AudioEye, Inc.

Good afternoon and welcome to AudioEye's fourth quarter and full year 2024 earnings conference call. 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. The Private Security 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 risk 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 beliefs only as of the date hereof. AudioEye does not undertake any duty to update any correct 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 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 Marotti. Sir, please proceed.

Thank you, operator, and thank you to everyone joining us today. My voice is a bit off today. I have the flu, but I'm going to do my best. A year ago, on our fourth quarter 2023 earnings call, we discussed significant improvements over the last few years. I joined the board of directors in 2019 to address operating efficiency and strategy. In 2019, gross margins were in the mid-50s, adjusted EBITDA margins were in the mid-60s, and revenue per employee was in the low $100,000 range. I'm pleased that our operating efficiency continues to improve with the fourth quarter producing record revenue, gross margins, adjusted EBITDA, and free cash flow using adjusted EBITDA minus CapEx. In the fourth quarter, growth margins improved to 80% and adjusted EBITDA margins improved to a record 24%. Revenue per employee continued to expand, reaching over 330,000 in the fourth quarter. We expect another great year in 2025 with strong growth and record adjusted EBITDA margins, which we will discuss shortly. In addition to producing top tier SaaS metrics, we provide a best in class product that gives clients three to 400% more protection against valid legal claims than any other product in the industry. We continue to invest in our product suite and have significantly increased our AI automated detection. An analysis of recent data shows we can automatically detect approximately 500% more issues than other solutions on the market. Last week, we released our 2025 Digital Accessibility Index, which involved reviewing 15,000 websites across key industries, including education, finance, government, healthcare, hospitality, software, and retail. A new study found an average of 297 accessibility issues per page, a substantial increase from the 37 issues per page found in AudioWise 2023 index. The eightfold increase in issues detected is primarily due to improvements in our automated testing capabilities from two years ago. The European Accessibility Act, or EAA, is quickly approaching and will take effect in June of 2025, requiring digital products and services including websites, e-commerce, and mobile apps to meet accessibility standards across the EU. Businesses operating in the EU must ensure compliance or risk penalties. To ensure we capture demand from the EAA, we have built a team in Europe to address the EU market including new account executives in Europe. We are planning for further expansion in the EU in 2025 and beyond. We expect that demand will look like the GDPR rollout in 2018, which scaled over five years and now has significant adoption. In the United States, there have been questions about what the new administration means for digital accessibility, On February 5th, the Office of Personnel Management issued a memo stating that existing disability laws remain enforced and federal agencies should not terminate or prohibit accessibility or disability-related accommodations. Our business has had no impact from the new administration and we have limited revenues in the federal government. There is currently no indication that the DOJ will roll back requirements under Title II of the ADA. We continue to see record demand and lead generation, with private lawsuits continuing to be a notable driver for demand. Lastly, I welcome Jim Hawkins to our Board of Directors. Jim has an impressive track record of driving growth and operational success that will be very beneficial as we expand From 2004 to 2018, he served as president and CEO of Natus Medical, a global leader in medical devices and software, where he led revenue growth from $37 million to $530 million and increased market capitalization from $68 million to $1.1 billion, a 1,500% increase. Jim currently serves on the board of directors of OSI Systems and Aratamed Corporation. Moving on to guidance. We expect growth in revenue and adjusted EBITDA in 2025, with acceleration picking up in the second half of 2025 from EU and continued U.S. demand. For the first quarter of 2025, we are guiding revenue between $9.7 and $9.8 million. With Social Security taxes and other beginning of year expenses impacting Q1, we expect to generate adjusted EBITDA between 1.85 and 1.95 million and adjusted EPS between 14 and 16 cents per share. For the full year, we are guiding revenue between 41 and 42 million for a growth rate of around 18% at the midpoint We expect adjusted EBITDA between 9 and 10 million, representing 41% growth at the midpoint. We expect adjusted EPS between 70 and 80 cents per share. We also expect to continue to be a rule of 40 company going forward. I'll now turn the call over to AudioEyes CFO, Kelly.

Thanks, David. Revenue again hit record levels with Q4 2024 revenue at $9.7 million, a 24% increase from Q4 2023 and a 9% increase sequentially from Q3 2024. On a full year basis in 2024, our revenues grew 12% to $35.2 million from $31.3 million. When breaking this down by channel, the Partner and Marketplace channel includes all revenue from our SMB-focused Marketplace products and revenue from a range of partners who deploy these same products for their SMB customers. For the fourth quarter of 2024, our Partner and Marketplace channel grew 14% year-over-year and represented approximately 58% of ARR. For the full year 2024, this channel's revenue grew 12% from $18 million in 2023 to 20.2 million in 2024. We continue to see an expansion of existing customers and new partners engaging with AudioEye, contributing to this channel's growth. AudioEye's enterprise channel consists of our larger customers and organizations, including those with non-platform custom websites who generally engage directly with AudioEye sales personnel for pricing and solutions. In Q4, 2024, the enterprise channel contributed 42% of ARR. Annual recurring revenue or ARR at the end of the fourth quarter of 2024 was 36.6 million, a 17% increase over ARR at the end of the fourth quarter of 2023, an increase of 400,000 sequentially. On December 31st, 2024, our customer count was approximately 127,000 an increase from 126,000 customers on September 30, 2024, and an increase of approximately 17,000 from December 31, 2023. Additions in both the enterprise and partner and marketplace channels drove the increase in customer count. Gross profit for the fourth quarter was $7.8 million, or about 80% of revenue, compared to $6.2 million, or 78% of revenue, in Q4 of last year. For the full year 2024, our growth margins were approximately 79%, with growth profit increasing from $24.3 million in 2023 to $27.9 million in 2024. With a $3.9 million increase in revenue in 2024, cost of revenue only increased by $300,000. Several inputs factored into cost of revenue, including web hosting, customer support, and other costs directly related to product delivery. Operating expenses in the fourth quarter of 2024 increased $2.4 million to $9.1 million from $6.7 million in the same quarter last year. This increase was primarily driven by non-recurring or non-cash items, including additional stock compensation of $700,000, litigation expense of $1 million, and additional investment in selling and marketing. On a full year basis, operating expenses increased 3%, or approximately $1 million, to $31.3 million, also driven by increases in employee stock compensation of $700,000, litigation expense of $2.1 million, and approximately $600,000 in investing in sales and marketing, offset by efficiencies in R&D. Our total R&D spending Q4 was approximately $1.8 million, with approximately $400,000 reflected as software development costs, in the investing section of the cash flow statement. This was on par with Q3 2024 R&D investment. The total R&D spend was around 18% in Q4 2024 revenue versus 22% in Q4 2023. And R&D spend was 19% of our full year 2024 revenue versus 29% for 2023. Net loss in the fourth quarter of 2024 was $1.5 million or $0.12 per share compared to a net loss of $500,000 or $0.04 per share in the same year-ago period. On a full year basis, net loss for 2024 was $4.3 million or $0.36 per share compared to a net loss of $5.9 million or $0.50 per share in 2023, an improvement of $1.6 million. In the fourth quarter of 2024, we again achieved record profitability with adjusted EBITDA of approximately 2.3 million or 18 cents per share compared to an adjusted EBITDA of 1.3 million or 11 cents per share in the same year goal period. On a full year basis, we produced record adjusted EBITDA of approximately 6.7 million or 55 cents per share compared to 1.3 million or 11 cents per share in 2023. This dramatic increase in adjusted EBITDA over the prior year's comparable period was driven by $3.9 million of revenue growth and reductions in non-GAAP expenses by approximately $1.5 million. In the fourth quarter of 2024, we generated $1.9 million of free cash flow calculated as adjusted EBITDA at $2.3 million plus $400,000 of software development costs, an improvement of $1 million from the fourth quarter of 2023. We ended Q4 2024 with $5.7 million of cash and cash equivalents. For the full year 2024, adjusted free cash flow was $4.9 million versus negative $600,000 in 2023. In the first quarter of 2025, IUI's Board of Directors authorized the repurchase of up to $12.5 million of the company's outstanding shares of common stock through January 2027. With cash flows expected to increase dramatically, we believe share repurchases offer an attractive way to deploy excess capital. With that, we open up the call for questions. Operator, please give instructions.