AudioEye, Inc.

Good afternoon and welcome to AudioEye's first quarter 2026 earnings conference call. Joining us for today's call are AudioEye's CEO and CFO, Ms. Kelly Georgievich, and Executive Chairman and Chief Product Officer, Mr. David Marotti. 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.audioi.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, confident, will, and other similar statements of expectation identify forward-looking statements. These statements are predictions, projections, or other statements about future events that are based on current expectations and assumptions that are subject to risk and uncertainties. After the results could materially differ because of factors discussed on 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 quality reports on Form 10-Q, and its other reports and filings with the Securities and Exchange Commission. Assessments on this call are cautioned not to place due unreliance on these forward-looking statements which reflect management's belief only as of the date hereof. OI 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 in the company's earnings release or otherwise posted in the investor relations section of its website at www.audioi.com. Now I'd like to turn the call over to AudioEye's Executive Chairman and Chief Product Officer, Mr. David Marotti.

Thank you, Operator, and good afternoon, everyone. The first quarter marks the 41st consecutive quarter of record revenue in a significant achievement. Over a decade ago, I began my journey with AudioEye as an investor leading a few rounds of financing for the company. Back then, the company had virtually no revenue and limited technology. Today is a different story. We have the leading product on the market and more than 127,000 customers, to our knowledge, more than any other company in the industry. In 2019, I joined AudioEye first as a consultant, then as a board member, and became the chair of the Strategic Operating Committee of the Board of Directors, tasked with improving product, go-to-market, margins, and scale. Since then, revenues have nearly quadrupled and adjusted EBITDA margins have improved from approximately negative 70% and are expected to be in the high 20% range this year. Revenue per employee has improved from approximately 100,000 per employee in 2019 to over 400,000 per employee, around a 400% increase. Kelly has been instrumental in helping us achieve these top-tier results since joining AudioEye in 2021. I've worked closely with Kelly for almost five years, and I'm highly confident that as CEO, she will lead the company through our next phase of growth and continued operating margin improvement. This was a well-planned evolution that reflects the strength of what we have built and the Board of Directors and my confidence in Kelly's ability to lead us going forward. She brings operational discipline, relationships, and credibility to sustain the momentum we have. My focus going forward will be on what I love doing most, long-term strategy and product innovation, including AI initiatives now possible with recent LLM improvements. I've served as head of product since the second half of 2023 during a period of significant innovation, including our next-gen platform, which combines custom fixes with our industry-leading AI, giving customers a complete view of their risk profile, which no competitor can do today. Also, we have continued to improve our industry-leading legal protection rates and the highest levels of automatic detection available. But we are not done. A recent Web AIM study shows that the Internet is becoming less accessible, while litigation trends are reaching all-time highs. The need to solve digital accessibility at scale has never been greater. We continue to build on our industry-leading proprietary data set, which was developed over 10 years on over 100,000 websites and millions of data points, using our unique approach of combining AI automation with custom fixes. And we are very excited about upcoming agentic product releases. As we enter this next phase of growth and AudioEyes journey, I want to thank our team for all their hard work and determination in getting us here and in delivering an incredible product for our customers. After today's call, I may be less visible to shareholders, but I will be hard at work in the background. I'm leaving you in good hands with your new CEO. With that, I'll hand it over to Kelly.

Thank you, David. Good afternoon, everyone. It's an honor to be speaking to you today in my new role as CEO, and I want to echo David's gratitude to our team and to David for the incredible work he has done transforming AudioEye into an industry leader in digital accessibility. I look forward to building on the foundation that David and the team have created. I've spent five years working with David and driving change, and I'm excited about what the next phase looks like, both from an operational standpoint and from a product and market opportunity standpoint. I'll now cover a few other business developments, Q1 2026 financial results, and our updated financial outlook for Q2 and the full year 2026. The market environment continues to reinforce the need for solutions with accuracy and scale. Agentic coding solutions are driving faster web development, but are making the web less accessible. As David mentioned, the 2026 WebAIM Million Report found 95.9% of the top 1 million homepages had detectable WCAG failures, averaging 56.1 errors per page, a 10% increase over the prior year. That reversed six consecutive years of gradual improvement. WebAIM attributes the decline to broader shifts in web development, including increased reliance on third party frameworks and AI assisted coding. This is driving accessibility related litigation to reach all time highs. This environment positions AudioEye as a leader. With over a decade of proprietary data and billions of data points, we have the depth, expertise, and scale to address accessibility challenges and to help customers manage the legal risk they face in a way no other solution can currently match. We continue to see strong feedback and engagement with our next generation platform introduced earlier this year. We built this platform to give customers full visibility into the thousands of fixes AudioEye completes on their behalf through our automation and custom remediation. The response has validated what we believed. When customers see the depth of our work, the gap between AudioEye and any other solution in the market becomes clear. On the regulatory front, in April 2026, the DOJ published an interim final rule extending Title II web accessibility compliance deadlines by one year for state and local governments, with enforcement now slated to begin in April 2027. We view this as an affirmation of a federal commitment to digital accessibility and a recognition that meaningful compliance requires a robust solution like AudioEye. The rule makes clear that covered entities have an ongoing obligation to ensure their web content and mobile apps are accessible to individuals with disabilities under Title II of the ADA. The additional year gives AudioEye and our channel partners a broader runway to engage state and local government entities and ensure they are positioned for compliance well ahead of a new April 2027 enforcement date. In the European Union, we continue to build pipeline and see steady, positive early signs as enforcement timelines take shape. We are being disciplined with our investments there, positioning ourselves to capture the meaningful uptick in demand that will occur as enforcement occurs, while building awareness of accessibility requirements now in place. Turning to our Q1 2026 financial results. Revenue for the first quarter of 2026 was 10.6 million, representing an 8% increase from the comparable period of the prior year. This marked our 41st consecutive period of record revenue, a streak we are unaware of any current public software company matching. Annual recurring revenue, or ARR, was 41.2 million as of March 31st, 2026, up from $40 million as of December 31, 2025, reflecting 12% annualized sequential ARR growth. Year over year, ARR grew 11%. We expect ARR growth to continue in future quarters, and that compounding ARR should generate notable sequential growth rates in revenue in the third and fourth quarter of this year. As of March 31st, 2026, AudioEye had approximately 127,000 customers of 8,000 from March 31st, 2025. The 4,000 customer decrease from December 31st, 2025 was driven by one partner's realignment of their own customer base. The partner continues to support thousands of AudioEye customers and the underlying business activity and partnership were not affected and had no material impact on revenue or ARR. Going deeper into revenue by our two channels. 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. Our enterprise channel continued to perform well in Q1 with steady new business activity and healthy expansion among existing accounts. In Q1, 2026, the enterprise channel grew 9% year over year. As of March 31st, 2026, the enterprise channel represented approximately 41% of ARR. Our partner and marketplace channel includes all revenue from our SMB-focused marketplace products, as well as partners who deploy these products for their SMB customers. In the first quarter of 2026, the Partner and Marketplace channel grew 8% year over year and accounted for approximately 59% of ARR as of March 31st, 2026. Our Partner and Marketplace channel also contributed meaningfully to ARR growth in the quarter. We saw solid expansion from our state and local government partners specifically in the first quarter of 2026. In our recent conversations with these partners, the Title II delay has not slowed their go-to-market activity or changed how they talk to customers. They are moving forward with the same urgency. Gross profit for the first quarter was $8.3 million, or approximately 78% of revenue, compared to $7.7 million, or 80% of revenue, in Q1 of 2025. Adjusted gross margin, defined as gross margin, adjusted for non-cash items and our cost of revenue, such as amortization and capitalized software development costs and stock compensation expense, was 84% in Q1 2026 compared to 85% in the prior year comparable period. In the first quarter of 2026, operating expenses were $10.1 million compared to $8.7 million in Q1 2025. Net loss in the first quarter of 2026 was 2.1 million or 17 cents per share compared to a net loss of 1.5 million or 12 cents per share in the same year ago period. The year-over-year increase in operating expenses and net loss was driven by higher litigation expenses, depreciation and amortization expenses, as well as additional investments in sales and marketing. Our total R&D spend in Q1 was approximately $1.6 million, with approximately $500,000 recorded as software development costs in the investing section of the cash flow statement, similar to Q1 2025 levels. Total R&D spend was around 15% of Q1 2026 revenue, down from 17% in Q1 2025, demonstrating our continued progress in operating leverage. In the first quarter of 2026, we achieved adjusted EBITDA of approximately 2.4 million or 18 cents per share and an adjusted EBITDA margin of 22%. This compares to Q1 2025 adjusted EBITDA of 1.9 million or 15 cents per share and 20% of adjusted EBITDA margin. The 500,000 increase in adjusted EBITDA over the comparable period of the prior year was driven by a $500,000 year-over-year increase in gross profit. In the first quarter, we generated $1.9 million of free cash flow, calculated as adjusted EBITDA of $2.4 million plus $500,000 in software development costs, an improvement of $500,000 from the first quarter of 2025. We further strengthened our balance sheet in the first quarter of 2026 by drawing down the remaining $3.6 million of our delayed draw and term loan, which would otherwise have expired on March 31st. We ended the quarter with $8.6 million in cash and $3 million available under a revolving line of credit. As of March 31st, 2026, our net debt, defined as total debt less cash, was $8.4 million and our net debt to adjusted EBITDA ratio using our 2026 adjusted EBITDA guidance is approximately 0.7 times. Now turning to guidance. For the second quarter of 2026, we expect revenue of between 10.65 million and 10.75 million and adjusted EBITDA of between 2.6 million and 2.7 million representing an adjusted EBITDA margin of approximately 25% at the midpoint and adjusted EPS of between 21 and 22 cents per share. For the full year 2026, we are refining our revenue guidance to between 43.25 million and 44.25 million. We now expect full year 2026 adjusted EBITDA to be at least 12 million, representing a nearly 27% adjusted EBITDA margin at the midpoint of revenue guidance, and adjusted EPS of at least 96 cents. This would suggest at least 33% growth in adjusted EBITDA and adjusted EPS from 2025. With compounding ARR expected to drive notable sequential growth rates in the third and fourth quarter of 2026 and expanding operating leverage throughout 2026, we continue to target a $15 million run rate adjusted EBITDA by the end of 2026. With that, I'll turn the call back to the operator to open the line for questions. Operator?