Q2 2025 Bridgeline Digital Inc Earnings Call
[music].
Operator: Thanks for watching the video. Good afternoon everyone and welcome to the Bridgeline Digital second quarter 2025 earnings call. At this time all participants are in a listen-only mode and the floor will be open for questions following the presentation.
Yeah.
Good afternoon, everyone and welcome to the bridge line Digital's second quarter 'twenty 25 earnings call. At this time, all participants are in a listen only mode and the floor will be opened for questions. Following the presentation.
Operator: If anyone should require operator assistance during the conference, please press star zero on your phone keypad. Please note this conference is being recorded.
Speaker Change: Anyone should require operator assistance during the conference. Please press star zero on your phone keypad. Please note. This conference is being recorded I will now turn the conference over to your host Tom Wind How's the CFO.
Thomas Windhausen: I will now turn the conference over to your host, Tom Windhauser, CFO. The floor is Excellent. Thank you.
Speaker Change: The floor is yours.
Speaker Change: Excellent. Thank you and good afternoon, everyone. Thanks for joining US today My name is Tom <unk>, Chief Financial Officer, a question on digital.
Thomas Windhausen: Good afternoon, everyone. Thanks for joining us today.
Thomas Windhausen: My name is Tom Windhausen, and I'm the Chief Financial Officer of Bridgeline Digital. I'm pleased to welcome you to our fiscal 2025 second quarter conference call.
Speaker Change: Pleased to welcome you to our fiscal 2025 second quarter conference call on the call with US today is already calling bridge lines, President and CEO, who will begin the call with a discussion of our business highlights.
Thomas Windhausen: On the call with us today 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.
Speaker Change: To you our financial results for the quarter, we will conclude by taking questions.
Thomas Windhausen: We will conclude by taking questions.
Thomas Windhausen: 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 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.
To begin I'd like to remind listeners that during this conference call comments that we make regarding bridge line that are not historical facts are forward looking statements within the meaning of section two seven of the Securities Act of 1933 and section 21 E of the Securities Act of 1934.
Speaker Change: The risks and uncertainties that could cause such statements to differ materially from actual future events or results.
Speaker Change: These statements are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Speaker Change: All projections and beliefs upon which we base our expectations today may change overtime, and we expressly disclaim that assume no obligation to inform you if they do the results. We report today should not be considered an indication of future performance.
Thomas Windhausen: The results we report today should not be considered an indication of future performance. Changes in economic, business, competitive, technological, regulatory, or other factors could cause Bridgeline's actual results to differ materially from those expressed or implied by the projections or form-working statements made today.
Speaker Change: Changes in economic business competitive technological regulatory or other factors could cause <unk> actual results to differ materially from those expressed or implied by the projections or forward looking statements made today.
Thomas Windhausen: 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.
Speaker Change: 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, but Bridgepoint digital with the Securities and Exchange Commission.
Thomas Windhausen: 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.
Speaker Change: 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 and 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.
Ari Kahn: I'd now like to turn the call over to Ari Kahn, Bridgeline's President and CEO. Ari? Thank you, Tom. Good afternoon, everyone. We continue to have strong sales for Hawk Search products. Bridgeline is not only winning new customers, it is expanding within the Bridgeline existing customer base thanks to Hawk AI. and Q2FY25. Bridgeline signed 20 license sales, adding $1.7 million in new contracts and $700,000 in annual recurring revenue. Our sales cycle is only 120 days with a 19% win rate on qualified. Year-to-date, we booked $4.2 million in contracts with $1.6 million in annual recurring revenue. We accomplished this with less than $250,000 per quarter in ad spend.
Speaker Change: I'd now like to turn the call over to art comp bridge lines, President and CEO alright. Thank.
Speaker Change: Thank you Tom good afternoon, everyone.
Speaker Change: We continue to have strong sales for Hawk search products with more.
Speaker Change: Not only winning new customers it is expanding within the <unk> existing customer base, thanks to hockey yacht.
Speaker Change: Q2, FY 'twenty five.
Speaker Change: We're trying to find 20 license sales, adding 1.7 million of new contracts and 700000 in annual recurring revenue or <unk>.
Speaker Change: Sales cycle is only 120 days with a 19% win rate on qualified leads.
Speaker Change: Year to date, we booked $4 2 million in contracts were $1 6 million in annual recurring revenue, we accomplished this with less than $250000 per quarter in ad spend.
Ari Kahn: Our high ROI in marketing proves strong demand for our Hawk AI products, a strong e-commerce market in general, and suggests that we should increase investments in sales and marketing.
Speaker Change: Our high ROI and marketing proved strong demand for Hawk AI products, a strong e-commerce market in general and suggests that we should increase in basketball and sales and marketing.
Ari Kahn: To build on this momentum, our board and executive team led a $2.2 million capital raise. Bridgeline executives, board members, and shareholders participated in the raise. The raise was straight common stock and above market. The proceeds will be used to expand sales and market. Specifically, we will expand our lead generation budget, including conferences, online ads, and direct out. This Increased Legion was launched on April 1st, 2025 and is funded through the rest of the year and we are already seeing results. Our sales cycle is fast, so we expect to see an impact from the increased ad spend in our fourth quarter.
Speaker Change: To build on this momentum our board and executive team a lot of $2 $2 million capital raise where client executives board members and shareholders participated in the raid the raise was straight common stock in the bulk market. The proceeds will be used to expand sales and marketing specifically.
Speaker Change: We will expand our lead generation budget, including tackling clothes online ads and direct outreach. This.
Speaker Change: This increase lead Gen was launched on April four 2025 and was funded through the rest of the year and we are already seeing results.
Speaker Change: Our sales cycle. So we expect to see an impact from the increased AD spend in our fourth quarter we.
Ari Kahn: We measure a 120-day sales cycle from the time of first contact with a prospective buyer to closing the sale. Thus, April ad spend can impact August book We have outstanding marketing automation that will allow us to increase regeneration and nurturing activities without a large headcount. This means our go-to-market campaigns are highly scalable and not limited by the number of people on our team. Doubling the investment in ad spend is intended to double the leads and in turn double sales. HawkeSearch is in a huge market. We have plenty of room for growth relative to our budget and market share.
Speaker Change: We will measure we measure a 120 day sales cycle.
Speaker Change: Time of first contact with the prospective buyer to closing the sale.
Speaker Change: But April AD spend can impact August bookings.
Speaker Change: We have outstanding marketing automation that will allow us to increase lead generation and nurturing activities with all of the large head count increase.
Speaker Change: This means our go to market campaigns are highly scalable and not limited by the number of people on our team.
Speaker Change: Doubling the investment in AD spend is intended to double believed and in turn double sales.
Speaker Change: Hock searches that are huge market, we have plenty of room for growth relative to our budget and market share. We're excited about the future for the company.
Ari Kahn: We're excited about the future for the company. We are in the leader position in AI-powered e-commerce search. We expect to increase our leadership with this marketing investment.
Speaker Change: We are in the leader position and AI powered E. Commerce search, we expect to increase our leadership, which is marketing investment.
Ari Kahn: Our revenue, which for the second quarter increased, can broadly be broken into two segments, core and non-core. Core revenue comes from our e-commerce 360 products led by Hawk Search and WooRank. Core revenue is more than 60% of our subscription revenue. It has double-digit growth with net revenue retention of 113% and CAC payback better than 20 months. Essentially, all of our new sales are core products. Our non-core products represent the balance of our revenue. Most of our services revenue is non-core. These products generate strong gross margins with minimal operating expenses and help fund growth for core.
Speaker Change: Our revenue for the second quarter increased.
Speaker Change: Can broadly be broken into two segments core and noncore.
Speaker Change: Core revenue comes from our E. Commerce 360 products led by Hot search and will rank core revenue was more than 60% of our subscription revenue had double digit growth with net revenue retention of 113% and.
Speaker Change: In CAC payback better than 20 months.
Speaker Change: Essentially all of our new sales are core products.
Speaker Change: Our noncore products represent the balance of our revenue most of our services revenue is that in core.
Speaker Change: These products generate strong gross margins with minimal operating expenses and help fund growth for core.
Ari Kahn: Some of our largest non-core customers have recently purchased core products. In recent quarters, non-core revenue has declined at nearly the same rate core revenue grew, leaving total revenue relatively flat. We expect this balance to continue through the second half of FY25, with core revenue growth outpacing non-core. impact in Q1 for FY26. In addition to CORE being an even larger percentage of total revenue, in Q1 of FY26, today's increased investments in marketing will further generate core revenue growth.
Speaker Change: Some of our largest noncore customers that ratio recently purchased core products.
Speaker Change: In recent quarters non core revenues declined nearly the same rate core revenue grew leaving total revenue relatively flat.
Speaker Change: We expect this balance to continue through the second half of FY 'twenty five with core revenue growing growth outpacing noncore.
Speaker Change: Pack and she was for FY 'twenty six and <unk>.
Speaker Change: The core being an even larger percentage of total revenue in Q1 of FY 'twenty six two days increased investments in marketing.
Speaker Change: Further generate core revenue growth.
Ari Kahn: This quarter, TalkSearch expanded its Hawk AI feature set with the launch of smart conversion and a new smart response component that transforms traditional search into an interactive dialogue. Users can engage in a threaded conversation with Hawk AI agents to narrow down complex product needs. This allows Hawk Search to perform all the actions of a chatbot, including answering detailed questions about products and accounts. We also released a RapidUI 2.0 product, which supports the latest Hawk AI products, including Smart Response and Smart Conversion. The Rapid UI 2.0. interface leverages the streaming API to enable real-time, multi-turn interactions with HAWK AI agents for fast and interactive search.
Speaker Change: This quarter <unk> expanded its hawk AI teachers that with the launch of smart conversion and new smart responds component that transforms traditional search into an interactive dialogue using.
Speaker Change: Users can engage in a conversation with hockey.
Speaker Change: And just to narrow down complex product needs.
Speaker Change: This allows hawks surge to perform all the actions of a chat box, including answering detailed questions about products that account history.
Speaker Change: We also released a rapid UI to point out product, which supports the latest hawk AI products, including smart responds and smart conversions.
Speaker Change: The rapid UI two point al.
Speaker Change: Interface Leverages the streaming streaming API to enable real time, multi turn interactions with HOK AI agents were fast and interactive search.
Ari Kahn: HawkeSearch also launched a new software development kit for BigCommerce Catalyst Connector. BigCommerce's Catalyst framework built on Next.js gives merchants and developers more flexibility and control over storefront experiences. The new SDK expands HawkeSearch's capabilities within the BigCommerce customer base.
Speaker Change: <unk> also launched a new software development kit for Big Commerce catalysts connector ecommerce as a catalyst framework built on our next J S.
Speaker Change: As merchants and developers more flexibility and control over storefront experiences.
Speaker Change: New SDK.
Speaker Change: And hock switching capabilities with the big Commerce customer base.
Speaker Change: Yes.
Ari Kahn: Last quarter we discussed how Q1 sales were the second best sales quarter in company history. Well, we had another great and strong sales quarter in Q2, and our first half license sales increased year over year by 24% to $1.6 million in annual recurring revenue from $1.3 million in ARR in the first half of FY24, a 24% increase in ARR new sales. Customer wins and other highlights this quarter include Do It Best, the largest network of independent home improvement stores in the U.S. Hawk Search will help do it best, increase order value, drive higher conversion rates, and increase traffic to your online store.
Speaker Change: Last quarter, we discussed how Q1 sales were the second best sales quarter in company history, while we had another great and strong sales quarter in Q2, and our first half license sales increase year over year by 24% to one 6 million in annual recurring revenue.
Speaker Change: From one 3 million and a IRR in the first half of FY 'twenty, 424% increase in our new sales.
Speaker Change: Customer wins and other highlights this quarter include do it best largest network of independent home improvement stores in the U S.
Speaker Change: Hot search will help do it best increased order value drive higher conversion rates and increased traffic to their online store.
Ari Kahn: Another important sale was to a Fortune 500 technology company who selected HawkSearch to power its e-commerce search in the Americas and Asia. The technology company has licensed hybrid search, which bundles hawk search keyword and hawk search concept search to deliver faster, more accurate results for complex long tail queries. A B2B North American distributor selected Hawk Search to power four of its e-commerce websites. The multi-site engagement leverages Hawk Search's native Optimizely XConnect product and includes concept search, smart insight management, and AI-powered personalization and recommendation. A global technology firm based in the Middle East has selected HawkSearch to deliver AI personalized results in both English and Arabic.
Speaker Change: Another important sale was to a fortune 500 technology company, who selected <unk> to power its e-commerce search and the Americas and Asia.
Speaker Change: Technology companies licensed Tigroid surge, which bundles Hawk search keyword and hot search concept surge to deliver faster more accurate results for complex long tail queries.
Speaker Change: Albeit it be north American distributor selected Hawks surged to power four of its e-commerce websites.
Speaker Change: Our multi site engagement Leverages Hawk searches native optimize the connect product and include concept search smart insight management, and AI powered personalization and recommendations.
Speaker Change: Our global technology firm based in the Middle East.
Speaker Change: <unk> Hot search to deliver AI personalized results in both English and Arabic.
Ari Kahn: Built on Hawk Search's flexible API and SaaS hybrid infrastructure, the mobile-first implementation is engineered for high-speed performance and scalability.
Speaker Change: We don't have hard surface flexible API and SAP hybrid infrastructure. The mobile first implementation is engineered for high speed performance and scalability.
Ari Kahn: This continued momentum positions us for growth in 2026 as we expand our reach in B2B e-commerce, providing cutting edge AI search solutions that drive revenue and enhance customer engagement. Our recent investments in R&D have opened the door to partners whose customers need the latest AI-powered e-commerce tools. Partner-led sales have faster sales cycles, a higher win rate, and lower marketing costs. Hawk Search partnered with Shopware, a global open-source e-commerce platform serving over 100,000 merchants. Known for its flexibility, AI-first architecture, and strong mid-market and enterprise presence. Shopwear empowers brands to create immersive shopping experiences.
Speaker Change: This continued movement momentum positions us for growth in 2026, as we expand our reach and B to B e-commerce, providing cutting edge AI search solutions that drive revenue and enhance customer engagement.
Speaker Change: Our recent investments in R&D have opened the door to partners who can.
Speaker Change: Customers need the latest AI powered ecommerce tools partner led sales have faster sales cycle, a higher win rate and lower marketing costs.
Speaker Change: <unk> partnered with shop, where a global open source e-commerce platforms, serving over 100000 merchants known for its flexibility AI first architects shirts, and strong mid market enterprise presence.
Speaker Change: <unk> empowers brands to create immersive shopping experiences.
Ari Kahn: This quarter, Park Search also partnered with Groove Commerce, a leading B2B e-commerce agency. to integrate Bridgeline's AI-powered search technology into their solution for B2B merch. As part of this initiative to strengthen joint go to market efforts, Bridgeline's EVP of products and strategy, John Murcott, presented on the future of AI in e-commerce at Grooves Customer Summit last month.
Speaker Change: This quarter <unk> search also partnered with group commerce illegal B to B E Commerce agency to integrate grid slides AI powered search technology into their solution for <unk> merchants as part of this initiative to strengthen joint go to market efforts bridge lines E V P of products and strategy.
Speaker Change: <unk>, John Merck had presented.
Speaker Change: The future of AI and e-commerce groups customer summit last month.
Ari Kahn: Over the past year, we have launched eight AI-powered products. In Q2, we began to see those releases gain market traction with enhancements like smart conversion and real-time streaming APIs. Our suite of AI products is more dynamic and interactive than ever before.
Speaker Change: Over the past year, we have launched eight AI powered products in Q2, we began to see those releases gained market traction with enhancements like smart conversion and real time streaming API, our suite of AI products is more dynamic and interactive than ever before.
Ari Kahn: This quarter marks a true turning point in our growth strategy. The expanded marketing budget is already fueling demand across our core verticals, and we're seeing higher conversion rates as a direct result of our go-to-market machine and increased campaign automation.
Speaker Change: This quarter marks a true turning point in our growth strategy expanded marketing budget is already fueling demand across our core vertical and we're seeing higher conversion rates as a direct result of our go to market machine and increase campaign automation.
Thomas Windhausen: So at this time, I'd like to turn the call back over to our Chief Financial Officer, Tom Windhausen. Thanks Ari. I'll provide an update of our financial results for the second quarter of fiscal 2025, which ended on March 31st. Total revenue for the quarter and in March 31, 2025 was $3.9 million, an increase from $3.8 million in the prior year. Now looking at each component of revenue, our subscription license revenue, which is comprised of SAS licenses, maintenance, and hosting. So the quarter ended March 31st, 2025 with 3.1 million as compared to 3.0 million in a prior year period.
Speaker Change: So at this time I'd like to turn the call back over to our Chief Financial Officer, Tom Lighthouses.
Speaker Change: Okay.
Speaker Change: I'm, sorry, I will provide an update of our financial results for the second quarter of fiscal 2025, which ended on March 31 2025.
Speaker Change: Total revenues for the quarter and embarked 31 2025 to $3 9 million an increase from $3 8 million in the prior year period.
Speaker Change: Now looking at each component of revenue, our subscription and license revenue, which is comprised of SaaS licenses maintenance and hosting revenue for the quarter ended March 31, 2025 was $3 1 million as compared to 3.0 million than the prior year period.
Thomas Windhausen: The percentage of total revenue, subscription, license revenue was 79% of total revenue for the quarter. Services revenue of $800,000 for the quarter ended March 31, 2025, increased 4% from $800,000 in the prior year period. As a percentage of revenue, services revenue accounts for 21% of total revenue for the quarter ended March 2021. Cost of revenue was $1.3 million for the quarter ended March 2025, down 2% from $1.3 million in the prior year period. And as a result, our gross profit was $2.6 million for the quarter ended March 2025 as an increase from the $2.5 million in the prior year.
Speaker Change: As a percentage of total revenues subscription and license revenue was 79% of total revenue for the quarter.
Speaker Change: Services revenue of 800000 for the quarter ended March 31, 2025 increased 4% from 800000 in the prior year period as a percentage of revenue services revenue accounted for 21% of total revenues for the quarter ended March 2025.
Speaker Change: Cost of revenue was $1 3 million for the quarter ended March 2025 down 2% from $1 3 million in the prior year period.
Speaker Change: As a result, our gross profit was $2 6 million for the quarter ended March 25.
Speaker Change: The increase from the $2 5 million and the <unk>.
Speaker Change: Higher year period.
Thomas Windhausen: Overall gross profit margin was 68% for the quarter ended March 25 compared to 66% in the prior year. Our subscription and license gross margins were 72% for the quarter ended March 25 compared to 71% in quarter ended March 24 and our services gross margins were 52% for the quarter ended March 25 compared to 47% in the prior year period.
Speaker Change: Overall gross profit margin was 68% for the quarter ended March 25, compared to 66% in the prior year period, our subscription and license gross margins were 72% for the quarter ended March 25 compared to 71% in.
Speaker Change: Quarter, ending March 24, and our services gross margin was 52% for the quarter ended March 25, compared to 47% in the prior year period.
Thomas Windhausen: Moving to operating expenses. Our operating expenses were $3.4 million in the quarter ended March 31, 2025, compared to $3 million in the prior year period. The current year period includes additional sales and marketing spend and some restructuring. Moving to net income, our net loss was $700,000 for the quarter ended March 25 compared to a net loss of $600,000 in the prior year. and our adjusted EBITDA for the quarter ended March 25 was negative $239,000 compared to negative $83,000 in March of 24. Moving to the balance sheet, on March 31st, 2025, we had cash of over 2.7 million and accounts receivable of 1.4 million.
Speaker Change: Moving to operating expenses are up and expenses were $3 4 million in the quarter ended March 31, 2025 compared to $3 million in the prior year period. The current year period includes additional sales and marketing spend and some restructuring expenses.
Speaker Change: We went to that income our net loss was 700000 for the quarter ended March 25, compared to a net loss of 600000 in the prior year period.
Speaker Change: And our adjusted EBITDA for the quarter ended March 'twenty Fives was negative 239000 compared to a negative 83000 in March 24.
Speaker Change: Moving to the balance sheet on March 31, 2025, we had cash of over $2 7 million in accounts receivable of $1 4 million and our total debt outstanding was 374000 barrels or approximately 406000 USD weighted.
Thomas Windhausen: And our total debt outstanding was 374,000 euros or approximately 406,000 USD. The weighted average interest rate was 3.8%, with principal payments due through 2028. And we have no other debt or remaining earnouts from any prior acquisition.
Speaker Change: The weighted average interest rate was three 8% with principal payments due through 2028.
Speaker Change: And we have no other debt remaining earn outs from any prior acquisitions.
Thomas Windhausen: As of March 31, 2025, we had total assets of $17 million and total liabilities of $6.4 million.
Speaker Change: As of March 31, 2025, we had totaled $17 million and total liabilities of $6 4 million.
Thomas Windhausen: Next, moving on to the cap table. As of March 2025, our cap table included 11.9 million outstanding shares, 862,000 warrants, and 2.1 million options. As a reminder, in September 2024, nearly 900,000 warrants whose exercise price was $4 expired. And the remaining 861,000 warrants consist primarily of 167,000 warrants with a $2.85 exercise price expiring in May 26, and another 592,000 warrants at $2.51 expiring in November 2026. Bridgeline 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 on shareholder value.
Speaker Change: Next moving on to the cap table as of March 2025, our cap table included $11 9 million outstanding shares 862000 warrants and $2 1 million options. As a reminder, in September of 2020 for nearly 900000 warrants with exercise prices was $4 expired.
Speaker Change: The remaining 861000 warrants consist primarily of 167000 warrants with a $2, 85% exercise price expiring in May 26, and another 592000 warrants at $2 51 expiring in November 2026.
Speaker Change: But as I look 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 on shareholder value.
Operator: Thank you for joining us on the call today, and this time we'd like to open the call up to questions and answers. Moderating? Thank you very much.
Speaker Change: Thank you for joining us on the call today at this time, we'd like to open the call up to questions and answers moderating.
Speaker Change: Thank you very much we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your phone keypad now a confirmation tone will indicate that Youre line is Nicky you May press star two if he would like to remove your question from Nicky how many participants using speaker equipment it might be nice.
Operator: We will now be conducting our question and answer session. If you would like to ask a question, please press star 1 on your phone keypad now. A confirmation tone will indicate that your line is busy. You may press star 2 if you would like to remove your...
Operator: for any participants using speaker equipment it might be necessary to pick up your handset before you Please wait a moment while we poll for questions. Thanks, Jenny.
Speaker Change: So he can pick up your handset before your price to Keith Please wait amendment, mostly poll for questions.
Jamie: Thanks, Jamie while we wait for those questions to come in we have a couple that were centered in advance. So we'll go through those Oreo or a questions here from how it helped for the Tigers Brothers' first one are you at an inflection point to increase your sales efforts to bring in new customers.
Operator: While we wait for those questions to come in, we have a couple that were sent in in advance. So we'll go through those.
Ari Kahn: I have a question here from Howard Halpern at Taggart Brothers. First one, are you at an inflection point to increase your sales efforts to bring in new customers? Well, both product competitiveness and market conditions are making now the time to increase sales investment.
Speaker Change: Okay.
Speaker Change: Both product competitiveness and market conditions are making now the time to increase sales investment.
Ari Kahn: The $2.2 million dollar capital raise was initiated specifically for this reason. We're more than doubling our ad spend. We're not increasing sales and marketing personnel at this time because our automated go-to-market machine allows us to both generate and nurture leads with AI agents and push them through the funnel without increasing labor. We'll hire people later after those leads mature if needed. This increase in spend started on April 1st. So we have 120 days sales cycle. This means that we should expect to see an increase in deal flow starting at the end of our fourth quarter.
Speaker Change: The $2 $2 million capital raise was initiated specifically for this reason, we're more than doubling our ad spend.
Speaker Change: We're not increasing sales and marketing personnel at the time, because our automated go to market machine allows us to both generate and nurturing leads and nurture leads with AI agents.
Speaker Change: Most of them through the funnel without increasing labor, we'll hire people.
Speaker Change: Later after those leads mature needed. This increase has been started on April one.
Speaker Change: So we have 120 days sales cycle.
Speaker Change: This means that we should expect to see an increase in deal flow starting at the end of our fourth quarter.
Ari Kahn: and that would lead to a revenue impact. in our first quarter of FY22.
Speaker Change: And that would lead to a revenue impact.
Speaker Change: In our first quarter of FY 'twenty six.
Ari Kahn: Excellent. Do we, Bridgeline, does Bridgeline have a handle on the return we should see for every extra dollar spent on acquiring a new customer? Yeah, we model that actually fairly closely in a couple of different ways, both with CAC payback, but also with LTV to CAC as a ratio, long-term value to customer acquisition cost as a ratio. And we are generally seeing around a 3X, a three times value of our LTV to CAC ratio. CAC for us is measured to include all customer acquisition costs. This means ad spend, sales salaries, and commissions. The long-term value is based on a 75% growth margin and an average customer retention rate of five years, so a customer lifespan of five years.
Speaker Change: Excellent.
Speaker Change: Do you do we rejoined us Brits won't have a handle on the return we should see for every extra dollar spent on acquiring a new customer.
Speaker Change: Yeah, we modeled out actually fairly closely in a couple of different ways, both with <unk>.
Speaker Change: Cash payback, but also with a L.
Speaker Change: LTV to CAC as a ratio of long term value of the customer acquisition cost as a ratio and we are generally seeing around a three X three times our value of our LTV to CAC ratio cat for us as measured to include all customer acquisition cost. This means ad sale.
Speaker Change: Salaries and commissions.
Speaker Change: Long term value is based on a 75% gross margin and an average customer retention rate.
Speaker Change: Five years.
Speaker Change: Customer lifespan of five years.
Ari Kahn: when we put this together with our 120 day sales cycle. We expect to see a significant increase in new customer acquisitions in the Q1 of FY26. And historically, Q1 has been especially large. Q1 of FY24 was the best quarter in the company's history. And Q1 of FY25 was the second best. Corridor, and the company's history. So when our increased investments that are really starting happening right now, in April and May, mature in August and September, and then turn into revenue in October and November, I'm pretty hopeful. I'm excited about the prospects for the growth, and the market is moving in the direction that we want it to.
Speaker Change: When we put this together with our 120 day sales cycle.
Speaker Change: We expect to see a significant increase in new customer acquisitions in Q1 of FY 'twenty six.
Speaker Change: And historically Q1 has been especially large Q1 of FY 'twenty four was the best quarter in the company's history and Q1 of FY 'twenty five was the second best.
Speaker Change: Quarter in the company's history, so with our increased investments that are really starting happening right now in April and May mature.
Speaker Change: In August and September and then turn into revenue in October and November.
Speaker Change: First off I'm excited about that.
Speaker Change: <unk> for the growth and the market is moving in the direction that we want to be.
Ari Kahn: to be. So we're ready to go.
Speaker Change: So we're ready to go.
Operator: Great.
Ari Kahn: One more question from Howard. Is most of our product development internal, or are there acquisition opportunities to expand our technology and our customer base? So our AI-based product development has been internal, and we really have extensive expertise in AI, including me. I've got expertise as well, but our R&D team that have their hands on the keyboards do, which is the most important. And we're likely to continue internal R&D, especially in AI, in the foreseeable future.
Speaker Change: One more question from Hollywood as most of our product development internal or are there acquisition opportunities to expand our technology and our customer base.
Speaker Change: Got it.
Speaker Change: So our AI based product development.
Speaker Change: As has been internal and we really have extensive expertise in AI, including me I've got expertise as well, but our R&D team have their hands on the keyboard zero, which is the most important thing.
Speaker Change: We did continue internal R&D, especially in AI in the foreseeable future.
Speaker Change: Yeah.
Ari Kahn: If we were to do an acquisition, it would likely be to acquire a company that has not yet really added much AI to their product and avoid the price premium that an acquisition of an AI company would carry along with it. And then we would have our engineers add AI capabilities and upsell those new capabilities to the acquired customer base and cross sell HawkSearch and WooRank and other products into that customer base and sell that new product into ours.
Speaker Change: If we were to do an acquisition it would likely be to acquire a company that has not yet really added much AI to their product and avoid the price premium that an acquisition of an AI company with carrier along with it and then we would have our engineers ad.
Speaker Change: AI capabilities.
Speaker Change: And up sell those new capabilities to the acquired customer base and cross sell hot search and <unk> and other products into that customer base and sell that new product into ours that said, we have nothing in our M&A pipeline to announce at this time.
Ari Kahn: That said, we have nothing in our M&A pipeline to announce at this time. And M&A is not our primary focus. We have excellent momentum and our number one focus is organic sales. with M&A being opportunistic. Great.
Speaker Change: And M&A is not our primary focus we have excellent momentum.
Speaker Change: And our number one focus is organic sales.
Speaker Change: With M&A being opportunistic.
Speaker Change: Great. We do have one more question that was sent in advance when do we expect to see growth in topline revenue.
Operator: We do have one more question that was sent in advance.
Ari Kahn: When do we expect to see growth in top line Okay, growth and top line revenue. So in recent quarters, non-core revenue. declined at nearly the same rate that core revenue grew, leaving us relatively flat overall. Core revenue is more than 60% of total revenue. Every quarter, that ratio gets even larger, with core revenue becoming a higher and higher percentage. And this leaves less room for the non-core revenue to have an impact. Additional sales and marketing spend is also focused on core products, which is going to further increase that gap. So you'll start seeing this growth.
Speaker Change: Okay growth in top line revenue so recent quarter's noncore revenue.
Speaker Change: Declined at nearly the same rate that core revenue growth, leaving us relatively flat overall.
Speaker Change: Core revenue is more than 60% of total revenue every quarter that ratio gets even larger with core revenue.
Speaker Change: Higher and higher percentage.
Speaker Change: This leaves less room for the non core.
Speaker Change: Revenue would have an impact.
Speaker Change: The additional sales and marketing spend focused on is also focused on our core products, which is going to further increase that gap.
Speaker Change: So youll start seeing this growth.
Ari Kahn: really in our Q1 of FY24. And for the second half of FY25, the balance is still going to be similar with relatively flat growth. So that's where we're going with that.
Speaker Change: Really in our Q1 of FY 'twenty four and for the second half of FY 'twenty five the balance is still going to be.
Speaker Change: Similar with relatively flat growth.
Speaker Change: Yes.
So that's the that's where we're going with that.
Speaker Change: Great.
Operator: Uh, Jimmy, do we have any callers in on the line? question.
Speaker Change: Julie do we have any callers on the line.
Casey Ryan: Yes we do, we have a question in from Casey Ryan of West Park Capital. Casey, your line is live. Hey Casey, how are you doing? Aiore. Very good quarter. Thanks for the update today. Just a few questions. I guess one of the questions, you've touched on a lot of these things in your commentary and the Q&A so far, the sales and marketing line, we should expect to see that tick up a little bit. I understand you're not adding headcount, but we're adding marketing spend, whatever that looks like digital. Just as we frame it around percentage of sales, do you think we should, you know, think about that rising as a percent of sales?
Speaker Change: Question, Yes, we do we have a question in from Casey Ryan of West Park Capital Casey Your line is life.
Casey: Hey, Casey how are you doing.
Speaker Change: I'm sorry.
A.
Speaker Change: Very good quarter. Thanks for the update today, just a few questions.
Speaker Change: I guess one of the questions you touched on a lot of these things in your commentary in the Q&A. So far the sales and marketing line, we should expect to see that tick up a little bit I understand you're not adding head count, but we're adding marketing spend whatever that looks like digital just as we frame it around percentage of sales do you think we should.
Speaker Change: Think about that rising as a percent of sales.
Ari Kahn: Yeah, you absolutely should. You're right. And so we're going to see sales and marketing increasing between $250K and $500K per quarter over the next few quarters. Okay, great. Very helpful. And what you're expecting is some multiple payback on that in terms of what you're able to capture. It's what you've seen historically. potentially hopefully we'll sort of see that. Yeah that's right that's right so I can't quite do the math in my head but if we talk about let's just use for round numbers a million dollars being spent over you know whatever two or three quarters but a million dollars being an even number we talk about that three a million dollars above and beyond what we currently have and we talk about that three to one LTV to CAC ratio then that would produce about three million dollars in LTV for us.
Speaker Change: Yes, it was about.
Speaker Change: Horizon Yeah.
Speaker Change: Absolutely sure and you're right and.
Speaker Change: So we're going to see sales and marketing increase being between 250 decay in 500 K per quarter.
Speaker Change: Okay. Our next few quarters okay.
Speaker Change: Okay great.
Speaker Change: That's.
Speaker Change: Very helpful.
Speaker Change: And what you're expecting as it is a multiple payback on that in terms of what you're able to capture it as what you've seen us petroleum.
Speaker Change: Hopefully, we will start to see that.
Speaker Change: Yeah, that's right that's right so I can't quite do the math in my head, but if we talk about let's just use for <unk>.
Round numbers of $1 billion being spent over.
Speaker Change: Whatever two or three quarters.
Speaker Change: $1 million and EBIT number we talked about that three.
Speaker Change: Yes.
Speaker Change: Above and beyond what we currently have and we've talked about them three to one LTV to CAC ratio.
Speaker Change: Then that would produce about $3 million in LTV for us.
Ari Kahn: and a 75% gross margin, so $3 million divided by 75% is $4 million in revenue. and our average lifespan with customers is five years, so that would turn into about $800,000 in annual recurring revenue. Got it. Mm-hmm. Okay, good. And then that five-year number is a good number to share with us and really helpful. But that's not really what contracts look like.
Speaker Change: And the 75% gross margin 3 million divided by 75% and $4 million in revenue.
Speaker Change: Mhm and.
Speaker Change: And our average lifespan is with customers is five years, so that would turn into about 800000 in annual recurring revenue.
Speaker Change: Got it.
Speaker Change: Such an investment.
Speaker Change: Mhm.
Speaker Change: Okay, Good and then.
Speaker Change: The five year number is a good number to share with us and really helpful.
Speaker Change: Great.
Speaker Change: But but that's not really what contracts look like what is the standard contract length. Currently I understand that the net retention at one of their teams are really great numbers, so people are renewing and adding but.
Ari Kahn: What is the standard contract length currently? I understand that the net retention at 113 is a really great number, so people are renewing and adding. What's a standard contract? Is it one-year, multi-year, month-to-month? Yeah. So our average initial contract is 30 months. So that's two and a half years. Some people are starting off with a two-year, some are starting with a three-year, but that's generally what we see. And here's something that we just ran some numbers on that I was kind of excited to see is that Our customers tend to buy. twice as much software from us over their lifespan as their initial contract.
Speaker Change: What does the other contract is it wasn't near multi year pumped a month yeah. Yeah. So our average initial contract is 30 months, two and a half year. Some people are starting off with the two year summer starting with the three year.
Speaker Change: That's generally what we see.
Speaker Change: Here's something that we.
Speaker Change: We just ran some numbers on that.
Speaker Change: It's kind of exciting to see is that.
Speaker Change: Sure.
Speaker Change: Our customers tend to buy twice as much software from us over their lifespan as their initial contracts. So if they kick off a contract with a.
Ari Kahn: So if they kick off a contract with a, let's say that it's a $36,000 ARR initial contract. They're going to buy another $75,000 in ARR from us. I over the next few years in the future. So that's great. Um, that is great. That's a great metric, too. Okay, so... The other thing I'm curious about is, you mentioned that Horowitz was able to be made available to people in Arabic in terms of customers. How many languages can you do, or can you do as many as you need, and is it easy to sort of translate the software?
Speaker Change: Let's say that I'd say.
Speaker Change: $36000, a IRR initial contract.
Speaker Change: They're going to buy another $75000 in <unk> from us.
Speaker Change: Over the next few years in the future. So that's great.
Speaker Change: That is great.
Speaker Change: That's a great metric to.
Speaker Change: Okay. So.
Speaker Change: The other thing I'm curious about is you mentioned the heart, which was sort of made was able to be made available to people in Arabic in terms of customers.
Speaker Change: How many languages can you do or can you do you know as many as you need them is it easy to sort of translate the software, but I'd be curious about where your strongest language wasn't because international right. Yeah. So we have.
Ari Kahn: But I'd be curious about where your strongest language was in the international market. Yeah. So we have our default language model, our default large language model, supports 50 language, 5-0 out of the gate. and our architecture allows our customers to plug in their own language models or to switch to different ones. A lot of times switching language models involves bringing in language or industry-specific language to the model, but it might also involve some less mainstream language that they're interested in. We have several customers that are using Asian languages, customers in Indonesia and Japan, simplified Chinese we see, and all of the major Romantic and German.
Speaker Change: Our default language model, our default language model supports 50 language five zero out of the gate.
Speaker Change: Dan.
Dan: Our architecture allows our customers to plug in custom.
Speaker Change: All language models or just switch to different ones.
Speaker Change: A lot of times switching language models involves bringing in language.
Speaker Change: Or industry specific language to the model, but it might also involve some.
Speaker Change: Less mainstream language that they're interested in we have several customers that are using.
Speaker Change: Asian languages customer.
Speaker Change: Customers in Indonesia, and Japan.
Speaker Change: A simplified Chinese we see.
Speaker Change: And all of the major romantic.
Speaker Change: And in Germany.
Ari Kahn: Okay, okay, perfect.
Speaker Change: Okay, Okay perfect.
Ari Kahn: And then tell me about this, I guess, is someone like HP, and I don't know if their site is in multiple languages, but the customer came to you in English and then wanted to redeploy another one in French or something. Is that sort of a secondary, that's just sort of a smaller add-on to sort of create that mirror site in like a different language? Yeah, actually, adding a second language won't cost the customer anything if it's supported by our foundation, it's one of the 50 languages in our foundation model. So they'll want that out of the gate.
And then tell.
Speaker Change: Tell me about this I guess is is someone like HP and I don't know if their site is in multiple languages, but.
Speaker Change: Customer came to you in English and then wanted to redeploy another one in French or something is that sort of a sort of a secondary is that just sort of a smaller add on to sort of create that.
Speaker Change: Near site in like a different language.
Speaker Change: Yeah actually.
Speaker Change: Adding a second language.
Speaker Change: Cost of the customer anything if it's supported by our founding.
Speaker Change: Is this one of the 50 languages on our foundation model. So they want to add out of the gate now you'll get that from us their own product catalog.
Ari Kahn: Now, they'll get that from us, their own product catalog. may not be localized in different languages, so they'll have an additional effort on their side in terms of displaying search results. for their product catalog. So you do see that that requires some effort from sometimes, but natively our smart search, our AI-powered products. support multiple languages. And our non-AI products, the keyword search, is dependent upon matching the underlying data set. So that really just depends on their localization. Okay, good. That's helpful to understand. And then...
Speaker Change: Maine that the.
Speaker Change: Our localized in different languages, so they'll have additional effort on their side in terms of displaying search results.
Speaker Change: For their product catalog. So we do see that that requires some effort from some tax but natively, our smart search our AI powered products.
Speaker Change: Port multiple language.
Speaker Change: And our non AI products. The keyword search is dependent upon matching the underlying data set so that really just depends on the mobilization there.
Speaker Change: Okay.
Speaker Change: That's helpful to understand and then <unk>.
Ari Kahn: The last question is sort of, I saw it was on my wish list, but maybe yours too at some point. Have you had any conversations, and this may not be the right time to do any of this, but sort of AOV pricing and sort of, you know, being tied into the to the uptick that like you're providing to customers, has that been discussed or have customers mentioned it to you and proposed it or? You know, it's it's something nice that we've talked about could be achievable at some. It might not be the here and now yet.
Speaker Change: Last question on sort of I suppose on my watch wishlist, but maybe yours too at some point.
Speaker Change: Have you had any conversations and this may not be the right time to do any of this but sort of <unk> pricing and sort of you know being tied into the to.
Speaker Change: So the uptick that you are providing to customers is up in.
Speaker Change: Discussed or have customers mentioned that to you and proposed it or.
Speaker Change: It's it's something nice that we've talked about could be achievable at some point.
Speaker Change: It might not be the here and now yeah. Yeah, Yeah is that the here and now yet I love the pricing, that's where the rubber hits the road and.
Ari Kahn: Yeah, yeah, it's not the here and now yet. I love AOD pricing. That's where the, you know, the rubber hits the road and Larger enterprise customers are not so open to that because their numbers are so big and they swing a lot. The more mid-month customers are more, but in our space that has not been the standard, so we haven't been able to do that. I think Shopify is an example where they're really, their payment gateway is like a credit card almost, taking a few percentage is an example that really did a great job in terms of integrating that, having it make sense to their customers.
Speaker Change: Larger enterprise customers are not so open to that because the numbers are so big and they swing a lot.
Speaker Change: The midmarket customers.
Speaker Change: Or more but in our space that has not been the standards. So we haven't been able to do that I think shopify as an example, where they are really.
Speaker Change: There are payment gateway is like a credit card almost taking a few percentage is.
Speaker Change: An example that really did a great job in terms of integrating that having it makes sense to their customers were out there.
Casey Ryan: We're not there. Okay. All right. Fair enough. And then it was really a great quarter.
Speaker Change: Okay, Alright fair enough.
Speaker Change: And then.
Speaker Change: It was really a great quarter, a one one small administrative question Tom I think you mentioned.
Thomas Windhausen: One small administrative question. Tom, I think you mentioned... Total shares are $11.9 million. Does that include everything that sort of the like followed number? I know the reported number was like 10.5, but that might be basic. I just want to make sure that the 11.9 is accurate. Yeah. So the 10.4, 10.5 number is what we would have had in the last quarter. Right. We did the 2.2 million dollar capital raise. So the spread between the 10.4 and the 11.9 is that is the 1.4 million shares of equity issued in March. Okay, got it. Got it.
Speaker Change: Total shares or $11 9 million.
Tom: Does that include everything that's sort of the number of I know the reported number was like 10.5, but that might be basic I just want to make sure that they've got a 11, 9% accurate yep.
Speaker Change: 475 numbers, what we would've had in the last quarter that we did the <unk>.
Speaker Change: $2 $2 million capital raise so the spread between the 10, 4% to 11 nine is that is the $1 4 million shares of equity issued in March.
Speaker Change: Okay got it got it perfect.
Casey Ryan: Perfect. Yeah, okay, perfect. Really tremendous product progress and a really good quarter. We're excited to see how the rest of this year unfolds. Thanks for taking my question. Thank you, Casey, of course. Thank you very much.
Speaker Change: Well the tremendous benefit.
Speaker Change: It was the number.
Speaker Change: Yes, okay perfect.
Speaker Change: Really tremendous product progress.
Speaker Change: And a really good quarter, we're excited to see how the rest of this year unfolds. Thanks for taking my questions.
unknown: Thank you Kate.
Speaker Change: Thank you very much while we appear to have reached the end of our question answer session I will now hand back over to the management team for their closing comments.
Operator: Well, we appear to have reached the end of our question and answer session. I will now hand back over to the management team for their closing remarks. Thank you, Jenny. Thank you everybody for joining us today. We appreciate the continued support of all of our customers, partners, and our shareholders. We're excited about our business, the ongoing growth prospects. We look forward to speaking with you again on our third quarter fiscal call this August. Be well. Thank Thank you very much. This does conclude today's conference. phone lines at this time and have a wonderful afternoon. We thank you for your
Speaker Change: Thank you Jenny.
Speaker Change: Thank you everybody for joining us today. We appreciate the continued support of all of our customers partners and our shareholders. We're excited about our business the ongoing growth prospects. We look forward to speaking with you again on our third quarter fiscal call. This August.
Speaker Change: Thank you.
Speaker Change: Thank you very much. This does conclude today's conference you may now disconnect. Your phone lines at this time and have a wonderful afternoon. We thank you for your participation.