Earnings Call Transcript - AEYE Q1 2026

Operator, Operator

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 Georgevich and Executive Chairman and Chief Product Officer, Mr. David D. Moradi. 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 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 that are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed on today's press release and 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 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 or otherwise posted in the Investor Relations section of its website at www.audioeye.com. Now I would like to turn the call over to AudioEye's Executive Chairman and Chief Product Officer, Mr. David D. Moradi.

David D. Moradi, Executive Chairman & Chief Product Officer

Thank you, operator. And good afternoon, everyone. The first quarter marks the 41st consecutive quarter of record revenue, 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, a different story. We have the leading product on the market and more than 127 thousand 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. I was tasked with improving product, go-to-market, margins, and scale. Since then, revenues have nearly quadrupled and adjusted EBITDA margins have improved from approximately -70% and are expected to be in the high 20% range this year. Revenue per employee has improved from approximately $100 thousand per employee in 2019 to over $400 thousand per employee—around a 400% increase. Kelly has been instrumental in helping us achieve these top-tier results since joining AudioEye in 2021. I worked closely with Kelly for almost five years and I am 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' 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 large language model improvements. I have served as head of product since 2023 during a period of significant innovation, including our next-generation 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 WebAIM 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 dataset which was developed over 10 years on over 100 thousand websites and millions of data points, using our unique approach of combining AI automation with custom fixes. And we are very excited about upcoming AI-genic product releases. As we enter this next phase of AudioEye's 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 believe you are in good hands with your new CEO. With that, I will hand it over to Kelly.

Kelly Georgevich, Chief Executive Officer

Thank you, David. Good afternoon, everyone. It is 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 have spent five years working with David and driving change, and I am excited about what the next phase looks like both from an operational standpoint and from a product and market opportunity standpoint. I will 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. AI-genic coding solutions are driving faster web development and 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 10 years 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 the 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 the 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 begins, 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 31, 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 quarters of this year. As of March 31, 2026, AudioEye had approximately 127 thousand customers, up 8 thousand from March 31, 2025. The 4 thousand-customer decrease from December 31, 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 31, 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 31, 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 second half 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 the first quarter of 2025. Adjusted gross margin, defined as gross margin adjusted for noncash items in our cost of revenue such as amortization and capitalized software development costs and stock compensation expense, was 84% in the first quarter of 2026 compared to 85% in the prior-year comparable period. In Q1 2026, operating expenses were $10.1 million compared to $8.7 million in the first quarter of 2025. Net loss in Q1 2026 was $2.1 million, or $0.17 per share, compared to a net loss of $1.5 million, or $0.12 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 million with approximately $500 thousand 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 first quarter 2026 revenue, down from 17% in the first quarter of 2025, demonstrating our continued progress in operating leverage. In Q1 2026, we achieved adjusted EBITDA of approximately $2.4 million, or $0.18 per share, and adjusted EBITDA margin of 22%. This compares to Q1 2025 adjusted EBITDA of $1.9 million, or $0.15 per share, a 20% adjusted EBITDA margin. The $500 thousand increase in adjusted EBITDA over the comparable prior-year period was driven by a $500 thousand 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 less $500 thousand of software development costs—an improvement of $500 thousand from the first quarter of 2025. We further strengthened our balance sheet in Q1 2026 by drawing down the remaining $3.6 million of our delayed draw term loan, which would otherwise have expired on March 31. We ended the quarter with $8.6 million in cash and $3 million available under our revolving line of credit. As of March 31, 2026, our net debt, defined as total debt less cash, was $8.4 million. Our net debt to adjusted EBITDA ratio using our 2026 EBITDA guidance is approximately 0.7x. Now turning to guidance. For Q2 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 $0.21 and $0.22 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 $0.96. This would suggest at least 33% growth in adjusted EBITDA and adjusted EPS from 2025. This compounding ARR is expected to drive notable sequential growth rates in the second half of 2026, and expanding operating leverage throughout 2026. We continue to target a $15 million run-rate adjusted EBITDA by year-end 2026. With that, I will turn the call back to the operator to open the line for questions. Operator?

Operator, Operator

Thank you. At this time, we will be conducting a question-and-answer session. Our first question comes from George Sutton with Craig Hallum. Your line is now live.

George Frederick Sutton, Analyst (Craig Hallum)

Thank you. First, congrats to both of you on your new roles. I wanted to address the comment that the Internet is becoming less accessible. You did give a couple of brief points there. I wondered if you could expand on the thought process.

David D. Moradi, Executive Chairman & Chief Product Officer

Yeah. The tools—I've talked about this before. The tools are pulling from a lot of inaccessible content because the Internet was not coded with accessibility in mind. You are seeing the number of sites explode, the amount of content explode, and that is why we are seeing all-time highs in litigation. And there is that recent WebAIM study that Kelly was talking about that confirmed this. We said this on the last call and that confirmed it recently through the WebAIM study—that it is actually getting worse, not better.

George Frederick Sutton, Analyst (Craig Hallum)

So, David, your voice inflected early in your prepared comments when you mentioned AI-genic upcoming. Can you talk about plans there?

David D. Moradi, Executive Chairman & Chief Product Officer

Yeah. There is a lot going on there. We are using agents to make products faster and better for clients, really leveraging our data. The goal is to make things easier for clients—simpler to understand, simpler to use—and increase their protection even further. So there are a lot of unlocks we could not do before that we can do now, which are really, really exciting.

George Frederick Sutton, Analyst (Craig Hallum)

Gotcha. Last question. Kelly, you emphasized the ramp in ARR in Q3 and Q4. Can you just walk us through the rest of the year in terms of what the drivers are in Q2 versus Q3 and Q4?

Kelly Georgevich, Chief Executive Officer

Yeah. We are firing on all cylinders. We are seeing new business and expansion numbers. We are seeing great expansion from partners as well. And so the sequential growth in revenue should tick up notably in Q3 and Q4 with that compounding ARR.

George Frederick Sutton, Analyst (Craig Hallum)

Okay. Thank you, guys.

Kelly Georgevich, Chief Executive Officer

Thank you.

Operator, Operator

Our next question is from Joshua Reilly with Needham and Company. Your line is now live.

Joshua Christopher Reilly, Analyst (Needham & Company)

Great. Thanks for taking my questions, and I will echo the congrats on the change in management dynamic here. Just a little bit more color, David, on why is now the right time to make this transition in the management of the business, and what gives you the confidence that the product is in the right place going forward given the dynamics around what is going on with AI?

David D. Moradi, Executive Chairman & Chief Product Officer

Yeah. I do not— I hope my stay was not unwelcome here. I have been here quite a long time, a lot longer than I ever thought I would be. But, look, things are going really well right now. So I think this is a great time to do it. As you recall, the board asked me to do this back in 2019 to help turn the company around. That is really what we have done. We put up 41 straight quarters of record revenue. We have 127 thousand customers. We are approaching a 30% adjusted EBITDA margin, and that was— that was like -70% when I joined the board back in 2019. We are poised to generate significant cash. Also, the products really improved. We can do things that no one else in the industry can do. So I think it is a great time. Kelly's been a strong leader for over five years. She knows the company better than anyone and this allows me to focus on product, AI, and long-term strategy. I am very excited about what we are going to be able to do here.

Joshua Christopher Reilly, Analyst (Needham & Company)

Got it. That is helpful. And then what do you see from customers in terms of their understanding of how AI is going to impact website development going forward? I do not think you have really seen a significant pause in terms of how customers are evaluating this. But do you think that they understand how they are going to manage their websites going forward and how they could integrate your solution to have a more compliant end?

David D. Moradi, Executive Chairman & Chief Product Officer

Most people are still trying to understand it with the coding tools. A lot are not using coding tools. A lot are not AI-native yet. So they are working to understand things. I do not think there is a uniform view at this point of how they are going to use things, but it is evolving quickly.

Joshua Christopher Reilly, Analyst (Needham & Company)

And then on the Title II change in the timing there, you know, it is interesting. It did not seem realistic to ever have all of the potential customers ready with the compliance solution by the previous deadline. How do you think the dynamic is going to change with the new deadline? Do you think that customers will be more aggressive with getting their websites compliant by this new deadline and it is more realistic, or do you think that there will have to be more exceptions made and push-outs over the next few years?

Kelly Georgevich, Chief Executive Officer

From what we see, the DOJ seems pretty committed to accessibility. Look at the cases of Uber and Seanair and Greyhound, and they did not change anything with the rule. We view this as giving us additional runway to penetrate. We have seen great momentum with our partners going out in the space, but there is a lot of opportunity to continue to penetrate. In talking to those partners, the message is full steam ahead. They still feel the urgency, and they are moving forward with the same go-to-market and the same urgency to their customers.

Joshua Christopher Reilly, Analyst (Needham & Company)

Got it. Alright. Well, that is it for me. Thank you guys very much.

Kelly Georgevich, Chief Executive Officer

Thank you.

Operator, Operator

Our next question is from Richard Baldry with ROTH Capital Partners. Your line is now live.

Richard Kenneth Baldry, Analyst (ROTH Capital Partners)

Thanks. Now is it possible that the delay to that deadline actually helps you find more partners because it gives them more time to think that there is a longer window ahead to be generating customers in partnership with you?

Kelly Georgevich, Chief Executive Officer

Yeah. Absolutely. I think we view it that way. We still have plenty to penetrate with our two key partners in the space and just across the board. I think there is still a lot of people who need a solution, so it gives us additional runway ahead of that April 2027 new deadline.

David D. Moradi, Executive Chairman & Chief Product Officer

I think you would be remiss in not having a solution, just to be clear. The market's still very wide open on that side of the business, so I think this is actually a good thing.

Richard Kenneth Baldry, Analyst (ROTH Capital Partners)

Got it. I think recently you have been adding some resources in Europe. Do you want to update on where that is at, where the capacity is or the ramp in productivity there, and where you think you can get to?

Kelly Georgevich, Chief Executive Officer

Yeah. We continue to invest in the EU. We will keep investing in it through the rest of the year and beyond. The EU is moving a bit slower and is a bit bureaucratic, but we are seeing positive signals. We are seeing a pipeline build, and I think just the team there—we are building as well. So once enforcement happens, all bets are off, but we are setting ourselves up well for when that happens.

Richard Kenneth Baldry, Analyst (ROTH Capital Partners)

Got it. Maybe last for me. The litigation expense was up a bit in the quarter. Can you give a little update on where that is at? Did it peak in the quarter? Do you think it ebbs from here forward? Any thoughts around that wrapping up? Thanks.

Kelly Georgevich, Chief Executive Officer

I cannot comment on current litigation, but we are aggressively pursuing it. There is a trial date in Q4, so we do expect costs to go down substantially at some point this year.

Richard Kenneth Baldry, Analyst (ROTH Capital Partners)

Great. Thanks.

Operator, Operator

Our next question comes from Zachary Cummins with B. Riley Securities. Your line is now live.

Zachary Cummins, Analyst (B. Riley Securities)

Yes. Thanks for taking the question. Kelly, just curious if there are any immediate or strategic changes that you think you will bring as you fully take on your new role? And then, David, from an AI perspective, what opportunity is there for automating more of the product that you currently offer? Are there efficiencies to be realized in a significant way in terms of the process of making these sites more accessible?

Kelly Georgevich, Chief Executive Officer

Yeah. I can take that first part. Thanks to David's leadership, we are in the best position we have ever been. We have a really strong product. We have a great financial profile with strong revenues and record margins. And we have a huge demand driver in the EU once we see enforcement. So all of that is full steam ahead. We have a great team. We are excited to have David focus further on product. And we are also excited about the opportunities to leverage our tech and customer base in new verticals with AI advancements. So I think that is on the deck as well.

David D. Moradi, Executive Chairman & Chief Product Officer

We are using our proprietary data with agents to really unlock a lot of value. We think that is going to drive our margins up over time and give clients a lot more value in the future—accuracy, detection, legal protection, things like that. Can you reduce the amount of professional services that are required in a lot of these cases? That is the goal. That is what we have done as the disruptor in this industry against the consultants, and that is our goal to keep reducing that.

Zachary Cummins, Analyst (B. Riley Securities)

Very good. Thank you.

Operator, Operator

At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Ms. Kelly Georgevich for her closing remarks.

Kelly Georgevich, Chief Executive Officer

I would like to thank our employees, customers, and investors for their support, and we look forward to providing an update on the next quarter. Thanks.

Operator, 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 in the Investor Relations section of the company's website. Thank you for joining us today for AudioEye's First Quarter 2026 earnings conference call. You may now disconnect.