Q3 2026 AudioEye Inc Earnings Call

October 26, 2026

Operator: Good afternoon, and welcome to AudioEye's Q3 2026 earnings conference call. Joining us for today's call are AudioEye's Chief Executive Officer, Ms. Kelly Georgevich, and Chief Financial Officer, Mr. Matthew Domeyer. 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 in the investor relations section of the company's website at www.audioeye.com. Before I turn the call over to AudioEye's CEO, 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.

Operator: Good afternoon, and welcome to AudioEye's Q3 2026 Earnings Conference Call. Joining us for today's call are AudioEye's Chief Executive Officer, Ms. Kelly Georgevich, and Chief Financial Officer, Mr. Matthew Domeyer. 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 in the investor relations section of the company's website at www.audioeye.com.

Speaker #1: Good afternoon, and welcome to AUDIOEYE's third quarter 2026 earnings conference call. Joining us for today's call are AUDIOEYE's Chief Executive Officer, Ms. Kelly Georgevich, and Chief Financial Officer, Mr. Matthew Demeyer.

Speaker #1: 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 in the investor relations section of the company's website at www.audioeye.com.

Operator: Before I turn the call over to AudioEye's CEO, 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.

Speaker #1: Before I turn the call over to AUDIOEYE's CEO, the company would like to remind all participants that statements made by AUDIOEYE Management during the course of this conference call are not historical facts or considered to be forward-looking statements.

Speaker #1: 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.

Operator: 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 that are subject to risks and uncertainties. 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 in 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 belief only as of the date hereof. AudioEye 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.

Speaker #1: These statements are predictions, projections, or other statements about future events and are based on current expectations and assumptions that are subject to risk 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 in its other reports and filings with the Securities and Exchange Commission.

Speaker #1: 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 in its other reports and filings with the securities and exchange commission.

Operator: Participants on this call are cautioned not to place undue reliance on these forward-looking statements, which reflect management's belief only as of the date hereof. AudioEye 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.

Speaker #1: Participants on this call are cautioned not to place undue reliance on these forward-looking statements, which reflect management's belief only as of the date hereof.

Speaker #1: AUDIOEYE does not undertake any duty to update or correct any forward-looking statements. Further, management's remarks today will include certain non-GAAP financial measures. A reconciliation of the most directly comparable GAAP financial measures to these non-GAAP financial measures is available in the company's earnings release or otherwise posted in an investor relations section of its website at www.audioeye.com.

Operator: 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 an investor relations section of its website at www.audioeye.com. Now, I would like to turn the call over to AudioEye's CEO, Ms. Kelly Georgevich.

Speaker #1: Now, I'd like to turn the call over to AUDIOEYE's CEO, Ms. Kelly Georgevich.

Kelly Georgevich: Thank you, operator. We had a great quarter, generating record revenue, record adjusted EBITDA, strong free cash flow, and positive GAAP net income, driven by efficiencies and increased AI use across the company. We are also excited to discuss accelerating revenue growth in Q4 with continued operating leverage. In 2025, we introduced an aspirational goal of 30% to 40% growth in adjusted EBITDA and adjusted EPS per year over the following three years. We are pleased to report that we continue to deliver against this aspirational target and now expect approximately 50% growth in adjusted EBITDA in 2026. We also expect a Q4 adjusted EBITDA annualized run rate of over $17 million, up from previous expectations of $15 million. This translates into an annualized run rate for adjusted EPS of around $1.30 in Q4.

Speaker #2: Thank you, operator. We had a great quarter, generating record revenue, record adjusted EBITDA, strong free cash flow, and positive GAAP net income. Driven by efficiencies and increased AI use across the company.

Speaker #2: We are also excited to discuss accelerating revenue growth in Q4 with continued operating leverage. In 2025, we introduced an aspirational goal of 30 to 40 percent growth in adjusted EBITDA and adjusted EPS per year over the following three years.

Kelly Georgevich: We are pleased to report that we continue to deliver against this aspirational target and now expect approximately 50% growth in adjusted EBITDA in 2026. We also expect a Q4 adjusted EBITDA annualized run rate of over $17 million, up from previous expectations of $15 million. This translates into an annualized run rate for adjusted EPS of around $1.30 in Q4.

Speaker #2: We are pleased to report that we continue to deliver against this aspirational target and now expect approximately 50 percent growth in adjusted EBITDA in 2026.

Speaker #2: We also expect a Q4 adjusted EBITDA annualized run rate of over 17 million dollars up from previous expectations of 15 million dollars. This translates into an annualized run rate for adjusted EPS of around $1.30 in Q4.

Kelly Georgevich: Gross margin improved over 550 basis points year over year, with adjusted gross margins of 88% in Q3, driven by efficiency and increased use of AI. Adjusted EBITDA in Q3 was $3.9 million, up 58% year over year. The adjusted EBITDA margin was 35% in Q3. As we anticipated and as indicated last quarter, litigation expense decreased in Q3. We expect a further reduction in Q4 and believe litigation expense will continue to trend down. We expect meaningful free cash flow generation in Q4 and into 2027, and we recently announced a $15 million stock repurchase program that runs through October 2027. This represents approximately 15% of the outstanding shares at current prices. It is worth noting that our revenue has nearly doubled over the last five years, while our outstanding shares have increased by approximately 10% in this timeframe. We also had a strong quarter in terms of GAAP profitability.

Speaker #2: Gross margin improved over 550 basis points year over year, with adjusted gross margins of 88 percent in Q3, driven by efficiency and increased use of AI.

Speaker #2: Adjusted EBITDA in Q3 was 3.9 million dollars of 58 percent year over year. The adjusted EBITDA margin was 35 percent in Q3. As we anticipated, and as indicated last quarter, litigation expense decreased in Q3.

Speaker #2: We expect a further reduction in Q4 and believe litigation expense will continue to trend down. We expect meaningful free cash flow generation in Q4 and into 2027, and we recently announced a $15 million stock repurchase program that runs through October 2027.

Kelly Georgevich: We expect meaningful free cash flow generation in Q4 and into 2027, and we recently announced a $15 million stock repurchase program that runs through October 2027. This represents approximately 15% of the outstanding shares at current prices. It is worth noting that our revenue has nearly doubled over the last five years, while our outstanding shares have increased by approximately 10% in this timeframe. We also had a strong quarter in terms of GAAP profitability.

Speaker #2: This represents approximately 15 percent of the outstanding shares at current prices. It's worth noting that our revenue has nearly doubled over the last five years, while our outstanding shares have increased by approximately 10 percent in this timeframe.

Speaker #2: We also had a strong quarter in terms of GAAP profitability. In Q3, GAAP net income was $1 million or 0.08 per share, compared to a net loss of $600,000 and 0.04 per share loss last year.

Kelly Georgevich: In Q3, GAAP net income was $1 million, or $0.08 per share, compared to a net loss of $600,000 and $0.04 per share loss last year. Revenue was approximately $11 million, representing our 43rd consecutive quarter of record revenue. ARR grew $1 million sequentially to $43.3 million at 30 September 2026, 12% over the prior year. on 8 October, we launched two new products, Agentic Audits and our SDK MCP. Both are built on what we call AudioEye Intelligence, our proprietary dataset created from more than one million human accessibility reviews across more than 100,000 sites over 10 years. Our SDK MCP brings AudioEye Intelligence into AI coding tools developers already use so they can catch and fix issues while coding is being created.

Speaker #2: Revenue was approximately $11 million representing our 43rd consecutive quarter record revenue. ARR grew $1 million sequentially to $43.3 million at September 30, 2026, 12 percent over the prior year.

Kelly Georgevich: on 8 October, we launched two new products, Agentic Audits and our SDK MCP. Both are built on what we call AudioEye Intelligence, our proprietary dataset created from more than one million human accessibility reviews across more than 100,000 sites over 10 years. Our SDK MCP brings AudioEye Intelligence into AI coding tools developers already use so they can catch and fix issues while coding is being created.

Speaker #2: On October 8, we launched two new products: Agentic Audits and our SDK MCP. Both are built on what we call AUDIOEYE Intelligence, our proprietary dataset created from more than 1 million human-accessibility reviews across more than 100,000 sites over 10 years.

Speaker #2: Our SDK MCP brings AUDIOEYE Intelligence into AI coding tools developers already use, so they can catch and fix issues while coding is being created.

Kelly Georgevich: Our Agentic Audits use an AI agent powered by our proprietary dataset to move through a site the way a real user would, opening menus, filling out forms, and going through checkout. They can find up to 50% more high-severity issues than automation alone, and most results come back within an hour. Our solution already delivers three to four times the legal protection of others. These new products add to that protection, helping developers ship more compliant code from the start and helping companies catch high-risk issues as their sites change. These products represent exciting upsell opportunities. In September, we released a study on how well AI coding tools build accessible websites. We asked AI agents to create 15 sites that comply with WCAG 2.2 AA standards. We found that even when explicitly instructed to make the site accessible, it could not.

Speaker #2: Our Agentic Audits use an AI agent powered by our proprietary dataset to move through a site the way a real user would, opening menus, filling out forms, and going through checkout.

Speaker #2: They can find up to 50 percent more high-severity issues than automation alone, and most results come back within an hour. Our solution already delivers 3 to 4 times the legal protection of others.

Kelly Georgevich: These new products add to that protection, helping developers ship more compliant code from the start and helping companies catch high-risk issues as their sites change. These products represent exciting upsell opportunities. In September, we released a study on how well AI coding tools build accessible websites. We asked AI agents to create 15 sites that comply with WCAG 2.2 AA standards. We found that even when explicitly instructed to make the site accessible, it could not.

Speaker #2: These new products add to that protection, helping developers ship more compliant code from the start and helping companies catch high-risk issues as their sites change.

Speaker #2: These products represent exciting upsell opportunities. In September, we released a study on how well AI coding tools build accessible websites. We asked AI agents to create 15 sites that comply with WCAG 2.2 AA standards.

Speaker #2: We found that even when explicitly instructed to make the site accessible, it could not. The AI-generated sites averaged 55 issues per page, compared to 62 on a typical site.

Kelly Georgevich: The AI-generated sites averaged 55 issues per page, compared to 62 on a typical site. AI-generated ecommerce sites had three times as many issues as other ecommerce sites. Because AI models have been trained on an inaccessible web, they repeat the same accessibility failures. Digital accessibility has become a critical part of AI readiness as well as compliance. As more agents complete tasks for humans, they increasingly rely on a web's accessibility tree to navigate the site. To illustrate how important the accessibility tree has become, we have published research on how AI agents perform on inaccessible websites. We ran AI agents through everyday tasks on six sites with and without AudioEye's fixes. We found that on the least accessible site, AI agents completed only 31% of their tasks. With AudioEye's fixes, that rose to 96%.

Speaker #2: An AI-generated e-commerce site had 3 times as many issues as other e-commerce sites. Because AI models have been trained on an inaccessible web, they repeat the same accessibility failures.

Speaker #2: Digital accessibility has become a critical part of AI readiness as well as compliance. As more agents complete tasks for humans, they increasingly rely on a web's accessibility tree to navigate the site.

Kelly Georgevich: To illustrate how important the accessibility tree has become, we have published research on how AI agents perform on inaccessible websites. We ran AI agents through everyday tasks on six sites with and without AudioEye's fixes. We found that on the least accessible site, AI agents completed only 31% of their tasks. With AudioEye's fixes, that rose to 96%.

Speaker #2: To illustrate how important the accessibility tree has become, we've published research on how AI agents perform on inaccessible websites. We ran AI agents through everyday tasks on 6 sites, with and without AUDIOEYE's fixes.

Speaker #2: We found that on the least accessible site, AI agents completed only 31 percent of their tasks, with AUDIOEY's fixes that rose to 96 percent.

Kelly Georgevich: AI agents navigate through a site's accessibility tree, so when it is broken, they cannot complete tasks like making a purchase or booking. This means an accessible site now serves two audiences, people with disabilities and the AI agents acting on behalf of customers. On the regulatory side, in September, the European standards bodies published an updated accessibility standard that adopts WCAG 2.2, which raises the bar for companies covered by the European Accessibility Act. Stateside, Hawaii signed a new law in July, Act 257. Act 257 is the first state law to require all private businesses to conform to WCAG 2.1 Level A and AA through rules the state is now finalizing. This will have significant implications for the travel and hospitality industry. We believe other states may follow Hawaii's lead.

Speaker #2: AI agents navigate through a site's accessibility tree, so when it's broken, they can't complete tasks like making a purchase or booking. This means an accessible site now serves two audiences: people with disabilities, and the AI agents acting on behalf of customers.

Speaker #2: On the regulatory side, in September, the European Standards Body published an updated accessibility standard that adopts WCAG 2.2, which raises the bar for companies covered by the European Accessibility Act.

Kelly Georgevich: Stateside, Hawaii signed a new law in July, Act 257. Act 257 is the first state law to require all private businesses to conform to WCAG 2.1 Level A and AA through rules the state is now finalizing. This will have significant implications for the travel and hospitality industry. We believe other states may follow Hawaii's lead.

Speaker #2: State side, Hawaii signed a new law in July Act 257. Act 257 is the first state law to require all private businesses to conform to WCAG 2.1 Level A and Level A through rules the state is now finalizing.

Speaker #2: This will have significant implications for the travel and hospitality industry. We believe other states may follow Hawaii's lead. The new law took effect July 14, 2026, with compliance deadlines 24 to 36 months after the rules are final.

Kelly Georgevich: The new law took effect 14 July 2026, with compliance deadlines 24 to 36 months after the rules are final. Turning to guidance. For Q4 2026, we expect revenue between $11.4 and $11.6 million, a sequential increase from Q3 2026 of approximately $550,000 at the midpoint and approximately 20% annualized sequential revenue growth. For the full year 2026, we are narrowing the revenue range to between $43.6 and $43.8 million. For Q4 2026, we expect adjusted EBITDA of between $4.2 and $4.4 million, a 56% increase over Q4 2025 at the midpoint, and an adjusted EBITDA margin of approximately 37%. We expect adjusted EPS of between $0.32 and $0.33 per share for Q4 2026.

Speaker #2: Turning to guidance. For the fourth quarter of 2026, we expect revenue between 11.4 and 11.6 million dollars, a sequential increase from the third quarter of 2026 of approximately $550,000 at the midpoint, and approximately 20 percent annualized sequential revenue growth.

Kelly Georgevich: For the full year 2026, we are narrowing the revenue range to between $43.6 and $43.8 million. For Q4 2026, we expect adjusted EBITDA of between $4.2 and $4.4 million, a 56% increase over Q4 2025 at the midpoint, and an adjusted EBITDA margin of approximately 37%. We expect adjusted EPS of between $0.32 and $0.33 per share for Q4 2026.

Speaker #2: For the full year 2026, we are narrowing the revenue range to between $43.6 and $43.8 million. For the fourth quarter of 2026, we expect adjusted EBITDA of between 4.2 and 4.4 million dollars, a 56 percent increase over the fourth quarter of 2025 at the midpoint, and an adjusted EBITDA margin of approximately 37 percent.

Speaker #2: We expect adjusted EPS of between 32 and 33 cents per share for the fourth quarter of 2026. For the full year 2026, we are increasing adjusted EBITDA guidance from at least 12.7 million to between 13.4 and 13.6 million dollars.

Kelly Georgevich: For the full year 2026, we are increasing adjusted EBITDA guidance from at least $12.7 million to between $13.4 million and $13.6 million, representing approximately 50% year-over-year growth. As mentioned earlier, Q4 adjusted EBITDA guidance represents an annualized run rate of over $17 million, and we expect cash generation to ramp significantly in Q4 in 2027. In the fourth quarter at the midpoint of guidance, an adjusted EBITDA of $4.3 million less around $400,000 of software development costs implies $3.9 million of adjusted free cash flow. Litigation expenses decreased in Q3, down approximately 50% from the second quarter. Further decreases in litigation expense are expected in the fourth quarter, contributing to substantial cash generation. With that, I will hand it over to Matt to cover our financial results in more detail.

Speaker #2: Representing approximately 50 percent year-over-year growth. As mentioned earlier, Q4 adjusted EBITDA guidance represents an annualized run rate of over 17 million dollars, and we expect cash generation to ramp significantly in Q4 in 2027.

Kelly Georgevich: In the fourth quarter at the midpoint of guidance, an adjusted EBITDA of $4.3 million less around $400,000 of software development costs implies $3.9 million of adjusted free cash flow. Litigation expenses decreased in Q3, down approximately 50% from the second quarter. Further decreases in litigation expense are expected in the fourth quarter, contributing to substantial cash generation. With that, I will hand it over to Matt to cover our financial results in more detail.

Speaker #2: In the fourth quarter at the midpoint of guidance, an adjusted EBITDA of 4.3 million plus around $400,000 of software development costs implies 3.9 million of adjusted free cash flow.

Speaker #2: Litigation expenses decreased in Q3, down approximately 50 percent from the second quarter, further decreases in litigation expense are expected in the fourth quarter, contributing to substantial cash generation.

Speaker #2: With that, I'll hand it over to Matt to cover our financial results in more detail.

Matthew Domeyer: Thank you, Kelly. As Kelly mentioned, revenue for the third quarter was a record $11 million, representing our 43rd consecutive period of record revenue. Annual recurring revenue was $43.3 million as of 30 September 2026, up from $42.3 million as of 30 June 2026. Year-over-year ARR grew 12%, driven by double-digit growth in both our partner and marketplace and enterprise channels. As of 30 September 2026, AudioEye had approximately 130,000 customers, up 7,000 or 6% from approximately 123,000 customers as of 30 September 2025, and up approximately 1,000 from 30 June 2026. The increase was driven primarily by our partner and marketplace channel, with enterprise customers also increasing. Both of our two revenue channels continue to deliver strong results. AudioEye’s enterprise channel consists of our larger customers and organizations that generally engage directly with AudioEye sales personnel for pricing and solutions.

Speaker #1: Thank you, Kelly. As Kelly mentioned, revenue for the third quarter was a record 11 million dollars, representing our 43rd consecutive period of record revenue.

Speaker #1: Annual recurring revenue was $43.3 million, as of September 30, 2026, up from $42.3 million as of June 30, 2026. Year-over-year ARR grew 12 percent, driven by double-digit growth in both our partner-and-marketplace and enterprise channels.

Matthew Domeyer: As of 30 September 2026, AudioEye had approximately 130,000 customers, up 7,000 or 6% from approximately 123,000 customers as of 30 September 2025, and up approximately 1,000 from 30 June 2026. The increase was driven primarily by our partner and marketplace channel, with enterprise customers also increasing. Both of our two revenue channels continue to deliver strong results. AudioEye’s enterprise channel consists of our larger customers and organizations that generally engage directly with AudioEye sales personnel for pricing and solutions.

Speaker #1: As of September 30, 2026, AUDIOEYE had approximately 130,000 customers, up 7,000 or 6 percent from approximately 123,000 customers as of September 30, 2025, and up approximately 1,000 from June 30, 2026.

Speaker #1: The increase was driven primarily by our partner-and-marketplace channel with enterprise customers also increasing. Both of our two revenue channels continue to deliver strong results.

Speaker #1: AUDIOEYE's enterprise channel consists of our larger customers and organizations, that generally engage directly with AUDIOEYE's sales personnel for pricing and solutions. As we have previously discussed, in 2026 we have reduced our emphasis on non-recurring revenue to focus on growing ARR.

Matthew Domeyer: As we have previously discussed, in 2026, we have reduced our emphasis on non-recurring revenue to focus on growing ARR. In the third quarter of 2026, enterprise revenue was relatively flat year-over-year, with lower non-recurring revenue being offset by increases in recurring revenue. Our focus on enterprise ARR is showing results, and it increased 10% over the comparable prior year period as we continue to deliver some of our strongest new and expansion business to date. As of 30 September 2026, enterprise ARR represented approximately 41% of total ARR. Our partner and marketplace channel includes all revenue from our SMB-focused marketplace products, as well as from partners who deploy these products for their SMB customers. In the third quarter of 2026, the partner and marketplace channel revenue increased 14% year-over-year. We again saw strong expansion from our state and local government partners in the quarter.

Speaker #1: In the third quarter of 2026, enterprise revenue was relatively flat year-over-year, with lower non-recurring revenue being offset by increases in recurring revenue. Our focus on enterprise ARR is showing results.

Speaker #1: And it increased 10 percent over the comparable prior year period, as we continue to deliver some of our strongest new and expansion business to date.

Matthew Domeyer: As of 30 September 2026, enterprise ARR represented approximately 41% of total ARR. Our partner and marketplace channel includes all revenue from our SMB-focused marketplace products, as well as from partners who deploy these products for their SMB customers. In the third quarter of 2026, the partner and marketplace channel revenue increased 14% year-over-year. We again saw strong expansion from our state and local government partners in the quarter.

Speaker #1: As of September 30, 2026, enterprise ARR represented approximately $41 percent of total ARR. Our partner-and-marketplace channel includes all revenue from our SMB-focused marketplace products.

Speaker #1: As well as from partners who deploy these products for their SMB customers. In the third quarter of 2026, the partner-and-marketplace channel revenue increased 14 percent year-over-year.

Speaker #1: We again saw strong expansion from our state and local government partners in the quarter. Partner-and-marketplace ARR grew by 14 percent compared to the prior year quarter and represented approximately $59 percent of total ARR as of September 30, 2026.

Matthew Domeyer: Partner and marketplace ARR grew by 14% compared to the prior year quarter and represented approximately 59% of total ARR as of 30 September 2026. Gross margin for the third quarter expanded over 550 basis points to 83%, compared to 77% in the third quarter of 2025. Gross profit grew 15% to $9.1 million, compared to $7.9 million in the prior year period. While revenue grew 7%, cost of revenue declined 19%, resulting in 160% conversion of incremental revenue to gross profit. The reduction in cost of revenue came primarily from AI-driven efficiencies in engineering and service delivery. Adjusted gross margin was 88% in Q3 2026, compared to 83% in the prior year comparable period. The increase in adjusted gross margin is consistent with the GAAP change. In the third quarter of 2026, operating expenses decreased 5%, or $400,000 to $7.8 million.

Speaker #1: Gross margin for the third quarter expanded over $550 basis points to $83 percent, compared to $77 percent in the third quarter of 2025. Gross profit grew 15 percent to $9.1 million dollars, compared to $7.9 million dollars in the prior year period.

Speaker #1: While revenue grew 7 percent, cost of revenue declined 19 percent, resulting in $160 percent conversion of incremental revenue to gross profit. The reduction in cost of revenue came primarily from AI-driven efficiencies in engineering and service delivery.

Matthew Domeyer: The reduction in cost of revenue came primarily from AI-driven efficiencies in engineering and service delivery. Adjusted gross margin was 88% in Q3 2026, compared to 83% in the prior year comparable period. The increase in adjusted gross margin is consistent with the GAAP change. In the third quarter of 2026, operating expenses decreased 5%, or $400,000 to $7.8 million.

Speaker #1: Adjusted gross margin was 88 percent in Q3 2026, compared to 83 percent in the prior year comparable period. The increase in adjusted gross margin is consistent with the gap change.

Speaker #1: In the third quarter of 2026, operating expenses decreased 5 percent or $400,000 to $7.8 million dollars. The decrease in operating expenses was driven primarily by lower R&D and sales and marketing spend.

Matthew Domeyer: The decrease in operating expenses was driven primarily by lower R&D and sales and marketing spend. Our total R&D spend in Q3 was approximately $1.3 million, including approximately $400,000 recorded as capitalized software development costs. Total R&D spend decreased 17% year-over-year and was around 12% of Q3 2026 revenue, down from 15% in Q3 2025, driven by increased AI usage. Net income in the third quarter of 2026 was $1 million, or $0.08 per diluted share, compared to a net loss of $0.6 million, or $0.04 per share in the same year-ago period, driven by higher gross profit and lower operating expenses noted previously. In the third quarter of 2026, we achieved record adjusted EBITDA of approximately $3.9 million, or adjusted EPS of $0.30 per diluted share, and an adjusted EBITDA margin of 35%.

Speaker #1: Our total R&D spend in Q3 was approximately $1.3 million dollars, including approximately $400,000 recorded as capitalized software development costs. Total R&D spend decreased 17 percent year-over-year and was around 12 percent of Q3 2026 revenue, down from 15 percent in Q3 2025, driven by increased AI usage.

Matthew Domeyer: Net income in the third quarter of 2026 was $1 million, or $0.08 per diluted share, compared to a net loss of $0.6 million, or $0.04 per share in the same year-ago period, driven by higher gross profit and lower operating expenses noted previously. In the third quarter of 2026, we achieved record adjusted EBITDA of approximately $3.9 million, or adjusted EPS of $0.30 per diluted share, and an adjusted EBITDA margin of 35%.

Speaker #1: Net income in the third quarter of 2026 was $1 million dollars or $0.08 per diluted share, compared to a net loss of $0.6 million dollars or $0.04 per share in the same year-ago period, driven by higher gross profit and lower operating expenses noted previously.

Speaker #1: In the third quarter of 2026, we achieved record adjusted EBITDA of approximately $3.9 million dollars, or adjusted EPS of $0.30 per diluted share, and an adjusted EBITDA margin of $0.35 percent.

Matthew Domeyer: This compares to Q3 2025, which had an adjusted EBITDA of $2.5 million, or adjusted EPS of $0.19 per share, and an adjusted EBITDA margin of 24%. The $1.4 million, or 58% increase in adjusted EBITDA over the comparable period of the prior year was primarily driven by increases in gross profit and AI efficiencies. In the third quarter, we generated $3.5 million of free cash flow, calculated as adjusted EBITDA of $3.9 million, plus $400,000 of capitalized software development costs, an improvement of $1.5 million from the third quarter of 2025. Turning to the balance sheet, we ended the quarter with $9.3 million in cash, an increase of $600,000 from 30 June 2026, and $3 million available under our revolving line of credit. As of 30 September 2026, our net debt, defined as total debt less cash, was $7.2 million.

Speaker #1: This compares to Q3 2025, which had an adjusted EBITDA of $2.5 million dollars, or adjusted EPS of $0.19 per share, and an adjusted EBITDA margin of $0.24 percent.

Speaker #1: The $1.4 million dollars or $0.58 percent increase in adjusted EBITDA over the comparable period of the prior year was primarily driven by increases in gross profit and AI efficiencies.

Matthew Domeyer: In the third quarter, we generated $3.5 million of free cash flow, calculated as adjusted EBITDA of $3.9 million, plus $400,000 of capitalized software development costs, an improvement of $1.5 million from the third quarter of 2025. Turning to the balance sheet, we ended the quarter with $9.3 million in cash, an increase of $600,000 from 30 June 2026, and $3 million available under our revolving line of credit. As of 30 September 2026, our net debt, defined as total debt less cash, was $7.2 million.

Speaker #1: In the third quarter, we generated $3.5 million dollars of free cash flow, calculated as adjusted EBITDA of $3.9 million dollars plus $400,000 of capitalized software development costs.

Speaker #1: And improvement of $1.5 million dollars from the third quarter of 2025. Turning to the balance sheet, we ended the quarter with $9.3 million dollars in cash and increase of $600,000 dollars from June 30, 2026, and $3 million dollars available under our revolving line of credit.

Speaker #1: As of September 30, 2026, our net debt, defined as total debt less cash, was $7.2 million dollars. Net debt has declined approximately $1 million dollars year to date and our net debt to adjusted EBITDA ratio using the midpoint of our updated 2026 adjusted EBITDA guidance is approximately 0.5.

Matthew Domeyer: Net debt has declined approximately $1 million year to date, and our net debt to adjusted EBITDA ratio, using the midpoint of our updated 2026 adjusted EBITDA guidance, is approximately 0.5. With that, I'll turn the call back to the operator to open the line for questions. Operator?

Speaker #1: With that, I'll turn the call back to the operator to open the line for questions. Operator?

Operator: 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 star keys. Our first question comes from the line of Joshua Reilly with Needham & Company. Please proceed with your question.

Speaker #2: Thank you. We will now take questions from the companies publishing analysts. If you would like to ask a question, please press star 1 on your telephone keypad.

Speaker #2: A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the start keys.

Speaker #2: Our first question. Comes from the line of Joshua Really with Needham & Company. Please proceed with your question.

Joshua Reilly: Great. Thanks for taking my questions. Nice job on the quarter here. I know it is early on the 2 new AI products you released in October, but maybe you can share how much you are seeing in terms of the push-pull dynamics on AI features from customers. Are customers requesting more AI functionality, or are you seeing that you need to build awareness of what AI can do for them?

Speaker #3: Great. Thanks for taking my questions. Nice job on the quarter here. I know it's early on the two new AI products you released in October, but maybe you can share how much you're seeing in terms of the push-pull dynamics on AI features from customers and are customers requesting more AI functionality or are you seeing that you need to build awareness of what AI can do for them?

Kelly Georgevich: Yes, it is definitely still early days. We just released the products a couple of weeks ago. So far, feedback has been very positive, especially with the customers who have been in beta. I think I would say both, but I would say some of it has to be education on the customer side. We think these are really powerful add-ons for customers, especially to do more in real time or between audits. We are pretty excited about what they can do, especially on the expansion side.

Speaker #4: Yes. It's definitely still early days. We just released the product a couple weeks ago. So far, feedback has been very positive, especially with the customers who have been in beta.

Speaker #4: I think I'd say both, but I'd say some of it has to be education on the customer side. We think these are really powerful add-ons for customers.

Speaker #4: Especially to do more in real time or between audits. But yeah, we're pretty excited about what they can do, especially on the expansion side.

Joshua Reilly: Got it. As we think about the ARR growth going forward, how sustainable is this low double-digit growth rate for the balance of 2026? Without giving any specific guidance, what are the puts and takes investors should be considering for Q4 ARR growth that could maybe lead to outperformance? In 2027, once again, it seems the demand environment should be further improving given the tailwinds out there. Is there anything we should be considering in terms of the macro or otherwise that may impact demand trends? Thanks, guys.

Speaker #3: Got it. And then as we think about the ARR growth going forward, how sustainable is this low double-digit growth rate for the balance of 2026 without giving any specific guidance?

Speaker #3: What are the puts and takes investors should be considering for Q4 ARR growth that could maybe lead to outperformance? And then in 2027, once again, it seems the demand environment should be further improving given the tailwinds out there.

Speaker #3: Is there anything we should be considering in terms of the macro or otherwise that may impact demand trends? Thanks, guys.

Kelly Georgevich: We had about 12% year-over-year ARR growth, which is good to see. I think we expect that to continue into Q4. We are seeing really good momentum across the board, near record new and expansion business. Really solid growth from partners. All of that is just a positive for Q4 and expectations there on ARR. I think we can expect something similar for 2027 with some additional accelerators or things that could move the needle. Things like our new product offerings. I think as agents take over more tasks, the readability of sites and how accessibility plays into that could be really interesting. Of course, enforcement of the EU could move the needle further.

Speaker #4: Yeah. We had about 12 percent year-over-year ARR growth, which is good to see. I think we expect that to continue into Q4. We're seeing really good momentum across the board.

Speaker #4: New record, new in expansion business, really solid growth from partners. And so all of that is just a positive for Q4 and expectations there on ARR.

Kelly Georgevich: I think we can expect something similar for 2027 with some additional accelerators or things that could move the needle. Things like our new product offerings. I think as agents take over more tasks, the readability of sites and how accessibility plays into that could be really interesting. Of course, enforcement of the EU could move the needle further.

Speaker #4: I think we can expect something similar for 2027 with some additional accelerators or things that could move the needle. Things like our new product offerings, I think, as agents take over more tasks, the readability of the sites and how accessibility plays into that could be really interesting.

Speaker #4: And then, of course, enforcement of the EU could move the needle further.

Joshua Reilly: Thank you very much.

Speaker #3: Thank you very much.

Operator: Thank you. Up next in the queue, we have George Sutton with Craig-Hallum Capital Group. You may proceed with your question.

Speaker #2: Thank you. Up next, in the queue we have George Sutton with Craig Hallam Capital Group. You may proceed with your question.

[Analyst] (Craig-Hallum Capital Group): Hey, guys. Logan on for George here. First one from me, I wonder if you could just unpack the step down in COGS this quarter a bit more, and maybe just talk in any more detail about where the AI efficiencies are coming into play. I guess, is there more room for margin improvement here, or should we think about this as sort of a one-time step function improvement?

Logan Lillehaug: Hey, guys. Logan on for George here. First one from me, I wonder if you could just unpack the step down in COGS this quarter a bit more, and maybe just talk in any more detail about where the AI efficiencies are coming into play. I guess, is there more room for margin improvement here, or should we think about this as sort of a one-time step function improvement?

Speaker #5: Hey, guys. Logan on for George here. First one from me, I wonder if you could just unpack, step down in cost of goods sold this quarter a bit more, and maybe just talk in in any more detail about where the AI efficiencies are coming into play.

Speaker #5: And I guess, is there more room for margin improvement here? Should we think about this as sort of a one-time step function improvement?

Matthew Domeyer: Hey, Logan. It's Matt. Excuse me there. Yeah. We saw a 550 basis point increase in margin, which was a really great improvement. The gross profits helped by the growing ARR, and we are able to scale. We have got a long track record of lowering expenses and working to manage and scale. I think where we are at right now, we expect to be able to maintain those rates, and we will keep looking for room to expand the margins as we can going forward.

Speaker #1: Hey, Logan. It's Matt. Excuse me there. Yeah. So we saw $550 basis point increase in margin, which was a really great improvement. The gross profits helped by the growing ARR, and we're able to scale.

Speaker #1: We've also we've got a long track record of lowering expenses and working to manage and scale. And so I think where we're at right now, we expect to be able to maintain those rates, and we'll keep looking for room to expand the margins as we can going forward.

[Analyst] (Craig-Hallum Capital Group): Got it. Going back to the new AI products, and again, recognizing that it's early, can you give any sense for what kind of uplift in revenue per customer those new products might have?

Logan Lillehaug: Got it. Going back to the new AI products, and again, recognizing that it's early, can you give any sense for what kind of uplift in revenue per customer those new products might have?

Speaker #5: Got it. And then going back to the new AI products, and again, recognizing that it's early, can you give any sense for what kind of uplift and sort of revenue per customer those new products might have?

Kelly Georgevich: Yeah, it's probably too early to quantify it, but I do think they are expansion opportunities for customers, kind of like as in between their audits and additional current services that they already have.

Speaker #4: Yeah. It's probably too early to quantify it, but I do think they are expansion opportunities for customers kind of like as in between between their audits and additional current services that they already have.

[Analyst] (Craig-Hallum Capital Group): Okay. I will leave it there. Thanks.

Logan Lillehaug: Okay. I will leave it there. Thanks.

Speaker #5: Okay. I'll leave it there. Thanks.

Operator: Thank you. Up next in the queue, we have Richard Baldry with ROTH Capital Partners. You may proceed with your question.

Speaker #2: Thank you. Up next in the queue we have Richard Baldry with Roth Capital Partners. You may proceed with your question.

Richard Baldry: Thanks. I'm going to probably be asked this a few times going forward because people seem worried about AI sort of becoming a competitive threat in a lot of different verticals. We've had these tools out for a little while, the large language models. Have you seen any actual new competitors enter the market in trying to leverage those tools to create new businesses in competition with yourselves?

Speaker #6: Thanks. I'm going to probably ask this a few times going forward because people seem worried about AI sort of becoming a competitive threat in a lot of different verticals.

Speaker #6: So we've had these tools out for a little while, the large language models. Have you seen any actual new competitors enter the market trying to leverage those tools to create new businesses and competition with yourselves?

Kelly Georgevich: We haven't seen much in the market, no. I think that study we put out kind of emphasizes what we've been talking about for some time, which is, we have this proprietary data set that no one else has of over 1 million human fixes, over 100,000 websites over 10 years. So no one can replicate that. What the web has been trained on and what AI is trained on has been inaccessible sites. So the idea of a new product coming in or a new competitor coming in that can just do what we've been doing for 10 years is just not possible. That's part of the reason we put out the study over the last 3 months or so, is to prove that AI just can't do this.

Speaker #4: We haven't seen much in the market, no. I think that study we put out kind of emphasizes what we've been talking about for some time, which is we have this proprietary data set that no one else has over a million human fixes over 100,000 websites over 10 years.

Speaker #4: So no one can replicate that. And what the web has been trained on and what AI is trained on has been inaccessible sites. So the idea of a new product coming in or a new competitor coming in that can just do what we've been doing for 10 years is just not possible.

Kelly Georgevich: So the idea of a new product coming in or a new competitor coming in that can just do what we've been doing for 10 years is just not possible. That's part of the reason we put out the study over the last 3 months or so, is to prove that AI just can't do this. We found that AI essentially had no impact when you instructed it to create a new site that was accessible. Our AI tools are powered with our proprietary data set.

Speaker #4: And that's part of the reason we put out the study. Over the last three months or so, is to prove that AI just can't do this.

Kelly Georgevich: We found that AI essentially had no impact when you instructed it to create a new site that was accessible. Our AI tools are powered with our proprietary data set.

Speaker #4: We've found that AI essentially had no impact when you instructed it to create a site that was accessible. And our AI tools are powered with our proprietary data set.

Richard Baldry: When you think about the new tools and the automation you're able to achieve with them, is there a way to think about how much of your prior workload you're able to automate, and how much you think you could incrementally automate over time, and how much sort of either now or long term remains probably manual because of complexity or other issues?

Speaker #6: Cool. And when you think about the new tools and the automation you're able to achieve with them, is there a way to think about how much of your prior workload you're able to automate?

Speaker #6: How much you think you could incrementally automate over time, and how much sort of either now or long-term remains probably manual because of complexity or other issues?

Kelly Georgevich: Yeah. We definitely still find that you need the manual aspect of an audit. What we like about these new products and what they can do is they can find on the Agentic Audits, significantly more issues than our automation, about 50% more of those high severity issues. So they're nice little fill-ins after a website redesign or between audits. And same on the SDK MCP is while you're creating code, if you can solve a number of the issues that you would have to wait for an audit to find, I think that's pretty powerful.

Speaker #4: Yeah. We definitely still find that you need the manual aspect of an audit. What we like about these new products and what they can do is they can find on the agentic audit significantly more issues than our automation, about 50 percent more this high severity issues.

Speaker #4: So they're nice little fill-ins. After a website redesign or between audits and same on the SDK MCP is while you're creating code, if you can solve a number of the issues that you would have to wait for an audit to find, I think that's pretty powerful.

Richard Baldry: Is there another way to think about how much you've had significant improvements in OpEx and on your COGS line? How deep into the process of automating your own operating side of the table and your go-to-market COGS side do you think you're at? How much incremental profitability do you think you could do even off the same revenue base with further automation?

Speaker #6: Is there another way to think about sort of how much you've had significant improvements in opex and on your cost of goods lines? How deep into the process of automating your own operating side of the table and your go-to-market cog side do you think you're at?

Speaker #6: How much incremental profitability do you think you could do even off the same revenue base with further automation?

Kelly Georgevich: Yeah. We've been able to ramp revenue without ramping expenses for a number of years, and I think AI has just given us that extra kind of milestone where we've been able to implement AI and be very efficient across all departments. I think we expect to see that to continue. So as revenues increase, I don't think we'll need to ramp expenses significantly. But we're still focusing on finding further efficiencies as well.

Speaker #4: Yeah. Yeah. We've been able to ramp revenue without ramping expenses for a number of years. And I think AI is just good enough that extra kind of milestone where we've been able to implement AI and be very efficient across all departments.

Speaker #4: I think we expect to see that to continue. So as revenues increase, I don't think we'll need to ramp expenses significantly. But we're still focusing on finding further efficiencies as well.

Richard Baldry: Last for me, and be more sort of top of the funnel. If you look at your sales overall, sort of the pipelines, can you talk about the degree to which they're expanding, either in sort of geographies where the regulatory environment's pushing it outside of those? How do you feel about those entering or heading toward fiscal 2027?

Speaker #6: And last for me, maybe more sort of top-of-the-funnel AI. If you look at your sales overall, sort of the pipelines, can you talk about the degree to which they're expanding either in sort of geographies where the regulatory environment is pushing it outside of those, how do you feel about those entering or heading toward fiscal '27?

Kelly Georgevich: Yeah, I think we are seeing some of our best lead volume to date still, and as I mentioned, some of our best new business and expansion ARR to date. Litigation is still growing at record levels, so that is definitely a factor that we are continuing to see. Regulation is helping, but I think demand overall is growing, and that litigation, private litigation is driving demand as well. As EU ramps enforcement, we expect to see additional demand, and I do think there is a possibility for additional demand with the AI readiness and link to accessibility.

Speaker #4: Yeah. I think we're seeing some of our best leads all year to date still, and as I mentioned, some of our best new business and expansion ARR to date.

Speaker #4: Litigation is still growing. At record level. So that's definitely a factor that we're continuing to see. And so regulation is healthy, but I think demand overall is growing.

Speaker #4: And that litigation, private litigation is driving demand as well. As you ramp enforcement, we expect to see additional demand. And I do think there's a possibility for additional demand with the AI readiness and linked to accessibility.

Richard Baldry: Maybe one last one to squeeze in. Your cash hit a multi-year high in the quarter. I am sort of curious, what do you think a comfortable level of cash for operations is now that your EBITDA is scaling the way it is, sort of against a backdrop of how much you would be willing to use the on-hand cash for buyback versus use it out of quarterly cash flow from ops? Thanks.

Speaker #6: Maybe one last one to squeeze in. Your cash hit a multi-year high in the quarter. I'm sort of curious, what do you think a comfortable level of cash for operations is now that you're EBITDA scaling the way it is?

Speaker #6: Sort of against a backdrop of how much you'd be willing to use the on-hand cash for buyback versus use it out of quarterly cash flow from ops.

Speaker #6: Thanks.

Kelly Georgevich: Yeah. I think we have the $3 million line of credit. I think we are pretty comfortable at levels that we have been at over the last handful of quarters. I do think that there is a key aspect of a significant cash generation in Q4 and into 2027, which allows us to do a lot with that extra cash. But I think we feel pretty comfortable with where it is at now.

Speaker #4: Yeah. Yeah. I mean, I think we have the $3 million line of credit. I think we're pretty comfortable at levels that we've been at over the last handful of quarters.

Speaker #4: I do think that there's a key aspect of significant cash generation in Q4 and into 2027, which allows us to do a lot with that extra cash.

Speaker #4: So I think we feel pretty comfortable with where it's at now.

Richard Baldry: Great. Thanks. Congrats on the quarter.

Speaker #6: Great. Thanks. Congrats on the quarter.

Kelly Georgevich: Thanks.

Speaker #4: Thanks, Rich.

Operator: Thank you. Our last question comes from the line of Scott Buck with Titan Partners. You may proceed with your question.

Speaker #2: Thank you. And our last question comes from the line of Scott Buck with Titan Partners. You may proceed with your question.

Scott Buck: Good afternoon, guys. Appreciate the time. Kelly, on the new Agentic Audits, how are they priced? Are they standalone SKUs or are they bundled with existing products?

Speaker #7: Hi. Good afternoon, guys. Appreciate the time. Kelly, on the new agentic products, how are they priced? Are they standalone SKUs? Or are they bundled with kind of existing products?

Kelly Georgevich: You can purchase them as either. You can purchase them as standalone, so like an add-on to your current line items on your contract, or certain products. One of the two you can buy as a standalone product.

Speaker #4: You can purchase them as either. So you can purchase them as standalone. And so like an add-on to your current line items on your contract.

Speaker #4: Or certain products, one of the two you can buy as a standalone product.

Scott Buck: Okay, perfect. Customer counts rose about 6%. ARR grew 12%. Is ARR growing because of mix pricing, upsells? Help bridge me there.

Speaker #7: Okay. Perfect. And then customer accounts rose about 6%. ARR grew 12%. Is ARR growing because of mix pricing upsells? Help kind of bridge me there.

Kelly Georgevich: Yeah. Really across the board. So we saw double-digit ARR growth in both our enterprise, which is kind of new and expansion business, both kind of approaching record numbers and the partner side as well. So kind of operating on all and performing on all cylinders.

Speaker #4: Yeah. Really, across the board. So we saw double-digit ARR growth in both our enterprise, which is kind of new in expansion business. Both kind of approaching record numbers.

Speaker #4: And the partner side as well. So kind of operating on a performing on all cylinders.

Scott Buck: Okay. Last one on capital allocation and the announced buyback. How quickly do you expect to execute on the buyback? Is that constrained by the credit agreement?

Speaker #7: Okay. And then last one on capital allocation and the announced buyback. How quickly do you expect to execute on the buyback? And is that constrained by the credit agreement?

Kelly Georgevich: I mean, our stock is trading at 6x EBITDA, adjusted EBITDA and growing 15% year over year. So we do think it is an attractive time to buy and a good way to deploy excess cash for our shareholders. We have a good relationship with our debt provider and do not see any issues there.

Speaker #4: I mean, stock is trading at six times EBITDA just at EBITDA and growing 50% over a year. So we do think it's an attractive time to buy and a good way to deploy excess cash for a shareholders.

Speaker #4: We don't see we have a good relationship with our debt provider and don't see any issues there.

Scott Buck: Okay, perfect. I appreciate the added color. Thank you.

Speaker #7: Okay. Perfect. I appreciate the added color. Thank you.

Kelly Georgevich: Thanks, Scott.

Speaker #4: Thanks, Scott.

Operator: Thank you. At this time, this concludes our question and answer session. I would now like to turn the call back over to Ms. Kelly Georgevich for her closing remarks.

Speaker #2: Thank you. At this time, this concludes our question and answer session. I'd now like to turn the call back over to Ms. Kelly Georgevich for her closing remarks.

Kelly Georgevich: I would like to thank our employees, customers, and investors for their continued support, and we look forward to providing you an update on the next call.

Speaker #4: I'd like to thank our employees, customers, and investors for their continued support. And we look forward to providing you an update on the next call.

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 in the investor relations section of the company's website. Thank you for joining us today for AudioEye's Q3 2026 earnings conference call. You may now disconnect.

Speaker #2: 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 in the investors relation section of the company's website.