Good afternoon, and welcome to AudioEye's Fourth Quarter and Full Year 2022 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Brian Prenoveau, Investor Relations. 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 differ materially 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 and its quarterly reports 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 would like to turn the call over to AudioEye's Chief Executive Officer, Mr. David Moradi. David?

Thank you for joining us on today's call. I want to begin with our strong financial performance and our expectations going forward. Despite macroeconomic uncertainty, the fourth quarter marked the 28th straight quarter of record revenue, achieving $7.74 million, which was 19% year-over-year growth. We were pleased to see gross margin increase to 77% in the fourth quarter from 75% in the third quarter of 2022. The increase in gross margin was a function of continued efficiencies across the board in our organization, which is impressive given our continued investment in R&D and customer success. As in previous quarters, we saw year-over-year revenue growth in our partner and marketplace and enterprise channels. Fourth quarter revenue growth was primarily driven by an increase in recurring revenue, which comprised approximately 97% of total revenue for the fourth quarter compared to 94% in the third quarter of 2022. In addition to achieving revenue within the guidance range, we are pleased to report improved GAAP results and non-GAAP profitability of approximately $200,000 in the quarter. As noted in the last earnings call, beginning in January 2022, we implemented processes that resulted in efficiencies and reduced operating expenses as a percentage of revenue and on an absolute basis. In the quarter, we were able to drive our year-over-year operating costs down by approximately 19% while increasing revenue by 19%. Cash burn continued to improve sequentially from $1.4 million to $900,000 in the fourth quarter, which included nonrecurring expense of $600,000. On the partner and marketplace channel, we renegotiated a couple of long-term strategic partnerships, resulting in a short-term reduction of ARR while contractually increasing the minimums and contract plan significantly. Specifically, on these 2 contracts, we expect improvements in ARR in the second half and material increases in 2024. We continue to gain market share…

Thank you, David. Revenue for Q4 2022 was $7.74 million, a 19% increase from Q4 2021 and up sequentially from Q3 2022. While there were several negotiations in play in the quarter, as David discussed, we are pleased with the high logo retention and revenue growth from both the enterprise and marketplace channels. On a full year basis, in 2022, our revenue grew 22% to $29.9 million from $24.5 million and 20% growth in 2021. I will now discuss our key revenue channels, partner and marketplace and enterprise. The partner and marketplace channel includes all revenue from our SMB-focused marketplace products and revenue from a variety of partners to deploy these same products for their SMB customers. For the fourth quarter of 2022, our partnership and marketplace channel grew 14% year-over-year and represented approximately 55% of revenue and 58% of ARR. On a full year basis, in 2022, this channel's revenue grew 17% from $13.6 million of revenue in 2021 to $16 million in 2022. We are pleased to expand existing revenue and commitments from partnerships in this channel throughout the year, and in Q4 2022 specifically, which will contribute to the stability and growth of revenue in 2023 and beyond. AudioEye's enterprise channel consists of our larger customers and organizations, including those with non-platform custom websites who generally engage directly with AudioEye sales personnel for custom pricing and solutions. This channel also includes federal, state and local government agencies and revenue from the acquisition of the Bureau of Internet Accessibility, or BoIA, on March 9, 2022. The enterprise channel grew approximately 26% in Q4 2022 from the comparable period of the prior year and contributed approximately 45% of revenue and 42% of ARR. On a full year basis, in 2022, our enterprise revenue grew 28% from $10.9 million of…

[Operator Instructions] The first question comes from Scott Buck with H.C. Wainwright.

I'm curious, can you provide a little bit of additional color on maybe where some of the incremental R&D spending is going in 2023?

Sure. I'll take that one. We see opportunities in the market for continued product expansion that justifies increasing the R&D. We expect the additional R&D to generate a really good ROI for us. And as always, we're looking to weigh the risks on investments and against the risk/reward and the ROI potential.

I appreciate that, David. And then on the broader sales environment, is there something specific that would help accelerate those sales cycles? Or what are the conversations with potential customers like there? And what event gets them to kind of sign that dotted line?

Are you talking about enterprise or reseller?

Yes, specifically on enterprise. What gets them off the fence from a macro standpoint?

Yes. Look, we've just seen an elongation of sales cycles, as we mentioned last quarter. We also have a couple of larger deals that were expiring where we're still in negotiations are. We're very bullish on the enterprise side, though. We're seeing close rates go up on smaller deals, so that's a good sign. But it is a tougher environment out there. We think it's going to grow, but it is tougher.

All right. That's helpful. And then last, given the improved efficiency on the sales side, at what point does it make sense for you to put some additional dollars towards sales and marketing and then help drive acceleration in the top line?

Yes, I don't think we need to do that. We're pretty efficient on generating leads, as efficient as we have ever been. We expect the close rates to continue over time on the leads we are generating. We're generating a ton of leads. So I think we're going to grow revenue even in this tough macro backdrop with the current S&M spend.

All right. I appreciate the additional color, guys.

Thank you.

[Operator Instructions] The next question comes from Zach Cummins with B. Riley Securities.

David, just starting off, it sounds like you've renegotiated a couple of partnerships in the channel partner side of it. I mean, can you talk about, I mean, the reasons for looking at renewed terms or different terms there? It seems like it's going to have a little bit of an impact here in the short term, but it seems like something that could be a win-win longer term.

Yes, that's right. Some partners out there are just feeling cost pressure, which was the main driver of most of the renegotiations. So in exchange, we're giving some short-term relief. We were able to extend contract terms significantly with nice step-ups. And this is a win-win. It puts us in a much better place over time.

Got it. That's helpful. And then on the enterprise side, it sounds like you have a couple large renewals that are still ongoing. I mean can you give any sort of insight into how you feel about those likely coming back into the fold here within the next couple of months? Or any sort of incremental insight you can give into those renewals would be helpful.

Yes. We're just seeing that elongation of the sales cycle in a tougher environment. We have a couple of larger deals that were expiring. We're still in negotiations. Those couple of deals did reduce ARR at the end of the quarter. We're still working with them and still providing services, and hopefully, moving forward, to much bigger contracts with them. New business continues to be strong. We're closing it. It's just these couple of deals we're working through, and we think we're going to get them in a good place. But we'll grow regardless.

Got it. That's helpful. And final question is just really on the new Chief Revenue Officer hire. I mean you called it out a little bit within the script. But I mean, give us some insight into why you had to shake up in terms of leadership there, on the sales side of it? And is there going to be any sort of changes in terms of how you attack the enterprise or the partner channels?

Yes. Mikel is a rock star. He has a proven track record and has scaled of multiple companies. He has been a CRO before. We just think he's the right fit for the right time, and he's going to help us unlock a ton of potential in sales and marketing. He's done this before. So I think it's really good.

Got it. Best of luck with the rest of the quarter.

Thanks so much.

And we have a follow-up from Scott Buck with H.C. Wainwright.

Guys, I figure I'd throw one more at you here. Dave, I wonder if you could speak a little bit to the competitive environment and maybe how some of your peers are addressing a more challenging environment.

Yes. The market is still pretty fragmented. Look, we like the competition. We're confident that we have the best product. We actually think we're outperforming the market today based on checks. And we have some very exciting things coming soon, so stay tuned.

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

Thank you for joining us today. As always, I want to thank our employees, partners and investors for their continued support. We look forward to updating you on our next call.

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 Investors section of the company's website. Thank you for joining us today for AudioEye's Fourth Quarter and Full Year 2022 Earnings Conference Call. You may now disconnect.