AUDIOEYE INC Q3 FY2026 earnings call

• Record Financial Performance: Achieved record revenue of ~$11 million, record Adjusted EBITDA of $3.9 million (up 58% YoY), and positive GAAP net income of $1 million ($0.08 per share).
• Margin Expansion & AI Efficiency: Gross margin improved over 550 basis points year-over-year to 83%, with Adjusted Gross Margins reaching 88%. This was driven by a 19% decline in cost of revenue despite 7% revenue growth, attributed to AI-driven efficiencies in engineering and service delivery.
• New Product Launches: Launched 'Agenic Audits' and 'SDK MCP' on October 8, 2026. These products utilize AudioEye Intelligence, a proprietary dataset of over 1 million human accessibility reviews. Agentic Audits identify up to 50% more high-severity issues than automation alone, while SDK MCP integrates accessibility checks into AI coding tools.
• Regulatory Tailwinds: Highlighted growing regulatory pressure, including the European Accessibility Act adopting WCAG 2.2 and Hawaii’s new Act 257 requiring private businesses to conform to WCAG standards. Management believes other states may follow Hawaii's lead.
• Strategic Focus on ARR: Shifted emphasis away from non-recurring revenue to grow Annual Recurring Revenue (ARR). Enterprise ARR grew 10% YoY, and Partner/Marketplace ARR grew 14% YoY. Total customer count increased 6% to ~130,000.
• Litigation Expense Reduction: Litigation expenses decreased by approximately 50% in Q3 compared to Q2. Management expects further reductions in Q4 and long-term trends downward.
• Capital Allocation: Announced a $15 million stock repurchase program running through October 2027, representing ~15% of outstanding shares at current prices.

The transcript does not break down revenue by specific product segments (e.g., Enterprise vs. Partner/Marketplace) in absolute dollar terms or percentage contribution to total revenue within the provided text. It reports consolidated Revenue of approximately $11 million for Q3 2026, representing a record 43rd consecutive quarter of growth. Annual Recurring Revenue (ARR) was $43.3 million, with Enterprise ARR accounting for ~41% and Partner/Marketplace ARR for ~59% of the total ARR base as of September 30, 2026.

• Q4 2026 Revenue: Expected between $11.4 million and $11.6 million, representing a sequential increase of ~$550,000 from Q3 and ~20% annualized sequential growth.
• Full Year 2026 Revenue: Narrowed range to $43.6 million – $43.8 million.
• Q4 2026 Adjusted EBITDA: Expected between $4.2 million and $4.4 million, a 56% increase over Q4 2025 at the midpoint, with an adjusted EBITDA margin of ~37%.
• Full Year 2026 Adjusted EBITDA: Increased guidance from at least $12.7 million to a range of $13.4 million – $13.6 million, representing ~50% YoY growth.
• Q4 2026 Adjusted EPS: Expected between $0.32 and $0.33 per share.
• Forward Outlook: Expects Q4 adjusted EBITDA annualized run rate to exceed $17 million and significant ramp-up in cash generation in Q4 2027 and into 2028.

• Competitive Threats from AI: While management asserts their proprietary data provides a moat, the discussion highlights the risk that AI models trained on inaccessible web content may perpetuate accessibility failures, potentially impacting demand if customers believe native AI solutions are sufficient.
• Regulatory Compliance Costs: New laws like Hawaii's Act 257 impose compliance deadlines (24-36 months after rule finalization), creating operational burdens for clients but driving demand for AudioEye; failure to comply could expose clients to legal risk.
• Litigation Volatility: Although litigation expenses are trending down, they remain a factor affecting profitability and cash flow. The company notes that actual results could differ materially due to legal uncertainties.
• Execution Risk on New Products: The newly launched Agentic Audits and SDK MCP are early-stage products. Their ability to drive significant upsell revenue and expansion is subject to customer adoption rates and education requirements.

Q: Joshua Riley asked about the push-pull dynamics for the new AI products and sustainability of low-double-digit ARR growth without specific guidance. / A: Kelly Georgevich noted feedback has been very positive, especially in beta, but emphasized the need for customer education on AI capabilities. She expects the 12% YoY ARR growth momentum to continue into Q4 2026 and 2027, supported by strong new/expansion business, partner growth, and potential accelerators like new products and EU enforcement.