Bridgeline Digital Inc (BLIN) 2020 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Bridgeline Digital, Inc. First Quarter 2020 Earnings Call. (Operator Instructions)

As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Mark Downey, Chief Financial Officer of Bridgeline Digital, Inc. Please go ahead, sir.

Thank you, and good afternoon, everyone. My name is Mark Downey, and I am the Chief Financial Officer for Bridgeline Digital. I am pleased to welcome you to our fiscal 2020 first 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 note that on the call today, we will discuss some non-GAAP financial measures when discussing the company's financial performance. We provide a reconciliation of these non-GAAP measures to our GAAP financials in our earnings release. You can obtain a copy of our earnings release by visiting our website.

I would now like to turn the call over to Ari Kahn, our President and CEO.

Thank you, Mark, and good afternoon, everyone. In 2019, Bridgeline acquired 2 new product lines, Celebros Search and OrchestraCMS. These brought a partnership with Salesforce.com and also artificial intelligence enterprise search technology to our software suite. These have proven to be great differentiators that accelerate our sales cycle.

Thanks to these acquisitions, our sales cycle has improved by a factor of 3 from over 175 days down to approximately 60 days on average. New sales also have a much stronger license to professional services ratio, with nearly 72% of new sales consisting of license and only 28% professional services. Today, over 60% of our revenue is subscription and license, and this ratio is expected to continue to grow as new customers are acquired.

Two important measurements of success of these acquisitions are customer retention and sales volume. I'm happy to report that our newly acquired customers are renewing at even stronger rates than Bridgeline has seen in the past. Customers are also signing multiyear renewals now. Prior to last year, we generally only had single-year renewals.

We are winning more new customers than ever before, with more than 3x the new customer acquisitions in 2019 than we had in 2018. In this fiscal year alone, we have already closed 6 license sales, 5 of which were new customers. This is a rate of nearly 1.5 per month.

Recently acquired customers include B2B manufacturers, global e-commerce retailers and health care and biopharmaceuticals, technology, instrument manufacturers, lifestyle and sporting good retailers, clothing and footwear retailers and regional grocery superstores. Thanks to our partner network, which includes Salesforce.com, UPS, Magento, Shopify, [Magico] and [Optiflow.] We are adding new customers across the globe. We have recently won new customers in the United States, Ireland, Germany, Indonesia and Australia. Our multilingual capabilities just this month have allowed us to recently launch an e-commerce site for a Fortune 500 company that serves Austria, Belgium, Germany, Italy, the Netherlands, Spain, the United Kingdom and Ireland. Much of our recent success has been due to the shorter sales cycle in the Celebros product line. Over the year in which we've owned Celebros, it has proven to have, on average, a 44-day sales cycle, with customer acquisition cost of less than $15,000. Compare this with the more expensive 175-day sales cycle that we had with Unbound and OrchestraCMS.

We intend to further improve Celebros sales by including lightweight features from Unbound and Orchestra products to reduce our customers' reliance on third-party products such as marketing automation, recommendation engines, landing pages. These commonly needed capabilities will be provided with limited functionality in Celebros Search, with an upgrade path to full Unbound and OrchestraCMS license. Celebros helps e-commerce websites generate revenue by allowing online shoppers to more easily find the products they need through intelligent search results. This is called improving the conversion rate.

Celebros beats the competition in conversion rate improvement because its artificial intelligence capabilities provide better search results for shoppers. There are 2 other aspects to increasing revenue for e-commerce sites, however. And no enterprise search products address these. This is increasing site traffic and increasing the number of products each visitor places in their shopping cart.

Unbound and OrchestraCMS do address these needs of increasing traffic and increasing cart size. By offering these Unbound and Orchestra features in a limited way with Celebros, we provide a more complete solution to the revenue generation goal for online marketers than any other enterprise search product. We'll also save online marketers money by providing traffic and cart size capabilities without them having to license and integrate others products. As an example, thanks to Unbound and OrchestraCMS, we'll be able to send coupons to online shoppers who search for a product, but then become distracted, did not finish the shopping cart checkout process. We'll also have the ability to create one-click landing pages that are indexed by Google, with the terms searched on the site by shoppers to further increase traffic. And all of this can be more tightly integrated with Salesforce.com, using OrchestraCMS' native integration for more seamless e-commerce site management.

Unlike other enterprise search competitors, we'll solve the broader revenue goals of online marketers rather than just the conversion partial goal that competitive enterprise search products approach today. And because we're not offering a full capability of Unbound and OrchestraCMS in Celebros, we expect to create a strong pipeline of sales for these enterprise products from our newly acquired Celebros customers in addition to our standard sales channels such as Salesforce.com partnership.

By increasing the competitiveness with Celebros, leading with its fast sales cycle and providing an upgrade path to Unbound and OrchestraCMS, we expect to further reduce customer acquisition costs and to further increase our license-to-revenue mix and produce a financially stronger company.

At this time, I'd like to turn the call over to our Chief Financial Officer, Mark Downey, who'll provide more details on the financial results for our first quarter. Mark?

Thanks, Ari. Today, I will review our financial results for the first quarter of fiscal 2020 ended December 31, 2019. Total revenue for the quarter ended December 31, 2019, increased 19% to $2.8 million compared to $2.4 million for the same period last year. The following are the various components of revenue. Recurring revenue, which is comprised of SaaS licenses, maintenance and hosting revenue, increased 51% to $1.7 million for the quarter ended December 31, 2019, from $1.2 million for the same period last year.

As mentioned in prior earnings calls, deferred revenue accounting rules associated from our 2019 acquisitions dictate that full contracts are not recognized upon acquisition, but only the portion of those revenues associated with OrchestraCMS can be reflected. We are now able, upon the first annual license payment after acquisition, to recognize the full value of these acquired contracts.

Subscription and license revenue, which is comprised of recurring revenue and perpetual license revenue, increased 33% as of December 31, 2019, to $1.7 million from $1.3 million for the prior year. Services revenue was consistent at $1.1 million for the quarters ended December 31, 2019 and '18, respectively. As a percentage of total revenue, services revenue decreased to 39% of total revenue for the quarter ended December 31, 2019, compared to 45% for the same period last year.

Bridgeline's focus is on increasing license revenue with some of our newer products such as the Celebros product line, which require little or no services to implement. This focus along with the company's new partnerships and customer's ability for self-service are expected to further increase our license-to-service ratio over time.

Total revenues from our 2 acquired businesses, comprised approximately 35% of the total revenues for the quarter ended December 31, 2019. As mentioned earlier, this does not represent a full normalized quarter due to the purchase accounting principles, acquired deferred revenue contracts are not realized at their full value upon acquisition date. Upon the first annual renewal license payment after acquisition, we are now able to recognize the full value of these acquired contracts.

Operating expenses for the quarter ended December 31, 2019, increased 22% or $400,000 to $2.5 million. For the same period last year, operating expenses, excluding a goodwill impairment charge of $3.7 million, was $2.1 million, respectively.

As we have previously stated on prior earnings call, we had concluded in March 2019, the sale of 10,227.5 units of Series C preferred stock and associated warrants for gross proceeds of $10.2 million. The net proceeds for that transaction were allocated to each of the freestanding financial instruments based on their fair values, which were comprised of the preferred stock and warrants. Due to fair value derivative accounting rules, the derivative warrants are independently revalued on a quarterly basis. As of December 31, 2019, this resulted in a $1.1 million noncash gain to other income.

Net loss applicable to common shareholders for the fiscal quarter ended December 31, 2019, is $2.3 million, inclusive of a noncash gain to other income for the change in fair value of certain derivative warrant liabilities of $1.1 million, offset by a deemed dividend expense on amendment of convertible preferred stock of $2.4 million compared to a net loss of $5 million for the same fiscal quarter last year.

Adjusted EBITDA loss for the quarter ended December 31, 2019, is $669,000 or a loss of $0.24 per diluted share compared to $1 million or a loss of $4.61 per diluted share for the same period in 2018. Our non-GAAP adjusted net income for the quarter ended December 31, 2019, is $409,000 or a gain of $0.15 per diluted share compared to an adjusted net loss of $1.1 million or a loss of $5.10 per diluted share for the same period in 2018.

Now turning to a review of Bridgeline's balance sheet. At December 31, 2019, the company had cash of $408,000 and accounts receivable net of $1.1 million. Total days sales outstanding for the quarter ended December 31, 2019, was 48.8 days, an improvement from a beginning of the year high of 72.6 days. The primary reason for these improvements for the 3 months ended December 31, 2019, can be attributed to our exceptional strong customer relationships and consistent conversion of accounts receivable into cash.

In February 2016, the FASB issued ASU 842 leases, which outlines principles for the recognition, measurement, presentation and disclosure of leases applicable to both lessors and lessees. This new standard requires lessees to recognize most leases on their balance sheet for the rights and obligations created by these -- by those leases. As a result of adopting the new standard as of October 1, 2019, the company recognized operating lease assets and liabilities of approximately $545,000.

The company has 264,000 shares of Series A convertible preferred stock, which may be converted into the same equivalent number of shares of common stock. On December 31, 2019, the company filed a first amended and restated certification of designations for the Series A convertible preferred stock, which are amended and restated the Series A preferred stock conversion price, mandatory conversion, redemption options and dividends. The company determined that the Series A amendment represents an extinguishment for accounting purposes. This extinguishment of equity classified convertible preferred stock is recognized as a deemed dividend measured as the difference between the fair value of the consideration transfer of $2.6 million and the carry value of the Series A preferred stock of $315,000, resulting in a deemed dividend of $2.3 million. This dividend -- this deemed dividend is recognized as an increase to accumulated deficit and additional paid-in capital and is included as a component of net loss applicable to common shareholders.

Our total assets are $11.6 million and total liabilities of $7.7 million. There is no debt on the balance sheet as of December 31, 2019. Thank you all for listening.

And at this time, we would like to open the call up to Q&A.

(Operator Instructions) Our first question comes from Pearl Lee of Accord Partners.

This is actually William Urschel from Accord Partners. Congratulations, guys. What is the clear evidence that the acquisitions are paying off? I see the shorter sales cycle, which is wonderful, and I certainly like the shift from services to licenses. But how are you measuring bottom line, the success of the acquisitions? It's hard because of the revenue recognition rules for us on the outside to really track it. So what are the numbers?

Yes, so some of the key things that we focus on are: first and foremost, it's customer retention, right? We not only bought some great technology, but we brought a great customer base. And the Celebros customers, I think there's 104 of those and the ones that have come up for renewal, we've had over a 95% renewal rate with those. And in the Orchestra customer base, we've had over a 90% renewal rate, and all of the big customers are renewing. So that's huge.

And also, the customers who are renewing are renewing for multiple years rather than single year. So that's really critical as well. The way that you see this from the outside really is through the quarter-over-quarter growth of our subscription and license revenue. The 1-year anniversary of the acquisitions is more or less today. And the customers and the Orchestra side pay 1 year. They'll -- say, for instance, they signed a 3-year subscription, they'll pay the first year upfront, then at the anniversary of that pay end of the year and so forth. And from the revenue recognition perspective, we're only recognizing that revenue, technically speaking, 85% of it, but whatever, when we actually collect the money on its first anniversary.

So when you see our subscription license revenue increasing quarter after quarter after quarter, a good part of that is based on our ability to recognize the revenue because the customers renewed, and they paid that subscription payment. So that's a big part of it.

The -- on the more strategic side, what you should be looking for is product releases from us that bring traffic building and increasing of shopping cart capabilities into Celebros. So you'll see some announces -- announcements from -- for those this year along the way. And that indicates that the technologies are melding well because strategically, what we want to do is we want to have Celebros be our primary new logo leader. We're going to have technologies that are thin layers of our Unbound software and our Orchestra software included in Celebros to make it even more competitive, acquire lots of new logos. We've already sold, I think, 3 brand-new customers this month already, and it's only the 12th or 13th or something like that. And then we'll upgrade those to Unbound and Orchestra along the way. So those are 2 kind of leading indicators, William, that you should watch for us.

In an earlier conference call, you suggested, didn't promise, but suggested, that you guys would be hitting about a $5 million top end rate this quarter with probably a breakeven this month. Is that still on track, do you think, and needed to amend that?

Well, $5 million is not where we're at for -- you mean for the half or for the quarter? For the half, we're going to -- we're tracking to be above $5 million. But for the quarter, it's about half of that, more in the $2.8 million range.

And our goal is to be -- to reach profitability this year. I've got a couple of caveats there. So that's really a run rate. So it's going to happen towards the end of the year.

And one thing that we need to account for is -- or 2 things, is that as we revalue these warrants, that impacts our net income in kind of random ways that we have out there. And also depreciation of the software that we acquired is about $250,000 a quarter. So it's really on the adjusted-EBITDA basis that you should be watching for.

And it's not going to be -- not going to happen all by itself. So I want to just hedge that. But that is exactly what our goal is, is to end this year as a profitable business.

(Operator Instructions)

Our next question comes from (inaudible) of [Bridgeline]

My question is, what are you guys doing to improve the stock price? Because it's been almost a year now, stock is pretty much flat.

Yes. I believe that the heart of the stock price is going to be showing the market that we don't need to make dilutive raises. And then -- and that's really all about us achieving profitability.

From an IR perspective, we'll go to some of the key conferences, there's this Hegewisch conference that we'll be at and perhaps the [Markham One] and a few others, like LD Micro.

But at the end of the day, the achieving profitability is going to be -- and demonstrating it repeatedly, I think, is going to be the main thing that's going to impact the stock price. Of course, top line growth is important, and we strategically believe that we're in a space where acquisitions are an opportunity. And because we are a public company and have access to capital that private companies don't have, we're in a great position to do that. But those acquisitions will be opportunistic, and they will always be accretive for shareholders from a financial perspective.

Our next question comes from [Andy DeNato] of CMS.

Congratulations on the good results. Just thinking longer term, what type of growth rates would you really expect for the business, I think, maybe over the year, maybe even longer term?

Sure. Okay. Well, Andy, we believe that in terms of new deals, that we will be able to be closing 4 new deals on a monthly basis by the end of this year. And new deals have license -- have ARR in the Celebros deal, in the $15,000 range. And that, that's going to continue to accelerate.

And long term, especially since we're in so many different markets now that it's hard to predict exactly where that goes, but we want to be closing several deals per month.

One of the great things, things that gets me excited about, our product suite now, is the fact that unlike a year ago when all of our sales were $400,000, 175-day sales cycles that either hit or you didn't, now we've got multiple deals per month. We don't have to go through the financial due diligence and so forth that sometimes blew up deals for us at the last minute that we could have won otherwise, if we weren't public, for instance. And it's going to be that smoother revenue, focusing on ARR and continual growth that we're shooting for.

I am showing no further questions at this time. I would now like to turn the conference back to Mr. Ari Kahn, President and CEO of Bridgeline Digital.

Thank you, Maine, and thank you, everybody. We really appreciate all of your support and patience. And it's our goal to continue to build a scalable business, which in return is going to build scalable shareholder value. Thanks for joining all of us today. We look forward to speaking to you again on our Q2 2020 conference call.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may now disconnect.