AudioEye, Inc.

Good afternoon and welcome to AudioEye's second quarter 2023 earnings conference call. Joining us for today's call are AudioEye's CEO, Mr. David Moratti, and CFO, Ms. Kelly Georgievic. Following their remarks, we will open the call for questions from the company's publishing analysts. I would like to remind everyone that this call will be recorded and made available for replay via a link available in the Investor Relations section of the company's website at www.audioeye.com. Before I turn the call over to AudioEye's Chief Executive Officer, the company would like to remind all participants that statements made by AudioEye management during the course of this conference call that are not historical facts are considered to be forward-looking statements. The private security's 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 expectations 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 the 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-K, its quarter report 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 under lieu of 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. A reconciliation of the most directly comparable GAAP financial measures to these non-GAAP financial measures is available in the company's earning release. posted in the investor relations section of its website at www.audioeye.com. Now I'd like to turn the call over to AudioEye's Chief Executive Officer, Mr. David Maratti. Sir, please proceed.

Thank you, Operator. Welcome, everyone, and thank you for joining us. There have been several developments over the last three months that I'm excited to talk with you about today. But before I do, I want to highlight our solid financial performance and continued focus on efficiencies. We are pleased to announce record revenue of $7.84 million in the second quarter. At the end of the second quarter, annual recurring revenue, or ARR, was $29.7 million. As discussed previously, our results in the first half of 2023 were impacted by certain contract renegotiations. Despite these renegotiations, we are pleased with sequential revenue and ARR growth and are excited about expected ARR acceleration in the second half. In the second quarter, gross margins were 77% and gross profit increased to 6 million versus 5.7 million year-over-year, representing a 100% flow-through of additional revenue into gross profit. Continue to focus on efficiencies. we expect to increase gross margins further in 2024 as we grow revenues. Revenue increased by 4% year-over-year, while operating expenses decreased by 3%. Our CFO, Kelly, will discuss the financial performance in more detail shortly. As we have said, we believe we are in the early innings of digital accessibility. 97% of websites today remain inaccessible to people with disabilities. despite increased litigation under the Americans with Disabilities Act. Last week, the Department of Justice issued a proposed rule on website accessibility under Title II of the ADA. The rule would help ensure people with disabilities have equal access to web content and mobile apps. The proposed rule would drive more awareness and compliance. and we are well positioned as we already work with over 900 government organizations and school districts. As a reminder, the European Accessibility Act previously required all EU member states to adopt laws for companies offering many types of products and services, including websites and e-commerce services, to ensure accessibility. In the EU, companies must provide accessible websites by June of 2025. and the Act requires Member States to enforce the accessibility requirements. In June, AudioEye shared findings from a collaborative initiative with accessibility experts from the disability community on the effectiveness and impact of generative AI on identifying, fixing, and communicating accessibility issues that typically require expert review. AudioWise accessibility experts, including those who rely on assistive technology, found AI could reduce the time needed to assess and correct a complex accessibility issue, such as determining whether a link is clear and accurate by up to 10X. We are currently incorporating AI into our processes and believe there's tremendous potential to increase speed and accuracy in the future. The North Star for AI is when someone with a disability can't distinguish between an experience handcrafted by an accessibility expert or created by an expert trained AI. That's the only bar that will let anyone claim they've solved digital accessibility at scale with AI. And make no mistake, it's a very high bar. We'll only meet it by involving the disability community from day one, getting continuous feedback, and actively investing in improving our capabilities over time. In addition to our findings and initiatives on AI, we recently announced the development and expansion of AudioEye's digital accessibility platform with new enterprise-grade accessibility offerings. The expansion of our product solution includes AudioEye's new accessibility maturity management program and the accessibility health advisor. These programs and tools use our team of certified experts to assess the company's current level of accessibility and help define the investments required to make measurable, sustainable progress in accessibility. Our Accessibility and Maturity Management Program identifies the people, culture, process, and system changes an organization needs to perform to make accessibility a first-class concern and tracks progress towards these goals. When new regulations change accessibility guidelines, the health advisor notifies the company of any changes required to comply. This first-of-its-kind program and corresponding tools with the further development of AI automation will be powerful drivers in increasing accessibility at scale. In addition to our R&D efforts this quarter, I am pleased to confirm that we recently completed the integration of the Bureau of Internet Accessibility which was acquired in March of 22. We are delighted to have fully integrated BOIA, which will help enable retention and upsells and result in cost savings in the near term. Going forward, we expect the product offering to primarily generate ARR under our subscription model instead of non-recurring audit revenue. The impact of the integration of BOIA will reduce third quarter revenue by approximately $200,000 as we transition one-time audits into recurring revenue. Each quarter, we continue to bring on talent and advocates that contribute to AudioWise success in the future. In July, we were thrilled to announce the addition of former United States Congressman for Arizona's 8th Congressional District, Gabby Giffords, to our advisory board. Gabby Giffords is a retired United States politician who resigned from Congress in 2012 after sustaining a severe brain injury during an assassination attempt. Today, she helps raise awareness about disabilities. Gabby's influence in the disability community and her passion for change will help Audiowide continue to make great strides in building solutions that close the digital accessibility gap.

Moving on to guidance.