AudioEye (AEYE) Q2 2026 Earnings Call Transcript

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DATE

Thursday, Aug. 13, 2026, at 4:30 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer-Kelly Georgevich
• Chief Financial Officer-Matthew Domeyer

TAKEAWAYS

• Revenue -- $10.7 million, representing a 9% increase compared to the prior year quarter and marking the 42nd consecutive quarter of sequential revenue growth.
• Annual Recurring Revenue (ARR) -- $42.3 million as of June 30, 2026, up from $41.2 million at the end of the first quarter, reflecting 11% annualized sequential growth.
• Adjusted EBITDA -- $3 million, a 54% increase from $1.9 million in the prior year period, partially driven by higher gross profit and operational efficiencies.
• Adjusted EBITDA Margin -- 28%, compared to 20% in the second quarter of 2025.
• Q3 2026 Revenue Guidance -- $10.85 million to $11.05 million, implying a sequential increase of approximately $235,000 at the midpoint.
• Full Year 2026 Revenue Guidance -- $43.5 million to $44 million, maintaining the midpoint of previous guidance while tightening the range.
• Full Year 2026 Adjusted EBITDA Guidance -- At least $12.7 million, an increase from the previous target of at least $12 million.
• Adjusted EPS -- At least $0.98 for the full year 2026, with Q3 guidance of $0.26 to $0.28 per share.
• Adjusted Free Cash Flow -- $2.6 million in the second quarter, representing an improvement of $1.2 million from the prior year period.
• Customer Count -- Approximately 129,000 customers, an increase of 9,000 compared to June 30, 2025.
• Enterprise ARR Growth -- 17% sequential annualized growth, with total enterprise ARR representing 41% of total ARR.
• Partner and Marketplace Channel Revenue -- 16% year-over-year growth, accounting for approximately 59% of total ARR.
• Adjusted Gross Margin -- 84% in the second quarter, up from 83% in the same period last year.
• Litigation Expense -- $1.1 million in the second quarter, though management expects this to trend down in the second half of 2026.
• Research and Development Spend -- $1.2 million, or 12% of total revenue, down from 17% in the prior year due to headcount reductions from AI automation.
• Run Rate Adjusted EBITDA -- Targeted at over $15 million by the fourth quarter of 2026.
• Net Debt to Adjusted EBITDA Ratio -- Approximately 0.6x based on full year 2026 guidance, with $8.7 million in cash and cash equivalents.
• Capitalized Software Development Costs -- $400,000 in the second quarter.
• EU Accessibility Gap -- Web scans revealed that European Union websites average 25% more accessibility issues per page than comparable U.S. sites.
• Homepage Compliance -- A WebAIM study cited by management found that 95.9% of top homepages had detectable failures, averaging 56.1 errors per page.

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RISKS

• Georgevich warned that the increasing use of large language models for AI coding often creates inaccessible web pages, which has contributed to a 10% year-over-year increase in detectable accessibility errors.
• Georgevich stated that while the European Accessibility Act has been in place for over a year, current market dynamics suggest enforcement is still in early innings and has not yet reached a major market inflection point.
• Georgevich noted that interior web pages now average 10% more issues than homepages and accounted for roughly 60% of accessibility claims filed last year, shifting the risk profile for digital operators.

SUMMARY

AudioEye, Inc. (NASDAQ:AEYE) reported its 42nd consecutive quarter of sequential revenue growth while raising its full-year adjusted EBITDA and EPS guidance. Management highlighted a significant shift in the digital accessibility landscape, noting that legal risks are increasingly concentrated on interior web pages rather than homepages. The company is preparing for an expected ramp in free cash flow generation in the second half of 2026 as litigation expenses decline and the business scales. Strategic focus remains on the upcoming 2027 mandates for state and local governments and early enforcement actions under the European Accessibility Act.

• Management is evaluating options to deploy excess cash, including potential share buybacks and dividends, as free cash flow scales.
• The company reported that French courts recently ruled that digital accessibility is an obligation of results, requiring sites to achieve full remediation rather than partial compliance.
• Georgevich stated that the company maintains a unique market position because of its proprietary data set of millions of human reviews and billions of real-world fixes collected over 10 years.
• Sweden and The Netherlands have both initiated market surveillance and reporting requirements for digital accessibility in late 2025 and 2026.
• The company integrated AI tools to improve R&D efficiency, resulting in lower headcount and reduced R&D expense as a percentage of revenue.
• Management observed that large language models are often trained on inaccessible code, which is contributing to the rise in web accessibility failures.
• Matthew Domeyer joined as Chief Financial Officer in July 2026, bringing nearly 20 years of finance experience to the executive team.

INDUSTRY GLOSSARY

• ARR: Annual Recurring Revenue, a metric representing the annualized value of active subscription-based contracts.
• EAA: European Accessibility Act, a directive establishing accessibility requirements for products and services in the European Union.
• LLM: Large Language Model, a type of artificial intelligence trained on vast data sets to generate or complete text and code.
• WCAG: Web Content Accessibility Guidelines, the international standard for making web content more accessible to people with disabilities.
• Adjusted EBITDA: A non-GAAP financial measure that excludes certain items such as stock-based compensation, depreciation, and nonrecurring litigation costs to reflect core operating performance.
• CMS: Content Management System, a software application used to create and manage digital content.

Full Conference Call Transcript

Operator: Good afternoon and welcome to AudioEye's Second Quarter 26 Earnings Conference Call. Joining us for today's call are AudioEye's Chief Executive Officer Ms. Kelly Georgevich and Chief Financial Officer, Mr. Matthew Domeyer. 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 CEO, 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 2000 provides a Safe Harbor for such forward looking statements. Words believe, expect, anticipate, estimate, confident, will, and other similar statements of expectation identify forward looking statements. These statements are predictions, projections and 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.

Comments made during the conference call and in the Risk Factors section of the company's annual report on Form 10 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 beliefs 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 or otherwise posted in the Investor Relations section of its website at www.audioeye.com. Now I would like to turn the call over to AudioEye's CEO, Ms. Kelly Georgevich.

Kelly Georgevich: Thank you, operator, and good afternoon, everyone. Q2 marked our 42nd consecutive quarter of sequential revenue growth, and we are excited about the continued momentum throughout the business. Revenue came in at $10.7 million and ARR grew $1.1 million sequentially to $42.3 million. This reflects low double digit year over year ARR growth. Adjusted EBITDA and free cash flow have reached a pivotal point, and we are raising our full year adjusted EBITDA guidance. Adjusted EBITDA has grown at a CAGR of 42% over the last 2 years and we now expect to achieve over $15 million run rate adjusted EBITDA in the fourth quarter of 2026.

We also expect meaningful free cash flow generation in the second half of 2026 as we expect litigation expense to trend down. We are currently evaluating options to deploy excess cash including potential share buybacks and dividends. In the second quarter, adjusted EBITDA reached $3 million, representing 28% adjusted EBITDA margin over $600 thousand higher than Q1 26 and $1.1 million higher than Q2 25 representing 54% increase from the prior year quarter. As ARR scales, a growing share of incremental revenue is flowing to the bottom line. We expect that trend to continue and accelerate in the second half of 2026.

We have proven that our operating model is highly scalable and expect continued growth of cash flow in 2027 and beyond. The Internet continues to be highly inaccessible, and we believe it is becoming more inaccessible as AI coding becomes more prevalent. LLMs were not built with accessibility in mind which is contributing to the problem. WebAIM's latest study found that 95.9% of top homepages had detectable WCAG failures averaging 56.1 errors per page up 10% year-over-year, the first increase after 6 years of steady improvement. WebAIM points to third party frameworks and AI assistant code as key drivers.

In June, we released the third annual digital accessibility index covering more than 165 thousand pages across 6.1 thousand domains in The U. S. And Europe. 2 findings stood out most in this report. First, many organizations focus their accessibility efforts primarily on the homepage and typical user flows but interior pages now carry more risk. They average 10% more issues than homepages and accounted for roughly 60% of accessibility claims filed last year. As the use of LLMs increasingly exposes pages that have not been prioritized for accessibility, contributing to increased litigation.

Second, despite the European Accessibility Act, having been in place for over a year, EU websites on average still carry roughly 25% more accessibility issues per page than comparable US sites. A gap I will discuss in more detail when I walk through where EAA enforcement stands. Both findings point to the same thing. The risk is living where most companies are not focused. In web pages with less traffic, across the whole region still catching up with the new law. that is where our solution is built to scale. AudioEye's automation signs and fixes far more issues than any other solution on the market automatically in real time across every page a customer has.

Our custom fixes handle the majority of remaining issues in a scalable, cost effective way. The 25% accessibility gap between EU and U. S. Sites I just mentioned aligns with current state of EAA enforcement. The European Accessibility Act is beginning to shift from a compliance deadline to active enforcement, we still call it early innings, not yet an inflection point. Sweden and The Netherlands both began market surveillance and reporting requirements in late 2025 and escalated those efforts throughout this year. Germany has seen a wave of warning letters targeting non compliant e commerce operators.

Most notably, French courts issued a ruling in June against the major retailer rejecting the argument that partial compliance in that case roughly 71% conformance satisfies the law. The court held that digital accessibility is an obligation of results meaning sites must be fully accessible not mostly accessible and ordered full remediation within 6 months. Under the threat of daily penalties. These cases are important signals of future enforcement. We are seeing early EU momentum building with Q2 marking our strongest EU contribution to ARR growth to date. We continue to take a strategic multichannel approach in the EU, positioning ourselves to capitalize on the inflection point. When it arrives. Now turning to guidance.

For the third quarter of 2026, we expect revenue between $10.85 million and $11.05 million, a sequential quarterly increase of approximately $235 thousand at the midpoint. We expect further acceleration of sequential revenues in Q4. For the full year 2026, we are maintaining the midpoint of our revenue guidance. While tightening the range to between $43.5 million and $44 million. For the third quarter of 2026, we expect adjusted EBITDA between $3.4 million and $3.6 million representing an adjusted EBITDA margin of approximately 32% at the midpoint. And adjusted EPS of between $0.26 and $0.28 per share. For the full year 2026, we are increasing adjusted EBITDA guidance from at least $12 million to $12.7 million.

This represents a 29% adjusted EBITDA margin at the mid point of revenue guidance. And 40% year-over-year growth. We also expect adjusted EPS of at least $0.98 for 2026 and a run rate adjusted EBITDA of over $15 million by the end of 2026. We expect cash flow to ramp significantly. In the third quarter, at the midpoint of guidance and adjusted EBITDA of $3.5 million plus around $400 thousand of software development costs implies $3.1 million of adjusted free cash flow. We expect adjusted free cash flow to accelerate further in Q4. Additionally, we expect litigation expense to come down in the second half resulting in substantial cash generation.

Lastly, I want to formally welcome Matthew Domeyer, who joined us as CFO in July. Matthew brings nearly 20 years of finance experience including public company and operational finance background making him a strong partner as we scale. I am looking forward to working closely with him in this next phase of growth. With that, I will hand it over to Matthew to cover our financial results in more detail.

Matthew Domeyer: Thank you, Kelly. Revenue for the second quarter of 2026 was $10.7 million representing a 9% increase from the comparable prior year quarter. As Kelly mentioned, this marks our 42nd consecutive period of record revenue. Annual recurring revenue was $42.3 million as of 6/30/2026, up from $41.2 million as of 3/31/2026. reflecting 11% annualized sequential ARR growth. ARR also grew 11% compared to the prior year comparable period. We continue to expect ARR growth in future quarters and that the compounding impact of sequential ARR growth will generate notable growth rates in revenue in the third and fourth quarters of this year. As of June 30, 2026, AudioEye had approximately 129 thousand customers. up 9 thousand from 6/30/2025.

The increase is primarily in our partner and marketplace channel driven by further expansion with existing partners. Going deeper into revenue by our 2 channels, AudioEye's enterprise channel consists of our large customers and organizations, including those with non platform custom websites, who generally engage directly with AudioEye sales personnel for pricing and solutions. In Q2 2026, enterprise revenue was flat year over year with lower nonrecurring revenue offset by increased recurring revenue. Enterprise ARR grew 5% over the comparable period of the prior year and sequential annualized enterprise ARR growth was 17%. As of 06/30/2026, enterprise ARR represented approximately 41% of total ARR.

Our partner and marketplace channel includes all revenue from our SMB focused marketplace products, as well as from partners who deploy these products for their SMB customers. In the second quarter of 2026, partner and marketplace channel revenue grew 16% year-over-year and contributed meaningfully to ARR growth in the quarter. As of 06/30/2026, our partner and marketplace channel accounted for approximately 59% of ARR. We continue to see solid expansion from our state and local government partners specifically in the second quarter of 2026. Gross profit for the second quarter was $8.4 million or approximately 79% of revenue. Compared to $7.6 million or 77% of revenue in Q2 of 2025.

Adjusted gross margin defined as gross margin adjusted for non cash items in our cost of revenue such as amortization of capitalized software development costs and stock compensation expense was 84% in Q2 2026. Compared to 83% in the prior year comparable period. In the second quarter of 2026, operating expenses were $9 million compared to $7.4 million in Q2 2025. The year over year increase in total operating expenses was primarily due to a $1.4 million benefit from the revaluation of contingent consideration in the prior year's comparable quarter did not recur in the current period.

Our total R&D spend in Q2 was approximately $1.2 million, includes approximately $400 thousand capitalized as software development costs and recorded in the investing section of the cash flow statement. Total R&D spend was around 12% of Q2 2026 revenue, down from 17% in Q2 2025 primarily due to reduced headcount resulting from efficiencies realized through the implementation of AI tools and automation. Net loss in the second quarter of 2026 was $900 thousand or $0.07 per share, compared to breakeven or $0.00 per share in the same year ago period. Excluding the impact of the $1.4 million revaluation of contingent consideration in the comparable period of the prior year, net loss improved mainly due to higher gross profit.

In the second quarter of 2026, we achieved adjusted EBITDA of approximately $3 million or $0.23 per share and an adjusted EBITDA margin of 28%. This compares to Q2 2025 adjusted EBITDA of $1.9 million or $0.15 per share and 20% adjusted EBITDA margin. The $1.1 million increase in adjusted EBITDA over the comparable period of the prior year was primarily driven by an increase in gross profit. In the second quarter, we generated $2.6 million of adjusted free cash flow, calculated as adjusted EBITDA of $3 million, less $400 thousand of software development costs. Improvement of $1.2 million from the second quarter of 2025.

Turning to the balance sheet, we ended the quarter with $8.7 million in cash and $3 million available under our revolving line of credit. As of 06/30/2026, our net debt defined as total debt less cash was $8.1 million and our net debt to adjusted EBITDA ratio using our 2026 adjusted EBITDA guidance is approximately 0.6x. With that, I will turn the call back to the operator to open the line for questions. Operator?

Operator: Thank you. We will now take questions from the company's publishing analysts. At this time, And your first question comes from Joshua Reilly with Needham and Company. Please state your question.

Joshua Reilly: All right, great. Thanks for taking my questions. Nice job on the quarter here. So if you look at these warning letters that are now being sent out in Europe, how do you think about potentially accelerating sales investments there? In that region? And how quickly can you scale up sales support there if demand really takes off over the next few quarters? And does it make sense to maybe add additional sales partnerships in Europe?

Kelly Georgevich: Yeah, we are definitely watching it closely and keep an eye on our countries and developments. We are being strategic in investments in the EU. We do have, resources in the EU and are investing in a multichannel approach. So I think we are ready when, you know, we have said it is you know, we still view it as early innings, but at some point, it will hit an inflection point, and we are ready to capitalize on that and making inroads now to do that.

Joshua Reilly: Got it. And then I guess, a couple of items on AI. You know, first of all, what are you seeing I guess, on in the direct channel with the larger customers in terms of their willingness to spend given, you know, the AI driven concern software spend environment right now. And then along with the AI angle, second part to the question is, how are you doing in terms of implementing AI internally for R&D and customer service? And how is that efficiency trending there relative to your expectations?

Kelly Georgevich: Yep. Good questions. Right now, we are not seeing any notable impacts besides adding more value to customers on the AI front. As we mentioned previously, AI coding tools are trained on the Internet that is not built with accessibility. So we are not seeing in any impact from competitors coming in. 1 of the unique things about us is that we have the best automation in the industry, the audience has our automation of 89% to 300% more than competitors. And we have also taken that unique approach to accessibility of custom fixes and no 1 has that proprietary dataset.

I would also say, you know, I think the other thing to keep in mind is that we are do provide litigation protection at the end of the day. So on an enterprise customer front, they see us as, protected and it is not something that they see as an opportunity on the cost cutting front. On your second point, where really everything we are doing is starting with the proprietary data that we have. You know, we have millions of human reviews and billions of real-world fixes, and no 1 else has that data.

And so we are using it currently to make reporting easier for clients to understand, to make fixes easier, to make sure works seamlessly with our dev for people who are in dev environment and want to make source fixes, but we are also making sure we utilize that proprietary data in new and exciting ways. I think more to come on that front in the next handful of months.

Joshua Reilly: Got it. 1 last question for me is on the, partner versus direct channel revenue growth rate. I believe you mentioned that was a couple of moving parts on the direct side there. Could you just in terms of the year over year revenue growth, could you just give a little more color on what you saw in terms of the year over year growth rate between partner and direct channels? Thank you, guys.

Kelly Georgevich: Yep. Thanks. Yeah. On the-- if you look at your revenue year over year, the direct revenue year over year growth was impacted by and we have mentioned this before that shift from non recurring revenues to recurring revenue. If you look at ARR growth in enterprise, it was pretty notable, both sequentially and year over year. And we really think you should focus on that ARR growth is where to look there. And on the partner marketplace side, we continue to see good results from our existing partners and continue to see that expand. So good growth on both the revenue side and the ARR side in that channel.

Joshua Reilly: Awesome. Thank you, guys.

Operator: Your next question comes from George Sutton with Craig Hallum. Please state your question.

George Sutton: Thank you. And I would like to welcome Matthew to the call.

Kelly Georgevich: So, Kelly, I am particularly enthused to see the partner strengths in front of the mandates actually going into effect. Can you just give us a little picture on sort of focus? And I know you have got a couple key partners, but and I know they have had specific salespeople dedicated to this. I assume they are seeing some impact as a result? We are seeing all systems go on the partner side, and we know that the date was pushed back to 2027, but we are seeing still really good results from those partners. And I think everyone's now just all eyes on 2027. And further penetration into their customer base before that deadline.

George Sutton: So just on the cash deployment theme. Obviously, M&A has been 1 area that you have been at least looking for a while. I know some of the challenges have been prices, expected by the sellers. Where do things stand on the M&A side as you are thinking of cash deployment?

Kelly Georgevich: Yeah. As I mentioned, we do expect to generate significant free cash flow as we go into second half of the year and into 2027, and that just opens up a number of different possibilities, and M&A would be 1 of those. We always are kind of evaluating M&A. it is got to be the right fit. it is got to be at the right price, but I do think it could be an opportunity for the future.

George Sutton: Alright. that is it for me. Thank you.

Kelly Georgevich: Thanks, George.

Operator: Thank you. And your next question comes from Zachary Cummins with B. Riley. Securities. Please state your question.

Eric Suppiger: Yes. Thanks and congrats on a good quarter. On the AI features that you have been adding, to your-- are you seeing-- is there opportunity for that to drive pricing higher And conversely, are you-- how difficult will it be for large language models or for coding for AI coding to develop accessibility capabilities. I understand you have proprietary data for that. But are there are they able to chip away at that?

Kelly Georgevich: Yep. I will answer that-- the first question first. Yeah, I think with AI capabilities, there is opportunity to introduce supplemental products. And so over time, I think as an ASP per customer, it could grow up because of that. But I think big opportunities ahead in general. We have commented on this a bit, but as I-- and I might have already said this in the comments, but WebAIM supports it that websites are just getting more accessible. LLMs were not trained on accessible websites, so they are actually creating more inaccessible sites. And the thing that makes us really unique that no 1 else has is our proprietary dataset.

So we have been doing human fixes, for 10 years, and no 1's been doing that. And all of that data really lends itself to building out something really interesting in the AI space that LLMs or other competitors do not have access to in terms of data. Okay.

Eric Suppiger: And then lastly, on litigation, can we assume that is going to stay at lowered levels for the foreseeable future? Or what are your thoughts in terms of that Yeah.

Kelly Georgevich: As I mentioned, Q2 was about 40% or came down 40% from Q1. We do expect it to ramp down the second half of 2026. We cannot comment any further on active litigation, but I think you can expect a significant additional cash generation with litigation trending down in second half of 2026?

Eric Suppiger: Very good. Thank you.

Operator: Thank you. At this time, this concludes our question and answer session. I would now like to turn the call back over to Ms. Kelly Georgevich for her closing remarks.

Kelly Georgevich: I would like to thank our employees, customers and investors for their support. Look forward to providing an update on the next quarter. Thank you.

Operator: 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 Relations section of the company's website. Thank you for joining us today for AudioEye's second quarter 2026 Earnings Conference Call. May now disconnect.

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