Audioeye (NASDAQ:AEYE) reported record third-quarter revenue and adjusted EBITDA, with management citing AI-driven efficiencies, expanding recurring revenue and lower litigation expense as key contributors to improved profitability.
Revenue for the third quarter of 2026 reached a record $11 million, marking the company’s 43rd consecutive quarter of record revenue. Revenue rose 7% from the year-earlier period, while annual recurring revenue increased 12% year over year to $43.3 million as of Sept. 30. Sequentially, ARR increased by $1 million from $42.3 million at the end of the second quarter.
GAAP net income was $1 million, or $0.08 per diluted share, compared with a net loss of $600,000, or $0.04 per share, in the prior-year quarter. Adjusted EBITDA climbed 58% year over year to approximately $3.9 million, representing an adjusted EBITDA margin of 35%.
Margins Improve as Costs Decline
Chief Financial Officer Matthew Domeyer said gross margin expanded more than 550 basis points year over year to 83%, while adjusted gross margin reached 88%. Gross profit increased 15% to $9.1 million, even as revenue grew 7%, because cost of revenue declined 19%.
The company attributed the cost reduction primarily to AI-driven efficiencies in engineering and service delivery. Domeyer said AudioEye converted 160% of incremental revenue into gross profit during the quarter.
Operating expenses declined 5%, or $400,000, to $7.8 million, driven mainly by lower research and development as well as sales and marketing spending. Total R&D spending was approximately $1.3 million, including about $400,000 in capitalized software development costs. R&D spending declined 17% year over year and represented about 12% of quarterly revenue, compared with 15% a year earlier.
CEO Kelly Georgevich said AI adoption across the company has helped AudioEye grow revenue without a comparable increase in expenses. During the analyst question-and-answer session, Domeyer said the company expects to maintain its current margin rates while continuing to seek additional opportunities for expansion.
Customer Growth and Channel Performance
AudioEye ended the quarter with approximately 130,000 customers, up 6% from about 123,000 a year earlier and up roughly 1,000 from the second quarter. The increase was led primarily by the company’s partner and marketplace business, though enterprise customer counts also rose.
Enterprise ARR grew 10% year over year and accounted for approximately 41% of total ARR at quarter-end. Enterprise revenue was relatively flat from the prior-year period as lower non-recurring revenue was offset by increased recurring revenue. Management said it has reduced its emphasis on non-recurring enterprise work during 2026 to focus on expanding ARR.
Revenue in the partner and marketplace channel increased 14% year over year, while ARR in that channel also rose 14%. The segment accounted for approximately 59% of total ARR, aided by continued expansion among state and local government partners.
Georgevich said the company was seeing near-record new and expansion business, strong partner growth and some of its best lead volumes to date. She said the company expects its roughly 12% year-over-year ARR growth rate to continue into the fourth quarter and sees potential demand catalysts in new products, European enforcement activity and the growing role of accessibility in AI-driven web interactions.
New AI Products Target Accessibility Issues
On Oct. 8, AudioEye introduced Agentic Audits and its SDK MCP, both built on what management described as AudioEye Intelligence, a proprietary dataset based on more than 1 million human accessibility reviews across more than 100,000 websites over 10 years.
Agentic Audits use an AI agent to navigate websites in a manner intended to resemble a user’s actions, including opening menus, completing forms and proceeding through checkout. Georgevich said the product can identify up to 50% more high-severity issues than automation alone, with most results returned within an hour. The SDK MCP is designed to bring AudioEye’s accessibility intelligence into developers’ existing AI coding tools so issues can be identified and addressed during code creation.
Management characterized the offerings as potential expansion opportunities for existing customers, though Georgevich said it was too early to quantify expected revenue per customer. The products can be purchased as add-ons, and certain offerings can be purchased as standalone products, she said.
AudioEye also discussed research showing that AI coding tools struggled to produce websites compliant with WCAG 2.2 AA standards, even when explicitly instructed to make websites accessible. The company said AI-generated sites averaged 55 issues per page, compared with 62 issues on a typical site in its research. It also said AI agents completed 31% of tasks on the least accessible site tested, compared with 96% after AudioEye’s fixes were applied.
Guidance Raised for Profitability
For the fourth quarter, AudioEye forecast revenue of $11.4 million to $11.6 million and adjusted EBITDA of $4.2 million to $4.4 million. At the midpoint, the outlook implies approximately 20% annualized sequential revenue growth, a 37% adjusted EBITDA margin and 56% growth in adjusted EBITDA from the fourth quarter of 2025.
The company expects fourth-quarter adjusted earnings per share of $0.32 to $0.33. It narrowed full-year revenue guidance to $43.6 million to $43.8 million and raised full-year adjusted EBITDA guidance to $13.4 million to $13.6 million from prior guidance of at least $12.7 million.
Georgevich said the fourth-quarter EBITDA outlook implies an annualized run rate of more than $17 million, above the company’s prior expectation of $15 million. Management also expects meaningful free cash flow in the fourth quarter and into 2027, helped by lower litigation expenses. Litigation expense declined approximately 50% from the second quarter, according to the company, with further reductions expected in the fourth quarter.
AudioEye generated $3.5 million in free cash flow during the third quarter and ended the period with $9.3 million in cash, up $600,000 from the end of June. Net debt was $7.2 million, down approximately $1 million year to date. The company also recently announced a $15 million share-repurchase authorization running through October 2027.
About Audioeye (NASDAQ:AEYE)
AudioEye, Inc (NASDAQ: AEYE) provides digital accessibility technology and services designed to help organizations make websites and digital content more usable for people with disabilities. Its platform is intended to support compliance with accessibility standards and regulations, including the Web Content Accessibility Guidelines (WCAG) and requirements associated with the Americans with Disabilities Act.
The company’s offerings include automated accessibility testing, monitoring and remediation tools, an accessibility interface for website visitors, and access to accessibility experts who can assist with testing and compliance programs.
