Bridgeline Digital, Inc. (BLIN) Q3 2021 Earnings Report, Transcript and Summary

Good day and thank you for standing by. Welcome to the Bridgeline Digital Inc. Third Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions]. I'd now like to hand the conference over to your first speaker for today Mark Downey, CFO of Bridgeline Digital. Thank you. 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 2021 third 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’ll then update you on our financial results for the quarter and we’ll conclude by taking questions. Before we begin, I would 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. 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. 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 such as the impact of related public health measures 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 this afternoon, 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.

Thank you, Mark and good afternoon everyone. I'm happy to report that we delivered more than 30% topline growth and expect to deliver double-digit growth the next quarter as well. Subscription revenue grew by 37% and is now 76% of our overall revenue. We've also accumulated a cash position of nearly $10 million, which will be invested in sales and marketing to win even more customers. In our third quarter, we closed more sales than any time in the company's history. Most of these sales were multi-year subscriptions, which will drive additional recurring revenue in future quarters. Our subscription and license revenue is now more than 75% of our total revenue and as subscriptions continue to grow, our gross margin will increase even further. This year we made two acquisitions, Woorank and HawkSearch. Both companies are fully integrated with Bridgeline at this time and the bulk of the restructuring expenses is in our third quarter. With the combination of Celebros and HawkSearch, we are especially strong in the site search market with more than 400 customers and a feature set that is second to none. Site search leads -- led sales for the company in our third quarter with nearly all contracts being multi-year commitments and two of them being larger than the company had ever signed before. Our strategy to merge Celebros and HawkSearch products is underway. This will result in a single product with the strongest feature set in the market, including natural language processing, personalization and recommendations. We released the Woorank assistant in our third quarter also. The Woorank assistant incorporates an artificial intelligent agent that monitors your global web vitals and makes recommendations that drive more site traffic and increase your Google ranking. Bridgeline released e-commerce 360 dashboards for both the HawkSearch and Woorank product lines, the e-commerce 360 dashboard measures your e-commerce strength and makes recommendations with Bridgeline software that can help drive your site traffic, boost your sites conversions and increase your online average order value. The e-commerce 360 dashboard is an important part of our organic growth strategy and facilitates cross-sales across the customer bases of our product lines. Our dashboard delivered sales leads the very first day of its release and is impacting our sales pipeline above and beyond the new leads generated by marketing and our partner network. Our partner network, by the way, is making a strong impact on our revenues. Both agency and ISV partners are creating sales in our third quarter. Partners produced nearly half of our customer wins. On the marketing front, we released a new website for both Bridgeline and our Unbound product suite. These sites better articulate our e-commerce 360 strategy and will convert more site leads to -- more site traffic to leads. We will continue to grow our investment and lead generation to drive even more revenue. To sum it up, we delivered record growth. We expect to deliver strong growth next quarter. We have a strong cash position that'll enable further investments in sales and marketing and we've made great strides in product development with e-commerce 360 strategy. At this time, I'd like to turn the call over to our Chief Financial Officer, Mark Downey.

Thanks, Eric. I am very excited to share the positive financial results for the third quarter of fiscal 2021 ended June 30, 2021 with you this afternoon. Total revenue, which is comprised of licenses and services increased 31% to $3.4 million for the quarter ended June 30, 2021 as compared to $2.69 million for the same period in 2020. The following are the various components of revenue. Subscription and licenses revenue, which is comprised of SaaS licenses, maintenance and hosting revenue and perpetual license revenue increased 37% to $2.6 million for the quarter ended June 30, 2021 from $1.9 million for the same period in 2020. As a percentage of total revenue, subscription and licenses revenue increase 3% to 76% of total revenue for the quarter ended June 30, 2021 compared to 73% for the same period in 2020. Services revenue increased 15% or $108,000 to $821,000 for the quarter ended June 30, 2021 as compared to $713,000 for the same period in 2020. As a percentage of total revenue services, revenue accounted for 24% of total revenue for the quarter ended June 30, 2021 compared to 27% for the same period in 2020. Bridgeline's overall strategy as Ari has mentioned called E-commerce 360 has been on increasing recurring subscription and licenses revenue without the box apps that require little or no services to implement. This focus and continued growth are expected to further increase our subscription and licenses to services revenue ratio. Gross profit increased 45% or $699,000 to $2.3 million for the quarter ended June 30, 2021 as compared to $1.6 million for the same period in 2020. Cost of revenue increased 11% or $114,000 to $1.2 million for the quarter ended June 30, 2021 compared to $1.1 million for the same period in 2020, as a result of increased fixed cost to operate our cloud-based hosting model associated with the Woorank and HawkSearch acquisitions. Gross margin percentage increased to 65% for the quarter ended June 30, 2021 compared to 59% for the same period in 2020. Subscription and licenses gross margin percentage were 72% for the three months ended June 30, 2021 as compared to 64% for the same period in 2020. Services gross margin percentage were consistent at 45% for the three months ended June 30, 2021 and 2020. Operating expenses increased $1.5 million to $2.9 million for the quarter ended June 30, 2021 from $1.4 million for the same period in 2020. Included within the quarterly totals as of June 30, 2021, our additional investment sales and marketing and acquisition related costs associated with the integration of both Woorank and HawkSearch. In May, we concluded a registered direct pipe capital raise for gross proceeds of $5.1 million. The net proceeds for this transaction were allocated according to the revenue [ph] accounting rules, each of the freestanding financial instruments based on their failed values, which were comprised of common stock, preferred stock and warrants. For the quarter ended June 30, 2021, the total warrant liabilities were revalued, which considers the overall change in our closing market share price as of June 30, 2021 of $4.30 from the previous quarter's closing market share price of $2.89 resulting in a gross $4.6 million non-cash derivative loss to the change in the fair value of the warrant liabilities, offset by a gain through the exercise of Series A warrants of $506,000. For the quarter ended June 30, 2020, the net loss to the change in fair value of warrant liabilities was $1.8 million. Operating loss for the quarter ended June 30, 2021 is $615,000 as compared to $150,000 profits for the same period in 2020. Net loss applicable to common shareholders for the quarter ended June 30, 2021 is $3.6 million compared to $1.7 million from the same period of 2020. Adjusted EBITDA for the quarter ended June 30, 2021 and the gain of $302,000 or $0.05 per diluted share compared to $428,000 or $0.11 per diluted share for the same period in 20200 Our non-GAAP adjusted net loss for the quarter ended June 30, 2021 is $2.7 million or $0.46 per diluted share compared to $1.4 million or $0.37 per diluted share for the same period in 2020. On May 11, 2021 the company pursuing to a share purchase agreement acquired all of the issued and outstanding shares of HawkSearch, a company based in Illinois. The company accounted for the HawkSearch transaction as a business combination. We determined that the fair value of the gross assets acquired is not concentrated in a single identifiable asset of a group of similar assets. Assets acquire and liability assumed have been recognized as the estimated fair values as of the acquisition date. The purchase price consisted of cash and preferred stock period closing and the deferred cash payable in installments. The purchase agreement also provides for additional consideration in the event of achievement of certain revenue targets and operational goals to the selling shareholders. Additionally, Bridgeline closed on May 14 a registered direct offering priced at the market of 1,000,060 shares of its common stock at a price of $2.20 per share for gross proceeds of $2.4 million and a securities purchase agreements with certain institutional investors in connection with the private placement of 2,700 shares of a Series D convertible preferred stock at a price of $1,000 per share. The company received gross proceeds from this private placement of $2.7 million. As of June 30, 2021 the company had cash of $4.8 million and accounts receivable, net of $1.3 million as compared to September 30, 2020 where the company at cash of $861,000 in accounts receivable net of $665,000. total. Total day sales outstanding for the quarter ended June 30, 2021 is 47.3 days. We received notification from the SBA of 100% forgiveness of our PPP loan. As of June 30, 2021, we have 6,801,243 shares of common stock, 350 shares of the Series C convertible preferred stock and 4,200 shares of the Series D convertible preferred stock. Our total assets are $32.1 million and total liabilities of $23.7 million. I wanted to wrap up with some financial outlook. We expect our subscription license revenue to grow by approximately $0.25 for the fourth quarter fiscal 2021. Bridgeline looks forward to continued success in 2021 and in the future by delivering shareholder value and expanding our customer success with exciting technology innovations. Thank you all for listening. And at this time we would like to open the call up to Q&A.

[Operator instructions] Your first question comes from the line of Oren Hershman [ph]. Your line is now open.

Hi, how are you? Congratulations on the progress. Can you continue to just go through some of the offerings, the existing offerings, that are showing the most growth and without saying any few, you can't tell us about some of the integration and some of the new offerings or I should say integrated offerings that you think are going to be appealing in the coming quarters.

Sure. So one of the key changes that we made at the beginning of -- at the beginning of the year was a move away from platforms and towards app. And our Unbound product suite is fundamentally a platform product, which has a six month sales cycle, much larger price tags and we're moving towards a shorter sales cycles that enable telephonic and touchless sales. To that end, our site search products, which is Hawk and Celebros are our strongest selling products today and our touchless sales for SEO, which is Woorank is very strong as well. On the Unbound side and with orchestra [ph] CMS as well, what we're is, we are investing in those to turn them into apps as well, that can be sold telephonically. And to that end, we released Unbound pages. So this uses our Unbound platform technology, creates an app on top of it that has a local pages solution for franchises to be able to quickly launch separate page -- locator pages for each of their franchisees and we sold that product this quarter. So that sold as well. So in general, Celebros, Orchestra, I mean, Celebros, HawkSearch, Woorank those are driving a lot of our growth and by repositioning Unbound, that's driving growth now as well and that'll be our focus and that is the heart of e-commerce 360. Apps that help drive your revenue, increase your conversion and boost your average order value for online stores that we're able to sell telephonically or in a touchless way. To that end, we have released our e-commerce 360 dashboard, which is now inside of both the Hawk and the Woorank products that allow those products to cross sell our other software and that's helping to drive some of this organic growth as well.

Is there a further integration that you could do or have to do with Woorank and the search product?

Well, there is further integration that we can do. So Woorank has this AI system that evaluates your website from a lot of different dimensions, not just traffic. It understands the technology behind your site. It connects to Google analytics and is able to evaluate conversion and that intelligence is going to go even deeper into HawkSearch and our other product lines to make their dashboards even smarter so that they can give you the best recommendations that'll drive revenue for your new site.

Okay. And in terms of I don't know if you have -- can say release date or anything in terms of a fully integrated search between the existing search products, any thoughts on, how important that is, number one and number two, any thoughts on when that might be available, if you know?

Sure, sure. Yeah. Well, that's really important. So when we're talking about our search product Celebros and HawkSearch, Celebros bringing natural language processing and instant search to the table, HawkSearch bringing recommendations, personalization, super strong set of analytics and the dashboard to the table. Integrating those is top priority for us. It's going to give the best of both worlds to all of our customers, and we don't have a formal release date yet, but that is one of the higher priorities for the company.

Great. Thanks very much. I'll let other people ask.

[Operator instructions] Your next question comes from the line of Howard Halpern. Your line is now open

Congratulations on the quarter. I jumped in a little late, so I apologize if you've provided some of the information, but in terms of the balance sheet where do you stand, I guess, post the quarter in terms of your cash balance and how many warrants are left and how strong you consider the balance sheet to be?

Great. Great, well, pretty much right at the end of the quarter, our stock price surged significantly and several warrants were exercised. So some of those were recognized within our quarter, a couple million dollars worth, and then another $5 million or $6 million was recognized after the fact. And we're very close to $10 million in cash today. I think that we exceeded $10 million a few days ago with data payroll. So it was kind of hovering around in that area. So that's where we are today. And in terms of the overall warrant today in the post, the end of the quarter I'm talking about today is August 16, we have a little 1.8 million shares 1.8 million warrants left on our books.

Okay and what does this balance sheet really provide to you in terms of gaining new customers, investing in your sales staff? Where do you envision the sales staff being at the end of the year, but more importantly, how customers or new customers view the company?

Okay, well, on the field staff side, we just hired four people literally last week. So we are grown on the sales side and that's because of our balance sheet. Bridgeline, our focus is topline growth. We're not going to neglect our bottom line. We've had a strong bottom line and we're going to continue to maintain that. However, top line growth is where we want to invest right now and because we've got a lot of cash that creates a lot of opportunities for us. And opportunistically, we will we'll look at acquisitions and for small one we could do those with cash on hand, if the right came up because the heart of the e-commerce 360 strategy involves extending the number of apps that we can cross sale and those apps often it can be acquired for know, a couple of million.

Okay and I assume Woorank is still providing a whole bunch of lead generation for you guys.

Yes, Woorank rank is telling it. We love Woorank and it's producing tons of leads. It's got a ton of value. It fits perfectly in our strategy.

Okay. Well, keep up the great work guys.

Thank you, Howard.

[Operator instructions] There are no further questions. I would like to turn the call over to Mr. Mark Downey for closing remarks.

Thank you. We appreciate the support and patience of our shareholders and it is our goal to continue building a scalable business model, which in turn, who build shareholder value. Thank you for joining us today. And we look forward to speaking again on our Q4 fiscal 2021 conference call. Stay healthy and well,

Thank you. This concludes our today's call. You may now disconnect.