AudioEye Inc (AEYE) 2017 Q1 法說會逐字稿

Good morning and welcome to the AudioEye shareholder call. (Operator Instructions). Please note, this event is being recorded.

Some of the information we will discuss is forward-looking. As such, it is inherently uncertain and subject to risks and uncertainties. We encourage you to review the risks we've identified in our annual report on Form 10-K, press releases, and other filings.

I would now like to turn the conference over to Dr. Carr Bettis, Executive Chairman of AudioEye. Please go ahead.

Thank you very much and thanks, everyone for being here today. I'm joined by Todd Bankofier, our CEO.

Good morning.

Yes. Thanks, Todd. So the purpose of the call today is just to provide an update on our business progress following our [policy] pre-announcement of our preliminary first-quarter bookings numbers on April 10.

As we mentioned in that release, the first-quarter bookings were a record $1.7 million in cash contract bookings, which is not far off of the $1.9 million or so we did in cash contract bookings in 2016. We think that progress continues to validate the value of our software-as-a-service offerings and a strong indication of what the momentum, and the momentum ramp, for AudioEye has been over the past couple of quarters. We're really working hard here, Todd and the team, to continue that growth curve.

Perhaps just as exciting, our qualified new business pipeline is -- and still in excess of the $5.3 million, in spite of that high conversion rate of bookings during the first quarter. So, said differently, the new business leads that are currently flowing into the Company are as fast or faster than what we were converting into signed booking contracts. So, our record booking in the first quarter reflects several trends, all of which are going to demonstrate, we think, the acceleration in our business that we're experiencing.

I may go down just a list of some points of -- what we think -- where these trends are important in helping our business right now, and how we are approaching it.

So first of all, we're continuing to increase [in] our penetration and expand our engagement with some of our very large current customers. These customers are seeing the benefit that we bring. They're seeing how easy it is for AudioEye to implement accessibility solutions; and, therefore, we're getting some expanded engagement with additional URLs in business units within the organizations where we've already established a relationship.

And with up to 15% of the population struggling in different ways to use the Internet and digital content, we think our revolutionary technology's changing the way online content is being conceived; and some of our clients are embracing that, too. So our new subscription platforms are a key part of our customers' ability to reach their customers in this whole new way that AudioEye tool allows them to do.

The second thing, AudioEye's platform has this stickiness to their longevity with our customers. And we're really early, as everyone knows, in really -- in deploying platforms over the past couple of years in this SaaS-based model. But the stickiness is becoming very apparent. So after reaching compliance on the site, it's really difficult -- we believe very difficult -- to replace our technology with any other provider.

So in fact, to date, we've not seen or even heard of another provider that can offer the level of software automation that AudioEye customer provides to its customers -- or that AudioEye provides to its customers. And our closest competition would require their customers to hire a number of software developers at hundreds of dollars an hour to manually correct and alter sites over the course of many months. That's an expensive, complex, and difficult process at any enterprise level.

So in contrast, AudioEye's software-driven solutions are going to identify and correct 40% to 60% of a site's issues within just hours of our installation of our JavaScript. Then we provide our customers the full listing of additional issues to resolve, most of which they can review and approve for automatic correction by the software remediation tool.

So, in short, AudioEye can generally bring a customer to full compliance with the Web content accessibility guidelines -- these are buzzwords, known as WCAG 2.0 AA standard -- in 100 days. Then we monitor the content for the life of the subscription with little to no demands on the customers' times and resources to maintain that compliance. So a couple really important things, but there is clearly more.

Third, we see this increased awareness across the country for the need and the opportunity for compliance, and this sort of need for compliance and accessibility mandates as well. So companies are increasingly or frequently being served with lawsuits or demand letters as momentum gathers to injure digital content is made accessible to everyone.

Online access is becoming not only persuasive in all of our daily lives, but it's necessary as companies increasingly drive their customers to online services. Those online services include banking, digital HR tools, e-commerce, government information, health insurance, education tools and resources, and of course many, many others.

But perhaps most importantly, companies are coming to understand the need for online accessibility, and the value it's going to give them and what it represents in their business models as a cost-saving tool and an increasingly preferred way of serving their customers in meeting their needs.

And that really tees up this fourth point for me. AudioEye has a compelling business case for an ROI opportunity for its customers. We help them connect uniquely with this up to 15% of their audience who are struggling to use digital content in its native form.

This could be for any number of reasons, beyond things like blindness or deafness that most people think of when they think of disabilities: dyslexia, colorblindness, seizure disorders, autism, neuromuscular limitations, and many, many other disabilities or physical limitations that will directly interfere with their users' ability to take in digital content. So even something as simple as declining vision due to age is driving a growing portion of our population to utilize accessibility tools for their comfort and convenience.

So by partnering with AudioEye, our customers -- and it is unique for us -- to -- unique offering we provide. Our customers not only make content accessible to these audiences, but they enable their customers to transact and use online tools they would otherwise find very difficult or impossible to use.

Our independent data from Google Analytics, which we use on the back end, confirms the usability of our tools, and we provide this to our customers. Their tools are being used now by 4% to 7% of the end-user customers -- end users. Those end users tend to stay 2.5 times longer on our customer sites than traditional users. And all that's vital information for us as we support the strong ROI case.

So these and other trends are driving an increased number of business, government entities, service providers from local companies to Fortune 500 companies to seek out AudioEye. We also continue to work within our targeted vertical markets to educate the potential customers about our services and the need for accessibility. And we're doing that primarily -- as we talked about last year, as a strategy -- through our presence at our customers' industry tradeshows and events.

A recent example: we made significant inroads into HR services with our partner, ADP, one of the largest providers in that industry. We recently participated alongside them at their annual Meeting of the Minds symposium in San Diego, showcasing our accessibility offering to all of their partners.

So these and other successes every day are keeping us pretty excited about what's going on here at AudioEye. And I'm really, really pleased with the leadership that Todd continues to demonstrate, and Sean Bradley.

So I am going to turn the call over to Todd to discuss the operating features of the business. And I'll come back with a few closing remarks about our technology innovations, and then we'll have some questions.

Todd, it's all yours.

Thanks, Carr. It's a pleasure to be here; and thank you, everyone, for joining the call today. Now as Carr mentioned, the first quarter was not just a record-setting quarter. It clearly documented the ramp we see in our business momentum. This momentum has not been seen -- not only been seen in our bookings acceleration, but also in our business operation fundamentals we manage to, each and every day.

Over the last year, we've had -- we've built some really strong financial disciplines into our cost management processes. And once again, this quarter, we can state that we have stayed under budget, and we will continue to manage our cost structure with great diligence.

We have known we need to quickly grow our sales coverage across the US, and have addressed this by hiring three additional salespeople in the last month and a half to help address not only regional support for sales to new and existing customers, but also to handle the greatly increasing number of inbound sales calls we are now receiving on a near daily basis.

We've also brought on two new people to assist us in our customer implementation team. This is obviously very important. One of the questions we get often is: are you maintaining support? With growth, we know we need to continue to augment this important part of our Company going forward, so we feel comfortable about that.

AudioEye's maintained a real focus on five key industry verticals where we believe our software has a clear and compelling benefit. Am I'm going to spend a few minutes on each one of these, and give you a progress report.

In our financial services industry sector vertical, this was perhaps the highlight of the first quarter, as we added more than 105 new banking customers, averaging more than one new bank a day in the first quarter. This reflects not only compelling value proposition that AudioEye represents to our banking customers, but it also very -- has enhanced our successful partnerships with key industry leaders who are reselling our service.

As of today, we have 237 banking clients across the United States. And as a result, we are now engaging in many of the supporting companies in this very industry, such as wealth management and mortgage, et cetera, who interface with our banking customers and realize the importance of being fully accessible as well.

In the human resources vertical, our partnership with ADP continues to expand us with more and more platforms becoming accessible for their clients and their end-user customers. This vertical, like financial services, has been -- has seen a lot of the ancillary support services companies realizing the importance of accessibility and for maintaining a competitive advantage. And they have all reached out to us.

The government space will likely always be in our slowest growing sector, by its nature. But we had our first government customer from two years ago, the Federal Communications Commission, renew their contract recently for five more years. We find that once our service is in place for the first year, the overwhelming majority of our current customers renew their contracts for multiple years. We believe this speaks loudly to our strong attention to customer service, and even stronger validation of our technology.

In the education vertical, we are very excited to now state that we have Seattle public school district and its 99 schools as our clients. Winning this bid at the beginning of the year has really provided us many new opportunities. We are now working on a number of new K-12 school system prospects across the country. And we also have six major universities we have contracted with to provide them accessibility services. And we continue to see the overall education space as one of the fastest growing verticals in this coming year.

And lastly, the e-commerce vertical. This has been -- we've seen many of the leaders in the major retail chains announce their new directives on digital accessibility; and, thus, has allowed us the opportunity to begin discussions with many of the name brand customers in the United States.

Now from an operational viewpoint, we continue to manage our business on a capital efficient model, as I stated earlier. OpEx is tightly controlled and linked to generation cash flow -- generating cash flow, limiting our cash burn, each and every quarter. As sales increase, we expect our operating results to increasingly reflect the leverage in our operating model.

So we will report our full quarterly results in several weeks. Details on operating expenses are still in audit, so I'm not able to discuss this on today's call. But as I stated earlier, we are under budget for this quarter, and our execution on the fundamentals will not lapse.

We stated on our November call that we were positioning to be a growth company, and we continue to be so. We expect to invest prudently where we see opportunities, such as new sales hires and more customer support team members, along with continuing to make our technology leading edge. But we will also continue to operate a very lean shop, focused on exceptional dollar efficiency.

Last year, we reduced operating expenses by almost 40% from the prior year. As a result of OpEx reductions and increasing conversion of bookings to revenue, we reduced net cash used in operating activities from $5.5 million in 2015 to just $2.3 million in 2016, successful in our maintenance of our OpEx budget and our cash burn results.

This year, we intend to further reduce cash burn. And we also expect to see more growth in bookings and revenue while deploying the operating leverage in our software-as-a-service model. I really look forward to our continuing progress in our efforts in the months to come.

And I will now turn the call back to Carr for additional comments.

Yes. Hey, thanks, Todd. So as you can hear from Todd's report and some of things I had to say, we've had a pretty exciting quarter across a number of fronts. And we're not just excited about last quarter; we're working hard to continue this progress and take advantage of what we see in the market opportunity.

So, I do want to spend a few minutes, before turning it over for questions, to talk about some of the technology innovation efforts.

We are, at the core, a technology company. We have a team that we are very, very proud of that works on and deploys our technology. And they are an innovative group and a really strong team that we're really proud of, as I said. And we've discussed some of this previously. We've seen a great market response to our simplified product packaging.

It's worth pointing out, though, that it comes with providing our customers the most complete and inclusive solution to address the issues of accessibility. And we don't think there's another product like AudioEye. And again, that's a testament to the technology innovation and disciplines. I'm not going to spend time right now discussing again those core product offerings. But I want to talk to you for a minute about our continued investment in our industry, what we think industry-first voice technology.

So in conjunction with recently filed patents, we are working towards a rollout of our device pairing solution, which allows an end user to pair a mobile device to a control -- to control secondary devices such as desktops or kiosks, as we think of it as dumb kiosk. And under this new paradigm, a user can leverage their microphone or voice recognition capabilities built into their own handheld devices, already turned on and usually trained to the user's voice, to control a user experience of an audio-enabled website or other secondary interfaces that are enabled with our technology.

So the key here is that by deploying via the users' handheld device, devices that don't have a microphone -- think about those kiosks at the airport or now at fast food restaurants -- they don't have a microphone, let alone support for voice recognition technology. They can now be made accessible.

To support that functionality, AudioEye's deploying this voice remote control application through the Apple App Store and the Android application. This provides obviously an opportunity to leverage our voice technology beyond these accessibility related use cases for which it was originally created, and we're continuing to explore market strategies for that product that we've built by our technology team.

I'm going to just give you an example to make sure this has been clear. So user walking up to a kiosk at an airport could use our technology to quickly pair their device to the kiosk and speak commands to interact with that kiosk, such as: print my boarding pass, change my seat. We believe the implications here are not insignificant, for sure.

We've continued to invest in our enterprise grade PDF accessibility solution as well. And PDF represents a significant challenge for businesses and organizations that are looking to comply with American Disabilities Act related laws and guidelines, including those related to something called the Section 508 refresh, which is now underway and requires that all PDFs -- specifically requiring that all PDFs be made accessible for many agencies and organizations that fall underneath Section 508's purview.

We're in -- deploying some enhancements now to what we call our digital accessibility platform that build on our existing PDF product offering. And in that new release we have for the PDF accessibility solution, this digital accessibility platform we have will provide a new capabilities for making PDFs fully accessible for our clients.

That is a key solution in ensuring compliance with accessibility mandates. And again, it's an area where AudioEye's fully integrated solutions stand out from any competitor offerings that are far more limited. They're very piecemeal, or they simply don't provide the capability of providing this level of support.

So, these are some of the many things we're working on at AudioEye. And as our core accessibility continues to ramp up, that will give me even greater excitement for the future, for our business, and the opportunities that we have.

So, at this time, I'm going to open up the call for questions before we conclude, so I hand it back to the operator.

(Operator Instructions). This concludes our question-and-answer session. I would like to turn the conference back over to Dr. Carr Bettis for any additional or closing remarks.

There are no additional closing remarks.

Sorry about that.

That's okay.

I'm still here. I was telling everyone, thank you for attending. But no one was hearing, because I had the phone muted while you were (multiple speakers).

That's okay, that's okay. Okay, go ahead.

So thanks, everyone, for attending. I did want to mention one last thing. AudioEye is going to be presenting and hosting some investor meetings in New York on May 2 at the Joseph Gunnar conference. So if there's anyone interested in meeting with us at that time, please contact Matt Kreps, mkreps@darrowir.com. You'll find this information also on our press releases. Again, it's Matt Kreps, mkreps@darrowir.com, if you're interested in connecting in person in New York around that May 2 date.

Thanks again for everyone for showing up and listening and hearing this update. We look forward to keeping you updated.

Thank you, everyone.

Okay. Thank you, Dr. Carr Bettis. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.