8-K
Audioeye Inc (AEYE)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 12, 2021 (November 11, 2021)
AUDIOEYE, INC.
(Exact name of registrant as specified in charter)
| Delaware | 001-38640 | 20-2939845 |
|---|---|---|
| State of Other Jurisdiction of Incorporation | Commission File Number | IRS Employer Identification No. |
5210 E. Williams Circle, Suite 750
Tucson, Arizona 85711
(Address of principal executive offices / Zip Code)
(866) 331-5324
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act. |
|---|---|
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act. |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act. |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act. |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading<br><br> <br>Symbol(s) | Name of each exchange<br><br> <br>on which registered |
|---|---|---|
| Common Stock, par value $0.00001 per share | AEYE | The Nasdaq Capital Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
| Item 2.02 | Results of Operations and Financial Condition. |
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On November 11, 2021, AudioEye, Inc. (the “Company”) issued a press release reporting its financial results for the fiscal quarter ended September 30, 2021. Also on November 11, 2021, the Company held a conference call to discuss its financial results for the third quarter ended September 30, 2021. Copies of the press release and the earnings conference call transcript are furnished herewith as Exhibit 99.1 and 99.2, respectively.
The information set forth in this Item 2.02 and in Exhibits 99.1 and 99.2 attached hereto is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of such section nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filing, except as shall be expressly set forth by specific reference in such filing.
| Item 9.01 | Financial Statements and Exhibits. |
|---|---|
| (d) | Exhibits: |
| --- | --- |
| Exhibit Number | Description |
| --- | --- |
| 99.1 | Press release issued November 11, 2021 |
| 99.2 | Transcript of Earnings Conference Call held by the Company on November<br>11, 2021 |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| November 12, 2021 | AudioEye, Inc. | |
|---|---|---|
| (Registrant) | ||
| By | /s/ James Spolar | |
| Name: James Spolar | ||
| Title: General Counsel and Secretary |
Exhibit 99.1
AudioEye Reports Record Third Quarter 2021 Results
Twenty-Third Consecutive Period of Record Revenue
TUCSON, Ariz. — November 11, 2021 — AudioEye,Inc. (NASDAQ: AEYE), an industry-leading software solution provider delivering website accessibility compliance to businesses of all sizes, reported financial results for the third quarter ended September 30, 2021.
AudioEye Interim CEO David Moradi said, “AudioEye had another strong quarter as we grew revenue across all channels and increased MRR while achieving high logo and dollar retention. Gross margins remain healthy in the mid-70s, up substantially from prior years.”
“We recently launched Issue Reporting, which allows us to offer a comprehensive accessibility solution for a fraction of the price of traditional approaches. Customers can now quickly sort accessibility issues by type and severity to view those fixed automatically and those requiring additional attention. We are receiving the payoff from the hard work and investments we are making in R&D, which further enhances our value proposition to customers.”
Third Quarter 2021 FinancialResults
| ● | Total revenue increased approximately 17% to a record $6.2M from $5.3M in the same prior year period. |
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| ● | Monthly Recurring Revenue (MRR) as of September 30, 2021 increased 24% to $2.1M from $1.7M as of September 30, 2020. |
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| ● | Gross profit increased to a record $4.6M (74.7% of total revenue) from $3.8M (71.0% of total revenue) in the same prior year period.<br>The increase in gross profit was primarily due to continued recurring revenue growth and continued improvement in automation in product<br>offerings. |
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| ● | Total operating expenses increased 72% to $9.3M from $5.4M in the same prior year period. The increase in operating expenses was due<br>primarily to increases in research and development and sales and marketing expenses as the Company continues investment to build a best-in-class<br>product and support scalable and profitable long-term growth. |
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| ● | Net loss available to common stockholders was $4.7M, or $(0.41) per share, compared to $1.1M, or $(0.12) per share, in the same prior<br>year period. The greater net loss was primarily due to the increase in operating expenses discussed above. |
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| ● | Non-GAAP net loss in Q3 of 2021 was $2.8M, or $(0.24) per share, compared to the same prior year period of $0.2M, or $(0.02) per share.<br>The non-GAAP net loss and EPS performance reflects adjustments primarily for stock-based compensation expense and interest expense. |
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| ● | At quarter-end, the Company had $22.0M in cash, compared to $9.1M on December 31, 2020. |
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Other Updates
| ● | Promoted three executives to facilitate further growth and scale. Chris Hundley was promoted from CTO to President, Dominic Varacelli<br>from President to COO and Mase Gray from Chief Architect to CTO. |
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| ● | Continued to grow client roster to approximately 80,000 customers as of September 30, 2021, representing an increase of approximately<br>270% over September 30, 2020. |
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| ● | The Company recently released Issue Reporting to help companies continuously detect, track and monitor accessibility issues on their<br>websites. Customers can now quickly sort accessibility issues by type and severity. |
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| ● | In October, the Company announced the AudioEye A11iance Community that brings people with disabilities to the forefront of the product<br>development and quality assurance processes. |
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| ● | Dominic Varacalli, COO, co-led a discussion on the contributions of technology in digital accessibility, alongside Anil Lewis, the<br>Director of Advocacy and Policy for the National Federation of the Blind (NFB) at M-Enabling, an event hosted by Mike Paciello, a prominent<br>accessibility advocate and founder of WebABLE. |
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| ● | Selected by HubSpot as the digital accessibility provider for its second annual INBOUND event, which was held virtually for the second<br>year in a row. Zach Okun presented alongside disability rights activist Judith Heumann in a discussion titled "Inclusivity is Not<br>Exclusive.” Additionally, AudioEye’s Accessibility Evangelist Alisa Smith presented on “Designing Inclusive Digital<br>Content.” |
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Financial Outlook
The Company expects revenue to be between $6.3 and $6.5 million in the fourth quarter representing 15% year over year growth at the midpoint.
Conference Call Information
AudioEye management will hold a conference call today, November 11, 2021 at 4:30 p.m. Eastern time (1:30 p.m. Pacific time) to discuss these results.
AudioEye management will host the conference call, followed by a question and answer period.
Date: Thursday, November 11, 2021
Time: 4:30 p.m. Eastern time (1:30 p.m. Pacific time)
U.S. dial-in number: 1-877-407-9208
International number: 1-201-493-6784
Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Gateway Investor Relations at 1-949-574-3860.
The conference call will also be webcast live and available for replay, which will be accessible via the investor relations section of the company’s website. The audio recording will remain available via the investor relations section of the company’s website for 90 days.
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A telephonic replay of the conference call will also be available after 7:30 p.m. Eastern time on the same day through November 18, 2021.
Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 13724699
About AudioEye
AudioEyeis an industry-leading digital accessibility platform delivering ADA and WCAG compliance at scale. By combining easy-to-use technologyand subject matter expertise, AudioEye helps companies and content creators solve every aspect of web accessibility--from finding andresolving issues to navigating legal compliance, to ongoing monitoring and upkeep. Trusted by the FCC, ADP, SSA, Samsung, and others,AudioEye delivers automated remediations and continuous monitoring for accessibility issues without making fundamental changes to websitearchitecture, source code, or browser-based tools. Join us on our mission to eradicate barriers to digital access, visit**www.audioeye.com.
Forward-Looking Statements
Any statements in this press release about AudioEye’s expectations,beliefs, plans, objectives, prospects, financial condition, assumptions or future events or performance are not historical facts and are “forward-looking statements” as that term is defined under the federal securities laws. Forward-looking statements are often,but not always, made through the use of words or phrases such as “believe”, “anticipate”, “should”, “confident”, “intend”, “plan”, “will”, “expects”, “estimates”, “projects”, “positioned”, “strategy”, “outlook” and similar words. You should read thestatements that contain these types of words carefully. Such forward-looking statements contained herein include, but are not limitedto, statements regarding anticipated contributions from new sales channels, long-term growth prospects, opportunities in the digital accessibilityindustry, our revenue and MRR guidance, and our expectation of investments in marketing and sales. These statements are subject to a numberof risks, uncertainties and other factors that could cause actual results to differ materially from what is expressed or implied in suchforward-looking statements, including the variability of AudioEye’s revenue and financial performance; risks associated with ournew platform and sales channels; product development and technological changes; the acceptance of AudioEye’s products in the marketplaceby existing and potential future customers; competition; inherent uncertainties and costs associated with litigation; generaleconomic conditions; and uncertainties regarding the impact on our business and the overall economy from the coronavirus (COVID-19) outbreak.These and other risks are described more fully in AudioEye’s filings with the Securities and Exchange Commission (the “SEC”),including AudioEye’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 11, 2021 and insubsequent filings with the SEC. There may be events in the future that AudioEye is not able to predict accurately or over which AudioEyehas no control. Forward-looking statements reflect management’s view as of the date of this press release, and AudioEye urges younot to place undue reliance on these forward-looking statements. AudioEye does not undertake any obligation to update such forward-lookingstatements to reflect events or uncertainties after the date hereof. Due to rounding, numbers presented throughout this document may notadd up precisely to the totals provided and percentages may not precisely reflect the absolute figures.
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About Key Operating Metrics
We consider monthly recurring revenue (“MRR”) as a keyoperating metric and a key indicator of our overall business. We also use MRR as (i) one of the primary methods for planning and forecastingoverall expectations and for evaluating, on at least a quarterly and annual basis, actual results against such expectations; and (ii)as a performance metric for certain executive stock-based compensation awards.
We manage customers through two primary channels, Enterprise andPartner and Marketplace. Enterprise channel consists of our larger customers and organizations, including those with non-platform customwebsites, who generally engage directly with AudioEye sales personnel for custom pricing and solutions. This channel also includes federal,state and local government agencies. The Partner and Marketplace channel consists of our CMS partners, platform & agency partners,authorized resellers and our marketplace. This channel serves small and medium sized businesses who are on a partner or reseller’sweb-hosting platform or who purchase an AudioEye solution from our marketplace.
We define MRR as the sum of (i) for our Enterprise sales channel,the total of the average monthly recurring fee amount under each active paid contract at the date of determination, plus (ii) for ourPartner and Marketplace channel, the recognized recurring monthly fee amount for all paying customers at the date of determination, ineach case, assuming no changes to the subscription and without taking into account any usage above the subscription or recurring revenuebase, if any, that may be applicable to such subscription. This determination includes both annual and monthly contracts for recurringproducts. Some of our contracts are cancelable, which may impact future MRR. MRR excludes revenue from our PDF remediation services andMobile App report business.
Use of Non-GAAP Financial Measures
From time to time, we review adjusted financial measures that assistus in comparing our operating performance consistently over time, as such measures remove the impact of certain items, as applicable,such as our capital structure (primarily interest charges), items outside the control of the management team (taxes), and expenses thatdo not relate to our core operations, including transaction-related expenses and other costs that are expected to be non-recurring. Inorder to provide investors with greater insight and allow for a more comprehensive understanding of the information used in our financialand operational decision-making, the Company has supplemented the information presented on a GAAP basis in this press release with thefollowing non-GAAP financial measures: Non-GAAP earnings (loss) and Non-GAAP earnings (loss) per diluted share.
These non-GAAP financial measures have limitations as analyticaltools and should not be considered in isolation or as a substitute for analysis of Company results as reported under GAAP. The Companycompensates for such limitations by relying primarily on our GAAP results and using non-GAAP financial measures only as supplemental data.We also provide a reconciliation of non-GAAP to GAAP measures used. Investors are encouraged to carefully review this reconciliation.In addition, because these non-GAAP measures are not measures of financial performance under GAAP and are susceptible to varying calculations,these measures, as defined by us, may differ from and may not be comparable to similarly titled measures used by other companies.
We define: (i) Non-GAAP earnings (loss) as net income (loss),less non-cash valuation adjustments to liabilities, plus interest expense, plus stock-based compensation expense, plus loss on impairmentof long-lived assets, plus loss on disposal of property and equipment, plus severance related to strategic shift, and less gain on loanforgiveness; and (ii) Non-GAAP earnings (loss) per diluted share as net income (loss) per diluted common share, less non-cash valuationadjustments to liabilities, plus interest expense, plus stock-based compensation expense, plus loss on impairment of long-lived assets,plus loss on disposal of property and equipment, plus severance related to strategic shift, and less gain on loan forgiveness, each ona per share basis. Non-GAAP earnings per diluted share would include incremental shares in the share count that are considered anti-dilutivein a GAAP net loss position. However, no incremental shares apply when there is a Non-GAAP loss per diluted share, as is the case forthe periods presented in this press release.
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Non-GAAP earnings (loss) and Non-GAAP earnings (loss) per dilutedshare are used to facilitate a comparison of our operating performance on a consistent basis from period to period and provide for a morecomplete understanding of factors and trends affecting our business than GAAP measures alone. All of the items adjusted in the Non-GAAPearnings (loss) to net loss and the related per share calculations are either recurring non-cash items, or items that managementdoes not consider in assessing our on-going operating performance. In the case of the non-cash items, such as stock-based compensationexpense and valuation adjustments to assets and liabilities, including loss on impairments and disposals, management believes that investorsmay find it useful to assess our comparative operating performance because the measures without such items are expected to be less susceptibleto variances in actual performance resulting from expenses that do not relate to our core operations and are more reflective of otherfactors that affect operating performance. In the case of items that do not relate to our core operations, management believes that investorsmay find it useful to assess our operating performance if the measures are presented without these items because their financial impactdoes not reflect ongoing operating performance.
Non-GAAP earnings (loss) is not a measure of liquidity under GAAP,or otherwise, and is not an alternative to cash flow from continuing operating activities, despite the advantages regarding the use andanalysis of these measures as mentioned above. Non-GAAP earnings (loss) and Non-GAAP earnings (loss) per diluted share, as disclosed inthis press release, have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute foranalysis of our results as reported under GAAP; nor are these measures intended to be measures of liquidity or free cash flow for ourdiscretionary use.
To properly and prudently evaluate our business, we encourage readersto review the GAAP financial statements included elsewhere in this press release, and not rely on any single financial measure to evaluateour business. Reconciliations of Non-GAAP earnings (loss) to net loss, the most directly comparable GAAP-based measure, as well asNon-GAAP earnings (loss) per diluted share to net loss per diluted share, the most directly comparable GAAP-based measure, are includedin this press release. We strongly urge readers to review these reconciliations, along with the consolidated financial statements includedelsewhere in this press release.
Corporate Contact:
AudioEye, Inc.
Dr. Carr Bettis, Executive Chairman
cbettis@audioeye.com
Investor Contact:
Matt Glover or Tom Colton
AEYE@gatewayir.com
(949) 574-3860
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AUDIOEYE, INC.
STATEMENTS OF OPERATIONS
(unaudited)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands, except per share data) | 2021 | 2020 | 2021 | 2020 | ||||||||
| Revenue | $ | 6,202 | $ | 5,341 | $ | 18,011 | $ | 14,885 | ||||
| Cost of revenue | 1,567 | 1,551 | 4,432 | 4,478 | ||||||||
| Gross profit | 4,635 | 3,790 | 13,579 | 10,407 | ||||||||
| Operating expenses: | ||||||||||||
| Selling and marketing | 4,504 | 2,028 | 10,638 | 5,551 | ||||||||
| Research and development | 1,611 | 203 | 3,950 | 801 | ||||||||
| General and administrative | 3,175 | 3,197 | 9,502 | 8,185 | ||||||||
| Total operating expenses | 9,290 | 5,428 | 24,090 | 14,537 | ||||||||
| Operating loss | (4,655 | ) | (1,638 | ) | (10,511 | ) | (4,130 | ) | ||||
| Other income (expense): | ||||||||||||
| Change in fair value of warrant liability | — | 593 | — | 120 | ||||||||
| Gain on loan forgiveness | — | — | 1,316 | — | ||||||||
| Interest expense | (2 | ) | (35 | ) | (11 | ) | (141 | ) | ||||
| Total other income (expense) | (2 | ) | 558 | 1,305 | (21 | ) | ||||||
| Net loss | (4,657 | ) | (1,080 | ) | (9,206 | ) | (4,151 | ) | ||||
| Dividends on Series A Convertible Preferred Stock | — | (13 | ) | (69 | ) | (39 | ) | |||||
| Net loss available to common stockholders | $ | (4,657 | ) | $ | (1,093 | ) | $ | (9,275 | ) | $ | (4,190 | ) |
| Net loss per common share-basic and diluted | $ | (0.41 | ) | $ | (0.12 | ) | $ | (0.85 | ) | $ | (0.46 | ) |
| Weighted average common shares outstanding-basic and diluted | 11,329 | 9,385 | 10,929 | 9,067 |
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AUDIOEYE, INC.
BALANCE SHEETS
(unaudited)
| December 31, | |||||
|---|---|---|---|---|---|
| (in thousands, except per share data) | 2020 | ||||
| ASSETS | |||||
| Current assets: | |||||
| Cash | 21,953 | $ | 9,095 | ||
| Accounts receivable, net of allowance for doubtful accounts of 195 and 79, respectively | 3,798 | 5,096 | |||
| Deferred costs, short term | 120 | 152 | |||
| Prepaid expenses and other current assets | 594 | 288 | |||
| Total current assets | 26,465 | 14,631 | |||
| Property and equipment, net of accumulated depreciation of 187 and 209, respectively | 173 | 91 | |||
| Right of use assets | 452 | 617 | |||
| Deferred costs, long term | 49 | 77 | |||
| Intangible assets, net of accumulated amortization of 5,211 and 4,328, respectively | 2,524 | 2,137 | |||
| Goodwill | 701 | 701 | |||
| Total assets | 30,364 | $ | 18,254 | ||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
| Current liabilities: | |||||
| Accounts payable and accrued expenses | 3,131 | $ | 2,190 | ||
| Finance lease liabilities | 62 | 49 | |||
| Operating lease liabilities | 246 | 229 | |||
| Deferred revenue | 6,075 | 6,328 | |||
| Term loan, short term | — | 219 | |||
| Total current liabilities | 9,514 | 9,015 | |||
| Long term liabilities: | |||||
| Finance lease liabilities | 57 | 12 | |||
| Operating lease liabilities | 240 | 427 | |||
| Deferred revenue | 20 | 83 | |||
| Term loan, long term | — | 1,083 | |||
| Total liabilities | 9,831 | 10,620 | |||
| Stockholders' equity: | |||||
| Preferred stock, 0.00001 par value, 10,000 shares authorized | |||||
| Series A Convertible Preferred Stock, 0.00001 par value, 200 shares designated, zero and 90 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | — | 1 | |||
| Common stock, 0.00001 par value, 50,000 shares authorized, 11,352 and 10,130 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | 1 | 1 | |||
| Additional paid-in capital | 86,822 | 64,716 | |||
| Accumulated deficit | (66,290 | ) | (57,084 | ) | |
| Total stockholders' equity | 20,533 | 7,634 | |||
| Total liabilities and stockholders' equity | 30,364 | $ | 18,254 |
All values are in US Dollars.
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'
AUDIOEYE, INC.
RECONCILIATIONS OF GAAP to NON-GAAP FINANCIALMEASURES
(unaudited)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands, except per share data) | 2021 | 2020 | 2021 | 2020 | ||||||||
| Non-GAAP Earnings (Loss) Reconciliation | ||||||||||||
| Net loss (GAAP) | $ | (4,657 | ) | $ | (1,080 | ) | $ | (9,206 | ) | $ | (4,151 | ) |
| Non-cash valuation adjustments to liabilities | — | (593 | ) | — | (120 | ) | ||||||
| Interest expense | 2 | 35 | 11 | 141 | ||||||||
| Stock-based compensation expense | 1,881 | 1,089 | 5,425 | 2,004 | ||||||||
| Severance (1) | — | 360 | — | 360 | ||||||||
| Loss on impairment of long-lived assets | — | — | 10 | — | ||||||||
| Loss on disposal of property and equipment | — | — | 12 | — | ||||||||
| Gain on loan forgiveness | — | — | (1,316 | ) | — | |||||||
| Non-GAAP loss | $ | (2,774 | ) | $ | (189 | ) | $ | (5,064 | ) | $ | (1,766 | ) |
| Non-GAAP Earnings (Loss) per Diluted Share Reconciliation | ||||||||||||
| Net loss per common share (GAAP) — diluted | $ | (0.41 | ) | $ | (0.12 | ) | $ | (0.85 | ) | $ | (0.46 | ) |
| Non-cash valuation adjustments to liabilities | — | (0.06 | ) | — | (0.01 | ) | ||||||
| Interest expense | — | — | — | 0.02 | ||||||||
| Stock-based compensation expense | 0.17 | 0.12 | 0.50 | 0.22 | ||||||||
| Severance (1) | — | 0.04 | — | 0.04 | ||||||||
| Loss on impairment of long-lived assets | — | — | — | — | ||||||||
| Loss on disposal of property and equipment | — | — | — | — | ||||||||
| Gain on loan forgiveness | — | — | (0.12 | ) | — | |||||||
| Non-GAAP loss per diluted share (2) | $ | (0.24 | ) | $ | (0.02 | ) | $ | (0.47 | ) | $ | (0.19 | ) |
| Diluted weighted average shares (3) | 11,329 | 9,385 | 10,929 | 9,067 | ||||||||
| (1) | Represents severance expense associated with the move of our technology center to Portland, Oregon, and is exclusive of accrued vacation paid upon termination of employment. | |||||||||||
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| (2) | Non-GAAP earnings per adjusted diluted share for our common stock is computed using the more dilutive of the two-class method or the if-converted method. | |||||||||||
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| (3) | The number of diluted weighted average shares used for this calculation is the same as the weighted average common shares outstanding share count when the Company reports a GAAP and non-GAAP net loss. | |||||||||||
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Exhibit 99.2
AudioEye, Inc.
Q3 2021 Earnings Call Transcripts
Thursday, November 11, 2021 4:30 PM EST
Call Participants
EXECUTIVES
Carr Bettis
Executive Chairman & Director
David D. Moradi
Interim CEO, Chief Strategy Officer & Director
Kelly Georgevich
CFO, Principal Financial Officer & Principal Accounting Officer
ANALYSTS
Derek Greenberg
Maxim Group, LLC
Scott Christian Buck
H.C. Wainwright & Co, LLC, Research Division
Zachary Cummins
B. Riley Securities, Inc., Research Division
Operator
Good afternoon and welcome to AudioEye's Third Quarter 2021 Earnings Conference Call. Joining us for today's call are AudioEye's Interim CEO, Mr. David Moradi; Executive Chairman, Dr. Carr Bettis; and CFO, Ms. Kelly Georgevich. Following their remarks, we will open up 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 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 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 and are based on current expectations and assumptions that are subject to risks 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 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 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 Executive Chairman, Dr. Carr Bettis. Sir, please proceed.
Carr Bettis
Executive Chairman
Thank you, operator. Welcome, everyone, and thank you for joining us today. First of all, Happy Veterans Day, and a special thank you to all of the veterans for their service to our country.
After the market close, we issued a press release announcing our results for the third quarter ended September 30, 2021. A copy of the press release is also available in the Investor Relations section of our website at audioye.com.
We would like to begin as usual with an overview of our business. AudioEye is a leading provider of SaaS-based digital accessibility solutions. Our mission is to eradicate all barriers to digital accessibility. To deliver on that mission, we solve the largest range of issues that impact the way people around the globe browse and interact with online content. At AudioEye, we address every aspect of web accessibility, from finding and fixing issues to ongoing monitoring and upkeep. We also certify websites to demonstrate compliance with both the American Disabilities Act or ADA, and the latest Web Content Accessibility Guidelines or WCAG 2.1. Our comprehensive digital accessibility solutions allow our private sector clients to expand their customer reach and grow revenue by serving individuals with disabilities who make up 15% of the world population.
I'll now turn the call over to David, AudioEye's largest shareholder and our Interim CEO. David?
David D. Moradi
Interim CEO, Chief Strategy Officer & Director
Thank you, Carr.
It is my pleasure to speak with you today. I am pleased with the third quarter as we continue to transition to a highly scalable SaaS company. Revenue grew across all channels, and we increased MRR while achieving high logo and dollar retention.
Gross margins remained healthy in the mid-70s, up substantially from prior years. As previously communicated, we have continued investing in R&D and sales and marketing to capitalize on our industry's long-term expected growth trends. Over time, we expect that R&D and sales and marketing will come down as a percentage of revenue as we increase sales and benefit from efficiencies.
Earlier this year, we announced our next-generation platform which features always-on monitoring, analysis of issues fixed and remaining, and an accessibility score. These features have not only resonated with our existing customer base but have also supported additional wins this year.
Now I'm very excited to discuss our next major release, Issue Reporting. Yesterday we publicly unveiled Issue Reporting. Our technology and transparent approach to solving accessibility for our clients has always been distinct from the competition. But with the release of Issue Reporting, this puts us at another level. Customers can now quickly sort accessibility issues by type and severity, to view those fixed automatically and those requiring additional attention. Because AudioEye now includes Issue Reporting with all next-gen subscriptions, these advancements allow us to offer a comprehensive accessibility solutions for a fraction of the price of traditional approaches.
I want to thank our product and engineering teams for their hard work in delivering this world-class product. We have already seen an enthusiastic response to Issue Reporting from our customers and prospects. During the quarter, one of the largest and fastest-growing U.S. digital agencies partnered with AudioEye. They indicated how much more manageable and affordable our solution is than the one we displaced. Their old solution required their engineers to update sites for every accessibility item every time the website changed, and frequent expensive audits. Additionally, they made a significant acquisition involving thousands of sites and existing agency customers, said they would be using AudioEye as a go-forward solution, replacing a competing product in the acquired business. They indicated they would only use AudioEye due to its ease of use, accuracy and Issue Reporting.
As these wins demonstrate, we continue to hear the same feedback over and over. Our efficient, accurate and transparent solution reduces or eliminates engineering time and resources that alternative options require. Today AudioEye's value proposition is the most compelling at any time in the company's history. To understand why that is the case, it makes sense to understand the overall landscape.
Outside of AudioEye, there are 3 approaches to fixing accessibility errors on a website today. The first is building an accessible website from the onset and ensuring accessibility is part of every update process. Two, software-only products, which address only a subset of the issues and do not offer issue reporting, leaving website owners in the dark. Three, traditional approaches which require expensive and recurring manual audits, during which developers fix issues and the source code. This costly process must then be repeated to maintain accessibility whenever a website is modified.
Unless the website is built with accessibility during the design and development phase and updated accordingly, which is only a small percentage of websites, we offer the most cost-effective and straightforward solution. We fix many issues automatically and provide Issue Reporting bundled into our next-gen offerings at no extra charge. Customers can use Issue Reporting to resolve their remaining problems independently, or hire us to do the rest with our human-assisted technology.
AudioEye has made tremendous progress in our R&D efforts over the last year, and Issue Reporting is just one exciting outcome of this process. We are unaware of any competitor with our amount of product and engineering talent, or any other competitor investing in R&D at a similar rate. Pace of development has continued to increase, and we look forward to announcing additional features and products as they are released over the next few months. This would not be possible without product and tech leadership which has instilled processes for repeatable excellence, and the tireless efforts from the product and engineering teams.
In addition to our success with business partners, I'm excited to discuss our outreach with the disability community. In early October, we announced the AudioEye A11iance Community at M-Enabling, an event hosted by Mike Paciello, a prominent accessibility advocate and founder of WebABLE. The AudioEye A11iance Community is a community-based initiative that brings people with disabilities to the forefront of the product development and quality assurance process. The alliance's creation make sure that our technology is backed by the human element of people living with disabilities, who rely on assisted technology to navigate websites in their everyday lives.
By including this feedback in the development process, AudioEye can continue to build the best solutions that allow people with disabilities to navigate the web naturally. I encourage you to go to our website where we showcase their experiences and feedback as part of our Making Accessibility Visible series at www.audioeye.com/blog.
Also at the M-Enabling event, our COO Dominic Varacalli co-led a discussion on the contributions of technology in digital accessibility, alongside Anil Lewis, the Director of Advocacy and Policy for the National Federation of the Blind. If you would like to hear the discussion, please go to www.audioeye.com/enable.
The trend of accessibility lawsuits continues to rise. This year, we expect almost 4,200 cases versus 3,500 in the previous year. In addition to private litigation, we have noticed increased activity from the Department of Justice. On November 1, Justice announced an agreement with Rite Aid requiring the pharmacy to make its COVID-19 vaccine content accessible. And on September 20, Justice filed a statement of interest in a federal court case in Los Angeles called Vargas and American Council of the Blind versus Quest Diagnostics. The DOJ statement agrees with the plaintiffs' claim that inaccessible kiosks violate the ADA. Against this backdrop, the team at AudioEye is working tirelessly toward providing the most efficient and transparent solution to the ever-present need for digital accessibility.
Moving on to guidance. In terms of guidance for the fourth quarter, we believe revenue will be between $6.3 million to $6.5 million, representing 15% year-over-year growth at the midpoint. We remain very well capitalized, with $22 million of cash in the books at September 30. And we have the runway to continue investing in the business for long-term success.
I would now like to turn the call over to Kelly, AudioEye's CFO. Kelly?
Kelly Georgevich
CFO, Principal Financial Officer & Principal Accounting Officer
Thank you, David.
I would like to begin by providing a summary of Q3 and 2021 year-to-date results and what we view as one of the most important metrics for our business. In the third quarter of 2021, monthly recurring revenue or MRR grew approximately 24% year-over-year to $2.1 million, and grew sequentially from $2 million in Q2 2021.
In addition, we increased our customer count by approximately 270% over the same period of last year, with approximately 80,000 customers in September 2021. We continue to see increases in customer counts across each of our revenue channels.
Revenue for Q3 2021 was $6.2 million, up 17% from $5.3 million in the third quarter of 2020.
Regarding our 2 revenue channels, the partner and marketplace channel includes all revenue from our SMB-focused marketplace products and revenue from a variety of partners who deploy these same products for their SMB customers. In the third quarter of 2021, this revenue channel grew 33% year-over-year and represents approximately 55% of revenue and 57% of MRR. We expect to continue to see this channel contribute significantly to our growth in customer count and ultimately MRR.
The enterprise channel continued to perform in the quarter, contributing approximately 45% of revenue and 43% of MRR. While project-oriented PDF revenue was down from Q3 2020, recurring revenue in the enterprise channel grew approximately 12% over the same period in prior year, driving a return to year-over-year increase for the channel. We again added prominent enterprise brands from our direct sales efforts and continued to renew our enterprise clients at an impressive rate.
Gross margins continued to expand year-over-year, reaching 74.7%, an increase from 71% a year ago and consistent with Q2 2021. The increase in gross profit from Q3 2020 was primarily due to continued recurring revenue growth and continued improvement and automation in our product offering.
In Q3 2021, cost of revenue remained flat from Q3 2020 despite increases to revenue and customer count. In Q3, OpEx inclusive of $1.9 million of stock compensation was $9.3 million, which was an increase of about 72% versus Q3 last year. This increase was strategic and was primarily driven by increases in R&D as we focused on product development and expanding our sales and marketing efforts. Our G&A expense remained consistent with Q3 2020.
Our total R&D spend in Q3 was approximately $2 million, with approximately $370,000 reflected as software development costs in the investing section of the cash flows statement. This total R&D spend is about 32% of our revenue this quarter versus 9% last year and continues to reflect the commitment towards investing for scale in this emerging market.
Sales and marketing expense increased over Q3 2020 due to significant investment in paid media and associated marketing costs and expansion in our sales and marketing team.
Net loss in the third quarter of 2021 was $4.7 million or $0.41 per share, compared to $1.1 million or $0.12 per share in the same year-ago period. On a non-GAAP basis, our Q3 net loss was $2.8 million or $0.24 per share, compared to the same year-ago period of $0.2 million or $0.02. The primary adjustment to GAAP earnings and EPS for both comparable quarters is noncash share-based compensation, and in Q3 2020 also included non-cash valuation adjustments to liabilities, interest expense and severance. Our balance sheet remains well capitalized with zero debt and $22 million of cash at September 30, 2021.
With that, we open up the call for questions. Operator, please give instructions.
Operator
Our first question is from Zach Cummins of B. Riley Securities.
Zachary Cummins
B. Riley Securities, Inc., Research Division
I appreciate all the incremental color around the technology development and kind of where you're going next. And just speaking on that front, David, in regards to Issue Reporting, is this solution only for new customers at this juncture? Or do you have any plans to kind of move this through the existing customer base as well?
David D. Moradi
Interim CEO, Chief Strategy Officer & Director
All customers on next gen will have Issue Reporting. So we're in the migration process right now. Anybody on the website has it. Enterprise customers are starting to get it as well as partners. And so it should be over the next 3 to 6 months.
Zachary Cummins
B. Riley Securities, Inc., Research Division
Understood. And can you talk a little bit more about some of your success with digital agency and partners there with this new Issue Reporting capability? It sounds like you were actually able to displace a competitor because of your superior solution that I assume comes at a much lower cost.
David D. Moradi
Interim CEO, Chief Strategy Officer & Director
Yes. I mean the product is differentiated and it's a superior product. It's the most transparent solution. You have an accessibility score, continuous reporting, the highest level of automation. This is really disruptive actually with Issue Reporting. We're giving this away for much cheaper than competitors. Competitors are charging upwards of $10,000, $20,000, $30,000 for something we're essentially giving away now in your subscription packages.
Zachary Cummins
B. Riley Securities, Inc., Research Division
Understood. That's helpful. And David, can you give me a little more depth on the investments that you're making in sales and marketing? I think Kelly called it out in her script that really starting to look at incremental investments in paid media as well as head count.
David D. Moradi
Interim CEO, Chief Strategy Officer & Director
Yes, we're in the early innings of digital accessibility and expect that the market is going to grow rapidly over the next few years. So we're trying to get in front of that. We're balancing the opportunity to further increase our tech lead with investments against near-term profitability to maximize the long term for us.
As you can see, the R&D has been going up, and we're starting to get a nice return on that investment. We expect to generate efficiencies from sales and marketing over the next few quarters and expect that will go down as a percentage of revenue.
Zachary Cummins
B. Riley Securities, Inc., Research Division
Got it. And David, second year in a row that you've been at the INBOUND event as the accessibility provider. I was just curious, does that exposure provide you an opportunity for a deeper partnership with HubSpot? And I imagine it serves as a pretty good lead generation tool for new customers.
David D. Moradi
Interim CEO, Chief Strategy Officer & Director
Yes, we can't really comment on specifics of partnerships, but yes, you should assume that we're speaking to them.
Zachary Cummins
B. Riley Securities, Inc., Research Division
Understood. And I guess final question just speaking around relationships on the partner side, I know you had some of those relationships pushed out and no longer expected to happen in this year. But can you give us any sort of update on that? Are these still in the pipeline in still ongoing discussions for pretty meaningful partnerships for AudioEye?
David D. Moradi
Interim CEO, Chief Strategy Officer & Director
Yes, nothing really changed except the timing. We're still discussing the same partnerships with the same folks. It's just not their highest priority at the moment. And so hopefully that changes in the future, and we can start to do the upgrade processes and do these large platform integrations.
Zachary Cummins
B. Riley Securities, Inc., Research Division
Understood. Really appreciate it and looking forward to speaking soon.
Operator
Our next question is from Allen Klee of Maxim Group.
Derek Greenberg
Maxim Group, LLC
This is Derek Greenberg on for Allen. My first question is how much do you guys have left with your ATM? Has it changed at all this quarter?
Kelly Georgevich
CFO, Principal Financial Officer & Principal Accounting Officer
We're ending the quarter at $22 million of cash. If you look at our year-to-date net increase of cash, it is $12.8 million. That is inclusive of the $16.5 million generated from the at the market offering.
Derek Greenberg
Maxim Group, LLC
Okay. And then what was you guys' operating cash flow and capitalized software development costs for this quarter?
Kelly Georgevich
CFO, Principal Financial Officer & Principal Accounting Officer
Capitalized software development costs for the quarter were $370,000. And operating cash flow was 2.4 -- sorry, a burn of $2.4 million.
Derek Greenberg
Maxim Group, LLC
Okay. And then lastly, what about D&A?
Kelly Georgevich
CFO, Principal Financial Officer & Principal Accounting Officer
G&A as an expense?
Derek Greenberg
Maxim Group, LLC
No, the ...
David D. Moradi
Interim CEO, Chief Strategy Officer & Director
Did you say D&A or G&A?
Derek Greenberg
Maxim Group, LLC
Yes, D&A, depreciation.
Kelly Georgevich
CFO, Principal Financial Officer & Principal Accounting Officer
D&A, sorry, depreciation. Yes, depreciation was $357,000 in the quarter.
Derek Greenberg
Maxim Group, LLC
Okay. Great.
Operator
Our next question is from Scott Buck of H.C. Wainright.
Scott Christian Buck
H.C. Wainwright & Co, LLC, Research Division
A bit of a follow-up on Zach's question regarding sales and marketing. Can you give us a little color about how you think about ROI there, and maybe when we should expect to see some of the revenue benefits from this investment?
David D. Moradi
Interim CEO, Chief Strategy Officer & Director
I would think over the next year, you'll see the benefits. It's really increasing leads at the top of the funnel. And we're in the optimizing phase. We're trying a lot of new things and testing things out and getting better at what we're doing. So there is some inefficiency there at the moment, but that should get better.
Scott Christian Buck
H.C. Wainwright & Co, LLC, Research Division
All right. That's helpful. And then second one for me, can you just kind of give us a reminder? This is the second or third quarter where you've shown pretty significant year-over-year expansion in gross margins. What's kind of the expectation there moving forward? And are we kind of topping out here in the mid-70s?
Kelly Georgevich
CFO, Principal Financial Officer & Principal Accounting Officer
Yes, we're happy with our gross margins over the last few quarters. It's been consistently in the mid-70s, and we expect that to continue or improve going forward. We're not giving specific guidance on future quarters, but I'm pleased with our range and don't expect any significant differences to occur.
Scott Christian Buck
H.C. Wainwright & Co, LLC, Research Division
Okay, perfect. I appreciate the time.
Operator
Thank you. At this time, this concludes our question-and-answer session. I'd now like to turn the call back over to Mr. Moradi for closing remarks.
David D. Moradi
Interim CEO, Chief Strategy Officer & Director
Great. Thank you. Thank you for joining us today. As always, I want to thank our employees, partners, and investors for their continued support. We look forward to updating you on our next call.
Operator
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 on the Investors section of the company's website. Thank you for joining us today for AudioEye's Third Quarter 2021 Earnings Conference Call. You may now disconnect.