AUDIOEYE INC

Previous wording

fixing most of the common accessibility errors and addresses a wide range of disabilities including dyslexia, color blindness, epilepsy and more. AudioEye also offers additional solutions to provide for enhanced compliance and accessibility, including periodic auditing, human assisted technological remediations and legal support services. Our solutions may be purchased through a subscription service on a month-to-month basis or with one or multi-year terms. We also offer PDF remediation services and Native Mobile App and Audit reports to help our customers with their digital accessibility needs.

Current wording

At its core, AudioEye’s offering provides an always-on testing, remediation, and monitoring solution that continually improves conformance with Web Content Accessibility Guidelines (“WCAG”). This in turn helps businesses and organizations comply with WCAG standards as well as applicable U.S. and foreign accessibility laws. Our technology is capable of immediately identifying and fixing most of the common accessibility errors and addresses a wide range of disabilities including dyslexia, color blindness, epilepsy and more. AudioEye also offers additional solutions to provide for enhanced compliance and accessibility, including periodic auditing, human assisted technological remediations and legal support services. Our solutions may be purchased through a subscription service on a month-to-month basis or with one or multi-year terms. We also offer PDF remediation services and mobile application and audit reporting services to help our customers with their digital accessibility needs.

Previous wording

Our intellectual property is primarily comprised of copyrights, trademarks, trade secrets, issued patents and pending patent applications. We have a patent portfolio comprised of twenty-two (22) issued patents in the United States and two (2) pending US patent applications. The commercial value of these patents is unknown.

Current wording

Our intellectual property is primarily comprised of copyrights, trademarks, trade secrets, issued patents and pending patent applications. We have a patent portfolio comprised of twenty-three (23) issued patents in the United States and three (3) pending US patent applications. The commercial value of these patents is unknown.

Previous wording

On April 8, 2024, the U.S. Department of Justice (“DOJ”) signed a rule to add specific requirements about web and mobile application accessibility under Title II of the ADA that would apply to state and local governments.

Current wording

On April 24, 2024, the U.S. Department of Justice (“DOJ”) published a rule to add specific requirements about web and mobile application accessibility under Title II of the ADA that would apply to state and local governments. On May 9, 2024, the U.S. Department of Health and Human Services (“HHS”) published a rule to add, among other things, specific requirements about web and mobile application accessibility under Section 504 of the Rehabilitation Act that would apply to recipients of Federal financial assistance.

Previous wording

We have two sales channels to deliver our product, the Partner and Marketplace channel and the Enterprise channel. AudioEye continues to focus on recurring revenue growth in both channels, while still offering our Native Mobile App report services and PDF services that provide non-recurring revenue. For the three months ended March 31, 2024, total revenue increased by 4% over the prior year comparable period. As of March 31, 2024, Annual Recurring Revenue (“ARR”) was approximately $32.0 million, which represented an increase of 8% year-over-year. Refer to Other Key Operating Metrics below for details on how we calculate ARR.

Current wording

We have two sales channels to deliver our product, the Partner and Marketplace channel and the Enterprise channel. AudioEye continues to focus on recurring revenue growth in both channels, while still offering our mobile application reporting services and PDF remediation services that provide non-recurring revenue. For the six months ended June 30, 2024, total revenue increased by 6% over the prior year comparable period. As of June 30, 2024, Annual Recurring Revenue (“ARR”) was approximately $33.3 million, which represented an increase of 12% year-over-year. Refer to Other Key Operating Metrics below for details on how we calculate ARR.

Previous wording

As of March 31, 2024, AudioEye had approximately 112,000 customers, a 18% increase from 95,000 customers at March 31, 2023. The increase in customer count is attributed to our Partner and Marketplace channel.

Current wording

As of June 30, 2024, AudioEye had approximately 121,000 customers, a 16% increase from 104,000 customers at June 30, 2023. The increase in customer count is attributed to both our Partner and Marketplace and Enterprise channels.

Previous wording

In the three months ended March 31, 2024, revenue from our Partner and Marketplace channel grew 9% over the prior year comparable period. This channel represented about 60% of ARR at the end of March 2024. In three months ended March 31, 2024, total Enterprise channel revenue decreased by 2% from the prior year comparable period. The Enterprise channel represented about 40% of ARR at the end of March 2024.

Current wording

In the six months ended June 30, 2024, revenue from our Partner and Marketplace channel grew 11% over the prior year comparable period. This channel represented about 60% of ARR at the end of June 2024. In six months ended June 30, 2024, total Enterprise channel revenue remained consistent with the prior year comparable period. The Enterprise channel represented about 40% of ARR at the end of June 2024.

Previous wording

We had one customer (including the customer’s affiliates reflecting multiple contracts and a partnership with the Company) which accounted for approximately 16% of our total revenue in each of the three months ended March 31, 2024 and 2023.

Current wording

We had one customer (including the customer’s affiliates reflecting multiple contracts and a partnership with the Company) which accounted for approximately 16% of our total revenue in each of the six months ended June 30, 2024 and 2023.

Previous wording

The Company continued to invest in research and development in the first quarter of 2024. Total research and development cost, as defined under Research and Development Expenses section in the Results of Operations below, was 22% of total revenue in the three months ended March 31, 2024. Total research and development cost decreased from the prior year comparable period primarily due to the completion of significant initiatives in research and development.

Current wording

The Company continued to invest in research and development in the second quarter of 2024. Total research and development cost, as defined under Research and Development Expenses section in the Results of Operations below, was 21% of total revenue in the six months ended June 30, 2024. Total research and development cost decreased from the prior year comparable period primarily due to the completion of significant initiatives in research and development.

Previous wording

While revenue increased 4% in the three months ended March 31, 2024, selling and marketing expense and general and administrative expense decreased from the prior year comparable period. This decrease was mainly driven by efficiencies in selling and marketing, lower stock compensation expense and a reduction in overall legal expenses, including non-recurring litigation expenses.

Current wording

While revenue increased 6% in the six months ended June 30, 2024, selling and marketing expense and general and administrative expense decreased from the prior year comparable period. This decrease was mainly driven by efficiencies in selling and marketing and lower stock compensation expense.

Previous wording

Our unaudited consolidated financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP” or “GAAP”). The discussion of the results of our operations compares the three months ended March 31, 2024 with the three months ended March 31, 2023.

Current wording

Our unaudited consolidated financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP” or “GAAP”). The discussion of the results of our operations compares the three and six months ended June 30, 2024 with the three and six months ended June 30, 2023.

Previous wording

For the three months ended March 31, 2024, total revenue increased by 4% over the prior year comparable period. The increase Partner and Marketplace channel revenue was the result of continued expansion with existing partners and execution of new partnerships agreements in the period. The decrease in Enterprise channel revenue for the three months ended March 31, 2024 was driven primarily by lower one-time Website and Mobile App report services revenue.

Current wording

For the three and six months ended June 30, 2024, total revenue increased by 8% and 6%, respectively, over the prior year comparable periods. The increase in Partner and Marketplace channel revenue was the result of continued expansion with existing partners and execution of new partnerships agreements in the period. The increase in Enterprise channel revenue for the three months ended June 30, 2024 was driven primarily by an increase in Enterprise customers.

Previous wording

For the three months ended March 31, 2024, gross profit increased by 4% over the prior year comparable period. The increase in gross profit was a result of increased revenue with a lower increase in cost of revenue.

Current wording

For the three and six months ended June 30, 2024, gross profit increased by 11% and 8% over the prior year comparable periods. The increase in gross profit was a result of increased revenue.

Previous wording

For the three months ended March 31, 2024, selling and marketing expenses decreased by 7% over the prior year comparable period. The decrease in selling and marketing expenses resulted primarily from a reduction in online media and third-party marketing expenses and a reduction to stock compensation expense.

Current wording

For the three and six months ended June 30, 2024, selling and marketing expenses decreased by 9% and 8%, respectively, over the prior year comparable periods. The decrease in selling and marketing expenses resulted primarily from a reduction in online media and third-party marketing expenses and a reduction to stock compensation expense.

Previous wording

For the three months ended March 31, 2024, research and development expense decreased by 24% over the prior year comparable period. This decrease was driven by lower personnel cost associated with a realignment in our product and development teams following the completion of significant initiatives in R&D. For the three months ended March 31, 2024, capitalized research and development cost increased by 4% over the prior year comparable period. The increase to capitalized research cost was the result of engineering personnel spending more time on product development than in the prior year comparable period. For the three months ended March 31, 2024, total research and development cost, which includes both R&D expenses and capitalized R&D costs, decreased by 18% over the prior year comparable period.

Current wording

For the three and six months ended June 30, 2024, research and development expense decreased by 40% and 33%, respectively, over the prior year comparable periods. This decrease was driven by lower personnel cost associated with a realignment in our product and development teams following the completion of significant initiatives in R&D. For the three and six months ended June 30, 2024, capitalized research and development cost decreased by 13% and 5%, respectively, over the prior year comparable periods. The decrease to capitalized research cost was the result of engineering personnel spending less time on product development than in the prior year comparable periods. For the three and six months ended June 30, 2024, total research and development cost, which includes both R&D expenses and capitalized R&D costs, decreased by 34% and 27%, respectively, over the prior year comparable periods.

Previous wording

For the three months ended March 31, 2024, general and administrative expenses decreased by 16% over the prior year comparable period. The decrease in general and administrative expenses was due primarily to lower stock compensation expense and a reduction in overall legal expenses, including non-recurring litigation expenses.

Current wording

For the six months ended June 30, 2024, general and administrative expenses decreased by 5% over the prior year comparable periods. The decrease in general and administrative expenses was due primarily to lower personnel costs and a reduction in valuation adjustments to contingent consideration, partially offset by an increase in litigation expenses.

Previous wording

For the three months ended March 31, 2024, interest expense, net consisted primarily of interest on our term loan borrowed in the fourth quarter of 2023, which was partially offset by interest income from investment in money market funds. For the three months ended March 31, 2023, interest income, net consisted primarily of income from investment in money market funds.

Current wording

For the three and six months ended June 30, 2024, interest expense, net consisted primarily of interest on our term loan borrowed in the fourth quarter of 2023, which was partially offset by interest income from investment in money market funds. For the three and six months ended June 30, 2023, interest income, net consisted primarily of income from investment in money market funds.

Previous wording

We define ARR as the sum of (i) for our Enterprise channel, the total of the annualized recurring fee at the date of determination under each active contract, plus (ii) for our Partner and Marketplace channel, the monthly fee for all active customers at the date of determination, in each case, assuming no changes to the subscription, multiplied by 12. This determination includes both annual and monthly contracts for recurring products. Some of our contracts are cancelable, which may impact future ARR. ARR excludes revenue from our PDF remediation services business, one-time Mobile App report services business and other miscellaneous non-recurring services. As of March 31, 2024, ARR was $32.0 million, which represents an increase of 8% year-over-year, driven by growth in both our Partner and Marketplace channel and Enterprise channel.

Current wording

We define ARR as the sum of (i) for our Enterprise channel, the total of the annualized recurring fee at the date of determination under each active contract, plus (ii) for our Partner and Marketplace channel, the annual or monthly recurring fee for all active customers at the date of determination, in each case, assuming no changes to the subscription, multiplied by 12 if applicable. Recurring fees are defined as revenues expected to be generated from services typically offered as a subscription service such as our automation and platform, periodic auditing, human-assisted technological remediations, legal support and professional service offerings and other services that reoccur on a multi-year contract. This determination includes both annual and monthly contracts for recurring products. Some of our contracts are terminable prior to the expected term, which may impact future ARR. ARR excludes non-recurring fees, which are defined as revenue expected to be generated from services typically not offered as a subscription service such as our PDF remediation services business, one-time mobile application reports, and other miscellaneous services that are offered as non-subscription services or are expected to be one-time in nature. As of June 30, 2024, ARR was $33.3 million, which represents an increase of 12% year-over-year, driven by growth in both our Partner and Marketplace channel and Enterprise channel.

Previous wording

As of March 31, 2024, we had $7,040,000 in cash and working capital of $1,541,000. The $1.7 million decrease in working capital in the three months ended March 31, 2024 was primarily due to the use of $1.69 million in cash to repurchase shares of our common stock.

Current wording

As of June 30, 2024, we had $5,086,000 in cash and working capital of $1,607,000. The $1.6 million decrease in working capital in the six months ended June 30, 2024 was primarily due to the use of $2.02 million in cash to repurchase 299,371 shares of our common stock.

Previous wording

In November 2023, the Board of Directors adopted a share repurchase program authorizing the repurchase of up to $5 million of our common stock through December 31, 2025. The stock repurchase program may be suspended or discontinued at any time and does not commit the Company to repurchase any dollar amount or particular number of shares of stock. Shares repurchased under the program are subsequently retired and restored to the status of authorized but unissued shares of common stock. As of March 31, 2024, we had $2.19 million remaining for the repurchase of shares.

Current wording

In November 2023, the Board of Directors adopted a share repurchase program authorizing the repurchase of up to $5 million of our common stock through December 31, 2025. The stock repurchase program may be suspended or discontinued at any time and does not commit the Company to repurchase any dollar amount or particular number of shares of stock. Shares repurchased under the program are subsequently retired and restored to the status of authorized but unissued shares of common stock. As of June 30, 2024, we had $1.86 million remaining for the repurchase of shares.

Previous wording

As of March 31, 2024, we had $2.4 million in current contingent consideration liability recognized in connection with the acquisition of BOIA, and $7.0 million in noncurrent term loan which matures on November 30, 2026. In April 2024, we made the $2.4 million cash payment to settle the contingent consideration associated with the BOIA acquisition in full.

Current wording

In the second quarter of 2024, we made the $2.4 million cash payment to settle the contingent consideration associated with the BOIA acquisition in full. As of June 30, 2024, we had $7.0 million in noncurrent term loan which matures on November 30, 2026.

Previous wording

For the three months ended March 31, 2024, in relation to the prior year comparable period, cash provided by operating activities decreased primarily due timing of customer collections and vendor payments.

Current wording

For the six months ended June 30, 2024, in relation to the prior year comparable period, cash used in investing activities decreased primarily due to lower software development costs.

Previous wording

For the three months ended March 31, 2024, cash outflows from financing activities included $1.69 million in common stock repurchases. For the three months ended March 31, 2023, cash outfows included $974,000 payment towards our contingent consideration in connection with the acquisition of BOIA, of which $908,000 and $66,000 are classified as cash used in financing and operating activities, respectively.

Current wording

For the six months ended June 30, 2024, in relation to the prior year comparable period, cash used in financing activities increased primarily due to common stock repurchases totaling $2.02 million, as well as higher payouts towards the contingent consideration in connection with the acquisition of BOIA. In the six months ended June 30, 2024, payments towards our contingent consideration totaled $2,387,000, of which $1,677,000 and $710,000 are classified as cash used in financing and operating activities, respectively. In the six months ended June 30, 2023, payments towards our contingent consideration totaled $974,000, of which $908,000 and $66,000 are classified as cash used in financing and operating activities, respectively.