AudioEye, Inc.

Good afternoon and welcome to AudioEye's second quarter 2020 earnings conference call. Joining us for today's call are AudioEye's executive chairman, Dr. Carr Bettis, and CFO, Mr. Sash Barot. Following the remarks, we'll open up the call for questions from the company's publishing analysts. I would like to remind everyone that this call will be recorded and made available for replay via a link available in the investor relations section of the company's website at www.audioeye.com. Before I turn the call over to AudioEye's executive chairman, the company would like to remind all participants that statements made by AudioEye management during the course of this conference call that are not historical facts are considered to be forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward-looking statements. The words believe, expect, anticipate, estimate, 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 those factors discussed in today's press release. in the comments made during this conference call and in the risk factor section of the company's annual report on Form 10-Pay, its quarterly report on Form 10-Q, and our reports and filings with the Securities and Exchange Commission. Participants on this call are cautioned not to place under due reliance on these forward-looking statements, which reflects management's belief only as of the date hereof. AudioEye does not undertake any duty to update or correct any forward-looking statements. Now I would like to turn the call over to AudioEye's Executive Chairman, Dr. Carl Bettis. Sir, please proceed.

Thank you, operator. Welcome, everyone. Thank you for joining us today. After the market closed, we issued a press release announcing our results for the second quarter ended June 30th, 2020. A copy of the press release will be available later in the investor section of our website at AudioEye.com. I'd like to open with recognition of a really important milestone for accessibility, the 30th anniversary of the ADA and the ongoing need for digital accessibility. Just a few weeks ago, we celebrated the 30th anniversary of the ADA becoming law. This important legislation transformed the U.S. and much of the world by making the world a more physically inclusive place for everyone. But the digital world now being as important perhaps even more so lately, especially due to the global pandemic. And with about 98% of all websites still having critical accessibility barriers, it's clear that much more work is needed to create a truly digitally inclusive world. As we recognize this important milestone in the journey to an inclusive world, the true underlying demand for digital accessibility has never been stronger, and AudioEye is well positioned to lead this continued transformation. I'll begin, as we always do, with an overview of our business. AudioEye is a leading provider of SaaS-based digital content accessibility solutions. I'll remind you of our mission to eradicate all barriers to digital accessibility. We provide ourselves in addressing the largest range of services and issues that impact many people around the globe. At AudioEye, we do more than just identify these accessibility issues. We strive to fix, maintain, and continuously monitor them. We also certify websites to demonstrate compliance with both the ADA and the latest web content accessibility guidelines, or WCAG 2.1. Because many of the remediation capabilities we provide are automated, our customers more quickly gain compliance with accessibility standards, regulations, and laws. For our managed product, these automated processes are coupled with manual testing and remediation by subject matter experts. The result is We provide our clients with the best solution to make their websites and digital content more accessible. We keep their content more accessible through continuous monitoring and remediation. And we offer a trusted certification of conformity with standards. Furthermore, for our private sector clients, we also provide them a product that gives them an opportunity to gain an ROI from their investment in and commitment to the enormous population of individuals with disabilities. With this overview of the business completed, I'm looking forward to moving on to highlights about our Q2 execution and our operating environment. Overall, we are very pleased with the company's execution in the second quarter again. Q2 marks the 18th straight quarter of record revenue, ending the quarter at just over $5 million. That is a 117% year-over-year growth since 2019. Our results continue to be driven largely by growth and adoption in our vertical partner and enterprise channels, and monthly recurring revenue at the end of June 30th was $1.6 million, a 105% year-over-year growth from 2019. Gross profit for the second quarter was $3.7 million, or about 70% of revenue. This is a 180% increase from $1.3 million, or about 54% of revenue last year. The increase in gross profit and gross margins is a result of our continuous focus on increasing efficiency and the expansion in the level of remediation automation as revenues grow. As mentioned in the past, while gross margin may fluctuate somewhat between quarters, overall, we expect gross margins to continue to improve on an annual basis. We remain very excited about the benefits of being a scalable SaaS business. New customer acquisition was also strong in Q2, driven largely by traction in our vertical partner channel, ending Q2 at a major milestone of over 20,000 customers. We have almost tripled our customer count since the year end of 2019. I point out we had our first ever 5 million revenue quarter in Q2, solid performance against all internal metrics that we had executed against. Building on the strategic initiatives we put in place last November, we continue to implement organizational changes in order to accelerate our efforts to build out the scalable technology and IP and the infrastructure to succeed. The center for our technology base, which had been Atlanta, is now Portland, which has also resulted in some changes in our technology personnel. Heath Thompson will be moving from his position as CEO of AudioEye Effective today. And although his tenure was short, we're very grateful for Heath's leadership and contributions to AudioEye. Heath will transition to work with AudioEye as a strategic advisor, and he will advocate for AudioEye's mission to create a more digitally inclusive world. David Moriarty, he joins us as chief strategy officer and the interim CEO. He is a member of the board of directors and the founder and manager of Cerro Capital. We fully expect to receive the benefit of his deep understanding of the company and his many years of technology and business leadership experience. David has had a significant influence on the company's strategy and operations since he joined us on the board in the fourth quarter of last year. He served as the Chairman of the Strategy Committee of the Board of Directors. His guidance and his insights have significantly helped the business scale and to gain efficiencies during this time. David is not only willing to assume the role as the interim CEO, but his commitment and belief in the company is reflected in his anticipated compensation package, whereby he is willing to take a $1 an annual salary and only receive additional equity if the company achieves significant MRR and stock growth price growth. David and Cerro Capital have been ardent supporters of AudioEye since 2014, having participated in every company financing since that time. This continued confidence in the prospects of the company is even further evident by Cerro's capital decision to exercise warrants this month, all for cash, even though the warrants had a cashless exercise right. These warrant exercises will result in $880,000 in cash for the company and a further investment by Cerro Capital. In addition, Dominic Ferracali, who has been recently our CTO, has been appointed president. Dominic, who is located in Portland, along with a number of engineers, has a very strong background in technology and digital products. He will manage and drive our digital and e-commerce presence. He will foster innovation, creativity, and agile development to ensure continued rapid scalability. Dominic was previously the CEO and co-owner of his own technology consulting firm, and has held various technology leadership roles at Kroger Digital. I'm also pleased to say we've added another top tier talent at the company, the chief marketing officer we recently hired, Karim Malik. Karim has a strong and proven track record as a leader in marketing that is growth centric. He has led multifunctional marketing teams at leading global brands, including Microsoft, Facebook and Spotify. He has broad expertise in product marketing, in performance marketing, and in demand generation. We look forward to him contributing to our hyper growth efforts and he joins us later this month. Finally, I will continue as executive chairman and you'll have to continue to hear from Satya and me on these quarterly calls. Our focus is still going to remain the same. We're going to acquire customers, grow revenue in MRR, focus on increasing margins and becoming cash flow positive in 2021. It's worth taking a minute to talk about COVID-19 as well. While we meet or exceed our internal targets and did so in key metrics in Q2, like other businesses, we continue to operate in a challenging economic environment that's driven by the global pandemic. And although demand for digital accessibility solutions remains very strong, we continue to see impacts due to COVID-19 with our customers and prospects across all our channels. On the new business front, we've seen some deals that have been delayed a little.

even though they still move forward and close at times later than originally expected in some cases.