Good afternoon, and welcome to AudioEye, Inc.'s second quarter 2022 earnings call. All participants will be in a listen-only mode. Should you need assistance, please press the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a push-button phone. To withdraw your question, please press star then two. Please note that this event is being recorded. I would now like to turn the conference over to Brian Prenoveau. Please go ahead.
Thank you, operator. 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 participating 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 CEO, 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 believe, 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 materially differ because of factors discussed in today's press release, in 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 direct, directly comparable GAAP financial measures to these non-GAAP financial measures is available in the company's earnings release posted in the investor relations section of our website at www.audioeye.com. Now I'd like to turn the call over to AudioEye's Chief Executive Officer, Mr. David Moradi. Sir, the floor is yours.
Thank you, Brian. Welcome, everyone, and thank you for joining us. Earlier this afternoon, we issued a press release announcing our results for the second quarter that ended June 30, 2022. You can find the press release on our website's investor relations section at www.audioeye.com. We're excited to share the progress we have made in the quarter and would like to begin by discussing our strong financial results. Our second quarter revenue was at the high end of the guidance range we provided last quarter at $7.6 million. Revenue growth continues to accelerate, with the second quarter representing 26% year-over-year growth. Revenue growth resulted from continued expansion in our Partnership and Marketplace channel, which I will discuss in more detail, organic growth in our enterprise sales channel, and revenue from our acquisition of the Bureau of Internet Accessibility.
We are pleased with the integration of BOIA into AudioEye, which is performing within expectations. In addition to achieving the high end of guidance, we are pleased to report our second quarter non-GAAP per share operating loss was reduced to $0.02 in the quarter. The improvement is primarily the result of increased revenue and efficiencies coupled with expense management. Annual recurring revenue or ARR ended the quarter at $28.7 million, up 19% versus the comparable year ago period. The increase was driven by growth across all channels. ARR was affected by the timing of enterprise deals at the end of the quarter and the culling of lower profit margin accounts. In addition to the solid financial results in the quarter, we recently announced two new partnerships I would like to highlight. In July, we formally announced new partnerships with Celerant and Vendasta.
Celerant is a leading provider of omni-channel retail point-of-sale solutions, which processes over $2.5 billion in annual retail sales. Vendasta is a leading platform for local experts who sell digital solutions to small and medium businesses with a network of more than 65,000 partners serving over 6 million SMBs. These opportunities have significant potential and further validate that our product offering is the best on the market and that our strategic approach to revenue growth through partnerships is working. Our cost-effective and comprehensive approach to solving web accessibility issues at scale is driving our high deal winning percentage with these sophisticated and discerning resellers and platforms. Celerant previously used the vendor and had this to say, "AudioEye quickly showed us that they are a partner that cares about us as well as our clients to deliver custom accessible experiences to those that need them.
While many make these claims, AudioEye's world-class technology paired with certified accessibility and legal experts make them stand out as a partner we can trust. The last development on the partnership side I would like to touch on is the progress on the digital agency negotiation I discussed on the previous earnings call. In the first quarter of 2022, our customer count decreased due to renegotiations with a digital agency upgrading from a basic tier to a more advanced offering. We are pleased to confirm that a new agreement has been signed with this agency. The new deal is a win for all parties. We expect more of their customers to deploy and benefit from our accessibility solution, and ARR will be materially higher over time than in the prior agreement. In the second quarter, we announced a $3 million stock repurchase program.
The program is authorized through the second quarter of 2024. We are committed to deploying our capital in a manner that delivers the greatest value for all shareholders. We are hard pressed to find many opportunities that represent higher return potential than our common shares when looking at our growth prospects and what similar companies are being valued at in the private markets. As of June 30, 2022, we have repurchased approximately $410,000 under the program. Moving on to guidance. We're guiding for revenue of between $7.65 million and $7.85 million in the third quarter, representing year-over-year growth of approximately 25% at the midpoint. In the second quarter, our operating loss excluding non-recurring items and non-GAAP adjustments was reduced to approximately $250,000, a substantial sequential improvement.
We expect operating loss excluding non-recurring items to remain stable in the third quarter and near breakeven by the fourth quarter. We end the second quarter well capitalized with over $9 million in cash on June 30 and have the runway to continue investing in the business for the long term. I will now turn the call over to AudioEye's CFO, Kelly Georgevich. Kelly.
Thank you, David. As David mentioned, we are pleased with our second quarter 2022 performance. The second quarter marked the 26th straight quarter of record revenue, ending the quarter at $7.6 million, which was 26% growth year-over-year. Annual recurring revenue, or ARR, at the end of the second quarter of 2022 was $28.7 million, a 19% increase over ARR at the end of the second quarter of 2021. Both revenue channels experienced organic growth, with the Bureau of Internet Accessibility acquisition also contributing to enterprise revenue growth in the quarter. Looking at our revenue channels in more detail, the Partner and Marketplace channel, which includes revenue from our SMB-focused marketplace products and a variety of SMB-targeted partners, grew 16% year-over-year and represented approximately 52% of total revenue and 55% of ARR.
We expect to continue to see this channel contribute significantly to our growth in revenue as we continue to both land new partners and expand existing partnerships. The enterprise channel, inclusive of revenue from the Bureau of Internet Accessibility, had a strong quarter, increasing 38% year-over-year and contributing approximately 48% of total revenue and 45% of ARR. In addition, recurring revenue from the enterprise channel increased 27% over the same period in prior year. We were pleased to see project-based revenue increase over the same period of prior year with the addition of BOIA revenue, which helped offset decreases in project-based mobile and PDF revenue in 2022. On June thirtieth, 2022, our customer count was approximately 76,000, an increase from 75,000 customers at June thirtieth, 2021.
As David highlighted, we also signed an updated contract with an agency that was going through renegotiations in Q1 and fell out of the customer count. We are excited to have extended and expanded this partnership going forward. Gross profit for the second quarter was $5.7 million, or about 76% of revenue, compared to $4.5 million and 75% of revenue in Q2 of last year. We are pleased with the consistent gross margin % given the significant investment in our next generation platform and customer success costs, which play a factor in cost of revenue. We expect gross margin to be around 75% for the remainder of 2022.
With revenue up 26% year-over-year, operating expenses in the second quarter of 2022 increased 10% to $8.3 million from $7.6 million in the same quarter last year. This increase was primarily driven by expenses from the Bureau of Internet Accessibility and investments in headcount, offset by efficiencies in sales and marketing and lower stock compensation expense. Sequentially, from Q1 2022, operating expenses decreased by approximately $500,000 as a result of more effective marketing spend, lower non-recurring items, and efficiencies across all departments, partially offset by a full quarter of BOIA-related expenses in Q2 2022. Our total R&D spend in Q2 was approximately $1.7 million, with approximately $325,000 reflected as software development costs in the investing section of the cash flow statement.
This total R&D spend is about 23% of our revenue this quarter versus 32% last year. We are committed to investments in R&D to maintain a best-in-class product, and increasing revenue is providing us additional operating leverage. Net loss in the second quarter of 2022 was $2.6 million or $0.23 per share compared to a net loss of $1.8 million or $0.17 per share in the same year ago period. The second quarter of 2021 benefited from a $1.3 million gain on loan forgiveness, which was non-recurring. On a non-GAAP basis, net loss in the second quarter was about $250 thousand or $0.02 per share compared to a non-GAAP net loss of $650 thousand or $0.06 per share in the same year ago period.
The primary adjustments to GAAP earnings and EPS for Q2 2022 were non-cash share-based compensation, depreciation, amortization costs and litigation costs. Cash burn in Q2 2022 was with an expectation for decreased cash of $2.7 million in the quarter. The decrease in cash was related to operating burn of approximately $250,000, software capitalization of approximately $325,000, $410,000 for stock repurchase, $150,000 for tax payments related to employee share-based grants, $1 million for non-recurring items, and approximately $600,000 from other working capital movements. Going forward, we expect overall cash use to go down sequentially in the third and fourth quarter. Our balance sheet remains well capitalized with zero debt and $9.3 million of cash on June 30, 2022. With that, we open up the call for questions.
Operator, please give instructions.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Scott Buck with H.C. Wainwright. Please go ahead.
Hi, good afternoon, guys. Thank you for taking my questions. I think the first one, David, you called out the Celerant and Vendasta partnerships in the release and spoke to them on the call. Can you remind us what the lead times are like, you know, in terms of when you'll start to see some revenue? Maybe, you know, how large are these individual customers that they can present to you in terms of revenue?
Sure, yeah. The lead times on deals like this typically take multiple quarters, very significant opportunities over the long haul, as we've seen with mega resellers in the past or platforms. Vendasta would qualify as a platform, with 6 million SMBs on their side. What else were you asking me a question?
Just in terms of the size of the individual customers you can sign through the reseller channel here. I mean, are they, you know, in terms of annual revenue, are they a couple hundred bucks or are they, you know, several thousand dollars?
Yeah, in terms of annual revenue, it could be anywhere from $500-$700, up to $20,000-$30,000 in that range.
Okay. That's helpful. Then, Kelly, do you mind telling us what BOIA contributed in the quarter in terms of revenue?
We're not disclosing contributions from BOIA specifically in the quarter. We can say that they did contribute to enterprise, and we did see organic growth in both the enterprise and reseller channel. We are pleased to see BOIA revenue offset decreases in PDF and mobile project-based revenue in 2022.
Okay. Do you guys mind telling us, you know, how you're marketing that now that it's, you know, under the AudioEye umbrella? Or, you know, is it operating as a standalone at the moment, or have you integrated it with some of your other products?
Yeah, it's currently being integrated in, so we're in the process of doing that with product and sales and marketing.
Okay, that's helpful. Last one for me, just curious on the repurchase. You know, how should we think about repurchases going forward? You know, or how are you looking at it? You know, if the stock trades under six, should we assume that you guys are in the market repurchasing, or what's the criteria that you look at?
We're looking at a variety of factors. First, the stock is extremely cheap at, I think, less than 2x revenue if you take out the cash and the NOL. We're hard pressed to find many opportunities like this, especially when you look at the private market. We see transactions that are very similar to us, anywhere from 8x to 12x, even in the current market environment. That's the reason for the stock repurchase. We can't give you exact levels of where we're gonna go in and buy, and it could change at any time. I don't really wanna talk about what we're doing intra-quarter.
Sure. That's fair. Well, I appreciate the time, guys, and congrats on all the progress.
Thank you, Scott.
Again, if you have a question, please press star then one. Please hold. Our next question comes from Zach Cummins with B. Riley. Please go ahead.
Hi, guys. This is Kat Knop on for Zach today. Just a few questions from me. The first would be, have you seen any elongation of sales cycles or softness in demand related to the current macro environment?
Hi, Kat. We've seen a little tightening on the enterprise side of budgets, and that was towards the end of the quarter. However, we did bring in a lot of those deals over the past five weeks in this new quarter. There's a little bit of tightness on the enterprise side that we've seen. I think you've also seen in the market SMBs has said similar commentary in terms of the large public website builders are signaling some weakness in terms of SMBs. I don't think we're immune to a recessionary environment. I think we're holding in very well. Like I said, we closed a lot of these enterprise deals that came in because of budget reasons. They still have to solve their problems of accessibility.
Even though they put it off in a given quarter, they gotta come back and solve this eventually. Otherwise they're opening themselves up to litigation and brand risk.
Great. Okay. The next from me. Can you give a little bit more insight into the new contract with your agency partner? Again, kind of what is this expected to contribute in terms of customer count and ARR? If you could give any kind of insight there, that'd be helpful.
Yeah, I don't think we can speak about specific customers or contracts. We're just very positive on these type of deals going forward and think they're gonna contribute a lot of ARR and customer count in the future. We'll look to scale those up over the next few quarters.
All right. Okay, and then the last one from me. Can you give any more detail regarding partnerships with Celerant and Vendasta, currently? Like, what type of revenue are they contributing, and what sort of growth opportunities can we see with these two?
Yeah, that'd be the same as the last answer. We can't really speak to specifics on those. They're just very significant opportunities in the long haul.
Okay. Thank you, guys.
No problem.
This concludes our question and answer session. I would like to turn the conference back over to David Moradi for any closing remarks. Please go ahead.
Thank you for joining us today. As always, I wanna thank our employees, partners, and investors for their continued support. We look forward to updating you on our next call.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.