Good afternoon, and welcome to AudioEye's Fourth Quarter and Full-Year 2019 Earnings Call. Joining us 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 questions from the company’s publishing analysts. I would like to remind everyone that this call will be recorded and will be 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’s 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 forward-looking statements. These statements are predictions, projections, and other statements about future events that 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 comments made during this conference call in the Risk Factors section of the company's annual report on Form 10-K, and its quarterly report on Form 10-Q and our 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 believes only as the date hereof. AudioEye does not undertake any duty to update or correct any forward-looking statements. Now, I’d like to turn the call over to AudioEye's Executive Chairman, Dr. Carr Bettis. Please proceed.

Thank you, operator. Welcome, everyone. And thank you for joining us today. Earlier today we issued a press release announcing our results for the fourth quarter and full year ended December 31, 2019. A copy of the press release is available in the Investors section of our website at audioeye.com. Before I begin today's call, I'd like to take a moment and welcome AudioEye's new CEO, Heath Thompson to our team. As we announced earlier this month, Heath took over the CEO role effective today. We're really excited to have someone of Heath's caliber coming to join us. As a bit of background, Heath has nearly three decades of leadership and engineering experience at organizations ranging from startups to large global corporations. He also has a deep background in SaaS and software product businesses similar to AudioEye, makes him a natural fit for our company. Heath was most recently at cybersecurity leader SANS, where he was the General Manager of the Security Awareness business. Prior to SANS he was with Forcepoint, another leading cybersecurity organization where he held a variety of management-level roles, including Senior Vice President positions in products, user and data security, enterprise security, and most recently, corporate development, business development and strategy. At Forcepoint, Heath drove year-over-year mid double-digit growth for the data and insider threat business; doubled the revenue of one of the business' flagship products, significantly displacing competitors in a large market share shift; and also executed a successful acquisition of RedOwl, an AI, ML, behavior analytics company during the same period. Heath has also held roles with various other organizations including IBM, Internet Security Systems, American Systems Corp and Attachmate. Finally, Heath also previously ran Thoughtmill Corporation, an information technology and services company which he founded and bootstrapped, growing it to 200 employees and…

Thank you, Carr. Before I begin, I'd also like to extend a warm welcome to our new CEO Heath Thompson. We are all very much looking forward to benefiting from his relevant knowledge and experience as we expand our leadership position in the digital accessibility industry. Let me now jump right into our Q4 and full year results, starting with bookings. As a reminder, we define bookings as the contracted amount a customer commits to spend with us which could be over multiple years. For the quarter bookings totaled $6.6 million, which was an increase of 90% from $3.5 million in the same period last year. For the full year, bookings totaled $23 million, which was an increase of 99%, compared to $11.5 million in 2018. The increase in bookings was primarily driven by strength in both our enterprise and vertical partner channels as a result of strong execution against our sales pipeline. Revenue in Q4 was $3.6 million, reflecting 100% increase from $1.8 million over the same period last year. The increase in revenue was driven by better penetration with our vertical partner channel and new customer acquisition as well as solid retention in our enterprise channel. Revenue for the full year increased 90% to a record $10.8 million from $5.7 million in 2018. The increase in full year revenue was primarily due to the benefit of our growing MRR through expanding vertical partnerships, and from both new bookings and deferred revenue coming in from prior years. Gross profit for the fourth quarter was $2.4 million or 66% of revenue, which was 127% increase from $1 million or 58% of total revenue last year. This improvement was driven by enhanced efficiencies as we automate more remediations, as we grow our top-line. This also reflects the mix of products that…

Hey. Thanks, Sach. I'll now update you on a few final items before turning it over to Q&A. And thanks everyone for your patience to allow us to get through this update, it's been exciting. As of today, we're more than halfway through the first quarter of 2020. And we continue to execute on our strategic roadmap and ongoing MRR. Our enterprise channel remains a stalwart contributor to growth, our vertical partner channel continues to increase our overall customer count and revenue at a healthy rate, our new platform partnership provides another avenue to expand our total addressable market. Through our affiliate marketing program and Digital Marketplace, we expect to drive increasing adoption of the AudioEye solution. Looking outwardly, the digital accessibility to legal landscape remains a major driving force behind the decision to provide accessible website solutions. Based on AudioEye's tracking, we saw the number of lawsuits increased from 815 in 2017 to 2,250 in 2018, to 2,446 in 2019. Of which 2,345 were aimed at commercial organizations. I want to also note that litigation if anything has picked up in the month of March, over January and February so far looking at the first two weeks of March. Additionally, with the Supreme Court's refusal to hear Domino’s Pizza's appeal earlier in the year, we see no signs of legal action slowing. Longer-term, we continue to believe the tide is continuing to shift to what is inclusion and proactive accommodation, it’s just the right thing to do both financially and morally. We also believe the COVID-19 pandemic has the potential to even accentuate the need for digital accessibility. In the meantime, we remain focused on providing the most comprehensive set of accessible digital solutions for the largest number of users, regardless of impairment or disability. With that, I'll turn the call over for questions. Operator, please provide the appropriate instructions.

Thank you. We will now take questions from the company's publishing analysts. [Operator instructions]. Our first question is from Zach Cummins with B. Riley FBR. Please proceed.

Thanks for taking my questions and congrats on a really strong Q4. Just starting off, in terms of Q4 results, I mean can you speak to the areas that drove the strong performance? It sounds like you continue to get some strong penetration within the automotive and banking sectors, within that indirect channel. But anything else that you can call out in terms of driving the strength and adoption that you're seeing?

We -- it was both direct and indirect in the fourth quarter, Zach, by the way thanks for your question. So, we've made progress in both of those channels actually and you called out a couple of areas, but it’s -- we're happy to see some of the strength of our growth broadening as well beyond just the automotive that you mentioned and others.

And then in terms of the cash burn rate, I mean down to $2 million in cash at the end of this year. Can you give any sort of update? It sounds like the cash burn rate is supposed to be improving here in Q1 and Q2, but can you give us kind of an update as to how you're feeling about the balance sheet right now? And really what's the approach to capital needs here as you're thinking about scaling this business over the next couple of years?

So Zach, it’s Sach. How are you? So, yes, the burn rate in Q4, look, it's a factor of the timing of collections and payables, right? As I mentioned in my prepared remarks, there was one contract that shifted and it was reflected in our AR. We have since collected that. It was a significant amount for us and that reflected in the burn rate for Q4. If I were to adjust for that, the burn rate in Q4 would have been somewhere around in the neighborhood of 1.1-ish and as we continue to see positive trends starting this year on overall burn. So, from a capital perspective, as I said before, we have enough runway, we have our plans and under normal circumstances of course we do expect them to get better as we go through the year on cash burn. And obviously, the goal is to be cash positive in 2021.

And then in terms of -- now that you're speaking to potential disruption to the business, I mean have you seen anything here in the near term from COVID-19 that's caused any sort of disruption, whether that be sort of maybe delays in sales cycles or anything of that like?

Not yet, Zach. I think there's -- what we want to do is take the opportunity to point out to folks that COVID-19 means more need for digital accessibility. We're going to be very thoughtful and aggressive in working with our partners, as reflected in the program that we launched as I mentioned earlier today. We think there's an opportunity here to showcase the importance of this and we think a lot of our partners feel the same way. But will there be impacts to the business? We're waiting to see exactly how that unfolds. There's a lot of uncertainty and risk for everyone in the business probably today. We don't really know how to measure the impact yet. It's too early. But there is some -- yes, we just don't -- we haven't seen the impact yet. We don't know exactly what the impact is.

Got it. that's helpful. And then now that you're moving away from your historical approach to guidance and shifting more towards this MRR metric, I mean $1.2 million at the end of this year's is certainly the piece of nice momentum. Can you speak to where that metric is really trending here in Q1 and kind of how we should be thinking about this I guess from more of a qualitative standpoint as we move and progress through 2020?

Zach, we haven't published our progress on MRR yet this quarter. We will make sure to keep you guys up-to-date through the quarter -- quarter-by-quarter results. But, yes, we're continuing to see and we should expect there to be healthy growth in MRR. Remember we also have a pretty significant backlog here. But we're expecting healthy growth rate to continue.

Got it. And then just final question from me around kind of the AudioEye Digital Marketplace offering. It sounds like you're going to be offering 90 day free trials for your AudioEye Pro solution, starting here pretty soon. I mean I know it's still pretty early. But can you give any sense of the feedback you've received from customers so far that have been using the AudioEye Digital Marketplace?

Yes, so look, we've taken -- we've had some good early success. We've taken a lot of feedback. And as always, we'll continue to refine exactly the way it's delivered to them to make it as consumable and easy for them to adopt as possible. And that's true with the feedback we received directly from the Marketplace customers, as well as our partner channels. And we're very, very excited the way that product is evolving and the progress that we're making with that product and we're very excited about it. And it will take some time for that to -- for us to be able to measure the capacity results and provide a report on the results that ultimately will show up of course in MRR. But the free offering is a bold move by us to make sure that we're showing our responses for COVID-19 and to attract customers to our solution. Once they're there, we believe we’ve demonstrated there'll be sticky customers and will benefit from that long-term.

Our next question is from Allen Klee with National Securities. Please proceed.

Your gross margin improved significantly, however you want to look. I was trying to understand -- I guess you're getting more efficiency using automation and maybe some other reasons. Could you talk about that a little and if you think it's kind of sustainable, there was if anything one-time that affected what the margin was this quarter?

Hey, Allen. How are you? This is Sach. There you’re right. So yes, we showed improvement. And if you recall, our target is to continue to improve gross margin as we scale. And that's why we’re making all the investments. And also, just to remind you, the gross margin may be a little choppy as we deliver different products. Some products have more upfront costs, as we deliver. For example, our PDF documents. But as we continue to scale, automate, and find efficiencies with our platform and vertical partners, we do expect it to continue to get better over time.

So you think there's opportunity to improve over time from what you did this quarter?

Yes. Over the next year to 2 years as we not only grow but also as we add more revenues from our vertical partners, as well as platform partners, that's expectation. And also, that expectation is what gives us confidence to get cash flow positive in 2021 as well.

Then when I was looking at your operating expenses, a couple things jumped out. The first one was the drop in your sales and marketing expense in the quarter compared to the prior quarter and also year-over-year. And also if you just look at it as a percent of sales. Could you talk about what was behind that? Is there anything one-time? Is that kind of a new run rate and maybe how to think about the growth rate of that versus revenue qualitatively for '20?

Yes. So this was -- it’s a reflection of the type of campaigns we run, and how we launch our campaigns. The costs were down a little bit here quarter-to-quarter. But from an overall perspective, we don't expect sales and marketing costs to go down. Because we want to continue to ensure that our brand is out there, we are reaching most potential customers. And as we launch new products, we will continue to support that launch with our marketing campaigns. So overall, roughly the same cost as we had in 2019 for the -- approximately, that's what we expect.

So roughly flattish sales and marketing costs. How about G&A, is that somewhat -- should we think that, that would grow also at like a slower rate than revenues more modestly?

Well, G&A costs will go up before it stabilizes, right? Because we are adding key personnel in consulting areas and we are also adding some executives. So over the first 3 quarters, we will see it go up continuously and then it should start flattening.

Okay. Is there a way to think of kind of incremental margins, kind of EBITDA margins of your business as you scale. Is there a way to think of like what that number might be, that percentage?

Hey, Allen, thanks for the question. I'll just say, I think it's too early for us to benchmark that with curricular competence. Remember as Sach said it depends on the mix also. We invest early in some areas that the margins show up later. So it depends on our rate of new things that we're doing versus the increase in revenue that comes from the deferred revenue that we already have and the contracts in excess of revenue, deferred revenue. So that rate is a balance between those two things. So we like trust that there'll be some movement around gross margin over time. With the long-term trend line, we feel very, very good about being continuing to improve.

Okay, great. And then when you say that you hope to get to cash flow positive next year, how do you define cash flow?

Cash flow is just cash from operations less D&A. You can think of also -- to keep it simple also you can think of net cash burnt during the quarter. Our expectation is that instead of cash flows, we will be generating cash in 2021.

Okay. And then the biggest challenge is to trying to figure out kind of how the revenue grows. And we have been driving revenue off of bookings and assumptions on retention rates and average contract size, it sounds like that might not be the best way to do it in the future as your business mix changes. Can you give us some help of like just in general of maybe where analysts are in terms of revenue for ‘20, if you think there's a reasonableness to that number, or that there's something that we need to think of in tweaking it?

Hey. So, I think that we are going to really rely on MRR right now to communicate what we're doing and how we're doing as a business. We're not uncomfortable with the way you guys are approaching in terms of thinking about revenue guidance for the year. So if that's any help. But we're going to just continue to put up MRR and let you get really comfortable with that as the year unfolds. If hopefully that helps. I think you guys put out -- I think both you and Zach's reports are in fact to be constructed thus far and we will continue to put out MRR and get you to revert into your benchmarks to MRR over time.

Okay. And then my last question is to just -- again, I think it's great that -- I mean I had a feeling that this quarter from you guys is going to be the best of any company I've seen in a long -- quite a while. So congrats on that. I'm trying to understand like how to think -- like also the fact that like you're coming up with businesses that can be self -- the customer can close a deal without a salesperson having to really be involved. Is there way to think of kind of, to what degree the sales force might be impacted by what's going on or the ways that they can sort of -- what the right word it -- just to adapt to the current environment?

Yes, look, we're being very thoughtful about the way in which we parse the customers out. So that the enterprise customers land in the enterprise space for enterprise sales people who can -- are definitely talking about enterprise contract levels with them. So, the increased emphasis over time, as you'll see, I think unfolds especially later in the year in 2021. The increased emphasis on the adoption through more cost effective ways of acquiring customers is something we're really excited about. But there's a real enterprise business with a real enterprise need that require us to deliver enterprise level contracts and services that are expected by those enterprise customers that we will continue to do and hopefully do very, very well. Again, our enterprise business has been continuing to be strong.

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

Thank you very much, everyone, for joining us today. I especially want to thank our employees, partners and investors for their continued support. And we look forward to updating on our next call and introducing you to Heath. Thanks, everyone. Good evening.

Before we conclude today's call, I would like to remind everybody that a recording of today's call will be available for replay via the 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 2019 earnings conference call. You may now disconnect.