Good afternoon, and welcome to AudioEye's First Quarter 2023 Earnings Conference Call. 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 site 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 in 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 its 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'd like to turn the call over to AudioEye's Chief Executive Officer, Mr. David Moradi. Sir, please proceed.

Thank you, operator. Welcome everyone and thank you for joining us. To begin, we'd like to highlight our strong financial performance and continued focus on efficiencies. We are pleased to announce record revenue of $7.77 million in the first quarter. We ended the first quarter with sequential growth in our key performance indicator, annual recurring revenue or ARR, which was $29.6 million up from $29.2 million on December 31, 2022. Gross margins were 78% versus 75% in the year-over-year quarter.Gross profit increased to $6.1 million versus $5.2 million year-over-year, representing a 100% flow-through of additional revenue into gross profit. Revenue increased 13% year-over-year while operating expenses decreased by 8%. Net loss decreased and we achieved a near non-GAAP breakeven versus a $1 million loss in the year-over-year quarter. We were able to achieve near non-GAAP breakeven despite increased R&D investment of approximately $200,000, compared to the first quarter of 2022. Net cash provided by operating activities improved to $300,000 in the quarter versus net cash used by operating activities of $500,000 in the fourth quarter of 2022. In the year-over-year quarter net cash used by operating activities was $1.9 million. In addition to our positive financial results there are several notable items I'd like to highlight on today's call. As we have said before we believe we are in the early innings of digital accessibility. 97% of websites today remain inaccessible to people with disabilities. Over the past several years there has been a growing demand for effective accessibility solutions. Demand has increased due to a variety of factors including brand reputation, increased litigation and the ability for companies to generate additional revenue with accessible websites. AudioEye is a pioneer in digital accessibility and has invented many of the products used in the industry today. We believe that AudioEye has…

Thank you, David. As just mentioned, we are pleased with our first quarter 2023 performance. Q1 2023 marks the 29th straight quarter of record revenue ending Q1 at $7.8 million which was 13% growth year-over-year. Annual Recurring Revenue or ARR at the end of the first quarter of 2023 was $29.6 million a $1.5 million increase from ARR at the end of the first quarter of 2022. Our two revenue channels are continuing to perform well. As discussed in previous updates, 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. In the first quarter of 2023 this revenue channel grew 14% year-over-year and represented approximately 56% of revenue and 59% of ARR. We expect to continue to see this channel contribute significantly to our growth in revenue, as we build for further traction and expand with larger partners. The enterprise channel continued to perform well in the quarter growing 11% year-over-year and contributing approximately 44% of revenue and 41% of ARR. We continue to see longer sales cycles and more price-conscious customers, but overall we are seeing some of our best logo retention rates. Total customer count increased notably in Q1 2023 to approximately 95,000 customers from approximately 74,000 customers at March 31, 2022, and 86,000 customers at December 31, 2022. Both revenue channels contributed towards customer count growth in the quarter with the expansion of platforms as the most material driver of customer count increases. Gross profit for the first quarter was $6.1 million or about 78% of revenue compared to $5.2 million and 75% of revenue in Q1 of last year. We are pleased to see gross margins continue to increase given the significant investment in our platform…

Thank you. [Operator Instructions] Our first question comes from Zach Cummins from B. Riley FBR. Please go ahead.

Hi. good afternoon, David and Kelly. Thanks for taking my question and congrats on the solid Q1 results. David just starting with the Partner channel. I mean, a nice jump in new customers added in this quarter. So can you just talk about your progress with partners and how we should think about that progression here in the next few quarters especially as new agreements start to kick in?

Hello. Is your line on mute?

Yes, I'm guessing, David's line's on mute, but I can jump in here. Overall, we are pleased to see customer count increase and across all channels see that increase. But yes, we are excited about the developments and partnerships overall. As we noted, the biggest driver of those partnership increases, are customer count increases, are the partnership increases from platforms. But yes, making great traction with partners overall and expect that to continue in future quarters.

Can you hear me now?

Understood. Yes, yes, I can hear you David.

Okay. Yes, I was talking for about 15 seconds there. Great. Does that answer your question Zach or do you need more color around that?

No, no. I think that's helpful. And I guess David, just building upon it a little bit, I mean obviously, continuing to invest pretty aggressively on the R&D line. Can you talk about some of the opportunities that you see out there that really I guess justifies continuing to invest at this pace into R&D?

Yes, we're investing in items that we think are going to have a great payback in the near term. We're going to be adding new products in the near term, that you're going to see and we're investing into our AI capabilities. So that's where the money is going.

Got it. And final question just really on the enterprise side of it. I know you mentioned last call, there was a couple of outstanding renewals that were in ongoing conversation. Any sort of update you can provide on either of those situations?

Yes. With the -- are you talking about the enterprise side?

Yes.

Yes, those are still in negotiations. The demand is still there, but there's been large turnover at both of those companies, so we're still in the hunt. We're hopeful, we'll be able to get one of these deals or both of these deals done by the end of the year. It's more a function of a tougher economy.

Got it. That's helpful. Well, thanks for taking my questions. And best of luck with the rest of the quarter.

Thank you.

The next question comes from Scott Buck from H.C. Wainwright. Please go ahead.

Hi. Good afternoon guys. David, I'm curious on the sales and marketing efficiencies, have you guys exhausted those efforts at this point or do you think there's still some room for improvement there going forward?

Yes. I think, we're pretty exhausted on the efficiencies in sales and marketing. I don't think you'll see more efficiencies there. Yes.

Okay, that's fair. And then the second one for me. If we take a step back, you're kind of bumping along here at roughly cash breakeven. Should we assume that moving forward at least in the near term, any incremental cash that you're able to generate you're going to plow right back into sales and marketing to drive revenue?

Yes. We are very prudently managing cash and cost overall. We did end Q1 at $5.5 million. Kind of as David mentioned and what plays into it is, we expect the first half to have non-GAAP net loss, but we expect the second half to have non-GAAP profitability. So it is kind of -- does work in line with that. But we do expect, as we mentioned on the call to be cash generating by Q4. And so we are kind of keeping all those factors in mind as we think about the rest of the year.

Okay, great. I appreciate that, Kelly. And then last one for me. First congrats on the successful defense. But curious, if there's anything else on the regulatory front that we should be keeping an eye on.

Sure. Yes, there is action on the DOJ side. They have something in the works right now on the state and local government, so we're watching that pretty carefully.

I appreciate that additional time guys. Thank you.

Thank you.

Our next question comes from George Sutton from Craig-Hallum. Please go ahead.

Thank you. David you mentioned that you expect revenues to accelerate meaningfully in the second half. Obviously that would be different than many companies are anticipating at this point. Could you just walk through the logic of how you see that occurring?

A good question. When I look at the business outside of the renegotiations, our reseller and platform business have been extremely strong growing at a great clip. So that's where we see the uptick in the second half is really driven by that and an uptick in the enterprise business as well with higher close rate with Michael and his team and what they're doing.

So you mentioned that some businesses are seeing additional revenues from having accessibility which for us has always been kind of an interesting dynamic beyond just the litigation. Can you talk as specifically as possible as to what you're hearing in terms of those kinds of numbers?

Yeah it's hard to quantify. It could be anywhere from 5% to 10% more revenue potentially. We have a case study on the website I'd invite you to check out but it is hard for us to quantify.

Last if I could. On the R&D side I'm curious if you can just give us a picture into how you're thinking of the ROI from some of these investments. And I know some of it is increasing the automation so thus reducing your sort of people-based costs to deal with this. But any sort of detail you can give us on sort of ROI you are targeting from these investments?

Yeah. We definitely are considering what the return on investment is for our R&D spend and we do think there is notable investment there. We do see opportunities in front of us that we want to capitalize on and that's why we're funding that effort. In addition to kind of expanding existing features there are additional product sets and products we plan to put out to the market that we're pretty excited about. And so all of that is a factor in what we're investing in for R&D.

Okay. Thank you.

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 remarks.

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.

The conference has now concluded. Thank you for joining us today. 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 first quarter 2023 earnings conference call. You may now disconnect.