Bridgeline Digital, Inc. (BLIN) Q4 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. And welcome to the Bridgeline Digital Incorporated Fourth Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference to your speaker today, Mark Downey, Chief Financial Officer. Please go ahead, sir.

Thank you and good afternoon, everyone. My name is Mark Downey, and I am the Chief Financial Officer for Bridgeline Digital. I am pleased to welcome you to our fiscal 2019 fourth quarter conference call. Before we begin, I would like to remind listeners that during this conference call, comments that we make regarding Bridgeline Digital that are not historical facts are forward-looking statements and are subject to risks and uncertainties that could cause such statements to differ materially from actual future events or results. These statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. The internal projections and beliefs upon which we base our expectations today may change over time, and we undertake no obligation to inform you if they do. Results that we report today should not be considered as an indication of future performance. Changes in economic, business, competitive, technological, regulatory, and other factors could cause Bridgeline’s actual results to differ materially from those expressed or implied by the projections or forward-looking statements made today. For more detailed information about these factors and other risks that may impact our business, please review the reports and documents filed from time to time by Bridgeline Digital with the Securities and Exchange Commission. Also, please note that on the call today we will discuss some non-GAAP financial measures when discussing the Company’s financial performance. We provide a reconciliation of these non-GAAP measures to our GAAP financials in our earnings release. You can obtain a copy of our earnings release by visiting our website. I would now like to turn the call over to Ari Kahn, our President and CEO. Ari?

Thank you, Mark, and good afternoon, everyone. In 2019, Bridgeline nearly tripled its customer base, added two product lines, and is now driving quarter-over-quarter growth in SaaS revenue which paves our path to generating profits in 2020. Our SaaS revenue annual run rate nearly doubled from $3 million to $5.5 million, and we’ve already signed more than $1 million in additional SaaS revenue to kick off 2020 and continue our trend of quarterly growth in SaaS revenue. Customer satisfaction in license renewal has been a core focus in 2019 and will continue to be a primary objective going forward. Our SaaS renewal rates were strong this year, and many of our customers even signed multiyear renewals. The increased renewal rate brought our contractual revenue backlog to approximately $11 million. And when renewals are projected, the three-year backlog has more than doubled from $13 million at the beginning of fiscal 2019 to $28 million today. We initiated a Customer Conference program this year, and conferences will continue to be a major initiative in 2020. Our first conference was held in New York City last October and had excellent feedback from attendees. Our next conference will be in Austin, Texas in March. We’re also holding smaller regional conferences, starting in Los Angeles next month. Conferences allow our customers, prospective customers and partners to understand our latest products and features, learn new ways to use our software and is a great way to gather direct feedback from customers to drive innovation. Our New York conference resulted in significant new sales and we expect future conferences to help drive growth. Bridgeline’s new product line now includes Web Content Management, Commerce Portal, Site Search, Translation, Social Media Management and Marketing Automation. Bridgeline provides unique capabilities for franchises as well as multilingual and currency enterprises, including B2B commerce and B2C retailers. In 2019, our customer base expanded into six new countries including international commerce and enterprise search capabilities. Integration of the OrchestraCMS and Celebros product, teams and customer bases into Bridgeline was a great success this year, and no future structuring expenses are required. Bridgeline is continuing to evaluate and pursue acquisition opportunities in 2020, with the goal of being -- and strategic transaction being accretive to shareholders and to further strengthen our bottom line as well as create new revenue opportunities. In addition to our focus on existing customers, Bridgeline’s strategic partnership with Salesforce.com is a new sales channel that has made substantial impact on our growth trajectory in 2019 and is expecting to be a major source of new sales in 2020. Salesforce.com has already introduced Bridgeline to several opportunities and recently partnered with us to help a global 100 supplier of power systems purchase OrchestraCMS product to build a community portal for their customers. Salesforce also helps Bridgeline expand its licenses with a global convenience store franchise that has more than 40,000 locations across 15 countries. In addition, our partnership with -- to our partnership with Salesforce.com, our acquisitions in 2019 helped to establish partnerships with Shopify, Magento, Magico [ph] and UPS. These partnerships have led to nearly a dozen new customer wins in 2019. In 2019, Bridgeline won 21 new license sales and launched over 20 customer websites with more than half of them deployed on our newly acquired product lines. Our customer base now spans several industries and countries. The most notable industries are manufacturing, franchise, health, finance and retail. Most business is performed in United States with significant revenues also generated throughout Europe, Australia and New Zealand. All product lines are contributing to new sales. In 2019, every license sold was a SaaS license and some Bridgeline customers who own perpetual licenses switched to SaaS. This trend of moving from perpetual to SaaS is a trend that we expect to continue as customers realize the true financial benefit to cloud-based software. At this time, I’d like to turn the call over to our Chief Financial Officer, Mark Downey, who will provide more details of the financial results for our fourth quarter. Mark?

Thanks, Ari. Today, I will review our financial results for the fourth quarter of fiscal 2019 as well as the fiscal year ended September 30, 2019. Total revenue for the quarter ended September 30, 2019 was $2.7 million, compared to $2.8 million for the same period last year. The following are the various components of revenue. Recurring revenue, which consists of SaaS licenses, annual maintenance on perpetual licenses and hosting, increased 16% to $1.7 million for the quarter ended September 30, 2019, from $1.4 million for the same period in 2018. As mentioned in prior earnings calls, deferred revenue accounting rules dictate a full contract is not recognized upon acquisition and only a portion of those revenues associated with OrchestraCMS can be reflected. Upon the first annual license payment of these acquired contracts, we will be able to recognize the full value of the contract over the term of the license. SaaS revenue which represents 81% of the September 30, 2019 quarterly recurring revenue, increased 20% to $1.4 million, from $1.1 million or 78% of the September 30th quarterly recurring revenue. Hosting revenue increased 20% to $247,000 or 9% of total revenue for the quarter ended September 30, 2019, from $206,000 or 7% of total revenue for the same period last year. Services revenue was $1 million, or 38% of total revenue for the quarter ended September 30, 2019, compared to $1.4 million or 48% of total revenue for the same period last year. Bridgeline’s focus is on increasing license revenue with some of our newer products, such as the Celebros product line, which require little or no services to implement. This focus along with the Company’s new partnerships and customers’ ability for self service are expected to further increase our license to service ratio over time. Total revenues from our two acquired businesses comprised approximately 33% of the total revenues for the quarter ended September 30, 2019. It’s important to note that this does not represent a full normalized quarter because as mentioned earlier, due to purchase accounting principles, acquired deferred revenue contracts are not realized at their full value upon acquisition date. Operating expenses for the quarter ended September 30, 2019 increased 35% to $3.1 million from $2.3 million for the same period last year. Included within these amounts are the increased costs associated with additional headcount from the two acquisitions. Restructuring charges, as mentioned during our earnings call in August, had been completed, and we will see a reduction in overall operating expenses that will more closely align with our revenues in future periods. Note that a goodwill impairment charge of $244,000 occurred last year for the same period end 2018. As we have previously stated on prior earnings calls, we have concluded in March, the sale of 10,227.5 units of Series C preferred stock and associated warrants for gross proceeds of $10.2 million. The net proceeds for that transaction were allocated to each of the freestanding financial instruments based on their fair values, which were comprised of the preferred stock and warrants. Due to fair value derivative accounting rules, the original fair market valuation of the preferred stock and warrants at March 31, 2019 was $21.5 million less the proceeds received at $10.2 million, resulting in a non-cash charge to other expense of $11.3 million in March. On June 30th, the derivative warrants were independently revalued, resulting in a $10.1 million non-cash gain other income. On September 30, 2019, the revaluing of the derivative warrants resulted in a $2.2 million non-cash gain to other income. Turning to our results for the full year fiscal 2019 compared to fiscal 2018. Total revenue for the fiscal year ended September 30, 2019 was $10 million, compared to $13.6 million for the same period last year. The following are the various components of revenue. Recurring revenue, which consists of SaaS licenses, annual maintenance on perpetual licenses and hosting decreased 13% or $900,000 to $5.7 million for the fiscal year ended September 30, 2019, from $6.6 million for the same period of 2018. As I mentioned already, deferred revenue accounting rules dictate the full contract is not recognized upon acquisition, and therefore only a portion of the revenue associated with OrchestraCMS has been recognized. Upon the first annual license payment of these acquired contracts, we will be able to recognize the full value of the contract over the term of the lease. SaaS revenue, which represents 75% of the September 30, 2019 annual recurring revenue, decreased $800,000 to $4.3 million from $5.1 million or 77% of the September 30, 2018 annual recurring revenue. Hosting revenue remained consistent at a $1 million or 10% of total revenue for the fiscal year ended September 30, 2019, compared to 8% of total revenue for the same period last year. Services revenue was $4.1 million or 41% of total revenue for the fiscal year ended September 30, 2019, compared to $6.9 million or 51% of total revenue for the same period last year. Operating expenses, excluding restructuring and acquisition related costs of $1.1 million and a goodwill impairment charge of $3.7 million were $10.9 million for the fiscal year ended September 30, 2019. For the same period of 2018, operating expenses excluding restructuring and acquisition-related costs of $200,000 and a goodwill impairment charge of $4.8 million, were $8.8 million. Net loss applicable to common shareholders for the fiscal year ended September 30, 2019 is $9.8 million, inclusive of a non-cash gain to other income attributable to the change in fair value of certain derivative warrant liabilities of $2.1 million, acquisition related costs of $1.1 million and a goodwill impairment charge of $3.7 million, compared to a net loss of $7.5 million, inclusive of a goodwill impairment charge of $4.8 million for the same fiscal year ended September 30, 2018. Adjusted EBITDA loss for the fiscal year ended September 30, 2019 is $5.4 million, compared to $1 million for the same period in 2018. Our non-GAAP adjusted net loss for the fiscal year ended September 30, 2019, is $3.9 million or a loss of $3.25 per diluted share, compared to $1.5 million or loss of $17.73 per diluted share for the same period in 2018. At September 30, 2019, the Company had cash of $300,000 and accounts receivable net of $1 million. Total days sales outstanding for the quarter ended September 30, 2019 was 50.9 days, an improvement from the beginning of the year high of 72.6 days. The primary reason for these improvements for this fiscal year 2019 can be attributed to our exceptional strong customer relationships and consistent conversion of accounts receivable into cash. Our total assets are $11.2 million and total liabilities are $7.4 million. There is no debt on the balance sheet as of September 30, 2019. Thank you all for listening. And at this time, we would like to open up the call to Q&A.

Thank you. [Operator Instructions] And our first question comes from William Urschel with Accord Network Partners. Your line is now open.

Thank you, gentlemen. Congratulations, good numbers.

Hello, William. Thank you.

Hello. In your last call, you suggested that the Company could reach profitability by the first quarter or calendar quarter 2020. Are you still on track for that?

No. We’re going to reach profitability. We’re expecting it to be in the second half of the year, of our fiscal year for 2020. We’re generating cash right now. And that’s the schedule.

All right. Thank you very much.

Thank you. [Operator Instructions] I’m not showing any further questions at this time. I would now like to turn the call back over to Ari Kahn for closing remarks.

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. Thanks for joining us today, and we look forward to speaking again on our Q1 2020 conference call. Have a great weekend.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.