Q3 2023 Bridgeline Digital Inc Earnings Call
Speaker 1: Thank you for standing by and welcome to Bridgeline Digital's third quarter 2023 earnings call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your.
Speaker 1: and Treasurer Thomas Winhausen. Please go ahead.
Speaker 2: Thank you and good afternoon everyone. Thank you for joining us today. My name is Thomas Windhouse and I'm the Chief Financial Officer at BridgeLine.
Speaker 2: I'm pleased to welcome you to our fiscal 2023 third quarter conference call.
Speaker 2: On the call with us this afternoon is Ari Khan, Ridgeline's President and CEO , who will begin the call with a discussion of our business highlights. I'll then update you on our financial results for the quarter, and we'll conclude by taking questions.
Speaker 2: Before we begin, I'd like to remind listeners that during this conference call, comments that we make regarding bridge lines 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.
Speaker 2: to differ materially from actual future events or results.
Speaker 2: These statements are made pursuant to the Safe Harbor provisions of the Private Security Subrogation 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 2: The results of your report today should not be considered as an indication of future performance.
Speaker 2: 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.
Speaker 2: Please review the reports and documents filed from time to time by Bridgeline Digital with the Securities and Exchange Commission.
Speaker 2: 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 2: You can obtain a copy of our earnings release by visiting our website.
Speaker 2: I'd like now to turn the call over to Ari Tan, Ridgeline's President and CEO . Thank you, Tom. Good afternoon, everybody.
Speaker 2: In the third quarter, we made $1.2 million in new sales, including $600,000 in licenses, which will add $200,000 to our subscription license annual recurring revenue.
Speaker 2: Most new customers sign initial subscription terms for three years and typically renew for two successive one-year terms totaling five years with the subscription.
Speaker 2: Ridgeline's core products...
Speaker 2: including Hawk search and recommendations.
Speaker 2: grew by over 15% CAGR and now accounts for 44% of our revenue.
Speaker 3: Our core products have over 98% revenue renewal.
Speaker 3: We also have legacy platform products, which we pivoted from in our E360 strategy, as they had too expensive of a sales cycle and competed with companies like Salesforce, who we prefer to make a partner rather than a competitor.
Speaker 3: These products have great gross margins to fund innovation, but are not a focus of our company's sales teams and declined this year with large customers reducing, but not eliminating their licenses.
Speaker 3: Although this decline hit the growth of our core products, we expect our core products line to outstrip the decline of legacy products in the near future as its 15% CAGR will soon cause it to dominate our overall revenue, especially in license and subscription, where nearly 50% of our revenue is already core.
Speaker 3: Not only will revenue soon be dominated by our growing core products, but that growth rate is expected to increase with some important upcoming events.
Speaker 3: BridgeLine will launch native integration with optimizelty configured commerce in October . This integration allows for touchless sales to over 1000 optimizelty customers where they can upgrade to HawkSearch with the click of a button.
Speaker 3: We already have eight pre-signed customers.
Speaker 3: And this will make us the only search product for the more than 1,000 optimisely configured commerce customers.
Speaker 3: Many of these prospective customers are large businesses in need of our premier products.
Speaker 3: We will make a joint announcement with Optimizely at their October Optimizely User Conference.
Speaker 3: Whizline's Bronco release is another important revenue driver for our core products that has already reduced our sales cycle from 12 weeks to 25 weeks.
Speaker 3: to less than 10 weeks and increases our total addressable market to now include companies who need a simple implementation without sacrificing features.
Speaker 3: Bronco accelerates sales with its out-of-the-box UI and its self-service portal.
Speaker 3: Another important core growth area that will be announced and released in November is our advanced analytics system, which is an upsell opportunity to our customers like Hewlett-Packard who need more detailed information about the contribution of HawkSearch to their online revenue. dam wellbeing strategy.
Speaker 3: Rejign will also release its franchise search solution this year, making it the first site search provider to offer a site search product specifically for the franchise market.
Speaker 3: Bridgeline has already pre-signed its first customer.
Speaker 3: With our franchise solution,
Speaker 3: And with our deep experience in this segment, we expect to accelerate growth by being the only provider in this market.
Speaker 3: HawkSage sales are largely driven through our platform partnerships with BigCommerce, Salesforce and Optimizely. We also have agency partners including Xengage and AmericanEagle.com to drive new Hawk sales.
Speaker 3: This quarter we announced the partnership with O-Bundle, a specialist in BigCommerce with over 500 BigCommerce customers who are now candidates to upgrade to HawkSearch.
Speaker 3: Sales in our third quarter included Aaron Equipment, one of the world's leading dealers in the packaging industry. Aaron Equipment selected Hawk Search for their B2B e-commerce site because of its real-time product indexing that allows customers to search and index data as it's being created or changed.
Speaker 3: We also signed Seattle Aviation, a worldwide aviation supplier who chose HawkSearch in partnership with Salesforce for personalized recommendations on its B2B commerce site.
Speaker 3: Vulcan Sports, a B2B paintball and sports retailer, selected HawkSearch to drive online business over its five e-commerce sites using HawkSearch's multi-storefront. Vulcan will be delivered in partnership with BigCommerce and O-Bundle.
Speaker 3: Designery, an importer and distributor of European designer focused furniture. Also purchased HAWK searches multi-store front.
Speaker 3: to power multiple e-commerce sites powered with e-commerce.
Speaker 3: A big sale for this quarter included roughly $2,000.
Speaker 3: who is a property technology company that selected WooRank to power SEO for 500 websites to improve their keyword tracking to analyze competitors and report on Core Web Vitals.
Speaker 3: All Byron shoes shows our AI driven search to power its online business on the AB commerce platform in partnership with Magico. Now we've got several shoe customers including Converse, Reebok, Adidas.
Speaker 3: Foltest, an electrical online distributor, selected Bridgeline for its multilingual artificial intelligence and natural language processing search capabilities to power its online B2B catalog with over 80,000 products. And there were several other ones this quarter as well. Many of these new customers.
Speaker 3: The result of our go-to-market strategy that targets under-service verticals with B-Everywhere campaigns. And these verticals include B2B electrical supply, footwear, franchise, and B2B plumbing distribution. The result of our go-to-market strategy that targets under-service verticals with B2B
Speaker 3: We recently announced a reseller partnership with AccessiBe, the market leader in web accessibility.
Speaker 3: AccessiBe helps over 180,000 companies including PlayStation, Johnson & Johnson, and NBC to identify and fix website compliance issues with the American Disability Act and similar legislation in Canada and Europe .
Speaker 3: Bridgeline will sell accessibility into our 600 customers, many of whom have active interest in accessibility, which not only increases their online sales ability but also reduces litigation risk associated with compliance legislation.
Speaker 3: In the third quarter, Ridgeline delivered $3.9 million in revenue, including $3.2 million in subscription and license revenue, and $700,000 in services.
Speaker 3: Subscription revenue was influenced this quarter by the full quarter reduction of a large customer we mentioned earlier, who's renewing for their ninth consecutive year on a Legacy Richline product, who structured their website, which reduced their subscription revenue.
Speaker 3: This quarter, over 200 of our customers whose subscription was eligible for renewal, renewed totaling $1 million in light and good.
Speaker 3: Our core product customers renewed at over 98%. Many customers renewed their subscription with a rate increase.
Speaker 3: Most customers start with a 36 month subscription, as mentioned earlier.
Speaker 3: and renew for two successive terms.
Speaker 3: Our subscription license revenue is 81% of total revenue for the quarter with new contracts.
Speaker 3: In three years at this time. I'd like to turn the call over to our chief financial officer at town
Speaker 2: Thanks Ari, I'll put an update on our financial results for the 3rd quarter of fiscal 2023, which ended June 30th, 2023.
Speaker 2: Total revenue for the quarter and the June 30th 23 was 3.9 million compared to 4.2 million in the prior year period.
Speaker 2: Now going into each component of revenue, our subscription and license revenue, which is comprised of SAS licenses, maintenance and hosting revenue, and perpetual license revenue, for the quarter-end of June 30, 2023, was $3.2 million.
Speaker 2: As a percentage of total revenue, our subscription and licenses revenue is 81% of total revenue for the quarter and June 30, 2013.
Speaker 2: Services revenue was over $700,000 for the quarter end of June 23, a slight decrease from $800,000 in the prior year quarter. As a percentage of total revenue, services revenue accounted for 19% of total revenue for the quarter.
Speaker 2: Our cost of revenue was $1.3 million for the quarter into June 23, consistent with the $1.3 million in the prior year period.
Speaker 2: As a result, gross profit was $2.6 million for the quarter ended June 23 as compared to $2.9 million for the prior year period.
Speaker 2: Our overall gross profit margin was 68% for the quarter ended June 23 compared to 70% in the prior year period.
Speaker 2: Our subscription license gross margins were 73% for the quarter ended June 23, compared to 75% in the prior year period. And our services gross margins were 44% for the quarter, compared to 46% in the same period in 2022. Our subscription license gross margins were 64% for the quarter ended June 23, compared to 75% in the prior year period.
Speaker 2: operating expenses were 3.3 million for the quarter end of June 2023 consistent with 3.2 million in the prior year period.
Speaker 2: The change in our fair value of our liability classified warrants resulted in non-cash charge of $100,000 compared to income of $400,000 in the prior year period.
Speaker 2: Changes in share price of the primary driver of a change in fair value is warrants.
Speaker 2: Our net loss was $800,000 for the fiscal quarter end of June 30, 2023. In total, that income was $400,000 in the prior year period.
Speaker 2: And moving to EBITDA, our adjusted EBITDA for the quarter was a negative 163,000 compared to a positive 63,000 in the prior year period.
Speaker 2: Moving on to the balance sheet, on June 30, 2023 we had $2.6 million of cash and a count receivable of $1.0 million.
Speaker 2: Our total debt outstanding was 680,000 euros or about 740,000 US dollars. With a weighted average interest rate of 4.5% and principal payments due extending through 2028.
Speaker 2: We have no remaining earnouts from any previous acquisitions and our total assets were $25.9 million with total liabilities of $6.7 million.
Speaker 2: We look forward to continued growth and success in fiscal 2023 and beyond and we will continue to focus on our revenue growth, product innovation, customer success, and delivering shareholder value.
Speaker 2: Thank you for joining us on the call today. At this time, we'd like to open the call to questions and answers.
Speaker 2: Moderated.
Speaker 1: As a reminder, to ask a question, you will need to press star 11 on your telephone. Again, that's star 11 on your telephone to ask a question.
Speaker 1: To remove yourself from the question queue, you may press star, one, one again. Please stand by while we compile the Q&A roster.
Speaker 4: Silence.
Speaker 1: Our first question.
Speaker 1: Our first question comes from the line of Howard Halpern of Taglic Brothers.
Speaker 5: Good afternoon, guys.
Speaker 6: Good afternoon, Howard.
Speaker 5: So, do you anticipate that this quarter should be the low point, at least with a subscription and perpetual license revenue line, and that we should begin to see sequential growth from this point going forward?
Speaker 3: So, our low quarter for subscription license is probably going to be next quarter. There's another $45,000 in subscription and license burn off from that one customer.
Speaker 3: that will be in next quarter and that'll be it.
Speaker 3: Okay, depending on our sales right now, it'll be flat or down.
Speaker 5: Okay, but then for next year you anticipate then we should start to see some system.
Speaker 3: Exactly. So our strategy on all of this Howard is and for everybody is that we've got a set of products from recent acquisitions and innovation that are really selling and we talk a lot about Hawk and WooRank, Hawk especially because that is selling really well. And we've got some legacy products that are.
Speaker 3: generating EBITDA for us and we're treating those customers really well but we're not.
Speaker 3: adding new customers and over time those customers are declining. So our core revenue is going to be more than 50% soon and that growth that we see which this quarter was 15% CAGR will shine through.
Speaker 5: Okay. And in one of the, you know, I guess partnership deals that you had with the, you know, selling over 500 new land crises.
Speaker 5: Who won partner?
Speaker 5: Are there other type of deals out there that you could get chunks of customers?
Speaker 3: Yes, there are. And we signed a partnership with a company called Duda that has 10,000 plus customers and is selling in bulk to those.
Speaker 3: So those are opportunities and then also when we sell into the franchise space, we actually are winning chunks of customers, so to speak. There's four big things that are coming down the pipe in the near term that are going to reduce our sales cycle and increase our total addressable market, both of which are going to drive growth.
Speaker 3: to allow us to be the only search solution that has features specific for the franchise industry and that's going to win chunks of customers so to speak. The other one is advanced analytics which is actually an upsell opportunity with substantial MRR that's going to allow us to...
Speaker 3: sell into our existing customer base, a new product that many of them need. Third one is Bronco, which gives us an out-of-the-box user interface and a self-service portal so that we can sell into companies that need to launch right away rather than wait a few weeks for an implementation.
Speaker 3: And then the fourth and a big one is the optimisely configured commerce where we'll, with a click of a button, have access to a thousand optimisely customers who can purchase Hawk and recommendations.
Speaker 5: Okay, and also do you see how clear the potential for other types of partnerships like you described where you know, software that your customer base needs that you can bring into the fold and integrate with your software? You know that's interesting and so we did that.
Speaker 3: that with other partners. We'll be announcing those along the way. We're in negotiation with a couple right now. And one of the things that we want to do strategically is to leverage our customer base and to be able to sell more into it. And that's both by innovation, acquisition, and by partnering and reselling.
Speaker 5: And you're seeing the opportunities in partnering. What is the landscape in the acquisition area? Is partnering a little bit easier at this point in time?
Speaker 3: Well, partnering is easier, not just at this point in time. In general it is, but you get a smaller cut of the overall revenue, so you've got to be careful in terms of your own sales costs. But the M&A industry is, I think, a buyer's market right now. We're starting to see private companies, and we're starting to see private companies, and
Speaker 3: And so finally, it's starting to get into the area where we think it ought to be.
Speaker 5: Okay, well, I'm excited about this market at the long term. Okay, I'm excited on what's to come and you guys keep up the great work.
Speaker 3: Thank you Howard, much appreciated.
Speaker 7: Thank you.
Speaker 1: Please stand by for our next question.
Speaker 1: Our next question comes from the line of Per Jacobson.
Speaker 2: Hi guys, how are you doing?
Speaker 3: Good. Par, how are you?
Speaker 2: Doing well, thanks. Hey, I was wondering a couple of things. Just a small thing first. How many net new direct customers did we gain in this quarter? Is that something you can share?
Speaker 3: So, the new customers that we gained, I don't have notes in front of me, but I want to say 14. So that would be new logos that were acquired. We also upsell into existing customers each quarter in addition to that, but 14 new logos, I believe.
Speaker 8: Okay, thanks for sharing the information about the –
Speaker 8: I think I expressed before, there's definitely a group story hidden somewhere in the legacy numbers. So thanks for sort of starting to dissect that. Following up on Howard's question, it's hard to sort of grasp because you're talking about M.
Speaker 8: an incline and a decline, when do you think that materially the incline will exceed the decline?
Speaker 8: when do you think that materially the incline will exceed the decline?
Speaker 3: I think that that is coming in our Q1. Absolute worst case would be our Q2. That would be either in the quarter ending.
Speaker 3: December , worst case, the quarter ending March. So we had a customer.
Speaker 3: We announced this actually at the beginning of the year that reduced their license size. It was a large customer and they couldn't do it all at once and they ramped it down and that have caused successive quarter declines and there's $45,000 in subscription revenue left.
Speaker 3: fourth quarter. So we'll see quarter over quarter if nothing were to change a 45k decline. Now of course we're winning customers as well and it'll be less than that we expect. But then at that point we're done with that particular customer.
Speaker 3: And that was the largest impact. We do have
Speaker 3: Currently, in terms of subscription revenue, which is really the primary focus, about half of our revenue right now from...
Speaker 3: legacy products. I hate to say that because we do respect these products and we keep them current. We're just not focusing on winning new customers in those spaces. So overall things do decline. And 50% in the core products. Now with the 50% in core products.
Speaker 3: growing at this quarter 15% CAGR and last quarter 18% and summers tend to be like quarters for us a little bit.
Speaker 3: sort of doing that math, you can see the increase in those core. Also, and the reason why I kind of wanted to focus on some of these future growth initiatives like Optimize and Configure Commerce, Bronco Advanced Analytics and Franchise Search.
Speaker 3: We do expect faster sales cycle and a larger total addressable market for our core products and we're hopeful to see that allow us to grow at even faster rates.
Speaker 8: Okay, thank you. I may have missed this and I didn't have access to the quarterly report before the call. So what does the cash position look like now?
Speaker 2: Cash in June 30th was $2.6 million.
Speaker 2: Okay, good point 1.0 million of the conscious people.
Speaker 8: Okay, hey as usual you guys are doing a good job. Can we ask that we get a little bit more notice, a little lag between the release of the quarterly and the call as that hits.
Speaker 8: It didn't even come true before the call.
Speaker 3: Okay, okay. You know what that hasn't been on my radar and thanks for bringing that up and we'll see what we can do.
Speaker 8: Okay, thank you. I appreciate it. And thanks for everything you do, guys. Appreciate it. Thank you. We appreciate your support.
Speaker 7: Thanks.
Speaker 7: Thank you.
Speaker 1: Again, to ask a question, please press star 11 on your telephone. Again, that's star 11 on your telephone to ask a question.
Speaker 1: Our next question.
Speaker 1: comes from the line of Leo Carpio of Joseph Gunner.
Speaker 3: Afternoon, gentlemen. I actually have two quick questions. The first one, could you provide us an update on the industry environment in terms of what you're seeing, what particular trends is the economy or concerns of the economy having any concern, any impact on your sales cycle? Thanks. You're welcome to help raise questions.
Speaker 3: Thanks, Leo.
Speaker 3: So first of all, with the caveat, I hate to think, especially for a company the size of Bridgeline in terms of macroeconomics, because the market overall is still large relative to us, that the impact of macro deals tend to be a little bit smaller.
Speaker 3: We see sort of on two sides, one on the valuation side, the private companies.
Speaker 3: is becoming significantly cheaper than last year. But on the new sales side, in terms of trends, we personally have not felt an appreciable change.
Speaker 3: And in demand either neither in Europe NOR and North America we felt in both those markets So we haven't felt that yet although.
Speaker 3: We do see a lot of people kind of talk about it, but our sales cycle is the same length, and our pipeline and our cost per lead in our pipeline hasn't changed.
Speaker 3: And then on the M&A side, you mentioned that the valuations are coming down and seem to be more appealing.
Speaker 3: Any particular technology that you're looking at or considering that would be nice add-on to your platform or you're just satisfied with what you have right now in the near term? We're not satisfied with what we have right now. We think that one of the key...
Speaker 3: factors of growth is efficient growth is an ability to upsell existing customers. We think in terms of our customer acquisition costs and that is significantly less to sell into existing customers.
Speaker 3: Now, we want to stay focused. I am still seeing a couple of deals a month come to me. I spent a lot of time in 2020 and 2021 making sure that every investment banker knew my name and would throw anything my way even if they didn't think that it was relevant to me.
Speaker 3: increase their online revenue. And we want to do so with products that are easy to sell, meaning that they don't require significant professional services to implement. Ideally, point and click to purchase touchless sales, as we say. So we look to perspective companies.
Speaker 3: We see products like this probably every quarter as candidates for acquisitions.
Speaker 3: We look for products that can help our customers convert more of their site visitors into site buyers. And in particular, we see competitors, some of our existing products, competitors to HawkSearch, for example, that come to us for acquisitions. We haven't pulled the trigger on any of those.
Speaker 3: that we could integrate the customer bases and the technologies.
Speaker 3: And then we also look at products that increase the average purchase price, similar to our own recommendation tool that makes impulse purchase recommendations on your checkout screen. So those three broader categories that all are synergistic in their ability to drive customers' revenue are what we're looking for.
Speaker 3: market we think that deals happen at less than two times revenue which is a little bit of a challenge for us because we're not trading at that point but leveraged buyouts with debt could make something make sense.
Speaker 2: Okay, just one quick follow up. The competitive environment, is it still the same in any new players or pretty much static as you've seen in the last few quarters?
Speaker 3: So there's two aspects to the competitive environment, the partners and the competitors.
Speaker 3: On the competitor side in our space, things haven't changed. However, Aldolia has...
Speaker 3: Spent a lot of money on marketing and has done some great things from a technical perspective. We see a fair amount of them, more of them this year than we did last year and that's competing directly with Hawk Search.
Speaker 3: On the partnership side, what we've seen is that the leads that we're getting
Speaker 3: from Optimizely in particular and from BigCommerce as well, have increased substantially. And that might just be because we've spent so much time and have so many success stories with them that we've got a certain amount of mind share within their customer base.
Speaker 3: But it might also be because they're realizing that our products are better value for their customers than are choosing us.
Speaker 9: All right, thank you.
Speaker 9: All right, thank you. Thank you, Leah.
Speaker 1: Thank you. I would now like to turn the conference back to management for closing remarks.
Speaker 3: Great. Well, thank you for joining us today. We really appreciate the continued support of all of our customers, partners, and of course our shareholders.
Speaker 3: We're excited about our business and ongoing growth prospects and we look forward to speaking to you again on our fourth quarter fiscal conference call which will be in December of 2023.
Speaker 3: growth prospects and we look forward to speaking to you again on our fourth quarter fiscal conference call which will be in December of 2023. Be well and thank you.
Speaker 1: This concludes today's conference call. Thank you for participating. You may now disconnect.