Bridgeline Digital, Inc. (BLIN) Q3 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to Bridgeline Digital Third Quarter Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Michael Prinn, Chief Financial Officer. Sir, you may begin.

Thank you. Good afternoon everyone. I am pleased to welcome you to our third 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 based 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'll now turn the call over to Ari.

Thank you, Mike, and good afternoon everyone. Bridgeline continued to make progress in our strategic initiative to transition to a SaaS based company where valuations over the past decade averaged four to eight times revenue. In fact, in the past two months we’ve seen several acquisitions of SaaS companies more than 8 to 12 times revenues. To this end, I’m happy to announce that for first time third fiscal quarter of the year 2016 Bridgeline's license plus hosting accounts for 50% of overall revenue compared to 39% in the same quarter last year. Furthering our transition to a SaaS based company and unlocking the higher valuation requires that we continue to increase licensing and hosting revenue relative to services and also that we focus on reducing our customer acquisition cost compared to the life time value of our customers. Here's how we are doing this; The life time value of the customer for Bridgeline is driven by two key components. The license that powers our customers' web and marketing solution and the services we provide to personalize the license for a customer's business. Our license business is where we can earn 75% or higher margins compared with services margins which are generally 40% to 50% in our industry. License revenue is recurring both from monthly SaaS subscription license fees and for maintenance fees and our perpetual licenses. Our license revenue is sticky because its disrupted for a customer to switch to a competitors license once we're installed. SaaS licenses contribute to our long term revenue backlog as recognized over the life time of our customers' usage but do not generate large short term revenue. Services on the other hand does produce short term revenue over the first three to six months after a sale but these revenues are not recurring in our lower margin. Plus our higher margin recurring license service sales drive our long term bottom-line and in fact we're stronger even if we swap two service dollars in revenue for one license dollar. Another key metric that drives our business is the customer acquisition cost or CAC. CAC is driven by our win ratio and also by the length of our sales cycle as long as sales cycles are inherently more expensive. Both the win rate and the sales cycle linked are impacted by the customers' first year budget and this first year budget is largely comprised of lower margin initial services. Both Bridgeline and its customers are aligned towards lower services even when that leads to customers that can slightly higher recurring license fees. To drive more SaaS licenses, we made two strategic initiatives this year both of which are bearing the fruit. Our first initiative was to launch our Pro series. Pro series is a much higher license-to-services ratio because out of the box it provides building blocks to accelerate and implementation. This reduces the first year services cost for our customers to less than $100,000 which allows Bridgeline to compete with small to mid size market. The SMB market has fewer competitors in part because these customers often do not budget substantial personalization services or want to personalize with internal third-party service firms. With Pro series we’re able to win in this new market and still retain high margin license revenues while operating in a faster sales cycle with lower CAC. Secondly, we launched a new version of Marketier, our marketing automation platform. Until now, Marketier required customers to re-implement their entire websites thus reducing our addressable market to only constant companies whose site is powered by Bridgeline's web content management software. We've now made Marketier available to any company regardless of how their website was implemented. This not only increases the addressable market for Marketier, it allows us to build relationships with companies using competitive web content management systems, sell their Marketier and then later upsell them to our web content management system. Marketier requires very little services which reduces our customers first year budget requirements while retaining our higher margin licenses. Then result of the lower CAC with higher margin licenses services ratio for Marketier. In our third fiscal quarter, our new Pro series contributed to license bookings with only a three month sales cycle compared to the six to nine months sales cycle that our enterprise software often requires. While we launched Marketier three weeks ago, we already assigned a customer. Our license sales driver backlog which is our future revenues for past sales over the next three years. Our 36 months backlog is approximately $23 million, our $1.5 million quarterly license revenue increased year-over-year and now accounts for 41% of our total revenue up from 31% in the third quarter of fiscal 2015. Services revenue decreased as we focus efforts on new customer acquisitions with larger licenses for services mix. Even though we are reducing the amount of services required to deploy Bridgeline software, the very nature of our business requires some services so we want to make sure those services are a profitable as possible. We restructured the way we bid on services from purely a fixed fee approach to largely time and material. By using time material model, we can expedite the sales cycle, reduce project management cost and reduce margin risk. As an example of the risk associated with the fixed fee project, Bridgeline had projects won in previous years on fixed fee service engagements that were ongoing today due to poor scoping. These projects created drag on our 2016 services margins. This year we focused on clearing out these projects by working with our customers to complete the contractual obligations and identify time and material billing for any changes. Today almost all of our major fixed fee overhead projects have been completed to minimize future margin drag and we expect our new approach to services engagements to reduce this risk substantially. As we evolve these efforts, gross margin has improved for three consecutive quarters to reach 54% in the third quarter of fiscal 2016 which is nearly 10% higher in the third quarter of fiscal year 2015. In addition to fulfilling legacy services engagements which did require non-recurring expenses, Bridgeline will take certain non-cash charges this quarter resulting in a net loss of negative adjusted EBITDA in our income statement. Mike Prinn will elaborate on these one-time expenses to enable healthier operations going forward. One of the most important financial changes that we made was to offer to our convertible note orders to convert up to $6 million in debt to equity. We were happy to see that 100% of our convertible note orders chose to convert which signals their confidence in our future prospects. We also paid down close to $500,000 on a revolving credit line this quarter. Our overall interest payments have decreased so we can focus investment on customer acquisition and developing more competitive products. While removing our convertible notes, we also raised over $3.6 million to find expansion of our sales team. We now have a sales team that includes nine direct sales people with concentrations in New York, Boston and Chicago. We have also launched an inside sales team that will focus on Marketier sales to further improve our customer acquisition costs. Many of these new sales people are already contributing to customer wins with two-thirds of our new customer engagements in the third quarter close by the new team members. This quarter's win include a global information software and services company using Bridgeline to launch an outline learning system, a life insurance company that is launching new visibility insurance business with Bridgeline and powering their customer portal and in energy environmental and industrial services company is launching a new site based on Bridgeline software. Overall, we are pleased with our progress towards creating SaaS software with higher license to services ratio and lower customer acquisition costs that not only help Bridgeline increase margins, but simultaneously deliver greater value to our customers. At this time, I'd like to turn the call over to our Chief Financial Officer, Mike Prinn who will provide more details on the financial results of our fiscal quarter of 2016.

Thanks Ari. So, I will review the results of operations for the third quarter ended June 30. Third quarter revenue was $3.7 million compared to $4.9 million in the third quarter of last year. As Ari mentioned, we’re making steady and accelerated progress in our efforts to transform Bridgeline into a SaaS focused company as evidenced by a greater mix of license revenue. As you mentioned our previous calls, and as Ari talked about earlier, we've been focused on rebuilding our sales team and focused on our new product offering iAPPS Pro which will generate more license revenue at higher gross margin levels compared to our previous offerings. So let me give some additional color around the various components of revenue. Our subscription and perpetual license revenue for the third quarter of fiscal 2016 increased 2% to $1.5 million compared to the third quarter of fiscal 2015. Our licensing revenue for the third quarter makes up 41.3% of our total revenue compared to about 30.9% of the total revenue in the third quarter of last year. Also as Ari mentioned our license revenue and our hosting revenue combined our 60% of our total revenue. That's up from 40% in the third quarter of last year and this is the first quarter in Bridgeline’s history that we've reached 50%. So you can see even though our revenues decreased we're driving a higher percentage of license revenue to total revenue and expect to continue to do that in the future quarters. This will help transform Bridgeline to an improved SaaS business model in the future. Our SaaS revenue increased 9.2% for the third quarter of fiscal 2016 compared to the third quarter of fiscal 2015. Our recurring revenue, which consist of SasS licenses annual maintenance on perpetual licenses and hosting revenue remains steady quarter-over-quarter at $1.8 million. Our services revenue decreased by approximately $1.1 million from the third quarter of last year. As we've discussed previously, we've made some changes in the last few quarters to align our delivery team with our revenue projections. We will continue to focus on our billable utilization and our resource planning to make sure we have the right team to continue to drive the forecasted service revenue. We believe that with our focus on increasing the sales team at our Pro series products, we can continue to drive service revenue back towards $2.5 million per quarter. We’ve made further progress in the third quarter in terms of expanding the sales team and increasing our spending on lead generation. We expect to see the results of these investments pay off in the upcoming quarters. I also think it’s very important to point out that although our service revenue decreased by $1 million, our cost of providing that service revenue decreased by almost $900,000 in the current quarter demonstrating our commitment to streamline our costs, in line with our revenues, and that's evident in our gross margin improvement, which I'll talk about in a bit. As we mentioned in our conference calls over the last - probably year, we initiated expense reductions that started in the second quarter of last year and it continued throughout this fiscal year. Our goal is to align our cost structure with our revenue forecasts. In the current quarter, we took initiatives to use some of these costs to drive future revenues and made investments in our sales team. We'll continue to focus on keeping our cost structure lean and remaining fiscally responsible while executing on our strategy and ultimately growing our top line. In terms of gross margin, we significantly improved our gross margin in the third fiscal quarter demonstrating the benefits of our ongoing transition to a SaaS based model. Gross margin for the third quarter was 54.3% compared to 45.4% in the third quarter of last year. We continue to see the benefit of all the infrastructure improvements that we've made throughout the last three to four quarters. We're seeing a delivery team that has a much higher billable utilization and ultimately as we continue to sell more license engagements, we believe we can drive a higher gross margin in future quarters. Also contributing in the gross margin increased our improvements in many facilities and overhead reductions. These changes also impacted our license and hosting margin, which improved to 74.7% in the third quarter of this year compared to 71.4% in the third quarter of last year. Our operating expenses were $3.0 million for both the third quarter of this year and the third quarter of last year. However, I want to mention that we included in this quarter an increase in our allowance for doubtful accounts based on the aging of some of our accounts receivables. We're monitoring this but thought it was best to increase the allowance in the third quarter. This was the charge to our general and administrative expenses of approximately 200,000 in the third quarter of fiscal '16. I mentioned this because excluding this charge operating expenses would have been 200,000 lower than the third quarter of last year and then it’s even with our increased spending in sales and marketing. We've made every effort to reduce our operating expenses to be in line with our current revenue and we have initiatives that we will continue to focus on for the remainder of 2016 and into 2017. We've continued to make changes in our office footprint and these changes alone account for significant savings compared to prior years. We'll also continue to look for opportunity to reduce our operating expenses while not impacting the planned growth of our sales team and our marketing spend. Let's take a minute and walk through a line item on our income statement that already mentioned – that's new for us. So this quarter you will see a charge for a loss on inducement of convertible notes for 726,000. This is a non-cash charge and the offset in the balance sheet is additional paid in capital. As we discussed on prior calls and mentioned in recent press releases, we successfully completed the conversion of $6 million of convertible notes and term notes into common stock. This process began in the second quarter with our proxy filing in our annual meeting and was completed recently in the fourth quarter. Not only does this significantly improve our balance sheet and will reduce the amount of interest we pay on a quarterly basis, but this also sends a strong message that our noteholders elected to become shareholders and they believe in the future of Bridgeline Digital and support our long term business plan. From accounting perspective some of the notes that converted had an initial conversion price from over three years ago that was much higher than the $0.75 conversion price that was approved by the shareholders at our annual meeting. So we had to do is, we have to take the fair value of the difference between the number of shares that would have been issued according to the original notes and the number of shares that were actually issued in the fair value of those shares as a loss on inducement of convertible notes. The total non-cash charge is approximately $3.4 million and it’s a onetime charge but we have to record the charge based on the dates that the noteholder elected to convert and these happened in June, July and August. So that's charge will broken into two quarters in our P&L. In the third quarter you will see a charge for the 726,000 and the remaining $2.7 million will be an inducement charge in the fourth quarter of fiscal 2016. Again this is the accounting that was required to convert this debt into equity. This makes our balance sheet much healthier and in future quarters reduces our interest expense by over 150,000 per quarter or 600,000 annually. Our GAAP net loss was $2.1 million in the third quarter of fiscal 2016 compared to a loss of $1.1 million in the third quarter of last year. This difference in net loss between Q3 of last year and Q3 of this year is primarily related to the non-cash inducement charge that I just walked through. Our non-GAAP adjusted net loss was $1.8 million or a loss of $0.19 per diluted share in the third quarter compared to non-GAAP adjusted net loss of $3.1 million or a loss of $0.45 per diluted share in the third quarter of last year. That’s an improvement of $1.2 million or $0.26 per share. Adjusted EBITDA for the third quarter of 2016 was a loss of 575,000. In the third quarter we made the decision that we needed to continue to rebuild the sales team, make additional efforts around an inside sales team, as well as increased marketing spending for lead generation. This cost in our income statement this quarter but was still a quarter to wait and see a improvement to the top line. Our goal as we wrap up the fourth quarter of fiscal 2016 and begin our planning for fiscal 2017, is to get back to generating positive adjusted EBITDA and drive towards an operating profit in fiscal 2017. So turning to our results for the first nine months of fiscal 2016 compared to the first nine months of fiscal 2015, our revenue for the first nine months of fiscal 2016 was $12.1 million compared to $14.7 million for the same period last year. Our subscription and license revenue increased 7.4% and our SaaS revenue increased 12.5%. Well our service revenue did decrease by over $2.6 million, our related cost of service revenue decreased by almost $3.1 million as a result of our focus on streamlining our delivery teams billable utilization, as well as facility and overhead costs. Our gross profit for the first nine months of fiscal 2016 was $6.4 million compared to $5.9 million for the first nine months of fiscal 2015. This resulted in an increase in gross margin from 40.1% for the first nine months of 2015 to 52.6% for the first nine months of fiscal 2016. To show this kind of improvement in gross profit and gross margin on a revenue number, that's $2.5 million less this year-to-date compared to last year is a testament to our focus on our initiative to reduce and streamline our costs. Our operating expenses for the first nine months of fiscal 2016 excluding restructuring charge of $795,000 were less than $8.4 million compared to $10.5 million in the first nine months of fiscal 2015, an improvement of over $2.1 million or 20.1%. An inclusive of the $726,000 non-cash charge related to the inducement of a convertible debt, net loss improved by 17.2% to $4.4 million to the first nine months of fiscal 2016 from a net loss of $5.3 million for the first nine months of fiscal 2015. And our adjusted EBITDA improved by approximately $2.2 million from a loss of $2.6 million in the first nine months of fiscal 2016 compared to a loss of $484,000 for the first nine months of fiscal 2016. So turning to review Bridgeline's balance sheet, as of June 30, the company had cash and accounts receivable of $2.2 million and our DSO was 50 days. In Q3 and in July, we completed equity financing to provide an additional $3.6 million in working capital for the company to continue to execute on its long term business plan. We'll continue to manage our cash and operating expenses and remain fiscally responsible as we execute our business plan for the remainder of fiscal 2016 and beyond. Our total assets are just under $18 million and our total liabilities decreased from $13.6 million in the second quarter of 2016 to $9.1 million this quarter June 30. This significant decrease in liabilities was a portion of the debt converting in equity and that process was fully completed - that was not fully completed by June, 30, so you’ll continue to see the debt decrease and it will be significantly lower on September 30, our next balance sheet that we release. Now that the convertible notes and the term notes have been converted, our only significant piece of debt that remains is our line of credit that we have based on our accounts receivable. In our line of credit balance at June 30 was a little over $1.8 million. So before we move to Q&A I just want to say that both Ari and I believe that the company is positioned to execute for the remainder of fiscal 2016 and into 2017. We're both pleased with the recent changes that we’ve made and are excited about our Pro series, which has the ability to drive a true SaaS business model and accelerate our timelines of profitability. So thank you. And at this time we'd like to open a call up to Q&A.

[Operator Instructions] And our first question comes from Howard Halpren from Taglich Brothers. Your line is open.

Good afternoon guys. If I heard correctly, I guess the investments you're making now positive EBITDA should resume sometime in the March or June quarter of next year?

Yes, I think that's a fair statement and we haven't released any guidance, but we're - I think we're positioned to make an improvement from Q3 to Q4 and certainly talk about the March or June quarter one or two quarters ahead of that, I think that's a good estimate.

Okay. Now, I've seen this quarter you've reported that you had a 9.2% increase in SaaS revenue. How do you envision that building so you can get over the 10% of mark and then close up to the 20% mark? How do you see that evolving as time goes on?

Well we've made significant investment in our sales team. As you know now we've nine direct sales people plus an inside sales team with three more people. And the growth on the SaaS revenue will largely be from new customer acquisition. Our existing customers will continue to renew their SaaS licenses, but the growth is really going to happen through new customer acquisition. Over the next year as we’re requiring customers with both Marketier, which will be driven by our inside sales team in the Pro series, which can be sold by inside and direct sales people, both of those opportunities have upgrade past. So, someone made by Marketier who is not using Bridgeline content management software at all that’s an important part of the value prop for that and then later in the right time in their sales cycle, we'll already have a relationship and be able to upgrade them to either Pro or enterprise. Similarly our Pro customers have an upgrade path to our enterprise products. So for the next year, new customer acquisition is going to be the key, actually that will always be the key for growth of their license revenue and now unlike in the past we also have up-sell opportunities within our install base as well.

Okay. Could you talk a little bit about market automation market that for the enterprise that you're going after and how was -- what is the market size and how is it evolving?

Sure, marketing automation is the ability for us to help customers acquire leads for perspective customers, create nurturing campaigns to maintain contact with those leads and to notify their sales force within their perspective customers are looking at their material or need to be contacted. That market is right now approximately little bit over a $1 billion, expected to go to $3 billion by 2020. In the last few years, it's actually had a 40% year-over-year growth rate and in the SMB and the upper mid marketplace, is the penetration for marketing automation is still less than 20%. So you got high year-over-year growth rate and low penetration. So the end is nowhere in sight. Now you do have a number of companies that are in those spaces from a competitive perspective and the two big guys are Marketo and HubSpot. Marketo actually was just taken private by the equities at 8.5 times revenue. Those two companies, it is strong year-over-year growth. Neither of them have posted profits in the last three years and that's because their cost of customer acquisition relative to lifetime value of the customer is low. So they're better off investing in additional customers and reaping the long-term rewards. Because there is low market penetration, high growth in that space, we're really focused on this as being a core part of our growth and for us, unlike Marketo and HubSpot I mentioned earlier, we have a strategic opportunity, where once we acquire a marketing automation customer, we have a suite of software in web content management, commerce, social analytics that we can use to upgrade them and those markets are actually even larger in the $5 billion range although they have higher penetration than marketing automation which is little bit newer on the scene.

Okay. And one final one on the three customer wins I guess you had recently, when do you think we are going to start to see some of that revenue from like the life insurance company and the franchise that selected you guys?

Yes so our customers, our new wins the revenues generally has two components, you've got the license revenue and the services revenue and our long-term strategic value is based on our license revenue, license revenue being recurring, being sticky, being higher margins. For our new customer wins, what you see is in the first three to six months a spike in revenue on the services side where we personalize our software for that customer. So there we'll have our services team members billing anywhere from $150 to $250 an hour providing professional services work. That work is often called won and done work, although we always have ongoing retainer relationship essentially during customization ones and that said non-recurring. So you'll see a slice in services revenue from these new customer wins immediately. So that will start coming in this quarter. The real core strategic revenue however, happens over a longer period of time and that's the SaaS revenue. So that is the recurring revenue from the license, very high in margin, 75% plus and when we do a booking, I’d say that we win a new customer and you've got $150,000 in booked SaaS license fee plus $150,000 in services, that $150,000 services you get that in three to six months. The $150,000 SaaS fee that comes over a three-year period, so you don't see the spike, but you do see higher quality of revenue. When I talk about higher quality of revenue, I'm talking about smooth predictable revenue that's high margin, that's recurring. And one of the great things about our software is that I use the term sticky earlier. So I would say that we've signed initial engagement with a three-year SaaS license. We’re typically going to see our renewals after the end of that three-year period because the lifetime of a website for instance is often five years and it's very disruptive within a company to change from one web platform to another. So even when we do an initial booking of say $150,000 and license, there's often another $100,000 in additional renewals that happen afterwards.

Okay.

Hi, Howard, one thing that's probably worth mentioning is I know you're close to, how we're going to market our sales cycle? In the past, we’ve talked about our SaaS revenue starting with website launches. We've actually successfully been able to transition that and we now for the most part for our new deals for SaaS license billing starts also in the contract sign. So we’re billing, collecting and recognizing license revenue as we're building the website.

Okay. That's good to know. Well, I like the progress. Keep it going and look forward to 2017.

And our next question comes from George Mills from MKS Management. Your line is open.

So I'm trying to look at the revenue that you need to generate in order to I'm just focused on reaching it be the breakeven. And you have roughly $1.8 million recurring revenue and of course you need to sell on top of that. And you have right now sales -- you have roughly nine direct sales people and you’re adding your inside sales team. So I’m just trying to get a sense, what is your sales capacity right now with your current sales force and what would be your sales capacity when you think that they've fully ramped up?

George, let me may be try and answer the first part of the question, in order to really get back to generating positive adjusted EBITDA, it’s probably around say $4.2 million in revenue and we know that in a modeling perspective, roughly $5 million gets us to net income and profitability. So those are the two sort of key metrics that are out there for us and we have been guided as to when that will happen, but $4.2 million is probably positive adjusted EBITDA and $5 million is profitability. And I think in terms of the current existing sales team, Ari can comment, but I think those folks, the team as it stands fully ramped up can get us at least to that first metric if not…

Sure, for our direct sales team we should expect once they're all ramped up, which takes up nine months from initial hire to be able to produce $2 million a year in annual revenue and the mix of that revenue would be little better than one third service -- little better than two thirds license and then one third services. And the license side your gross margin is going to be in the high 70's and the services side, your gross margins going to be in the mid-to-high 40's. So I’ll give you a sense of what each one is going to produce at the end of the day in terms of driving the bottom line. We also are investing in an inside sales team. The inside sales team you have a lower cost salesperson in terms of what their salary is and their fully loaded cost, because they don't need to travel as much in the shorter sales cycle. That sales team is going to be focused first and foremost on our marketing automation and then also on our Pro series as well, although Pro sometimes will require a direct sales person because those implementations can be a little bit more complicated than what you'd be able to do just over the phone. Hence we just launched our insight team. Right now we don't have a sense of what the annual revenues are going to be there and we are watching them carefully to be able to click there. But on the direct team itself it's a rule of thumb use $2 million after they've been on the team for nine months.

But you have nine direct sales guys right.

That's right.

So, you’re talking about $2 million sales capacity for all nine of them?

No, no, for each. So, that would be $18 million in sales capacity cumulative.

And I think just though the one disconnect - I mean I was talking about bookings and so that's the total value of the contracts which are - most of them are three years and then that will, obviously translate into revenue.

That's a great point, so one of the key things that we focus on growing is our - is our backlog. So right now we’ve got about $23 million backlog for a three year backlog, 36 month backlog and that bookings Mike just mentioned so we book $18 million, that's going to be $18 million over is - the least services component over a three year. So, let’s say that's $12 million in the - the license component over three years, you get $12 million in license recognized over a three years, that’s about $4 million a year and additional license revenue and then $6 million in service which are generally be recognized over three to six months.

Got it. Okay, great. And when do you think the team - the direct team is fully ramped up. You have probably couple of people who are fully may be of the nine, how many are actually producing right now.

Right. So we’ve got generally about nine months expectations for a new team member to ramp up and we brought in just as last quarter four new sales people, so they are going to be fully producing in our second fiscal quarter which is the quarter beginning January. Although we’ve been happy to see that lately, we’ve been able to get people productive a little bit quicker, so a lot of our sales people are producing their first sale in the second quarter that they are on board. So right now out of the nine, we've got, I'd say one, two, three - three that are fully productive, one that's pretty close, they could see the four, another one that’s pretty close and the balance of them are still ramping.

Great. Okay, that's really helpful. And Ari in response to Howard's question, you talked about HubSpot and Marketo. Can you sort of help us understand how you are positioning yourself in relation to these two companies in a way, what kind of functionalities they have and you don’t have and maybe what functionalities you have and they don't have?

Right. So the way that we’re positioning ourselves really against both of these guys is that they have evolved and sprout to a certain extent over the past five or six years because they initially had to try out certain functionality that just turned out not to be necessary or if combined a couple of things could maybe our integrating as well, as time savings. And what we have is a subset of their functionality that results in nearly all of functionality that a customer needs especially in the SMB space and a much cleaner and easy to use interface. We are more cost competitive. We start it for instance $900,000 a month, probably start to 1200 but you really can't do much with it for less than $1800 or $2400 a month. So the core value prop that we have is a clean interface with everything that you need unless you're a very specialized company at a better value. And one of the strategies for acquiring customers that will have is not only our inside sales team, but we're also partnering with digital agency and expect to be able to show our product to companies that currently have no marketing automation whatsoever so that it can easily fit within their budget, deliver clear value, and is very easy for the end users to use as opposed to a more complicated system from published broader market that also costs.

Okay, great. Good luck. Thank you very much.

[Operator Instructions] And at this time I'm showing no further questions. I'd like to turn the call back to Ari Kahn for closing remarks.

We appreciate the support and patience of all our shareholders and it's our goal to continue building a scalable business model which in turn will build shareholder value. Thank you for joining us today. Have a great week.

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