi Sir Please proceed.
David Marathi: Thank you operator, and welcome to everyone joining us today.
David Marathi: Several developments have occurred since our last earnings call about six weeks ago, and we will discuss them today.
David Marathi: We continue executing including expanding our product features realizing our 37th straight quarter of record revenue.
David Marathi: And achieving the rule of 40 for the first quarter of 2025.
With 20% year over year revenue growth.
David Marathi: 20%.
David Marathi: Adjusted EBITDA margins.
David Marathi: Our financial discipline and business momentum position.
David Marathi: Position us well.
David Marathi: Uncertain and challenging economic environment.
David Marathi: The macro has not been easy for some time.
David Moradi: The macro has not been easy for some time. SAS has been in a challenging market environment since 2022. However, we have significantly increased revenues and cash flow during this time. We expect our revenue and operating leverage to improve even more in the second half of the year. On the direct enterprise side, the investment in our product and our go-to-market strategy is generating strong results. Our pipeline is building in both the U.S. and Europe. We are seeing record leads and strong deal progression at all stages, giving us confidence in a notable increase in ARR in the second quarter and the remainder of the year.
David Marathi: That has been in a challenging market environment since 2022.
David Marathi: However, we have significantly increased revenues and cash flow during that time.
David Marathi: We expect our revenue and operating leverage to improve even more in the second half of the year.
David Marathi: On the direct enterprise side, the investment in our product and our go to market strategy is generating strong results.
David Marathi: Our pipeline is building in both the U S and Europe.
We're seeing record lease and strong deal progression at all stages, giving us confidence and a notable increase in IRR in the second quarter and the remainder of the year.
David Marathi: We are quickly approaching the deadline for the European Accessibility Act at the end of June.
David Moradi: We are quickly approaching the deadline for the European Accessibility Act at the end of June. We continue building the sales engine and expanding the European sales team to capture this demand. The pipeline in the EU is strengthening and several deals have already been won in April. As discussed before, we expect strong contributions from our reseller business in the second half with expanded go-to-market with Finalsight and Civic+.
David Marathi: We continue building the sales engine and expanding the European sales team to capture this demand.
David Marathi: The pipeline in the EU is strengthening and several deals have already been won in April.
David Marathi: As discussed before we expect strong contributions from our reseller business in the second half with expanded go to market with final play and civic plus.
David Marathi: As we've previously discussed the digital accessibility market has been plagued with false and misleading marketing about what AI automation can do.
David Moradi: As we've previously discussed, the digital accessibility market has been plagued with false and misleading marketing about what AI automation can do. At AudioEye, we analyze legal data when discussing our platform and results. The data shows that when combining automation and human-assisted technology, AudioEye provides three to four hundred percent more protection against valid legal claims than our competitors. Building on our leadership position, we are launching additional features on our platform to increase the value delivered to our customers. The new features will help customers better understand our industry-leading protection rates and how to improve further. We expect these new features to be available to our customers in the next few weeks as we migrate to the upgraded platform.
David Marathi: An audio why we analyzed legal data when discussing our platform and result.
David Marathi: The data show that when combining automation and human assisted technology audio I provide 3% to 400% more protection against valid legal claims than our competitors.
David Marathi: Okay.
David Marathi: Building on our leadership position, we are launching additional features on our platform to increase the value delivered to our customers.
David Marathi: The new features will help customers better understand our industry, leading protection rates and how to improve further.
David Marathi: We expect these new features to be available to our customers in the next few weeks as we migrate to the upgraded platform.
David Marathi: We are excited to provide both existing and new customers with this additional insights.
David Moradi: We are excited to provide both existing and new customers with this additional insight.
David Marathi: Moving onto guidance.
David Moradi: Moving on to guidance. We expect quarterly revenues and ARR growth to accelerate in the second quarter of 2025. For the second quarter, we are guiding revenue between $9.85 and $10 million. We also expect to generate adjusted EBITDA between 1.9 and 2 million. and adjusted EPS between 15 and 16 sounds.
David Marathi: We expect quarterly revenues and are our growth to accelerate in the second quarter of 2025.
David Marathi: For the second quarter, we are guiding revenue between $9 85 and $10 million.
David Marathi: We also expect to generate adjusted EBITDA between 1.9 and $2 million.
David Marathi: And adjusted EPS between <unk> 15, and 16.
David Marathi: We are reiterating our 2025 full year revenue guidance of between 41 and $42 million in.
David Moradi: We are reiterating our 2025 full-year revenue guidance of between $41 and $42 million and reconfirming our adjusted EBITDA guidance of between $9 and $10 million with adjusted EPS between $0.70 and $0.80 per share. We expect our adjusted EPA margin to continue increasing into the upper 20s as we exit the year. This implies that free cash flow, defined as EBITDA minus CapEx, will approach $3 million in the fourth quarter, a nearly $1 per share run rate growing over 40% year over year. We also expect operating leverage and free cash flow to continue growing in 2026.
David Marathi: And Reconfirming, our adjusted EBITDA guidance of between nine and $10 million with adjusted EPS between 70 and 80 per share.
David Marathi: We expect our adjusted EBITDA margin to continue increasing into the upper Twenty's as we exit the year.
David Marathi: This implies that free cash flow defined as EBITDA minus Capex will approach 3 million in the fourth quarter of nearly one dollar per share run rate growing over 40% year over year.
David Marathi: We also expect operating leverage and free cash flow to continue growing in 2026.
Kelly Georgevich: I'll now turn the call over to AudioEye CFO Kelly for further financial insight. Thank you. As David mentioned, revenue again hit record levels with Q1 2025 revenue at $9.7 million, marking our 37th consecutive quarter of record revenue. At the end of the first quarter of 2025, annual recurring revenue, or ARR, was $37.1 million, a $500,000 increase from the end of the fourth quarter of 2024. As David mentioned, with the U.S.
David Marathi: I'll now turn the call over to <unk> CFO Kelly for further financial insights.
David Marathi: Thank you.
Speaker Change: David mentioned revenue again hit record levels with Q1, 2025 revenue at $9 7 million Martinez 37th consecutive quarter of record revenue.
Speaker Change: At the end of the first quarter of 2025 annual recurring revenue or <unk> $37 1 million a 500000 increase.
Speaker Change: The fourth quarter of 2024.
Speaker Change: As David mentioned with the U S. EU pipeline building, we expect <unk> to increase significantly in the second quarter of 2025.
Kelly Georgevich: and EU pipeline building, we expect ARR growth to increase significantly in the second quarter of 2025. Retention remains strong in the quarter with current AudioEye customers. The gross retention of acquired customers before moving to AudioEye products is typically lower than AudioEye's core gross retention. Our overall growth retention was impacted by higher-tiered and lower-tiered customers acquired through ADA site compliance and a few remaining Bureau of Internet Accessibility customers migrating to our platform.
Speaker Change: Retention remains strong in the quarter with current customers and grow with retention of acquired customers are moving to other life products is typically lower.
Speaker Change: Core growth potential.
Speaker Change: Our overall gross retention was impacted by higher churn lower tier customers acquired through 88 like compliance and a few remaining pair of internet accessibility customers migrating to our platform.
Speaker Change: Our primary goal when acquiring companies to improve their NRI conversion by more comprehensive product offering, thereby generating the cash flow.
Kelly Georgevich: Our primary goal when acquiring companies is to improve their NRR through conversion to our more comprehensive product offerings, thereby generating synergistic cash flow. These goals remain on track and will contribute to adjusted EBITDA increases going forward as reflected in our adjusted EBITDA guidance in the second half.
Speaker Change: These calls we remain on track and will contribute to adjusted EBITDA increases going forward as reflected in our adjusted EBITDA guidance in the second half.
Speaker Change: Moving to channel performance, both our revenue channels continued to deliver strong results.
Kelly Georgevich: Moving to channel performance, both our revenue channels continue to deliver strong results. As a reminder, the Partner and Marketplace channel includes all revenue from our SMB-focused Marketplace products and from various partners deploying these same products for their SMB customers. In the first quarter of 2025, this revenue channel grew 17% year-over-year and represents 57% of revenue and around 58% of ARR. We continue to see an expansion of existing and new partners engaging with AudioEye driving growth.
Speaker Change: As a reminder, the partner marketplace channel includes all revenue from our SMB focused marketplace products and some various partners to play in these same products for their SMB customers.
Speaker Change: In the first quarter, playing 25. This revenue channel grew 17% year over year and represented 57% of revenue and around 58% of Ara.
Speaker Change: We continue to see an expansion of existing and new partners engaging with Eli trading crowd.
Speaker Change: How do you is enterprise channel consists of our larger customers in the organization, including those with nine platform website, whose genuine engaged directly with antibody sales personnel for pricing installation.
Kelly Georgevich: 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. The Enterprise Channel grew 26% year over year. In the first quarter, it contributed 43% of revenue and around 42% of ARR. On March 31st, 2025, our customer count was approximately 119,000, an increase from 112,000 customers on March 31st, 2024.
Speaker Change: The enterprise channel grew 26% year over year.
Speaker Change: In the first quarter, it contributed 43% of revenue and around 42% of air.
Speaker Change: On March 31st 2025, our customer count was approximately 119000, an increase of 112000 customers on March 31 2024.
Kelly Georgevich: Customer accounts decreased sequentially primarily due to a contract renegotiation with an existing partner, which allowed the partner to consolidate licenses previously billed individually. Altogether, customer growth in both the partner and marketplace channel, as well as the enterprise channel, remains strong. Our gross profit for the first quarter was $7.7 million, or about 80% of revenue, compared to $6.3 million and 78% of revenue in Q1 of last year.
Speaker Change: Customer counts decreased sequentially, primarily due to a contract renegotiation with an existing partner, which allows the partner to consolidate licences previously built individually.
Speaker Change: All together our customer growth in both the partner marketplace channel as well as the enterprise channel remains strong.
Speaker Change: Our gross profit for the first quarter was $7 7 million or about 80% of revenue compared to $6 3 million and 78% of revenue in Q1 of last year.
Speaker Change: As David mentioned with customer migration to the upgraded platform. We expect margins in the second quarter of 2025 to decrease approximately three to four percentage points return to the high <unk> in the second half of the year.
Kelly Georgevich: As David mentioned, with customer migration to the upgraded platform, we expect margins in the second quarter of 2025 to decrease approximately three to four percentage points, but return to the high 70s in the second half of the year. Operating expenses increased approximately 25% from $1.7 million to $8.7 million. The increase was primarily due to non-GAAP items, including additional litigation expenses and higher depreciation and amortization, as well as additional investments in sales and marketing. Our total R&D spend in Q1 2025 was $1.6 million, with approximately $500,000 reflected as software development costs in the investing section of the cash flow statement.
Speaker Change: Operating expenses increased approximately 25% or $1 7 million to $8 7 million.
The increase was primarily due to non-GAAP items, including additional litigation expenses and higher depreciation and amortization as well as additional investments in sales and marketing.
Speaker Change: Our total R&D spend in Q1, 2025 was $1 6 million with approximately $500000 reflected the software development cost and then best infection of the cash flow statement.
Kelly Georgevich: We continue to gain efficiencies in R&D. R&D represented 17% of revenue for Q1 2025, versus 22% in the first quarter of 2024. The current investment in R&D is appropriate for 2025.
Speaker Change: We continue to gain efficiencies in R&D.
Speaker Change: R&D represented 17% of revenue for Q1 25 versus.
Speaker Change: 22% in the first quarter of 2024.
Speaker Change: The current investment in R&D is appropriate for 2025.
Kelly Georgevich: Net loss in the first quarter of 2025 was $1.5 million, or $0.12 per share, compared to $800,000, or $0.07 per share in the same year-ago period. Total net loss increased approximately $700,000 from the prior year's comparable period, primarily due to non-GAAP items just discussed, including additional litigation expense and higher depreciation and amortization. and expenses related to the extinguishment of debt, which were partially offset by the $1.4 million increase in gross profit. Our Q1 2025 Adjusted EBITDA was $1.9 million or 15 cents per share, a million dollar improvement year over year.
Speaker Change: Net loss in the first quarter of 2025, with one 5 million or 12 cents per share compared to $800000 or seven cents per share in the same year ago period.
Speaker Change: Total net loss increased to approximately $700000 from the prior year's comparable period, primarily due to non-GAAP items, just discussed, including additional litigation expense and higher depreciation and amortization.
Speaker Change: <unk> expenses related to the extinguishment of that debt.
Speaker Change: Were partially offset by the $1 4 million increase in gross profit.
Speaker Change: Our Q1 2025, adjusted EBITDA was $1 9 million or 15 cents per share a million dollar improvement year over year.
Kelly Georgevich: The primary adjustments to GAAP earnings and EPS for Q1 2025 were non-cash share-based compensation, litigation, depreciation and amortization, debt extinguishment, interest expense, and other non-recurring items. On March 31st, we refinanced our existing debt for a $20 million facility, which includes a $12 million term loan, a $3 million revolver, and a $5 million delayed draw term loan. The initial $12 million term loan fully repaid AudioEye's existing term loan. The refinancing further strengthens the company's cash position and decreases our net interest expense with reduction in interest rates from 14% previously to approximately 7.5% today. Our balance sheet is now in an even stronger position with $8.3 million in cash as of March 31, 2025.
Speaker Change: The primary adjustments to GAAP earnings and EPS for Q1, 2025, our noncash share based compensation litigation depreciation and amortization debt extinguishment interest expense and other nonrecurring items.
Speaker Change: At March 31st we refinance our existing debt for $20 million facility, which includes a $12 million term loan of $3 million revolver, and a $5 million delayed draw term loan.
Speaker Change: The initial $12 million term loan fully repaid annualized existing term loan.
Speaker Change: The refinancing further strengthens the company's cash position cash position and decreases our net interest expense with reduction in interest rates from 14% previously to approximately seven 5% today.
Speaker Change: Our balance sheet is now in an even stronger position with $8 3 million in cash as of March 31 2025.
Kelly Georgevich: The $3 million revolver and the $5 million delayed draw term loan are also available. Adjusted free cash flow, calculated as $1.9 million of adjusted EBITDA, plus $500,000 of software development costs, was $1.4 million in the first quarter.
Speaker Change: The $3 million revolver, and a $5 million delayed draw term loan are also available.
Speaker Change: Adjusted free cash flow calculation is $1 9 million of adjusted EBITDA is 500000 of software development costs was one 4 million in the first quarter we.
Kelly Georgevich: We expect to generate positive adjusted free cash flow throughout 2025, with adjusted free cash flow approaching $3 million in the fourth quarter, or nearly $1 of run rate adjusted free cash flow per share, which is over 40% year-over-year growth.
We expect to generate positive adjusted free cash flow throughout 2025, with adjusted free cash flow approaching $3 million in the fourth quarter or nearly $1 run rate adjusted free cash flow per share, which is over 40% year over year growth.
Operator: With that, we open up the call for questions.
Speaker Change: With that we open up the call for questions operator, please give instructions.
Operator: Operator, please give instructions. Thank you. We will now take questions from the company's publishing analysts. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the... you may press star two to remove your.
Speaker Change: Thank you we will now take questions from the company's publishing analysts if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the <unk>.
Operator: Participants Using Speaker Equipment, it may be necessary to pick up the handset before One moment, please, while we pull.
Speaker Change: Keith one won't be please while we poll for questions.
Speaker Change: Our first question comes from the line of Joshua Reilly with Needham <unk> Company. Please proceed with your question.
Joshua Reilly: Our first question comes from the line of Joshua Reilly with Needham and Company. Please proceed. All right, thanks for taking my questions, and nice job on the quarter here in a tough operating environment for everybody. So you mentioned in the press release the pipeline's pretty strong in the U.S. and Europe.
Speaker Change: Alright, Thanks for taking my questions and nice job on the quarter here in a tough operating environment for everybody. So you mentioned in the press release that the pipeline is pretty strong in the U S and Europe, maybe we can just start with some more color on what youre seeing between the direct sales channel and the partner channel in terms of the pipeline and is there one particular.
David Moradi: Maybe we can just start with some more color on what you're seeing between the direct sales channel and the partner channel in terms of the pipeline, and is there one particular area of your business where you're seeing more of a macro impact versus another? Yeah, we're feeling strong gale progression at all stages. As we go through the qualifications test of each deal, deals are moving deeper in stages. It's what you want to see to give you confidence that they're going to close. And that's happening in the EU and in the US. Direct momentum is picking up on the US as well.
Speaker Change: Area of your business, where youre seeing more of a macro impact versus another.
Speaker Change: Yes, we're feeling strong gale progression in all stages.
Speaker Change: As we go through the qualification steps of each deal deals are moving deeper and stages. That's what you want to see to give you confidence that they're going to close and thats happening in the EU and in the U S. Direct momentum is picking up on the U S as well.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Got it and.
Joshua Reilly: Got it.
Kelly Georgevich: And you mentioned, you know, obviously, we know now with the refinancing, you have some more financial flexibility. How are you thinking about the pace of sales hires and maybe M&A and the current macro? Do you wait for some of these deals to close before making incremental investments? Or how are you kind of thinking about the dynamics there? Yeah, the addition of the new term loan does strengthen our balance sheet. I think from the sales and marketing front, we've been strategic in investing in sales and marketing. We've created some of the best leads to date. And as David alluded to, we're seeing really positive indications there.
Speaker Change: You mentioned.
Speaker Change: Obviously, we know now with the refinancing you have some more financial flexibility. How are you thinking about the pace of sales hires and maybe M&A in the current macro.
Speaker Change: Do you wait for some of these deals could close before making incremental investments or how you're kind of thinking about the dynamics there.
Speaker Change: Yeah, the additions of the new term loan debt strengthen our balance sheet I think from the sales and marketing and frankly been strategic and investing in sales and marketing we've created some of the best leads the Dayton as David alluded to we are seeing early positive indications there and so I think theres an opportunity to keep investing in sales and marketing will possibly keep it in that ROI.
Kelly Georgevich: And so I think there's an opportunity to keep investing in sales and marketing as long as we keep hitting that ROI. You know, there are other avenues as well. You know, we do think that there's a stock buyback out there that might be an attractive way to explore, keep our eye open for acquisitions. But yeah, I think just balancing the investments with the right ROI there is how we're thinking about it. Got it.
Speaker Change: Are.
Speaker Change: Are there other avenues as well, we do think that Theres, a stock buyback out there that might be an attractive way to deploy cap at all we explore keep our eye open for acquisitions, but I think just balancing the investments with the right Rois. There is how we're thinking about it.
Speaker Change: Got it last question for me on the new products can you just give us a hint of how they may or may not be using or implementing AI in some of the go forward workflows that youre trying to automate thanks guys.
Joshua Reilly: Last question for me on the new products.
David Moradi: Can you just give us a hint of how they may or may not be using or implementing AI in some of the go-forward workflows that you're trying to automate? Thanks, guys. Yeah, we're building AI into everything we do from testing to remediating, which obviously could improve margins over time and costs in the future. Internal tests show that AI is pretty good at solving specific common accessibility issues, but not great at more contextual understanding, but it is getting incrementally better. Understood. Thank you.
Speaker Change: Yes, we are building AI in everything we do from testing to Remediated, which obviously could improve margins over time and costs in the future.
Speaker Change: Internal tests show that AI is pretty good at solving specific common accessibility issues, but not great at more contextual understanding, but it's getting incrementally better.
Speaker Change: Understood. Thank you.
Speaker Change: Thank you.
George Sutton: Our next question comes from the line of George Sutton with Craig Hallam, please proceed with Thank you, David. I wondered if you can give a little bit more detail in terms of what you're seeing in Europe, and you did mention adding to the sales force there. I'm curious if you're also working with any new partners as the timeframes are getting pretty short now for the rule to go into effect. Yes, obviously a huge opportunity. It's not often that you're going to get a mandate for digital accessibility on an entire continent. We've already started winning deals with the team we have there.
Speaker Change: Our next question comes from the line of George Sutton with Craig Hallum. Please proceed with your question.
George Sutton: Thank you David I'm wondering if you can give a little bit more detail in terms of what you're seeing in Europe and you did mentioned, adding to the sales force. There I'm curious if you're also working with any new partners as the Timeframes Youre getting pretty short now for the the rules go into effect.
Speaker Change: Yes, it's obviously a huge opportunity and it's not often that youre going to get a mandate for digital accessibility on an entire continent. We've.
Speaker Change: We've already started winning deals with the team we have there because of that we're going to add more folks that may be more folks after that event.
David Moradi: Because of that, we're going to add some more folks and maybe more folks after that even. So far, the deal size is a little bigger than the U.S., and we are working with a few partners already. So there was a Minnesota ruling that basically said websites fell into the Title III of the ADA. I'm just curious if that's had any influence or will have any influence on the speed of people to want to go to work with you in the U.S. There's a lot of different rulings all over the place, so I wouldn't read too much into any one of those.
Speaker Change: So far the deal sizes are a little bigger than the U S. And we are working with a few partners already.
Speaker Change: So there was a Minnesota ruling.
Speaker Change: Was it basically said websites fell under the title III of the Ada I am just curious if that's had any influence or will have any influence on.
Speaker Change: The speed of people to want to go to work with you in the U S.
Speaker Change: There's a lot of different rulings all over the place so I wouldn't read too much into any one of those.
Speaker Change: The demand is about the same as it's been historically.
George Sutton: The demand's about the same as it's been historically. Gotcha. And then, just so we're clear, I mean, obviously, we talk a lot about Final Sight and Civics Plus, but are there any other kind of key new partners that you would point out or, because you had referenced some additional new partners? Not in the U.S. In the EU, we're working with some new partners now. Gotcha. Okay.
Speaker Change: Got you and then just so we're clear I mean, obviously, we talked a lot about the final site in service plus but are there are there any other kind of key new partners that you would point out or.
Speaker Change: Because you had referenced some additional new partners.
Speaker Change: Not in the U S and the EU.
Speaker Change: We're working with some new partners now.
Speaker Change: Got you okay. Thanks, guys.
George Sutton: Thanks, guys.
George Sutton: Thank you.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you.
Richard Baldry: Our next question comes from the line of Richard Baldry with Roth Capital. LLC, please proceed Thanks. So year over year, you over doubled Adjusted EBITDA, but you still grew sales and marketing over 20%.
Speaker Change: Our next question comes from the line of Richard Baldry with Roth Capital Partners LLC. Please proceed with your question.
Speaker Change: Thanks.
Speaker Change: So year over year.
George Sutton: Over doubled adjusted EBITDA, but you still grew sales and marketing over 20% can you dig in a little bit to where that was incremental spend dollars in sales and marketing and go on how much of that is sort of more recent hires that arent yet sort of on their productivity ramp and how much capacity that kind of adds to your quota capabilities.
Kelly Georgevich: Dig in a little bit to where those incremental spend dollars in sales and marketing are going, how much of that is sort of more recent hires that aren't yet sort of on their productivity ramp and how much capacity that kind of adds to your quota capabilities? Thank you. Yeah, we've kind of invested in sales and marketing across the board. So additional paid headcounts, and we are adding headcounts, both in the US and EU, and we're continuing to that kind of expand and ramp, I'd say, both on the US and then the expansion into the EU is driving that sales and marketing number up year over year.
George Sutton: Yeah, we've kind of invested in sales and marketing across the board so additional okay.
George Sutton: I'll head counts and we are adding head count both in the U S and EU and we're continuing to see that kind of expand and ramp them, but I'd say that both on the U S. And then the expansion into the EU is driving that sales and marketing number year over year.
George Sutton: Okay.
George Sutton: You touched on some mapping out.
Kelly Georgevich: I think they're wrapping up off of quota now, so they're at all stages there, but there's a lot of new folks in the door right now, so you don't see those numbers yet in the direct sales. Got it.
George Sutton: So quota now so they're at all stages, there, but theres a lot of new folks in the door right. Now so you don't see those numbers yet in the direct sales.
George Sutton: Got it.
David Moradi: You talked a little bit about the misperceptions what AI can do today. Do you feel like how or how do you feel like that's impacting sort of prospect evaluations? Do you think there's that, you know, the worst of that headwind is kind of easing? Are people coming to understand that it's not sort of a magic bullet? Or do you think that you're still sort of piercing through those clouds right now? I don't know. It's evolving. It's a good question.
Speaker Change: You talked a little bit about the misperceptions of what AI can do today do you feel like or how do you feel like thats impacting sort of prospect evaluations do you think there is that.
Speaker Change: The worst of that headwind is kind of easing or people coming to understand that it's not sort of a magic bullet. What do you think thats just still sort of curious seeing through those clouds right now.
Speaker Change: I don't know its evolving and its a good question, we focus on free cash flow and things, we can control and we're looking at run rate of dollar and Euro dollar of free cash flow by the fourth quarter and we think that's going up into next year with the operating leverage we have so I don't know too much on the AI side is getting a little better, but it's not the Holy Grail.
David Moradi: We focus on free cash flow and things we can control. And we're looking at run rate a dollar, near a dollar, free cash flow by the fourth quarter. And we think that's going up into next year with the operating leverage we have. So I don't know too much on the AI side. It's getting a little better, but it's not the Holy Grail.
Speaker Change: Got it and last one would be maybe in your <unk>.
Richard Baldry: got it and last for me be maybe and you look in the European prospects or and if there's any way to know this but you know there seems to be some you know perception that there's antagonism between U.S. and Europeans, you know, at a very macro level. Do you think you're seeing any sort of reticence to deal with American-based companies yourself, or is it just too anecdotal right now? I haven't seen anything so far. Great, thanks. Thank you.
Speaker Change: Look into European prospects.
Speaker Change: If theres any way to know this but there seems to be some.
Speaker Change: Perception that theres antagonism between U S and European.
Speaker Change: Very macro level, you think you are seeing any sort of rather than to deal with American based companies yourself or is it just too anecdotal right now.
Speaker Change: I haven't seen anything so far.
Great. Thanks.
Speaker Change: Thank you.
Speaker Change: Thank you.
Zach Cummins: Our next question comes from the line of Zach Cummins with B Reilly Securities, please proceed Hi, good afternoon, and thanks for taking my questions. David, I was just curious if you could... walk us through some of the key assumptions that give you the confidence and the acceleration and ARR kind of in Q2 and in the second half of the year versus maybe some of the incremental macro headwinds.
Speaker Change: Our next question comes from the line of Zach Cummins with B Riley Securities. Please proceed with your question.
Speaker Change: Yes, hi, good afternoon, and thanks for taking my questions. David I was just curious if you could.
Speaker Change: Walk us through some of the key assumptions.
Speaker Change: The confidence in the acceleration kind of in Q2 and in the second half of the year versus maybe some of the incremental macro headwinds it sounds like positive momentum in both channels, but just curious if you could unpack that a little bit.
David Moradi: It sounds like positive momentum in both channels, but just curious if you could unpack that a little bit. Yeah, we had a really strong quarter on the direct enterprise side and expect that to get even better in the second quarter into the second half. Same with EU heating up, we had a decent quarter on the reseller side and expect that to pick up in the second half with Final Flight and Civic Plus. So it's going pretty well, and that gives us the confidence. Got it. That's helpful.
Speaker Change: Yes, we had a really strong quarter on the direct enterprise side and expect that to get even better in the second quarter and the second half.
Speaker Change: Same with EU heating up.
We had a decent quarter on the reseller side I expect that to pick up in the second half with final site plus.
Speaker Change: So, it's going pretty well and that gives us the confidence.
Speaker Change: Got it that's helpful. And then one question towards Kelly can you talk about the near term margin impact I think you talked about a little bit in your script that we could see in Q2 with.
Kelly Georgevich: And then one question towards Kelly. Can you talk about the near-term margin impact? I think you talked about a little bit in your script that we should see in Q2 with the customer migration over to the new platform and kind of how should we think about that reverting back to more normalized levels in the coming quarters? Yeah, with the migration to the upgraded platform, there is a push in Q2 for additional audits to show new features as quickly as possible, which is driving up the cost of revenue in the second quarter.
Speaker Change: With the customer migration over to the new platform and kind of.
Speaker Change: How should we think about that reverting back to more normalized levels in the coming quarters.
Speaker Change: Yeah with that with the migration of the upgraded platform. There is a push in Q2 for additional on it does show no features as quickly as possible, which is driving up the cost of revenue in the second quarter, but we do expect it to return to the high Seventy's in the second half of the year, So kind of a one time impact the second quarter of 2025.
Kelly Georgevich: But we do expect it to return to the high 70s in the second half of the year, so kind of a one-time impact to the second quarter of 2025 on the gross margin front. Understood.
Speaker Change: The gross margin front.
George Sutton: Understood and final question for me David can you talk about just the early traction maybe youre seeing in the public sector.
David Moradi: And final question for me, David, can you talk about just the early traction maybe you're seeing in the public sector with the DOJ's rule on Title II? I know the first major deadline is not until kind of early part of next year, but just curious of how some of those customers are approaching that here in kind of the coming quarters in 2025. Yeah, we're really focused on Final, Site, and Civic Plus. They've both implemented aggressive go-to-market plans, and their pipelines are building really nicely. So we're working with them closely, looking for a great second half with them.
Speaker Change: The Doj is.
Speaker Change: Rule entitled to I know the first major deadlines not until kind of early part of next year, but just curious if thats how some of those customers are approaching that here and kind of the coming quarters in 2025.
Speaker Change: Yeah, we're really focused on final tightens epic plus they both implemented aggressive go to market plans and their their pipelines are building really nicely. So we're working with them closely I'm looking for a great second half with them.
David Moradi: We are seeing some other leads come in on state and local as well. Got it.
Speaker Change: We are seeing some other leads come in on state and local as well.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Got it well thanks for taking my questions and best of luck with the rest of the quarter.
Zach Cummins: Well, thanks for taking my questions and best of luck with the rest of the quarter. Thank you.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you.
Operator: At this time, this concludes our question and answer session.
At this time this concludes our question and answer session.
David Moradi: I would now like to turn the call back over to Mr. Moradi. Thank you. 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.
Marotta: Now I'd like to turn the call back over to Mr. Marotta for his closing remarks.
Marotta: Thank you 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.
Marotta: Yeah.
Marotta: 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 <unk> first quarter 2025 earnings Conference call you may now disconnect.
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. Thank you for joining us today for AudioEye's first quarter 2025 earnings conference call.
Operator: You may now disconnect.
Marotta: Okay.
Marotta: Yes.
Marotta: [music].
Marotta: Okay.
Marotta: Okay.
Marotta: [music].
Marotta: Yes.
Marotta: Okay.
Marotta: Okay.