Bridgeline Digital Inc (BLIN) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, welcome to Bridgeline Digital's first-quarter 2012 earnings call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this conference call is being recorded. I would now like to turn the conference over to Kim Brown, Director of Investor Relations. You may begin.

Thank you, and good afternoon, everyone. My name is Kim Brown and I am the Director of Investor Relations for Bridgeline Digital. And I am pleased to welcome you to our first-quarter conference call for fiscal 2012.

Before we begin I would like to remind listeners that during this conference call comments that we make regarding Bridgeline Digital that are not historical facts are forward-looking statements and are subjected 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 undertake no obligation to inform you if they do. Results that we report today should not be considered as an indication of future performance. Changes in economic, business, competitive, technological, regulatory and other factors could cause Bridgeline's actual results to differ materially from those expressed or implied by the projection of forward-looking statements made today.

For detailed information about these factors and other risks that may impact our business, please review the reports and documents filed from time to time by Bridgeline Digital with the Securities and Exchange Commission.

Also please note that on the call today we will discuss some non-GAAP financial measures in talking about the Company's financial performance. We report our GAAP results as well as provide a reconciliation of these non-GAAP measures to GAAP financial measures in our earnings release.

You can obtain a copy of our earnings release by visiting our website. I would also like to remind you that the audio and a transcript of this call will be available for replay. You can find that information on the investor section of our webpage. At this time I would like to turn the call over to Bridgeline Digital's President and CEO, Thomas Massie.

Thank you, Kim, and good afternoon, everyone. We are very excited about the continued strong growth of iAPPS-related revenue and the continued growth of our recurring revenues. In our first quarter of fiscal 2012 Bridgeline generated $6.5 million of revenue. While this is flat when compared to the first quarter of 2011, the real story is our continued strong iAPPS growth.

Year over year Bridgeline's iAPPS-related revenues increased 28% and our recurring revenues increased 32% during the same period. In addition, we are pleased to report Bridgeline's gross profit margin increased to 53% of revenues. As we see continued iAPPS growth we believe our gross profit margins will continue to improve.

iAPPS provides Bridgeline with a very strong business model that offers significant customer traction, recurring software revenues, recurring services revenues and since we launched our first iAPPS modules three and a half years ago we have been transforming our business.

Three and a half years ago iAPPS-related revenue made up only 11% of our total sales. In fiscal 2011 iAPPS-related revenue represented 46% of our annual revenues and in the first quarter of 2012 iAPPS-related revenues represented 55%.

In Q1 of 2012 Bridgeline generated $428,000 of positive EBITDA and generated nearly $100,000 positive cash from operations. This is a $400,000 improvement in cash generation from operations when compared to Q1 of 2011. Bridgeline's balance sheet remains strong with over $31 million in assets, only $10 million in liabilities and over $21 million in stockholder equity.

In the first quarter of 2012 Bridgeline's new bookings were $5.5 million. While the new bookings were lower than previous quarters, this was a timing issue for the month of December as we had record new bookings for the month of January. In Q2 of 2012, 32 iAPPS licenses were sold. Once again, while this is lower than previous quarters, we anticipate new licenses sold in the second quarter to be significantly higher.

As of December 31, 2011 Bridgeline has sold a total of 460 iAPPS licenses. In the first quarter Bridgeline has won a dozen new iAPPS engagements. For example, a large pharmaceutical company selected iAPPS to drive its entire mission critical public facing website. During the process they were extremely impressed with iAPPS and its easy to use interface.

Another new iAPPS engagement last quarter was in the medical field and represents three large nationally recognized hospitals that all came together to launch one site to treat high risk pregnancies. They collectively selected iAPPS for its ease-of-use, built-in workflows, scalability and their ability to remove IT from their processes.

Some of the best brand name companies in the world have selected iAPPS because of the rich benefits of features that only iAPPS can provide. Only iAPPS can provide deep integration of iAPPS Commerce, Content Manager, Marketier and Analyzer, allowing our customers to truly maximize the data and the performance of the mission-critical websites, Internet or online source.

In addition, these organizations value the flexibility of the iAPPS architecture which allows them to deploy their sites via state-of-the-art cloud-based SaaS delivery model or traditional dedicated server environment.

On average each iAPPS engagement that has been purchased is three iAPPS licenses and it generates approximately $365,000 in revenue contribution over a 36-month period with approximately $185,000 of that revenue being recognized in the first 12 months.

In December we announced that Bridgeline signed an agreement with a strategic Fortune 500 company. We believe this alliance will be significant -- a significant catalyst for iAPPS and Bridgeline for years to come. As we have stated in the past, the iAPPS sales cycle is a four- to six-month cycle. And our delivery cycles are three to six months.

Due to these lead-times Bridgeline does not believe we will see a financial impact of our newly formed alliance until our September quarter. However, this is a major catalyst and we believe it will have significant financial impact for fiscal '13 and beyond. Bridgeline will announce the details of this powerful iAPPS alliance before the summer of 2012.

As you know, approximately five months ago Bridgeline received a notification from NASDAQ that Bridgeline Digital's stock price traded below $1 for 30 consecutive trading days, and that Bridgeline's sub $1 stock price did not meet one of NASDAQ's minimum listing requirements.

Over the past few months Bridgeline has had multiple discussions with NASDAQ and we were informed that Bridgeline meets all of NASDAQ's other minimum listing requirements by a wide margin. At the end of March we anticipate we will receive an additional automatic extension.

In order for Bridgeline's stock price to be at $1 our public market value must be at $12.5 million. Bridgeline is a $27 million company with an outstanding SaaS productline addressing a growing market. We have an excellent business model that is producing non-GAAP income, positive EBITDA and positive cash from operations, all of this while we're maximizing our investments in R&D and sales expansion.

We believe Bridgeline's current true market valuation is far greater than just $12.5 million. As we continue to execute our iAPPS growth strategy we believe the gap between our public market value and our true market value will narrow, quickly diminishing NASDAQ's listing concerns.

In addition, we are very excited that Kim Brown has recently joined Bridgeline as our Director of Investor Relations. For seven years Kim was the Director of Investor Relations for Forrester Research, then for nearly five years she was the Director of Investor Relations for Art Technology Group.

As you know, Art Technology Group was a Web development company that evolved into an eCommerce platform company and was recently acquired by Oracle for $1 billion. Kim has created a very proactive Investor Relations communication plan for Bridgeline and we are excited to begin executing this plan.

At this time I'd like to turn the call over to Mike Prinn, our Chief Accounting Officer, who will provide you with more details of our Q1 financial results. Mike?

Thank you, Thomas, and good afternoon, everyone. I'd like to review the results of operations for the quarter ended December 31, 2011. Revenue for the quarter remained flat at $6.5 million. However, we saw a significant increase in our strategic revenue areas.

iAPPS-related services revenue increased 31% or $715,000 from the first quarter of last year. This increase is a result of our continued focused investment in marketing and selling iAPPS-related engagements.

Revenue from subscription and perpetual license revenue increased by 14% to $593,000 compared to $519,000 from the same quarter a year ago. This increase is due to an increased demand of our iAPPS product suite.

Revenue from managed service hosting increased 32% to $616,000 compared to $466,000 from the same quarter a year ago. This increase is primarily related to an increase in hosting demand from our iAPPS dedicated server customers as well as incremental managed service revenue from the Magnetic acquisition.

Our recurring revenue, which consist of SaaS licenses, annual maintenance on perpetual licenses, and hosting, increased 32% to $1 million compared to $800,000 for the same quarter a year ago as we continue to see an increased demand for our iAPPS product suite.

Our non-iAPPS-related service revenue decreased $951,000 from the first quarter of last year. The primary reason for this decline is that we had to suspend the development of a custom Web application for a customer that lost their funding from the private equity firm that owned them.

Also, as we discussed on our last call, we have discontinued servicing our low margin, non-iAPPS government-related engagements; both of these items represent the decrease in non-iAPPS service revenue.

Our gross profit for the quarter improved to 53% from 49%. We're very excited to report this significant increase year over year which is a combination of an improvement in our service, license and hosting margins.

Our service margins have increased as we continue to focus on iAPPS engagements. Our hosting and licensing margins have also increased as our costs remained relatively fixed. However, our revenue continues to grow as we sell more iAPPS licenses. Collectively we're very pleased with this increase from 49% to 53% and believe that we continue to see gross margin improvement in 2012 and beyond.

Bridgeline generated $428,000 of adjusted EBITDA for the quarter compared to $485,000 for the same quarter of last year. In addition, I'd like to point out that Bridgeline generated $95,000 positive cash flow from operations in the first quarter of 2012 compared to a negative $313,000 of cash in the prior year. We expect to continue to generate positive cash flow from operations for the fiscal year.

Our non-GAAP adjusted net income was $73,000 compared with $167,000 for the same quarter of the prior year. This decrease is due to lower GAAP net income and is a result of slight increases in operating expenses as a result of the Magnetic acquisition in the first quarter. Adjusted net income per diluted share remained the same as the first quarter of last year at $0.01.

Our net GAAP loss was $463,000 compared to the $156,000 for the same quarter of the prior year. Included in our GAAP numbers is a one-time non-cash impairment charge to operations of $281,000 related to an intangible asset assumed in a 2010 acquisition. As I mentioned earlier, this intangible asset relates to our decision to discontinue servicing our low margin, non-iAPPS government-related opportunities. The decrease in net income is primarily due to this one-time non-cash impairment charge.

Next I'd like to discuss Bridgeline's balance sheet. At December 31, 2011 the Company had total assets of $31.6 million with cash of $1.7 million and receivables of $4.1 million. In Q1 of 2012 Bridgeline's DSOs were 49 days. We believe that this is 10 to 15 days better than industry average and is a direct result of our quality customer base and Bridgeline's pay out processes. The Company had approximately $4.8 million outstanding under its credit line at December 31, 2011.

In terms of our fiscal 2012 outlook, we expect fiscal 2012 revenues to be in a range of $27 million to $29 million. Our revenue strategy will continue to focus on higher gross margin iAPPS driven opportunities while discontinuing relationships with lower margin based customers and this strategy will reflect the deduction of approximately $2.5 million through fiscal 2012 from existing customer relationships when compared to fiscal 2011.

In addition, we expect to continue to generate positive non-GAAP income and adjusted EBITDA for fiscal 2012. At this time I'd like to turn the conference call back over to Latoya for Q&A.

(Operator Instructions). Howard Halpern, Taglich Brothers.

I wanted to clarify a couple of things to make sure I have them jotted down correctly. You had 32 new iAPPS engagements or licenses?

That was licenses.

Okay. And how many active licenses did you have at the end of last year -- your last fiscal year, September?

We reported 428 licenses and 32 licenses this quarter, so 460 total licenses.

Okay. And this would be -- just a rough range to support the 27 -- the minimum, the $27 million revenue forecast, approximately how many licenses would you like to end the year with?

About 300 licenses sold in this fiscal year.

Okay. And I'm hoping you'd be able to talk a little bit about what strategy you have going forward for more aggressive I guess international sales and what might that mean for margins down at the road?

Well, we do have an expansion strategy for this fiscal year to go into the UK so we can start expansion into the EMEA marketplace with the iAPPS product suite. We already have begun to add some channel partners in the UK; we have two channel partners in the UK right now that are active and selling iAPPS.

In addition, we have an office in Bangalore, India, which is now -- we're beginning to expand and bring on channel partners in Asia Pac. So we want to have channel partners for iAPPS in Japan, Taiwan, Australia, New Zealand and Hong Kong and Singapore.

And based on the sales cycle you would expect that really to affect fiscal '13 year's revenues?

That's correct. So as we told everybody about our model, what we're putting in place right now from a channel partner perspective is to have 100 channel partners globally, 40 in North America, 40 in EMEA and 20 in Asia Pac, all within the next 12 to 18 months from now. And currently we have a little more than -- we have 14 in the United States, two in EMEA and one in Asia Pac.

Okay. Well, a lot of room for growth. I will jump back in the queue and let other people take a crack at you.

(Operator Instructions). Brian Swift, Security Research.

Relating to the strategic customer or partner that you have talked about, will you have much in the way of expenses in the first three quarters of the year getting this ready to launch? And you said that you expect revenues in your fourth fiscal quarter or the fourth calendar quarter from this relationship?

We expect to start recognizing revenue in the fourth fiscal quarter, which would be our September quarter.

Okay, that's what I thought.

And we have been experiencing period expenses both in R&D and sales since our fourth quarter of 2011.

Okay. And could you give any kind of like an estimate of what that's going to be running over the -- on a quarterly basis? I mean is it in the hundreds of thousands or in the tens of thousands?

The expenses?

Yes.

In the tens of thousands.

Okay, so it's not a --?

The additional expenses both in sales and marketing and R&D investments is running under $100,000 a quarter.

Okay. And how about from -- on the other side from the customer, what do you expect the customer is spending to get this thing ready to go?

Similar.

Okay. And any idea what we could be expecting to generate out of that a year from now once it gets going? Is that on a -- say on a quarterly basis?

Well, Brian, in the last conference call I think it was Walter Ramsley who was trying to quantify the impact of the relationship or quantify the word significant. And we believe when we looked at this relationship and once it starts getting into full gear -- which it actually is right now, we just won't be realizing revenue recognition to margin until the fourth quarter -- but we believe that the impact of Bridgeline is in the eight digit range.

Oh, okay, that's significant.

Yes, exciting.

And anyway, you say it's starting in the fourth quarter; okay. And could you talk a little bit about the businesses that you're easing your way out of? How much more of that do you have to do? I know you had talked about that might total about $2.5 million this year, if I'm interpreting it right. And what about the following year? Do you think that will be continuing or will that be (multiple speakers)?

No, we don't think it's going to continue. We think all that is behind us, Brian. The government piece, we were a subcontractor and it wasn't strategic or tactical for iAPPS, and the margins were in the 20s -- well, the margins were in the low 30s.

But when the government managed the budget crisis that was in October, they came to us and were basically telling us they were going to reduce our prices and our margins even greater into the 20s. And at that point it just didn't make good business decision to continue going forward. We're here to generate non-GAAP income of 20% to 21%, not gross margins of 21%.

Right. And so how much of the $2.5 million in revenues was the government side of it?

$1.6 million.

Okay. And then the balance is just a lot of smaller type of deals that just aren't that germane to the business and aren't either iAPPS-related or potential to be converted to iAPPS, is that --?

No, the other one was a healthcare company that I was very excited about. They're about $50 million in size, they were owned by a private equity company and they last year represented about $800,000, Mike, in business? So they did about $800,000 in total business with Bridgeline last year. But, you know, with the manic economy they ran into some financial woes and the private equity firm stopped funding them and we had to cease our development.

Oh, okay. So it was just that one customer that you related to that lost their funding, not a purging of unprofitable or lower margin accounts?

The impact of the $2.5 million is largely, very largely made up of just those two companies.

Okay, all right, that's good. All right, thank you.

Thank you, Brian.

(Operator Instructions).

Okay, I think that's going to wrap it up for today. And thank you, everybody, for joining us. Just to summarize, we do remain very laser focused on continuing the organic growth of iAPPS. We're very excited about our future and our partners. iAPPS provides Bridgeline with a very strong customer traction model with excellent visibility. We have a strong operating leverage in our model as well as the new growth and we are feeling very bullish about the remainder of 2012 and beyond. Thank you and have a great day.

Ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day.