AUDIOEYE INC (AEYE)·Q2 2025 Earnings Summary

Executive Summary

• Q2 2025 delivered record revenue but a slight revenue miss versus consensus, with adjusted EPS in-line; management tightened FY25 guidance lower on revenue and adjusted EBITDA due to accelerated integration and phase-out of lower-margin legacy customers, while reiterating H2 sequential growth acceleration and margin expansion catalysts from EU EAA enforcement and DOJ Title II .
• Revenue grew 16% year over year to $9.857M, gross margin dipped to 77% on migration costs and amortization, and adjusted EBITDA rose to $1.931M; GAAP EPS was $0.00, adjusted EPS was $0.15 .
• FY25 revenue guidance was reduced to $40.3–$40.7M (from $41–$42M), adjusted EBITDA to $8.9–$9.1M (from $9–$10M), while adjusted EPS was narrowed to $0.71–$0.73 (within prior $0.70–$0.80); Q3 revenue guided to $10.2–$10.4M with adjusted EBITDA $2.2–$2.4M and adjusted EPS $0.17–$0.19 .
• Stock reaction catalysts: EU pipeline tripled post-EAA going into effect, enterprise momentum remains strong, and buybacks active (144k shares repurchased in Q2) support per-share metrics; near-term watch is customer churn from legacy acquisitions weighing on ARR/revenue into H2 2025 .

What Went Well and What Went Wrong

• What Went Well

  • 38th consecutive quarter of record revenue; adjusted EBITDA and adjusted EPS improved YoY with enterprise channel growth +25% YoY and EU contribution beginning to accelerate .
  • EU Accessibility Act enforcement catalyzed pipeline growth (CEO: EU pipeline “probably tripled” Q2→Q3), with early revenue contribution and expansion plans in France, Germany, Italy, UK; new logo momentum (e.g., Motability Operations) .
  • Operating leverage intact: operating income turned positive ($0.242M), ARR rose sequentially to $38.2M, and buybacks executed (~144k shares, ~$1.8M at ~$12.26) amid expected margin expansion into upper-20s by Q4 .

• What Went Wrong

  • Slight revenue miss versus consensus ($9.857M vs $9.921M*) and gross margin compression to 77% due to migration costs and amortization; GAAP net loss near breakeven .
  • FY25 revenue and adjusted EBITDA guidance reduced to reflect phase-out of certain acquisition-related customers and discontinuation of lower-margin legacy services, with expected churn of $1.0–$1.5M ARR through 2025 (acquisition customers and BOIA) .
  • Cash declined sequentially ($6.869M vs $8.265M) and net debt increased, reflecting use of facilities and buybacks; gross retention impacted by acquisition-related churn (ex-acquisitions GRR upper-80s/low-90s) .

Financial Results

Balance Sheet & KPIs

Segment/Channel Mix and Growth (Q2 2025)

Actual vs Consensus – Q2 2025

Values retrieved from S&P Global.

Guidance Changes

Rationale: Phase-out of certain acquisition-related customers, elimination of legacy platforms to remove tech debt and focus on synergistic cash flow .

Earnings Call Themes & Trends

Management Commentary

• “We achieved our 38th sequential quarter of growth… We expect annualized sequential revenue growth in the high teens in the second half… aspirational goal to grow our adjusted EPS and EPS annually by 30–40% for the next three years.” — CEO David Moradi .
• “We are updating our 2025 full year revenue guidance… to account for the phase out of certain acquisition related customers… standardizing our offering to avoid duplicate systems, eliminate tech debt, and focus on synergistic cash flow.” — CEO David Moradi .
• “Gross profit… 77% of revenue… We expect Q3 to have a similar gross margin as Q2… but we expect to return to the high 70s by [end of] 2025 and beyond.” — CFO Kelly Georgevich .
• “EU pipeline is definitely growing… probably tripled [Q2→Q3]… we’re adding salespeople, increasing marketing budgets in the EU.” — CEO David Moradi .
• “Adjusted free cash flow… $1.4M in the second quarter… we expect to generate positive adjusted free cash flow throughout 2025.” — CFO Kelly Georgevich .

Q&A Highlights

• Acquisition-related churn: Expected ARR impact ~$1.0–$1.5M in 2025 (including remaining BOIA customers); phase-out largely complete by end of 2025 .
• EU momentum: Pipeline tripled sequentially; expanding presence with targeted agency partners (300–500 agencies) and activity across France, Germany, Italy, UK .
• DOJ Title II: Partners Finalsite and CivicPlus deploying aggressive GTM; expect momentum into H2 2025 and 2026 .
• AI leverage: Embedded across testing/remediation/dev workflows; improves accuracy and margins over time (contextual issues still require experts) .
• Capital returns: ~144k shares repurchased in Q2; buybacks viewed as attractive use of cash alongside M&A .

Estimates Context

• Q2 2025 EPS matched consensus ($0.15* vs $0.15 actual); revenue slightly missed ($9.921M* vs $9.857M actual). Adjusted EPS alignment suggests non-GAAP is the investor focus; numbers of estimates: EPS (4), revenue (5)*. Where estimates may adjust: near-term revenue trajectory modestly lower given acquisition churn, but H2 sequential growth/margin expansion could support upward revisions to Q4 run-rate EPS/margins contingent on EU/enterprise execution .
  Values retrieved from S&P Global.

Key Takeaways for Investors

• Slight revenue miss but strong underlying enterprise/EU momentum; watch Q3 execution against $10.2–$10.4M guide and margin progression back toward high-70s GM and upper-20s adjusted EBITDA margins by Q4 .
• Guidance reset is strategic: phasing out lower-margin legacy acquisition customers should enhance cash flow quality and scalability; expect residual churn to weigh modestly on ARR through 2025 .
• EU EAA is a real catalyst: pipeline tripled and early wins (e.g., Motability Operations) suggest durable international expansion; partner-led motion across 300–500 agencies could compound impact in 2026 .
• DOJ Title II partner motion remains intact and could accelerate in H2 2025–2026, supporting enterprise and partner channels even amid macro caution .
• Capital allocation supportive: active buybacks and improving free cash flow provide downside support to per-share metrics as margins scale .
• Risk monitor: gross margin trajectory (migration/amortization timing), acquisition-related churn pace, and timing of EU enforcement; litigation expense remains a recurring non-GAAP adjustment .
• Tactical setup: Near-term traders should focus on Q3 print vs guide and H2 commentary on EU conversion; medium-term thesis hinges on sustained enterprise growth, EU adoption curve, and margin scale to high-20s adjusted EBITDA by Q4 .