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AudioEye, Inc. (NASDAQ:AEYE) - Driving Digital Accessibility at Scale
Published on September 24, 2024 | Ticker: AEYE

AudioEye, Inc. is an industry-leading digital accessibility platform delivering Americans with Disabilities Act (ADA) and Web Content Accessibility Guidelines (WCAG) compliance at scale. The company's patented technology reduces barriers, expands access for individuals with disabilities, and enhances the user experience for a broader audience.

Business Overview

At its core, AudioEye's offering provides an always-on testing, remediation, and monitoring solution that continually improves conformance with WCAG. This helps businesses and organizations comply with WCAG standards as well as applicable U.S. and foreign accessibility laws. AudioEye's technology is capable of immediately identifying and fixing most common accessibility errors, addressing a wide range of disabilities including dyslexia, color blindness, and epilepsy.

In addition to its core accessibility platform, AudioEye also offers periodic auditing, human-assisted technological remediations, legal support services, and other solutions to provide enhanced compliance and accessibility. The company's solutions are available through a subscription service on a month-to-month basis or with one or multi-year terms. AudioEye also offers PDF remediation services and mobile application and audit reporting services to help customers with their digital accessibility needs.

AudioEye operates through two primary sales channels - the Partner and Marketplace channel and the Enterprise channel. The Partner and Marketplace channel includes revenue from the company's SMB-focused marketplace products as well as a variety of partners who deploy these solutions for their SMB customers. The Enterprise channel consists of larger customers and organizations, including those with non-platform websites, who engage directly with AudioEye's sales team.

Financials

For the full year 2023, AudioEye reported annual revenue of $31.3 million and a net loss of $5.9 million. The company generated annual operating cash flow of $0.3 million and negative free cash flow of $1.8 million.

In the second quarter of 2024, AudioEye reported revenue of $8.5 million, up 8% year-over-year. Gross profit increased 11% to $6.7 million, with gross margin expanding to 79%. The company's net loss in Q2 2024 was $0.7 million, or $0.06 per share, a significant improvement from the $2.0 million net loss, or $0.17 per share, reported in the prior year period.

Adjusted EBITDA in Q2 2024 was a record $1.5 million, representing a margin of 17%. Free cash flow, calculated as adjusted EBITDA less capitalized software development costs, was $1.0 million in the quarter.

Annual Recurring Revenue (ARR) at the end of Q2 2024 was $33.3 million, up 12% year-over-year. AudioEye ended the quarter with approximately 121,000 customers, a 16% increase from the 104,000 customers at the end of Q2 2023.

Outlook

For the third quarter of 2024, AudioEye is guiding for revenue between $8.85 million and $8.95 million, representing an annualized growth rate of approximately 20%. The company expects to generate adjusted EBITDA between $1.85 million and $1.95 million, and adjusted EPS between $0.15 and $0.16.

For the full year 2024, AudioEye has increased its revenue guidance to a range of $34.5 million to $34.8 million, up from the previous guidance of $34.0 million to $34.5 million. The company has also increased its adjusted EBITDA guidance from $4.5 million to $5.5 million, to a new range of $6.0 million to $6.3 million. Adjusted EPS is now expected to be between $0.48 and $0.51 per share, an increase of $0.08 at the midpoint.

Regulatory Tailwinds

AudioEye is well-positioned to benefit from significant regulatory developments in digital accessibility. In April 2024, the U.S. Department of Justice (DOJ) published a rule to add specific requirements about web and mobile application accessibility under Title II of the ADA, which applies to state and local governments. Additionally, in May 2024, the U.S. Department of Health and Human Services (HHS) published a rule to add requirements about web and mobile application accessibility under Section 504 of the Rehabilitation Act, which applies to recipients of federal financial assistance.

These new regulations represent substantial growth opportunities for AudioEye, as the company's AI-powered and human-assisted technology is uniquely positioned to help organizations comply with the new accessibility mandates at scale. AudioEye is already working to develop strategic initiatives and growth plans with existing partners, such as Finalsite, the market share leader in K-12 schools, to penetrate their installed base over the next three years.

Intellectual Property and Competitive Landscape

AudioEye's intellectual property is primarily comprised of copyrights, trademarks, trade secrets, issued patents, and pending patent applications. The company has a portfolio of 23 issued patents in the United States and 3 pending US patent applications. AudioEye plans to continue investing in research and development to expand its proprietary intellectual property.

The digital accessibility market is competitive, with companies offering various solutions to help organizations comply with accessibility standards. However, AudioEye's patented technology and comprehensive suite of services, including its ability to address a wide range of disabilities, position the company as a leader in the industry.

Risks and Challenges

While AudioEye has demonstrated strong financial and operational performance, the company faces several risks and challenges that investors should consider:

1. Uncertain market acceptance of existing and future products: AudioEye's success depends on the market's continued adoption of its accessibility solutions.

2. Dependence on strategic relationships and licensing agreements: The company's success is tied to the success of its partnerships and licensing agreements.

3. Rapid changes in internet-based applications: The company must adapt its products and services to keep pace with evolving internet technologies.

4. Regulatory environment: Changes in accessibility laws and regulations could impact the demand for AudioEye's solutions.

5. Competition from existing and new players: AudioEye faces competition from both established and emerging players in the digital accessibility market.

Conclusion

AudioEye is well-positioned to capitalize on the growing demand for digital accessibility solutions, driven by significant regulatory developments and the company's comprehensive suite of patented technologies. The company's strong financial performance, with record revenue, adjusted EBITDA, and free cash flow generation, coupled with its increased guidance, suggest a positive outlook for AudioEye's future growth and profitability. While the company faces several risks and challenges, its market-leading position, strategic partnerships, and continued investment in research and development make it an intriguing investment opportunity in the digital accessibility space.

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