Thank you for standing by, and welcome to Bridgeline Digital's Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the call over to Tom Windhausen, Chief Financial Officer. Please go ahead.

Thank you and good afternoon, everyone. Thank you for joining us today. My name is Tom Windhausen, and I'm the Chief Financial Officer of Bridgeline. I'm pleased to welcome you to our fiscal 2024 second quarter conference call. On the call with us this afternoon is Ari Kahn, Bridgeline's President and CEO, who will begin the call with a discussion of business highlights. I'll then update you on our financial results for the quarter, and we will conclude by taking questions. Before we begin, I'd like to remind listeners that during the 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. We expressly disclaim and assume no obligation to inform you if they do. The results 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 any forward-looking statements made today. For more detailed information about these factors and other risks that may have an impact on 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, Bridgeline's President and CEO. Ari?

Thank you, Tom. Good afternoon, everyone. This has been another exciting quarter for Bridgeline with outstanding HawkSearch sales, innovations in artificial intelligence and excellent recognition and sales in key partnerships. HawkSearch is the best site search product on the market with the strongest artificial intelligence capabilities for product discovery. Because our platform partners see us as instrumental to their customer success, we've been -- they have embraced HawkSearch as a must-have app for their commerce sites that they power. Our consolidated numbers include some legacy customers on legacy products with underlying demand for HawkSearch, Smart Search and our strengthened partnerships with platforms are making this absolutely the most exciting time Bridgeline has seen and our momentum continues to grow. Today, search is nearly 60% of subscription revenue, and we expect that percentage to go up even further. We've sold nearly 50 licenses this fiscal year with over $4 million in total contract value. We're launching a new customer every single week. This month, we expect to launch nearly 10 customers. With each launch, we have more references and recognition as leaders in the site search sector. Many of our customers have extensive product catalogs such as Voltus with 80,000 products and the building supply chain that selected HawkSearch for its 40,000 product catalogs. Several customers select HawkSearch for its AI capabilities with Smart Search, others choose us because of our seamless integration to our platform partners with connectors that allow them to easily upgrade to HawkSearch. Our marketing campaigns include a narrow focus on specific industries, including B2B construction sectors like electrical and plumbing supplies. By building a strong presence in these categories, we have accelerated our sales cycle and reduced our customer acquisition costs. Two important platform partners that we expect to continue to generate new customers for HawkSearch…

Thanks, Ari. I'll provide an update on our financial results for the second quarter of fiscal 2024, which ended March 31, 2024. Total revenue for the quarter ended March 31, 24 was $3.8 million compared to $4.1 million in the prior year period. Now going into each component of revenue, our subscription license revenue, which is comprised of SaaS license, maintenance and hosting revenue, for the quarter ended March 31, 24 was $3 million compared to $3.3 million in the prior year period. As a percent of total revenue, subscription and license revenue was 79% of total revenue for the quarter ended March 2024. Our services revenue was $794,000 for the quarter ended March 31, 2024, a decrease from $821,000 in the prior year second quarter. As a percentage of total revenue, services revenue accounted for 21% of total revenue for the quarter ended March 31, 2024. Our cost of revenue for the quarter ended March '24 was $1.3 million, consistent with $1.3 million in the same comparable prior year period. And as a result, gross profit was $2.5 million for the quarter ended March 31, 2024, compared to $2.8 million in the prior year period. Our overall gross profit margin was 66% for this quarter ended March '24 compared to 69% in the prior year period. Our subscription and license gross margins were 71% for the quarter compared to 74% in the prior year period, and our services gross margin was 47% in the quarter compared to 49% in the prior year same period. Operating expenses were $3 million for the quarter ended March 31, '24 compared to $3.5 million in the prior year period, a decrease in expenses of $500,000. Moving to below OpEx, the change in fair value of our liability classified warrants resulted in a non-cash…

[Operator Instructions]

We have some questions that were submitted that we will -- for those that couldn't attend. So we'll go through some of those questions, and we'll give our responses, and then moderator will ask you to check in with the rest of the group, but we'll continue on with the Q&A moderated by ourselves here first.

Well, Howard Halpern sent in a couple of questions, he wasn't able to join us today. And the first one was, when will revenue from HawkSearch begin to show the real revenue growth of the Company? HawkSearch is approaching 60% of subscription revenue. As such, we expect to see FY '24, which begins in October to have subscription revenue dominated by HawkSearch, and that's really when it's going to drive past all of our other products combined. RapidUI and our connectors to platforms like big commerce and Optimizely make HawkSearch largely out of the box. So we're not expecting subscription. So we're not expecting services revenue to be dominated and services revenues is mostly dominated by Unbound as opposed to HawkSearch, and that is strategic for us. We want HawkSearch to be as much out of the box as possible and for the Company to continue to grow. It's approximately 80% of our revenue is subscription right now and for that trend to continue. Second question was -- does your AI Smart Search technology have applications beyond your customer base? How are your customers embracing this new offering? So our historical focus has largely been on e-commerce side. This is going to continue to be a primary business driver in both B2B and B2C. Smart Search is also expanding our presence in content websites and even intranets where generative AI is able to summarize and combine multiple articles to provide tailored search results that directly speak to the query while leaving out superfluous information that may be in underlying documents.

Next question, provide some color on the Company's thinking on product mix on a go-forward basis, i.e., how does the Company -- what's the Company's view on how to maintain a diverse product base while HawkSearch is scaling up?

All right. That one's from Pierre Jacobson, Pierre. Bridgeline's e-commerce 360 strategy allows us to grow through acquisitions. But HawkSearch has such a strong sales trajectory, especially with Smart Search that's dominating our focus for this year and likely for the next year as well. In terms of innovation, we're expanding HawkSearch with AI capabilities, connectors to partner platforms and performance improvements. We're focusing sales on partnerships on HawkSearch with the assigned resources to key partners like BigCommerce and Optimizely in particular. And we're leading with HawkSearch in our marketing conference province. HawkSearch is fully integrated with Unbound and WooRank and Celebros is merging with HawkSearch. So anyone using those products benefits from all of our innovations in AI. Of course, all of our products are important, but because HawkSearch is growing at a substantially faster rate than anything else, it's going to dominate our mix in the foreseeable future.

A follow-on question there. Can you provide a rough breakdown on revenue and margin sources? I'll take that. Our largest contributors to revenue and margin are Unbound -- we just talked about in search, being about 60% of services and 20% of subscription and search being 30% of services and 60% of subscription. Both Unbound Search delivered similar gross margins of 40% to 45% for services and 70% to 75% margins for subscription. And finally, we had a question about some insight into cash burn and projected cash position to the end of the year going into next year. As a rule of thumb, we manage our financials, we can generate cash. If we need to reduce non-personal marketing spending, we can by $150,000 to $250,000 per quarter. At this time, our marketing is generating great subscription sales for long-term ROI, and we'll continue to make those investments even though it may lead to immediate negative cash flow and negative EBIT like we've seen the last couple of quarters, 83,000 this quarter. We expect our low water mark to cash to be around $1 million, and we can adjust that through [advertising] spend, and we do not intend to [indiscernible] stockholders in order to generate cash.

Moderator, are there any other questions out there from the group?

I show none in queue, sir.

Excellent.

I'm just going to turn the call back to management for remarks.

Well, there we are. Thank you, sir. Thank you, everybody, for joining us today. We appreciate the continued support of all of our customers, partners and our shareholders. We're really excited about our business and ongoing growth prospects, and we look forward to speaking with you again in our third quarter fiscal conference call in August 2024. Till then, be well. Thanks.

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