Michael Prinn - CFO Thomas Massie - President & CEO.

Howard Halpern - Taglich Brothers.

Welcome to the Bridgeline Digital Third Quarter 2015 Earnings Call. [Operator Instructions]. I would now like to introduce your first speaker for today, Michael Prinn, Chief Financial Officer. You may begin..

Thanks Nicole, and good morning everyone. I’m pleased to welcome you to our third quarter conference call.

Before we begin I'd 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 on the call today, we will discuss some non-GAAP financial measures in talking about the company's financial performance. We report our GAAP results, as well as provide a reconciliation of these non-GAAP measures to GAAP financial measures in our earnings release.

You could obtain the copy of our earnings release by visiting our website. At this time I'd like to turn the call over to Bridgeline Digital's President and CEO, Thomas Massie..

Thank you, Mike and good morning everyone. I would first like to begin with congratulating Joni Kahn, with a recent appointment as Chairperson of Bridgeline Digital's Board of Directors. I've known Joni for over 20 years and have worked with her on previous boards.

Joni is an outstanding leader, manager and a consummate professional who is highly respected. Her highly accomplished track record speaks for itself and I look forward to working closely with her as we take Bridgeline to new levels.

Revenue for the third quarter of fiscal 2015 was 4.9 million, sequentially third quarter revenue grew slightly when compared to our second quarter of 2015, however recurring SaaS revenues grew 13% sequentially.

Year-over-year revenues decreased 21% as our legacy business continues to significantly decline and anticipated revenues from a large iAPPS engagement has pushed into future quarters.

As we complete our transition this year our revised projections have focused on getting expenses in line with iAPPS related revenues accelerating our large SaaS backlog, improving gross profit margins, driving future positive EBITDA and maximizing cash flows.

Since January 2015 we have implemented cost reduction plans which will yield more than $5 million in annual savings, in third quarter we saw just EBITDA improve by over $1 million when you compare it to the second quarter of 2015 and sequentially our gross profit margins improved from 36 points to 45%.

We're in a good position to begin driving positive adjusted EBITDA in the fourth quarter and of fiscal 2016. Then we're going to drive positive EBITDA for all of fiscal 2016. Bridgeline as a backlog that’s in excess of $23 million and one of the largest engagements we have in our backlog. As I said has experienced significant delays.

These delays our exclusively customer related and not iAPPS related or deployment capabilities related. However things with this particular customer are beginning to accelerate, so we're very optimistic in upcoming quarters. Once our current backlog is fully deployed.

We believe recurring annual revenues will increase by approximately $3 million a year, 43% from where they are today. I want to remind all of our shareholders Bridgeline's recurring revenues enjoyed gross profit margins of 25% or greater so the vast majority of this increase annuity revenue would be additive to gross profit and operating income.

In the third quarter we deployed 1400 Sport Clip franchises on to the ISDS microsite platform. The deployment and skill was smooth and we anticipate this Sport Clips organization to see improved digital engaging results for iAPPS.

In Q3 we released iAPPS 5.3 which included a new page builder functionality, API enhancements that improve site performance and best in class couponing engine that empowers non-technical users to execute dynamic e-Commerce campaigns. iAPPS Commerce has one of the best couponing functionality in the commerce platform marketplace.

We're excited to recently announce iAPPS content management was named 2015 CODiE Award winner for the Best Content Management platform globally. This is a significant award from the software industry and a testament to the quality, robust capabilities of our past.

Few weeks ago, a reading in the research firm Forrester Research released a report evaluating through channel marketing automation platforms for franchise systems and multi-unit dealers.

I'm very pleased to report on the 14 leading platforms evaluated Bridgeline and iAPPS was one of the four strongest performers listed in the upper right hand quadrant of the report and Bridgeline has one of the largest market presence and the industry's strategy received the highest mark possible in this report.

As our iAPPS market presence continues to grow we have anticipate to see iAPPS and other industry leading analyst reports as a category leader. iAPPS is an outstanding digital engagement platform that provides pure functionality, market differentiation, scalability and value.

We’re addressing a $1 billion plus market in North America alone, with the large backlog in place, solid sales pipeline and operated adjustment that have been made we are excited about our future. This time I will turn the call back over to Mike Prinn will provide more details of the financial results specifically in our third quarter.

Mike?.

Thanks, Thomas. So let me go through the results of operations for the third quarter ended June 30, 2015. Our third quarter revenue was 4.9 million compared to 6.2 million in Q3 of last year a decrease of 21% but an overall increase of about 100k sequentially so from our second quarter revenue of 4.8 million.

Although this revenue number is lower than last year and as we mentioned in our previous calls we’re focused on aligning our cost structure to our revenue forecasts and you'll see we had some significant improvement to our bottom line which I'll talk about in more detail in a bit.

So let me give some color on the various pieces that make up the revenue, our subscription and perpetual license revenue for the third quarter of fiscal 2015 remain constant at 1.5 million compared to the third quarter of fiscal 2014.

We continue to work on deploying our iAPPS and our iAPPS SaaS and our iAPPS DSaaS [ph] backlog and expect to see this license number continue to grow in the fourth quarter and into fiscal 2016.

Our recurring revenue which consists of SaaS licenses in our maintenance on perpetual licenses and hosting was 1.8 million in the third quarter and this is consistent with the third quarter of last year.

Sequentially our recurring revenue increased 13%, as we see continued growth in our license revenue we will see the same type of growth in our recurring revenue stream as most of our new opportunities are SaaS subscription based.

Our services revenue decreased by approximately 1.3 million or 30% from the third quarter of last year of this 1.3, a little under 400k was legacy revenue, so we’re at a point now where our legacy revenue is only a couple of 100k per quarter and sequentially our service revenue remained relatively flat from last quarter.

We've made some recent changes in the last couple of quarters to right size our delivery team and we now have the ability to generate up to 3.2 million per quarter in service revenue.

We will continue to focus on our billable utilization and our resource planning to make sure we have the right team to continue to drive the forecast and service revenue.

As Thomas mentioned earlier and we mentioned in our last couple calls we initiated some expense reductions that started in the second quarter January and it continued throughout the year. Our goal is to on our cost structure with our revenue forecast and be in a position to drive positive adjusted EBITDA.

We've taken initiatives to reduce headcount to the appropriate size and scale as well as facilities and other operational expenses. We began this process in January and continue the process throughout the year.

As Thomas mentioned previously the combined impact of our expense reductions is approximately 1.3 million per quarter or over 5 million annually. Our gross margins for the third quarter was 45% compared to 51% in the third quarter of last year.

But sequentially our gross margin improved from 36% in the second quarter of this year to 45% in the third quarter of this year, we do expect to continue to see an increase in our gross margin and specifically our service margin in the coming quarters as we see the full impact of the expense reductions we discussed and we see a delivery team with a much higher billable utilization.

Our operating expenses were 3 million for the third quarter down from 4.2 million in the third quarter of last year.

We've made every effort to reduce our operating expenses to be in line with our current revenue, our operating expenses have decreased every quarter throughout fiscal 2015 and we expect to continue to see the need to decrease in the fourth quarter. We're focused on driving positive adjusted EBITDA in the fourth quarter.

And EBITDA in the third quarter was a loss of 0.2 million compared to a loss of 0.3 million in the third quarter of last year.

From last quarter's conference call we said that we expected to report a much better adjusted EBITDA number and I'm pleased to report that on a sequential basis so our Q3 compared to Q2 our adjusted EBITDA improved by a $1 million compared to last quarter.

We continue to drive towards generating positive adjusted EBITDA and expect to see continued improvement in our fourth quarter of fiscal 2015.

Our non-GAAP adjusted net loss was point 0.9 million or a loss of $0.20 per diluted share compared to non-GAAP adjusted net loss of 1 million or a loss of $0.24 per diluted share in the third quarter of last year. Our GAAP net loss was $1.1 million in the third quarter compared to a loss of 1.3 million in the third quarter of last year.

Turning the balance sheet quickly at June 30, company had total assets of 31 million with cash and account receivable of 3.7 million and our DSO was 54 days. We will continue to manage our cash and our operating expenses and remain fiscally responsible as we drive towards generating positive adjusted EBITDA.

Thanks and at this time we would like to open up the call to Q&A..

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

First question, how many [indiscernible] sites that do you have that are providing monthly revenue?.

Thomas Massie:.

We’re :.

Okay and I guess coming up in the fourth quarter other than you know the steady hopefully accelerating sites being deployed from [indiscernible] you have smaller deployments that are going to occur..

Yes, so we had one deployment that Thomas mentioned Sport Clips that we deployed in June sort of middle of June, so sort of we have stuff here up for June. So you will see that in our fourth quarter and then we've got another smaller engagement I think it's about 150 units that is scheduled to launch mid-October.

So if you go into our first quarter of '16 that's probably an incremental 60k a quarter of additional revenue and then we'll continue to ramp up you know [indiscernible] on a monthly basis and do we can do to accelerate that deployment..

Okay and just speaking of you know the overall GS or sales pipeline, how has I guess the recognition helped and where are you in some of in the sales cycle on some of those potential new customers?.

Obviously the recognition helps a lot. And we're in a good position to announce new GS [ph] wins here in the very near future..

Okay. And just I guess looking at the fourth quarter just based on what you said, you should be looking for sequential growth in revenue and fairly constant expenses and maybe a little bit more in the gross margin..

Well revenue will be flat but the growth is going to cross that line. So to maximize cash flow profit it's all about you know maximizing the revenue lines to drive the highest gross profit margins.

So you continue to see sequential growth in the SaaS recurring revenue line item, but we're going to maintain the services number pretty much where it is for the fourth quarter. So you'll see pretty much overall top line respectably flat..

[Operator Instructions]. And I'm showing no questions at this time. I would like to hand the call back over to Thomas Massie for any closing remarks..

Thank you, look we’re very committed to driving a large iAPPS SaaS business with strong retention and above average profitability. We do want to thank all of our value shareholders for the patients and continued to support. We are extremely confident that we're going to drive significant shareholder value over the next twelve months.

Thanks and have a great weekend..

Ladies and gentlemen thank you for participating in today's conference. That does conclude today's program. You may all disconnect. Have a great day everyone..