AudioEye, Inc. (AEYE) on Q4 2021 Results - Earnings Call Transcript
Operator: Good afternoon, and welcome to AudioEye's Fourth Quarter 2021 Earnings Conference Call. Joining us for today's call are AudioEye's CEO, Mr. David Moradi, and CFO, Ms. Kelly Georgevich. 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 Relations section of the company's website at www.audioeye.com. Before I turn the call over to AudioEye's CEO, 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 and are not based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors discussed in today's press release and the comments made during the conference call and in the Risk Factors section of the company's annual report on Form 10-K and its quarterly report 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 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 posted in the Investor Relations section of our website at www.audioeye.com. Now, I'd like to turn the call over to AudioEye's Chief Executive Officer; Mr. David Moradi. Sir, please proceed.
David Moradi: Thank you, operator. Welcome, everyone, and thank you for joining us. After the market closed today, we issued two press releases: one, our results for the fourth quarter and full year ended December 31, 2021, and one press release on our recent acquisition of the Bureau of Internet Accessibility or BoIA. A copy of both press releases is available in the Investor Relations section of our website at audioeye.com. I, first, would like to discuss our exciting acquisition of BoIA. This acquisition is another positive step in our ongoing mission of eradicating all barriers to digital accessibility. We are thrilled that the BoIA team is joining forces to provide additional accessibility product options to the entire community of direct customers and ultimately our end users. We also believe this to be a value-enhancing acquisition for our shareholders. We are pulling away from the competition in both product offering and scale through accretive revenue expansion without diluting our shares. This is a great deal for all stakeholders. As we have said in previous earnings calls, AudioEye stands apart from the competition in the market with our unique and transparent accessibility solutions. We are combining our patented software, which delivers the highest levels of automation in the industry with our human-assisted technology, giving our customers full accessibility for a fraction of the cost of traditional approaches. The acquisition of BoIA adds a key dimension to our product suite, for those customers who prefer to fix accessibility issues at source, giving us an end-to-end solution for all customers in their accessibility journey. With two decades of experience and implementation across hundreds of enterprise clients, including Chipotle, Godiva, Deckers, Dillard's, Rydell and Harvard University, BoIA is a leader for customers who want an automated testing platform combined with a step-by-step guide to fix accessibility issues at the source. In addition to the product offering, we are also excited about the attractive financial profile of BoIA. This acquisition will be immediately accretive to AudioEye. In terms of top line, BoIA delivered approximately $3 million of revenues in 2021. In general, 60% of revenues are derived from the initial onboarding of clients and 40% from ongoing subscription maintenance. From an accretion standpoint, the gross margins of BoIA are similar to our gross margins, and we expect the acquisition will be accretive with the incremental revenue. We also believe that we can upsell the customer base with new products from our core offering, such as continuous monitoring. In acquiring BoIA, we gain a very knowledgeable and results-oriented team. I want to give a warm welcome to these new members of the AudioEye team. In December 2021, we also acquired substantially all assets of Square ADA, a trusted accessibility solution in the Squarespace ecosystem. With Square ADA, we now have a leading position in accessibility within the Squarespace platform. I also want to welcome the Square ADA team to AudioEye. I will now move on to other key business highlights and a summary of our results for the fourth quarter of 2021. As noted in our preliminary outlook for fourth quarter results, we are pleased to confirm that we achieved revenue at the high end of the guidance range of $6.5 million, representing accelerated growth from prior quarters. We continue to see recurring revenue growth in all channels and ended the quarter with $2.2 million of MRR. Fourth quarter results included several critical wins for AudioEye, including the renewal of a significant contract with a global HR and payroll software and service company and newly signed contracts with a substantial agency and a large financial institution. Overall, 2021 was a year of healthy revenue growth and a rapid pace of innovation with our launch of the next-gen platform, issue reporting and continued improvements in software automation. We have assembled the strongest team in the industry, and we'll continue to raise the bar in product and technology with industry-leading R&D investments. Moving on to guidance. We continue to be well capitalized with $19 million of cash on December 31, 2021, and have the runway to continue investing in the business for the long term. We expect to continue investing into talent in 2022, but at slower investment rates as compared to 2021 as we gain efficiencies. We expect that our cash burn in the first half, excluding non-recurring items, will remain similar to the fourth quarter and then trend down sequentially for the remainder of the year. We are guiding for revenue growth of $6.7 million to $6.9 million for the first quarter, representing 17% year-over-year growth at the midpoint. The BoIA acquisition closed yesterday and will contribute approximately three weeks of revenue in the quarter. Lastly, as we continue to measure performance and revenue growth internally through new KPIs, we will convert to a new operating metric, annual recurring revenue, versus previously used monthly recurring revenue. We will begin reporting annual recurring revenue for the first quarter of 2022. The shift will allow us to better baseline ourselves against other SaaS companies who primarily use ARR as a metric and develop compensation plans similar to those used in the software industry. With that, I will now turn the call over to AudioEye's CFO, Kelly Georgevich. Kelly?
Kelly Georgevich: Thank you, David. Before I begin with a summary of Q4 and full-year 2021, I want to first congratulate David on behalf of AudioEye for officially moving from Interim Chief Executive Officer to CEO in January 2022. We are very happy to have you continue to lead the AudioEye team and vision for the future. I would also like to provide some additional financial information on the recent Bureau of Internet Accessibility transaction. On March 9, 2022, we entered into a stock purchase agreement to acquire all of the outstanding equity interest of Bureau of Internet Accessibility, Inc. The aggregate cash purchase price paid at closing was $5 million and is subject to net working capital and other customary adjustments. In addition, the purchase agreement provides for contingent earnout payments in cash based on BoIA's revenue for 2022 and 2023. This cash deal is highly accretive, in that if all revenue targets are achieved and milestones paid, the enterprise value to revenue multiple of the acquisition will be around 2.2 times. Due to the timing of the BoIA acquisition relative to the date of this report, we have not completed our provisional valuation of net tangible and intangible assets acquired and liabilities assumed. We will recognize and disclose our provisional allocation of a purchase consideration in the fiscal quarter ended March 31, 2022. Now, providing a summary of Q4 and 2021 full year results. As David mentioned, we are pleased with our quarter and fiscal year performance. Q4 marks the 24th straight quarter of record growth, ending the quarter at $6.5 million, which was over 16% growth year-over-year. Monthly recurring revenue, or MRR, at the end of the fourth quarter of 2021 was $2.2 million, also a 16% increase over MRR at the end of the fourth quarter 2020. On a full year basis, in 2021, our revenue grew 20% to $24.5 million from $20.5 million in 2020. As communicated previously, we have two revenue channels: Partner and Marketplace and Enterprise. The Partner and Marketplace channel includes all revenue from our SMB-focused marketplace products and revenue from a variety of partners who deploy these same products for their SMB customers. In the fourth quarter of 2021, this revenue channel grew 25% year-over-year and represented approximately 57% of revenue and MRR. We expect to continue to see this channel contribute significantly to our growth in customer count and ultimately in MRR. On a full-year basis, in 2021, our Partner and Marketplace revenue grew 40% from 2020. The Enterprise channel continued to perform in the quarter, contributing approximately 43% of revenue and MRR. While project-oriented PDF revenue was down from Q4 2020, recurring revenue in the Enterprise channel grew approximately 15% over the same period in prior year, continuing to drive a year-over-year increase for the channel. We again added prominent enterprise brands from our direct sales efforts, including a large financial institution, and continue to renew our enterprise clients at impressive rates. On a full-year basis, in 2021, our Enterprise recurring revenue grew 13% from 2020 and total Enterprise revenue remained consistent with 2020 revenue. We are proud of our customer retention, which remains strong at historical rates. Our high retention rates speak not only to the quality, stickiness and transparency of our solutions, but to the excellent customer service that our team provides to our customers. New customer acquisition growth continued in Q4 2021. We ended Q4 2021 with approximately 82,000 customers, representing 156% growth year-over-year. We continue to see increases in customer counts across each of our revenue channels. Gross profit for the fourth quarter was $4.8 million or about 74% of revenue compared to $4.1 million and 73% of revenue in Q4 of the last year. We are pleased with the steady gross margin percent, given the significant investment in our platform and research and development and customer success costs, which all play a factor in cost of revenue. On a full-year basis, gross profit increased 27% to $18.4 million or about 75% of total revenue from $14.5 million or about 71% of total revenue in the same year-ago period, resulting in $3.9 million of the $4 million revenue increase going directly to gross profit. In Q4 2021, OpEx, inclusive of $2.2 million of stock compensation and $1 million of litigation expense, was $9.8 million, which was an increase of about $2.7 million versus Q4 last year or $1.6 million after adjusting for stock compensation expense and litigation. The main drivers for this increase is our continued investment in research and development and sales and marketing. Our total R&D spend in Q4 was approximately $1.6 million, with approximately $213,000, reflected at software development costs in the investing section of the cash flow statement. This total R&D spend is about 24% of our revenue this quarter versus 17% last year and continues to reflect the commitment towards investing for scale in this market. Sales and marketing Q4 2021 expenses increased approximately 36% from Q4 2020 to approximately $4 million. We see great opportunities in this market and are investing in outreach and brand recognition to drive future sales. Net loss in the fourth quarter of 2021 was $5 million or about $0.44 per share compared to $3 million or $0.30 per share in the same year-ago period. However, on a non-GAAP basis, our Q4 net loss was about $1.8 million or $0.16 per share compared to the same year-ago period of about $900,000 loss or $0.09 per share. On an annual basis, the net loss for 2021 was $14.2 million or $1.29 per share compared to $7.2 million or $0.77 per share for fiscal year 2020. On a non-GAAP basis, for the full-year 2021, the net loss was $5.8 million or $0.53 per share from $2.6 million or $0.28 per share for fiscal year 2020. The primary adjustment to GAAP earnings and EPS for both the full year and Q4 was non-cash share-based compensation, litigation expense and severance expense. The adjustment to GAAP earnings for litigation is a new line item in our non-GAAP reconciliation in 2021 related to our patent litigation. Our balance sheet remains well capitalized with zero debt and $90 million of cash on December 31, 2021. Lastly, I would like to highlight the change in our effective control status on our 2021 10-K from ineffective controls to effective. We place value in building robust controls and processes as we grow, and this is a tangible outcome of that effort. With that, we open up the call for questions. Operator, please give instructions.
Operator: . Now our first question will come from Zach Cummins of B. Riley Securities.
Zachary Cummins: Congrats on the solid results here to end of the year. Just starting off with the acquisition of BoIA. Just to confirm, I think you said the total compensation paid was $5 million. Is that all cash? Or is that a mix of stock being issued along with cash? So, just trying to clarify on that front.
Kelly Georgevich: The $5 million at closing is 100% cash, all cash. And as I mentioned, the purchase agreement also provides for contingent earnout payments in cash based on 2022 and 2023 revenues.
Zachary Cummins: Just looking at the strategic rationale, is there any current customer overlap with BoIA. I'm just kind of curious in terms of the opportunity for you to immediately upsell to some of their customer base once you bring them on board?
David Moradi: No, there's no current overlap as far as I know. They're all separate customers. And they fix things at the source, which is different from the JavaScript approach that we do. So now, we have a full end-to-end solution for all customers, which is really compelling. I think we're the only ones out there doing anything like this.
Zachary Cummins: David, can you speak to some of the major partnership opportunities? One that really caught my attention was WP Engine. Can you speak about kind of that partnership there, the potential opportunity for you guys going forward and kind of expectations as you start to ramp on that?
David Moradi: Yes, that's an exciting one. We're in the early phases of that partnership. We just launched the app on their store. And there's a lot of different ways to sell this to their customer base over time. It's a long-term opportunity, but very exciting for both companies.
Zachary Cummins: Can you give us any update on any of the previous partnerships that you spoke to? I know there's quite a few through 2021 that have kind of gotten pushed to the right. So, any sort of update you can give on those prior partnerships and progress moving forward with those?
David Moradi: Speaking to all the same folks, we did upgrade some of the customers who are getting the visual toolkit, the basic service to automation from what agency, so we're getting a little bump on that now, but we also want to sell them services. So, it's a long-term proposition for us, but it's actually starting to happen.
Zachary Cummins: Finally, I appreciate the color on kind of the expected spend rates and the cash burn here. Any sort of concerns around available cash to execute on your plans over the next couple of years? I know you still have some ATM capacity left and available to you. But kind of how are you guys thinking about balancing cash versus pursuing this growth opportunity in the business?
Kelly Georgevich: I can comment on that. While the transaction is a meaningful investment for AudioEye, we expect BoIA to generate cash, and we do not have plans for a capital raise at this time.
Operator: Our next question comes from Scott Buck of H.C. Wainwright.
Scott Buck: First one. On BoIA, do you have an idea of how many customers or ongoing customers they have at any given time and what the kind of re-up is on those kind of longer-term ongoing work is?
Kelly Georgevich: BoIA was primarily enterprise-type customers. It won't have a material impact on the number of customers out there in terms of our customer count, but they do have a significant number of enterprise customers. I'm sorry, your second question was…
Scott Buck: If 60% is upfront and 40% of the revenue opportunity is kind of an ongoing maintenance and oversight, how often do they extend that 40% out another 12 months or so?
Kelly Georgevich: The majority of the contracts on signing for the one-time service customers are also signing up for the reoccurring piece. And reoccurring piece typically continues and retention is good for that support reoccurring piece.
Scott Buck: Second one, can you speak a little bit to gross margin? Just looking at the difference in 3Q 2021 versus 3Q 2020 and then 4Q 2021 versus 4Q 2020, you're down a little bit sequentially and then, year-over-year, you're up but not quite to the extent as you were in the third quarter. So just curious if that's mix or something else that we should be keeping an eye out on?
Kelly Georgevich: Overall, we're pleased with our steady gross margin percent of approximately 75% for the full year, especially given the significant investment in our platform in R&D and customer success costs. We expect to continue to invest in these areas and expect gross margin to stay relatively consistent. But we are happy with this margin. If you look at other comparables in the SaaS space, this is kind of comparable with the top performers.
Scott Buck: Last one for me. Just on the OpEx, it sounds like there's going to be some more investment spend in 2022, but not quite to the extent that 2021 was. How should we think about that in terms of an annual growth rate?
Kelly Georgevich: If you're thinking cash burn, you can look at Q4 and expect somewhat similar numbers in the first half of the year and expect the cash burn to go down in the second half of 2022.
Operator: At this time, this concludes our question-and-answer session. I'd now like to turn the call back over to Mr. Moradi for his closing remarks.
David Moradi: Thank you for joining us today. As always, I want to thank our employees, partners and investors for their continued support. We look forward to updating you on our next call.
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 Investors section of the company's website. Thank you for joining us today for AudioEye's fourth quarter and full year 2021 earnings conference call. You may now disconnect.
