Bridgeline Digital Q1 2025 Earnings Call Transcript

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February 13, 2025

There are 5 speakers on the call.

Operator

Good day, everyone, and welcome to the Bridgeline Digital First Quarter twenty twenty five Earnings Call. At this time, all participants have been placed on a listen only mode. It is now my pleasure to turn the floor over to your host, Thomas Windhausen. Sir, the floor is yours.

Speaker 1

Thank you, and good afternoon, everyone. Thank you for joining us today. My name is Thomas Windhausen. I'm the Chief Financial Officer of Ridgeline Digital, Inc. I'm pleased to welcome you to our fiscal '20 '20 '5 first quarter conference call.

Speaker 1

On the call with us today is Ari Khan, 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. We will conclude by taking questions. Before we begin, I'd like to remind listeners that during this 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 and are subject to risks and uncertainties that could cause such statements to differ materially from actual future results or events. These statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Speaker 1

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 forward looking statements made today. 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.

Speaker 1

We provide a reconciliation of our GAAP financials to these non GAAP measures in our earnings release. You can obtain a copy of the earnings release by visiting our website. I'd now like to turn the call over to Ari Khan, Ridgeline's President and CEO. Ari? Thank you, Tom.

Speaker 2

Good afternoon, everyone. In Q1 of FY twenty twenty five, Ridgeline signed 28 license sales, adding $2,700,000 in new contracts and $800,000 in annual contract value. Our sales cycle is now only one hundred and five days with an 18% win rate on qualified leads, world class numbers. This means it's time to invest in sales. The market is hot.

Speaker 2

Our products outperform our competition. Last year, we released eight AI based products that are blowing the competition away, garnering strong analyst support and delivering key value to our customers. We invested in R and D and it has paid off. We are the leader in AI powered e commerce search. Our growth is limited only by our marketing budget, not by market size, not by customer demand, not by competition.

Speaker 2

Now is the time to reallocate resources from R and D to sales and marketing. It's time to go all in on growth. Our revenue can broadly be broken into two product groups. Core revenue comes from our Hawk Search products and its e commerce three sixty embedding, including BluRank. This revenue is $2,100,000 with double digit growth, net revenue retention of 107%, tax payback better than twenty months.

Speaker 2

Essentially all of our new sales are core products. Our non core products that represent the balance of our revenue include most of our professional services. And these products generate strong gross margins with minimal operating expenses and they help fund growth in core. With momentum in sales, a leading position in AI and a market shifting to adopt our AI products, we've made bold company wide changes to invest more into sales and marketing and seize those opportunities. These changes go all the way to the Board level, including the addition of healthcare industry veteran and business development expert, Michael Ketslak, whose expertise and network will help Bridgeline expand into additional markets.

Speaker 2

I recently had the acronym FOMO, Fear of Missing Out on my mind. That's exactly the mindset driving our growth strategy. With the market shifting fast, we're seizing the moment to expand our customer base. Our Board and team are in full growth mode and I'm committed to investing in new customer wins to ensure that we stay ahead. Let's take a look at Q1 sales, the second best sales quarter in the company's history.

Speaker 2

We sold 28 licenses for $2,700,000 in total contract value, adding $800,000 in ARR. Here's a few of our new customers. Brady plus a leading B2B e commerce provider is leveraging Hawk Search AI to improve its search functionality and deliver more seamless digital experience. John Dodds, a major supplier in janitorial and restoration industry has also integrated Hawk Search to enhance product discovery and optimize site navigation. Aftermarket Auto Parts Alliance is using Hawk Search to stream search across its extensive product catalog.

Speaker 2

Montefiore Health System has chosen HawkSearch to power more intuitive and efficient search experience for its users. The leading supplier of plumbing industry has chosen HawkSearch SmartSearch to power their product discovery experience. The plumbing supplier will leverage SmartSearch's visual and concept search features to enhance customer experience and drive growth. Another major supplier in the plumbing industry successfully launched HawkSearch to power its online search. All this not to mention expanded subscription of a Fortune 100 consumer electronics customer who is powering over $1,000,000 an hour in online sales of HawkSearch.

Speaker 2

This momentum positions us for continued growth in 2025 as we expand our reach in B2B e commerce and healthcare providing cutting edge AI search solutions that drive revenue and enhance customer engagement. Our 2024 investments in R and D have opened the door to partners whose customers need the latest AI powered e commerce tools. Our partners bring us customers thanks to our expanded product line and joint marketing events, lowering the cost per lead for both sides. We released our BigCommerce Catalyst Connector just this week. The press release announcement will be issued soon.

Speaker 2

Catalyst will give BigCommerce customers a drag and drop tool to seamlessly upgrade their online stores to our Hawk Search suite. BigCommerce has been one of our strongest partners and we expect our Catalyst release to make it even easier for their customers to upgrade to Hawk Search. XEngage and Optimizely continue to be leading partners who bring us large sales that close quickly on Hawk Search. Many of our B2B manufacturing distributor customers are on this ecosystem. Hawk Search is listed as a top paid app in the Optimizely store.

Speaker 2

Bridgeline earned Moblico's Partner of the Year award for its role in advanced mobile engagement for distributors. In this quarter, Hawk Search has also joined forces with OuroCommerce, a leading B2B commerce platform to bring AI driven search and merchandising to manufacturers and distributors. Importantly, in partnership with Salesforce, Hawk Search has also launched the Hawk Search AI powered product discovery engine for Salesforce B2B commerce. Salesforce customers can now access Hawk Search directly from the AppExchange, deploy the connector instantly and see immediate improvements in e commerce performance. Partnerships will be an important part of our go to market strategy this year, but we're also greatly expanding our marketing budget.

Speaker 2

We've generated notable sales in recent years by focusing on specific verticals and joining industry conferences and associations. In the fastener industry, we won several customers by attending conferences like the International Franchise Expo and Fastener Fair in Vegas. B2B electronics and plumbing distributors have been strong with conferences such as B2B online Chicago and modern distribution management shift generating sales. We have expanded our budget and will be targeting new B2B verticals, including advertising in vertical markets and hosting more in person events to generate even more leads and convert into customers this year. Last year was a transformative year in our product suite with eight AI products being launched.

Speaker 2

This year is going to be transformative in growth with our budget reallocated from R and D to sales and marketing, so that we can capitalize on the market demand and on the strong competitive position that our innovation efforts has placed us within. This time, I'll turn the call over to our CFO, Tom Windhausen. Tom?

Speaker 1

Thanks, Ari. I'll provide an update of our financial results for the first quarter of fiscal twenty twenty five, which ended 12/31/2024. Total revenue for the quarter ended 12/31/2024 was $3,800,000 compared to $3,800,000 in the prior year period. Going into each component of revenue, our subscription license revenue, which is comprised of sales, licenses, maintenance and hosting revenue for the quarter ended 12/31/2024 was $3,000,000 down 1% from $3,100,000 in the prior year period. As a percentage of total revenue, subscription license revenue was 80% of total revenue for the quarter ended 12/31/2024.

Speaker 1

Services revenue of $700,000 for the quarter ended 12/31/2024 was up 11% from $700,000 as rounded in the prior year first quarter. As a percentage of total revenue, services revenue accounted for 20% of total revenue for the quarter ended 12/31/2024. Cost of revenue was $1,300,000 for the quarter ended 12/31/2024, an increase from $1,200,000 in the prior year period. And as a result, gross profit was $2,500,000 for the quarter ended 12/31/2024, down 1% from around $2,600,000 in the prior year period. Overall gross profit margin was 67% for the quarter ended 12/31/2024 compared to 68% in the prior year period.

Speaker 1

Gross services gross margin was 51% for the quarter ended 12/31/2024 compared 44% in the same period, an increase of 7% and subscription licensing gross margins were 71% for the quarter ended 12/31/2024 compared to 73% in the prior year period. Operating expenses were $3,000,000 for the quarter ended 12/31/2024, down 4% compared to $3,200,000 in the prior year period. Going below OpEx, the change in fair value of our liability classified warrants resulted in a non cash loss of $114,000 compared to a non cash gain of $18,000 in the prior year period. Moving to the bottom line, our net loss was $600,000 for the quarter ended 12/31/2024, compared to a net loss of $600,000 in the prior year period. Adjusted EBITDA for the quarter ended 12/31/2024 was negative $193,000 compared to negative 117,000 in the prior year comparable period.

Speaker 1

Moving on to our balance sheet. At 12/31/2024, the company had cash of $1,500,000 and accounts receivable of $1,200,000 Our total debt outstanding as of 12/31/2024 was under €400,000 and approximated $409,000 A weighted average interest rate of that debt is approximately 4.1% with payments due through the year 2028. And we have no other debt or remaining earn outs from any of our previous acquisitions. And at 12/31/2024, our total assets were $15,500,000 and total liabilities were $6,000,000 Finally, I'll give an update on our cap table, which as of 12/31/2024, included 10,400,000.0 outstanding shares, 39,000 shares of Series C preferred stock on an as converted basis, 800,000 warrants and 2,100,000 options. As a reminder, in September 24, nearly 900,000 warrants with an exercise price of $4 expired.

Speaker 1

The remaining 800,000 warrants consists primarily of 180,000 warrants of a $2.85 exercise price expiring in May 26 and five hundred and 92,000 warrants with a $2.51 exercise price expiring in November 2026. Prodram looks forward to continued growth and success in fiscal twenty twenty five and beyond as we see 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. Moderator?

Operator

Certainly. Thank you. Your first question is coming from Casey Ryan from Westpark Capital. Your line is live.

Speaker 3

Thank you, Ari, Tom. Nice quarter.

Speaker 2

Thanks Casey.

Speaker 3

Yes, you bet. It sounds like we're hitting an inflection point with what you're seeing in the market and the success of HawkSearch. So I have a couple of questions around that. First of all, I think you called out $2,100,000 was kind of from what you're calling the core product, right? So sort of WooRank plus HawkSearch in the quarter.

Speaker 3

Correct. And then services were about $700,000 So it looks like taking $2,800,000 that services is like one third of what Hawk Search sales are or sort of that core software sale is. Is that a ratio that will sort of continue to be consistent, so that if we played it out and the core revenue was higher, services would be higher or is that not going to sort of hold long term?

Speaker 2

It actually adds up a little bit different than that. I'm going to have Tom break it down for you. Okay.

Speaker 1

The services, right, I think in Ari's comments, we had services of $700,000 for the quarter and those are not all core. So I think you mentioned that in what you said.

Speaker 2

Yes. Here's the thought of this. So we got $2,100,000 in revenue for our core product lines. That's both services and subscription. About 80% of that, a little bit north of 80% is subscription and so like 19% is services, whatever that math comes out to be.

Speaker 2

That's core revenue. Core revenue is growing by double digit. That's what we're declaring. We're not going into more detail about that. No, it's going to be right.

Speaker 2

Yes. And that's got the net revenue retention of $107,000,000 CAC payback better than twenty months. Then the rest of the revenue for the company services and subscription is the non core.

Speaker 3

Got it. Okay. Okay.

Speaker 2

And the reality is that we're kind of seeing the non core declining has historically been declining and knocking out the growth in the core. This year, FY 2025, we're providing better clarity on that for everybody so that we can see that breakthrough growth coming into double digit growth from core.

Speaker 3

From core, right. Okay. Okay, good. This is sort of a helpful way to sort of frame it. So tell me about for the core products, I guess talk a little bit about how you see the sales.

Speaker 3

It sounds like the 18% win rate is very strong. But like tell me what you see from sort of the like lead gen or interest side, if that's expanding sort of at a faster rate or a faster rate

Speaker 2

than

Speaker 3

maybe we had seen in revenues or talk about qualitatively maybe if it's possible about the pipeline.

Speaker 2

Perfect, perfect. Yes, that's the thing that's got me super excited right now. So qualitatively, we've got so we've got leads that are coming in at a higher rate than we've ever had before on a per dollar basis and that's represented by a very strong CAC payback. So customer acquisition costs are very efficient. Coming from face to face conferences, these narrow verticals industry verticals like fasteners and plumbing and things like that.

Speaker 2

So we're not so much going to the technology conferences as we are to where our customers' conferences are. And then out of those, what we call a qualified lead, which is not a very high bar, qualified lead for us, it's an objective measurement, meaning that that person has contacted us twice, not us sending them an email, but them filling out a form on a landing page, sending us an email or calling us two times and has given us an indication of what their budget is and an indication of who the person is who will make the ultimate decision. That's it. We're seeing 18% conversion to a win out of someone that just goes that far, a lead that just goes that far with us. And what that tells me is that we've got the right products, we're in the right market and we need to go all in on sales and marketing immediately and take advantage because that kind of a win rate is not going to be here forever, and that's my FOMO comment.

Speaker 2

Go, go, go, Todd.

Speaker 3

Yes. Well, listen, I took notice of that 18% win rate. And yes, it makes perfect sense that we should expand that as rapidly as possible, right, especially considering that like low bar to sort of measuring the qualified lead perspective. So that's very exciting. And so one thing else about the also about the pipeline, I guess, is it possible that people can go from lead to sort of customer through self-service entirely?

Speaker 3

It sounds like maybe there's some functionality there where people can sort of enable Hawk Search on their own or do you always have to touch them in some way?

Speaker 2

Well, so with our connectors, the Salesforce AppExchange connector and the BigCommerce Catalyst connector, people could go directly on their own, but the reality is that's not how it works. There's typically a digital agency or systems integrator that's involved who's managing their broader website and we have salespeople that do have conversations. So the entire sales cycle from the very first time that they hit our system way before they're qualified lead, all the way to either buying or not buying from us, but closing one way or the other is one hundred and five days on average. And our sales team is currently two what we call BDRs, Business Development Reps, those are inside sales people that are making the initial contact plus two BDEs, business development executives, who are actually running the deal, plus a working manager, that's our outside sales team. We also have our customer success sales team because we've released so many products.

Speaker 2

Our customers don't own all of them yet. So we also have a three person team that is selling to our existing customers. So that's the sales org. On the marketing side, we've got a working VP of Marketing, a graphics person, an event coordinator and then an SEO consultant halftime. So that too is doing the marketing.

Speaker 2

That team by itself right now is not the first place for us to expand. Our first place that we expand is we're just going to go to more conferences with that team, make everybody stay up all night, every night, run so many deals into them that they're choking on them and then we'll keep on adding more and more people after those guys are so rich they stop working for us because of their commissions.

Speaker 3

Right, got it. Okay. Well, and so you guys didn't offer any formal guidance around revenue, but sort of have you gotten a comfort around sort of looking at your sort of pipeline, I guess, and saying hundred and five days, which is a quarter, right, roughly? So you say, okay. Have you guys built out a model where you feel you have some confidence even if the numbers are internal that you say we sort of understand where revenues will come in if things continue?

Speaker 2

Yes, we actually have yes, we do have pretty good confidence and there's volatility on the company our size, which is one of the reasons why we're not doing guidance. But we so we've got our revenue broken into two halves. We've got our core and our non core. With the non core, that's renewal of existing customers. So that's pretty easy to forecast because we know all of them and we know whether they're redoing or not.

Speaker 2

And we do sell core products into that non core group as well, but those are also highly forecastable. On the core side of winning new logos, That's the part that's less forecastable, but that's one hundred and five days, which is not very long. As you mentioned, it's one quarter, so that's good visibility. Boy, I really like selling in that model more than the old days when I used to sell these three quarter deals that find out to the last minute. So we do internally have a good sense for that.

Speaker 2

And that's important because we run on a shoestring budget and we don't have a lot of room for missing something on the financial side.

Speaker 3

Right. Okay. Okay, terrific. Well, look, it sounds like a real shift in tone here, and I think it's very positive. And, yes, we're excited to see where we go as we get it moving to '25.

Speaker 3

So thanks for the time and a great quarter

Speaker 2

again. Thank you, Casey.

Operator

Your next question is coming from Howard Halpert from Trac Taglich Brothers. Your line is live.

Speaker 4

Congratulations on the quarter and the customer wins. Thanks Howard,

Speaker 2

I hear your voice.

Speaker 4

So in terms of overall operating expenses, we're going to see the shift from research and development to sales and marketing and only maybe incremental increase in overall operating expenses?

Speaker 2

That's right. So we're going to hold operating expenses more or less where they're at. And instead, we're just shifting personnel and consultants and so forth, so that we'll be investing more on that marketing side. And G and A is already running a pretty tight ship with three people, four people in it altogether. And but our R and D really killed it last year, did a great job, released a lot of stuff and now it's time to sell what they built.

Speaker 4

Okay. And can you talk about maybe the opportunity new partnership opportunities and potentially new verticals or new sectors within verticals?

Speaker 2

Yes. So on the partnership side, that's an important and relatively new sales channel for us. You have two types of partners. We've got what we call ISVs and these are content management and e commerce platforms. They include BigCommerce, Optimizely, Salesforce, Magento.

Speaker 2

And these platforms, we typically will have connectors that allow us to seamlessly integrate with them and they have marketplaces where we can put our software and their customers can buy from us. They're important partners for us because their customers have already built their website, which takes a lot of money and takes a lot of time and slows deals down. So now it's a matter of just enhancing their website with whatever their default search capabilities were with our Hawk Search AI powered search. The second category of partner is the digital agency, also called the systems integrator. So these are the teams that actually implement do the initial implementation of an e commerce site, but then they have an ongoing relationship with the end online store to continually update their site.

Speaker 2

And they are very influential in the selection of technologies that are launched on that site. So they will recommend HawkSearch. These are companies like American Eagle, they're like Gorilla and there's a lot of 50 person local market system integratorsdigital agencies that we partner with. So that's half of the channel. And systems integrators and ISVs are involved in basically every deal.

Speaker 2

Within the other half of the channel is direct marketing and this is where we are finding a lot of progress with vertical, physical, human conferences. We're seeing progress where we have our own customer conference, but then we invite a partner and have them bring their customers as well. So it becomes a joint customer conference with cross sales across the two customer bases. And then we, of course, do a lot of online marketing with webinars and virtual conferences and even Google AdWords that bring in a lot of leads.

Speaker 4

Okay. So really the emphasis is going to be on the current verticals that you're in and then just sort of migrate to potential new verticals slowly and then add them into the mix?

Speaker 2

That's exactly right, Howard, because we see a great return on investment when we reach critical mass in a narrow vertical and have specific referenceable customers. The reality is that although we meaning Bridgeline live in the technology world on a day to day basis and can generalize and create analogies between how we might implement one site and another one, When we're working with someone who is an expert in the plumbing world, they don't necessarily have the familiarity with our type of software to see how what we implemented for a hospital might be analogous to what their needs are. So after we won a couple of plumbing customers, then we really hit critical mass. We've got the specific example websites and the specific customer references that make all the difference in the world.

Speaker 4

Okay. And that you feel that's why the one hundred and five days could actually start coming down in some of those core verticals?

Speaker 2

That's right. In the core verticals, we see faster sales cycle, thanks to the references and the case studies and example websites. Also, the $105,000,000 comes down when we are working closely with our partners on those joint customer conferences, for instance, because the relationship just gets accelerated due to the partner relationship.

Speaker 4

Okay. Well, keep up the great work guys.

Speaker 2

Thank you very much.

Operator

Thank you. There are no further questions in the queue. I will now hand the conference back to management for closing remarks. Please go ahead.

Speaker 2

Everybody, thank you for joining us today. We appreciate the continued support of our customers, our partners, our shareholders. We're obviously very excited about the business and ongoing growth prospects. We look forward to speaking with you again in our second quarter fiscal twenty twenty five conference call. It will be in May 2025.

Speaker 2

Until then, be well.

Operator

Thank you, everyone. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.

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