AudioEye(AEYE) - 2023 Q4 - Annual Report

Part I Business AudioEye, Inc. offers SaaS digital accessibility solutions, leveraging AI and human expertise to ensure website compliance through Enterprise and Partner channels - AudioEye's business model focuses on SaaS subscriptions for its digital accessibility platform, combining AI-driven automation and human expertise for WCAG compliance[15][16][17] - The company operates through two primary sales channels: Enterprise for large organizations and Partner and Marketplace for small and medium-sized businesses[24] - A single major customer and its affiliates contributed approximately 17% of total revenue in both 2023 and 2022, indicating significant customer concentration[25] - The company's intellectual property portfolio includes 22 issued U.S. patents, considered a key competitive strength[26] - As of December 31, 2023, the company employed 114 full-time employees and utilizes independent contractors as needed[38][39] Risk Factors The company faces significant risks including historical net losses, capital needs, loan covenants, intense competition, and cybersecurity - The company has a history of significant losses, reporting a net loss of $5.87 million in 2023 and an accumulated deficit of $89.48 million[43] - A $7.0 million loan obtained in November 2023 includes financial covenants such as maintaining $2.0 million minimum liquidity and meeting monthly recurring revenue levels[46][47] - The company faces intense competition from larger, better-financed entities, established consultants, and emerging AI technologies[58][59] - The uncertain and evolving legal framework for website accessibility could impact product demand or require offering changes[74] - As of December 31, 2023, four stockholders, including key executives, beneficially owned over 45% of voting power, indicating significant ownership concentration[118] Cybersecurity AudioEye maintains a cybersecurity risk management program with internal audits, penetration testing, and an incident response team - The company's cybersecurity strategy includes proactive reviews, external penetration testing, employee training, and data protection law monitoring[127] - The Audit Committee oversees cyber threat risks, receiving regular updates from senior management[130] - An incident response team, including key officers, manages and remediates cybersecurity threats[130][131] Properties The company's principal office is a leased space in Tucson, Arizona, expiring October 2024, with additional leased and shared offices - The main corporate office in Tucson, Arizona, is under a lease agreement expiring in October 2024[134] Legal Proceedings The company is involved in routine legal proceedings, but management does not anticipate a material adverse financial impact - The company does not anticipate any material financial impact from routine legal proceedings beyond existing provisions[136] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities AudioEye's common stock is listed on Nasdaq, with a $5 million share repurchase program authorized, and no dividends paid or anticipated - In November 2023, the Board approved a new $5 million share repurchase program valid through December 31, 2025[141] Share Repurchase Activity (Q4 2023, in thousands) | Period | Total Shares Purchased | Average Price Paid per Share | Remaining Authorization | | :--- | :--- | :--- | :--- | | Employee Transactions | 21,096 | $4.49 | N/A | | Share Repurchase Program | 248,205 | $4.52 | $3,878 | - The company has not paid dividends since inception and plans to retain future earnings for business development[145] Management's Discussion and Analysis of Financial Condition and Results of Operations AudioEye's 2023 revenue grew 5% to $31.3 million, with reduced operating and net losses, and positive Adjusted EBITDA - Annual Recurring Revenue (ARR) grew 7% to $31.2 million as of December 31, 2023, driven by the Partner and Marketplace channel[148][173] Consolidated Statements of Operations (in thousands) | Metric | 2023 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $31,316 | $29,913 | 5% | | Gross Profit | $24,342 | $22,694 | 7% | | Total Operating Expenses | $30,307 | $33,123 | (9)% | | Operating Loss | $(5,965) | $(10,429) | (43)% | | Net Loss | $(5,872) | $(10,433) | (44)% | Revenue by Channel (in thousands) | Channel | 2023 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Partner and Marketplace | $18,027 | $15,972 | 13% | | Enterprise | $13,289 | $13,941 | (5)% | | Total Revenues | $31,316 | $29,913 | 5% | Non-GAAP Adjusted EBITDA Reconciliation (in thousands) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net loss (GAAP) | $(5,872) | $(10,433) | | Adjusted EBITDA | $1,340 | $(946) | | Adjusted EBITDA margin | 4% | (3)% | - Cash flow from operating activities significantly improved to a source of $0.32 million in 2023 from a use of $(5.00) million in 2022[187] - The company secured a $7.0 million term loan in November 2023, maturing in November 2026, increasing year-end cash to $9.2 million[182][189] Financial Statements and Supplementary Data This section presents AudioEye's consolidated financial statements, detailing balance sheet, income statement, and cash flow performance for 2023 and 2022 Consolidated Balance Sheets As of December 31, 2023, total assets increased to $25.5 million, driven by cash from a new term loan, while liabilities rose and equity decreased Key Balance Sheet Items (in thousands) | Account | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash | $9,236 | $6,904 | | Total Current Assets | $14,776 | $12,966 | | Goodwill & Intangibles, net | $9,784 | $10,042 | | Total Assets | $25,495 | $24,428 | | Total Current Liabilities | $11,529 | $11,062 | | Term loan, net | $6,727 | $— | | Total Liabilities | $18,788 | $13,839 | | Total Stockholders' Equity | $6,707 | $10,589 | Consolidated Statements of Operations For 2023, revenue increased 5% to $31.3 million, gross profit rose 7%, and operating and net losses significantly narrowed due to reduced expenses Key Income Statement Data (in thousands) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Revenue | $31,316 | $29,913 | | Gross Profit | $24,342 | $22,694 | | Operating Loss | $(5,965) | $(10,429) | | Net Loss | $(5,872) | $(10,433) | | Net Loss per Share | $(0.50) | $(0.91) | Consolidated Statements of Cash Flows In 2023, operating cash flow turned positive at $0.3 million, investing activities used $2.2 million, and financing provided $4.2 million, increasing cash to $9.2 million Cash Flow Summary (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $318 | $(4,999) | | Net cash used in investing activities | $(2,156) | $(5,733) | | Net cash provided by (used in) financing activities | $4,170 | $(1,330) | | Net increase (decrease) in cash | $2,332 | $(12,062) | | Cash at end of period | $9,236 | $6,904 | Controls and Procedures As of December 31, 2023, the CEO and CFO concluded that disclosure controls and internal control over financial reporting were effective - Management, including the CEO and CFO, concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023[204][206] Part III Directors, Executive Officers, Corporate Governance, Executive Compensation, and Other Matters Information for Items 10-14, covering governance, executive compensation, and related matters, is incorporated by reference from the forthcoming 2024 proxy statement - Detailed information on corporate governance, executive compensation, and related party transactions will be available in the forthcoming 2024 proxy statement[214][216][217] Part IV Exhibits, Financial Statement Schedules This section lists all documents filed as part of the Form 10-K, including consolidated financial statements, corporate governance, and material contracts - The financial statements are filed as part of this report, beginning on page F-1[222] - A key exhibit is the Loan and Security Agreement dated November 30, 2023, related to the $7.0 million term loan[224]