Q2 2023 Bridgeline Digital Inc. Earnings Call

Good day, and thank you for standing by and welcome to the bridge online digital second quarter 2023 earnings conference call at.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session.

I'll ask a question during the session you will need to press star one on your phone.

Here, an automated message advising you and has raised to withdraw your question. Please press star one again.

Please be advised that today's conference is being recorded and I will now.

And the conference over to your Speaker today, Mr. Thomas warehousing warehousing.

Please go ahead.

Thank you and good afternoon, everyone. Thank you for joining US today My name is Tom warehouses, the Chief Financial Officer of quick one.

I'm pleased to welcome you to our fiscal 2023 second quarter Conference call.

On the call on the call with US this afternoon to Ari Kahn, British Lions, President and CEO 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 will conclude by taking questions.

Before we begin I'd like to remind listeners that during this conference call comments that we make regarding <unk> that are not historical facts are forward looking statements within the meaning of section 27, a of the Securities Act that by 233 and section 21 E of the Securities Act that makes it 34 and are subject to risks uncertainties that could cause such see.

Shipments 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.

All projections and beliefs upon which we base our expectations today may change overtime, and we expressly disclaim and assume no obligation to inform you if they do.

The report today should not be considered as an indication of future performance.

Changes in economic business competitive technological regulatory and other factors such as the impact of public health measures could cause <unk> actual results to differ materially from those expressed or implied by the projections or forward looking statements made today.

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 bridge line 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.

A copy of our earnings release by visiting our website.

I would now like to turn the call over to Ari Kahn Bridge lines, President and CEO . Thank.

Thank you Tom and good afternoon, everyone.

In the second quarter, we signed one 4 million of new sale, including 600000 of licenses and over 800000 on services.

Oxnard just continues to be our best selling product in most hawk search contracts have a three year initial term, creating a strong backlog for future revenue.

Hawk search as organic growth in the high teens and renewal rates of over 95%. This product line represents more than 40% of our revenue.

Hawk search sales are often source from partners, which lowered marketing expenses.

He platform partners include optimizing E Commerce site Saturday and Salesforce.

Agency and system integrators also drive new sales with several important partners, including external gauge of American Eagle Dot com.

Important Hawk search sales our second quarter included the expansion of our relationship with UBS through the addition of Hawk search to their bridge line product suite.

Growth in the.

Footwear market, including Crocs, footlocker, and new balance in Asia.

And growth in the industrial distributor market with Black Hawk dealers industrial supply and Thomas scientific.

Our go to market strategy concentrates on verticals, where we have strong case studies that can dominate.

Be everywhere campaign.

These core sectors include BBB, electrical supply footwear franchise and plumbing distribution.

We will rank as another important product for bridge line and we've augmented our direct we ranked strategy with partner driven sales.

Last quarter, we announced our partnership with Duda App itself will rank and do that at store.

This partnership has already sold over 500 rank licenses to the duda customer base <unk>.

<unk> allows due to our users to increase traffic to their sites by improving their rank on search engines such as Google.

Through this partnership more than 450000 businesses can now add <unk> to.

To their site with a click of a button.

We also do that partners with 20000 digital agencies, who can now make bulk purchases all right for their customer basis.

We not only grow sales through new product development and acquisitions, but we're also April to leverage our customer basis for cross sales of third party products.

Last week, we announced the partnership with access to be a market leader in web accessibility excessive b is trusted by over 180000 customers, including Playstation Johnson, and Johnson and NBC.

Identify and fix website compliance issues with the American Disability Act and similar legislation in Canada in Europe .

With access to the technology Rich line not only increases our customers total accessible market to include those with disabilities.

Also reduce our customers' legal risks associated with compliance violations.

We're excited to deliver several important innovations in our product line. This year. Most recently, we announced our Branco release for Hawk search, which helped boost revenue for our customers, while reducing their implementation costs.

Rocco improved coordination across our products and pre Covid Hawk search powered website for their industry, while providing more out of the box capabilities to accelerate time to market.

Bracco directly Embeds Blue ranking e-commerce three six at the end of the Hawk search dashboards with Glu ranked customers alerted to etsy SCO opportunities and E. Commerce 360, providing advanced analytics, our recommendations for rich line products and partner products like excessively.

<unk> rapid UI framework provides point and click site configuration that enables customers to build and modify their site quite quickly.

It also allows our sales team to easily demonstrate the power of Hawk searched.

Prospective customers in the context of their own web site.

Bronco introduced.

Search industry accelerators, which are an important part of our vertical go to market strategy.

Industry accelerators package domain specific intelligence that Hawk search at large while powering other sites within that industry.

When a new site is launched rather than having to learn the behavior of its customers. It can use machine learning and human intelligence accumulated from similar sites in its industry to inject months of optimizations on day one.

For example.

Our machine learning on the BBB electrical distributors site may discover that base light switches sell better than orange ones, and therefore, pushing the base to the top of the webpage and orange towards the Bob.

Human configuration make further tune this site to tell us that cotton and <unk> syndrome synonymous color name and customer searches.

If rich line industry accelerators package this kind of intelligence from dozens of sites into a single package, so that when a new customer within an industry launches a new site. They can immediately incorporate optimizations learned for months or even years of customer behavior across similar sites on day one.

In the second quarter Rich line delivered $4 1 million in revenue, including $3 3 million of subscription and license and 800000 services.

Subscription revenue was influenced this quarter by a full quarter reduction of the large customer we mentioned last quarter who's renewed for their ninth consecutive year on a legacy <unk> product restructured their website.

Reduced subscription significantly for that account.

Regardless of the full three months impact of this reduction in subscription revenue for the second quarter grew from the first quarter, thanks to strong sales and renewals.

This quarter over 200 of bridge lines existing customers, representing more than 90% of customers and the recurring revenue that was contracted for renewal during this quarter renewed for a total contract value or.

$4 million with several customers increasing the size of their license.

Renewals included global 500 enterprises, such as Astrazeneca, Toyota and UBS.

Our subscription and license revenue was 80% of total revenue for the quarter with new contracts typically signing for three year initial term and generally renewing for multiple subsequent years.

At this time I'd like to turn the call over to our Chief Financial Officer, Tom warehouses.

Thanks, Sorry, I will provide a further update of our financial results for the second quarter of fiscal 2023, which ended March 31 2023.

Total revenue for the quarter ended March 31, 2023 was $4 1 million compared to $4 1 million in the prior year period now.

Now going into each component of revenue our subscription and licensing revenue, which is comprised of SaaS comprised of SaaS licenses maintenance and hosting revenue and perpetual license revenue for the quarter was $3 3 million, which was consistent with the prior year period amounts.

So as a percentage of total revenue subscription licenses was 80% of total revenue for the quarter ended March 31 2023.

Our services revenue was 821000 for the quarter ended March 2023 up slightly from 811000 in the prior year quarter.

As a percentage of total revenue services revenue accounted for 20% of total revenue for the quarter ended March 31 2020 correct.

Our cost of revenue decreased to $1 $2 6 million for the quarter ended March 2023, compared to $133 million in the prior year period.

And as a result, our gross profit increased 49000 or 2%.

Eight 3 million for the quarter ended March 23, as compared to $2 $78 million for the prior year period.

Overall, our gross profit margin was 69% for the quarter ended March 23, compared to 68% in the prior year period, we had a subscription license gross margin of 74% for the quarter compared to 74% in the prior year period, and our services gross margin of 49% for the quarter ended March 23 up from 43% in the same.

Period in 2022.

Our operating expenses were $3 5 million for the quarter ended March 23, compared to $3 4 million in the prior year period the.

The increase includes an additional 200000 of expense across sales and marketing and research and development prior to our investments.

The change in fair value of our liability classified warrants resulted in a noncash income of 200000.

Period ended March 23, compared to income of 400000 in the prior year period our.

Our change in share price is the primary driver of the change in fair value of these warrants.

Moving on to net income we had net loss of 500000 for the fiscal quarter ended March 23, compared to net income of 300000 in the prior year period.

Moving to EBITDA, our adjusted EBITDA for the quarter ended March 2023 was negative 144000 compared to negative 72000 in the prior year period.

Moving onto our balance sheet at March 31, 2023, we had cash of $2 8 million and accounts receivable of $1 1 million our cash increased this quarter. Despite despite debt payments of 300000 euros in the quarter.

Our total debt outstanding as of March 31, 2023 of 700000 euros with a weighted average interest rate of four 1% with principal payments due through 2028.

Further we have no remaining earn outs from any of our previous acquisitions.

As of March 31, 2023, we had total assets of $26 8 million and total liabilities of $6 9 million.

We look forward to continued growth and success in fiscal 2023 and beyond as we continue to 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 will open the call to questions and answers operator.

Thank you.

To ask a question. Please press star one one on your phone and wait for your name to be announced to withdraw. Your question. Please press star one again standby.

Standby as we compile the Q&A roster.

One moment for our first question.

Okay.

Our first question could.

Could you give us an update on the industry environment in terms of what are you seeing in terms of the market and customer appetite at any particular technologies they're interested in.

Yeah got it thanks Bill.

We're seeing the.

Our existing customers.

We are continuing to make enhancements to their.

Alright, so from that perspective, we're.

We're not seeing any change investments for the industry.

New customer acquisition is also on par with last year, so regardless of the recession for as that customer base that we have and the prospective customers that we have we're not seeing a change.

One of the things that we've seen is a.

An awful lot of interest and AI.

And that's driving some pretty interesting demand.

We're seeing people.

Integrate our software with other products like hub spot for example, even.

Chat GPT.

And that's going to that's really getting us excited about the potential for offering broader solutions than we were looking at some partnerships with other companies, including the access to be partnership where we're able to offer broader solutions with not just the technology that we own ourselves.

Incorporating that with other partner products as well.

Okay and quick follow up in terms of the competitive environment is that the same.

You mentioned AI is that.

It having any impact of competition or.

Our competitors kind of like in a tip tap maturation.

Yes, not yet not yet, but it is common.

The enhancements.

AI are.

A lot of them are open source like opening.

And so forth that are going to allow a lot of companies to rapidly bring new capabilities into their product and this is actually a big part of our industry accelerator package that were offering now we think that the future the near term future for AI is not broad based generative AI.

Chat GBT, but instead have domain specific so we're using third party AI products open AI products too.

Understand narrow industry like footwear, or b to b, electrical distributors or plumbing or paint supplies and to have hyper straw.

Strong expertise in those narrow niches so that we can dominate them one at a time.

Alright, thank you.

Yep.

Thank you.

As a reminder to ask a question. Please press star one on your phone and wait for your name to be announced.

Please standby as the compile the Q&A roster.

I'm not seeing any questions in the queue.

This will end the Q&A session.

I'd now like to turn the conference back to management for closing remarks.

Thank you for joining us today, we appreciate the continued support of our customers our partners and our shareholders.

Cited about our business and ongoing growth prospects and we look forward to speaking with you again on our third fiscal quarter 2023 conference call, which will be in August 2023.

Thank you everybody and have a great week.

This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.

Okay.

[music].

Okay.

Okay.

[music].

Okay.

[music].