Bridgeline Digital Inc (BLIN) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Bridgeline Digital second quarter, 2012 earnings conference 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 call may be recorded. I would now like to introduce your host for today's conference, Kim Brown, Director of Investor Relations. Ma'am, you may begin.

Thank you. And good afternoon everyone. I am pleased to welcome you to our second quarter conference call. 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 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 do not undertake any obligation to inform you. 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 projections or forward-looking statements made today. For more 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 the transcript of this call will be available for replay. You can find the information on the investor section of our web page. At this time, I would like to turn the call over to Bridgeline Digital's President and CEO, Thomas Massie.

Thank you, Kim. And thank you everybody for joining us today on this Friday afternoon. Typically we do our earnings announcements on Mondays. However, we will be attending the SRA Micro Cap Conference in San Francisco on Monday and Tuesday, so we were forced to actually do the announcement on Friday afternoon. Once again, thanks for taking the time to join us. We're very excited about the continued strong growth of the iAPPs related revenue, and the continued strong growth of our recurring revenues. In our second quarter of fiscal 2012, Bridgeline generated $6.7 million of revenue.

While this is a slight increase when compared to the second quarter of 2011, the real story is our continued strong iAPPs growth. Year-over-year, Bridgeline's iAPPs related revenues increased 54%, and our recurring revenues increased 21% during the same period. In addition, we are pleased to report Bridgeline's gross profit margins increased to 56% of revenues, compared to 51% of revenues a year ago. As we continue to see iAPPs grow, we believe our gross profit margins will continue to improve as well. IAPPs provides Bridgeline with a very strong business model, and it offers significant customer traction. It gives us recurring software revenues, recurring services revenues and creates a very strong business model for Bridgeline. Since we launched our first iAPPs module, almost four 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 43% of our annual revenues. And in the second quarter of 2012, iAPPs related revenue represented 64% of our total revenues. In Q2 of 2012, Bridgeline generated $524,000 of positive EBITDA. This is 105% increase from Q2 of 2011. Bridgeline's balance sheet remains in stable condition, with over $30 million in assets and only $10 million in liabilities, with over $20 million of stockholder equity. In the second quarter of 2012, Bridgeline's new bookings increased to $6 million, and for the first month of Q3 2012 which is our current quarter, we also experienced very strong bookings.

With a current record qualified pipeline in place, we anticipate Q3 of 2012 to drive record bookings for the Company. In the first six months of 2012, 73 new iAPPs licenses had been sold. While this is much lower than we anticipated, it's a timing issue. We anticipate that Bridgeline will sell approximately 150 new iAPPs licenses in our current quarter. As of March 31, 2011, Bridgeline has sold a total of 501 iAPPs licenses. In the second quarter, Bridgeline won over a dozen new engagements. For example, one of the largest executive leadership training and educational organizations in the United States, selected the iAPPs platform for a wholesale redevelopment of its primary mission-critical website, including its online commerce capabilities.

The customer was extremely impressed with the deep integration and capabilities of the iAPPs product suite. Another new Q2 engagement was with one of the Department of Energy's largest technology laboratories. This customer chose iAPPs for its ease of use and cost effectiveness, particularly with regard to its need to roll out authoring capabilities to hundreds of research scientists across the organization. And finally, another large win for us was one of the largest financial institutions in the southeast, who selected iAPPs for a complete redevelopment of their mission-critical website. This new customer requires the ability to easily update content across their websites, while maintaining strict security access and workflow requirements to protect customer's financial data and profile information. The last example is one of many wins that iAPPs had in the financial vertical.

Some of the best brand names companies in the world have selected iAPPs because of its rich benefits and features that only iAPPs can provide. Only iAPPs provides the deep integration of iAPPs Commerce, iAPPs Content Manager, iAPPs Marketier and iAPPs Analyzer, that allows our customers to truly maximize their mission-critical websites, intranets or online stores. In addition, these organizations really value the flexibility of the iAPPs architecture, as it's the only platform in the world that provides a true cloud multi-tenant SAAS based environment, or for the customer that may be very data sensitive, a dedicated server environment. In December we announced that Bridgeline signed an agreement with a strategic 500 Company. We believe this alliance is going to be significant catalyst for iAPPs and Bridgeline for years to come.

As we have stated in the past, iAPPs sales cycles are four to six months, and our delivery cycles are also four to six months. Due to these lead times, Bridgeline doesn't believe we're going to see a financial impact of this newly formed alliance until our September quarter. However, this is a major catalyst, and we believe we will have significant financial impact in 2013 and beyond. Bridgeline plans to announce the details of this iAPPs alliance by the end of June of 2012. Over the past six months, Bridgeline's management has been executing a well thought out investor communication plan. Since January 1, Bridgeline Digital has experienced significant increase in public market value, and our average trading volume. We are excited with our new institutional shareholder who has recently purchased 11% ownership of Bridgeline Digital.

We believe they will provide significant strategic value to our business initiatives and shareholder value objectives. In addition, our trading window finally opened during the second quarter, after being closed for quite some time, and every director and every officer of Bridgeline was very excited that they were able to purchase Bridgeline's stock in the open market. While the improved public market cap is very welcomed, Bridgeline still believes we are significantly undervalued when compared to our peers. Our current public market valuation is approximately $17 million. Based on our peer group revenue multiples we are of the opinion our true valuation is clearly north of $50 million.

We are committed to working hard to continue to close this valuation gap. We will continue to execute our iAPPs expansion initiatives, and we will continue to communicate the exciting iAPPs growth story to a targeted nano-cap investment community. 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 Q2 financial results. Mike?

Thanks, Thomas. And good afternoon everyone. I'd like to review the results of operations for the quarter ended March 31, 2012. Revenue for the quarter increased to $6.7 million from $6.6 million in the second quarter of last year. While the revenue growth was modest, we continue to see significant increase in our strategic revenue areas. Our iAPPs related revenue increased 54% to $4.3 million, compared to $2.8 million in the second quarter of 2011. IAPPs related revenue made up over 64% of our total revenue in the second quarter, as our business units are 100% focused on selling our iAPPs product suite.

IAPPs related service revenue increased by $1.4 million or 67% to $3.5 million from the second quarter of last year. This increase is a result of our continued focused investments in marketing and selling iAPPs related engagements. I'd also like to point out that 60% of our iAPPs related services came from existing iAPPs customers. This is important because it substantiates our model that on average, our existing iAPPs customers come back to us every year for an additional $65,000 in iAPPs services. Revenue from managed service hosting increased 22% to $611,000, compared to $501,000 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 Tampa acquisition.

Our recurring revenue, which consists of SAAS licenses, annual maintenance on perpetual licenses and hosting, increased 21% to $1 million, compared to $826,000 for the same quarter a year ago, as we continue to see an increased demand for our iAPPs product suite. As expected, our iAPPs related service revenue decreased $1.4 million compared to the second 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 a 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 represented the decrease in non-iAPPs service revenue. Our gross profit for the quarter improved to 56% from 51%.

We're very excited to report the 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 iAPPs related revenue continued to grow and our costs decreased. Collectively, we are very pleased with this increase from 51% to 56% and believe that we will continue to see gross margin improvement in 2012 and beyond. Bridgeline generated $524,000 of adjusted EBITDA, an increase of 105% compared with $256,000 for the same quarter of last year. Our non-GAAP adjusted net income improved to $120,000 or $0.01 per diluted share, compared with a net loss of $67,000 or breakeven on a per share basis in the second quarter of 2011.

Our net GAAP loss was $166,000, compared with $329,000 for the same quarter of the prior year. Next, I'd like to discuss Bridgeline's balance sheet at March 31, the Company had total assets of $31.7 million. Cash of $1.4 million and receivables of $3.7 million. In Q2 of 2012 Bridgeline's DSO was 53 days. We believe this is 10 to 15 days better than industry average, and is a direct result of our quality customer base and Bridgeline's AR processes. Company had approximately $4.4 million outstanding under its credit line at March 31, 2012.

In terms of our fiscal 2012 outlook, we expect fiscal 2012 revenues to be in the range of $27 million to $28 million. Our revenue strategy will continue to focus on higher gross margin iAPPs-driven opportunities, while discontinuing relationships with lower margin based customers. This strategy reflects a reduction of approximately $2.5 million of revenue generated in fiscal 2011 from lower margin non-iAPPs related customers. In addition, we expect to continue to generate positive non-GAAP income and adjusted EBITDA for the remainder of fiscal 2012. At this time I'd like to open up the call for questions.

(Operator Instructions) Howard Halpern of Taglich Brothers.

Of the 501 iAPPs that have been sold to date, how many have been implemented?

Howard, about approximately 390 have been deployed as of March 31.

Okay. And how many do you anticipate being -- that you'll get on deployment during this upcoming quarter?

I think probably 30 to 40 is a good estimate for Q3.

Okay. And of the anticipated 150 potential or new iAPPs signing's this current quarter, as you get further and further into the quarter, are any of those going to be from that Fortune 500 Company?

Yes.

Okay. And how is that relationship been working so far and how much have you had to -- in terms of spending, have you spent on that relationship?

The investments in R&D on that relationship have already been fully expensed in prior quarters. There may be some additional investments in R&D in Q4, but not significant. Sub $100,000. And the primary investments at this point are all selling and marketing related expenses. The relationship is going excellent. We're getting traction and our pipeline is swelling as we anticipated due to the relationship.

And I guess one final question. This may also be related to the general economy in the US, but have you seen demand for the iAPPs applications stronger in any particular part of the US or overseas?

I think our lead generation year-over-year is up and we have very -- we look at leads, our actual interested parties that take actionable actions on our website, whether it's downloading a white paper, attending a Webinar or seminar, and we have our eight offices in the United States and I think that's where the primary focus of the demand has been is because of the offices, the focus on selling into those metropolitan markets. That's why it's important that we do expand into other markets. And then lastly, I think the catalyst is creating a whole level of lead generation and demand that's concentrated in, right now a couple verticals, primarily retail and high technology.

Keep up the good work. I'll hop back in the queue.

(Operator Instructions) Larry Lawrence of Lawrence Services.

I've been praying with you from day one. Thanks for all the hard work. Do you think the next quarter will be profitable?

Larry, we have said to our shareholder base that the GAAP profitability for Bridgeline on a GAAP basis is somewhere between $7.5 million and $8 million a quarter. So when we reach that $7.5 million to $8 million quarter level, we will be GAAP profitable as we get leverage from our margin and our SG&A.

Okay. So we're probably looking at a year or so?

Oh, no, no, we're quarters away from that, Larry.

$28 million was going to be your year's revenue. Am I looking at the wrong number?

No, sir, we estimated $27 million to $28 million for the year.

One quarter, that's super. Thanks a lot.

(Operator Instructions) Mark Stafford of Stafford Capital.

I guess I missed a part of the call because I dialed in late. You're going to hit profitability in a quarter or two and your fiscal year is July to July or June to July?

September 30.

Fiscal year is September year end. I think the question, Mark, was when do you reach GAAP profitability. We said when our quarterly revenues are somewhere between $7.5 million and $8 million. And the question then was well that's probably a year away and our answer was no, that's sooner. So sometime probably within the next three quarters.

Okay. Yes, then that makes more sense to me. All right. Well I'm looking forward to seeing you guys when you're in Chicago.

I'm looking forward to seeing you, Mark.

Keep up the good work.

At this time I'm not showing any further questions.

Thank you, Sam. Thank you everybody for joining us today. Once again, to summarize, we are so laser-focused on building our iAPPs business organically. It just gives us a great customer traction model. It's an outstanding product platform that's being very well received by our customer base. And our business model just has, as everybody I think has seen it and realized, as our revenues and margins increase, we have strong operating leverage as we grow, and we have a very positive outlook for the remainder of 2012. Thanks for your time on a Friday afternoon. And go Celtics.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.