Thank you for standing by, and welcome to the Bridgeline Digital, Inc. Fourth Quarter 2022 Earnings Call. At this time all participants are in listen-only mode. After the speakers’ presentation, there will be a question and answer session. [Operator Instructions] As a reminder, today's conference is being recorded. I will now turn the conference to your host, Mr. Tom Windhausen, CFO. Sir, you may begin.

Thank you very much. Thank you, and good afternoon, everyone. Thank you for joining us today. My name is Thomas Windhausen, and I am Bridgeline's Chief Financial Officer. I am pleased to welcome you to our fiscal 2022 fourth quarter conference call. On the call this afternoon is Ari Kahn, Bridgeline's President and CEO, who will begin with a discussion of our business highlights. I will then update you on our financial results for the quarter and we'll conclude by taking questions. Before we begin, I'd like to remind listeners that our conference call 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. The results we report today will not be considered as an indication of future performance. Changes in economic, business, competitive, technological, regulatory and other factors, such as the impact of 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 commenting on the company's financial performance. We provide a reconciliation of our GAAP financials to these non-GAAP measures 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, Tom. Good afternoon, everyone. This year, Bridgeline delivered 27% top-line revenue growth, a $3.6 million increase in revenue to end of year with $16.8 million in total revenue. Most of our revenue growth was in subscription and license, which increased by 36% to $3.6 million to $13.6 million. Subscription and license revenue was over 80% of total revenue for the fourth quarter and the year. In the fourth quarter, we booked $1 million in new license ARR from 28 sales with $340,000 in ARR annual recurring revenue. Our cross-sell strategy remains strong and drove 13 license sales to existing customers on top of 15 newly won customers. Existing Bridgeline customers, including HP, 7-Eleven and Sage Publishing expanded their commitment to Bridgeline this quarter with further investments in Bridgeline software and services. We ended fiscal 2022 with over $2 million in net income and $196,000 in adjusted EBITDA, driven primarily by our subscription and license revenue, which comprised over 80% of our total revenue with gross margins of 75%. We ended our fiscal year with $2.9 million in cash that being after a prepayment of $1.7 million in the fourth quarter relating to a negotiated $600,000 discount to the earn-out working capital adjustment on the HawkSearch acquisition in consideration for just a six month early payment. Our cash and projected revenue positions us well to continue our investments in sales and marketing and innovation without additional capital for operations. Our 28 sales in our fourth quarter included a top distributor who committed to more than $0.25 million multi-year license for Bridgeline's TruePresence in HawkSearch products to power their site search and recommendation. HawkSearch's AI site search technology was identified to help grow the distributor's massive online catalog with 700 sites, 5 million products and 15 million monthly queries. A…

Thanks, Ari. I am excited to share with you this afternoon our positive financial results for the fourth quarter of fiscal 2022, which ended September 30, 2022. Our total revenue for the quarter ended September 30, 2022 was $4.2 million, an increase of 3%, as compared to $4.1 million in the prior year period. Looking at each component of revenue, our subscription and license revenue, which is comprised of SaaS licenses, maintenance hosting revenue and perpetual license revenue increased 3% for the quarter ended September 30, 2022 to $3.4 million. As a percentage of total revenue, our subscription license revenue was 82% of total revenue for the quarter ended September 30, 2022. Our services revenue was $0.8 million for the quarter ended September 30, 2022, up slightly from the $0.8 million in the prior year fourth quarter. As a percent of total revenue, services revenue accounted for 18% of total revenue for the quarter ended September 2022. Our cost of revenue decreased 6% or $0.1 million to $1.2 million for the quarter, compared to $1.3 million in the prior year period. As a result, our gross profit increased 7% or $0.2 million to $3 million for the quarter ended September 30, 2022, as compared to $2.8 million for the prior year period. Overall, our gross margin profit – our gross profit margin increased to 71% for the quarter ended September, compared to 68% in the prior year period. Our subscription license gross margins were 76% for the quarter ended September 2022, as compared to 75% in the prior year period, and our services gross margins were 47% for the quarter ended September 2022, compared to 37% in the same period in 2021. Our operating expenses slightly decreased to $3.4 million for the quarter ended September 2022, from $3.4 million in the prior year period. Within operating expenses we increased our spending in sales and marketing supporting our current and future growth. Our net loss was $0.5 million for the quarter ended September 30, 2022, as compared to a net loss of $1.4 million in the prior year period. Moving to EBITDA, as Ari mentioned, our adjusted EBITDA for the quarter ended September 2022 was $0.1 million, compared to $0.2 million for the prior year period. Moving to our balance sheet, at September 30, we had $2.9 million of cash and $1.2 million of accounts receivable and at September 30, 2022, our total assets were $27.5 million and our total liabilities were $7.2 million. Bridgeline looks forward to continued success in fiscal 2023 and beyond as we continue our focus on revenue growth, product innovation, expanding customer success and delivering shareholder value. Thank you for joining us on the call today and at this time, we'd like to open the call to questions and answers. Moderator?

[Operator Instructions] Our first question comes from the line of Howard Halpern of Taglich Brothers. Your line is open.

Hi, Ari, this is Howard.

Hi, Howard.

Hi. Great year. Looking forward to the upcoming year. You talked about in, I guess, in your prepared remarks, you mentioned TruePresence. What kind of traction are you seeing from there? And what kind of opportunities do you see over the next couple of years for that product?

Well, TruPresence is a – is our brand that focuses specifically on the franchise market. This is a very tight market. We've got great traction in it with customers like UPS, AlphaGraphics, Sport Clips and we are – we've taken every single one of our products and created a TruPresence version of it. So now from a entry point in terms of becoming a TruePresence customer for Bridgeline, we can help you increase your traffic with WooRank. We can increase your conversion with our HawkSearch TruPresence product. We can increase sure average order value with our recommendations product and so forth. So we think this is going to continue to be a big part of our growth and each TruPresence deal, they tend to be significantly larger than other deals and they grow as our customers grow. So for instance, we won an electrical distributor with 700 locations and that's essentially like selling 700 licenses all at once and as that distributor grows and opens new locations, the license fee grows proportionately and we don't have to do any work for that. So it's a very important part of our model.

And okay, and in terms of – and you talked a little about this in the press release, but how important is it – your customer base, growing your customer base and then selling back into your customer base more offerings?

Right. Well, for SaaS software companies like us, the customers’ acquisition cost is a major impediment to growth. A lot of times for a SaaS company, it can take 15 months just to break even on your customer acquisition cost. However, if you've got multiple products and you can sell a product into an existing customer, those customer acquisition costs are substantially lower. For instance, there is basically no advertisement budget needed to sell to your existing customer base. Your commissions to your existing sales reps can be much lower. You don't need to have high level executive sales reps to sell to an existing customer, because you're not dancing with a new partner, so to speak. It's less sophisticated. So, what our strategy is to grow more quickly on a per sales and marketing dollar basis by - in addition to winning new customers, selling to existing customers and that's where important new products that we're innovating and releasing internally, as well as looking for acquisitions and acquiring new products come into play. And we are going to continue to focus on that throughout 2023, both on the acquisition and the innovation side.

And how important are your partners now for growth over the next few years?

HawkSearch was a game changer for Bridgeline in terms of its go-to-market strategy. Before HawkSearch, we really didn't have any partners that were making a significant impact on our growth. Today, thanks to the partners that came with HawkSearch. We have partners attached to more than 80% of our new deals. We classify our partners into two groups. We have what we call ISV partners, Independent Software Vendor partners. These are generally platform companies like Optimizely, BigCommerce, Sitefinity, salesforce.com and we also have a second class of partners which are agencies, Agencies our systems integrators that are implementing MarTech solutions. And our partnerships with the ISVs generally are around making our software out of the box, compatible with each of those ISVs so that their customers can just turn us on with a flip of the switch and that is huge because each of these ISVs have typically thousands of existing customers that once we establish a partnership and are compatible with their software can be sold our software in the same low-cost customer acquisition cost model that we do in terms of selling into our own customers. So you're going to continue to see press releases from Bridgeline about partnerships. You're going to see us at all of our ISV partners’ conferences that we can attend. And I expect that that 80% ration of new customer wins being attached to a partner we did remain.

And just one last one about acquisitions, when you are looking for an acquisition where – is it – are you getting customer feedback on maybe products or offerings that they would like to see Bridgeline has within the portfolio or you are looking for just potential larger customer base that you could sell into?

Yes, yes. We've had instances where we've had customers explicitly say, “Hey, here is a particular product that we love. We know that you guys are acquisitive, you should consider buying that company. We haven't pulled the trigger on any of those. That's happened, however. We look at both our target acquisition software and its customer base. We want to be able to cross-sell into that customer base that's hugely valuable and of course, the software is important and it's got to be able to sell into our customer base, as well as win new customers. We are different than other companies that you see in the MarTech space that are doing roll-ups of app. Those companies are often purely financially modeled and they are buying an app and they are stripping costs, and that's the end of their strategy. Bridgeline is different because we're buying apps and we're buying customer base. We're putting our dashboard on top of those apps so that the new customer base will immediately be able to see the strength of their website with regard to traffic conversion and average order value and received intelligent recommendations as to the other products that Bridgeline offers that can help them grow their own revenue. So we have a much more strategic growth strategy from an inorganic perspective and not just looking at reducing costs, but instead looking at accelerating growth and we are doing that through our cross-sells with our dashboard and really leveraging that customer base.

I do have one more quick one. Sales and marketing expense, about $1.4 million a quarter, you're pretty happy with that level or do you think it might increase just a touch?

Well, we're going to increase our sales and marketing spend a little bit next year. $1.4 million is approximately where we're at. We're going to accelerate that. We feel that we have to be careful about our bottom-line in 2023. We think that the – although we've not seen a slowdown in terms of our own sales yet, we're still in, we think, perilous waters from a macroeconomic perspective. But investing in sales and marketing when you've got a product that has all the right features and people are really calling for it, you don't want time to slip by. So we're moving fast on the sales front.

Okay. Keep up the great work. I look forward to 2023 and have a happy and healthy new year.

Thank you. Happy and healthy new year to you.

Thank you. One moment please. Our next question comes from the line of Leo Carpio of Joseph Gunnar. Your line is open.

Hi, good afternoon, Ari. I actually got two questions.

Hi, Leo.

The first question – hi, the first question is regarding the economy. What's the economy's impact to your business pipeline right now? Is it serving as headwind, tailwind and is it focused on any particular product or industry you're seeing right now? And I'll ask the second question as a follow-up.

Okay. Okay, great. The market that we're in is so large relative to us and even in a horrible economy is still growing in the double-digits by any real measurement that we're fortunate that we've not felt any headwinds yet. Things could change and we're cognizant of that and we're careful about it but as it stands right now, we think that the MarTech industry overall is growing. And one thing that we still see is challenges in terms of hiring and we are focused very much on our own R&D teams on making sure that we treat them great and that they have room to innovate because even with these headlines of layoffs at Facebook and so forth, it's a great job market for these guys. And that's a little bit of a challenge for us, but we have a really excellent team and they're coming out with new products left and right and our sales team is winning deals and in fact, the bell rang earlier today. I'm looking forward to our next press release to tell everybody of our latest conquest.

Thanks. And then the follow-up question is regarding M&A. You talked about in the past as being you're having your criteria of companies that you want to acquire, but market conditions are they choppy for acquisitions? So just give us like an update in terms of how – what you may be interested in and how it has a related market condition in terms of are you still just weighing the sidelines or more of wait till 2023 more stability?

We have – we are still very interested in acquisitions. We think that, that's an important part of fiscal 2023 for us. The private markets held pretty strong relative to the public markets last year in terms of the targets that we spoke to, who started last year looking for as a multiple of revenue, three or four or five times revenue and ended the year still at two or three times revenue and we think that there is opportunity for them to be a little bit cheaper next year. So we're focused on apps that help companies grow revenue that are active in our most critical ISV partners and that means Optimizely, Sitefinity, BigCommerce, Salesforce, CloudCraze. And we are looking for companies that are between $3 million and $6 million in revenue that we can pick up for two times revenue or less with the right payment terms and earn-out, typically an earn-out directly proportional to retained revenue over the first two years and initial payment of 50% with 50% being the earn-out. Those are the terms that we think makes sense. It’s a little bit of a challenge for us, because our market cap to revenue is not at two times. So we have to really structure the deals right to make sure that it’s accretive which is one of the reasons that we’ve not done a deal in the last couple of quarters. But we are still seeing companies come to us every month and I feel like we are going to find the right targets in 2023.

All right. Well, thanks, Ari, and congrats for the quarter.

Thank you, Leo. Happy holidays.

Thank you. [Operator Instructions] I am showing no further questions at this time. I'd like to turn the call back over to management for any closing remarks.

Great. Well, thank you, everybody, for joining us today. We really appreciate all of the support from you, our shareholders as well as from our customers and our partners. We are excited about our business, the ongoing growth prospects for 2023 and we look forward to speaking to you again on our first quarter of FY '23 conference call in February. Stay healthy and well, happy holidays.

Thank you. Ladies and gentlemen, this does conclude today's conference. You may all disconnect. Have a great day.