Good afternoon, and welcome to AudioEye's Second Quarter 2025 Earnings Conference Call. Joining us for today's call are AudioEye's CEO, Mr. David Moradi; and CFO, Ms. Kelly Georgevich. Following their remarks, we will open the call for questions from the company's publishing analysts. I would like to remind everyone that this call will be recorded and made available for replay via a link available in the Investor Relations section of the company's website at www.audioeye.com. Before I turn the call over to AudioEye's Chief Executive Officer, the company would like to remind all participants that statements made by AudioEye management during the course of this conference call that are not historical facts are considered to be forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward-looking statements. The words belief, expect, anticipate, estimate, confident will and other similar statements of expectation identify forward-looking statements. These statements are predictions, projections or other statements about future events and are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ because of factors discussed in today's press release and the comments made during this conference call and in the Risk Factors section of the company's annual report on Form 10-K, its quarterly reports on Form 10-Q and in its other reports and filings with the Securities and Exchange Commission. Participants on this call are cautioned not to place undue reliance on these forward-looking statements, which reflect management's belief only as of the date hereof. AudioEye does not undertake any duty to update or correct any forward-looking statements. Further, management's remarks today will include certain non-GAAP financial measures. A reconciliation of the most directly comparable GAAP financial measures to these non-GAAP financial measures is available in the company's earnings release or otherwise posted in the Investor Relations section of its website at www.audioeye.com. Now I'd like to turn the call over to AudioEye's Chief Executive Officer, Mr. David Moradi. Sir, please proceed.

Thank you, operator, and welcome to everyone joining us today. The second quarter was another record quarter for AudioEye. We achieved $9.9 million of revenue, representing 38 sequential quarters of growth or nearly 10 years of consistent growth, a remarkable achievement. Sequential ARR growth was $1.1 million in the second quarter. We expect accelerating ARR and sequential revenue growth in the third and fourth quarters driven by anticipated strong demand for enterprise business in the U.S. and EU and further growth in our partner and marketplace business. For the third and fourth quarters, we expect annualized sequential revenue growth to be in the high teens, accelerating sequential revenue growth, coupled with prudent expense management is expected to result in record adjusted EBITDA margins in the high 20s by the fourth quarter of this year. With continued operating leverage, we expect to generate strong free cash flow in the second half and beyond. We've proven that our business model is highly scalable with high gross and adjusted EBITDA margins. As we look forward to the next 3 years, we expect continued positive variable margin contribution and have an aspirational goal of growing adjusted EPS by 30% to 40% annually. As we generate more cash, we believe that in addition to M&A, stock buybacks can be an attractive way to use cash. And in the second quarter, we repurchased approximately 144,000 shares. Next, I'd like to discuss the driver of the adjustment to our revenue outlook as I am optimistic on our go-forward prospects and want to make sure these intentional integration efforts are understood. As previously discussed, we analyze and buy companies on a synergistic cash flow basis and structure the deals accordingly. Over the past few years, we have completed a few small acquisitions of accessibility companies that are accretive…

Thank you, David. For the 38th consecutive quarter, we achieved record revenue with Q2 2025 revenue at $9.9 million, up 16% over the comparable period of prior year. ARR increased $1.1 million sequentially and $4.9 million over the same period of prior year to $38.2 million. We continue to see contribution to our ARR revenue growth from both our enterprise and partner and marketplace channels. Diving into revenue and ARR more detail. Changes in ARR and revenue are primarily driven by 3 factors; one, our ability to close new enterprise deals. Two, expansion with our existing partners and engaging with new partners and three, retention of existing customers. The enterprise channel, which is defined by large customers and organizations, including those with non-platform websites, has continued to see solid and growing lead volumes. We have built a strong marketing and sales organization that has delivered on our goals and is also producing new and expansion revenue at near record levels. We are also excited about the initial contributions that EU is making to our results and expect to see this accelerate in the second half and in 2026. New and expansion business from the partner and marketplace channel defined as revenue from our SMB-focused marketplace products and from partners deploying AudioEye products for their SMB customers, also have consistently delivered each quarter and did so again in the second quarter. There is a notable opportunity for further material partner expansion in the EU as well as further expansion of our current partners in anticipation of the DOJ Title II rule, which begins to go into effect May 2026. Retention remained strong in the quarter with current AudioEye enterprise customers and partners. As mentioned, in the second quarter, we chose not to migrate certain covers and discontinue legacy services of acquired…

[Operator Instructions] And we'll take our first question from Joshua Reilly from Needham.

Maybe just starting off on the customers being phased out. Can you give us some sense of how much this impacted the numbers in the first half of this year relative to what you expect the impact to ARR and revenue for the second half of the year just to kind of give us some context? And then how does that affect the year-over-year comparisons maybe as well in terms of when did this kind of process start last year?

Yes. I can take that one. Acquisition churn is the driver for the reduction in revenue. We did see customers churn out in Q2 related to that migration and kind of the forced migration to AudioEye products and services. We do think this will still have some impact going into Q3 and Q4 of 2025. We think kind of overall ARR will probably be about $1 million to $1.5 million of churn for acquisition-related customers, which includes some culling of old BoIA customers, which we acquired in 2022. We do expect most of that -- the large majority of those customers to be phased out by the end of 2025. So it's really a 2025 impact.

Got it. And then -- Okay. That's helpful. Maybe moving on to some business-related questions. Some of the industry data that we've seen highlights that the digital accessibility lawsuits are up 20% year-over-year, year-to-date. Is that what you're hearing in the marketplace? And how much has that been a catalyst for you on a year-to-date basis that the lawsuits just continue to increase?

It's hard to really know that because you're probably getting federal and you're missing some of the states. We do think it's up. It may be up 20%, maybe up 10%. Obviously, we're growing and we're outgrowing the market. So that's a good thing. And now we have the EU coming online as well.

Got it. And then on the EU stuff, I guess, what type of visibility do you have into the pipeline now for the balance of the year relative to a quarter ago or 2 quarters ago? Some of the other areas that I cover with these type of regulatory items, there's a surge of orders once the law or implementation takes effect. So I'm just curious what's the sequential change in the pipeline there?

The pipeline is definitely growing. I'd say if I had to hazard a guess from the second quarter to the third quarter in terms of total pipe, what I'm seeing right now, it's probably tripled. So it's definitely moving in the right direction. Those are from smaller numbers, though, but it's moving in the right direction. And I think it's going to be even more into next year. I think the thing is really going to take off.

And we'll take our next question from George Sutton from Craig-Hallum.

Just a clarification on your 3x pipeline growth. Is that referring specifically to Europe?

Yes, for the EU business.

Okay. And you had mentioned that you were expanding your presence in Europe. Can you be a little more specific how you're expanding your presence?

Sure. Yes, without going into too much detail, we have all types of competitors that listen to these calls. We're adding salespeople, increasing marketing budgets in the EU, becoming just a lot more active in the area. It's a really big focus for us. And over the long haul, I think it's going to be a huge growth driver for the company.

You mentioned that international sellers are also implicated in this in the EU. I'm curious, is that driving any opportunities in the U.S., in particular, for international sellers selling in Europe that start to make some changes to the U.S. practice as well?

Not yet. I think when we see enforcement, we're going to start to see that as they target other companies based abroad.

So David, you laid out your 30% aspirational goal for EPS. Can you just give us a little bit more of a picture of what you see driving that?

Yes. It's really the record levels, near record levels of enterprise growth we're seeing with the EU beginning to contribute. The continued strong expansion of the partners, good core GRR metrics, really in the upper 80s, low 90s, acquisitions, just more of those type of things with scale of the business that Kelly can get into, if you want.

Let me just ask finally on the -- I'm curious, the product or the customers that have been forced migrated. Can you explain what the product is that you're moving away from? And does this directly relate to the earn-out that was reversed?

Yes. I'd say the products that they've migrated away from our consulting or onetime audit. And we want them to move over to our products and services, which we like automation, we like custom fixes and our audit. So that is the move we're pushing clients to make that are on these legacy services. It is directly related higher churn than expected is directly tied to that reversal of contingent liability that is played to earn out, yes.

The lower margin revenue customers. That's who we're really phasing out that don't want to pay more money for a better platform.

And we'll take our next question from Zach Cummins from B. Riley Securities.

David, I wanted to ask about your partnership strategy in the EU. What's kind of the ideal partner for AudioEye to be targeting to most effectively kind of get the coverage that you want and really drive adoption on that front?

Yes. There's a lot of agencies over there. We're probably targeting around 300 to 500 agencies that make websites for clients. So those are the ideal partners over there.

Understood. And are there any particular member states within the EU where you're seeing more traction out the gate versus others, just given the strict penalties? I know it can vary from member state to number state, but just because if there's any light you can set on that.

It's been all over. We've seen it in France, Germany, Italy, U.K., that's from top of mind, what I'm seeing right now, the bigger countries. So that's where I'm seeing it.

Got it. And final question for me is just around Title II at the DOJ. I know you have some pretty big partners in place that have been building out a practice with. Just curious if you can give any sort of update around that? It sounds like you're expecting a pickup here in the second half and maybe even accelerating in 2026. So any additional color on that front would be great.

Yes. They're focusing on investing resources, obviously, to capture the opportunity in front of them. And when I say they, that's [ SignalSight, Civic Plus, ] they both implemented very aggressive go-to-market plans and their pipelines are building nicely. We are working with them on a few initiatives and expecting some pretty good momentum as we get into the second half year and next year.

We'll take our question from Richard Baldry from ROTH Capital.

I joined late, so, I'm sorry if you've already covered this, but more and more of the companies I talked to talking about AI more internally than necessarily externally because they're finding they can get some pretty tremendous efficiencies on mostly development productivity right now, but I think across the board. Can you talk how much you feel like that's already starting to impact sort of your internal ability to? And where you think that matters the most? And does it move the dial on long-term profitability or not in your model?

Yes, that's a good question. Look, we're building AI into everything we do from testing, remediation. We think that's going to improve the accuracy and margins over time. Our internal tests show that AI is very good at solving specific common accessibility issues, but not great at issues requiring contextual understanding, but we are continuing to experiment with AI for issue detection. We're already the best out there for that. We're also integrating to your point, AI and our development workflow within our own CI/CD pipeline and we're using AI with our accessibility experts when writing out custom fixes. So I think it's a long-term driver of margin and scale.

Again, I don't know if you've already addressed this, so I apologize if you have. But when you look at the mandates that are coming into play, how much do you think the clients will be early adopters to avoid or to be compliant versus wait and try to understand what the penalties would be and how severe, how common enforcement will be. What's your sort of sense on that? And does that change sort of between sort of the enterprise players versus rest of the business? How do we think about that?

I think it's going to take a while there over the next 5 years is what I've said before, similar to how GDPR was opted and the big players will adopt first in my view.

Thank you. At this time, this concludes our question-and-answer session. I'd like to turn the call back over to Mr. Moradi for his closing remarks.

Yes. Thank you for joining us today. As always, I want to thank our employees, partners and investors for their continued support. We look forward to updating you on our next call.

Thank you. Before we conclude today's call, I would like to remind everyone that a recording of today's call will be available for replay via a link available in the Investors section of the company's website. Thank you for joining us today for AudioEye's Second Quarter 2025 Earnings Conference Call. You may now disconnect, and have a great day.