investments in the EU. We do have resources in the EU and are investing in a multi-channel approach. So I think we're ready when, you know, we've said it's, you know, we still view it as early innings, but at some point it will hit an inflection point and we're ready to capitalize that and making inroads now to do that.

Got it. And then I guess a couple items on AI, you know, first of all, what are you seeing, I guess, in the direct channel with the larger customers in terms of their willingness to spend given, you know, the AI driven concern software spend environment right now. And then along with the AI angle, second part to the question is, how are you doing in terms of implementing AI internally for R&D and customer service? And how is that efficiency trending there relative to your expectations?

Yep. Yeah. Good questions. Right now, we're not seeing any notable impacts besides adding more value to customers on the AI front. As we mentioned previously, AI coding tools are trained on the Internet that's not built with accessibility, so we're not seeing any impact from competitors coming in. One of the unique things about us is that we have the best automation in the industry. The audience study has our automation at 89% to 300% more than competitors, and we've also taken that unique approach to accessibility of custom fixes, and no one has that proprietary data set. I'd also say, you know, I think the other thing to keep in mind is that we do provide, you know, litigation protection at the end of the day. So on the enterprise customer front, they see us as protection, and it's not something that they're, you know, see as an opportunity on the cost-cutting front. On your second point, you know, we're really, everything we're doing is starting with the proprietary data that we have you know we have millions of human reviews and billions of real road fixes and no one else has that uh data and so we're using it currently to make reporting easier for clients to understand to make fixes easier to make sure that works seamlessly with our dev for people who are in dev dev environment and want to make source fixes but we're also making sure we utilize that proprietary data in new and exciting ways and i think more to come on that front in the next handful of months.

Got it. One last question for me is on the partner versus direct channel revenue growth rate. I believe you mentioned that there was a couple moving parts on the direct side there. Could you just, in terms of the year-over-year revenue growth, could you just give a little more color on what you saw in terms of the year-over-year growth rate between partner and direct channels. Thank you, guys.

Yeah, thanks. Yeah, if you look at peer revenue year-over-year, the direct revenue year-over-year growth was impacted by, and we've mentioned this before, that shift from non-recurring revenues to recurring revenue. If you look at ARR growth in enterprise, it was pretty notable, both sequentially and year-over-year, and we really think focusing on that ARR growth is where to look there. And on the partner marketplace side, you know, we continue to see good results from our existing partners and continue to see that span, so good growth on both the revenue side and the ARR side in that channel.

Awesome, thank you guys.

Thanks.

Your next question comes from George Sutton with Craig Hallam. Please do your question.

Thank you, and I'd like to welcome Matt to the call. So Kelly, I'm particularly enthused to see the partner strength in front of the the mandates actually going into effect um can you just give us a little picture on sort of the the focus and i know you've got a couple key partners but um uh and i know they've had specific sales people dedicated to this i assume they're seeing some impact as a result you know we're we're seeing all systems go on the on the partner side for and we know that the day was pushed back to 2027 but we're seeing still really good results from those partners And I think everyone's now just all eyes on 2027 and further penetration into their customer base before that deadline. So just on the cash deployment theme, obviously M&A has been one area that you've been at least looking for a while. I know some of the challenges have been prices expected by the sellers.

Where do things stand on the M&A side as you're thinking of cash deployment? it yeah as i mentioned we do expect to generate significant cash free cash flow as we go into second half of the year and into 2027 and that just opens up a number of different possibilities and mna would be one of those we always kind of are evaluating mna it's got to be the right fit it's got to be at the right price but i do think it could be an opportunity for the future all right that's it for me thank you thanks george thank you and your next question comes from Eric Seppiger with B. Riley Securities.

Please see your question.

Yeah, thanks, and congrats on a good quarter. On the AI features that you've been adding to your platform, is there opportunity for that to drive pricing higher? And conversely, how difficult will it be for large language models or for coding, for AI coding to develop accessibility capabilities. I understand you have proprietary data for that, but are they able to chip away at that?

Yeah, I'll answer that first question first. Yeah, I think with AI capabilities, there's opportunity to introduce supplemental products. And so over time, I think as an ASP per customer, it could grow up because of that. But I think big opportunities ahead in general. We've commented on this a bit, and I might have already said this in the comments, but WebAIM supports it, that websites are just getting more accessible. LLMs weren't trained on accessible websites, so they're actually creating more inaccessible sites. And the thing that makes us really unique that no one else has is our proprietary data set. So we've been doing human fixes for 10 years, and no one's been doing that. And all of that data really lends itself to building out something really interesting in the AI space that LLMs or other competitors don't have access to in terms of data.

Okay. And then lastly, on litigation, can we assume that that's going to stay at lowered levels for the foreseeable future, or what are your thoughts in terms of that?

Yeah. As I mentioned, Q2 was about 40% of – or came down 40% from Q1. We do expect it to ramp down in the second half of 2026. We can't comment any further on active litigation, but I think you can expect a significant additional cash generation with litigation trending down in the second half of 2026.

Very good. Thank you.

Thank you. At this time, this concludes our question and answer session. I'd now like to turn the call back over to Ms. Kelly Georgievich for her closing remarks.

I'd like to thank our employees, customers, and investors for their support. We look forward to providing an update on the next quarter.

Thank you. Before we conclude today's call, I would like to remind everyone that a recording of today's call will be available for replay via a link available in the Investor Relations section of the company's website. Thank you for joining us today for AudioEye's second quarter 2026 earnings conference call. You may now disconnect.