AudioEye(AEYE) - 2025 Q2 - Quarterly Report

PART I: FINANCIAL INFORMATION Item 1. Financial Statements Unaudited consolidated financial statements for June 30, 2025, show increased assets and liabilities, decreased equity, and improved operational performance with revenue growth and a narrowed net loss Consolidated Balance Sheets As of June 30, 2025, total assets increased to $33.9 million, liabilities to $26.6 million due to a new term loan, while stockholders' equity decreased to $7.3 million Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $33,900 | $29,766 | | Cash and cash equivalents | $6,869 | $5,651 | | Intangible assets, net | $11,929 | $10,276 | | Total Liabilities | $26,551 | $20,330 | | Term loan, net | $12,765 | $6,820 | | Deferred revenue | $8,229 | $7,518 | | Total Stockholders' Equity | $7,349 | $9,436 | Consolidated Statements of Operations Q2 2025 revenue grew 16% to $9.9 million, achieving operating income of $242,000 and a near breakeven net loss of ($2,000), significantly improving from Q2 2024 Q2 2025 vs Q2 2024 Performance (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $9,857 | $8,470 | +16.4% | | Gross Profit | $7,619 | $6,706 | +13.6% | | Operating Income (Loss) | $242 | $(497) | +148.7% | | Net Loss | $(2) | $(735) | +99.7% | | Net Loss Per Share | $0.00 | $(0.06) | +100.0% | H1 2025 vs H1 2024 Performance (in thousands, except per share data) | Metric | H1 2025 | H1 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $19,590 | $16,553 | +18.3% | | Gross Profit | $15,357 | $13,028 | +17.9% | | Operating Loss | $(698) | $(1,128) | +38.1% | | Net Loss | $(1,471) | $(1,564) | +6.0% | | Net Loss Per Share | $(0.12) | $(0.13) | +7.7% | Consolidated Statements of Cash Flows For H1 2025, operating cash flow increased to $1.2 million, investing cash use rose to $2.7 million due to acquisitions, and financing cash flow reversed to a $2.7 million inflow from new debt Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,171 | $613 | | Net cash used in investing activities | $(2,671) | $(1,035) | | Net cash provided by (used in) financing activities | $2,718 | $(3,728) | | Net increase (decrease) in cash | $1,218 | $(4,150) | Notes to Consolidated Financial Statements Notes detail revenue streams, Q2 2025 asset acquisition, a new $20 million credit facility replacing prior debt, and the initiation of a share repurchase program - Revenue is disaggregated into two sales channels: Partner and Marketplace, and Enterprise. For the six months ended June 30, 2025, Enterprise revenue grew 27% YoY, while Partner and Marketplace revenue grew 13% YoY[30][123] - One customer accounted for approximately 14% of total revenue in the first six months of 2025 and 11% of total accounts receivable as of June 30, 2025[32][35] - In Q2 2025, the company completed an asset acquisition, recognizing $1.8 million in customer relationships, which will be amortized over 8 years[76] - On March 31, 2025, the company entered a new credit facility with Western Alliance Bank for up to $20.0 million and used proceeds to repay its previous $7.0 million term loan with SG Credit Partners, recognizing a $300,000 loss on extinguishment of debt[87][97] - In January 2025, the Board authorized a share repurchase program of up to $12.5 million. As of June 30, 2025, the company had repurchased shares for $1.76 million, with $10.74 million remaining[57] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses 18% H1 2025 revenue growth, 14% ARR increase to $38.2 million, rising operating expenses due to litigation, and improved liquidity from a new credit facility Executive Overview and Key Metrics The company achieved 18% H1 2025 revenue growth, with ARR increasing 14% to $38.2 million, despite a 1% customer count decrease due to contract renegotiation - Annual Recurring Revenue (ARR) was approximately $38.2 million as of June 30, 2025, a 14% increase year-over-year[112][142] - The customer count decreased by 1% to approximately 120,000 from June 30, 2024, due to a contract renegotiation within the Partner and Marketplace channel[113] - For the six months ended June 30, 2025, the Partner and Marketplace channel revenue grew 13% and the Enterprise channel revenue grew 27% over the prior year period[114] Results of Operations Analysis H1 2025 revenue grew 18% to $19.6 million, with gross profit matching; operating expenses rose 13% due to increased selling, marketing, and G&A costs, partially offset by a $1.3 million non-cash gain Revenue by Channel - Six Months Ended June 30 (in thousands) | Channel | 2025 | 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Partner and Marketplace | $10,919 | $9,704 | $1,215 | 13% | | Enterprise | $8,671 | $6,849 | $1,822 | 27% | | Total revenue | $19,590 | $16,553 | $3,037 | 18% | - Selling and marketing expenses for H1 2025 increased by 26% YoY, primarily due to higher third-party marketing expenses and costs from acquisitions[129][130] - General and administrative expenses for H1 2025 increased by 33% YoY, mainly due to an $830,000 increase in litigation expense, higher personnel costs, and amortization[133][135] - A non-cash gain of $1.31 million was recognized in H1 2025 due to a reduction in the estimated earnout payable for the ADA Site Compliance acquisition[136][137] Liquidity and Capital Resources As of June 30, 2025, the company held $6.9 million in cash and $1.4 million in working capital, an improvement driven by $13.4 million in new term loan advances, ensuring sufficient liquidity for the next twelve months - Working capital increased from $549,000 at Dec 31, 2024, to $1,384,000 at June 30, 2025, mainly due to new debt financing[143] - The company initiated a $12.5 million share repurchase program in January 2025 and used $1.76 million of it in the first six months of the year[144] - Cash from financing activities increased significantly due to $13.4 million in proceeds from a new term loan, partially offset by the repayment of a $7.0 million previous loan[149] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is indicated as not applicable - Not applicable[152] Item 4. Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of the end of the period, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[155] - No material changes were made to the company's internal control over financial reporting during the quarter ended June 30, 2025[156] PART II: OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any legal proceedings expected to materially adversely affect its financial position or operations - Management believes the resolution of any routine disputes incidental to business operations is not likely to have a material adverse effect on the company[162] Item 1A. Risk Factors No material changes have occurred to the risk factors previously disclosed in the 2024 Form 10-K - No material changes to the risk factors set forth in the 2024 Form 10-K have occurred[163] Item 2. Issuer Purchases of Equity Securities During Q2 2025, the company repurchased 143,939 shares for approximately $1.76 million under its $12.5 million share repurchase program Share Repurchases for Q2 2025 | Period | Total Shares Purchased (Program) | Average Price Paid per Share | Approx. Value Remaining ($) | | :--- | :--- | :--- | :--- | | May 1 - May 31 | 123,939 | $12.24 | $10,983,000 | | June 1 - June 30 | 20,000 | $12.38 | $10,735,000 | | Total Q2 | 143,939 | $12.26 | $10,735,000 | Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including officer certifications and documents related to loan modification and board resolutions