Bridgeline Digital Inc (BLIN) 2012 Q4 法說會逐字稿

Good day ladies and gentlemen, and welcome to Bridgeline Digital fourth quarter 2012 earnings call. At this time, all participants are in a listen-only mode. Later we will have question-and-answer session with instructions following at that time.

(Operator Instructions)

As a reminder, this conference is being recorded. Now I'll turn the conference over to Kim Brown, the Director of Corporate Communications. Please begin.

Thank you, and good afternoon everyone. I am pleased to welcome you to our fourth 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 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 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 that information on the investors section of our website. 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 everybody. Thank you for joining today on our conference call. Bridgeline had an extremely productive 2012. And as we continue to strengthen our iAPPS business model and build long-term shareholder value, we're really excited to talk to you about all the accomplishments. Right now, I am going to review with you our fourth quarter year-end results at a high level. In 2012 we generated $26.3 million in revenue. This is an increase over 2011, and it is a record year for the Company. While our overall top-line growth represents a very small increase year-over-year, our iAPPS-related revenue grew organically 37% over 2011. iAPPS-related revenue is now 67% of our total quarterly revenue compared to 52% from a year ago.

As I stated on previous calls, in 2011 and 2012, they were periods of transformation for our business model. We are 100% focused on signing and servicing iAPPS customers, and as anticipated in fiscal 2012, we shedded $4.6 million of lower margin, non-iAPPS related business. This business was not strategic for our Company. Bridgeline is committed to building a stronger, more predictable, more profitable business model that offers significant customer traction, recurring software revenue, recurring services revenue, and scale. We expect to begin reaping in the financial benefits of our iAPPS business model towards the end of fiscal 2013, and that's when we also believe our overall top-line revenue will begin to grow at a more significant rate.

In the fourth quarter, we were extremely pleased with our record new bookings of $8 million for the quarter, representing our strongest bookings quarter in the Company's history and an 18% increase over our previous high. Given the qualified pipeline that we currently have in place, we anticipate strong bookings to continue throughout fiscal 2013. I'm also very happy to report that we sold a record 267 new iAPPS licenses in fiscal '12. As of September 30, Bridgeline has sold a total of 695 total iAPPS licenses, and we have deployed 551. In the fourth quarter, Bridgeline won several new engagements, including [Gridal], the University of Delaware, and Hartford Health Care.

Gridal is $1 billion-plus manufacturing company that's undergoing a complete redesign of its site, and they believe Bridgeline to be the best at taking them through this process and understanding their business and their direction. Gridal is a significant addition to the iAPPS portfolio of customers as we continue to expand our manufacturing customer base. The University of Delaware selected Bridgeline because they needed a unified integrated technology platform like iAPPS. In addition, the University of Delaware was very impressed with the depth and expertise of our digital services team. The expertise of our in-house digital services team is a competitive differentiator, and it's a big reason we win so many of our engagements. No one knows our own technology better than our own team, allowing us to produce outstanding web solution that produces results for our customers. Hartford Health Care selected Bridgeline to consolidate eight hospital websites and eight intranets into one unified single platform with new branding and new content across all of these web assets. This is a very large project, and from a platform perspective, iAPPS was a natural choice for its ability to scale, its rich functionality, and its ease of use. Now at this time, I would like to update you on our strategic partnership with UPS Logistics.

As most of you know, this past June we announced that we had signed a multi-year agreement and partnered with UPS Logistics to develop and sell an integrated, all-inclusive B2C and B2B e-commerce solution for mid-market and large-market organizations. Both UPS Logistics and Bridgeline have continuously heard their respective customers ask for a simplified end-to-end webstore and fulfillment model. As a result, UPS Logistics conducted a search for a high quality e-commerce platform, and ultimately selected iAPPS as its partner of choice. The selection by UPS Logistics and our existing alliance that we have in place provides enormous validation of iAPPS commerce value's proposition and the capabilities of Bridgeline Digital.

I am very excited to inform you that we've closed and are launching multiple deals with UPS Logistics. As an example, Bridgeline and UPS have won a significant engagement with GE Health Care. This particular division of GE required a B2B e-commerce platform to service its growing demand for their health care and government customers who wanted the ability to transact business and order online. They needed a powerful end-to-end e-commerce solution, and UPS Logistics and iAPPS quickly became the best choice to meet their demanding requirements. GE Health Care is excited about the power of iAPPS commerce suite, and the fact that they will be able to leverage the platform to drive incremental revenue and attract new customers. Again, we are very excited about our recent partnership with UPS Logistics. We have a growing pipeline, and I look forward to sharing more wins with you in the coming quarters.

Now let's turn to our new SaaS platform, offering iAPPS ds; ds is for digital subscription. As we announced on August 14, iAPPS ds has been specifically developed for franchise networks and large dealer organizations who need to provide superior website solution tools to their numerous franchises and dealers, while maintaining content and brand control. iAPPS ds leverages the intellectual property of our iAPPS product suite, and it enables corporate franchises to provide a centralized digital marketing structure for their franchises and dealers. The benefits of this solution are primarily twofold. The corporate franchises have superior oversight and consistency of branding, and the ability to push broad targeted content to all of their franchise owners and dealers. In addition, franchise owners and dealers themselves have access to state-of-the-art web tools to easily manage a local website in which they can personalize content, execute local e-marketing campaigns, analyze their website activity, drive e-commerce initiatives, and connect with their local communities. iAPPS ds is a cloud-based multi-tenant SaaS solution. Therefore, customers can rely on Bridgeline's co-managed tier one hosting facility, whether we are supporting 100 franchises or 10,000 franchises. iAPPS ds is a highly scalable solution.

From a financial perspective, iAPPS ds has the potential to significantly increase Bridgeline's recurring revenue and profitability. This subscription-based model would require each franchise owner or the dealer to pay a monthly subscription fee of $40 to $100 per month, depending on the total volume of that franchise organization. For this, each franchise would receive a self-service, pretemplated website that includes iAPPS content management, analytics, and marketing modules. If our e-commerce module is to be included, than each franchise would pay an additional $25 to $50 per month, depending on their volume commitment.

On our last earnings call in August, we informed you that we signed our first iAPPS ds customer. Although we are not able to actually mention this particular powerhouse by name, I'm especially pleased that we were able to update you earlier today with our announcement, and that the migration of their 4,300 franchise sites onto the iAPPS ds platform is going extremely well, and is actually ahead of schedule. This particular engagement represents a multi-year, multi-million dollar engagement, and this customer represents an exceptional national brand, and we are ecstatic to have them as an iAPPS ds customer. Bridgeline won this business as a result of the strength and the value proposition of iAPPS ds, and the customer is extremely pleased with the platform, and has given us phenomenal feedback that this is a significant upgrade for them in terms of functionality, ease of use, and value.

iAPPS ds has a unique advantage in the franchise market, which currently is a void, providing franchises and local dealers with access to robust web engagement management tools. Bridgeline has the opportunity to aggressively fill this void while dramatically increasing our subscription-based recurring revenue model. The opportunity for iAPPS ds is significant, and Bridgeline is currently making the appropriate infrastructure investments to capitalize on this exciting vertical market. Currently, there are over 773,000 franchises in North America alone, which represents over $0.5 billion of revenue opportunity for iAPPS ds. In addition, there are tens of thousands of other prospects for iAPPS ds. For example, the financial advisor, insurance, independent real estate brokers are all examples of industries that need a distributed platform to offer mini websites to their financial advisors or brokers while maintaining corporate control, corporate communication, and brand oversight. We are happy to report that interest for iAPPS ds is very strong and our pipeline is growing.

Needless to say, there are a lot of exciting things happening at Bridgeline Digital. The opportunities we have with UPS Logistics partnership and iAPPS ds are significant, as well as transforming our business to a more profitable and predictable business model. We expect these initiatives will begin to yield results later in 2013 and beyond. Okay, at this time, I'm going to turn the call over to Mike Prinn, our Chief Financial Officer, who will provide you with more details on our fourth quarter financial results and year-end. Mike?

Thank you, Thomas. Good afternoon everyone. I will walk you through the results of operations for our fourth quarter and year ended September 30, 2012. For fourth quarter revenue increased to $6.7 million, compared to $6.6 million in the fourth quarter of last year. For fiscal year 2012, revenue was $26.3 million, which was another record revenue year for us, as we came in slightly higher than fiscal 2011. I'll go through in more detail our revenue breakout as it is important to highlight our significant growth in our iAPPS business for the fourth quarter and year-over-year.

So our iAPPS-related revenue increased 31% to $4.5 million for the fourth quarter of 2012, compared to $3.4 million in the fourth quarter of 2011. And for fiscal 2012, iAPPS-related revenue increased 37% to $16.6 million, compared to $12.1 million in 2011. iAPPS-related revenue was 67% of our total revenue in the fourth quarter of 2012, compared to 52% in the fourth quarter of last year. iAPPS-related revenue was 61% of our total revenue in full fiscal 2012, compared to 45% a year ago. As you can see, the increase in iAPPS-related revenue is significant, as almost all of our new business development opportunities are focused on the iAPPS solution. Our iAPPS-related service revenue increased 37% to $3.7 million for the fourth quarter, compared to $2.7 million in the fourth quarter of 2011. iAPPS-related service revenue for fiscal 2012 increased 42% to $13.5 million, compared to $9.5 million in 2011. 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 55% of our iAPPS-related services in fiscal 2012 came from our existing iAPPS customer base. 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-related services.

Our recurring revenue, which consist SaaS license, annual maintenance on perpetual licenses, and hosting increased 25% in the fourth quarter of 2012 to $1.1 million as we continue to see an increased demand for iAPPS product suite and continue to build our recurring revenue base. Our recurring revenue also increased 27% from fiscal 2011 to fiscal 2012. So finally, our non-iAPPS--related service revenue decreased $1 million from the fourth quarter of last year. As we have discussed previously on our earnings calls, we have discontinued servicing our lower margin non-iAPPS-related engagements. This $1 million decrease represents a 36% decrease in non-iAPPS-related service revenue from the fourth quarter of last year. For the year, our non-iAPPS-related service revenue decreased $4.6 million in fiscal 2012 compared to fiscal 2011.

Moving onto gross margin. Our gross margin for the fourth quarter improved to 57% from 52% in the fourth quarter of last year. Total gross margin for 2012 was 55% compared to 51% in 2011. These significant year-over-year increases in gross margin are due to lower cost of revenue across all of our business lines. 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 continues to grow and our costs decrease. Collectively we are very pleased with gross margin improvement and believe that we will continue to see an increase in 2013, particularly with the growth of our iAPPS ds business.

Our adjusted EBITDA, Bridgeline generated $583,000 of adjusted EBITDA in Q4, an increase of 31% compared to $444,000 for the year ago. For 2012 we generated $2 million in adjusted EBITDA, an increase of 33% compared to $1.5 million in 2011. Non-GAAP adjusted net income in the fourth quarter, our non-GAAP adjusted net income was $268,000, or $0.02 per diluted share, compared to $250,000, or $0.02 per diluted share in the fourth quarter of last year. Fiscal 2012 non-GAAP adjusted net income increased to $470,000 or $0.04 per diluted share, compared to $387,000 or $0.03 per diluted share in 2011. Our GAAP net loss was $40,000 in the fourth quarter, compared to $51,000 in the fourth quarter of last year. And fiscal 2012 net GAAP loss was $946,000, compared to $782,000 in fiscal 2011.

So turning to our balance sheet, at September 30 the Company had total assets of $33.7 million with cash of $2.1 million and receivables of over $4 million. In Q4, our DSO was 54 days. And in the liability section, the Company had approximately $4.1 million outstanding under its credit line at September 30, 2012.

So moving to our fiscal 2013 outlook, our guidance. We expect fiscal 2013 revenues to be approximately $29 million. This revenue growth will come from an increase in iAPPS-related revenue of approximately 40% in fiscal 2013. This revenue projection also includes a projected reduction in non-iAPPS-related legacy revenue of approximately $3 million. So the foundation of our revenue guidance, we wanted to provide some insight into our backlog. We currently have a backlog of approximately $14 million. Of this $14 million backlog, approximately $4.6 million is recurring. So we are license or managed service agreement or iAPPS ds, and this represents approximately 44% of our total backlog. Also, approximately $10 million, or 70% of our backlog, is iAPPS-related. So our revenue strategy will continue to focus on higher gross margin iAPPS-driven opportunities, while discontinuing relationships with lower margin-based customers.

I'd also like to point out that historically we have given guidance on an annual basis, and that's what we will do for fiscal our 2013. However, I would like to share with you that we have been impacted to some degree by Hurricane Sandy in Q1. So as you know, about half of our field offices are located in the Northeast, and we did experience delays from both a bookings perspective, so signing new deals, and a delivery perspective, in November. In addition, our fiscal first quarter is extremely busy for our customers as they lock down their websites throughout the holidays, and we would expect delivery to pick up in subsequent quarters. From a revenue perspective, although we do not provide quarterly guidance, I do want to highlight that we anticipate slightly lower revenue in Q1, but then ramping up throughout the year and finishing much stronger in Q3 and Q4. In addition to our revenue guidance, we expect to generate positive non-GAAP income and positive adjusted EBITDA throughout fiscal 2013.

So at this time, I would like to open up the call to Q&A. I did just want to make the audience aware that Thomas is conducting the call in our Atlanta office, and I am here at our headquarters in Burlington, Massachusetts. I apologize in advance if we step over a little bit during the Q&A session. Operator?

Thank you.

(Operator Instructions)

We have a question from Howard Halpern of Taglich Brothers. Your line is open.

Congratulations. Solid quarter and solid year.

Thank you, Howard.

Of the -- this is about the guidance going forward. You closed the year with 695 iAPPS licenses. To gain that 40% growth, approximately how many new licenses do you hope to achieve and deploy in fiscal '13?

Well, I am going to let Mike zero in on some of the detail there, but I think from your model perspective, Howard, I think it's important going forward that we start breaking out what we'll call the enterprise licenses, which are the iAPPS licenses we have been selling to date. And then, of course, the iAPPS ds needs a separate line item because it's a much lower price point, but extremely much higher volume. To give you an example, we are going to go from 500 customers this quarter to probably well over 2,500 customers within the next three months, just because we are launching these franchises, right? So Mike, why don't you give him the specific model guidance there.

Sure, Thomas. Howard, so like Thomas mentioned, a big piece of it is going to be from iAPPS ds. You are going to see a significant number in increase in number of licenses. This year we sold 267 licenses. I think we are not going to give specific license guidance. You could probably do the math and come up with what you think the percentage of increase in license sales will be for fiscal 2013 from the enterprise side. Then we have given a little bit of color about our first ds customer and exactly the number of licenses and websites they have, and they are going to ramp up, probably about half of them will be ramped up maybe the end of this quarter, and the remainder will ramp up throughout fiscal 2013.

Okay, and what are you seeing now in terms of -- I know you talked about what your backlog is and what $8 million in bookings, I guess from the enterprise side. Are you seeing customers coming in with larger number -- larger orders than in the past year?

Yes, Howard, we absolutely are. Our customer base and the size of the engagements, we have seen them sort of tick up a little bit. From a model perspective, when you take a blunted average over the last 12 to 18 months, not much has changed, but looking at probably the last quarter or so, we do see each engagement around 3.5 licenses, and then the service engagement, the initial engagement is increasing a little bit in the last quarter or so.

Okay, and do you have a rough, I guess, a rough estimate of, because I know Thomas talked about to make some infrastructure investments. Could you give a general range what that might be for this fiscal year?

So basically just the general CapEx budget, Mike. What is that for fiscal '13?

I think from an operating expense perspective, I think what you did see in the fourth quarter, we had some capitalized software for R&D. That's probably about $400,000. The rest of the operating expenses, you'll see a little bit of an uptick. Then from a capital perspective, we spent a significant amount building up our network operations center over the last couple of years. Certainly that's well equipped to handle our current iAPPS ds customer and what is anticipated over the next year or two. So from a capital expense perspective, probably nothing significant, maybe $50,000 to $100,000 per quarter.

I think in 2013, Howard, our CapEx investments approached $1 million, but it won't be that high for -- I'm sorry. For 2012 it approached $1 million, but as Mike said, we're in really good shape to drive our projections for fiscal '13, and it should be about $150,000 a quarter on average.

Okay. So really no real hiring to support this growth? You have people in place and the leverage in place to get to where you need to be?

We do have a hiring plan. I mean, so the answer to the question is for the most part is correct. We do have a hiring plan to drive the $29 million of approximately a dozen people.

Okay.

But that's on a base of about 180, right.

Right, and then that goes to leverage the following fiscal year, when hopefully more --

Well, the ramp that we're going to see in Q2, Q3, and Q4, based on our current backlog.

Okay, and are you -- I mean, I am assuming you're at -- you talked about what the market opportunity is and the franchises you are bidding on potential, or is that part of the pipeline actually that you're talking about, the customers in your sight line?

We do have iAPPS ds other customers and opportunities that are in our qualified pipeline today, yes.

Okay. Okay, guys. Well, keep up the good work.

Thank you.

Thanks, Howard.

Thank you.

(Operator Instructions)

Next question is from John Henderson of Inflection Point. Your line is open.

Good afternoon, guys.

Hey, John.

Can you quantify where the qualified pipeline stands in relation to last quarter? I know on your last call that you had referenced an eight digit pipeline a couple months out of the gate. Can you maybe talk in broad terms where that has gone on a sequential basis three months later?

Our qualified pipeline has sequentially grown significantly over the last three to four quarters. So we are pleased. I don't think we have ever released the size of our pipeline numbers. We have never reported that metric. But we have a very stringent qualification process. When we talk about pipeline, it's not a funnel. It's a qualified opportunity, and it has grown. While we had a record bookings quarter in Q4, we have also seen our pipeline consistently sequentially grow anywhere from 20% to 25% a quarter for the last year.

Okay, and in terms of the sales cycle that you're expecting on UPS, can you quantify that for investors?

UPS Logistics' sales cycles are approximately nine months.

Nine months, okay. Great. And I'm sorry, I came in a minute or two late onto the call. Did you guys reference that you're expecting revenue growth to actually be accelerating as you exit this fiscal year? If you could just touch on that again, I would appreciate that.

Sure, John. We just mentioned in terms of guidance that we had a little bit of impact due to Hurricane Sandy from both a bookings perspective, so getting some deals through the pipeline and signed. And then from a delivery perspective. So we gave guidance for the full year, but we just said that it will be a little bit lower in Q1, and then finish obviously a lot stronger in Q3 and Q4, to get to our $29 million for the year.

But you didn't reference anything in terms of where your growth rates might be as you exit this new fiscal year? I thought you had touched upon that, or maybe I misheard?

No, you're right, John. I mentioned early on in the call that we're anticipating legacy business revenue to decline. I believe that number was close to $4 million for fiscal '13. And while we're also projecting iAPPS-related business to achieve or exceed 70% of our total revenue, when you look at the strength of our backlog, over 70% of it is iAPPS related. So we will, by the end of fiscal '13, we will be at that inflection point where the overall top-line growth will start showing stronger top-line percentage year-over-year growth because we will be shedded, a lot of the legacy business will be shedded.

Okay, and in terms of obtaining GAAP profitability, I know last call you had kind of referenced that that might be happening within the next quarter or two. That seems to have been pushed back a little bit. Is there any ability to kind of provide investors with a road map to when you are going to get to that? I think it's $7.5 million quarterly mark. I mean, is it pushed back a quarter or so, is it because of the hurricane? What's going on there in terms of timing on that front?

Sure, John. So we've always been consistent. Probably in the last 6 to 12 months saying that we think we will get to GAAP profitability when the top-line gets to between $7.5 million and $8 million. Obviously our comment about Q1 and being impacted by Hurricane Sandy a bit, we mentioned revenue might be a little slower in Q1. I think If you just look at the other three quarters and look at our revenue guidance for the year, you could probably make a good estimate as to what that looks like. When we do get to that $7.5 million, $8 million mark, we expect to hit GAAP profitability.

Okay. Thanks a lot, guys. Appreciate the input.

Thanks, John.

Thank you. There are no further questions in the Q&A at this time. I would like to turn the call over to Thomas Massie for any closing remark.

Thanks everybody for joining us today. I think just to summarize, we do have a lot of exciting things happening at Bridgeline as we continue to transform our business to 100% iAPPS-driven business. It's going to give us strong customer traction and continued excellent visibility. Our strategic alliance with UPS Logistics and our new iAPPS ds platform for the franchise market are exciting and they are very impactful. We remain committed to building shareholder value in all areas of our business. We have an extremely positive outlook for Bridgeline in fiscal '13 and beyond. We at Bridgeline want to wish all you a very happy Hanukkah or a very Merry Christmas, and go Patriots. Thank you.

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