Bridgeline Digital Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 14, 2024

There are 3 speakers on the call.

Operator

Thank you for standing by, and welcome to Bridgeline Digital's 2nd Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. Officer. Please go ahead.

Speaker 1

Thank you, and good afternoon, everyone. Thank you for joining us today. My name is Thomas Windhausen and I'm the Chief Financial Officer of Bridgeline. I'm pleased to welcome you to our fiscal 2024 Q2 conference call. On the call with us this afternoon is Ari Kahn, Bridgeline's President and CEO, who will begin the call with a discussion of business highlights.

Speaker 1

I will then update you on our financial results for the quarter, and we will conclude by taking questions. Before we begin, I'd like to remind listeners that during the conference call, comments that we make 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, now subject to risks and uncertainties that could cause such

Operator

statements to differ materially from actual

Speaker 1

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. The results we 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 any forward looking statements made today.

Speaker 1

For more detailed information about these factors and other risks that may have an impact on 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. You can obtain a copy of our earnings release by visiting our website. I would now like to turn the call over to Ari Kam, Bridgeline's President and CEO.

Speaker 1

Ari?

Speaker 2

Thank you, Tom. Good afternoon, everyone. This is another exciting quarter for Bridgeline with outstanding Hawk Search sales, innovations in artificial intelligence and excellent recognition and sales in key partnerships. HawkSearch is the best site search product on the market with the strongest artificial intelligence capabilities for product discovery. Because our platform partners see us as instrumental to their customers' success, we've been they have embraced Hawk Search as a must have app for their commerce sites to save power.

Speaker 2

Our consolidated numbers include the legacy customers on legacy products with the underlying demand for Hawk Search, Smart Search and our strengthened partnerships with platforms are making this absolutely the most exciting time Bridgeline has seen and our momentum continues to grow. Today, search is nearly 60% of subscription revenue and we expect that percentage to go up even further. We've sold nearly 50 licenses this fiscal year with over $4,000,000 in total contract value. We're launching a new customer every single week. This month, we expect to launch nearly 10 customers.

Speaker 2

With each launch, we have more references and recognition as leaders in the site search sector. Many of our customers have extensive product catalogs such as Voltus with 80,000 products and a building supply chain that selected HawkSearch for its 40,000 product catalog. Several customers select HawkSearch Group's AI capabilities with Smart Search. Others choose us because of our seamless integration to our platform partners with connectors that allow them to easily upgrade to Hawk Search. Our marketing campaigns include a narrow focus on specific industries, including B2B Construction Sectors like electrical and plumbing supplies.

Speaker 2

By building a strong presence in these categories, we have accelerated our sales cycle and reduced our customer acquisition costs. 2 important platform partners that we expect to continue to generate new customers for Hawk Search are Optimizely and BigCommerce. BigCommerce, Hawk Search is featured on their first page of their website app store. BigCommerce has 60,000 customers generating $350,000,000 in ARR for them and 20% of their customers have more than 2 50 products. This 20% is a great total addressable marketplace for us.

Speaker 2

And then you see HawkSearch in the top page of their own app store on BigCommerce. And as a result, our lead generation and credibility in the BigCommerce ecosystem is outstanding. BigCommerce partnered with Hawk Search at the B2B Online Chicago Conference this month to help their customers understand how Hawk Search can increase online sales and we continue to see outstanding lead gen within the BigCommerce ecosystem. HawkSearch now has a one click install for Optimize. Ly and is recognized by Optimize.

Speaker 2

Ly as a top paid app in their app store. Hawk Search and Optimize. Ly have partnered with several online webinars and have launched many customer websites recently. Hawk Search is now in a unique position to improve site search for more than 1,000 optimizably configured commerce customers with several already purchasing licenses today. Furthermore, in the Opti ecosystem, we partnered with the system integrator XEngage, who is an expert in Optimizely and they help build the Optimizely connector.

Speaker 2

This opens the door for even more sales. Overall, our pipeline is larger than 35% has 35% more traffic and 66 percent more conversions and lead generation than it did last year. We're seeing excellent reviews and analyst recognition that generate leads and expand credibility against our competitors. We're recognized by top analysts such as Infotech as leaders in the marketing technology sector. Bridgeline is also recognized as one of the top 20 e Commerce solution providers of 2024 by ICON Outlook Tech Magazine.

Speaker 2

We expect additional analyst recognition this year that will serve as further lead generation and affirmation. Bridgeline is recognized as a leader in AI powered site search. We have deep expertise in AI. In fact, I have a PhD in AI from the University of Chicago. Our team's deep understanding of this field allows us to recognize new capabilities as soon as they become mature to more quickly include them in our software and make our customers even more successful.

Speaker 2

In March, we launched Zoos, the Zoos release for our AI powered Smart Search. Smart Search introduces 2 new ways to search, concept search and image search. This changes how customers interact with search, leading to increased engagement in revenue for businesses. SmartSearch uses AI models, vector databases and large language models to process customer queries, whether typed or through images. Image search allows customers to upload an image of a product and Hawk Search will show similar items for purchase.

Speaker 2

Concept search lets users describe their needs in natural language and the system finds relevant products or or information. Goose adds generative AI to summarize search results for online shoppers and improve content for better search engine optimization. Smart Search has already been implemented on several customer sites such as Savient, Schadler Yasko, Nailgun Depot, Max Warehouse and Rainbow Resource with several new sites slated to launch in the upcoming weeks. This is driving our growth and is the primary focus for the company overall. At this time, I'd like to turn the call over to our Chief Financial Officer, Tom Windhausen.

Speaker 2

Tom?

Speaker 1

Thanks, Ari. I'll provide an update of our financial results for the Q2 of fiscal 2024, which ended March 31, 2024. Total revenue for the quarter ended March 31, 2024 was 3,800,000 dollars compared to $4,100,000 in the prior year period. Now going into each component of revenue, our subscription license revenue, which is comprised of SaaS license, maintenance and hosting revenue, for the quarter ended March 31, 24 was $3,000,000 compared to $3,300,000 in the prior year period. As a percent of total revenue, subscription and license revenue was 79% of total revenue for the quarter ended March 2024.

Speaker 1

Our services revenue was 794,000 the quarter ended March 31, 2024, a decrease from $821,000 in the prior year's Q2. As a percentage of total revenue, services revenue accounted for 21% of total revenue for the quarter ended March 31, 2024. Our cost of revenue for the quarter ended March 24 was 1,300,000 consistent with $1,300,000 in the same comparable prior year period. And as a result, gross profit was $2,500,000 for the quarter ended March 31, 2024, compared to $2,800,000 in the prior year period. Our overall gross profit margin was 66% for this quarter ended March 24, compared to 69% in the prior year period.

Speaker 1

Our subscription and license gross margins were 71% for the quarter, compared to 74% in the prior year period, and our services gross margin was 47% in the quarter compared to 49% in the prior year same period. Operating expenses were $3,000,000 for the quarter ended March 31, 24, compared to $3,500,000 in the prior year period, a decrease in expenses of 500,000 dollars Moving to below OpEx, the change in fair value of our liability classified warrants resulted in a non cash loss of $25,000 in the quarter compared to income of $171,000 in the prior year period. On the bottom line, our net loss was $602,000 for the quarter ended March 31, 2024 compared to a net loss of $511,000 in the prior year period. And our adjusted EBITDA for the quarter ended March 31, 2024 was $83,000 compared to negative $144,000 in the prior year period. Moving on to our balance sheet.

Speaker 1

At March 31, 2024, we had $1,300,000 of cash and $1,500,000 of accounts receivable. Our total debt outstanding as of March 31, 2024 was €567,000 or approximately US600000 dollars and the weighted average interest rate on that was 4.6% and those principal payments are spread throughout now through 2028. We have no other debt or remaining earn outs from any previous acquisitions remaining. At March 31, 2024, our total assets were $16,300,000 and total liabilities were $5,800,000 Finally, to give an update on our cap table, at March 31, 2024, our cap table included 10,400,000 shares issued and outstanding, 39,000 shares from Series C preferred stock on as converted basis, 1,700,000 warrants outstanding and 2,100,000 options outstanding. Of those warrants, nearly $900,000 whose exercise price is $4 will expire in September 2024.

Speaker 1

After that, we will have approximately 800,000 warrants, primarily including 180,000 warrants with a 2.85 dollars exercise price, which expired in May 2026, and 592,000 warrants with a $2.51 exercise price, which expired in November 2026. Bridgeline looks forward to continued growth and success in fiscal 2024 and beyond, as we continue our focus on revenue growth, product innovation, customer success and delivering shareholder value. Thank you for joining the call today. At this time, we'd like to open up the call to questions and answers. Moderator?

Operator

Thank you,

Speaker 1

We have some questions that were submitted that we will for those that couldn't attend. So we'll go through some of those questions and we'll give our responses and then moderator will ask you to check-in with the rest of the group. But we'll continue on with the Q and A moderated by ourselves here first. Okay, cool. Well, Howard Halford sent in

Speaker 2

a couple of questions. He wasn't able to join us today. And the first one was, when will revenue from Hawk Search begin to show the real revenue growth of the company? Hawk Search is approaching 60% of subscription revenue. As such, we expect to see FY 'twenty four, which begins in October, to have subscription revenue dominated by Hawk Search, and that's really when it's going to drive past all of our other products combined.

Speaker 2

Rapid UI and our connectors to platforms like BigCommerce and Optimizely make Hawk Search largely out of the box. So we're not expecting subscription so we're not expecting services revenue to be dominated and services revenue is mostly dominated by Unbound as opposed to HawkSearch. And that is strategic for us. We want HawkSearch to be as much out of the box as possible and for the company to continue to grow. It's approximately 80% of our revenue in subscription right now and for that trend to continue.

Speaker 2

Beyond your customer base? How are your customers embracing this new offering? Our historical focus has largely been on e commerce side. This is going to continue to be primary business driver in both B2B and B2C. SmartSearch is also expanding our presence in content websites and even intranets, where its generative AI is able to summarize and combine multiple articles to provide tailored search results that directly speak to the query, while leaving out superfluous information that may be in underlying documents.

Speaker 1

Next question, provide some color on the company's thinking on product mix on a go forward basis, I. E, how does the company's what's the company's view on how to maintain a diverse product base while HawkSearch is scaling up?

Speaker 2

That one's from Per Jacobson, Pierre. Bridgeline's E Commerce 360 strategy allows us to grow through acquisition. But Hawk Search has such a strong sales trajectory, especially with SmartSearch, that's dominating our focus for this year and likely for the next year as well. In terms of innovation, we're expanding HawkSurg with AI capabilities, connectors to partner platforms and performance improvements. We're focusing sales on partnerships on Hawk Search with assigned resources to key partners like BigCommerce and Optimizely in particular.

Speaker 2

And we're leading with HawkSearch in our marketing conference presence. HawkSearch is fully integrated with Unbound and WooRank and Celebros is merging with HawkSearch. So anyone using those products benefits from all of our innovations in AI. Of course, all of our products are important, but because HawkSearch is growing at a substantially faster rate than anything else, it's going to dominate our mix in the foreseeable

Speaker 1

future. All right. Follow on question there. Can you provide a rough breakdown on revenue and margin sources? I'll take that, Lisa.

Speaker 1

Our largest contributors to revenue and margin are Unbound, we just talked about, and search, being about 60% of services and 20% of subscription, and search being 30% of services and 60% of subscription. Both Unbound and Search deliver similar gross margins of 40% to 45% for services and 70% to 75% margins for subscription. And finally, we had a question about some insight into cash burn and projected cash position for the end of the year going into next year. As a rule of thumb, we manage our financials so we can generate cash. If we need to reduce non personnel marketing spending, we can by $150,000 to $250,000 per quarter.

Speaker 1

At this time, our marketing is generating great subscription sales for long term ROI and we'll continue to make those investments even though it may lead to immediate negative cash flow and negative EBITDA like we've seen last couple of quarters, 84,000 83,000 this quarter. We expect our low watermark to cash to be around $1,000,000 and we can adjust that through asprudizing spend and we do not intend to deal with stockholders in order to generate cash. Moderator, is there any other questions out there from the group?

Operator

I show none in queue, sir.

Speaker 1

Excellent.

Speaker 2

I'd like to Okay. No,

Operator

I'm just going to turn the call back to management for remarks.

Speaker 2

Well, there we are. Thank you, sir. Thank you everybody for joining us today. We appreciate the continued support of all of our customers, partners and our shareholders. We're really excited about our business and ongoing growth prospects, and we look forward to speaking with you again in our Q3 fiscal conference call in August 2024.

Speaker 2

Until then, be well. Thanks.

Operator

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

Powered by Quartr
Earnings Conference Call
Bridgeline Digital Q2 2024
00:00 / 00:00