Bridgeline Digital Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
December 23, 2024

There are 5 speakers on the call.

Operator

I would now like to hand the call over to Tom Windhausen, CFO and Treasurer. Please go ahead.

Speaker 1

Thank you so much. Thank you and good afternoon everyone. Thank you for joining us today. My name is Thomas Windhouse and I'm the Chief Financial Officer of Bridgeline Digital. I'm pleased to welcome you to our fiscal 2024 Q4 conference call.

Speaker 1

On the call with us this afternoon is Ari Kahn, Bridgeline's President and CEO, who will begin the call with a discussion of our business highlights. I will then update you on our financial results for the quarter and we'll conclude by taking questions. Before we begin, I'd like to remind listeners that during this conference call, comments that are made regarding Bridgeline that are not historical facts are forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934 and are subject to risks and uncertainties that could cause such statements to differ materially from actual future events or results. These statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. The internal projections and beliefs upon which we base our expectations today may change over time and we expressly disclaim and assume no obligation to inform you if they do.

Speaker 1

The results report today should not be considered as an indication of future performance. Changes in economic, business, competitive, technological, regulatory and other factors could cause Bridgeline's actual results to differ materially from those expressed or implied by the projections or forward looking statements made today. For a more detailed information about these factors and other risks that may impact our business, please review the reports and documents filed from time to time by Bridgeline Digital with the Securities and Exchange Commission. Also, please note that on the call this afternoon, we will discuss some non GAAP financial measures when commenting on the company's financial performance. We provide a reconciliation of our GAAP financials to these non GAAP measures in our earnings release.

Speaker 1

You can obtain a copy of our earnings release by visiting our website. I'd now like to turn the call over to Ari Kahn, Bridgeline's President and CEO. Ari?

Speaker 2

Thank you, Tom. Good afternoon, everyone. In fiscal 'twenty four, Hawk Search took center stage for Bridgeline and our AI powered products became our growth engine. We delivered innovations in AI for several years with AI multiplier, natural language processing and personalization. But this year, Bridgeline released further advances by adding 5 new products to the HawkSearch AI Suite, solidifying HawkSearch as the undisputed leader in AI powered product discovery.

Speaker 2

Today, HawkSearch is the majority of Bridgeline's business and it powers over 1,000 websites ranging from B2C Enterprises like hulipackard.com that has more than $1,000,000 per hour in sales online to top B2B distributors like Consolidated Electric Distributors that have more than 750 websites and top brands like Black Diamond and Oriental Trading Company are also powered by Hawk Search. In 2024, we launched a new Hawk Search site every week and Gartner recognized HawkSearch as a leading B2B product discovery platform, highlighting our AI driven solutions tailored for distributors and manufacturers. Net revenue retention for HawkSearch is 103%, which demonstrates that we're not only retain HawkSearch customers, but also expand customer licensing with AI features like SmartSearch and Smart Response. Fiscal year 20 4 sales contracts nearly doubled in annual contract value compared to the FY 'twenty three results, totaling $2,100,000 in ARR with initial contracts typically 24 to 36 months. In this quarter, we sold 17 license for $360,000 in annual contract value, bringing us to 83 new licenses for the year with $6,200,000 in total contract value.

Speaker 2

Some new license sales in the year include NSI Industries, a prominent supplier in the construction materials testing equipment industry who selected HawkSearch to enhance product discovery and customer experience. The supplier will leverage Instant Engage and Auto Complete to display relevant content as soon as users interact with their search bar. Advanced B2B features will help customers quickly find the products that they need for NSI Industries. Similarly, Rainey's Truck Parts, an aftermarket automotive truck parts reseller chose Hawk Search's AI powered Smart Search for its e commerce site. Tacoma Screws, leading wholesale distributor in hardware selected Hog Search to enhance product and content discovery for their optimizably configured commerce site.

Speaker 2

And also another leader in fastener distribution selected Hog Search to improve product discovery by incorporating a tailored industry trained large language model across 15 countries and 12 languages. Colonial Electric Supply implemented Bridgeline's HawkSearch to optimize product discovery on its optimized e commerce platform. The AI powered search solution enhances the distributor site with advanced features like merchandising and personalized search experiences. Finally, Hewlett Packard chose Bridgeline's HawkSearch to meet its high performance hosting needs and optimize on-site search capabilities. This partnership highlights HawkSearch's scalability, delivering fast, relevant search results through a huge product catalog with enhanced usability for large enterprise level platforms.

Speaker 2

Hawk Search is not a single product, it's a suite that is central to our E360 strategy with separately licensed products that drive visitors to our customer sites, convert those visitors into buyers and increase the average order value for each one of those buyers. As a suite, Hawk Search creates upselling opportunities within our customer base, enabling a highly efficient sales engine with a CAC payback period of less than 20 months and net revenue retention rate of over 103%. In 2024, we released 5 products for HawkSearch that use AI large language models to discover the products people want to buy, generate content to help people find websites, and to learn behavioral trends that drive sales for our customers. The Hawk Search Rapid UI framework allows our customers to launch in just days, featuring a Gen AI component that seamlessly integrates Smart Response into search interfaces. It also enables the customization of agents, AI agents to match brand tone, empowering merchandisers to fine tune responses to meet specific customer needs.

Speaker 2

Additionally, we launched conversational search, which is powered by generative AI. Conversational Search leverages natural language capabilities to transform ordinary searches into conversational interactions. Natural Language Processing, NLP, is used to understand the intent and phrasing to deliver accurate meaningful search results and then to ask clarifying questions to further refine those results so that customers can more quickly find the products that they want to buy. This year, Hawk Search unveiled Multi Site Management, MSM. MSM allows organizations to centrally manage multiple websites while providing local sites the flexibility to tailor content for their markets.

Speaker 2

HawkSearch is the only product discovery platform with this capability and MSN gives us a strong competitive advantages with franchises, with chains and with brand networks. MSN is ideal for scenarios where multiple teams oversee numerous local sites providing streamlined and efficient management of both local and global merchandising campaigns. We also introduced smart facets, which allow users to ask detailed content rich questions and then uses a large language model and generative AI to automatically set facets on the e commerce site to filter search results. We announced a new Smart Response feature that analyzes PDF content and delivers specific answers to user questions. This innovation includes tools for extracting content from large PDF repositories and using generative AI to create helpful search features such as thumbnails of PDFs, summaries of pages within each PDF, and extraction of other important metadata, including file names and categorization.

Speaker 2

Finally, we announced an enhancement of integrating keywords and concept search into a unified intelligent search bar, which will be known as the Unified Search. Unified Search is part of Bridgeline's Agintiq AI project and its collaboration with salesforce.com's Agent Force initiative emphasizes advanced automation and seamless integration with intelligent agents. This innovation combines Hogsearch's precise keyword search with the natural language processing capabilities of concept search, delivering faster and more relevant results to improve customer experiences and drive engagement. 2 important platform partners that we expect to continue to generate new customers for Hawk Search are optimizably in BigCommerce. BigCommerce is promoting Hawk Search ahead of all of other search providers on the first page of its app store, providing tens of thousands of big commerce customers the ability to upgrade to HawkSearch's AI technology.

Speaker 2

HawkSearch offers a one click install for Optimizely and is recognized by Optimizely as a top paid app in their app store. HawkSearch is now uniquely positioned to improve site search for more than 1,000 Optimizely configured commerce customers with several already purchasing licenses. HawkSearch AI was showcased at Opticon 2024 in San Antonio, Texas just last month. We also partnered with the system integrator and Optimize the Expert XEngage for an optimized lead connector, which leads to even more sales. In the quarter, we announced a leading distributor of fasteners and industrial supplies to the selected Hawksters to enhance their on-site capabilities.

Speaker 2

This distributor, the 1st lead from our partner XEngage, will use the XEngage XConnect connector for HawkSearch to power their product discovery on the Optimizely platform. Furthermore, HawkSearch was named Moblico Partner of the Year. Moblico's integration of HawkSearch's AI capabilities enhances mobile engagement for distributors, optimizing real time shopping experiences and increasing customer retention. This collaboration allows distributors to provide a personalized customer experience leading to increased revenue and a stronger market position. We also partnered with Product Genius Technology, a leading provider of innovative solutions with decades of experience in the fastener industry, where we will partner with Hawk Search and provide patented search technology to enhance customer engagement and drive sales by simplifying the search, sort and display of complex product catalogs, especially those in the fastener industry.

Speaker 2

Bridgeline has partnered with Human Element, a leading commerce services agency, who will partner with Hawk Search to expand its offerings for B2B and B2C merchants to include AI powered search technology, and the partnership gives Adobe Commerce, previously Magento, BigCommerce and Shopify platform users easy access to HawkSearch AI powered search. Our leadership in AI has resulted in record sales and given us a pipeline for a great 2025. At this time, I'd like to turn the call over to our Chief Financial Officer, Tom Windhausen. Tom?

Speaker 1

Thanks, Zari. I'll provide an update of our financial results for the Q4 of fiscal 2024, which ended September 30, 2024. Total revenue for the quarter ended September 30, 2024 was $3,900,000 compared to $3,800,000 in the prior year period. Going into each component of revenue, our subscription license revenue, which comprised the SaaS licenses, maintenance and hosting revenue for the quarter ended September 30, 2024 was $3,000,000 compared to $3,100,000 in the prior year period. As a percentage of total revenue, subscription license revenue was 78% of total revenue for the quarter ended September 30, 2024.

Speaker 1

Services revenue was $800,000 for the quarter ended September 30, 2024 as an increase from $700,000 in the prior year Q4. As a percentage of total revenue, services revenue accounted for 22% of total revenue for the quarter ended September 30, 2024. Our cost of revenue was $1,200,000 for the quarter ended September 30, 2024 remaining consistent with $1,200,000 in the prior year period. And as a result, our gross profit was $2,700,000 for the quarter ended September 30, 2024 as compared to $2,600,000 in the prior year period. Our overall gross margin was 69% for the quarter ended September 30, 2024 compared to 68% in the prior year period.

Speaker 1

Our subscription license gross margins were 72% for the quarter ended September 30, 2024 compared to 73% in the prior year period and our services gross margins were 58% for the quarter ended September 30, 2024 compared to 46% for the same period in 2023. Moving to operating expenses, our operating expenses were $3,100,000 for the quarter ended September 30, 2024 compared to $10,800,000 in the prior year period. The prior year period operating expenses included a $7,500,000 goodwill impairment charge. Moving below OpEx, a change in fair value of our liability classified warrants resulted in a non cash loss of $5,000 for the quarter compared to a non cash gain of $214,000 in the prior year period. And our GAAP net loss was $400,000 for the fiscal year ended September 30, 2024 compared to a net loss of $8,100,000 in the prior year period, which included the impact of $7,500,000 of the bill impairment.

Speaker 1

EBITDA, our adjusted EBITDA for the quarter ended September 30, 2024 was $5,000 compared to negative $192,000 for the prior year comparable period. Moving to our balance sheet, at September 30, 2024, we had cash of 1 point $4,000,000 a $200,000 increase from June 30, 2024. And at September 30, 2024, our accounts receivable was $1,300,000 Our total debt outstanding as of September 30, 2024 was €471,000 or approximately 526 $1,000 The weighted average interest rate was approximately 4.4 percent with principal payments due through 2028. We have no other debt or remaining earn outs from any previous acquisitions. As of September 30, 2024, our total assets were $15,600,000 and our total liabilities were $5,600,000 Finally, to give an update on our cap table, at September 30, 2024, our up cap table included $10,400,000 outstanding shares, 39,000 shares from a Series C preferred stock, 800,000 warrants and 2,100,000 options.

Speaker 1

In September 2024, nearly 900,000 warrants as exercise price was $4 expired. 3,800,000 warrants consists primarily of 180,000 warrants with a $2.85 exercise price, which expired in May 2026 and 592,000 warrants with a $2.51 exercise price, which expired in November 2026. Bridgeland looks forward to continued growth and success in fiscal 2025 and beyond as we continue our focus on revenue growth, product innovation, customer success and delivering shareholder value. Thank you for joining us on the call today. And at this time, we'd like to open the call to questions and answers.

Speaker 1

Operator?

Operator

Thank Our first question comes from the line of Howard Halpern of Taglich Brothers. Please go ahead, Howard.

Speaker 3

Congratulations on the quarter and finishing up on a strong note for the year.

Speaker 2

Thank you, Howard.

Speaker 3

I guess now with all the different partnerships in place that agencies and such, where would you imagine you are on the runway for walk searches? Is it really just you're beginning to tap into a potentially huge customer base? If you could give some color for that over the next couple of years?

Speaker 2

Right. Yes. So HawkSearch is HawkSearch is well over half of our revenue. A lot of that revenue is partner driven. Most of the sales are on the B2B side and I think that we differentiate most strongly B2B, although we have fuel at packer.com is a great example of the B2C enterprise.

Speaker 2

So we're going to continue to see a lot of growth there. The big thing that's going to happen is that because of all the investments that we've made in artificial intelligence and the recognition from analysts like Gartner and partners like Optimizing and BigCommerce and our leadership in the AI area, we expect to start seeing continued acceleration in growth. We nearly doubled our sales volume year over year in terms of annual contract value. And the size of each of the contracts nearly doubled as well in terms of like monthly recurring revenue. So that's going to continue.

Speaker 2

The biggest challenge that we have on the growth side is overall sales and marketing budget. We need to find ways to put more and more dollars into lead generation because the return on investment that we're seeing in marketing is outstanding with less than 20 months CAC payback. I think that's world class and we're really limited primarily just by our ability to inject more dollars into that funnel.

Speaker 3

Okay. And for HawkSurg being one of the big leaders, are you and let me try to phrase this correctly with, are your customers' customers seeing increased satisfaction when they go to, I guess, your customers' websites that are powered by HawkSearch? Is there some sort of measurable that you're seeing out there that benefits your customers?

Speaker 2

We are. We are. So a big part of our strategy is to focus specifically on driving our customers' revenue. That's the most meaningful metric for them. It's one that they are all monitoring very carefully and is part of our strategy also because it results in the fastest sales cycle when we can demonstrate improvement.

Operator

Right.

Speaker 2

And we are seeing customers that are better than doubling their own conversion rates and are also increasing their average order value significantly. One of the great things about the B2B space for us is that there's a lot of turnover right now in terms of technical platforms. That space has been a laggard. They're realizing that the next generation is embracing online purchases as opposed to telephonic or fax, which still happens in the B2B world, especially manufacturing. And because they're now willing to make that investment, they are comparing us with competitors.

Speaker 2

They're taking a hard look at all search products in that space and requiring us to really demonstrate that value. So we're increasing the revenue significantly. And Gartner in particular is promoting us and a lot of the manufacturers and distributors that we're winning our subscribers to Gartner and are reading that report seeing the return on investment.

Speaker 3

Okay. And just one last one because I did see it in the press release and you had a press release on it. I know it's not as big as HawkSearch, but how is WOO Rank still important tool out there and beneficial to your future?

Speaker 2

Well, WooRank is very tightly integrated with HawkSearch now. So you see consolidated HawkSearch and WooRank sales where WooRank is actually powering the interface for HawkSearch, is powering the landing pages that HawkSearch is automatically able to generate and becomes an add on to the license when we make a HawkSearch sale. So we're often talking about Hawk search deals, but they actually have WooRank as part of the license that are inside that sale itself. It's certainly WooRank if you were to line item that is significantly smaller than if you were to line item all the other technologies inside of Hawk Search. However, we have strategically broken Hawk Search into being really a suite of products as opposed to a single product that allows us to quickly get into customers and upsell them along the way with WooRank, with smart search, with smart response, conversational search, smart facets and so forth.

Speaker 2

This alacarte model is allowing us to reduce our sales cycle. Our sales cycle is now 105 days from the first point in which we receive an email through the whole marketing stage and the sales cycle and then closing and winning or losing a deal. And the CAC payback is much lower. So selling into our own customer base is part of our strategy and it reduces our overall marketing spend.

Speaker 3

Okay. And just one last one, because the search and AI part of it is very important. Have you seen your customers, I know it's powered for their customers, but have you seen them try to use it internally to help their own sales force or their own productivity, your AI search capabilities?

Speaker 2

Yes. That's not our primary use case, but we do have that. We have, as an example, pharmaceutical company that is using HawkSearch in order to manage internal documents about drugs that are going through different review processes and find information even when it's embedded deeply within a scanned PDF file. We have a hospital that has patient information that is searched through Hawk Search. So we do have those, but our target from a marketing perspective is where we have a direct impact on top line revenue.

Speaker 2

So although our search can do that, that's not where we're focused.

Speaker 3

Okay. Okay. Well, great. Keep up the great work and I look forward to 2025. Have a Happy New Year.

Speaker 2

Happy New Year, Howard. Thank you. Yes.

Operator

Thank you. Our next question comes from the line of Per Jacobsen. Your question please Per.

Speaker 3

I'm sorry, is this me? Yes.

Speaker 4

Happy holidays guys. Well, as usual, thank you. This has been terrific. A couple of questions. The line cut out when Tom was giving the cash on hand number.

Speaker 4

Can you repeat that, Tom, please?

Speaker 1

Yes, absolutely. At September 30, we had cash on hand of $1,400,000 and that was approximately $200,000 increase from that at June 30, so $1,400,000

Speaker 4

All right. And we are comfortable that that will take us to the foreseeable future, right?

Speaker 2

Correct.

Speaker 4

Okay. Thank you. Can we give some color on the backlog? I mean, what does it look like and how is that going to play out over the foreseeable period?

Speaker 2

You're referring to the backlog in terms of signed contracts and forward going revenue from those contracts?

Speaker 4

No, actually, they were talking about opportunity backlog, I guess. Okay. In a way, we have to help out. Yes.

Speaker 2

So, on the opportunity backlog, so we ended fiscal 'twenty four with nearly double the sales pipeline from what we started FY 2024. And that includes 186 opportunities that are sales qualified leads, which means that the prospective customer has shared budget, they've shared needs, they are communicating regularly back and forth with us. That's more than $3,600,000 in annual contract value. So you can kind of multiply that by 3, approximately $10,000,000 in total contract value. And that's how we're kicking the year off.

Speaker 2

Most of those customers or prospective customers are in manufacturing and distribution. They're B2B customers. We are extremely strong in electrical and in plumbing distributors, which is a larger space than I would have thought before. And in fact, 9 of the top 50 electrical distributors are currently customers of ours, are all referenceable customers and that pipeline is pretty has some pretty big names in electrical distribution space. So we're expecting to continue to dominate that space.

Speaker 4

Do you expect that the 186 qualified leads, But that will sort of be the measure going forward? Or do you expect that, that number will dip or go up or whatever over time?

Speaker 2

Right. It will go up. So as leads come out of our pipeline, either because we win them or lose them, we have new leads coming in at a faster rate. And we're very much focused on what we call top of funnel marketing. So we're making some investments right now in terms of being able to create a more targeted ideal customer profile, have automated outreach to that ICP

Speaker 4

and

Speaker 2

automated nurturing for the first two stages because this will allow us to just touch more people. We're seeing a good close rate. We just want to expand that and then we'll get our humans involved after the first few touches. So we'll continue to grow that pipeline. But in terms of the overall total addressable market, we're really not even scratching the surface.

Speaker 2

And if you look at our 2 biggest partners Optimizely, which has $400,000,000 in ARR and BigCommerce, which has $300,000,000 in ARR. Those two platforms, we could have 20% of their ARR in sales and that would result in $80,000,000 plus $60,000,000 in sales and that's just those two partners. Of course, we're selling a lot with Salesforce and we're selling with Adobe Magento And staying inside of those ecosystems is part of how we generate lots of leads at the top of the funnel, keep our own marketing expenses low and build a reputation for references to help increase our close rate.

Speaker 4

And when we engage with these prospects and I assume that almost all of them is a competitive situation, right? So when we engage, what is sort of our win rate at this point?

Speaker 2

Right. So from what we call a sales qualified lead and that's where we have had multiple inbound inquiries from a customer and they stated need and budget, we're actually seeing a 20%, two-zero, close rate on those. And that's really driving our mentality of pushing lots and lots of leads into the funnel itself, because I almost feel like that close rate is too high. I mean, I want to win every single deal, but I want to have so many leads in there that we're having more at bat, so to speak. So we've got a very strong close rate.

Speaker 2

We need more leads into the half of the funnel. And the reality is, is every lead does cost money and we don't have a ton of money. So we need to find good ways to be able to generate more leads, generate more money to buy more leads, but to also work through those partner ecosystems and other low hanging fruit to feed that tunnel without having to invest money that we don't have.

Speaker 4

That's terrific. I really appreciate that. And can you give sort of a sense just a sort of a general direction of how many of the sales are coming direct now? How many are floating through partnership? What's the sort of the I don't know by some measure what's the breakdown there?

Speaker 2

Yes. So in terms of flowing from the partner itself, the partner itself, the partner actually providing us with the contact, that's about 25%. So one fourth of our deals are the result of us being at a conference like OptiCon that we were in San Antonio last month or maybe it was October actually at a customer conference or them providing it directly to us. The other 75% always have a partner attached to them because all of our customers need one of our partners' platforms as part of their website, but that 75% is happening through a lot of them come from our website itself, from hawksearch.com. So Hawk is a brand name, is really where we're investing and we're seeing leads come in through there.

Speaker 2

And we're also buying data lists and having outreach, including just invites to YouTube videos that we create, webinars, PDFs of case studies and things like that?

Speaker 4

Thank you. Look, I think we are 12 to 18 months into the great Hawk Search AI experiment here. And it's I think it looks like it's going really well. So it's a bit of a mystery. I mean, if you look at the company valuation relative to the healthy results and the potential, it's just the only idea is what it is that that is not liked about the company for the market's perspective because market of course equals capital, right?

Speaker 2

Of course. Yes, yes, exactly. If we had a different stock price, I would not be hesitating to promote injecting capital to feed the sales funnel. But if Dave's stock price, I think that would be dilutive and not the right thing to do. And our stock has, we have a poor history with the stock.

Speaker 2

I think that that has and our capital raise back in 2019 that produced a bunch of warrants that and shorting and other things that may have created structural problems. But probably also our overall size is a challenge for our stock as well, just overall revenue. We're only a $16,000,000 company. We are the AI leader in product search. We've been doing AI for a long time and we've added a ton of innovation.

Speaker 2

We have to get the word out there and rectify that multiple, but it's a great buy because I'm confident that this company is worth a lot more than where it's trading at today. Yes. I mean, obviously, I agree. Yes. You're in.

Operator

Me too.

Speaker 4

Tom, can you tell me, of the remaining, warrants, what is the slight price of that thing or what's the expiry dates on those?

Speaker 1

Yes. So there's $800,000 remaining, dollars 180,000 of those have a $2.85 exercise price expiring in May 26 and $592,002.51 expiring November 26. So of those $800,000 between $251,000 $285,000 in between May 26 November 26.

Speaker 4

Okay. Thank you. So realistically, I mean, these are going to trigger for sure. Okay. All right.

Speaker 4

I really appreciate it. I want to thank everybody for what they have done over the last year. It has been impressive to watch. I really appreciate it. And again, happy holidays.

Speaker 2

Happy holidays. Thank you, Pierre. Really appreciate your support.

Speaker 3

Thank you.

Operator

Thank you. I would now like to turn the conference back to management for closing remarks.

Speaker 2

Great. Okay, perfect. Well, everybody, happy holidays. Thank you for joining us today. We really appreciate continued support of all of our customers, of our partners, of course, our shareholders.

Speaker 2

We're excited about the business, everything that we're doing with AI. I mean, I'm custom built for this stuff. I have PhD and AI, I've been living it most of my life and things are getting real and we're adding tangible value for our customers with this and it's a very exciting time. We look forward to speaking with you again on our Q1 fiscal 2025 conference call, which will be in February of 2025. Until then, be well, happy holidays.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

Powered by Quartr
Earnings Conference Call
Bridgeline Digital Q4 2024
00:00 / 00:00