Bridgeline Digital, Inc. (BLIN) Q4 2021 Earnings Report, Transcript and Summary

Good day and thank you for standing by. And welcome to Bridgeline Digital Inc. Fourth Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After this presentation, there will be a question-and-answer session. [Operator Instructions]. I would now like to hand the conference over to your host today Tom Windhausen, Chief Financial Officer. Please go ahead.

Thank you, Justin. Good afternoon, everyone. Thank you for joining us today. My name is Thomas Windhausen and I am the Chief Financial Officer for Bridgeline Digital, Inc. I am pleased to welcome you to our fourth quarter fiscal 2021 conference call. Joining me 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. Now, I would like to turn the call over to Ari Kahn, President and CEO of Bridgeline. Ari?

Thank you, Tom. Good afternoon, everyone. In fiscal 2021, we delivered 22% top line growth over the prior year with subscription revenue of $10 million for the year. Our fourth quarter subscriptions grew to $3.35 million. More than 80% of our fourth quarter revenue is recurring subscription now, and we have a $13.4 million run rate for subscriptions heading into 2022. We ended our fiscal year with $9 million in cash, putting us in a great position to invest in growth for 2022. We have expanded our business development team with eight new people and tripled our marketing budget. These investments will position us for additional growth while leaving comfortable cash buffer for future acquisitions and other opportunities. Bridgeline's partner network is a strong part of our lead generation strategy. We recently announced product releases for salesforce.com, for Optimizely and for BigCommerce. Each of these partnerships can drive substantial deal flow for Bridgeline in addition to the leads created by our marketing investments. We continue to attract additional ISV partners as well as agency partnerships. This year, we made two acquisitions, WooRank and Hawksearch. Both companies are fully integrated with Bridgeline and no significant restructuring expenses are required going forward. Hawksearch brought a site search and recommendation products that help companies increase online revenue with stronger ecommerce conversion similar to our Celebros product. Today, Bridgeline has more than 400 customers in the site search market. Site search is now 40% of our revenue and is our fastest growing product set. We're merging Celebros and Hawksearch to create the strongest feature set in the market. WooRank is winning new customers every single day and its underlying data set has enabled us to launch a new product, DataBravo. DataBravo is a web intelligence application that helps sales professionals and market analysts grow revenue with AI driven trend identification and prediction about web technologies and usage. We've won several DataBravo customers already, including enterprise customers and embedded licensed sales. Bridgeline released our e-commerce 350 dashboards for both the Hawksearch and the WooRank product line. The e-commerce 360 dashboard measures your e-commerce strength and makes recommendations when Bridgeline software and services can help you drive more site traffic, boost your site's conversion and increase your e-commerce site's 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 and their product line. We have a dedicated sales team who leverages our dashboard to sell additional Bridgeline software into our customer base. This team has been particularly successful in cross selling Hawksearch to customers who use Bridgeline's Unbound software. To sum it up, we're winning new customers at the strongest pace of our history and have the resources to further invest in sales and marketing to build on that success. Our strongest growth area is site search and, by merging our capabilities with Hawksearch and Celebros, we have a winning solution for the market. Our e-commerce 360 strategy is helping expand subscription and license revenue within our own customer base and our partner strategy is accelerating new logo wins. At this time, I'd like to turn the call over to our Chief Financial Officer, Tom Windhausen, to tell you more details.

Thanks, Ari. I'm excited to share the positive financial results for the fourth quarter of fiscal 2021 with you this afternoon. Total revenue, which is comprised of both subscription and license revenue and services revenue, increased 52% to $4.1 million for the quarter ended September 30, 2021 as compared to $2.7 million for the same period in 2020. Subscription license revenue, which is comprised of SaaS licenses, maintenance and hosting revenue, and perpetual license revenue increased 67% to $3.4 million for the quarter ended September 30, 2021 from $2 million in the same period in the prior year. As a percent of total revenue, subscription and licenses revenue accounted for 82% of total revenue for the quarter compared to 74% for the same period in 2020. Services revenue also increased 7% to $0.8 million for the quarter ended September 30, 2021 as compared to $0.7 million for the same period in 2020. As Ari mentioned, Bridgeline's overall strategy, referred to as eCommerce 360, focuses on increasing recurring subscription and license revenue with out-of-the-box apps that require little or no services to implement. This focus and continued growth are expected to further increase the ratio of our subscription and license revenue to our services revenue. Cost of revenue increased 49% or $0.4 million to $1.3 million for the quarter ended September 30, 2021 as compared to $0.9 million for the same period in 2020. Our gross profit increased 53% or $1 million to $2.8 million for the quarter ended September 30 as compared to $1.8 million in the same period in the prior year. Gross profit margin percentage increased to 68% for the quarter ended September 30, 2021 compared to 67% for the same period in 2020. Subscription and license gross margin percentage was 75% for the three months ended September 30 as compared to 76% for the same period in 2020. Services gross margin percentage was 37%, down from 43% for the three months ended September 30, 2021 and 2020. Operating expenses increased $1.8 million to $3.4 million for the quarter ended September 30, 2021 from $1.7 million for the same period in 2020. Included in the quarterly totals as of September 30, 2021 are additional investment in sales and marketing and acquisition weighted costs associated with the integration of WooRank and Hawksearch. Our operating loss for the quarter ended September 30, 2021 was $0.6 million as compared to $0.2 million operating profit for the same period in 2020. Interest expense and other non-operating expenses of $0.8 million versus $0.9 million income in the prior year. The prior year included government grant income related to our PPP loans. Moving to GAAP net income and loss. We had a net loss of $1.4 million for the quarter ended September 30, 2021 versus a net income of $1.1 million for the same period in the prior year. Net loss attributable to common shareholders for the quarter ended September 30, 2021 was $3.4 million compared to $1.1 million of income for the same period in 2020. The current year quarter include a $2 million non-cash deemed dividend on preferred stock. Moving to adjusted EBITDA, our adjusted EBITDA for the quarter ended September 30, 2021 was $200,000 compared to $500,000 for the same period in 2020. Our non-GAAP adjusted net loss for the quarter ended September 30, 2021 was $0.5 million or $0.06 per diluted share compared to non-GAAP adjusted net income of $1.3 million or $0.26 per diluted share for the same period in the prior year. Turning to a review of Bridgeline's balance sheet, we had approximately $9 million of cash on September 30, 2021 and exercise of warrants generated over $7 million of proceeds in the fourth quarter. As of September 30 2021, we had accounts receivable of $1.4 million compared to $0.7 million on September 30, 2020. Our current assets of $10.4 million exceeded our current liabilities of $8.3 million, and total assets of $35 million exceeded total liabilities of $17.4 million. There are two other items in the quarter that I wanted to highlight for you today. The first is that we received notification from SBA in August that 100% of our PPP loan has been forgiven. The other item is that all of our Series D preferred shares have been converted to common stock. Bridgeline looks forward to continued success in 2022 and beyond as we continue our focus on revenue growth, expanding customer success, technical innovations and delivering shareholder value. Thank you for joining us on the call today. At this time, we'd like to open the call up to questions and answers. Moderator?

[Operator Instructions]. And our first question comes from Howard Halpern from Taglich Brothers.

Great quarter. Great year. Great navigating, everything that has gone on this current year. In terms of – I guess one thing that I noticed in the fourth quarter is, R&D expenses to remain at this relatively high level given now that you have WooRank and Hawksearch to continually upgrade and add to or is it going to moderate as we go forward over time?

No, this is kind of steady state right now. Our fourth quarter R&D was about 23% of revenue. Sales and marketing was 24% of revenue. And both of those areas I think are reasonable areas for us to continue to innovate and expand our market. So, we'll keep those in place. As the revenue grows, the total number will grow. But we'll stay in those ballparks.

You've had now some time with WooRank and what are you seeing in terms of the lead generation and then conversion of those leads into at least one product and then cross selling over time?

We're excited about WooRank. So, WooRank, it continues to just generate a ton of leads and a ton of new customers. Every day, we get new customers with WooRank. Multiple new customers, in fact. And some of them have already gone into our Hawksearch pipeline and are looking at Hawksearch. We've not converted one of the WooRank customers for Hawksearch yet, but we have converted Hawksearch customers and Unbound customers to add WooRank to their suite. And also, the Unbound customer base is very interested in Hawksearch and it's been buying well. So, the whole cross sell strategy is really firing on eight cylinders right now. And WooRank is bringing new logo leads in. One thing that we didn't initially anticipate with WooRank that's created a great opportunity for us is that we're able to use those new leads for WooRank in our partnership with other agencies and with ISVs, so that we can feed them leads for companies that just want the agency style work on their website to bring even more value to them and, in turn, have them drive even more business for us.

In those terms, what have you seen over the past year or two in terms of customer acquisition costs?

Our CAC has been getting better and better, but it really took a quantum leap in the last four or five months. So, partnerships has been a big part of this, where most of our deals now have a partner attached to it rather than having to just mark it, where, admittedly, we have limited brand equity. We're able to leverage salesforce.com and BigCommerce and Optimizely to drive leads for us. And this has reduced our CAC, our customer acquisition cost significantly. In addition to that, because we're cross selling inside of eCommerce 360, that's a whole different level of customer acquisition cost right there in terms of selling a new license. And that also is bringing the overall average down substantially.

And new customers, what are you seeing? Are they mostly North American customers or are they more global customers?

We've got a number of global customers, but Hawk has a lot of Midwestern momentum right now. And Hawksearch is driving most of our new customer wins. It is our best-selling product already. And a lot of those are Midwestern. The verticals that we're seeing are we're seeing B2B distributors, especially electronics and publication and plumbing distributors. So we've seen a lot of that. We have some governments and, actually, that's even outside of the US that have signed really big deals with us lately, and tech companies. So, one thing that we're doing is we're looking closely at where we've got momentum from a vertical perspective, and targeting our marketing dollars to take over some of those verticals. We've always had strength in franchises and brand networks. And we've got a focus in that area, and you should expect to see news from us and new customer wins in the franchise space as well.

I guess just one area to clean up with preferred conversion. Post the end of the quarter, what is the common shares outstanding?

Tom, do you have that off the top of your head there? Approximately. Our approximate shares outstanding – you got me. I don't have that handy. It's about 10.5 million, 10.2 million more or less.

So, something there. Okay. Okay, sorry.

Looks like Tom's got it. What have you got, Tom?

10.187 million. So, 10.2 million, as Ari said.

Thank you. [Operator Instructions]. I would now like to turn the call back over to Bridgeline management for closing remarks.

Great. Thank you, Justin. Everyone, we appreciate your support. All of our customers and our shareholders really have been great. We're excited about our scalable business model and all the growth that we've seen this year. We think, the next year, it's going to be even better. We hope everyone stays healthy and well. Happy holidays. We look forward to speaking with you again in the new year.

This concludes today's conference call. Thank you for participating. You may now disconnect.