Bridgeline Digital Inc (BLIN) 2009 Q4 法說會逐字稿

Good day, and welcome to the Bridgeline Software fiscal 2009 earnings conference call. Today's call is being recorded. For opening remarks, I'd like to turn the call over to Thomas Massie, Chairman and CEO and Ron Levenson, Chief Financial Officer. Please go ahead.

Jason, thank you, and good afternoon, everyone. Thank you, very much, for taking the time to join us to review Bridgeline's financial performance for fiscal 2009. We are very excited to report to you a continued strong operating performance; however, before we begin, our attorney has asked us to remind you that all statements made on this afternoon's call are protected by the Safe Harbor Statement Private Securities Litigation Reform Act of 1995. Bridgeline has delivered yet another strong year that displays solid revenue growth and positive operating results despite a challenging economic environment.

Even being faced with one of the worst recessions since the Great Depression, our customers continue to demand our Web Application management software, iAPPS, and our related interactive technology services. We believe that the business fundamentals underpinning our operations continue to be very solid in terms of providing feature-rich competitive solutions, embracing strong, expense management and very good sales pipeline disciplines, yet, we remain very realistic, observant, and cautious of the continued sluggish state of our economy. Bridgeline's unique value proposition provides deeply integrated web solutions by combining our IS software with our award-winning interactive technology capabilities.

The solutions we develop quickly provide productivity gains and cost efficiencies for our customers. Despite the recession, the markets Bridgeline has embraced are growing. We serve some of the hottest IT markets with web content management, Web Analytics, e-Commerce and e-Marketing management. According to the Gartner Group, the web content management market is a $1.1 billion market that has a projected compounded annual growth rate of 15% per year until the year 2013. Now, there are three primary trends that are shaping up the web content management market, and these are core to iAPPS content manager. Enhanced use ability for non-technical target audiences, greater interest in SaaS offerings and a growing importance of dynamic contextualized delivery, as in driving persuasive content which when you combine iAPPS analytics with iAPPS content manager, we do provide.

The web analytics market is a $700 million market with projected compounded annual growth rate of 18.7% per year until the year 2013. According to Gartner, the delivery of web analytics is primarily going to be Software as a Service. Gartner predicts that more than 85% of total revenue from this category will come from Software as a Service subscription models. The e-Commerce market, a recent Gartner research report noted CEO's are placing new bets on e-Commerce as a part of their return to growth strategy. Most e-Commerce solutions are Java-based solutions. .NET offerings like the iAPPS commerce product are becoming very attractive to e-Commerce solution buyers. Gartner predicts that by 2013, 40% of e-Commerce deployments will use a complete Software as a Service e-Commerce solution model.

The e-Marketing market, according to Forrester Research, who recently published a report under US Interactive Marketing Forecast says the spending on social media, e-mail marketing and search marketing will grow from $17.4 billion in 2009 to over $36 billion in 2014. Spending on social media alone will experience a compounded annual growth rate of 34% during this time frame. 40% of marketers say that e-Marketing is strategic, is the strategic leader in their organization, as part of the shift, Chief Marketing Officers will begin to buy their own technology, prioritizing interactive solutions like campaign management, web analytics and e-mail marketing capabilities.

These are features that iAPPS Marketeer, combined with iAPPS analytics provide, 60% of marketers will fund increases in their Company's interactive marketing budgets by shifting money away from traditional marketing investments. As you could see, Bridgeline, and iAPPS are positioned exceptionally well to embrace the many opportunities these dynamic markets will drive. All we need is just a little tail wind from a growing economy.

Now, let's jump into some high level results and then I'll turn it over to our Chief Financial Officer, Ron Levenson, for some additional insights on our 2009 financial results. We achieved record revenues of $23.9 million in fiscal 2009. This is a 12% increase from 2008. Revenue from software subscription and perpetual licenses grew 63%. Bridgeline has 676 customers, which 504, or 75% of these customers paid a monthly subscription fee or monthly managed services fee. This is an increase of 96 customers or 24%.

Bridgeline has now sold well over 100 iAPPS licenses, companies such as Honeywell, Sun Chemical, Blue Cross Blue Shield, Mainframe International, have all chosen iAPPS for their critical web content management or web analytic needs in 2009. Bridgeline received over ten industry related awards in 2009, and BtoB Magazine named Bridgeline as one of the top interactive technology companies in America. In 2009, we achieved record non-GAAP net income of $1.8 million and non-GAAP diluted earnings per share of $0.16.

GAAP net income was at a record $758,000 and diluted earnings per share was at $0.07 for the fiscal year. We achieved record EBITDA of $2.9 million and our EBITDA per diluted share of $0.25 in fiscal 2009. And in 2009, the Company generated $3 million of cash from operations. Our year-end balance sheet has $24.3 million in total assets with only $4.4 million in total liabilities.

At this time, I'd like to turn the call over to Ron Levenson, who will provide you with greater detail of our operating performance in 2009. Ron?

Thank you, Thomas. First I'd like to enter the statement of operations. Revenue increased to $23.9 million for fiscal 2009 or by 12% compared with revenue of $21.3 million for fiscal 2008. The increases in revenue were attributable to the following: Revenue from web application development services increased to $20.3 million in fiscal 2009 from $18.2 million in fiscal 2008, or by 11% as a result of customer growth and acquisitions. Revenue from managed service hosting remained relatively constant at $2.2 million in both fiscal 2009 and fiscal 2008. Revenue from subscription of perpetual licenses increased to $1.4 million in fiscal 2009 from $876,000 in fiscal 2008 or by 63%. Our gross profit increased to $13.4 million from $11 million in fiscal 2008 or by 22%, and more importantly, our gross margin increased to 55.9% or 51.6%.

The increase in gross margin is principally attributable to the increase in revenue. The gross margin for web application development services improved to 54% from 47% in fiscal 2008, primarily as a result of the increase in sales of higher margin software based solutions.

Our total operating expenses as a percentage of revenue decreased to 52% in fiscal 2009, compared with 54% in 2008, excluding the impairment charges of $9.8 million. Sales and marketing expenses decreased to 26% of total revenue from 29% of revenue in fiscal 2008, primarily as a result of better leveraging of internal resources. Our general and administrative expenses remained relatively constant at 17% of revenue. We continued to make investments to upgrade finance personnel and enhance our financial reporting systems. Research and development investments increased to 4% of revenue in fiscal 2009 from 3% of revenue in fiscal 2008, exclusive of amounts capitalized. The increase in cost results from our continued enhancements for our iAPPS Products Suite.

Our net income was $758,000 in fiscal 2009 compared with a net loss of $10.3 million in fiscal 2008. Fiscal 2008 includes a non-cash impairment charge of $9.8 million and diluted income per share was $0.07 for fiscal 2009 compared with a net loss of $1.09 in fiscal 2008. This improvement was the result of an increase in revenue, an increase in gross profit and a reduction in operating expenses before impairment charges. No impairment charges were taken in 2009. And we generated $3 million in cash flow from operations activities in 2009 compared with cash used in operating activities of $397,000 in 2008. This increase in cash flow is principally attributable to an increase in net income and favorable changes in working capital.

Now I'd like to discuss two non-GAAP measures, adjusted net income and EBITDA. For adjusted net income, we add back impairment charges, amortization of intangible assets and stock based compensation. Our adjusted net income was $1.8 million for fiscal 2009 compared with adjusted net income of %481,000 in fiscal 2008, and adjusted net income per diluted share was $0.16 in fiscal 2009 compared with $0.05 to 2008 and our EBITDA, we generated $2.9 million in EBITDA through fiscal 2009 compared with $1.3 million in EBITDA for fiscal 2008, an increase of $1.6 million or 131%. EBITDA per fully diluted share was $0.25 for fiscal 2009, compared to $0.13 for fiscal 2008. Both adjusted net income and EBITDA are non-GAAP supplemental measures of our performance used by management and useful to investors. Neither of these measures are required by or presented according to the Generally Accepted Accounting Principles.

Next I'd like to turn your attention to our balance sheet. At September 30, 2009, the Company had total assets of $24.3 million with cash and receivables of $6.5 million and total liabilities of only $4.4 million. We reduced total liabilities by $1.7 million in fiscal 2009. The Company ended the year with working capital of $3 million and the current ratio of 1.8 to 1 and the Company had $1 million outstanding under its bank line of credit of which the total is $3 million, which was repaid in full in October 2009.

At this time I'll turn the conference call back over to Thomas.

Thank you, Ron. It goes without saying that we remain cautiously bullish about Bridgeline's fiscal 2010 outlook. We plan to drive continued growth while remaining fiscally prudent. With 75% of our customer base paying Bridgeline a recurring monthly fee, we've developed an excellent customer traction model. Our SaaS based Web Application management software, iAPPS, is extremely innovative software solution that deeply integrates web content management, web analytics, e-Commerce and e-Marketing capabilities. The iAPPS Product Suite addresses key market needs in large rapidly growing markets. Each quarter we continue to sell more and more iAPPS driven interactive technology solutions, and as a result, we will continue to strengthen our recurring revenue model and continue to build upon an already impressive customer base.

Our customer base is strong and diversified. We do not have any customers who represent greater than 7% of our total business, and approximately 25% of our customers are Fortune-2000 based companies. We believe this speaks volumes to the quality of our iAPPS Product Suite and our innovative interactive technology capabilities. Jason? At this time, I'd like to open up the line for any potential questions.

Thank you, Mr. Massie. (Operator Instructions). We'll go first to Walter Ramsley with Walrus Partners.

Afternoon, Thomas, Ron. Congratulations. Looked like a pretty good year.

Thank you, Walter.

I have a question, a couple actually. In the Fourth Quarter, it looks like the revenues were down a little bit year to year. Is there anything specific that accounted for that or was that more just an issue with the overall economy or maybe you could talk about that?

You know, it's tough to say whether it's economic driven, which I think obviously has a little bit or a lot of it to do with that, but I think what we're learning over the past few years is that our fourth quarter is probably our weaker quarter of the four. July and August tend to be pretty tough quarters in our business from a customer addition perspective, as well as even moving the ball along with open engagements that we're trying to complete and deliver throughout the quarter.

Okay. So in the current quarter, you're almost done with the December period. Has there been a seasonal rebound or can you give any indication as to how things are going right now?

We don't provide, as you know, we don't provide financial projections; however, as I said earlier in a statement, that we plan to drive continued growth going forward and our pipeline, our backlog, our pipeline and funnel is very strong at this point.

Okay. From the financial side of things, has the Company lined up any additional credit lines or anything of that nature?

I'm going to turn that one over to Ron.

We have extended our bank line of credit through March 31, 2010, where we are exploring an amendment to our current line, and extension and an increase.

Okay. And as far as just the product development activities are concerned? Can you give us like just a quick update on how the recent new product introductions have kind of been received and how the new ones are shaping up?

Well, we're very very excited with 2010 and obviously iAPPS is the catalyst behind that. There's a lot of momentum behind iAPPS. Like I said, the pipeline is strong as its ever been with some great opportunities with new customers, as well as existing customers and iAPPS commerce opens up a whole brand new market for us, so we're just now in 2010 starting in January going to be marketing for the first time, proactively marketing and providing lead generation into that space which we've never done before, and I will say in the last few quarters, our lead generation has soared as well, so we think 2010 is going to be extremely exciting, and it's all because of iAPPS.

So even if the economy just kind of stabilizes and doesn't show a really strong recovery, the outlook is for like a reasonably --industry 15% type growth anyway or what do you think?

I think the answer is if the economy stabilizes, that will be a lot better than last year, and what we saw last year was a non-stable economy. A lot of our customers had a lot of uncertainty, so when we are talking to our customers about their needs for 2010, the enlightening part for us, with our customer base is at least they're giving us definitive answers and budgets that they have in needs, where 2009, there's a lot of customer stalls, because they did not know what they did not know, and at least there's some definitive answers going into 2010, where we did not have that in 2009.

Okay, Thomas and Ron. Thanks for taking the questions.

Walter, thank you for your continued support.

(Operator Instructions). We'll go next to [George Mellis] with [MHK Management].

Good morning, Tom, how are you, good afternoon, I'm sorry.

Hi.

A question on your recurring customers. It seems like you had a very big jump sequentially. I'm just trying to understand that a little bit.

Well, the increase, year-over-year increase was, hang on a second, was 21% for the hang on a second, was 21% for the recurring customer base.

Right, and you had roughly a 10% sequential increase from 456 to 504; is that right?

We do not report sequential numbers.

Okay, very good. You said you saw roughly 100 iAPPS in the fiscal year that just ended. Roughly what would be your goal in Fiscal 2010?

Our goal is to double that.

Okay. So it would be roughly, and when we talk about iAPPS, do we talk about an iAPPS customer or if a customer gets two marginal would you count that as one customer, as one iAPPS deployment or two?

No, two. It's based on iAPPS licenses.

Licenses, okay, great. And just can you comment a little bit on the performance by your different offices, if some of them are doing better than others and where you see opportunity for improvement in performance in the coming fiscal year?

We don't break down specifically the operating performance of each Bridgeline office which as you know we have several offices in the United States, plus we have a wholly owned subsidiary in Bangalore, India; however, I think one of the things that's key and this is a great question that you're asking, for operational efficiencies, is really growing that top line both organically or even by a strategic acquisition, because our G&A, our level of G&A does burden our current P&L and there's tremendous opportunities of leverage for improved profitability as we grow the top line, we do not have to increase expenses or costs, so we believe that our current capacity at our current level with our current infrastructure of our G&A team is probably somewhere in the mid $30 million and without adding additional staff, and almost if you go from $24 million to $34 million, you can pretty much add potentially an additional $1.5 million plus to the bottom line without having incremental staff added.

Okay.

But we're underabsorbed. Our G&A is underabsorbed.

Is the possibility with acquisition in fiscal 2010, is there, do you have an acquisition pipeline and are you actively pursuing acquisitions?

Yes, we do and yes we are, and I will put a big emphasis though that we are very reluctant, if not firm on not issuing any Bridgeline stock at these levels. So any potential acquisition would be a combination of cash earn out and a potential small amount of debt.

Okay. And from a product development perspective, are there some new applications coming out in the fiscal year?

Yes, we will, as you saw, we recently launched iAPPS Commerce.

Yes.

And we plan to in the Springtime iAPPS Marketeer will debut and that will make the complete Product Suite, all four products complete.

And Marketeer is in beta right now?

It is in development right now, correct.

Okay, but do you have it in beta with customers?

No, it is not at this point.

Okay.

Soon to be.

Great. Okay. Thank you very much.

Thank you, very much, for your support.

At this time, we have no further questions from the phone lines so I'd like to turn the call back over to management for any additional or closing remarks.

Thanks, Jason. I guess we just want to wish everybody a very happy, healthy and prosperous New Year and thank you for your continued support.

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