AudioEye expects Q4 adjusted EBITDA run rate over $17M, supported by AI efficiencies and new products

• "We had a great quarter, generating record revenue, record adjusted EBITDA, strong free cash flow and positive GAAP net income, driven by efficiencies and increased AI use across the company," said CEO Kelly Georgevich.
• Georgevich said the company now expects "approximately 50% growth in adjusted EBITDA in 2026," and added, "We also expect a Q4 adjusted EBITDA annualized run rate of over $17 million, up from previous expectations of $15 million. This translates into an annualized run rate for adjusted EPS of around $1.30 in Q4."
• Georgevich highlighted product and capital allocation updates, saying, "On October 8, we launched 2 new products: Agentic Audits and our SDK MCP," and "we recently announced a $15 million stock repurchase program that runs through October 2027."
• "Gross margin improved over 550 basis points year-over-year with adjusted gross margins of 88% in Q3, driven by efficiency and increased use of AI," Georgevich said, while also calling out costs: "As we anticipated and as indicated last quarter, litigation expense decreased in Q3. We expect a further reduction in Q4 and believe litigation expense will continue to trend down."
• "Revenue for the third quarter was a record $11 million," said CFO Matthew Domeyer, adding, "Annual recurring revenue was $43.3 million as of September 30, 2026, up from $42.3 million as of June 30, 2026."

Outlook

• Georgevich guided, "For the fourth quarter of 2026, we expect revenue between $11.4 million and $11.6 million," and "For the full year 2026, we are narrowing the revenue range to between $43.6 million and $43.8 million."
• Georgevich said, "For the fourth quarter of 2026, we expect adjusted EBITDA of between $4.2 million and $4.4 million," and "We expect adjusted EPS of between $0.32 and $0.33 per share for the fourth quarter of 2026."
• Georgevich raised profitability guidance: "For the full year 2026, we are increasing adjusted EBITDA guidance from at least $12.7 million to between $13.4 million and $13.6 million."

Financial results

• Domeyer said, "Gross margin for the third quarter expanded over 550 basis points to 83% compared to 77% in the third quarter of 2025," and added, "Gross profit grew 15% to $9.1 million compared to $7.9 million in the prior year period."
• Domeyer described cost structure changes: "In the third quarter of 2026, operating expenses decreased 5% or $400,000 to $7.8 million," and said R&D was "approximately $1.3 million, including approximately $400,000 recorded as capitalized software development costs."
• On profitability and cash generation, Domeyer said, "Net income in the third quarter of 2026 was $1 million or $0.08 per diluted share," and "In the third quarter, we generated $3.5 million of free cash flow."
• On leverage and liquidity, Domeyer said, "We ended the quarter with $9.3 million in cash," and "As of September 30, 2026, our net debt, defined as total debt less cash, was $7.2 million."

Q&A

• Joshua Reilly, Needham & Company, LLC, Research Division: asked about early customer demand for the new AI products and whether it is “push-pull” or education-driven; CEO Georgevich said, "it's definitely still early days," adding, "feedback has been very positive" and "some of it has to be education on the customer side."
• Reilly, Needham & Company, LLC, Research Division: asked about ARR sustainability into Q4 and 2027 drivers; CEO Georgevich said, "We had about 12% year-over-year ARR growth," and "I think we expect that to continue into Q4," pointing to "near record new and expansion business" and potential accelerators including "our new product offerings" and "enforcement of the EU."
• George Sutton, Craig-Hallum Capital Group LLC, Research Division: asked about the step-down in cost of goods sold and margin durability; CFO Domeyer said, "we saw a 550 basis point increase in margin," and added, "we expect to be able to maintain those rates, and we'll keep looking for room to expand the margins."
• Sutton, Craig-Hallum Capital Group LLC, Research Division: asked about revenue-per-customer uplift from the new AI products; CEO Georgevich said, "it's probably too early to quantify it," and framed them as "expansion opportunities."
• Richard Baldry, ROTH Capital Partners, LLC, Research Division: asked whether AI has created new competitors; CEO Georgevich said, "We haven't seen much in the market," and argued, "no one can replicate" AudioEye’s proprietary dataset, adding, "AI just can't do this."
• Baldry, ROTH Capital Partners, LLC, Research Division: asked what remains manual vs automated and how much more can be automated; CEO Georgevich said, "you need the manual aspect of an audit," while noting Agentic Audits can find "about 50% more of the high severity issues" than automation.
• Baldry, ROTH Capital Partners, LLC, Research Division: asked about ongoing OpEx/COGS automation and incremental profitability; CEO Georgevich said, "we've been able to ramp revenue without ramping expenses for a number of years" and "we expect to see that to continue."
• Baldry, ROTH Capital Partners, LLC, Research Division: asked about pipeline and demand into 2027; CEO Georgevich said, "we're seeing some of our best lead volume to date" and "Litigation is still growing at record levels."
• Baldry, ROTH Capital Partners, LLC, Research Division: asked about desired cash levels and buyback funding; CEO Georgevich said, "we're pretty comfortable" with recent cash levels and pointed to "significant cash generation in Q4 and into 2027."
• Scott Buck, Titan Partners Group LLC: asked how Agentic products are priced and packaged; CEO Georgevich said, "You can purchase those either" as "stand-alone" or "an add-on" depending on product.
• Buck, Titan Partners Group LLC: asked why ARR growth outpaced customer growth; CEO Georgevich said it was "really across the board" with "double-digit ARR growth in both our enterprise" and "the partner side as well."
• Buck, Titan Partners Group LLC: asked about buyback pace and credit agreement constraints; CEO Georgevich said, "We don't see -- we have a good relationship with our debt provider and don't see any issues there."

Sentiment analysis

• Analyst sentiment was slightly skeptical to neutral, with repeated probing on AI as a competitive threat and durability of margin/automation benefits, including Baldry’s framing that "people seem worried about AI sort of becoming a competitive threat" and Sutton’s question on whether margin improvement is a "onetime step function improvement."
• Management sentiment was positive in prepared remarks and firm in Q&A on differentiation, with Georgevich saying, "We had a great quarter" and later asserting, "the idea of a new product coming in or a new competitor coming in that can just do what we've been doing for 10 years is just not possible."
• Versus Q2, management language in Q3 was more definitive on capital allocation and profit trajectory, including the buyback announcement and the increased profitability targets, while continuing the Q2 theme that litigation expense is trending down.

Quarter-over-quarter comparison

• Q3 introduced a specific capital return action after Q2’s evaluation phase: in Q2, Georgevich said the company was "currently evaluating options to deploy excess cash," while in Q3 she said it "recently announced a $15 million stock repurchase program that runs through October 2027."
• Q3 raised the profitability trajectory versus Q2 expectations: in Q2, Georgevich said the company expected "over $15 million run rate adjusted EBITDA in the fourth quarter of 2026," while in Q3 she said, "We also expect a Q4 adjusted EBITDA annualized run rate of over $17 million" and raised full-year adjusted EBITDA guidance to "$13.4 million and $13.6 million" from Q2’s "at least $12.7 million."
• Q&A focus shifted from Q2’s Europe enforcement and sales investment timing to Q3’s emphasis on new AI product monetization, AI-driven efficiencies in COGS/OpEx, and buyback execution considerations.

Risks and concerns

• Georgevich highlighted cost volatility tied to legal matters while signaling relief ahead: "litigation expense decreased in Q3" and "We expect a further reduction in Q4."
• Analysts repeatedly tested the AI threat narrative and competitive entry risk; Georgevich responded by pointing to the company’s proprietary dataset and saying, "We haven't seen much in the market."
• On regulation-driven demand timing, Georgevich described enforcement as a potential accelerator, saying "enforcement of the EU could move the needle further," and also cited Hawaii’s Act 257 as having "significant implications for the travel and hospitality industry" with compliance deadlines "24 to 36 months after the rules are final."

Final takeaway

Management emphasized record Q3 revenue and profitability driven by AI-enabled efficiencies, paired with raised full-year adjusted EBITDA guidance and a higher expected Q4 annualized adjusted EBITDA run rate. The call also introduced two October AI products positioned as upsell drivers and announced a $15 million repurchase program through October 2027, while management reiterated expectations for litigation expense to trend down and for cash generation to ramp into Q4 and 2027.

Read the full Earnings Call Transcript

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