I believe I’ve solved the case of the AEYE non-cash licensing revenue.
In my “deep dive” post, I had assumed that $675k of the $1m Q1 revenue was non-cash and therefore, only about $350k of Q1 revenue would ultimately be paid to the company in cash. As a result, this made the increase in AR seem impossible.
However, upon another reading of the company’s revenue recognition policy for licensing revenue. The revenue related to any licensing sales is recorded to revenue over the term of the license. Therefore, although they sold $675k of noncash licenses during Q1, only a portion of those sales are included in Q1 revenue (meaning most of the Q1 revenue are other sales that will be paid in cash).
Just taking a high level estimate, let’s say that those noncash ones are 3 year licenses (36 months), which means the revenue from those licenses would be recorded at $19k/month (=$675k/36) or $56k per quarter. Assuming those deals closed midway through Q1, only half of the quarterly $56k, or about $28k of revenue would have been recorded to Q1, and all of the rest of the $1m Q1 revenue are going to be paid to AEYE in cash.
If that is the case, then almost all of the $1m of Q1 revenue will be paid to the company in cash, and the increase in AR from December 31, 2013 to March 31, 2014 seems reasonable.
The 10-Q does say that any licenses sold in perpetuity are all recorded to revenue on day 1, so it’s possible that one or more of the three $225k non-cash licenses which make up the $675k are “perpetuity” licenses and therefore, maybe a larger chunk of Q1 revenue is non-cash than the $28k estimated above. Based on the increase in AR, I would imagine it only be one, at the most, of those three $225k licenses.
I will say that the wording in the 10-Q is poorly worded, as it could easily be interpreted to mean that all $675k of the non-cash license sales hit revenue in Q1 (it actually pretty much says that), but I no longer believe that is the case. The noncash portion of Q1 revenue is most likely either the $28k or $253k ($225k + 28k, assuming one of the noncash license sales was a perpetuity license). It would be nice to see more of this detail laid out in the the company’s future SEC filings and I will definitely be sending them a recommendation that they do so.
It also still suggests a fairly slow collection of receivables given that March 31st AR was higher than the total sales for Q1, meaning that at least some of their December 31, 2013 AR was still not collected 90 days later and most of the Q1 revenue was not collected by March 31st (which could be a result of timing of the Q1 revenue occurring late in the quarter).
Having discovered this, which has me more confident that most of the $1m Q1 revenue and (hopefully) most of the $3m+ Q2 revenue that they pre-announced, will be collected in cash, I actually bought some more shares late today when I saw the price in the high 70’s cents. I may regret it, but I think it could turn out to be a good decision.
Also, I cannot corroborate this, so take it for what it is worth, as I found it on a Yahoo! Finance message board posting from today, but this person is claiming that a firm named Janco Partners initiated coverage with a buy. Google searches of my own couldn’t find this information available publicly. This is what was in the Yahoo board post:
Janco Partners has just Initiated Research on AudioEye, Inc. (AEYE) with “Buy” Recommendation
“Investment Opinion”
"We initiate coverage on AudioEye (AEYE – $0.82) with a Buy (2) rating. This is the most favorable opinion the Janco system allows for small and/or undercapitalized companies. We believe that new capital would likely enhance our opinion by reducing risk. However, the price, terms, and conditions of any capital raise could prove to be positive or negative for current shareholders.
Our initial price target is $1.75 for now. Should the company succeed in raising money on a reasonable basis or create a partnership with a well-known internet supplier, we think $3.00 is a better target."