AudioEye, Inc.

Good afternoon and welcome to AudioEye's fourth quarter and full year 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. I would now like to turn the conference over to Brian Pernavo, Investor Relations. Please go ahead.

Thank you, Operator. Joining us for today's call are AudioEye's CEO, Mr. David Marotti, and CFO, Ms. Kelly Georgievich. Following their remarks, we will open the call for questions from the company's publishing analysts. I would like to remind everyone that this call will be recorded and made available for replay via a link available in the investor relations section of the company's website at www.audioeye.com. Before I turn the call over to AudioEye's chief executive officer, the company would like to remind all participants that statements made by AudioEye management during the course of this conference call that are not historical facts are considered to be forward-looking statements. 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 that are subject to risks and uncertainties. Actual results could differ materially because of factors discussed in today's press release and the comments made during the conference call and in the risk factors section of the company's annual report on Form 10-K and its quarterly reports filing with the Securities and Exchange Commission. Participants on this call are cautioned not to place undue reliance on these forward-looking statements, which reflect management's belief only as the date hereof. 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 posted in the investor relations section of our website at www.AudioEye.com. Now, I would like to turn the call over to AudioEye's Chief Executive Officer, Mr. David Marotti. David?

Thank you for joining us on today's call. I want to begin with our strong financial performance and our expectations going forward. Despite macroeconomic uncertainty, The fourth quarter marked the 28th straight quarter of record revenue, achieving $7.74 million, which was 19% year-over-year growth. We were pleased to see gross margin increase to 77% in the fourth quarter from 75% in the third quarter of 2022. The increase in gross margin was a function of continued efficiencies across the board in our organization, which is impressive given our continued investment in R&D and customer success. As in previous quarters, we saw year-over-year revenue growth in our partner and marketplace and enterprise channels. Fourth quarter revenue growth was primarily driven by an increase in recurring revenue, which comprised approximately 97% of total revenue for the fourth quarter, compared to 94% in the third quarter of 2022. In addition to achieving revenue within the guidance range, we are pleased to report improved GAAP results and non-GAAP profitability of approximately 200,000 in the quarter. As noted in the last earnings call, beginning in January 2022, we implemented processes that resulted in efficiencies and reduced operating expenses as a percentage of revenue and on an absolute basis. In the quarter, we were able to drive our year-over-year operating costs down by approximately 19%, while increasing revenue by 19%. Cash burn continued to improve sequentially, from $1.4 million to $900,000 in the fourth quarter, which included non-recurring expense of $600,000. On the partner and marketplace channel, we renegotiated a couple of long-term strategic partnerships, resulting in a short-term reduction of ARR while contractually increasing the minimums and contract length significantly. Specifically, on these two contracts, we expect improvements in ARR in the second half and material increases in 2024. We continue to gain market share in this channel with the leading product in the industry. We signed several new partnerships in the quarter, many coming from competitors. On the enterprise side, we have seen some tightening of budgets and elongation of sales cycles. We have a couple of large contracts which remain in negotiations. These deals impact revenue guidance in ARR growth over the short term, resulting in relatively flat ARR sequentially and 13% ARR growth year over year. Kelly will discuss this in more detail shortly. We are confident that we'll maintain these relationships and grow revenue from these customers over time. Customer logo retention continues to remain strong. During periods of uncertainty, working with customers experiencing cost pressure is important to provide a win-win for both parties in the long term. Moving on to guidance. We're guiding for revenue between $7.7 and $7.9 million in the first quarter, representing year-over-year growth of 13% at the midpoint. As discussed, renegotiating specific partner and enterprise contracts will slow growth in the first quarter. We expect that sequential growth for revenue and ARR will resume in the second quarter and accelerate over the remainder of the year. For 2023, we expect non-GAAP sales and marketing and G&A costs will stay relatively flat from 2022. We expect gap sales and marketing will be relatively flat and G&A will be down. R&D investments will trend up throughout the year as we see high-impact areas to invest in. With increased R&D investment, we expect a non-gap operating loss in the first half of 2023 with a return to non-gap operating profit in the second half. We expect a breakeven non-GAAP operating profit for the full year of 2023. We also expect that GAAP results will improve year over year. We ended December 31st with $6.9 million of cash. As discussed previously, we managed our costs prudently in anticipation of the macroeconomic slowdown. We've seen inflection to positive cash flow by the fourth quarter of 2023. You may recall that we announced a 3 million stock repurchase program last year. We continue to be committed to deploying our capital in a manner that delivers the greatest value for all shareholders. We did not utilize the buyback in the fourth quarter, but we'll maintain it as an option for 2023. Before turning the call over to AudioEye CFO Kelly, I'm excited that Michael Ciotutti has recently joined AudioEye as our Chief Revenue Officer. Michael is an experienced SaaS technology leader with over two decades of go-to-market expertise. He has built industry-recognized, award-winning sales and marketing teams at Adobe, Omniture, and Ancestry.com. Michael oversaw growth and demand creation at Omniture while quickly scaling from $40 million to $400 million of ARR in just four years, leading to its acquisition by Adobe. During Michael's time at Adobe, he led the internal digital transformation scaling growth from 3 billion to over 12 billion of ARR. Being entrepreneurial-minded, Michael left Adobe after eight years to co-found an enterprise SaaS marketing and sales analytics technology company. His company was later acquired by ObservePoint, where he led sales and customer success. Michael has recently been at Guild, a marketplace unicorn helping to scale 50% year-over-year growth. Michael is joining us at a time when we are primed for significant growth. Over the last three years since we embarked on a strategic change in direction, our revenues have increased over 120%, our gross margin is up over 20 points, and we have delivered non-gap profitability. We have invested in R&D and have the best product in the industry, which continues to improve with increased investments I'll now turn the call over to Audiwise CFO, Kelly.