Good day and thank you for standing by. Welcome to Bridgeline Digital Inc. Second Quarter 2022 Earnings 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 conference over to your speaker for today Mr.

Thomas Windhausen, Please go ahead sir..

Thank you, operator, and good afternoon everyone. Thank you for joining us today. My name is Thomas Windhausen and I am the Chief [Financial] Officer of Bridgeline Digital, Inc. I am pleased to welcome you to our fiscal 2022 second 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 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 do provide a reconciliation of our GAAP financials to these non-GAAP measures in our earnings release which you can find a copy of on our website.

Now, I would like to turn the call over to Ari Kahn, our President and CEO.

Ari?.

Thank you, Tom. Good afternoon, everyone. We had great sales. Our second quarter was 33 license sales and all time high for us. Our software is becoming increasingly out of the box, which allows new customer licenses to contribute to our revenue more quickly our licensed sales to services ratio to grow.

As each of these customers goes live typically in less than three months we'll see their licensees drive strong [NOI] for the business. An important change to our new customer acquisition strategy is our partner network. We have a dedicated partner team working with ISV independent software vendors and agencies to win new business.

Agency like American eagle.com and X-engage have been particularly strong. They continue to be key agency partners to help us win new customers. On the ISV side, we partnered with BigCommerce and Optimizely and one several customers together. Bridgeline is the only out of the box B2B site search connector for Optimizely.

Optimizely B2B Customers can purchase Hawksearch directly from the Optimizely administrative interface. With Optimizely, we've helped several B2B distributors grow online revenue including Crescent Electric, Cleaner’s Supply, Torrco and Gerrie Electric.

We tend to expand our investments in the Optimizely partnership and the B2B distributors sector to build on this momentum. Our partnership with BigCommerce continues to drive growth as well with new customers in manufacturing and automotive.

Together with BigCommerce Bridgeline now power several manufacturers including Berlin packaging, Techo-Bloc and Waymaker. In addition to partner driven sales, another important part of our strategy is cross sales. With our expanding set of e-commerce apps, we can deliver faster and more efficient, licensed sales by cross sells.

This provides tremendous value to our customers with continual and incremental improvements to their website and also drives more licensed sales per marketing dollar for Bridgeline as crossed sales require less advertising expenses. More than 25% of our new licensed sales this quarter were from cross sales.

We expect cross sales to continue to deliver growth as we release and acquire new products and as our customer base of more than 2000 companies continues to grow. This quarter we launched our E-360 dashboard to drive new sales and target cross sales across our customer base.

This dashboard provides online marketers at a glance view of their site's revenue performance and makes recommendations as to how Bridgeline software can help them grow. The dashboard organizes the challenges and opportunities related to e-commerce down to three basic categories; traffic, conversion, and average order value.

This helps busy marketers sift through the noise and focus on the revenue generating aspects of their online sales. We also launched our TruPresence brands this quarter. TruPresence is our products suit tuned specifically for the franchise industry. Franchises have unique challenges that we've addressed for several years.

TruPresence allows franchises to manage 1000s of franchisee websites with distributed SEO requirements and complex locating requirements. In our second quarter one of our largest franchise customers [indiscernible] with nearly 2000 locations launched TruPresence pages to help its customers find the nearest location and book appointments.

We also won another important franchise, 1-800 Radiators. 1-800 Radiators is one of the nation's largest inventories of auto parts. It's selected Hawksearch to increase online B2B sales and improve site search and product recommendations throughout their parts catalog.

WooRank and its DataBravo product continue to contribute to new online sales with long term data licensed purchases for over $4,000 in the MRR each quarter this fiscal year. Other wins this quarter include a top sporting goods wholesaler that chose Hawksearch to power its five e-commerce sites.

We want several other sporting good customers this quarter as well including Sports Station, a top sports retailer in Asia with more than 250 locations. In the United States, a leading privately owned bank with a 1 million customers selected Hawksearch to increase their customer signups and its corporate website.

The bank chose Hawksearch for its powerful search recommendation engine SEO features. This site will be implemented in partnership with Kentico on the Kentico experience platform. We're first [started] with B2B distributors, and we're going to keep investing in this market as our reputation is building momentum.

In Europe, one of the largest industrial equipment and services B2B distributors chose Bridgeline Celebros software to power their online store. Celebros was selected for its natural language processing Magento support and B2B specific features.

A global biotech B2B distributor chose Hawksearch to help its customers find products from online large catalog. Hawksearch was selected because of general strength in the distributor sector and its references in electrical, medical and automotive industries.

Finally, Techo-Bloc a landscaping distributor with over 700 stores across North America chose Hawksearch to drive online sales and their multi-language catalog. Hawksearch's cutting edge technology supports 20 languages expanding customer acquisition opportunities and revenue across international e-commerce.

Last year, we made two acquisitions and we continue to evaluate strategic opportunities. This is indeed a challenging environment for stocks right now. And we're only considering acquisitions that could be financed in the creative way.

We believe that valuations of our targets are going to continue to drop through the year and we intend to be patient and evaluate opportunities over time. The companies we consider need to have a customer base before we can cross sell our existing products and of course products that can be sold to customer and attract new customers.

We look to companies globally with an emphasis in North America and Europe. We ended this quarter with $4.7 million in cash and that was after paying nearly $ 1 million for deferred costs and debt for the WooRank rank and Hawksearch acquisitions.

Our cash balance and projected operations positions us well to continue our investments in sales and marketing and product innovation without requiring any additional capital for operations. At this time, I'll hand off the call to our Chief Financial Officer, Tom Windhausen.

Tom?.

Thanks Ari. I'm excited to share with you this afternoon our positive financial results for the second quarter of fiscal 2022 which just ended on March 31, 2022. Total revenue for the quarter ended March 31, '22, which is comprised of both subscription and license and services revenue was $4.1 million versus $2.9 million in the prior year.

Now going into each component of revenue. Our subscription license revenue, which is comprised of SaaS licenses, maintenance and hosting revenue and perpetual license revenue, increased 66% for the quarter to $3.3 million from $2 million in the prior year period.

As a percent of total revenue, our subscription license revenue has increased to 80% of total revenue for the quarter compared to 69% in the prior year period. This increase in subscription license revenue includes the impact of our prior acquisitions of WooRank and Hawksearch, which have a high percentage of subscription revenue.

Our services revenue of $0.8 million for the quarter was compared $0.9 million as rounded in the prior year period. As a percentage of total revenue services revenue accounted for 20% of total revenue for the quarter.

Our cost of revenue increased 25% or $0.3 million to $1.3 million for the quarter ended March 31, 2022 compared to $1.1 million and the prior year period. As a result, our gross profit increased 54% or $1 million to be $2.8 million for the quarter as compared to $1.8 million in the prior year period.

Our overall gross margin percentage increased to 68% for the quarter, compared to 63% in the prior year period.

Our subscription license gross margins were 74% for the three months ended March 31, 2022 as compared to 70% in the prior year and our services gross margin were 43% for the three months ended March 2022 as compared to 46% in the prior year period.

Our operating expenses increased to $3.4 million in the quarter from $1.9 million in the prior year period. This increase in operating expenses includes the operating costs from our businesses acquired last year. This resulted in income from operations being a loss of $600,000 for the quarter as compared to a loss of $100,000 in the prior year period.

Moving on to other income and expenses in the quarter ended March 31, 2022. The change in fair value of contingent consideration and other income expense was income of $0.5 million as compared to a slight loss in the same period in 2021.

For the quarter ended March 31, 2022, the change in fair value of our liability classified warrants resulted in non-cash income of $0.4 million as compared to $0.4 million non-cash loss in the prior year period.

Overall, our net income was $0.3 million for the quarter ended March 31, '22 as compared to a net loss of $0.6 million in the prior year period. The change in net income includes the impact of the fair value adjustments that I just mentioned. Moving to EBITDA.

Our adjusted EBITDA for the quarter was negative $0.1 million compared to a positive $0.2 million in the prior year period.

Moving on to our balance sheet, at March 31, 2022 as Ari mentioned we had $4.7 million of cash and accounts receivable of $1.4 million compared to last quarter ended December 31 where we had cash of $6.4 million and accounts receivable of $1.3 million. In March our total assets were $30.3 million and our total liabilities are $10.3 million.

Bridgeline looks to continue, looks forward to our continued success in the second half of this fiscal year and beyond as we continue to focus on revenue growth, product innovation, expanding our customer success and delivering shareholder value. Thank you for joining us on the call today.

At this time we'd like to open the call up for questions and answers.

Moderator?.

Thank you. At this time the floor is now open for questions. [Operator Instructions] We have a question from the line of Howard Halpern from Taglich Brothers. Your line is open. Please go ahead..

Congratulations guys. Great quarter..

Thank you Howard..

Just going to describe how important is the development of that dashboard in both providing customer satisfaction and driving new sales of your offerings?.

Well, the dashboard itself so we've got about 25%, a little bit more than that of our new sales are happening within our existing customer base. So we've got a pretty broad product catalog now. None of our customers actually own all of our software and we're expanding inside of that. The number one lead generation tool for us that 25% is the dashboard.

So it's making, allowing our customers to become aware of the different products that we have and making recommendations. So when one of the products they don't own can help them and then notifying us on the other side and helping us understand which customers might get values from a product like Hawksearch for instance, for us to speak with them.

One of our customers’ National Notary Association bought Hawksearch, its most recent quarter. We've helped them because they've gone online driven a tremendous amount of revenue.

They've got a product, complex product catalog and by recognizing that customers can convert to larger sales and you can increase average order value through being able to look at our dashboard is a great way for them for instance to see the different value that we have.

As our product catalog grows, we're going to do acquisitions and we can release new products that dashboard is going to become even more important. And our customers are inundated with where prime companies all over the place saying, hey, you should buy my widget, buy this buy that.

And they can't even make a decision because there's so much, so many options.

The dashboard simplifies everything for them, cuts it down into three basic categories; how do we drive more traffic to your site, how do we convert that traffic into a customer and how do we get each of those customers to buy more and by simplifying everything, that's where the value comes in for our customers. Keep it simple.

Just tell me what I need to drive revenue and they did get that from the dashboard. .

Okay.

And I guess, in other questions in terms of the dashboard and potential for future acquisitions of product and are you looking for acquisitions that might have a larger customer base and how easily have you made that dashboard to integrate all that to exploit a larger customer base?.

Right. So on our acquisition strategy -- integration is a huge risk on acquisitions integration, meaning technically bringing products together. And that was a big part of the initial concepts behind the dashboard. We believe that in our space, grow both organically and inorganically is the best route for Bridgeline.

And to simplify integration, by having a common dashboard, it's really just integrating at the interface level and not gone inside of databases and other lower areas where the integration risk compiler combined. It makes integration very fast, like all right, just put this dashboard on top of the product that we just acquired.

And like all of its customers learn about the rest of Bridgeline. And add information about the new product that we acquired to the dashboard so that all Bridgeline customers can learn about the new product that's available. So it simplifies things quite a bit.

On the M&A front, it's a little bit tricky right now, because I mean, the market has just fallen through the roof and that did add a huge amount of cash to be able to just do an acquisition take advantage of low valuations. We have seen expectations decrease the private companies for doing acquisitions.

But we'll only do one, if we can do it in a way that we're not deluding ourselves with a capital raise that happens at these depressed levels and the market will come back. But we're patient and watching..

And just one final one.

Are you happy with the level of SGLR sales and marketing expense going forward that you reported for this quarter?.

Yes. So we reported about 1.25 million in sales and marketing. And that's great. And we're going to actually increase that a little bit going forward to be close to about $1.5 million a quarter in sales and marketing. And our new customer rent to sales dollar is right where it should be.

We're looking at lifetime value of about 3 to 1 and the customer acquisition cost and we think that's healthy and appropriate and it's time to continue to investing on the sales side and win even more deals..

Okay. Thanks and keep up the great work..

Thank you..

The next question that you have is from the line of Walter Ramsley from Walrus Partners. Your line is open. Please go ahead..

Thank you. Congratulations. Excellent quarter, I have to say. I have got a few kind of detail questions if you don't mind. The item that was mentioned with the contingent payment and that was adjusted to a profit.

Can you just kind of go through that and explain what happened there?.

Walter, I think that's one for Tom..

Sure. So the two things that our balance sheet that we have to adjust a fair value each period, the warrants, and then the contingent consideration, you probably hear more of earnouts from the prior acquisitions. So in the period, we had an adjustment as to what our expected ultimate payout will be.

So reduce the liability and that change in the balance sheet comes through the income statement..

No, I get that.

Not just -- what it was that changed, it says they're not doing as good as you thought or the value of the securities that you're giving them went down.?.

Some mechanics for it's not all, it's all not all revenue driven. There's some other operating results in there and mechanics and working capital adjustments. So --.

Okay. All right..

-- final payment..

And operating thing. Okay, I get that. And as far as the warrants, you mentioned that.

Can you just tell us how many warrants are outstanding and then kind of review for us again when they expire and at what price?.

Sure. 1.7 million outstanding in our 10-Q which we'll file tonight we'll have a full table with all the exercise, prices and the expiration dates, but there really is no change in the warrants from our past quarter. There are a handful that do expire here in May of 2022.

But not much change going forward in Q3 but with an average price on those around $4..

Okay, and I don't know if you want to get into it, but are there any macro economic factors that are really either helping or weighing on the business, the supply chain inflation, the war, the lockdowns in China, you name it anything like that?.

Not impacting us so much. There's a lot going on. Right? So I'd say our team is in -- we've got some people in Israel, some in Belgium and the rest in the United States and Canada.

So not affected by the war and macro economically, the main thing that we watch, as we see that our stock prices down and that just limits our ability to acquire a company with doing a stock, that's fine. We'll wait.

I think it's companies are getting cheaper every day for a while and we're buying private companies typically that will lag the public sector we think in terms of their valuation expectations. But all this other macroeconomic stuff for us doesn't impact us in supply chain either. And our customers are continuing to buy.

So we haven't seen that reduce their investments in technology..

Okay, well, you're like the only company in the world that seems to be saying that, but congratulations. .

[indiscernible]..

All right, thanks again..

Thank you Walter..

[Operator Instructions] There are no further questions at this time. I would like to turn the call back to our presenters for any closing remarks..

Thank you. Everybody Thanks for joining us today. We appreciate the continued support of our customers, our shareholders and our partners. We're excited about the business. I mean, things are really going well. And our growth prospects are better than ever. So we look forward to speaking with you again on our Q3 fiscal call. And we'll see you all soon.

Stay healthy and well. Thank you..

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