AudioEye, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. Financial amounts are in U.S. dollars, generally thousands unless noted. Comparisons are with Q1 2023.
Business context and operating performance
AudioEye provides digital accessibility software and related services, including subscription-based accessibility tools, remediation, audits, and support. Revenue is delivered through Partner and Marketplace and Enterprise channels.
- Revenue was $8.083 million, up 4% year over year. Partner and Marketplace revenue increased 9% to $4.734 million; Enterprise revenue declined 2% to $3.349 million, primarily due to lower one-time report-services revenue.
- Management reported ARR of approximately $32.0 million at quarter-end, up 8% year over year, and approximately 112,000 customers, up from 95,000. ARR is a company-defined metric that excludes nonrecurring services.
- One customer, including affiliates and a partnership, accounted for approximately 16% of revenue in both comparative quarters and 16% of accounts receivable at March 31, 2024.
Financial results and liquidity
- Profitability: Gross profit was $6.322 million versus $6.070 million. Gross margin was approximately 78.2%, versus 78.1%. Operating loss improved to $631,000 from $2.054 million; net loss improved to $829,000 from $2.011 million. Basic and diluted net loss per share was $0.07 versus $0.17.
- Expenses: Cost of revenue increased 3% to $1.761 million. Selling and marketing fell 7% to $3.003 million; R&D expense fell 24% to $1.322 million; and general and administrative expense fell 16% to $2.628 million. Total operating expenses declined 14% to $6.953 million. Management cited lower marketing costs, reduced stock compensation and legal expenses, and completion of significant R&D initiatives.
- Interest: Net interest expense was $198,000, versus net interest income of $43,000, primarily reflecting interest on the term loan entered into in Q4 2023.
- Cash flow: Operating activities provided $203,000, compared with $297,000. Investing activities used $547,000, mainly for software development and equipment; financing activities used $1.852 million, including $1.686 million for share repurchases. Cash decreased $2.196 million to $7.040 million.
- Liquidity: Working capital was $1.541 million, down from $3.247 million at December 31, 2023; the company attributed the decrease primarily to share repurchases. Management stated it believes liquidity is sufficient to continue as a going concern for the next 12 months, while noting future capital availability is not assured.
- Debt and obligations: The term loan had $7.0 million principal outstanding and matures November 30, 2026. Its rate is 6.25 percentage points above the greater of prime or 7.00%, with monthly cash interest. The loan is secured by substantially all assets and includes minimum-liquidity and recurring-revenue covenants; the company reported compliance at March 31. Current contingent consideration related to the BOIA acquisition was $2.387 million at quarter-end; it was paid in full for approximately $2.4 million in April 2024. Lease liabilities totaled $618,000.
Material changes, outlook, and risks
- Net loss narrowed substantially year over year as operating expenses declined while revenue grew modestly. Revenue growth was led by Partner and Marketplace; Enterprise revenue was slightly lower.
- The company repurchased 265,970 shares for approximately $1.686 million during the quarter under a $5 million authorization running through December 31, 2025; approximately $2.192 million remained available at quarter-end.
- No specific financial guidance was provided. Management emphasized recurring-revenue growth and continued product investment; it reported total R&D cost, including capitalized development, of $1.812 million, down 18% year over year.
- On April 8, 2024, the DOJ signed a rule establishing web and mobile application accessibility requirements under ADA Title II for state and local governments. The filing identifies legal and regulatory developments, market acceptance, competition, product changes, and potential need for capital as risks.
- The company reported no material changes to its previously disclosed risk factors, no material adverse litigation matter, and no off-balance-sheet arrangements. Disclosure controls were deemed effective as of March 31, 2024.
Most important facts for investors to verify
- Whether ARR growth converts into recognized revenue and operating profitability, and how the company defines and measures ARR.
- The sustainability of Partner and Marketplace growth, the Enterprise channel trend, and exposure to the customer representing 16% of revenue.
- Cash and covenant headroom after the approximately $2.4 million April payment, including the loan’s minimum-liquidity and recurring-revenue requirements.
- The effects of continued share repurchases on liquidity, and the level and timing of future software-development investment.
- The practical impact of evolving accessibility requirements and related legal or regulatory developments on customer demand and costs.