Bridgeline Digital Inc (BLIN) 2009 Q2 法說會逐字稿

Good day, everyone, and welcome to the Bridgeline Software second quarter 2009 earnings call. This call is being recorded. With us today from the Company is Chairman and Chief Executive Officer, Mr. Thomas Massie and the Chief Financial Officer, Mr. Gary Cebula.

At this time I would like to turn the conference over to Mr. Thomas Massie. Please go ahead, Sir.

Thank you, Sarah. Good afternoon, everybody, and thank you very much for taking the time to join us for an important Bridgeline Software update. We are very excited to report to you our continued record results.

Before we begin, our attorney asked us to remind all of you (technical difficulties).

Ladies and gentlemen, please stand by as we reconnect today's moderator.

Folks, sorry about that. I think there's a third participant on the call. His name is [Kyle Murphy]. We all know about Murphy, right?

So once again, this is all covered, protected by the Safe Harbor statement Private Securities Litigation Reform Act of 1995.

Bridgeline Software has delivered yet another strong quarter that displays solid revenue growth and ongoing positive operating results, despite a challenging economic environment. Even with a significant spending slowdown, our customers continue to demand our Web-based software and Web services.

We believe the fundamentals around our business of our fiscal operating plan continue to be very strong in terms of providing feature-rich, state-of-the-art competitive solutions, embracing strong expense management and very good sales pipeline disciplines. Yet we remain very realistic and observant and cautious with the poor state of the economy.

I would like to share with you a few key insights about our business and our position in the marketplace. First, with a solid and growing recurring revenue base and a very high percentage of booked engagements as we enter each quarter, a diversified customer base and a high fixed cost structure, we at Bridgeline Software have a very good visibility and predictability of our business model.

Second, our unique value proposition provides deeply integrated Web-based solutions that quickly provide productivity gains and cost-efficiencies to our customer which, in turn, enables us to continue to win new customers and retain existing ones at a greater rate than our competitors. We believe iAPPS is a very special product that has leapfrogged our competition significantly.

Third, despite the deep economic recession, the markets Bridgeline Software has embraced are growing. [Forrester Research] completed a survey that concluded that over 70% of IT and business decision-makers have indicated in their organizations they plan to increase the usages of things like Web content management and analytics over the next 12 months.

Only 3% from the survey indicated that the usage would decline. Web analytics, content management, e-commerce and Web marketing management markets continue to show solid growth amidst the recession.

Lastly, we believe that our continued discipline investments and our long-term growth and scale will provide us differentiation and important competitive advantages with our customers and future customers, while still generating positive financial results. We believe all of this, coupled with our stable financial position and steady operating cash flows, will help us emerge from this economic downturn as a stronger company with growing market share and significant opportunities.

Now let's jump into some of our high-level results. And then I will turn the call over to Gary for some additional insights on our Q2 financial results.

For our second quarter of fiscal 2009, Bridgeline Software achieved revenues just shy of $6.1 million. This represents a 13% increase over our revenues from Q2 '08. Our annualized recurring revenues grew 46% and we have generated over $12.5 million in revenues for the first six months of fiscal 2009.

From Q2 '08 to Q2 '09, our customer base increased 29% to 679 customers from 528 customers a year ago. 61% of our customer base pays Bridgeline a monthly subscription fee or managed services fee, which continued to create a strong customer traction model for the Company.

In our second quarter fiscal 2009, the Company generated $749,000 of positive cash from operations versus generating only $103,000 in cash from operations in Q2 '08. We have generated over $1.8 million of cash from operations in the first six months of fiscal 2009.

We are pleased to report record quarterly profits of $218,000 or $0.02 a share in net income for the second quarter of 2009. This is 95% increase from the same area last year. We have generated close to $400,000 of net income for the first six months of this fiscal year.

In Q2, Bridgeline generated a record 600 -- excuse me, we generated $697,000 of EBITDA for the three-month period. This is equivalent to $0.06 a share in positive EBITDA for the quarter. We generated close to $1.5 million of positive EBITDA for the first six months of fiscal 2009.

Our balance sheet remains steady with $24.5 million in total assets and only $5.4 million in total liabilities. And our current ratio is strong at 1.4 to 1.

At this time I'm going to turn the call over to Gary Cebula, who will provide you with greater detail of our financial performance. Gary?

Thank you, Thomas, and good afternoon to everybody. First I would like to review the results from operations from our second quarter which ended on March 31, 2009.

Bridgeline Software generated revenue of $6.1 million for the three months ended March 31, 2009. This is an increase of $701,000 or 13% compared to the same period in fiscal 2008.

Annualized recurring revenue increased 46% in Q2 '09 compared with Q2 '08. Furthermore, over 65% of our revenue came from existing customers while the remainder came from new customers. For the second quarter of fiscal 2008, the second quarter of fiscal 2009, our customer base has increased to over 675 customers, which is a 29% increase.

Our gross profit margin increased $478,000 or 16% for the three months ended March 31, 2009 as compared to the same period the prior year. The increase in gross margin dollars is principally the result of acquisitions completed subsequent to December 31, 2007, combined with increases in higher margin license and subscription revenue and away from application development services revenue.

As a result of these factors, gross profit margin showed a modest increase as a percentage of revenue to 56% from 54% for the three months ended March 31, 2009 compared with March 31, 2008.

We are committed to building our recurring revenue through the sales and development of our flagship product iAPPS, which would continue to improve, provide higher gross margins to the Company.

Total operating expenses increased 12% or $343,000 for the quarter ended March 31, 2009 compared to the same three-month period in the prior year. The increase is principally the result of G&A expenses in the current period, which increased $248,000 due to increases in stock-based compensation expenses and increases in personnel, recruiting, consulting and professional service fees associated with system enhancements and internal and public financial reporting.

R&D expenses increased $152,000, resulting from continued development of our new on-demand software products under the iAPPS platform. For the quarter ended March 31, 2009, there were no significant costs qualifying for capitalization under SFAS 86 where approximately $91,000 in such costs were capitalized in the comparable quarter of fiscal 2008.

For the three months ended March 31, 2009, net income was $218,000 or $0.02 per diluted share as compared to net income of $112,000 or $0.01 per diluted share in the same quarter of the previous year. This represents a 95% increase in net income for Q2 '09 compared to Q2 '08.

For the quarter ended March 31, 2009, Bridgeline Software generated $749,000 in cash flow from operating activities compared to $103,000 in the same period one year ago. The increase in cash flow was principally attributable to our increased operating income combined with a reduction in accounts receivable in Q2 '09 resulting from solid cash collections for the quarter.

As a testament to our strong customer base and progressive credit and collection policies, our DSO day sales outstanding continue to be managed at between 40 and 40 -- excuse me, 40 and 50 days. This performance continues to exceed our peers in the industry by approximately 15 days.

Because we have a fair amount of non-cash related charges such as depreciation and amortization in our income statement, we believe EBITDA is a much better indicator of our bottom-line performance. For the three months ended March 31, 2009, the Company generated $697,000 in EBITDA -- Earnings Before Interest, Taxes, Depreciation and Amortization -- before stock compensation and nonrecurring charges versus EBITDA of $547,000 in the first quarter of fiscal 2008.

This represents an improvement of $150,000 or 27% from the same period one year ago. We used EBITDA before stock compensation and nonrecurring charges as a non-GAAP supplemental measure of our performance, because we considered it an important measure of our performance by adjusting net income or loss, primarily for non-cash charges and other non-recurring charges.

Next, I would like to review the results from operations for our six months of fiscal 2009 which ended on March 31, 2009. Bridgeline Software generated record revenue of $12.6 million for the six months ended March 31, 2009. This is an increase of $3 million or 31% compared to the same period in fiscal 2008. We continued to shift our revenue towards higher-margin license subscription and managed services revenue as we continue to gain traction with our iAPPS product line.

Our gross profit margin increased $1.9 million or 37% for the six months ended March 31, 2009 as compared to the same fiscal period the prior year. The increase in gross margin dollars was principally attributable to the increases in revenue. We continue to show a modest increase in gross margins as a percentage of revenue at 56% from 53% in the prior period, again the result of our shift in revenue mix towards higher-margin software licenses.

Total operating expense increased 31% or $1.6 million for the six months ended March 31, 2009, compared to the same fiscal six-month period in the prior year. The increase is principally attributable to increases in G&A expenses as previously described, combined with salaries and other operating expenses attributable to acquisitions completed, subsequent to March 31, 2008.

Research and development expenses increased $337,000 for the six-month period of fiscal 2008 compared to fiscal 2009, principally resulting from the capitalization of approximately $176,000 of software development costs in the six-month period ended March 31, 2008 combined with additional personnel costs to support our IF's R&D efforts in the six-month fiscal period of 2009.

For the six months ended March 31, 2009, net income was $383,000 or $0.04 per diluted share versus net income of $149,000 or $0.02 per diluted share in the same fiscal six-month period of the previous year. This represents a 157% increase in net income in comparable six-month periods.

For the six months ended March 31, 2009, Bridgeline Software generated $1.85 million in cash flow from operating activities compared to $78,000 the same period one year ago. The increase in cash flow was principally attributable to our increased operating income combined with our ability to manage accounts receivable collections consistent -- consistently in fewer than 50 days as we continue to increase our revenues.

For the six months ended March 31, 2009 the Company generated $1.46 million in EBITDA before stock compensation and nonrecurring charges versus EBITDA of $861,000 in the first six months of fiscal 2008. This represents an improvement of $601,000 or 70% from the same period one year ago.

On a fully diluted basis, for the six-month period ending March 31, 2009, we generated EBITDA of $0.13 per share compared to $0.09 per share for the same fiscal period of 2008.

Next, I would like to draw your attention to Bridgeline's balance sheet. At March 31, 2009, the Company had total assets of $24.5 million with cash and accounts receivables representing $6.2 million or 25% with total liabilities of $5.4 million and total equity of $19.1 million.

As of March 31, 2009, the Company's current ratio was 1.4 to 1, and the Company has a bank line of credit of $3 million of which $1 million was outstanding at March 31, 2009. This amount was repaid in full in April 2009.

Lastly, the Company maintains deferred tax assets of approximately $1.5 million for which a full valuation allowance has been applied.

At this time I would like to turn the conference call back over to Thomas.

Thanks Gary. Well, it goes without saying that despite the struggling economy we remain cautiously bullish about Bridgeline Software fiscal 2009 outlook. We are growing while we continue to embrace fiscal discipline that produces continued profits, positive EBITDA and positive cash flow from operations.

With 61% of our customers paying Bridgeline a recurring monthly fee, we have developed and will continue to develop an excellent customer traction model. Our SaaS-based Web application management software, iAPPS, is a very innovative software solutions that deeply integrates Web content management, analytics, commerce and marketing capabilities.

Every quarter, we sell more and more iAPPS-driven based Web applications; and as a result we will continue to strengthen our recurring revenue model and profit potential.

Our customer base is strong and diversified. We do not have one customer who represents greater than 10% of our business and approximately 20% of our customers are Fortune 2000 companies. We believe this speaks volumes to the quality of our Web-based software products and our services.

Despite our continued positive operating performance, Bridgeline Software's market cap has been severely punished. We recognize we are one of thousands of other performing public companies that have had their market caps significantly depressed over the last 12 months.

With that said, our market cap continued to be well below one times annualized revenue. Based on historical, reasonable multiples we believe our fair market value should be somewhere between 2 to 2.5 times annualized sales.

As a company we will continue to operationally perform and we continue -- and we will continue to communicate the Bridgeline story in as many small-cap, micro-cap, and [nano]-cap venues as possible. We are committed to providing and maximizing ongoing shareholder value.

Sarah, at this time, let's open up the lines for questions for our shareholders, potential investors and analysts.

[Harry Russel] with [Redchips].

Nice quarter. I have a few -- I'm sort of traveling so if you've mentioned this stuff, I apologize.

I know you don't normally give out granularity on the three revenue segments, but particularly with the kind of shift in business model, if you could give some granularity into -- and you touched a little bit of this on (inaudible), but was this more -- was the increase in gross margin driven more by individual increases in gross margin on the revenue, the three revenue segments? Or was that a dif -- was that a greater shift in product mix?

Then, further, given the new model, modeling more conservative stance, but there should be more of a control of expenses. Do you expect meaningful operating leverage? Whatever color and granularity you could give me there would be great. Thanks.

I'll tackle the leverage for the operating income. I think as I think your report has pointed out, there is operating leverage to be gained at Bridgeline and that will happen with continued sales improvements. So as our sales go up, greater of our SG&A will be absorbed by our business units and then hence, more profits will drive to the bottom line. And I think the answer is yes as far as our margins going up is due to our product mix.

I will let Gary talk about your questions around granularity. Go ahead, Gary.

Gary Cebula;: With regards to product mix question, revenue from our application development services did increase slightly this period and for the six months; but the primary driver of a shift in revenue is from more sales of our product license subscription and managed services business. Again we are still getting and gaining traction on our iAPPS model.

So as the future quarters do unravel and unwind and we get more and more traction with our iAPPS product strategy, specifically in the SaaS-based environment, we anticipate our margins to continue to improve over time. However, we are still too early I think in the product cycle to be able to even adequately forecast that. But we are very bullish on it as we move forward.

Just one other one. With respect to the -- if you could just give some color into the state of the union if you will as far as your business is concerned.

Are we -- you are in sort of stance where you had to -- you've what conservative which I think is just a wonderful idea, but are you getting into a tug-of-war between aggressive and conservative now? Are you starting to see opportunities given the way you make acquisitions and the standing cash position where you are at least starting to look a little bit? Or is that situation continuing to be too risky and you want to kind of keep the reins in?

That's a great question. I think right now because of the state of the economy, I think conservatism is obviously the way to go. We have a fiscal operating plan for 2009 that is driving revenue growth, but more importantly, is driving positive cash flow from operations and higher margins.

That was our initiative as we entered fiscal 2009 and I'm very pleased at our management team -- you know how much we are executing is initiatives. With that said, we do want to continue to expand. We will be expanding in Northern California, Southern California and somewhere in the Texas area.

The question is when and I think -- I think we are all very pleased with some of the positive indicators we're seeing that have been announced lately for the economy. But I think we like to see another quarter of ongoing traction of those economic indicators before we get a little more aggressive with Bridgeline.

For us to still end somewhere between $25 million, $26 million in sales this year, up from $21 million last year, significantly improved cash flow from operations; significantly improved profits; significantly improved EBITDA, puts us in a great position to really catapult and have extremely strong growth for 2010.

Great, thanks. Great job navigating this.

(Operator Instructions). Gentlemen, at this time we have no further questions in the queue.

Okay, Sarah. Thank you. Folks, thank you for attending today's conference call. Once again, if you find you have additional questions after today, please do not hesitate to reach out to Gary or myself at any time. Our contact information is available on the Bridgeline Software Website and we are very accessible. Thank you and have a great day.

And that does conclude today's conference. Thank you for your participation.