Good afternoon, and welcome to AudioEye's Third Quarter 2019 Earnings Conference Call. Joining us today for today's call are AudioEye's Executive Chairman, Dr. Carr Bettis; and CFO, Mr. Sach Barot. Following their remarks, we will open up the call for your questions in the company’s publishing analyst. Chief Revenue Officer, Mr. Todd Bankofier will be available for 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 Safe Harbor for such forward-looking statements. The words believe, expect, anticipate, estimate, will and other similar statements of expectation identify as forward-looking statements. These statements are predictions, projections, or other statements about future events and are based on current expectations and assumptions that are subject to risks and uncertainties. Actual risk could materially differ because of factors discussed in today's press release and the comments made during this 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. Sir, please proceed.

Thank you, operator welcome, everyone, and thank you for joining us today. After the market closed, we issued a press release announcing our results for the third quarter ended September 30, 2019. Copy of that press release is available in the Investor Section of our website at audioeye.com. Some of you may have already seen we issued another press release this afternoon to that including AudioEye’s two new Board members David Moradi and Jamil Tahir. David is a long-term significant shareholder as well as an investor among many other accolades. He has previously founded highly successful technology companies and now serves as a coveted strategic advisor in the technology industry. We are very fortunate to have him and we believe with him we're very, very fortunate to have him on the board. Jamil is also an investor and a shareholder who knows AudioEye story and agrees with our aggressive growth mentality. We believe strongly in representing and aligning the company's interests with that of our shareholders through these appointments we are further committing to that principle, as well as bringing on two experienced Board members who have the skills to help take AudioEye to the next level. We look forward to benefiting from their collective wisdom and insight. I will now provide an overview of the business. As many of you know, we're not typically known for our brevity on these calls, and today is not going to be exception we have a lot to cover. For those of you who have been following us, you'll know that we announced last week and update on our expanding go to market strategy. To that end, I'm going to spend a little extra time to now explain our new offerings, updated strategy, and how that strategy has evolved over time. Once that…

Thank you, Carr. I would also like to welcome David and Jamil to our Board. I look forward to collaborating with them closely as we continue to focus on continued growth. As you just heard from Carr, we really feel good about our third quarter results as we continue to deliver on our expectations and make progress on a number of fronts, which will have us well positioned for sustainable long-term growth. Let me now jump right into Q3 results. Starting with bookings, as a reminder we defined bookings as a contracted amount a customer commits to spend with us, which could be over multiple years. For the quarter bookings totaled $5.7 million, which was an increase of 102% from $2.8 million in the same period last year. The year-over-year increase in bookings was driven by strengthen in both our direct and indirect channels, driven by strong execution against our sales pipeline. Revenue in Q3 was $2.8 million reflecting an 86% increase from $1.5 million over the same period last year. The increase in revenue was driven by better penetration with our partners in the indirect channel, and new customer acquisition in our direct channel. We continue to show solid attention in both of these channels. Gross profit was $1.7 million or 60% of total revenue, which was 101% increase from 822,000 or 55% of revenue last year. This improvement is driven by enhance efficiencies as we automate more remediations while doing our topline. This also reflects the mix of products that we deliver during a particular quarter. As we shared with you during prior our calls, we are in the midst of investing in several key areas to drive long-term growth and profitability. We strongly believe that these investments will provide the best long-term return for our business and…

Thanks Sach. I'll now update you on a few items before turning it over to Q&A. First, as it relates to our ongoing CEOs first we continue act discussions with a select list of potential candidates. And as we said previously, there really isn't a way to model out a timeframe for a selection here. It's a number of factors. In fact, the final decision making process. We take this process seriously, and any candidate go through quite a lot of rigor. Moving to our outlook to keep it simple we are reiterating both our bookings and revenue guidance for the year. We expect bookings in 2019, to range between – 22 million and 24 million. We expect revenue to fall between 10 million and 11 million. More generally, as I stated on the last call, we anticipate another strong fourth quarter to end the year. This belief is driven both by historic results, as well as a large number of contract renewals coming up during the period. Halfway through Q4 at this point, we feel increasingly confident in their ability to meet our stated financial goals. Throughout its history, AudioEye has generated strong renewals and we expect strong renewals to continue and important factor that gives us confidence in the long-term health of our business as we continue to grow bookings. I hope I made my points clear today, AudioEye is in the strongest position to date and we're continually finding ways to improving growth. Our long-term goal providing AudioEye everywhere and to, become synonymous with digital accessibility moving us from category leader to category owner. A recent launch of the AudioEye digital marketplace has a one major step closer to that goal. Going forward, we're going to continue to take bold, decisive action to build on our leadership position in this nation growing market, which will ultimately enable us we got a company built to build scale and to last. So with that, I'll now turn the call over to questions. Operator, please provide the appropriate instructions.

[Operator Instructions] Our first question comes from the line of Zachary Cummins with B. Riley FBR. Please proceed with your question.

In terms of the direct channel, I mean, can you speak to any particular verticals of strength that you're seeing there that are that are driving the strong results. And then how are you feeling about that pipeline going forward. I guess the question is more centered around did you have any deals that were pulled forward into Q3 that maybe you thought would have closed in Q4?

Hi Zach, Todd is also here with us and come out and address your questions?

Hi, Todd.

Hi Zach, let me just say this that the pipeline for direct continues to be strong, we're really, really satisfied about where we are. Some of the specific verticals that we see strengthen are obviously in retail e-commerce space, for all the obvious reasons. We also see that hospitality and even the government space, starting to come around slowly but surely. So those have been three big ones in Q3.

Great, thanks and in terms of the indirect channel I think can you speak to what really drove the rapid adoption that you saw with your customer account nearly doubling in Q3 and that momentum continuing to build here in 4Q? I mean how should, we be thinking about this adoption as we move forward. Is it going to come in waves similar to the one that you had at the start of Q3 or should that smooth out over time?

The indirect channel has been difficult for us to forecast in terms of timing, right but the way to think about what we've observed. I really believe we're at the start of continued momentum across some of these sectors and some of these partners and we're adding partners. So as we add partners this way it will get we'll have ways but the waves will be maybe less dramatic than the lump we've seen. So but continued growth, strong growth within these channel partners is what we're the objective is we're committing resources to that, and we're seeing very good results from it. It's not just one partner. We're seeing some results from multiple channel partners and we’re starting to see improvements it is exciting to us.

And then Sach you referenced this on the call in terms of the impact of the accounts receivable line as you get increasing penetration into that indirect channel. Can you provide a little more detail around the timing of those collections as you move forward and how this is going to be impacting the accounts receivable line on a go forward basis?

Yes, so as I mentioned there are two factors right from the indirect side, as you know while we don't get deferred, we definitely get AR for all the contracts that come in. But it's lesser of the two factors that's behind AR jump from Q2 into Q3 we expect some help over the next few quarters from this phenomena as we continue to drive more penetration with our partners. And also we expect to continue to grow our direct channel and we are making efforts here to drive more and more non cancelable contracts as well. So with that said Zach I think the best way to think about it is over the next two or three quarters, you may see this kind of an increase from year-over-year basis, quarter-to-quarter it may be a little modest but we expect the number to persist.

Understood. And then Carr you talked about the launch of the audio in marketplace, specifically your two new solutions with the AudioEye free and AudioEye pro. I mean, it sounds like it's been off to a pretty good start thus far in - is this going to be included in the customer account as we move forward?

We haven't talked about that internally yet. It's certainly not included when I say we have over 4200 customers today. We have customers to the digital marketplace. You know, this is a place where customers can go and self-serve if you will, right. It's a self-shopping experience for people and all kinds of platforms and small businesses on platforms. It's fantastic. So the customer account there we've got very strong aspirations and high expectations who will figure out how best to communicate that with you guys.

Understood. And final question for me, Carr on these two new products it sounds like an direct channel there is a - you have a new landing page where you have customers that can come directly to the new AudioEye website. But in terms of the indirect channel, are the AudioEye pro solution is that something that your indirect channel partners are going to be offering to some of their customers now?

Look at the moment what happens if you come to our site and you're one - and you're an SMB that's part of the network for a content management system provider that as a partner, you get directed to that partner experience. It doesn't mean that, some of these indirect channel partners might like the idea of offering a couple levels of service as well. Remember, the only way to get to the point where we are going to give you a certification of standard of compliance and accessibility with these partners has adopted as a principle, by enlarge is to use the managed service, that's where you get it, and it's delivered to them in an affordable way. So at the moment, we continue to offer anybody, who comes as an SMB to our platform, who is part of our indirect channel partners for industry vertical content management system provider system, they get directed to that solution and that answer, it is the right answer and the best answer for every company that wants to adopt accessibility and make sure that they're certified as much. And certainly at that price point, it's amazing offer for content management system providers SMB's.

Our next question comes from the line of [indiscernible] National Security. Please proceed with your question.

For the new marketplace could you talk about how you think about the economics and the size of this potential market? I heard you say there were 10s of millions of potential websites. If I just did some basic math of I don't know if there is $20 million and you got 1% of that and if you - that did the professional plan for $12 million or $13 million I think that $12 to $13 a month, I think it works out to close to like $30 million potential annual revenue just from that hypothetical, but how do you think of it and what is in the margins on that compared to your margins overall?

I love - thanks a lot Allen, thanks for the question. You're on the right track. Let me just make it more specific to relates to partners that we are offering solutions for right now. Our can is huge here and think about it. You know, doing them sort of the math we're doing the number of websites potentially available to Wix, Weebly, Shopify, Squarespace and WordPress and those alone are about $42 million globally. If we get 1% penetration rate, just for pro you are doing this math yourself, I'm getting slightly different numbers of specificity. Just the pro at $65 million of revenue. We don't expect these to stop at pro right we expect to see lots of managed service offerings companies as well over time, or even initialing some early adoptions. So you can see the potential that doesn't include enterprise customers and doesn't include vertical channel partners of our core managed service offerings, so to really significant market opportunity as it relates to margins. But this is a really special opportunity because it's truly, truly a self-served enterprise solution for individuals on the platforms that we are supporting and get all the way to managed through the website portal itself. So it's going to lower the margin cost of delivery substantially. We will continue to see a marginal cost of delivery go down by the way our investment in machine learning and automation continue to pay off significantly as we continue to move forward. We got a lot of things that we're doing there that are continue to improve efficiencies and assets and lower the cost of delivery, so we're pretty excited about the combination of things that we're announcing over the last couple of weeks.

So you kind of answered a little bit of my second question, but it was your gross margin was quite strong in this current quarter close to 60%. Is that something that is potentially sustainable at those levels and then can grow from that or was there any reason that it was uniquely high in the quarter?

Yes Allen this is Sach, so the way I think about it is two different ways, as we grow and scale, and as we automate more and more remediation, we expect that gross margin number to improve, but also, as I said in my prepared remarks, it may swing a little bit before we actually get to that scale and one of the things is the amount of the manual remediations we end up doing for certain contracts or for some of our DRS business. And that makes may reduce it a little bit. But over the next 12 to 24 months, we hope and we know, it should continue to get in the upward direction and continue to improve over time. But you may see little lumpiness here and there based on the mix of what we deliver.

Allen, I want to point out to that when we're growing contracts so quickly, and as we - I think we've just discussed and articulated several times now, there tends to be a heavy burden of cost and the implementation periods up front. And then so we're rolling as fast as we are and acquiring customers for incurring still a significant portion of cost up front. That's why we continue to see this contracts and excessive revenue, deferred revenue growing rapidly. But you know, in a way that puts pressure on short term margins with the rapid growth contract accumulation. So the whole bunch of things going on here. The marketplace doesn't have that phenomenon because in the marketplaces, it gets more and more revenues, that phenomenon will go away. But for indirect channels, as long as they're an important part of what we doing with premier partnerships with contracts to fund, we're going to continue to see margin sort of in my mind artificially held down. So there's a lot I think we think there's a lot of upside for margin here.

Thank you. So when I think about your business, you have attractive gross margins, you have low churn, and you have a recurring revenue business model. So that can generate an attractive lifetime value for a customer. And so it makes sense to spend a lot of time to go for a land grab on them. What would be very helpful as if there's anything you can generalize in terms of thinking about as you take that approach today? Is there a way to think about when you as you leverage your fixed costs that when you get to a certain scale of revenue, that you hit that inflection point of turning profitable on the on the bottom line.

Yes, so - we haven't talked specifically about when we expect to see that inflection points, but we're making substantial investment and have been making substantial investment now for- to couple of quarters into this even beyond that even earlier, specifically into these initiatives that we've launched and talked about today. You know, those - we're going to continue to invest, but the payoff is the land grab that we see in the high margins that we think we will deliver. So, yes, we'll talk more about our visibility into profitability as a business when we get into the beginning of next year. That's our plan, and we'll have a good answer for you. But we're excited about it. Do we believe we're going to - we're on the path to profitability? Absolutely. When you have ability to increase margins and have rapid growth, and we made a substantial investment already in what we're doing, and will be doing over the next two or three quarters here investing really heavily. We're very excited about the prospects. We believe it in but we're certainly focused on growth, though not to be competing right now. We're very focused on that land grab.

Thank you. What's the update on the industry litigation and thoughts on - how that might be helping awareness and increasing adoption for your services?

You know, a big thing for us right in a nation market is awareness. And some of that's coming through litigation getting attention, such as Domino's case. They went to SCOTUS, and you know that got pushed back by SCOTUS so that for example, I think is really impacting the restaurant space and litigation around the restaurant space. It's really exciting in that context, for us to gain a partner like Bento Box, who by the way gone off and tried to get accessibility through other means instead we need AudioEye. So I think anything that's happening in the litigation progress is continuing at a torrid pace. The last year or more will bring awareness and more and more companies show up in the media and more awareness gets focused on this issue and better for us. We're very well positioned as we continue to offer solutions for everyone here.

Okay, my last question is, if I were to look at you five years from now, how do you think your financial business model looks like?

You're a little ahead of me here except for I would say, we're excited about what we think is possible, we wouldn't be working as hard as we are doing what we're doing and investing the time, energy and capital and we were very, very bullish about the long-term prospects for the business, but I'm not willing to go out on a limb on a five year forecast today.

At this time, this concludes our question-and-answer session. I'd now like to turn the call back over to Dr. Bettis for his closing remarks.

Thanks again everyone for your time. We really appreciate your being here and we're looking forward to the next steps for the business that we are executing here. Thank you.

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 investor section of the company’s website. Thank you for joining us today for AudioEye's third quarter 2019 earnings conference call. You may now disconnect.