Participants

Thomas Windhausen; Chief Financial Officer, Treasurer, Company Secretary; Bridgeline Digital Inc

Ari Kahn; Chief Executive Officer; bridgeline digital inc

Casey Ryan; Executive Officer - Research; WestPark Capital Inc

Howard Halpern; Analyst; Taglich Brothers

Presentation

Operator

Good day everyone, and welcome to the Bridgeline Digital's first quarter 2025 earnings call.
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It is now my pleasure to turn the floor over to your host, Tom Windhausen. Sir, the floor is yours.

Thomas Windhausen

Thank you and good afternoon, everyone.
Thank you for joining us today. My name is Thomas Windhausen and I'm the Chief Financial Officer of Bridgeline Digital Inc.
I'm pleased to welcome you to our fiscal 2025 1st quarter conference call. On the call with us today is Ari Kahn, Bridgeline's President and CEO. We'll begin the call with a discussion of our business highlights. I will then update you on our financial results for the quarter. We will 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 1,933 and Section 21 of the Securities Act of 1,934 and are subject to risks and uncertainties that could cause such statements to differ materially from actual future results or events.
These statements are made pursuant to the safe harbour provisions of the Private Securities Litigation Reform Act of 1,995.
The 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.
The results report today should be, should not be considered as an indication of future performance.
Changes in economic, business, competitive, technological, regulatory, and other factors could cause ridgeline's actual results that differ materially from those expressed or implied by the projections or form statements made today. For more detailed information about these factors and other risks that may have an impact on 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 this afternoon we'll discuss some non-gap financial measures when commenting on the company's financial performance. We provide a reconciliation of our GAAP financials to these non-gap measures in our earnings release. You can obtain a copy of the earnings release by visiting our website. I now turn the call over to Ari Kahn, Bridgeline's President and CEO. Ari.

Ari Kahn

Thank you, Tom. Good afternoon, everyone.
In Q1 of FY'25, Bridgeline signed 28 license sales, adding $2.7 million in new contracts and $800,000 in annual contract value.
Our sales cycle is now only 105 days with an 18%-win rate on qualified leads, world class numbers. This means it's time to invest in sales. The market is hot. Our products outperform our competition. Last year we released 8 AI-based products that are blowing the competition away, garnering strong analyst support and delivering key value to our customers. We invested in R&D, and it has paid off. We are the leader in AI. E-commerce search. Our growth is limited only by our marketing budget, not by market size, not by customer demand, not by competition. Now is the time to reallocate resources from R&D to sales and marketing. It's time to go all in on growth. Our revenue can broadly be broken into two product groups. The core revenue comes from our Hawke arch products and its e-commerce 360 embedding, including Wu ran.
This revenue is $2.1 million with double-digit growth, net revenue retention of 107%, tax payback better than 20 months.
Essentially all of our new sales are core products.
Are non-core products that represent the balance of our revenue.
Include most of our professional services, and these products generate strong growth margins with minimal operating expenses, and they help fund growth in core.
With momentum in sales, a leading position in AI, and a market shifting to adopt our AI products, we've made bold company-wide changes to invest more in sales and marketing and seize those opportunities. These changes go all the way to the board level, including the addition of healthcare industry veteran and business development expert Michael Kerslake, whose expertise and network will help Bridgeline expand into additional markets.
I recently had the acronym FOMO, fear of missing out on my mind. That's exactly the mindset driving our growth strategy. With the market shifting fast, we're seizing the moment to expand our customer base. Our board and team are in full growth mode, and I'm committed to investing in new customer wins to ensure that we stay ahead.
Let's take a look at Q1 sales, the 2nd best sales quarter in the company's history.
We sold 28 licenses for 2.7 million in total contract value, adding 800,000 in ARR.
Here's a few of our new customers.
Brady Plus, a leading B2B e-commerce provider, is leveraging Hawk search AI to improve its search functionality and deliver more seamless digital experience.
John, a major supplier in janitorial and restoration industry.
Has also integrated Hawk search to enhance product discovery and optimized site navigation.
Aftermarket Auto Parts Alliance is using Hawk Search to stream search across its extensive product catalog.
Montefiore Health System has chosen Hawk search to power more intuitive and efficient search experience for its users.
The leading supplier of plumbing industry has chosen Hawk Search Smart Search to power their product discovery experience. The plumbing supplier will leverage smart searches visual and concept search features to enhance customer experience and drive growth. Another major supplier in the plumbing industry successfully launched Hawk search to power its online search. All this, not to mention expanded subscription of a Fortune 100 consumer electronics customer who's powering over a million dollars an hour in online sales with Hawk search.
This momentum positions us for continued growth in 2025 as we expand our reach in B2B e-commerce and healthcare, providing cutting edge AI search solutions to drive revenue and enhance customer engagement.
Our 2024 investments in R&D have opened the door to partners whose customers need the latest AI-powered e-commerce tools. Our partners bring us customers thanks to our expanded product line and joint marketing events, lowering the cost per lead for both sides. We released our BigCommerce Catalyst connector just this week. The press release announcement will be issued soon. Catalyst will give BigCommerce customers a drag and drop tool to seamlessly upgrade their online stores to our hawk search suite.
BigCommerce has been one of our strongest partners, and we expect our catalyst released to make it even easier for their customers to upgrade to hawk search.
Engaged and Optimizely continues to be leading partners to bring us large sales that close quickly on Hawk Search. Many of our B2B manufacturing distributor customers are on this ecosystem. Hawk search is listed as the top paid app in the optimize store.
Bridgeline earned Maglio’s Partner of the Year award for its role in advanced mobile engagement for distributors.
This quarter, Hawk Search has also joined forces with Oral commerce, a leading B2B commerce platform to bring AI-driven search and merchandizing to manufacturers and distributors.
Importantly, in partnership with Salesforce, Hawks Search has also launched the Hawk search AI powered product discovery engine for Salesforce B2B commerce. Salesforce customers can now access Hawk search directly from the app exchange, deploy the connector instantly, and see immediate improvements in e-commerce performance.
Partnerships will be an important part of our go to market strategy this year, but we're also greatly expanding our marketing budget.
We've generated notable sales in recent years by focusing on specific verticals and joining industry conferences and associations. In the faster industry, we won several customers by attending conferences like the International Franchise Expo and Fastener Fair in Vegas.
B2B electronics and plumbing distributors have been strong with conferences such as B2B Online Chicago and modern distribution management shift generating sales.
We have expanded our budget and we'll be ex targeting new B2B verticals, including advertising and vertical markets and hosting more in-person events to generate even more leads and convert into customers this year.
Last year was a transformative year in our product suite with 8 AI products being launched. This year is going to be transformative in growth with our budget reallocated from R&D to sales and marketing so that we capitalize on the market demand and on the strong competitive position that our innovation efforts have placed us within.
This time I'll turn the call over to our CFO Thomas Windhausen

Thomas Windhausen

Thanks, Ari. I'll provide an update of our financial results for the first quarter of fiscal 2025, which ended December 31st, 2024, Total revenue for the quarter ended December 31, 2024, was $3.8 million compared to $3.8 million in the prior year period.
Going into each component of revenue, our subscription license revenue, which is comprised of sales licenses, maintenance and hosting revenue for the quarter end of December 31, 2024, was $3 million down 1% from $3.1 million in the prior year period. As a percentage of total revenue, subscription license revenue was 80% of total revenue for the quarter end of December 31, 2024.
Services revenue of $700,000 for the quarter on December 31, 2024, was up 11% from 700,000 as rounded in the prior year first quarter. As a percentage of total revenue, services revenue accounted for 20% of total revenue for the quarter end of December 31, 2024.
Cost of revenue was $1.3 million for the quarter end of December 31, 2024, an increase from $1.2 million in the prior year period. And as a result, gross profit was $2.5 million for the quarter ended December 31, 2024, down 1% from a rounded $2.6 million in the prior year period.
Overall, gross profit margin was 67% for the quarter end of December 31st, 2024 compared to 68% in the prior year period.
Services growth margin was 51% for the quarter end of December 31, 2024 compared to 44% in the same period and increase to 7%, and subscription license gross margins were 71% for the quarter ended December 31, 2024 compared to 73% in the prior year period.
Operating expenses were $3.0 million for the quarter end of December 31st, 2024, down 4% compared to $3.2 million in the prior year period.
Going below Opex, the change in fair value of our liability classified warrants resulted in a non-cash loss of 114,000 compared to a non-cash gain of $18,000 in the prior year period.
Moving to the bottom line, our net loss was $0.6 million for the quarter end of December 31, 2024, compared to a net loss of$ 0.6 million in the prior year period.
Adjusted EBITDA for quarter end of December 31, 2024, was negative 193,000 compared to negative 117,000 in the prior year comparable period.
Moving on to our balance sheet on December 31, 2024, the company had cash of $1.5 million and accounts receivable of $1.2 million. Our total debt outstanding as of December 31, 2024, was under €400,000 and approximated $409,000 USD.
The weighted average interest rate of that debt is approximately 4.1% with payments due through the year 2028.
And we have no other debt or remaining earnouts from any of our previous acquisitions and on December 31, 24, our total assets were $15.5 million and total liabilities were $6 million.
Finally, I'll give an update on our cap table, which as of December 31, 2024, included 10.4 million outstanding shares, 39,000 shares of Series C preferred stock on an as converted basis, 800,000 warrants, and 2.1 million options.
As a reminder, in September 204, nearly 900,000 warrants with an exercise price of $4 expired. The remaining 800,000 warrants consist primarily of 180,000 warrants with a $2.85 exercise price expiring in May 26th and 592,000 warrants with a $2.51 exercise price expiring on November 2026.
Bridge looks forward to continued growth and success in fiscal 2025 and beyond as we continue our focus on revenue growth, product innovation, customer success, and delivering shareholder value.
Thank you for joining us on the call today, and at this time, we'd like to open the call to questions and answers. Moderator.

Question and Answer Session

Operator

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Casey Ryan, WestPark Capital

Casey Ryan

Thank you, Ari, Tom, nice quarter.

Ari Kahn

Thanks, Casey.

Casey Ryan

Yeah, you bet. It sounds like we're hitting an inflection point with what you're seeing in the market and the success of Hawk search.
So I have a couple of questions around that. First of all, I think you called out $2.1 million was kind of from what you're calling the core product, right? So sort of Who rank plus Hawk search in the quarter.
And then services were about 700,000, so it looks like taking $2.8 million that services is like.
Third of what Hawk search sales are or sort of that core software sale is that a ratio that will sort of continue to be consistent, so that if we put it out and the core revenue was higher, services would be higher or is that not going to sort of hold long term?

Ari Kahn

It actually adds up a little bit different than that. I'm going to have Tom break it down for you.

Thomas Windhausen

The services, right, in Ari's comments we had services of 700,000 for the quarter, and those are not all core.
So I think you, I think you mentioned that in what you said.

Ari Kahn

here's, so we got $2.1 million.
In revenue for our core product lines, that's both services and subscription. About 80% of that, a little bit north of 80% is subscription.
And so like 19% is services whatever that math comes out to be that's core revenue. Core revenue is growing by double digits. That's what we're declaring.
We're not going into more details right now, right, yeah, and that's got the net, revenue retention of 107 cap payback better than 20 months.
Then the rest of the revenue.
For the company services and subscription is non-core.

Casey Ryan

Got it. Okay, and.

Ari Kahn

And the reality is that we're kind of seeing the non-core declining has historically been declining and knocking out the growth in the core. This year FY'25, we're providing better clarity on that for everybody so that we can see that breakthrough growth coming in double digit growth from core.

Casey Ryan

From core, right, okay, good.
This that this is sort of a helpful way to sort of frame it. So, tell me about, for the core products, I guess talk a little bit about how you see the sales. It sounds like, the 18% win rates very strong, but like tell me what you see from sort of the like lead gender interest side if that's expanding sort of at a faster rate or a faster rate than maybe we had seen in revenues or.
Talk about qualitatively maybe if it's possible about the pipe. Perfect.

Ari Kahn

Perfect, yeah, that's the thing that's got me super excited right now. So qualitatively we've got, so we've got leads that are coming in at a higher rate than we've ever had before on a per dollar basis and that's represented by a very strong ca payback. So, customer acquisition costs. Are very efficient coming from face-to-face conferences, these narrow verticals, industry verticals like fasteners and plumbing and things like that. We're not so much going to the technology conferences as we are to the to where our customers' conferences are. And then out of those what we call the qualified lead, which is not a very high bar, qualified lead for us, it's an objective measurement. Meaning that that person has contacted us twice, not us sending them an email, but them filling out a form on a landing page, sending us an email or calling us two times, and has given us an indication of what their budget is and an indication of who the person is who will make the ultimate decision. That's it.
We're seeing 18% conversion to a win.
Out of someone that just goes that far or leave that just goes that far with us. And what that tells me is that we've got the right products, we're in the right market and we need to go all in on sales and marketing immediately and take advantage because that kind of a win rate's not going to be here forever and that's my fore more comment.

Casey Ryan

Yeah, well, listen, I took notice of the 18% win rate and yeah, it makes perfect sense that we should expand that as rapidly as possible, right? Especially considering that like low bar to sort of measuring the qualified lead perspective, so.
That's very exciting. And so, one thing else about also about the pipeline I guess is it possible that people can go from lead to sort of customer through self-service entirely? It sounds like maybe there's some functionality there where people can sort of enable Hawk search on their own, or do you always have to touch them in some way?

Ari Kahn

Well, so with that connectors, the Salesforce app exchange connector and the BigCommerce Catalyst connect connector, people could go directly on their own, but the reality is that's not how it works. There's typically digital agency or systems integrator that's involved who's managing their broader website, and we have. Salespeople that do have conversations. So the entire sales cycle from the very first time that they hit our system way before their qualified lead, all the way to either buying or not buying from us, but closing one way or the other.
Is 105 days on average and our sales team is currently to what we call BDRs, business development reps, those are inside sales people that are making the initial contact, plus two BDEs, business development executives who are actually running the deal. Plus, a working manager, that's our outside sales team. We also have our customer success sales team because we've released so many products. Our customers don't own all of them yet. So, we also have a three-person team that is selling to our existing customers. So that's the sales.
On the marketing side, we've got a working VP of marketing, a graphics person, an event coordinator.
And then an FEO consultant halftime.
So that's doing the marketing. That team by itself right now is not the first place for us to expand. Our first place that we expand is we're just going to go to more conferences with that team, make everybody stay up all night, every night, run so many deals into their into them that they're choking on them, and then we'll keep on adding more and more people after those guys are so rich they stop working for us because of their commissions.

Casey Ryan

Right, got it.
Well, and so.
You guys didn't offer any formal guidance around revenue, but Sort of have you gotten a comfort around sort of looking at you’re at your sort of pipeline, I guess, and saying it's 105 days, which is a quarter, right, roughly. So you say, okay, have you guys built out a model where you feel you have some confidence, even if the numbers are internal that you say we sort of understand where revenues will come in if things continue.

Ari Kahn

We actually have. Yeah, we do have pretty good confidence and there's volatility on a company our side, which is one of the reasons why we're not doing guidance, but we, so we've got our revenue broken into two halves. We've got our core and our non-core. If it's a non-core, that's renewal of existing customers, so that's pretty easy to forecast because we know all of them and we know whether they're redoing or not. And we do sell.
Core products into that non-core group as well, but those are also highly forecastable. On the core side of winning new logos, that's the part that's less forecastable, but that's 105 days, which is not very long, as you mentioned, it's one quarter, so that's good visibility. Well, I really like selling in that model more than the old days when I used to sell these. Three quarter deals that you know find out to the last minute. So we do internally have a good sense for that and that's important because we run on a shoestring budget and we don't have a lot of room for missing something on the financial side.

Casey Ryan

Right, okay, terrific.
Well, look, it sounds like a real shift in tone here and I think it's very positive and yeah, we're excited to see where we go as we get it moving to 25. So thanks for the time and a great quarter again.

Ari Kahn

Thank you, Casey.

Operator

Howard Halpern, Taglich Brothers

Howard Halpern

Congratulations on the quarter and the customer wins.
So in terms of overall operating expenses, we're going to see the shift from research and development to sales and marketing and only maybe an incremental increase in overall operating expenses.

Ari Kahn

That's right. So, we're going to hold the operating expenses more or less where they're at, and instead we're just shifting personnel and consultants and so forth so that we'll be investing more on that marketing side and GNA is already running a pretty tight ship with 344 people in it. Altogether and but our R&D really killed it last year, did a great job, released a lot of stuff, and now it's time to sell what they know.

Howard Halpern

Okay, And you talk about maybe the op new partnership opportunities and potentially new verticals or new sectors within verticals.

Ari Kahn

Yeah, so on the partnership side that's an important and relatively new sales channel for us.
You have two types of partners. We've got we call IFD, and these are content management and e-commerce platforms. They include BigCommerce, Optimize, Salesforce, Magenta, and these platforms we typically will have connectors.
That allow us to seamlessly integrate with them and they have marketplaces where we can put our software, and their customers can buy from us. They're important partners for us because their customers have already built their website, which takes a lot of money and takes a lot of time and slows deals down.
So now it's a matter of just enhancing their website with whatever their default search capabilities were with our hawk search AI powered search.
The second category of partner is the digital agency also called the Systems integrator. So these are the teams that actually implement the do the initial implementation of the e-commerce site, but then they have an ongoing relationship with the.
In online store to continually update their site and they are very influential in the selection of technologies that are launched on that site. So, they will recommend Hawk search. These are companies like American Eagle. They're like Gorilla, and there's a lot of 50 person local market system integrators slash digital agencies that that we partner with.
So that's half of the channel, and systems integrators and ISVs are involved in basically every deal, but then the other half of the channel is direct marketing, and this is where we are finding a lot of progress with vertical, physical, human conferences. We're seeing progress where we have our own customer conference, but then we invite a partner and have them bring their customers as well, so it becomes a joint customer conference with cross sales across the two customer bases and then we of course do a lot of online marketing with webinars and virtual conferences and even Google AdWords that bring in a lot of leads.

Howard Halpern

Okay, so really the emphasis is going to be on the current verticals that you're in and then just sort of migrate to potential new vertical slowly and then add them into the mix.

Ari Kahn

That's exactly right, Howard, because we see a great return on investment when we reach critical mass and a narrow vertical and have specific referenceable customers. The reality is that although we, meaning bridge line, live in the technology world on a day-to-day basis and can. Generalize and create analogies between how we might implement one site and another one when we're working with someone who is an expert in the plumbing world, they don't necessarily have the familiarity with our type of software to see how what we implemented for a hospital might. The analogous to what their needs are. So, after we want a couple of plumbing customers, then we really hit critical mass. We've got the specific example websites and the specific customer references that make all the difference in the world.

Howard Halpern

Okay, and that you feel that's why the 105 days could actually start coming down in some of those core verticals.

Ari Kahn

That's right. In the core verticals we see faster sales cycles thanks to the references and the case studies and example websites. Also, the 105 comes down when we are working closely with our partners on those joint customer conferences, for instance, because the relationship just gets accelerated due to the partner relationship.

Howard Halpern

Okay. I'll keep up the great work.

Ari Kahn

Thank you very much.

Operator

Thank you. There are no further questions in the queue. I'll now hand the conference back to management for closing remarks. Please Go ahead.

Ari Kahn

Everybody, thank you for joining us today. We appreciate the continued support of our customers, our partners, our shareholders. We're obviously very excited about the business and ongoing growth prospects. We look forward to speaking with you again in our 2nd quarter fiscal 2025 conference call. It'll be in May 2025. Until then, be well.

Operator

Thank you, everyone. This concludes today's event. You may disconnect at this time and have a wonderful day.
Thank you for your participation.