Good afternoon, and welcome to AudioEye's Second Quarter 2019 Earnings Conference Call. Joining us for today's call are AudioEye's Executive Chairman, Dr. Carr Bettis; CEO, Mr. Todd Bankofier; and CFO Mr. Sach Barot. Following their remarks, we will open up the call for your questions. 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 Executive Chairman, 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 the Safe Harbor for such forward-looking statements. The words believe, expect, anticipate, estimate, will and other similar statements of expectation identify forward-looking statements. These are statements of predictions, projections, or statements about future events and are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ 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, our quarterly report on Form 10-Q and our other reports and 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 of the date hereof. AudioEye does not undertake any duty to update or correct any forward-looking statements. Now I would like to turn the call over to AudioEye's Executive Chairman, Dr. Carr Bettis. Please go ahead, Dr.

Thank you, Operator. Welcome, everyone, and thank you for joining us today. We had a lot of positive things going on and we're excited to share with you and I'm going jump into it. After the market close, we issued a press release announcing our results for the second quarter ended June 30, 2019. A copy of the press release is available in the investor section of our website at audioeye.com. I'll begin today as we always do with a brief overview of our business. After that I'll provide some higher level updates since our last call, before discussing our financial results from the second quarter. From there our CEO Todd Bankofier will come on the line to give some more specific updates within our key operating segments. And finally, we'll have a brief introduction from our new CFO Sach Barot, before turning it over to questions. Now about us. AudioEye is a leading provider of SaaS-based digital content accessibility solution. We are in the business of making websites and other digital content accessible for all individuals, especially those individuals with disabilities. We pride ourselves in addressing a large range of accessibility issues that impact many people. With the AudioEye Ally platform, we do more than identify issues with web properties. We strive to fix, maintain and continuously monitor them. We also certify websites to demonstrate compliance with both the American with Disabilities Act or ADA and the latest Web Content Accessibility Guidelines. Because many of the remediation capabilities we provide are automated, our customers can more quickly gain compliance with accessibility standards, regulations and laws. Coupled with manual testing and remediation by Subject Matter Experts, we provide our clients with the best solution to make their websites and digital content more accessible and keep their content more accessible through…

Thank you, Carr. And you just heard, the second quarter was another big step forward for us here at AudioEye, in both revenue and bookings. We ended Q2 with over 1,400 total customers using our Ally Managed Service offering. Having signed on over 300 new accounts in the second quarter alone. Thanks to the PR and marketing efforts, which Carr also highlighted, we've seen a much greater awareness of our company and our solutions in the marketplace. We combined with our improved lead generation initiatives. We're now talking to even more customers and have the biggest pipeline in our company's history. As the awareness of the issue of digital accessibility becomes more widespread, the legal actions against non-compliant organizations continues to rise, and our standing as a leader in the industry growth. I feel confident in the continued growth of our pipeline and an increase in our sales conversions going forward. This confidence and strength of our pipeline, as stated is now reflected in the higher guidance range of $22 million to $24 million for 2019. So moving to our 3 sources of customer success, which are the direct sales, the indirect channel partnership sales, and customer retention. First, direct sales. During the second quarter, we continue to drive new sales of our Ally Managed Service offering to major organizations serving a number of different industries. As the most mature of our go-to-market strategy, our direct channel provides us with a large base of consistent and reliable revenue. At the same time, we're constantly looking at ways we can improve our processes to get in front of more potential customers, through additional marketing strategies that nurture and effectuate new meetings with companies and targeted industries, and various sized categories. As I just mentioned, we've seen tremendous improvement in our ability…

Thank you, Todd. I'm very excited to be with all of you today. On my first call, as AudioEye's new CFO. My remarks today will be brief, but I wanted to take a minute to introduce myself and let you know a little bit more about me. One of the most common question I have been asked since joining AudioEye, is what brought me here. My answer on my first day, and now, has remained unchanged. I chose to come here for the following reasons. First, the WebEx facility market. This is a nascent industry, and it has a lot of runway ahead of it. So much so that the total addressable market size is still being debated. I think the industry growth opportunities are boundless. And it's this opportunity for growth that originally attracted me to the company. In that context, when I think about AudioEye I realized that we are uniquely positioned to take advantage of this enormous potential that's in front of us. On the back of our unique offering, AudioEye has a tremendous opportunity to become the undisputed market leader in this space. I wanted to be a part of building that leadership position and help the company grow. And finally, I believe the company's got a mission to be tremendously valuable. We are here to help people who have been left behind in today's web driven information age. And when I see that commitment from our employees, and helping to make that goal real, energizes me even more. In the short amount of time, that I've been here, I haven't seen anything to change my mind on any of this point. I'm personally excited to be part of the company that's rapidly growing and is on its way towards a long-term success. As Carr mentioned…

Thank you. We are now by conduction a question-and-answer session. [Operator instructions] Our first question today is coming from Zach Cummins from B. Riley FBR. Your line is now live.

Hi, good afternoon Carr, Todd and welcome on board Sach to the first earnings call with AudioEye.

Thanks, Zach.

So just starting off with the bookings number, really impressive number here in Q2. Were there any outsized deals or I think you mentioned one multiyear or maybe a handful of multiyear contracts that drove the strength of bookings in this quarter?

I will say this, we would have had a very strong record quarter without the biggest [indiscernible]. So we still had a very, very strong color -- quarter. The Dealer.com deal was important and material, for sure. But again, we would have a better record quarter regardless.

Understood that's helpful. And then in terms of the indirect partner channel, I mean, it sounds like especially through the first few calls, it's been a matter of projects just not progressing as fastly or as quickly as you would like versus prior expectations. So, can you talk about kind of some of the actions that you're taking to better monitor the progress within these indirect partner implementations and maybe even your approach to getting minimum business guarantees with more of your partners going forward?

Yes, Zach, this is Todd. You, obviously understand the significance of the indirect channel partner in the sort of predictability capability days, when you have partners involved in the selling process. We have four to five that process tremendously over the last quarter, and we see some better cadence on a number of fronts with our partners. Obviously helping them with their marketing efforts, as well as the day-to-day sort of work that the indirect channel team does here at AudioEye, with each one of our partners, we've seen significant value in that. Are they all have the same value or the same pace that we'd like them to, not quite yet. But we're much better off quarter-over-quarter than we were last year when we started this channel.

Understood. And then I guess, in terms of expenses during the quarter, it was mentioned there were some onetime expenses related to legal and some consulting stuff. Is there any way you can quantify the amount that you would consider to be non-recurring. And should we be expecting some more consulting sort of expenses as we go into Q3 and Q4 of this year?

Yes, I think you'll see some consulting expenses continue. Zach, but I will say, we have identified, there are some, I would say legal costs, again, were higher than we would like for them to be and we think that is we've got an increasing strategies to manage that going forward. We had a lot of regulatory other issues that showed up, compliance issues that showed up and also we of course, I've been talking to the marketplace about alternatives recently. So, I think I think there are some one times here, I think we had one-time state tax issues in Arizona as an example, because we're one time, not issues, I think it was just a true up state taxes. So, some things like that, I think, work attributing to the one-time, but yes, we are going to have the spirit of this is we're going to make sure that we are scaled appropriately for the growth that we're anticipating which we're very excited about looking at 2020 and beyond. And the strategies we have, we need to make sure we're correctly positioned to do those. That includes using consultants and advisors. So we expect to implement the scalable infrastructure and systems and to fuel the growth, we are going to curtail some of the costs like legal, illicit, and ensure their marketing spend as efficient.

Understood. And to my last question its more around, you had a couple of actions in August that have helped address the cash balance on the balance sheet. I mean, in terms of the line of credit that was secured? I don’t know if you can comment on this, but have you already drawn down on that line this month? And I guess it's probably harder to determine kind of longer term capital needs for what do you need to effectively scale this business?

So look, from the short term, Zack want to be a little bit of a long winded answer. The first thing is we've absolutely not drawn down on facility. So for the short term, we know that investors were concerned about cash, right. And we mentioned before, we continue to evaluate our cash needs as we want to deploy it to a medium and long-term growth goals in mind. We want to do it efficiently for shareholders with the least amount of to the best option. So I want to reiterate a philosophy to you again, we're going to look at long-term growth as we're working on a 2020 and by on growth plan, we've got exciting things in mind here that we've learned from the market that we're excited about. That effort will take some time. As we develop the plan, we want to raise capital to help us continue to focus on delivering the 2019 bookings to build our infrastructure, we want to start implementing the scalable process to build our platform for the longer term objectives. So the capital raised is going to ensure that we have that capability. So the details were the unexercised warrant and then the unsecured line of credit. So that unsecured line of credit is just there. For us if we want to use it and need it. It gives us the comfort to be able to meet our objectives here.

Understand that's helpful. Well, congrats on the really strong bookings number and best of luck, as you go into the second half of this year.

Thanks, Zach.

Thanks a lot, Zach.

[Operator Instructions] Our next question today is coming from Elliot Brzezinski [ph] from National Security. Your line is now live?

Thanks. Todd, couple of housekeeping questions. Gross margin line took down a little bit sequentially, while the revenues picked-up, I thought there would be kind of scaled to it. And we'd be going in the other direction, kind of what's going on there. And how do you see gross margins going forward second half?

Yes, so look, it is a mix of the contracts and direct and indirect and how we deliver in the timing of the cost involved in, so we've got if you notice, in our bookings system, we mentioned we have some longer term contracts with minimum guarantees. So there's more investment upfront to get the long-term benefit and the marginal cost of delivery as we goes down. As we're ramping, there's going to be a balance here all the time. So, we still think we're in pretty good shape. And Elliot the best way I think about it is you should look at that number on a more longer term basis sequentially, it may go up and down, but if you look at year-over-year, we have made improvements. And in the long-term, we'll continue to making improvements on that plan.

Where do you think it's sort of tops out?

I'm not -- I can't answer the question because we had not model there out but clearly for our SaaS business. It has lot of room to grow, and we want to grow -- and we want to scale positively. So we expect it to continue to go up over the next year or two.

Okay. And then on the housekeeping side, stock based comp in the quarter, what was that, and any depreciation amortization?

Give me a second. Sorry, don’t have on my fingertips, I’m looking.

We will come back to that Elliot, in a second.

Okay. That's it for me.

Do you have a question, Elliot, we’ll come back to it.

No, that’s it -- yeah that’s it for me. Thank you.

Thank you. Our next question today is coming Mark Heckman [ph] of Heck Investments. Your line is now live.

Hey, Mark.

Hi, how are you, thanks for. It's great that your revenues continuing to increase and all that. I like that. I’ve notice you haven't published your 10-Q, but when you think you will have that?

It's across actually it should be out there.

Okay and what was the cash flow operating -- cash flow from operations? Whether I guess it's for the six months, but what’s that look like, trying to get a sense of what your cash burn is for the quarter?

Yeah, the cash burn was about 1.3 million last quarter and that’s little lower than what we had in Q1 also timing of collections as well. We expect to have similar cash burn over the next couple of quarters.

Okay, so you picked up 2 million I guess the warrants have already been exercise, is that correct?

They are in the process of being exercise that exercise date is through 16 but we expect it to be done before that. And then we expect little over $2 million once done.

And that comes to be an such an event to these financials.

Right, but well the 10-Q show the exercise price, so I can get a sense of how many shares were issued.

We will publish in 8-K and it will make the details more clear for you.

Okay so if you're burning 1.3, you said per quarter and you have an extra 2 million, and I guess you could borrow more but….

Yes, this is an unsecured line that we can draw if we need to and want to.

So 4.8 million that you have already burned through some money already this quarter but alright so you have theoretically 4.8 and you're burning 1.3 a quarter is that correct, is that the same time gain.

I don’t think you can reliably expect to make a 1.3 burn in every quarter for the foreseeable future. We’ve got very specific things we are doing over the next couple of quarters here and are planning for ‘21 and ‘22 that we think are prudent to take advantage of the market opportunity. So I don’t think you can go to long-term trend expect that to continue to burn.

What do you mean higher?

No, our current business plan is not, we haven't released the plan for 2021 and 2022, we will certainly do that the appropriate time. So…

Now, you’re talking about next…

You are talking about the next quarter right now, next quarter it will be similar. We're going to continuously comps related we’ve done a long, as balance they need, the opportunity for growth, the opportunity for capital. So we feel pretty good about where we sit today, we like where we are.

Okay. And…

We payoff from the investments we're making now, we continue to see that stay-off in the fourth quarter right.

It will be helpful frankly for your stock and I’m just going to say this publicly when you can start to talk about getting to free cash flow positive because people just don't like seeing that in the company.

Mark, thanks for your comment. I’m going to go back and reiterate the philosophy is very clear, we're going to focus on making the right decisions for the ROI for the company with long-term growth in mind and push to pedal down at the right time that we do like we had an opportunity to take real advantage of the market opportunity that what we are going to do. But Mark I appreciate your time. Thank you for joining.

Thank you. We reach end of our question-and-answer session, I’d like to turn the floor back over to Carr for any further or closing comments.

The stock based compensation for the Q was about 275 grand and D&A for the second quarter was about 222 grand [later changed by the company to 176 grand], I'm sorry. So everyone thank you very much for joining. We look forward to talking to you again shortly. Thank you very much.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time. And have a wonderful day. We thank you for your participation today.