AudioEye, Inc. — FY2023 Form 10-K
Business context and reporting period. AudioEye provides digital accessibility software and related expert services, primarily through SaaS subscriptions. This annual report covers the fiscal year ended December 31, 2023, compared with FY2022; it is not a standalone fourth-quarter report.
Financial and operating performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $31.316 million | $29.913 million |
| Gross profit / gross margin | $24.342 million / 77.7% | $22.694 million / 75.9% |
| Operating loss | $5.965 million | $10.429 million |
| Net loss | $5.872 million; $0.50 per share | $10.433 million; $0.91 per share |
| Operating cash flow | $0.318 million | $(4.999) million |
| Cash used in investing activities | $2.156 million | $5.733 million |
| Cash from (used in) financing activities | $4.170 million | $(1.330) million |
| Cash at year-end | $9.236 million | $6.904 million |
| Working capital | $3.247 million | $1.904 million |
- Revenue increased 5%; gross profit rose 7%. Operating expenses declined 9% to $30.307 million: selling and marketing fell 14%, general and administrative fell 14%, while research and development expense rose 15%.
- Partner and Marketplace revenue grew 13% to $18.027 million; Enterprise revenue fell 5% to $13.289 million, primarily due to lower revenue from one large customer.
- Annual recurring revenue (ARR), a company-defined operating metric, was $31.2 million at year-end, up 7%. Customer count increased to approximately 110,000 from 86,000.
- Adjusted EBITDA, a non-GAAP measure, was $1.340 million (4% margin), versus a loss of $0.946 million (negative 3% margin) in FY2022. GAAP net loss margin improved to approximately 18.7% from 34.9%.
- At December 31, 2023, total liabilities were $18.788 million and stockholders’ equity was $6.707 million. The company had a $7.0 million term loan, reported net of discount at $6.727 million, maturing November 30, 2026. Its floating rate is 6.25 percentage points above a base rate defined as the greater of prime or 7.00%.
Changes, outlook and risks
- Management attributed improved operating results and operating cash flow chiefly to expense reductions, lower litigation costs, and infrastructure efficiencies; R&D investment continued, including $1.946 million of capitalized software development costs.
- The company reported compliance with applicable loan covenants at year-end. Covenants require minimum liquidity, including an additional threshold while the BOIA earn-out remains unpaid, and minimum monthly recurring revenue. The remaining $2.399 million BOIA contingent consideration was expected to be settled in the second quarter of 2024.
- Management stated that liquidity was sufficient to continue as a going concern for the next 12 months, but also said additional capital may be needed if plans are not achieved or significant unexpected events occur. The filing gives no quantified revenue or earnings guidance.
- The loan is secured by substantially all company assets. Its rate is variable, and the company warns it may not meet future covenants, repay or refinance on acceptable terms, or raise additional capital. The loan agreement permits proceeds to fund working capital, the BOIA earn-out, and share repurchases.
- One major customer, including affiliates and multiple contracts, contributed approximately 17% of revenue in both 2023 and 2022. Enterprise revenue declined, increasing the importance of monitoring customer retention and concentration.
- In November 2023, the board authorized a share repurchase program of up to $5 million through December 31, 2025; $1.122 million was repurchased during 2023 and $3.878 million remained authorized at year-end. The filing also identifies potential dilution from outstanding equity awards.
- Accessibility requirements and their application to websites remain legally unsettled; the DOJ’s proposed Title II rules for state and local government websites and mobile applications had not been finalized. Other disclosed risks include intense competition, technology changes, cybersecurity and service interruptions, litigation, and stock-price volatility.
- Routine legal matters are ongoing. Management said any impact beyond amounts provided for was not expected to be material after final disposition, while acknowledging outcomes are uncertain. The company reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an internal-control attestation.
Important facts for investors to verify
- Whether ARR growth converts into recognized revenue and cash generation; ARR is company-defined, includes cancelable contracts, and excludes non-recurring services.
- Trends in the large customer’s revenue and receivables, and the drivers of declining Enterprise revenue.
- Compliance with the loan’s liquidity and recurring-revenue covenants, cash interest burden, and the funding or settlement of the BOIA earn-out.
- Whether cost reductions and positive operating cash flow are sustainable while the company continues product-development investment.
- Potential share dilution from equity awards and the company’s use of borrowed funds alongside its repurchase authorization.