Good day, ladies and gentlemen and welcome to Bridgeline Digital Inc. Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, today’s program is being recorded. I would now like to introduce your host to today's program, Brett Maas from Hayden IR. Please go ahead.

Thank you and good afternoon, everyone. I am pleased to welcome you to our fourth quarter earnings conference call. Before we begin, I like to remind listeners that during this conference call, comments that we make regarding Bridgeline Digital are not historical facts or forward-looking statements and are subject to risks and uncertainties that could cause actual results to differ materially from actual future events or results. These statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. The internal projections and beliefs upon which we base our expectations today may change over time, and we undertake no obligation to inform you if they do. Results that we report today should not be considered as an indication of future performance. Changes in economic, business, competitive, technological, regulatory, and other factors could cause Bridgeline's actual results to differ materially from those expressed or implied by the projections or forward-looking statements made today. For more detailed information about these factors and other risks that may impact our business, please review the reports and documents filed from time to time by Bridgeline Digital with the Securities and Exchange Commission. Also, please note that on today’s call, we will discuss some non-GAAP financial measures in talking about the company's financial performance. We report our GAAP financial 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, bridgeline.com. I'll now turn the call over to Ari. Ari, the floor is yours.

Thank you, Brett, and good afternoon everyone. In 2016, Bridgeline focused on growing its iAPPS SaaS business to build high margin, recurring revenue and long-term customer engagement. This focus helped us increase our iAPPS recurring revenue by 27% fiscal 2016 compared to 2015. Full year SaaS license revenue increased by 11.4% and gross margins increased to 54.2% in 2016 from 42.6% the previous year. Infact, gross margins increased each quarter this year reaching 59.3% in Q4. Gross margin is expected to further increase with our SaaS to services revenue mix growth and our newer product lines. Bridgeline has made several strategic investments in 2016 to pave the way to even greater success in 2017. We launched our iAPPS Pro series in markets here, these products have a higher staff to professional services ratio than the iAPPS enterprise product lines. They also have larger addressable market space and faster sales cycles. We also invested in sales and marketing this year, with several additions to our direct sales team and the launch of an inside sales team. We begin 2017 with twice the sales people, a sales process that is twice as fast, more of customer acquisition cost and a sales pipeline that is significantly larger than we had at the start of 2016. With these strategic investments in place and proven with our 2016 results, our goal is to reach positive cash flow in 2017, and ultimately drive our customer companies enterprise value to the higher multiple revenue seen by many SaaS company. SaaS based company valuations over the past decade averaged four to eight times revenues and 2016 saw valuation of the more than eight times revenue for many businesses. In earlier years, Bridgeline primarily sold lower margin professional services and professional services companies often have a low enterprise value.…

Thanks, Ari and good afternoon everyone. So, I will review the results of operations for the fourth quarter and the full year fiscal 2016. Our fourth quarter revenue was $3.7 million compared to $4.5 million in the fourth 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. And as we’ve mentioned in our previous calls, and as Ari talked about earlier, we've really 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 fourth quarter of fiscal 2016 remained constant at $1.5 million compared to the fourth quarter of fiscal 2015. While the total licensed amount was flat, I think it’s important to point out that we had approximately $100,000 more in perpetual license revenue in the fourth quarter of last year because the perpetual can be a little lumpy and as part of our transitional full SaaS model, our perpetual licensing will decrease, but offer that licensing model if require or requested by our customers. Our SaaS revenue increased 8.5% to $1.3 million in the fourth quarter of fiscal 2016 compared to $1.2 million in the fourth quarter of fiscal 2015. Our licensing revenue for the fourth quarter makes up 40.5% of our total revenue compared to about 33.6% of the total revenue in the fourth quarter of last year. In our license revenue and our hosting revenue combined our 48.7% of our total revenue, so that’s up from 41.2% in the…

[Operator Instructions] And our first question comes from the line of Howard Halpren from Taglich Brothers. Your question please.

Congratulations guys, you’re really starting to see the progress in the numbers, so it’s nice to see.

Thank you.

How many new customers did you get with progressing the Pro and the Marketier in the quarter?

Well, for Pro and Marketier, I think about six new customers, approximately 20 new customers for the quarter, yeah, five or six.

Okay. And I guess on the long term plan, so you have those five or six customers, what is your anticipation that, you’ll take those five or six customers, they’ll be satisfied with the product. And then when did you start potentially the upsell process?

Right, right. Okay, great. That’s really the heart of our strategy going forward is that we’ve traditionally been selling our enterprise software which is higher ticket product, we split that up into smaller components including Marketier. We’ve created templates around it to reduce our customer acquisition cost. And now we can sell Marketier directly for example, upgrade that to Pro and upgrade that ultimately to Enterprise to have high life time value of customers who have still the lower customer acquisition cost. In terms of the timeline to answer your question, first of all, we’ve seen a lot of customers upgrade right in the sales cycle, so we wouldn’t even speaking to some of these customers had we not had Pro and Marketier to start the conversation and when they saw the value of upgrading. So we will see that. And I would have anticipate that many of our customers we need to build the track record here that we’re going to see about a 12 months increase, and the key driver on that is really going to be how quickly we can educate them and value of, for instant Pro if they’re moving from Marketier to Pro, and also what their own business cycle is. One of the challenges that we had in the past was that we’re only able to sell really the entire suite. In 2015, if you weren’t a customer that was ready to rebuild your whole -- infrastructure we couldn’t sell to you. Now we can sell you a part of the time but still to make the full upgrade to a new website, there is external politics that are involved because you are changing the look and feel on presentation for your company. So we’re always little bit subject to that. 12 months though is what my initial expectation is though for many of the upgrades.

Okay. And in terms of your pipeline of business, could you possibly break it down in two, because I know you’re selling I guess into two different tiers of potential revenue companies and in the 150 million plus and 25 million to 150 million could you break it down maybe in percentage terms where your backlog fits?

Yes. So our pipeline right now has a little bit more than half of the customers and the less than $500 million range, many of those are 250. Now, some of those that I’d say are less than $500 million are actually not businesses but they are departmental business unit. We got some great wins in just the last quarter of selling to business units in subsidiary areas of companies and we see that and that’s a really good place for our Pro series. But more than half of them in general are good customer prospects for Pro are either standalone smaller companies of business units.

And I know, I guess the life board is really the sales team, and so how many sales people do you have now and as business develops, how – what I guess is the criteria that you’ll use to know when to start adding to the sales team without you know look at deferring I guess the lack of a better term getting towards that cash flow breakeven or positive number?

Right, right. So we kicked off the year with four sales people and we finished the year with nine sales people. And that’s the direct sales team and then in addition to that we have four inside sales people. We started 2016 with two, so we’ve essentially doubled it. We’ve also more than doubled our pipeline and our sales cycle went from a nine months sales cycle down to a 3.8 month sales cycle. So we’re much more efficient and we’re bigger. Now, the market in general is very large relative to our size, so we don’t have any concerns with building a team so big that it loses efficiency due to tapping out the market. But, as a SaaS company, one of the key things that we have to be careful about and one of the reasons why so many SaaS companies are losing money when you just look at their P&L and don’t look at it a little bit deeper, is that the customer acquisition costs is often not returned until the end of the first year of the subscription. We are signing a three year subscriptions for our software and the customer acquisition costs being the total sales and marketing dollars including personnel, including commission, including allocations for office space and so forth is typically not returned for the first 12 months. So we are doing a little bit of a balancing act where the product is great. We are running very efficiently and if we had a ton of cash in the bank we could hire a large number of sales people and do a large customer acquisition graph right now knowing that two or three years down the road we would have our life time value of our customers who would pay for that. We don’t have a huge cash position right now. So we’d probably in this year can still accomplish our financial goals and maybe get upto 12 direct sales people and have an inside team of six to eight people and have that cash flowing well and have a good profitable company. And as we get towards that route and our topline revenue is growing and we’re still managing the bottom line really carefully we’ll be able to adjust the longer way to really you know maximize how much customers we can acquire given the cash that we have.

Okay, well congratulations Ari, keep up the good work.

Thanks, thanks. It’s been an exciting year, appreciate that Hart.

Thank you. [Operator Instructions] And this does conclude the question and answer session of today’s program. I’d like to hand the program back to management for any further remarks.

Well thank you. We appreciate the support and patience of 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. And we look forward to speaking again in February at our Q1, 2017 conference call. Have a great evening.

Thank you ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.