Bridgeline Digital Inc (BLIN) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to Bridgeline Digital third quarter 2010 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session with instructions following at that time. (Operator Instructions). As a reminder, this conference is being recorded. Now your host for today's conference, Thomas Massie, Chairman and Chief Executive Officer. Please begin, sir.

Thank you very much and good afternoon, everybody. Thank you for taking the time to join our call today. Before we begin, our attorney always asks us to remind everybody that all statements made on this afternoon's call are protected by the Safe Harbor statement, Private Securities Litigation Reform Act of 1995.

Bridgeline is pleased that we continue to deliver profitable results, and we're excited that we continue to see ongoing sequential increases in iAPPS software licensing. In fact, as you have seen from our announcement earlier today, in this last quarter our year-over-year iAPPS licensing increased 129%. And I'm happy to report that we sold in the third quarter 88 new iAPPS licenses, which the majority of that revenue and gross profit margin has yet to be earned, because they won't until those licenses are deployed. The iAPPS product suite is a very special product, that's going to continue to drive, I think, significant growth for Bridgeline Digital over the next several years. As you know, we're here to build this company and drive Bridgeline to over $150 million, and iAPPS is going to be at the heart of that initiative. Customers such as Honeywell and Sun Chemical, AARP, Cadaret, Grant, Johnson Diversity, Mayfran, all these companies agree that iAPPS provide very powerful and cost effective functionality that's helping them maximize their web assets.

There's over 234 million active web sites globally and we believe that over a third of these sites, intranets or extranets, portals, e-commerce sites they all need a powerful product like iAPPS that's going to help maximize either their web content, analyze their site's performance with analytics or maximize their e-marketing capabilities on the site or maximize their e-commerce initiatives. Only iAPPS today can provide them with all four of these product suites, deeply integrated into the heart of their sites in either a SaaS or perpetual licensing option.

We are very excited that the iAPPS Concept Manager recently won the 2010 CODiE award as the best web content management product globally. Bridgeline's bookings in our pipeline are strong, and over the past few months we've seen a mild surge of qualified opportunities. We are excited about the outlook for the remainder of fiscal 2010 and the launch of fiscal 2011.

In the middle of the third quarter, Bridgeline completed the acquisition of TMX Interactive, expanding Bridgeline's presence into the Philadelphia region. TMX Interactive was an award winning Company that provided web application development, web design, usability, and content management system implementation services for its customers. Four consecutive years in a row TMX won numerous industry-related awards and was recognized by the Internet Advertising Competition as one of the top interactive companies in the United States. In 2009, they were a competing developer of low end web content management software, a company named Ektron recognized TMX as their rookie partner of the year. In 2009, TMX had annual revenue of approximately $2.4 million in sales. And they serviced a .NET customer base that included LG Electronics, Northwestern Mutual, PNC Bank and Sony.

On July 9th, Bridgeline completed the acquisition of selected assets of eMagination and eMagination Intelligence Group, expanding Bridgeline's presence into the Baltimore region and into the Federal Government marketplace. eMagination was an award winning interactive technology Company that provided web application development, web design, usability and content management system implementation services for its customers. eMagination had historical annual sales of a tad over $5 million annually, and they serviced a customer base across various industries including government, healthcare, technology, associations and education. Their customers included Northrup Grumman, ITT, Lockheed, AARP, the Baltimore Washington International Airport, and the Centers For Medicaid and Medicare.

eMagination operated two different groups. They had eMagination Network, which provided interactive technology and web application development to Washington, DC and Baltimore area commercial markets, and eMagination Intelligence group or eMagination IG, which was a wholly owned subsidiary that provided technology solutions in projects with the United States government. eMagination IG marketed their web development services to the Department of Health and Human Services, the Department of Homeland Security, the Department of Justice, and the Department of Defense. Emagination IG, whose services are listed on the GSA schedule, is currently operating as a wholly owned subsidiary of Bridgeline Digital.

We believe these recent acquisitions, TMX, eMagination, and eMagination IG, will dramatically accelerate the distribution of iAPPS into new markets that we did not currently occupy. With the completion of these acquisitions, Bridgeline's quarterly revenue will be approximately $7.5 million, with annual revenue run rate of approximately $30 million. Once the one time related acquisition costs are fully absorbed, we believe both acquisitions will be immediately accretive to earnings. At this time, I'd like to turn the call over to our Chief Financial Officer, Ron Levenson, who can provide you with greater detail of our third quarter and first nine months financial results. Ron?

Thank you, Thomas.

First I'd like to review the results of operations for the quarter ended June 30th, 2010. Revenue for the quarter was $5.8 million, compared with $6 million for the same quarter of the prior year. A decrease of $200,000, or 3%. Revenue from subscription of perpetual licenses increased $302,000 or 129%, compared with the same quarter of the prior year, to $537,000 from $235,000 the prior year. The increase is due primarily to the higher amount of perpetual licenses recognized in the current period as compared with the prior period.

This increase, however, was offset by a decrease in web application development services of approximately $360,000, or 7%, and a decrease in managed services hosting of approximately $150,000. The increase in subscription and perpetual licenses is attributable to the Company focusing its marketing and new business development efforts towards more iAPPS-related opportunities. These efforts have also contributed to a decrease in both web application development services and managed services hosting. Additionally, there has been some customer attrition as a result of our efforts to engage with larger organizations, as opposed to some of the smaller customers obtained through acquisitions.

Our gross profit decreased $177,000, or by 5%, to $3.1 million, and $3.3 million the same period a year ago. And our gross margins decreased to 53.9% from 55%, primarily attributable to the decline in web application development services. Our operating expenses as a percentage of revenue increased to 53% from 52% a year ago. This increase as a percentage of revenue is attributable to lower revenue. Additionally, our operating expenses included professional fees and other costs related to our acquisitions of TMX and eMagination and costs related to the integration of our Cleveland operation into our Chicago operation in the amount of $153,000 for the quarter. All acquisition costs are now expensed as incurred.

Also during the quarter, we capitalized software development costs of $59,000 compared with zero for the same quarter of the prior year. Had such costs not been capitalized, research and development cost would have decreased by $20,000 or 5% to $318,000, from $336,000 the same period of the prior year. After one time expenses of $153,000, we generated $598,000 of adjusted EBITDA for the quarter, compared with $768,000 for the same period a year ago. Adjusted EBITDA per diluted share was $0.05 compared with $0.07 a year ago. And non-GAAP adjusted EBITDA after one time expenses of $153,000 was $207,000 for the quarter, compared with adjusted net income of $483,000 for the same period of the prior year.

Adjusted net income per diluted share was $0.02, compared with $0.04 for the same period of the prior year. And after one time expenses, our income from operations was $72,000, compared with $189,000 for the same period the prior year. This decrease is due to lower revenue and one time costs in the current period. After one time expenses of $153,000, our net income for the quarter was $35,000 compared with $178,000 for the prior year.

Next I'd like to review the nine months comparison. Total revenue for the nine month period was $16.7 million, compared with $18.6 million a year ago. Revenue from subscription and perpetual licenses increased $386,000 or 44% compared with the same quarter of the prior year to $1.3 million, from $879,000. This increase is due to a higher amount of perpetual license revenue recognized in the current period as compared with the corresponding period of the prior year. The increase was offset by a decrease in web application development services of approximately 12%. And a decrease in managed services hosting of approximately $400,000. And again, the increase in subscription or perpetual licenses is attributable to the Company's focusing its marketing and new business development efforts towards more iAPPS related opportunity. These efforts have also contributed to the decrease in both web application development services and managed services hosting.

Our gross profit decreased to 53.7%, from 55.4%, again, primarily attributable to the decrease in lower web application development services in the current period. Our operating expenses decreased $1.1 million, or by 11% for the current nine month period, as compared with the same period of the prior year. As a percentage of revenue, our operating expenses remained constant at 52% for both periods. Sales and marketing costs decreased by $900,000 or 19% due to lower compensation cost. And general and administrative expenses increased by approximately $200,000, primarily due to professional fees and other costs related to our acquisitions of TMX and the integration of the Cleveland operations into Chicago in the amount of $160,000. And during the nine month period we capitalized software development costs of $345,000, compared with zero for the same period the prior year.

After one time expenses of $160,000, we generated $1.8 million of adjusted EBITDA for the first nine months, compared with $2.2 million for the same period of the prior year. Adjusted EBITDA per diluted share was $0.16 for the quarter, compared with $0.20 for the same period of the prior year. After one time expenses of $160,000, our non-GAAP adjusted net income was $887,000 for the first nine months, compared with $1.3 million for the same period of the prior year. And adjusted net income per diluted share was $0.08 versus $0.12. After one time expenses of $160,000, income from operations was $344,000, compared with $627,000 for the same period of the prior year. This decrease is primarily due to lower revenue and one time costs in the current period. After one time expenses of $160,000, our net income was $275,000 for the period, compared with $561,000 for the same period of the prior year.

We generated $1.7 million in cash from operating activities in the first nine months of fiscal 2010. And at June 30th the Company had total assets of $27.3 million, cash and receivables of $6.6 million. We had $1.7 million outstanding under our bank line, which is $5 million, which was repaid in full in July 2010. During the current quarter, we recorded $456,000 of earn-outs on our balance sheet related to the TMX acquisition in accordance with new accounting rules. These earn-outs are payable quarterly beginning January 2011. Prior to this year, earn-outs were recorded when they were earned. And in order to achieve these earn-outs, TMX must achieve a quarterly revenue target of minimally $600,000. At this time, I will turn the call back over to Thomas.

Thanks, Ron. We have a solid recurring revenue base, a very high percentage of booked engagements as we enter each quarter, a diversified customer base and a high fixed cost structure. So we have very good visibility of our business model.

With 76% of our customers paying Bridgeline a recurring monthly fee, we have developed an excellent customer traction model. Our SaaS based web engagement management software, iAPPS, is very innovative, and it deeply integrates web content management, web analytics, eCommerce, and eMarketing capabilities. So each quarter that we sell more and more iAPPS driven web applications, and as a result we're going to continue to strengthen our recurring revenue model.

Our value proposition is unique and it provides deeply integrated web solutions that quickly provide productivity gains and cost efficiencies to our customers, which allows us to continue to win new customers and retain existing ones. Tyrone, at this time, we would like to open the line for any questions from our shareholders, potential investors, or analysts.

Thank you, sir. (Operator Instructions). And sir, I'm showing no questions or comments at this time. I would like to turn the conference back over to Mr. Massie for any closing or further remarks.

Thanks, Tyrone. Thanks, everybody, for attending today's call. If you have any additional questions later don't hesitate to reach out to Ron or myself any time. You can find our contact information available on Bridgeline Digital's website. Once again, thank you, and everyone have a great weekend.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a wonderful day.