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AI

AUDIOEYE INC (AEYE)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered record revenue and “Rule of 40,” with total revenue $9.73M (+20% YoY) and adjusted EBITDA margin 20%; adjusted EPS was $0.15 while GAAP EPS was $(0.12) .
  • Slight beats vs S&P Global consensus: revenue $9.73M vs $9.71M* and adjusted EPS $0.15 vs $0.1475*; the company guided Q2 revenue to $9.85–$10.00M and reiterated FY 2025 ranges .
  • ARR rose sequentially to $37.1M, cash increased to $8.3M following a new $20M credit facility at a materially lower interest rate (~7.5% vs ~14%) improving flexibility for growth and potential buybacks .
  • Management flagged a temporary gross margin dip in Q2 (~3–4pp from 80%) due to audits related to the platform upgrade, with margins expected to return to the high-70s in H2; ARR growth is expected to accelerate, supported by EU EAA demand and partner ramps in H2 .

What Went Well and What Went Wrong

What Went Well

  • Achieved 37th consecutive period of record revenue and “Rule of 40” (20% revenue growth and 20% adjusted EBITDA margin) .
  • Sequential KPI improvements: ARR to $37.1M (from $36.6M), cash to $8.3M (from $5.7M), and strong enterprise and partner channel growth (Enterprise +26% YoY; Partner & Marketplace +17% YoY) .
  • Confidence in accelerating ARR driven by strengthening EU pipeline ahead of the European Accessibility Act (EAA) deadline; “we have already won deals in April” and “deal sizes are a little bigger than the U.S.” .

What Went Wrong

  • GAAP net loss widened to $(1.47)M due to higher OpEx (+$1.7M YoY), litigation expense (+$0.6M YoY), depreciation & amortization (+$0.2M), and loss on extinguishment of debt ($0.3M) .
  • Customer count fell sequentially to ~119k (from ~127k) due to a partner contract renegotiation consolidating previously individually billed licenses; gross retention impacted by lower-tier customers from prior acquisitions migrating to AudioEye’s platform .
  • Management guided near-term gross margin pressure in Q2 (temporary 3–4pp decrease from the 80% run-rate) tied to additional audits during the platform upgrade .

Financial Results

Consolidated Performance vs Prior Periods

Metric (USD)Q3 2024Q4 2024Q1 2025
Revenue ($M)$8.93 $9.72 $9.73
Gross Profit ($M)$7.10 $7.81 $7.74
Gross Margin (%)80% 80% 80%
Operating Loss ($M)$(0.99) $(1.27) $(0.94)
Net Loss ($M)$(1.20) $(1.49) $(1.47)
GAAP EPS ($)$(0.10) $(0.12) $(0.12)
Adjusted EBITDA ($M)$2.03 $2.29 $1.91
Adjusted EPS ($)$0.16 $0.18 $0.15

Versus Wall Street Consensus (S&P Global)

MetricQ1 2025 ConsensusQ1 2025 ActualDelta
Revenue ($M)$9.711*$9.733 +$0.022
Primary EPS ($)$0.1475*$0.15 +$0.0025

Values with asterisks were retrieved from S&P Global.

Channel Mix and Growth

ChannelQ3 2024Q4 2024Q1 2025
Revenue Mix: Partner & Marketplace (%)59% n/a57%
Revenue Mix: Enterprise (%)41% n/a43%
ARR Mix: Partner & Marketplace (%)58% 58% ~58%
ARR Mix: Enterprise (%)42% 42% ~42%
YoY Growth: Partner & Marketplace+13% (Q3) +14% (Q4) +17% (Q1)
YoY Growth: Enterprise+14% (Q3) n/a+26% (Q1)

KPIs

KPIQ3 2024Q4 2024Q1 2025
ARR ($M)$36.2 $36.6 $37.1
Customers (000s)126 127 119
Cash & Equivalents ($M)$5.5 $5.7 $8.3
Adjusted EBITDA Margin (%)23% 24% 20%
Gross Margin (%)80% 80% 80%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ2 2025—$9.85M–$10.00M Introduced
Adjusted EBITDAQ2 2025—$1.9M–$2.0M Introduced
Adjusted EPSQ2 2025—$0.15–$0.16 Introduced
RevenueFY 2025$41M–$42M $41M–$42M Maintained
Adjusted EBITDAFY 2025$9M–$10M $9M–$10M Maintained
Adjusted EPSFY 2025$0.70–$0.80 $0.70–$0.80 Maintained

Earnings Call Themes & Trends

TopicQ3 2024Q4 2024Q1 2025Trend
AI/Tech initiativesLaunched Accessibility Testing SDK; HIPAA & SOC 2 Type II Top-tier margins; 500% more automated issue detection vs 2023 index “Building AI into everything” (testing/remediation); AI effective on common issues but not contextual Expanding AI embedded capabilities
EU EAA pipelineLeads building; early inbound awareness Built EU team; plan further expansion Approaching end-June deadline; deals won; larger deal sizes; adding sales Acceleration into Q2/H2
Partners (Finalsite, CivicPlus)Expanded partnerships; 3-yr full penetration goal Aggressive GTM; H2 ramp anticipated H2 contribution reiterated; public sector pipelines building Ramping into H2
Margins80% gross margin; adj. EBITDA margin up to 23% 24% adj. EBITDA margin record Temporary Q2 gross margin dip (3–4pp) due to audits; return to high-70s in H2 Near-term dip, H2 recovery
Regulatory/LegalTitle II/HHS rules viewed durable OPM memo supportive; private litigation a demand driver Minnesota ruling noted; management not over-weighting any single ruling Regulatory backdrop supportive
Capital & LiquidityATM raised $7M; free cash flow improving Buyback authorization up to $12.5M Refinanced to ~7.5% interest; $20M facility; exploring buybacks Lower cost capital & optionality

Management Commentary

  • CEO: “We continue executing…realizing our 37th straight quarter of record revenue and achieving the Rule of 40…We expect revenue and operating leverage to improve even more in the second half of the year.”
  • CEO on EU: “It’s not often that you’re going to get a mandate for digital accessibility on an entire continent…deal sizes are a little bigger than the U.S., and we are working with a few partners already.”
  • CFO: “ARR was $37.1M…we expect ARR growth to increase significantly in the second quarter of 2025…gross profit was $7.7M or ~80% of revenue.”
  • CFO on margins: “With the migration to the upgraded platform…we expect margins in Q2 to decrease ~3–4 percentage points, but return to the high 70s in the second half.”

Q&A Highlights

  • Pipeline strength in US/EU and channel balance: management reported “record leads and strong deal progression” in both markets; direct momentum picking up in the US .
  • Sales & marketing investments: capacity expanding in US/EU; ROI-driven approach; potential buybacks and selective M&A under consideration .
  • AI product direction: embedding AI across testing and remediation workflows; effective on common issues, improving but not a “Holy Grail” .
  • Public sector demand: partners Finalsite and CivicPlus implementing aggressive GTM; management expects a “great second half” .
  • Macro/legal context: management does not over-weight any single state ruling; sees private litigation as a durable driver; no observed EU reticence toward US vendors .

Estimates Context

  • Q1 2025 results vs S&P Global consensus: revenue beat ($9.733M vs $9.711M*), adjusted EPS slight beat ($0.15 vs $0.1475*). Management attributed operating leverage and revenue growth, though GAAP loss widened on higher litigation, D&A, and debt extinguishment .
  • Q2 2025 setup: guidance revenue $9.85–$10.00M vs consensus ~$9.921M*; adjusted EPS $0.15–$0.16 vs consensus ~$0.15*. Management guided temporary gross margin dip in Q2 from platform audits, with H2 normalization, and implied adjusted EBITDA margins trending to upper 20s exiting the year .

Values with asterisks were retrieved from S&P Global.

Key Takeaways for Investors

  • Slight revenue and adjusted EPS beats vs consensus, with ARR and cash strengthening; operating leverage intact despite elevated litigation and D&A in Q1 .
  • Near-term gross margin headwind in Q2 (~3–4pp) appears transitory due to audits tied to platform upgrade; management expects reversion to high-70s gross margins in H2 .
  • Catalysts: EU EAA deadline (end-June) and H2 ramp from Finalsite/CivicPlus should accelerate ARR and revenue growth into Q2/H2; enterprise deal sizes in EU are “a little bigger” .
  • Balance sheet flexibility improved with a $20M facility at a materially lower interest rate; optionality for buybacks and tuck-in M&A remains on the table .
  • FY 2025 guidance maintained (revenue $41–$42M; adj. EBITDA $9–$10M; adj. EPS $0.70–$0.80), implying continued operating leverage and exit adjusted EBITDA margins in the upper 20s .
  • Stock narrative: confidence in accelerating ARR, durable regulatory tailwinds, and partner-led public sector penetration provide medium-term upside; near-term margin dip is well messaged and bounded, creating potential trading volatility around Q2 but supportive setup into H2 .

Appendix: Additional Relevant Press Releases

  • New $20M loan facility with Bridge Bank materially reduces interest rate and adds flexibility (term loan $12M, revolver $3M, delayed draw $5M) .
  • 2025 Digital Accessibility Index: eightfold increase in detected issues (297 per page) underscores compliance risks; supports differentiated platform + expert model .
  • Lawsuit dismissal: NY Supreme Court dismissed claims with prejudice; ongoing Florida action continues; context for elevated litigation spend and legal posture .