AUDIOEYE INC

Previous wording

AudioEye is an industry-leading digital accessibility platform delivering Americans with Disabilities Act (“ADA”) and WCAG compliance at scale. Our solutions advance accessibility with patented technology that reduces barriers, expands access for individuals with disabilities, and enhances the user experience for a broader audience. In the three months ended June 30, 2024, we continued to focus on product innovation, expanding revenue and managing expenses.

Current wording

AudioEye is an industry-leading digital accessibility platform delivering Americans with Disabilities Act (“ADA”) and WCAG compliance at scale. Our solutions advance accessibility with patented technology that reduces barriers, expands access for individuals with disabilities, and enhances the user experience for a broader audience. In the three and nine months ended September 30, 2024, we continued to focus on product innovation, expanding revenue and managing expenses.

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 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.

Current wording

For the nine months ended September 30, 2024, total revenue increased by 9% over the prior year comparable period. As of September 30, 2024, Annual Recurring Revenue (“ARR”) was approximately $36.2 million, which represented an increase of 19% year-over-year. Refer to Other Key Operating Metrics below for details on how we calculate ARR.

Previous 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.

Current wording

As of September 30, 2024, AudioEye had approximately 126,000 customers, an 18% increase from 107,000 customers at September 30, 2023. The increase in customer count is attributed to both our Partner and Marketplace and Enterprise channels.

Previous 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.

Current wording

In the nine months ended September 30, 2024, revenue from our Partner and Marketplace channel grew 12% over the prior year comparable period. This channel represented about 58% of ARR at the end of September 2024. In nine months ended September 30, 2024, total Enterprise channel revenue grew 5% over the prior year comparable period. The Enterprise channel represented about 42% of ARR at the end of September 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 six months ended June 30, 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 nine months ended September 30, 2024 and 2023.

Previous 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.

Current wording

The Company continued to invest in research and development in the third quarter of 2024. Total research and development cost, as defined under Research and Development Expenses section in the Results of Operations below, was 20% of total revenue in the nine months ended September 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 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.

Current wording

In the nine months ended September 30, 2024, selling and marketing expense decreased from the prior year comparable period. This decrease was mainly driven by efficiencies in selling and marketing. The increase in general and administrative expenses in the nine months ended September 30, 2024 was due primarily to transaction costs incurred in connection with the acquisition of ADA Site Compliance, as well as an increase in litigation expenses.

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 and six months ended June 30, 2024 with the three and six months ended June 30, 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 nine months ended September 30, 2024 with the three and nine months ended September 30, 2023.

Previous wording

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 custom pricing and solutions. This channel also includes federal, state and local government agencies.

Current wording

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 custom pricing and solutions. This channel also includes federal, state and local government agenciesand revenue attributable to ADA Site Compliance, which was acquired in September 2024.

Previous 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.

Current wording

For the three and nine months ended September 30, 2024, total revenue increased by 14% and 9%, respectively, over the prior year comparable periods. The increase in Partner and Marketplace channel revenue for the three and nine months ended September 30, 2024 was primarily due to continued expansion with existing partners. The increase in Enterprise channel revenue for the three and nine months ended September 30, 2024 was driven primarily by an increase in Enterprise customers.

Previous wording

For the three and six months ended June 30, 2024, cost of revenue remained consistent with the prior year comparable periods.

Current wording

For the three and nine months ended September 30, 2024, cost of revenue remained consistent with the prior year comparable periods.

Previous 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.

Current wording

For the three and nine months ended September 30, 2024, gross profit increased by 17% and 11%, respectively, over the prior year comparable periods. The increase in gross profit was a result of increased revenue.

Previous 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.

Current wording

For the three months ended September 30, 2024, selling and marketing expenses increased by 9% over the prior year comparable period. The increase in selling and marketing expenses resulted primarily from higher third-party marketing and stock compensation expense. For the nine months ended September 30, 2024, selling and marketing expenses decreased by 3% over the prior year comparable period. This decrease resulted primarily from a reduction in online media and third-party marketing expenses.

Previous 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.

Current wording

For the three and nine months ended September 30, 2024, research and development expense decreased by 41% and 36%, respectively, from the prior year comparable periods. These decreases were 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 nine months ended September 30, 2024, capitalized research and development cost decreased by 10% and 7%, respectively, over the prior year comparable periods. These decreases to capitalized research cost were the result of engineering personnel spending less time on product development than in the prior year comparable periods. For the three and nine months ended September 30, 2024, total research and development cost, which includes both R&D expenses and capitalized R&D costs, decreased by 35% and 30%, respectively, from the prior year comparable periods.

Previous wording

General and administrative expenses consist primarily of compensation and benefits related to our executives, directors and corporate support functions, general corporate expenses including legal fees, and occupancy costs.

Current wording

General and administrative expenses consist primarily of compensation and benefits related to our executives, directors and corporate support functions, general corporate expenses including legal fees, occupancy and transaction costs.

Previous 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.

Current wording

For the three and nine months ended September 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 nine months ended September 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 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.

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 or annual service offering such as our automation and platform, periodic auditing, human-assisted technological fixes, 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 or annual service offering 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 September 30, 2024, ARR was $36.2 million, which represents an increase of 19% year-over-year, driven by growth in both our Partner and Marketplace channel and Enterprise channel.

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 June 30, 2024, we had $1.86 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. In the nine months ended September 30, 2024, we paid $2.02 million in cash to repurchase 299,371 shares of our common stock. As of September 30, 2024, we had $1.86 million remaining for the repurchase of shares.

Previous wording

In the second quarter of 2024, the Company initiated an At The Market offering (“ATM offering”), under which we issued 39,646 shares of our common stock and raised $663,000, net of transaction expenses. As of June 30, 2024, offering costs included in accounts payable totaled $100,000.

Current wording

In the second quarter of 2024, the Company initiated an At The Market offering (“ATM offering”), under which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $7.0 million from time to time. As of September 30, 2024, we had issued 162,524 shares of our common stock and raised $3,473,000, net of transaction expenses, under the ATM offering.

Previous 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.

Current wording

In the second quarter of 2024, we made a $2.4 million cash payment to settle the contingent consideration associated with the BOIA acquisition in full.

Previous wording

For the six months ended June 30, 2024, in relation to the prior year comparable period, cash provided by operating activities increased primarily due cost efficiencies associated with lower personnel cost following a realignment in our product and development teams, as well as lower online media and third-party marketing expenses.

Current wording

For the nine months ended September 30, 2024, in relation to the prior year comparable period, cash provided by operating activities increased primarily due to increased revenue, cost efficiencies associated with lower personnel expense following a realignment in our product and development teams, as well as lower online media and third-party marketing expenses.

Previous 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.

Current wording

For the nine months ended September 30, 2024, in relation to the prior year comparable period, cash used in investing activities increased primarily due to the acquisition of ADASite Compliance, for which we paid $3.1 million, net of cash acquired.

Previous 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.

Current wording

For the nine months ended September 30, 2024, in relation to the prior year comparable period, cash used in financing activities decreased primarily due tocapital raised under the ATM Offering initiated in the second quarter of 2024, under which we issued 162,524 shares of our common stock and raised $3,473,000, net of transaction expenses. The decrease was partially offset by 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 nine months ended September 30, 2024, payments towards this contingent consideration totaled $2,387,000, of which $1,677,000 and $710,000 were classified as cash used in financing and operating activities, respectively. In the nine months ended September 30, 2023, payments towards this contingent consideration totaled $974,000, of which $908,000 and $66,000 were classified as cash used in financing and operating activities, respectively.