Good day and welcome to the AudioEye Third Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note, today's event is being recorded. I would now like to turn the conference over to Brian Prenoveau. Please go ahead.

Thank you, operator. Joining us for today's call are AudioEye's CEO, Mr. David Moradi; and CFO, Ms. Kelly Georgevich. Following their remarks, we will open the call for questions from the company's publishing analysts. 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 Chief Executive Officer, 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 a Safe Harbor for such forward-looking statements. The words believe, expect, anticipate, estimate, confident, will and other similar statements of expectation identify 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 results 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, its quarterly reports on Form 10-Q and in 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. Further, management's remarks today will include certain non-GAAP financial measures. A reconciliation of the most directly comparable GAAP financial measures to these non-GAAP financial measures is available in the company's earnings release posted in the Investor Relations section of our website at www.audioeye.com. Now, I will turn the call over to AudioEye's Chief Executive Officer, Mr. David Moradi. David?

We want to begin by discussing our positive financial results. Despite some macroeconomic headwinds, the third quarter marked the 27th straight quarter of record revenue, achieving $7.7 million which was 24% year-over-year growth. Gross margins remain consistent at 75%. Our revenue growth resulted from both our Partner and Marketplace channel and the Enterprise channel. In addition to achieving revenue within the guidance range, we are pleased to report non-GAAP profitability of approximately $100,000. We have previously guided to near breakeven in the fourth quarter. We are excited to achieve this milestone ahead of our target. Beginning in January of this year, we implemented new processes that resulted in efficiencies and reduced operating expenses as a percentage of revenue. In the quarter, we were able to drive both our GAAP and non-GAAP year-over-year operating expenses down on an absolute basis by approximately 13% and 12%, respectively, while increasing revenue by 24%. We believe this is notable given the inflationary environment most companies are facing. Cash burn also improved sequentially from $2.7 million to $1.4 million. Excluding nonrecurring items, such as litigation and stock repurchases, cash burn, including working capital, declined to $500,000. Kelly will give further details shortly. Now I will dive a bit further into revenue and our business momentum. We added several new resellers in the quarter while expanding revenue from existing partnerships. Partnership and Marketplace channel continues to show strong demand. One of the main drivers of our high retention despite economic uncertainty is that we have the best offering in the market due to our industry-leading R&D investment. Like most other companies, resellers are looking for new ways to expand revenue and provide a robust offering compared to their competition. Our cost-effective and comprehensive approach to solving web accessibility issues at scale, while providing services as required,…

Thank you, David. As David mentioned, we are pleased with our third quarter 2022 performance. Annual recurring revenue, or ARR, at the end of the third quarter of 2022 was $29.3 million, a 19% increase over ARR at the end of the third quarter of 2021. Both revenue channels experienced organic growth, with the Bureau of Internet Accessibility acquisition also contributing to Enterprise revenue growth in the quarter. The Partner and Marketplace channel which includes revenue from our SMB-focused marketplace products and a variety of SMB-targeted partners, grew 19% year-over-year and represented approximately 52% of total revenue and 56% of ARR. The Enterprise channel, inclusive of revenue from the Bureau of Internet Accessibility, increased 30% year-over-year and contributed approximately 48% of total revenue and 44% of ARR. Recurring revenue in Q3 2022 increased 22% from the comparable period in the prior year. Project-based revenue also increased over the same period in prior year, with the addition of new products from BoIA which helped to offset decreases in project-based mobile and PDF revenue in 2022. We are focused on an ARR model going forward and we expect nonrecurring revenue to decline as a percentage of sales to low single digits from about 6% in Q2 and Q3. On September 30, 2022, our customer count was approximately 81,000, an increase from 80,000 customers on September 30, 2021 and an uptick of approximately 5,000 sequentially. The uptick was driven by higher Enterprise and Partner and Marketplace customers. As noted on our last earnings call, in August, we signed an updated contract with the agency that was going through renegotiations in Q1 and fell out of the customer count. We expect this specific deal to start contributing to customer count and revenue in Q4 2022. Gross profit for the third quarter was $5.7 million…

[Operator Instructions] And today's first question comes from Zach Cummins with B. Riley Securities.

David and Kelly, congrats on the solid results here. David, just starting off. In terms of the 4Q guidance that you're giving out there, I mean, can you give us a sense of the different puts and takes? It sounds like you have some enterprise customers that are maybe taking a little bit longer in terms of pulling the trigger with purchasing decisions. But I'm just curious of some of the assumptions you made when setting the 4Q outlook.

Zach, yes, I think that's right. We've seen some elongation of the sales cycles with the enterprise customers. I will say we're seeing record leads. We just got to close these deals coming in. We're seeing all-time high leads. So the demand is definitely there. We're just dealing with some budget constraints from enterprises. Resellers are doing pretty well. So that's good and we're growing our penetration within them. We modeled through leaner economic times a while ago, back in January, February, so we rightsized the business. And we were able to grow about 24% and reduced absolute costs by 12%. So we think that was pretty good. Yes. So our guidance considers all of this. We're guiding for about 20% growth at the midpoint.

Understood. That's helpful. And to that point of profitability, congratulations on getting to your target a quarter ahead of schedule here. And now that you've hit this key inflection point, I know, David, you've spoken to a pretty challenging operating environment right now. So can you just give me a high-level sense of how you're thinking about balancing profitability versus continuing to invest for some of these growth opportunities going forward?

Yes. We're guiding for non-GAAP profitability in the fourth quarter. Besides that, going to next year, we're not guiding at this point. We think we're rightsized and the cost structure is in place and we're going to see nice growth with the reseller partners in the future.

Understood. That's helpful. And just from a broader sense, I mean, some of these other developments outside of the business with the legislation that was introduced in October. I mean, can you give us a sense of maybe the time line of when we start seeing additional steps forward with this and potentially getting this passed? And I mean, have you seen any sort of incremental demand uplift even just with the introduction of legislation? I'm just curious of your thoughts on the topic.

I don't think I've seen additional demand. It's obviously too early to say but this could be a huge driver for demand going forward. As you know, only 3% of websites are accessible today. There's just a growing trend here with legislation, the DOJ, companies requiring accessibility in their front contracts. So we look at this as a multibillion-dollar TAM opportunity. I don't know the timing of the legislation. It could be next year but I think it's a positive in conjunction with all these other things.

[Operator Instructions] Okay. And ladies and gentlemen, this concludes today's question-and-answer session and today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.