Bridgeline Digital Inc (BLIN) 2022 Q2 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Bridgeline Digital, Inc. Second Quarter 2022 Earnings Call. (Operator Instructions). Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker for today, Mr. Thomas Windhausen. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. Thank you for joining us today. My name is Thomas Windhausen, and I'm the Chief Executive Officer (sic) [Chief Financial Officer] of Bridgeline Digital. I'm pleased to welcome you to our fiscal 2022 second quarter conference call. On the call this afternoon is Ari Kahn, Bridgeline Digital's President and CEO, who will begin with a discussion of our business highlights. I will then update you on our financial results for the quarter, and we'll conclude by taking questions.

Before we begin, I'd like to remind listeners that during this conference call, comments that we make regarding Bridgeline that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and section 21E of the Securities Act of 1934 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. Internal projections and beliefs upon which we base our expectations today may change over time, and we expressly disclaim and assume 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, competitor, technological, regulatory and other factors, some of the impact of public health measures could cause Bridgeline's actual results to differ materially from those expressed or implied 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 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 when commenting on the company's financial performance. We do provide a reconciliation of our GAAP financials to these non-GAAP measures in our earnings release, which you can find a copy on our website.

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

Thank you, Tom. Good afternoon, everyone. We had great sales in our second quarter with 33 license sales, an all-time high for us. Our software is becoming increasingly out of the box, which allows new customer licenses to contribute to our revenue more quickly, our licensed sales services ratio to grow. As each of these customers goes live, typically in less than 3 months, we'll see their license fees drive strong NRR for the business. An important change to our new customer acquisition strategy is our partner network. We have a dedicated partner team working with ISVs and software vendors and agencies to win new business. Agency like AmericanEagle.com and Xngage, have been particularly strong, and they continue to be key agency partners to help us win new customers.

On the ISV side, we partnered with BigCommerce and Optimizely, and won several customers together. Bridgeline is the only out-of-the-box B2B Site Search Connector for Optimizely. Optimizely B2B customers can purchase Site Search directly from the Optimizely administrative interface.

With Optimizely, we've helped several B2B distributors grow online revenue, including Crescent Electric, Cleaner's Supply, Torrco and Gerrie Electric. We tend to expand our investments in Optimizely partnership and the B2B distributor sector to build on this momentum.

Our partnership with BigCommerce continues to drive growth as well with new customers in manufacturing and automotive. Together with BigCommerce, Bridgeline now powers several manufacturers, including Berlin Packaging, Techo-Bloc and Waymaker. In addition to partner-driven sales, another important part of our strategy is cross-sales. With our expanding set of e-commerce apps, we can deliver faster and more efficient license sales by cross-sell. This provides tremendous value to our customers with continual and incremental improvements to their website and also drives more license sales pull marketing dollars for Bridgeline as cross-sales required less advertising expenses.

More than 25% of our new license sales this quarter were from cross-sales. We expect cross-sales to continue to deliver growth as we release and acquire new products and as our customer base of more than 2,000 companies continues to grow.

This quarter, we launched our E360 Dashboard to drive new sales and target cross-sales across our customer base. This Dashboard provides online marketers at-a-glance view of their sites performance -- revenue performance and makes recommendations as to how Bridgeline software can help them grow. The Dashboard organizes the challenges and opportunities related to e-commerce down to 3 basic categories: traffic, conversion and average order value. This helps busy marketers sift through the noise and focus on the revenue-generating aspects of their online sales.

We also launched our TruPresence brand this quarter. TruPresence is our product suite to specifically for the franchise industry. Franchises have unique challenges that we've addressed for several years. TruPresence allows franchisees to manage thousands of franchisee websites with distributed FDA requirements and complex location requirements.

In our second quarter, one of our largest franchise customers, [Smartflix] with nearly 2,000 locations launched TruPresence pages to help its customers find the nearest location and [pickup points].

We also won another important franchise, 1-800-Radiators. 1-800-Radiators has one of the nation's largest inventory of auto parts. It selected Hawksearch to increase online B2B sales and improve site search and product recommendations throughout their parts catalog.

WooRank in its DataBravo product continue to contribute to new online sales with long-term data license purchases for over $4,000 in NRR each quarter this fiscal year. Other wins this quarter include a top sporting goods wholesaler that chose Hawksearch to power its 5 eCommerce sites. We won several other sporting goods customers this quarter as well, including Sports Station, a top sports retailer in Asia with more than 250 locations.

In the United States, a leading privately owned bank with 1 million customers selected Hawksearch to increase their customer sign-ups on its corporate website. The bank chose Hawksearch for its powerful search recommendation engine at the future. This site will be implemented in partnership with Kentico on the Kentico Xperience platform. We're still strong with B2B distributors, and we're going to keep investing in this market as our reputation is building momentum.

In Europe, one of the largest industrial equipment and services to B2B distributors to Bridgeline's Celebros software to power their online store. Celebros was selected for its natural language processing, Magento support and B2B specific features. A global biotech B2B distributor chose Hawksearch to help its customers find products as online large catalog. Hawksearch was selected because of general strength in the distributor sector and its references in electrical, medical and automotive industries.

Finally Techo-Bloc, a landscaping distributor with over 700 spares across North America chose Hawksearch to drive online sales in their multi-language catalog. Hawksearch's cutting-edge technology supports 20 languages, expanding customer acquisition opportunities and revenue across international eCommerce.

Last year, we made 2 acquisitions, and we continue to evaluate strategic opportunities. This is indeed a challenging environment for stocks right now, and we're only considering acquisitions that could be financed in a accretive way. We believe that valuations of our targets are going to continue to drop through the year, and we intend to be patient and evaluate opportunities over time.

The companies we consider need to have a customer base to whom we can cross out our existing product and of course, products that can be sold to customers and attract new customers. We look to companies globally with an emphasis in North America and Europe.

We ended this quarter with $4.7 million in cash, and that was after paying nearly $1 million for deferred costs and debt for the WooRank and Hawksearch acquisitions.

Our cash balance and projected operations positions us well to continue our investments in sales and marketing and product innovation without requiring any additional capital for operations.

At this time, I'll hand off the call to our Chief Financial Officer, Thomas Windhausen. Tom?

Thanks, Ari. I'm excited to show you this afternoon our positive financial results for the second quarter of fiscal 2022, which just ended on March 31, 2022.

Total revenue for the quarter ended March 31, '22, which is comprised of both subscription and license and services revenue was $4.1 million versus $2.9 million in the prior year.

Now going to each [partner] revenue. Our subscription and license revenue, which is comprised of SaaS licenses, maintenance and hosting revenue and perpetual license revenue, increased 66% for the quarter to $3.3 million from $2.0 million in the prior year period. As a percentage of total revenue, our subscription license revenue has increased to 80% of total revenue for the quarter compared to 69% in the prior year period. This increase in subscription license revenue includes the impact of our prior year acquisitions of WooRank and Hawksearch, which have a high percentage of subscription revenue.

Our services revenue of $0.8 million for the quarter was compared to $0.9 million as rounded in the prior year period. As a percentage of total revenue, services revenue accounted for 20% of total revenue for the quarter.

Our cost of revenue increased 25% or $0.3 million to $1.3 million for the quarter ended March 31, 2021 -- sorry, 2022 compared to $1.1 million in the prior year period. As a result, our gross profit increased 54% or $1 million to be $2.8 million for the quarter as compared to $1.8 million in the prior year period.

Our overall gross margin percentage increased to 68% for the quarter compared to 63% in the prior year period. Our subscription license gross margins were 74% for the 3 months ended March 31, 2022, as compared to 70% in the prior year, and our services gross margin were 43% for the 3 months ended March 2022 as compared to 46% in the prior year period.

Operating expenses increased to $3.4 million in the quarter from $1.9 million in the prior year period. This increase in operating expenses included the operating costs from our businesses acquired last year. This has resulted in income from operations being a loss of $600,000 for the quarter as compared to a loss of $100,000 in the prior year period.

Moving on to other income and expenses. In the quarter ended March 31, 2022, a change in fair value of contingent consideration and other income and expense was income of $0.5 million as compared to a slight loss in the same period in 2021. For the quarter ended March 31, 2022, the change in fair value of our liability classified warrants resulted in noncash income of $0.4 million as compared to $0.4 million noncash loss in the prior year period.

Overall, our net income was $0.3 million for the quarter ended March 31, '22, as compared to a net loss of $0.6 million in the prior year period. The change in net income includes the impact of the fair value adjustments that I just mentioned.

Moving to EBITDA. Our adjusted EBITDA for the quarter was negative $0.1 million compared to a positive $0.2 million in the prior year period.

Moving on to our balance sheet. At March 31, 2022, as Ari mentioned, we had $4.7 million of cash and accounts receivable of $1.4 million, compared to last quarter end December 31, where we had cash of $6.4 million and accounts receivable of $1.3 million. In March, our total assets were $30.3 million, and our total liabilities were $10.3 million.

Bridgeline looks to continue -- looks forward to our continued success in the second half of this fiscal year and beyond as we continue to focus on revenue growth, product innovation, expanding our customer success and delivering shareholder value. Thank you for joining us on the call today.

At this time, we'd like to open the call up for questions and answers. Moderator?

(Operator Instructions) We have a question from the line of Howard Halter from Tagle Brothers.

Could you just describe how important is the development of that Dashboard in both providing customer satisfaction and driving new sales of your offerings?

Well, the dashboard itself, so we've got about 25%, a little bit more than that of our new sales are happening within our existing customer base. So we've got a pretty broad product catalog now. None of our customers actually own all of our software, and we're expanding inside of that.

The #1 lead generation tool for us with that 25% is the Dashboard, so it's making along our customers to become aware of the different products that we have and making recommendations to win one of the products they don't own could help them. And they're notifying us on the other side and helping us understand which customers might get value from a product like Hawksearch brand for us to speak with them. One of our customers, National Notary Association bought Hawksearch this most recent quarter. We help them to be done online, driven a tremendous amount of revenue. They've got a product -- complex product catalog. And by recognizing that customers can convert to a larger sales, and you can increase average order value through being able to look at our Dashboard, it's a great way for them for to see the different value that we have.

As our product catalog grows, we're going to do acquisitions. We could release new products. That Dashboard is going to become even more important. And our customers are inundated with many companies all over the place saying, "Hey, you should try this, buy this, buy that, and they can't even make a decision because there's so many options. The Dashboard simplifies everything for them, cut it down to 3 basic categories. How do we drive more traffic to your site? How do we can gain traffic into our customer? And how do we get each of those customers to buy more? And by simplifying everything, that's where the value comes in for our customers. So we thought just tell customer what I need to drive revenue and they get that from the Dashboard.

And I guess another question in terms of the Dashboard and in terms of the future acquisitions of the product? And are you looking for acquisitions that might have the largest customer base, and how easily had made the Dashboard to integrate or can exploit larger customer base?

Right. So on our acquisition strategy, integration is a huge risk on acquisition, integration meaning technically bringing products together. And that was a big part of the initial concepts behind the dashboard. We believe that in our space, grow both organically and inorganically is the best route for Bridgeline and to simplify integration by having a common dashboard which really just integrating at the interface level and knock down inside of databases and other lower areas where the integration risk compile -- compiled. It makes integration is very fast. Like, all right, just put this Dashboard on top of the product that we just acquired and let all of its customers learn about the rest of Bridgeline. And add information about the new product that we acquired to Dashboard so with all Bridgeline customers can learn about the new product that's available. So it simplifies things quite a bit.

But on the M&A point, it's a little bit tricky right now because, I mean, the market has just fallen through the roof -- fallen through the floor and (inaudible) a huge amount of cash to be able to just do an acquisition, take advantage of low valuations. We have seen expectations decrease for private companies for doing acquisitions, but we'll only do one if we can do it in a way that we're not diluting ourselves with the capital raise that happens with these depressed levels. And the market will come back. It always does, but we're patient and watching.

Okay. And just one final one. Are you happy with the level of sales and marketing expense going forward -- look forward this quarter -- in the quarter?

Yes. So we reported about $1.25 million in sales and marketing, and that's great, and we're going to actually increase that a little bit going forward to be closer to about [$1.25 million] a quarter in sales and marketing and our new customer went to sales dollar is right where it should be. We're looking at lifetime value of about 3:1 on the customer acquisition cost. So we think that's healthy and appropriate and trying to continue investing on the sales side then even our deals.

The next question that you have is from the line of Walter Ramsley from Walrus Partners. Please go ahead.

Congratulations. Excellent quarter, I have to say.

Thank you.

I got a few kind of detailed questions if you don't mind. The item that was mentioned with the contingent payments, and that was adjusted to a profit. Can you just kind of go through that and explain what happened there?

Walter, I think that's one for Tom.

Sure. So the two things on our balance sheet that we have to adjust to fair value each period awards and then continued consideration, you probably hear more earn-outs from the prior year acquisitions. So in the period, we had an adjustment as to what our expected ultimate payout will be, so reduce the liability, and that changing the balance sheet comes through the income statement -- we actually...

I get that. Well, what it was that changed if they're not doing as good as you thought or the value of the securities that you're giving them went down?

Well, some mechanics for -- it's all not all revenue driven. There's some other operating results in there and mechanics and working capital adjustments. So [we're] up to a final payment.

Okay. An operating thing. Okay, I get that. And as far as the warrants, you mentioned that, can you just tell us how many warrants are outstanding and then kind of review for us again when they expire and at what price?

Sure. About $1.7 million outstanding in our 10-Q, which we'll file. Today, we'll have a full table with all the exercise, prices and the expiration dates, but there really is no change in the warrants from our past quarter. There are a handful that do expire here in May of 2022, but not much change going forward in Q3, but with average price on those around $4.

Okay. And I don't know if you want to get into it, but are there any macroeconomic factors that are really either helping or weighing on the business, the supply chain, the inflation, the war, the lockdowns in China, you name it, anything like that?

Not impacting us so much. There's a lot going on, right? So for us, our team is in, we've got some people in Israel, some in Belgium, and the rest in the United States and Canada, so not affected by the war. And macroeconomically -- the main thing that we watch is we see that our stock price is down, and I just [what if my goal] acquire a company with doing a stack. That's fine. We'll wait. I think the company is getting cheaper every day for a while (inaudible) private companies typically that will lag the public sector, we think, in terms of their valuation expectations. But all the sudden, economic stuff for us doesn't impact us in supply chain either and our customers are continuing to buy, so we haven't seen that reduce their investments in technology there.

Okay. You're like the only company in the world that seems to be saying that, but congratulations.

I hope (inaudible).

Thanks again.

Thank you, Walter.

(Operator Instructions). There are no further questions at this time. I would like to turn the call back to our presenters for any closing remarks.

Thank you. Everybody, thanks for joining us today. We appreciate the continued support of our customers, our shareholders and our partners. We're excited about the business. I mean, things are really going well, and our growth prospects are better than ever. So we look forward to speaking with you again on our Q3 fiscal call. And we'll see you all soon. Stay healthy and well. Thank you.

This concludes today's conference call. Thank you all for joining. You may now disconnect.