AudioEye, Inc.
Q4 2017 Earnings Call Transcript

Published: 15 Mar 2018

[Operator:]

Hello, and welcome to the AudioEye Business Update Call. Today’s call is being recorded and will be available for playback. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator instructions]. I 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 and are subject to risks and uncertainties. The Private Securities Litigation Reform Act of 1995, provides a Safe Harbor for such forward-looking statements. The words, believe, expect anticipate, estimate, will, and other similar statements of expectation identify forward-looking statements. Forward-looking statements are subject to certain risks, uncertainties and important factors that could cause actual results to differ materially from those reflected in the forward-looking statements. These risks and uncertainties are detailed in the AudioEye public filings with the U.S. Securities and Exchange Commission. Participants on this call are caution not to place under reliance on these forward-looking statements, which reflect management's release only as of the date hereof. The Company undertakes no obligation to public release results of any revisions to as forward-looking statements, which may be made to reflect events or circumstances after the date hereof, or to reflect the occurrence of our unanticipated events. I would now like to turn the conference over to Dr. Carr Bettis, Executive Chairman of AudioEye. Dr. Bettis, please go ahead.

[Carr Bettis:]

Thanks everyone for being here today, I am joined by Todd Bankofier, our CEO and also Sean Bradley our CTO. Brevity is not the goal, but trying to provide you a thorough update is, so I think you expect to hear us talking 2025 minutes here, giving an update before we go to Q&A. So, the purpose today is to provide an update on our business progress, after publishing our year end 2017 results and talk about continued progress so far in the first quarter of 2018. AudioEye’s growth has resulted in a record revenue in 2017 of 2.7 million. That’s up a 176% year-over-year. Bookings by the way were up even more gaining 232% to 6.3 million in ‘17. And we are pretty excited because we believe this sets us up for very solid 2018, expecting another year of triple-digit revenue growth rate and double-digit bookings growth. We previously had already announced our outlook for ‘18 and we’ll say it again today. We are expecting revenue between 6.5 million and 7.5 million and bookings to come in between 11 million and 12 million on the year in 2018. I mean these means, when you look at our growth rate, it certainly sound aggressive but I’ll say our targets last year sounded aggressive too when we announced them. And I ensure you this team is going to work really, really hard to hit these targets that we are talking about. And we do think the demand for industry-leading accessibility platform is growing quickly. And I will talk to you about why we think it’s growing quickly. There are a couple of factors out there right now that we like in terms of the market dynamics that we are serving. We can potentially make an enterprise level site completely and fully compliant in 100 days or less and we can achieve this goal with a solid ROI business proposition as well. We also believe we can keep that client site compliant with the web content accessible to guidelines known as WCAG standards as they continue to evolve. Therefore, what we are really doing our clients is providing a turnkey solution that the customers can trust. It doesn’t make just compliance easy but it also takes care of their customers who are depending on some form of accessibility solution. We still say the evidences after we read Google know that up to 15% of the online population is able to benefit from an accessibility solution and that makes a competitive -- really compelling business case. So enterprises are increasingly -- again this is a first thing we like about the market condition, increasingly understanding that a traditional disability such as blindness or motor control is only a small part of really addressing accessibility, the largest perhaps audience is really simply understanding the number of aging online users who find the tools, tools like we have will make the sites just easier to use for the customers and more attractive to the customers. Let's be real, while it is a really important set of piece here, there continues to be a really strong advocacy movement in the market that’s pushing enterprises, government organizations and community resources to make accessibility a priority. Our modern lifestyle, all of us, everybody on this phone depends on digital content every day, theses advocates that are out there are carrying the banner of accessibility to all kinds of means from you, education, the population to advocacy to demand letters targeting enterprises and others into legal challenges in cases -- some cases. So, we’ve always preferred to sell our platform base in an open market and else that our solutions benefit. That’s what we wanted to do. Driven by doing also the white paying for our subscribers, we think that will be rewarded by serving this large 15% of the population that needs accessibility to fully utilize that digital content, we really, really are committed to that here, more usable and more accessible solutions period. We also understand the need for rapid solutions to satisfy the demand letters or court orders which are happening at an increasing pace. And we think we are the best situated provider in the market when that happens. So, when someone does get a demand letter or a major rapid response we can provide a turnkey solution for this compliant that they are looking for in a WCAG 2.0 standard which is typically what being targeted. And we can install something in 24 hours and have it fully remediated in 100 days or less. That’s a compelling value proposition. And it’s being reflected in our bookings ramp this year and the reason we believe we have further bookings growth in ‘18. So, the market is setting up very, very well for our solution, very well. So, I am going to turn the call over to Todd in a few minutes and he is going to talk more about how we intend to accomplish our objectives and in particular we have an increasing emphasis on our CMS partnering strategies, Todd will talk about that more. Before I give it Todd, I got a couple of things though. I want to reflect from what I’m having -- for the company has come over the past couple of years and how we are going to plan to serve the shareholders, you guys, going forward. The recent history here is a testament to the team. The management team is in place and employees, they are getting the job done. And so we are focused on the future and talk about how we are going to grow but to really understand why I have the confidence and I think as shareholders we should have the confidence that we are going to be successful here is take a look back just for a minute and I am not going to keep doing this to shareholders for the next year, I’m just going to do it today. Take a look back for a minute, as to where we have come and you can see it in the trajectory that we’re looking for and it is on the backs of a really talented team with a really good solution with a marketplace that we think is attractive and growing. So, let’s look back to 2014 and 2015. Where Audio obviously was a really struggling business, trying to sell really an expensive software package and burning just too much cash. We didn’t have a very focused strategy, we had a variety of strategy before that, that were not working, we didn’t have a focused strategy into our clients were, much knows how to win them and win their business. So, after coming on board as Executive Chairman, with a mandate to try to fix this, now the Board when hire Todd, right he is going to be talking to you in a few minutes and embarked on this bold plan to transform the business. He really slashed expenses, to reduce the cash burn from $5.5 million to $2.3 million in 2016. We focused our sales efforts on five verticals, where we believe we would win our first customer. The government sector, the financial services, HR, education and an online retail. 2016 bookings grew to 1.9 million which was six-fold increase over a small number in 2015 and the revenue was shy over a million. In 2017 the bookings ramp more aggressively to 6.3 million with revenue up almost three times to $2.7 million. By the way we did that while tightly controlling experience, expenses only a 21% year-over-year expense growth and the cash burn was further declining. So, most of the expense increase relates to sales and customer service onboarding and hires as we move through this process. So, we grew burning less than 250 -- we were growing burning less than 250,000 a quarter and heading to cash flow breakeven -- sorry, we are now burning less than 250,000 a quarter and we’re heading towards cash flow breakeven. We have a well-funded balance sheet with over $2 million or so in cash at the end of 2017, as strong partners in our vertical market who understand the AudioEye not only serves in no necessary function for its users but provides a meaningful growth and profit in their business as well. We are very excited about the year ahead. And in a minute, I’m going to let Todd talk more about that business, our partnership strategy and our continued growth for our stakeholders. And I want to tell you guys, on the call something important. The board believes that it's in the best interest of our current shareholders to up list and to get off the bulletin board [indiscernible]. The OTCBV where we currently trade. Clearly, we would do this only if we can believe that we meet the listing standards and we’ll be successful in an uplifting. We are exploring that possibility now. So as shareholders I think that’ll be a welcome thing to see that we are working hard, to move down that path, will enable us to track new shareholders as well, we believe because a broader market appeal if we are able to move the bulletin board support. So, I am going to give to Todd now, he is going to talk, talk about the business.

[Todd Bankofier:]

Thanks, Carr. Hello to everyone on the call today. You may have picked up on the enthusiasm from Carr’s voice, how we all feel here at AudioEye right now. And I can’t tell you how exciting it is to go to work every day, making an impact on the world in a very socially meaningful way, that’s probably first and foremost all of the employees here at this Company feel so compel to address this major issue in the world and it just gives us a better every morning and so we’re just think for that. But signing new customer agreements and working with the best team ever is really a great realization each day here now at AudioEye and we are strive to that and we’re working on new strategies in a variety of ways to keep as growing the business and again by solving real challenges that affect a very large and significant population of the world, the 15% of content users in the world that find themselves with a disability that affects their ability to use digital content. So, I am going to dive right in and address that, what I call the partnership strategy that Carr mentioned earlier since it's become a huge part of the growth going forward here in 2018. Back in 2015 and 2016 we were largely selling direct as you know, and which meant we had high touch with our perspective customers, but it was limiting and expensive way to sell software as a service. So, in fact last year at this time, we highlighted the three sales new hires on our call, because, the direct approach will still the approach that we are using, and we are enthusiastic about that, but little did we know how rapidly this new partnership strategy was going to kick to evolve and we’re excited about it. We have enjoyed huge success in the financial services market as a result of partnering with new content management service partners that house bank sites, their websites for them on their CMS platforms, customers like Mutual of Omaha Bank and high network banks with high network customers across the country. Often these customers may have difficulty getting online for a variety reasons ranging from eye sights and motor control to simply not being able to use digital resources. But getting those customers online, enable to navigate online was a critical business decision for the financial services industry and has dramatically lowered the cost of providing service to these customers. So, based on early customer successes we formed a partnership with two -- as I said two content management services providers and we never look back. In the first year, these partnerships generated more than 400 new banking customer accounts across the United States proving that this model is right for AudioEye. We gain reach and depth in selling to customers directly to finding these CMS platforms. So even -- so that is just a fraction of the total opportunity set with these partnerships. We’ve dozens of other partners in the financial services industry and the other important vertical markets I will talk about in a second. So, we now have eight of these CMS partnership agreements in place and I am reviewing four -- I am reviewing agreements in discussion with four more individual partners, potentially both domestically and internationally because we see this as an important endeavor to go internationally to allow those CMS partners in foreign countries to partner with us to get to those markets as well. Today we service 605 customers, that’s up dramatically over the last two years. And our eight existing CMS partners service over 25,000 customers alone on their platforms, close to target population that will come as we continue to add new partnerships that I referenced earlier. And others, we haven’t even approached yet. So, it’s all very exciting for us right now as this partnership strategy unveils itself. And this is not just great business for AudioEye where we can grow and profit by doing good. Our partners benefit as well through this increased revenue and profitability because we do have a revenue share model with them, up 60% of the revenue, them 40% of revenue, as well as the more competitive service platforms that they can stand up and say that their sites are -- their platforms are accessible, it’s provided them a competitive advantage in the marketplace. And when we talk about 15% of the population that can benefit from AudioEye’s accessibility solutions we aren’t kidding. It’s a valuable, valuable audience and they recognize better. So, to discuss our ADP, an early and significant customer of AudioEye, we have it in their boost at the major trade shows and events due to the vertical synergies between our two industries. We continue to do that with ADP. In fact, Sean can talk about what we have going on with ADP at this coming Monday which is going to be great. We provide value and reach for each other as partnerships and that’s what’s really made them feel good about the partnerships as well as us. But we co-market at trade shows with multiple partners we are being invited to their national sales meetings to lead the mandatory attendance sessions on our platform and benefit of others. It’s incredible -- incredibly proud to say that our partners get it, they understand the value of inclusion and accessibility in the business case for it. They are excited and exactly the kind of people we want to work with and its good relationships for all parties involved. The relationships that I have built with the CEOs of these partnership groups has been great and they clearly get the significant value of bringing accessibility to their customers. So AudioEye, our partners and our partners’ customers as well as their customers’ customers are all about receiving value from these partnerships. So, let me just dive into a couple of these verticals for a few minutes. Financial services were the highlight of the year. In 2017 we added more than 300 new banking customers. This demonstrates the need for accessibility in the banking industry and the need for AudioEye’s unique software driven solutions. Our successful partnerships with the key industry leaders, who are reselling our service will continue to drive growth in this market. So as of today, you know, we sold 300 new in 2017, we now have 454 banking clients across the United States. We are also engaging with these companies across the other financial service industries components, such as wealth management, mortgage, et cetera, who interfaced with their banking customers as well, and they realize the importance of being accessible. In the HR, the human resources vertical. Our partnership with ADP, as I stated earlier, is garnered worldwide notoriety in the space, where it is spreading to other companies in the HR vertical. Similar to the trend we are seeing in financial services as in many of the other support services companies space realizing the importance of accessibility for maintaining a competitive advantage. This is what's really sort of propelling these partnerships there. They're hearing from their customers. The need for accessibility is us, their differentiation in the marketplace. The government space will likely only to be are slowest growing sector just based on its nature, but in addition to the Federal Communications Commission which we had in the EPA as a current customer. We added the Social Security Administration recently who purchased our service because their website receives over 6 million hits a day and they wanted a service that addressed accessibility issues affecting the aging population in our country. This was a significant win for AudioEye and we built a great relation with Social Security Administration and they love the fact that our tools are on their sites to address the disability of the aging population. We also believe the state and local government clients will increase in 2018 through our partnership with Civic Plus, which is our Civic CMS partner in the state and local government space. Civic Plus is deeply committed to engaging their 2,400 state and local government clients on their CMS platform and moving them forward and making their sites accessible for the end users that resides in each one of those states and counties and cities. In the education vertical. We are very excited to see the growth after winning the Seattle Public School district RFP and it's 99 schools in January of 2017. Winning this bid really propelled us forward as one of the leading solutions in this sector. We are now working with 51 school districts across our country. We have contracted also with eight major universities to provide accessibility services for them, and we continue to believe the overall education space is probably going to be one of our fastest growing verticals for AudioEye this coming year. And lastly, an e-commerce retail vertical. We've seen many of the leading major retail organizations such as Lulu Lemon, Canale, Z, Gallerie, Jimmy Choo, Jimmy John's, and car manufacturers like [Kia] committing to digital accessibility with us thus allowed us the opportunity to begin discussions in earnest with many, many new brand-new customers across the world, all in retail and just, to address the operational viewpoint of our company. We continued to stay diligent in managing our business on a capital and cost-efficient model. OpEx remains tightly in control. We've got processes and systems in place now that are just linked to our commitment to getting to positive cash flow in the quarters ahead, our limited cash burnings quarter record reflects that our diligence and as sales continue to increase, we expect our operating results to increasingly reflect leveraging our operating model. 2017 results demonstrated it, we only increased our OpEx spend 21% year over year and we shall continue to manage our operational costs in 2018. We do expect to invest prudently where we see opportunities, however, such as new sales and implementation hires to support both direct and partnership strategies along with retaining our top-notch employees, which will be a top priority for us. So, a continued analysis of a competitive compensation for our employees will be a top investment strategy. This year we intend to further reduce cash burn as I mentioned, and even begin to generate cash in the second, and third quarter depending on how aggressively we continue to invest in growth. And of course, we expect to see more growth in bookings and revenue while deploying the operating leverage, in a software as a service model. And lastly, as a technology company and I state that really prudently that we are a true technology company. Our competitors all are in the consulting space. We are a technology company and we will continue to maintain high standards in our further development of our technology solutions. We never stand pact [ph] and we will continue to enhance our products each quarter and where possible commit revolutionary advancements to those patent applications to protect the unique and leading-edge components of our growing technology. So, nobody better to talk about technology than Sean Bradley. So, I am going to turn it over to Sean and he can give you an update on those advancements.

[Sean Bradley:]

Thanks, Todd. Definitely, invigorating to listen to this breakdown as he provided at this morning, to hear our recent achievements. It’s wonderful to hear and I can assure everyone on this call that the enthusiasm from 2017 has rolled into 2018 and our optimism has really carried forward as we look ahead to the coming quarters. We are very, very proud of our technological achievements and I couldn’t be more excited about the many innovation projects that the team is working on. Before we get into the reads a little bit, I wanted to just touch on a few key points which further eliminate some of what’s behind our recent success. For one, if you look at some of the longer standing competitors in our space, a few of them have a sizable customer base. But it’s a customer base that’s taking a considerable amount of time to accumulate and in some cases, we are talking multiple decades. Having just recently caught our stride over the past 18 to 24 months or so, having brought to market a practical and cost effective technological solution, we believe we stand to not only catch up to the competition and to the customers but definitely potentially surpass them as well. And indeed, our customers are looking for one-time test and report of the accessibility violations and general web health. These are clients that are adopting and embracing our year-over-year subscription service offering meaning they are essentially looking to AudioEye as their long-term trusted solution partner, and certainly this set us apart. I am also very excited about our recent success in attaining some of our hard profile validation of our technology first approach. This has been evidenced in a number of ways including our direct engagement with The Office for Civil Rights, that’s the sub-agency of the US Department of Education that enforces civil rights laws prohibiting discrimination on the basis of disability among other things. But by dealing down [ph] on our approach and demonstrating our end-to-end technology solution with them, we have been able to achieve a firm validation of our offering and everything that we are bringing to market for our customers and the solutions we provide them. At this point, lets definitely starting to the technology and keep everyone updated in terms of what we are working on here at AudioEye, as reported earlier -- as reported in previous releases, we recently rolled out our PDF Accessibility Solutions. These fill a much-needed void in the accessibility market since we’ve spent such a considerable amount of effort in producing solutions that solve issues of accessibility for content and -- the ways in which websites are functioned for the individuals with disabilities. But not necessarily having the opportunity to deal with the hundreds or even thousands of associated PDF documents that are made available from our customer websites. PDFs in general represent a significant challenge for businesses and organizations looking to comply with ADA related laws and guidelines including those that are part of the newly defined Section 508 refresh which is now underway in full effect. This specifically requires all PDFs published after January of this year to be made accessible for -- and that applies to all of the agencies and organizations that fall under 508’s purview. We work closely with key customer to develop two solutions; one that addresses dynamically generated PDFs database driven content is populated into a template and presented to the user for accessible download. And then of course another solution for handling static more standardized documents that our customers tend to publish and to the tune of hundreds or even thousands at a time. So, these solutions are being rolled out to our customers and will be add on capabilities that are intended to generate incremental revenue. Our one of a kind voice technology which allows an end user to control the browser experience using their voice, continues to impress and shows promise and potential market applicability. We've integrated our solution into one of ADPs most ubiquitous products suites and are excited to demonstrate some of the latest capabilities with that implementation as ADP looks to showcase the AudioEye technology on the main stage at their annual meeting on the -- at the meeting of the minds coming up this coming Monday, which Todd mentioned. This of course proceeds, proceeds an official product roll out which we expect to see later in the year. Other fully custom voice pilot implementations are underway, and as they begin – they become public, we’ll be eager to share the details with you all at the appropriate time. In the interim we’ll continue to formalize our voice product strategy, which continues to take shape. Again, we believe our achievements with our voice technology are second to none and truly revolutionized the way in which our clients are able to embrace a voice enabled web by creating practical and cost-effective voice driven browser browsing experiences for their users. Lastly, perhaps, you know most significantly, we've spent the last two years listening intently to our clients. Taking into account market trends and using our proprietary tools to identify and fix countless issues of accessibility issues across thousands of client websites. Today, we find ourselves serving billions of remediations across our customers websites on a daily basis. Collectively, this has all helped shape what's become our roadmap for 2018 and our goals for the year. We’ve reimagined the ways in which, our customers can engage with our toolsets to more efficiently get the information they need to understand the issues that are impacting accessibility and once again, it's our belief that by redefining our solution in this new way, our future clients can use our technology to identify fixed and track accessibility issues that impact our users while also meeting their obligations under AdA. We expect to bring our next iteration of our industry leading technology to market in the fourth quarter. We couldn't be more excited about all the wonderful technology that we're working on here at AudioEye. These are sort of some of the many things that we're working on and at AudioEye is our core accessibility business continues to ramp, giving us even greater excitement for the future. So, we couldn't be more, more energized around the current initiatives. At this time, I'd like to pass it over, back pass back over to Carr.

[Carr Bettis:]

Hey John, thank you. And thanks John and Todd. Our enthusiasm has led us to talk for 30 minutes about what we are excited about. So again, with quite a bit of detail. So, it may have brought us some questions. We'll open up the call now for your questions.

[Operator:]

Yes, thank you. [Operator instructions]. And the first question comes from Charles [indiscernible] a private investor.

[Unidentified Analyst:]

Terrific, terrific call, you know you’re one of the finest management teams I've seen in the microcap space. And congratulations on what you've done. I have two quick questions here, first of all about the penetration. I mean you've got 600 accounts and you said you’d 25,000 potential accounts with your partners. That’s a stunning opportunity. How realistic is it to get a fairly decent share of those customers? And then the second thing is with all this potential and with all this growth, what’s happening on the capital side with respect to computers and infrastructure. You guys are going to have to build data centers to run this or is there some other way of handling it?

[Todd Bankofier:]

Thanks so much. Well, I will take the first one Charles and thank you for coming to the call. This is Todd. Specific to the number of customers that our partners have on their CMS platforms, we engaged in the banking CMS partnerships with two partners last year and we saw those grow tremendously. And as the better their sales team became at selling the product and having people understand it, the faster it grew and then as more and more banks started to come on board, it’s just sort of spiraled because they talk to each other, they all understand what they need for accessibility. And so, we are starting to see that as well in our newer partners that we brought on board in the fourth quarter of last year. So, it takes a little time, I would be completely honest about that, it takes a little time. We got to train the sales team, we got to get them equipped to understand and explain that to their customer base as well. But based on how well it went in the banking industry we see the same type of growth in other verticals that I mentioned, education obviously, state and local government. The retail organizations are going to come on board really fast. I feel like that’s going to be something. So, there are 25,000 worldwide customers, I don’t want to put a percentage on it but I feel really comfortable in where we are going with this strategy and it takes just a little bit time for obviously for the process to unveil and the sales cycle to unfold. And so, we feel good about the 2018 as it relates today we have. Sean I am going to let you manage the question as it relates to what we need to do from an infrastructure standpoint to scale our business.

[Sean Bradley:]

Yes, thank you Charles for the question. It’s truly amazing what you can do in working with solutions like Amazon Web Services which is really the backbone in infrastructure for all our offering, our cloud-based offering. For example, we are able to throttle server capacity and server processing capabilities to meet the needs of the business on an hourly basis. So, for example we can throttle up during peak usage and then throttle back down. So, we are constantly gaining the cost associated with our infrastructure and all the things that we are doing with Amazon. We are also leveraging other cloud tools through Microsoft and Azure Solutions. So, it’s really testament to the knowledge of our team and their expertise in kind of facilitating these cloud-based services that we offer our customers and because of the magical things you are able to do now through these solutions providers like Amazon, it’s very cost effective. And we are really very comfortable with our ability to keep those costs at bay and have a full understanding of what it looks like as we scale and be able to scale on a dime. So very, very proud of our team to have this expertise and be able to continue to integrate very scalable solution for our customers.

[Operator:]

[Operator Instructions]. Okay. As there is nothing else at the present time, this does conclude the question-and-answer session as well as the conference. Thank you for attending today’s presentation. You may now disconnect.

[Sean Bradley:]

Thanks, everyone.

[Todd Bankofier:]

Thank you.