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Edited Transcript of BLIN.OQ earnings conference call or presentation 11-Feb-21 9:30pm GMT

·19 min read

Q1 2021 Bridgeline Digital Inc Earnings Call WOBURN Feb 12, 2021 (Thomson StreetEvents) -- Edited Transcript of Bridgeline Digital Inc earnings conference call or presentation Thursday, February 11, 2021 at 9:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Mark Gerard Downey Bridgeline Digital, Inc. - Executive VP, CFO & Treasurer * Roger E. Kahn Bridgeline Digital, Inc. - President, CEO & Director ================================================================================ Conference Call Participants ================================================================================ * Howard Allen Halpern Taglich Brothers, Inc., Research Division - Senior Equity Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good afternoon, ladies and gentlemen, and welcome to the Bridgeline Digital First Quarter 2021 Earnings Call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Mark Downey, Chief Financial Officer. Sir, please go ahead. -------------------------------------------------------------------------------- Mark Gerard Downey, Bridgeline Digital, Inc. - Executive VP, CFO & Treasurer [2] -------------------------------------------------------------------------------- Thank you. Good afternoon, everyone. My name is Mark Downey, and I am the Chief Financial Officer for Bridgeline Digital. I am pleased to welcome you to our fiscal 2021 First 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'll then update you on our financial results for the quarter, and we'll conclude by taking questions. On February 3, Bridgeline announced that it had entered into an agreement to acquire 100% of the stock of Woorank SRL. Woorank helps companies make intelligent recommendations for optimizing search engine organic rankings while increasing their online traffic, leads and touchless sales with an artificial intelligence system. These capabilities fit perfectly into Bridgeline's eCommerce360 strategy and broad suite of apps. Additionally, on February 4, Bridgeline announced a registered direct offering of approximately $2.7 million with lead investors for this offering, including those certain of the special situations funds and other institutional investors. Joseph Gunnar, LLC, acted as a lead placement agent and Taglich Brothers Inc. as co-placement agent. If you would like a copy of these press releases, you can access it on our website at bridgeline.com. 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 the COVID-19 pandemic and 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. I would now like to turn the call over to Ari Khan, our President and CEO. -------------------------------------------------------------------------------- Roger E. Kahn, Bridgeline Digital, Inc. - President, CEO & Director [3] -------------------------------------------------------------------------------- Thank you, Mark, and good afternoon, everyone. Thanks to our eCommerce360 strategy, we're delivering another quarter with operating profit and 15% growth in subscription license revenue. Previously, I've called our eCommerce360 strategy, Revenue 360. Our new marketing team has refined the naming, so it's eCommerce360 going forward. eCommerce360 has several components that have boosted the trajectory for Bridgeline to accelerate sales, reduce costs and guide strategic growth through M&A. In eCommerce360, we focus our business on guiding companies to grow their online revenue with apps that drive traffic, boost conversion and raise average order value. eCommerce360 leads us to develop and acquire many apps that increase online revenues from these 3 dimensions. All apps have a shared dashboard that evaluates the strength of your eCommerce site to make recommendations for the multiple apps we have that will help you grow. eCommerce360 apps are out of the box, enabling them to sell with a touchless sales process for faster sales cycles with lower sales and marketing expenses. The recommendation dashboard further reduces sales costs by cross-selling the best app at the right time to help our customers. Because our apps are out of the box, we can increase our gross margins as a more significant percentage of our revenue is subscription and license versus services. eCommerce360 guides our M&A focus towards apps that can drive traffic, boost conversion and raise average order value. The dashboard simplifies integration of new products and accelerates cross-sales across acquired customer bases. We recently made a huge step forward in eCommerce360 with the acquisition of Woorank SRL. Woorank is an app that drives traffic with a recommendation dashboard powered by an artificial intelligence engine that evaluates your search engine optimization relative to your competitors and identifies areas of opportunity. It is smart enough to recognize the quick wins and the most complicated changes you can implement to drive more traffic. Checkout woorank.com, give it a try. It's really excellent. Woorank has a gold mine of data behind its AI dashboard that includes analysis of 50 million websites over the past 10 years. We intend to combine this data with the data we've accumulated about eCommerce to enrich the recommendation engine even further. Woorank will become the heart of our dashboard for all of our apps. We will expand its recommendation capabilities to identify traffic improvements and identify which of our apps can boost conversion, rev up huge order for our value best. Woorank not only gives us traffic app, a dashboard and big data, it is a lead generating machine. Woorank.com receives over 1 million monthly visits and creates hundreds of new accounts each day. In terms of lead quality, it collects more than 1,503 trials every month where the customer is willing to enter credit card information to proceed, very qualified leads. And like many software companies, Bridgeline's primary growth challenge has been lead generation with a steady stream of leads from Woorank and our extensive collection of apps to sell each lead, we expect the combination to yield outstanding growth results. The Woorank acquisition was structured in such a way as to allow us to assume some of their debt. This reduced the cash outlay from Bridgeline, so we could acquire with our cash on hand. We raised $2.7 million this month to help accelerate our growth and specifically invest in our ability to follow-up on the massive number of sales leads that were now received from Woorank. Woorank will help us grow our top line, increase our profitability and be a central part of our lead generation and cross sales. We'll continue to look for acquisitions, and we'll continue to only pick the companies that have outstanding synergies like Woorank. With Woorank's recommendation dashboard, it will be even easier for us to integrate the next acquisition and make the most of software and customer base. At this time, I'd like to hand the call over to our Chief Financial Officer, Mark Downey to speak to our results. Mark? -------------------------------------------------------------------------------- Mark Gerard Downey, Bridgeline Digital, Inc. - Executive VP, CFO & Treasurer [4] -------------------------------------------------------------------------------- Thanks, Ari. I'm very excited to share the positive financial results for the first quarter of fiscal 2021 ended December 31, 2020, with you this afternoon. Total revenue for the quarter ended December 31, 2020, which is comprised of licenses and services revenue was consistent at $2.8 million for the quarters ended December 31, 2020 and 2019. The following are the various components of revenue. Subscription and licenses revenue, which is comprised of SaaS licenses, maintenance and hosting revenue and perpetual license revenue increased 15% for the quarter ended December 31, 2020, to $2 million from $1.7 million for the same period in 2019. As a percentage of total revenue, subscription and license revenue increased 9% to 70% of total revenue for the quarter ended December 31, 2020, compared to 61% for the same period in 2019. This increase is attributed to significant multiyear license renewals across our diverse portfolio of Fortune 500 companies. Services revenue decreased $259,000 to $837,000 for the quarter ended December 31, 2020, as compared to $1.1 million for the same period in 2019. As a percentage of total revenue, services revenue accounts for 30% of total revenue for the quarter ended December 31, 2020 compared to 39% of total revenue for the same period in 2019. Bridgeline's overall strategy, as Ari has mentioned, called eCommerce360, has been on increasing recurring subscription 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 our subscription and license to service revenue ratio. Gross profit increased 27% or $405,000 to $1.9 million for the quarter ended December 31, 2020, as compared to $1.5 million for the same period in 2019. Cost of revenue decreased 30% or $401,000 to $957,000 for the quarter ended December 31, 2020, compared to $1.4 million for the same period in 2019. This decrease is attributable to a reduction within our fixed costs to operating our cloud-based sourcing model and variable internal support costs. Gross profit margin increased to 66% for the quarter ended December 31, 2020, compared to 52% for the same period in 2019. Subscription and licenses gross margin were 71% for the 3 months ended December 31, 2020, as compared to 54% for the same period in 2019. Services gross margins were 55% for the 3 months ended December 31, 2020, as compared to 48% for the same period in 2019. Operating expenses decreased 30% or $736,000 to $1.7 million for the quarter ended December 31, 2020, from $2.4 million for the same period in 2019. Included within the quarterly totals as of December 31, 2020, are the net benefits and overall efficiencies of the previously announced reduction of our U.S. and Canada operations by eliminating redundancies and combining certain responsibilities and functions. These benefits were offset by acquisition charges of $210,000 related to the acquisition of Woorank SRL specially. For the quarter ended December 31, 2020, the warrant liability revaluation, which considers the overall change in our closing market share price as of December 31, 2020, of $2.58 from the previous quarter's closing market share price of $1.86, resulted in a $1.4 million noncash loss attributable to the change in the fair value of the warrant liabilities. As compared to a $1.1 million noncash derivative gain for the same period in 2019. Offsetting this warrant liability loss for the quarter ended December 31, 2020, is $88,000 of government grant income related to the forgiveness of a PPP loan, respectively. Operating profit for the quarter ended December 31, 2020, and is $179,000 as compared to an operating loss of $962,000 for the same period in 2019. Net loss applicable to common shareholders for the first quarter ended December 31, 2020, is $1.2 million compared $2.3 million for the same period in 2019. Adjusted EBITDA for the quarter ended December 31, 2020, is a gain of $672,000 or $0.15 per diluted share compared to a loss of $669,000 or $0.24 per diluted share for the same period in 2019. Our non-GAAP adjusted net loss for the quarter ended December 31, 2020, is $683,000 or $0.15 per diluted share compared to an adjusted net income of $406,000 or $0.15 per diluted share for the same period in 2019. At December 31, 2020, the company had cash of $1.3 million and a cash receivable net of $863,000 as compared to September 30, 2020, where the company had cash of $861,000 and a cash receivable net of $665,000. Total days sales outstanding for the quarter ended December 31, 2020, is 47.9 days as compared to 48.8 days for the same period in 2019. The primary reason for these improvements can be attributed to our exceptional strong customer relationships and consistent conversion of accounts receivable into cash. As of December 31, 2020, we have 4,420,170 shares of common stock and 350 shares of the Series C convertible preferred stock when converted equals 38,889 shares of common stock. We anticipate being able to cover all remaining Series C convertible preferred stock during the first half of 2021. Our total assets are $11.6 million and total liabilities of $8.3 million. Bridgeline looks forward to continued success in 2021 by delivering shareholder value and expanding our customer success with exciting technical innovations. Thank you all for listening. And at this time, we would like to open the call up to Q&A. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) We have a question from Howard Halpern from Taglich. -------------------------------------------------------------------------------- Howard Allen Halpern, Taglich Brothers, Inc., Research Division - Senior Equity Analyst [2] -------------------------------------------------------------------------------- Nice solid quarter, good recurring revenue growth. In terms of -- now that we're entering into the second quarter, how many customers did you acquire in the first quarter? And what has the trend been so far in Q2? -------------------------------------------------------------------------------- Roger E. Kahn, Bridgeline Digital, Inc. - President, CEO & Director [3] -------------------------------------------------------------------------------- All right. We picked up -- I think it was -- well, customers in the first quarter, something in that range. And that's pretty consistent for the first half of Q2 as well. Now that we've got this huge lead base coming in with Woorank. We expect that to accelerate significantly. The big challenge that we've had in customer acquisition has been just our brand equity, right? I mean, not that many people to know who Bridgeline is. We only have so many leads coming in, and that has moved up 2 orders of magnitude overnight for us. That lead generation was one of the very attractive things for us as we were evaluating Woorank. First and foremost, we look at technology, after that, we look at the customer base, make sure that the customers are not leaving and that we can cross-sell and deliver more value to them. But a huge bonus here. I mean just giant one was the tremendous lead generation that we have, and Woorank stand-alone was -- didn't have a broad enough product suite to be able to monetize that lead base as well as we'll be able to. So we're going to do great things there. -------------------------------------------------------------------------------- Howard Allen Halpern, Taglich Brothers, Inc., Research Division - Senior Equity Analyst [4] -------------------------------------------------------------------------------- Okay. So that, I guess, brings me to a series of questions. Do you -- what kind of revenue did they generate last year? Do you have a rough estimate? -------------------------------------------------------------------------------- Roger E. Kahn, Bridgeline Digital, Inc. - President, CEO & Director [5] -------------------------------------------------------------------------------- Yes. No, Woorank was not an audit company, and we're auditing the financials for them. After an acquisition, you get 70 days to do the audit. They're about a $2 million company, stand-alone, profitable. And there were a few synergies that make it even more profitable, while combined with Bridgeline. -------------------------------------------------------------------------------- Howard Allen Halpern, Taglich Brothers, Inc., Research Division - Senior Equity Analyst [6] -------------------------------------------------------------------------------- Okay. And what type of I guess, incremental G&A costs might there be from the acquisition during the last part of the year? Do you have a rough guesstimate? -------------------------------------------------------------------------------- Roger E. Kahn, Bridgeline Digital, Inc. - President, CEO & Director [7] -------------------------------------------------------------------------------- Sure, sure. So Woorank is -- it's a Belgium company. And we're going to have some additional going forward finance costs just in terms of managing the books and so for the entity. And they're not big, even when it was stand-alone, it was not a significant amount. So going forward, it's not going to make a significant difference. We do have costs that we'll have for the due diligence and for doing the deal that will come into this quarter. And those are going to be around $100,000. And we'll continue to be posting positive operating income. I think we're like $650,000 positive operating income this quarter, and we get even stronger with Woorank. -------------------------------------------------------------------------------- Howard Allen Halpern, Taglich Brothers, Inc., Research Division - Senior Equity Analyst [8] -------------------------------------------------------------------------------- Now you talked about the big lead generation. Is that going to require additional personnel to run down those leads? Or is that going to be part of an automated process that you're going to develop? -------------------------------------------------------------------------------- Roger E. Kahn, Bridgeline Digital, Inc. - President, CEO & Director [9] -------------------------------------------------------------------------------- It will have more people. Now there's a lot of automation. And one of the great things that Woorank has is they've got the ability to connect incoming leads with databases to recognize the size of the company that the lead is coming from in revenue and in personnel, the sector and so forth and automatically categorize it based on that information. But we are going to be investing in additional sales people. These are all touch list sales. And we'll be -- we raised $2.7 million, not to acquire Woorank. We had cash on hand for that to follow-up on those leads in a large part. -------------------------------------------------------------------------------- Howard Allen Halpern, Taglich Brothers, Inc., Research Division - Senior Equity Analyst [10] -------------------------------------------------------------------------------- And are those leads, do you know or have a sense of what the breakdown might be between U.S. and outside the U.S.? What the breakdown of those lead generations are? -------------------------------------------------------------------------------- Roger E. Kahn, Bridgeline Digital, Inc. - President, CEO & Director [11] -------------------------------------------------------------------------------- Sure. Yes. So Woorank has never been geographically focused in its marketing. Just in terms of the way that the economies of the world are split up, they're slightly heavier in the U.S. just use round numbers, probably 60% U.S., 40% Europe. There's really nothing coming in through Asia, and that's because the products aren't localized in Chinese or Japanese, but there are Australian leads. -------------------------------------------------------------------------------- Howard Allen Halpern, Taglich Brothers, Inc., Research Division - Senior Equity Analyst [12] -------------------------------------------------------------------------------- And how long do you think the integration might be with the dashboard and getting all that stuff squared away? Do you think by the second half -- entering the second half, we should expect a unified product or unified dashboard? -------------------------------------------------------------------------------- Roger E. Kahn, Bridgeline Digital, Inc. - President, CEO & Director [13] -------------------------------------------------------------------------------- Yes. It will be by the second half. It's great. The way that the Woorank dashboard is structured is that it's got an AI system where you can -- it can learn different patterns and make recommendations. And we're just going to expand that recommendation set that already exists from an infrastructure perspective, to include recommendations about our products that improve conversion and improve average order value. So the product itself is completely teed up for eCommerce360. We're very fortunate to have met that Woorank. -------------------------------------------------------------------------------- Howard Allen Halpern, Taglich Brothers, Inc., Research Division - Senior Equity Analyst [14] -------------------------------------------------------------------------------- Will your current customers be -- will that be like a second-generation product for them that they all see? -------------------------------------------------------------------------------- Roger E. Kahn, Bridgeline Digital, Inc. - President, CEO & Director [15] -------------------------------------------------------------------------------- It will, it will. So Woorank adds value for every single one of Bridgeline's customers. There's not a single customer that can't drive value from Woorank, and they're all going to get free trial for it. And I think a lot of them are going to become long-term customers. -------------------------------------------------------------------------------- Howard Allen Halpern, Taglich Brothers, Inc., Research Division - Senior Equity Analyst [16] -------------------------------------------------------------------------------- Okay. And 1 last one, I might have missed it. The warrants. Could you just break down again is it Mark that half the warrants are gone, which will limit the warrant liability going forward? -------------------------------------------------------------------------------- Mark Gerard Downey, Bridgeline Digital, Inc. - Executive VP, CFO & Treasurer [17] -------------------------------------------------------------------------------- That's right. That's right. Yes. So there are approximately 5.4 million warrants with -- they're cash warrants. So we'll receive cash when they exercise and they have a strike price of $4, 5.5 million warrants. Half of those warrants expire in 1 month on March 12, I believe. So hey, we're looking great. They -- maybe they'll be in the money by them, that will be nice. And the other half will expire in 2024. -------------------------------------------------------------------------------- Howard Allen Halpern, Taglich Brothers, Inc., Research Division - Senior Equity Analyst [18] -------------------------------------------------------------------------------- Okay. Okay. And I guess, maybe I'll get ahead of myself a little bit, but you talked about, do you have robust or growing pipeline of acquisition candidates that would even -- that we should be looking forward to seeing us sometime this year or next year? -------------------------------------------------------------------------------- Roger E. Kahn, Bridgeline Digital, Inc. - President, CEO & Director [19] -------------------------------------------------------------------------------- Okay. It's an important question, right? A big part of our strategy with eCommerce360 is to rapidly grow our product suite, so we have more products to cross-sell and to rapidly grow our customer base. So we have more customers that we can show our products to. The cost of selling a license to an existing customer is much lower than finding a new customer. So strategic growth, M&A is an important part of our strategy. We've been very patient and careful. We've looked at multiple opportunities every single month, we wanted to get the perfect one to kick it off, and Woorank is the perfect one. And we've got a backlog of other opportunities that we're talking to. And in the same way that we were so careful with Woorank, we're going to be careful with those, but my hope is that we can integrate multiple companies in 2021. -------------------------------------------------------------------------------- Operator [20] -------------------------------------------------------------------------------- (Operator Instructions) There are no further questions at this time. I would now like to turn the conference back to Mr. Ari Kahn, President and CEO. -------------------------------------------------------------------------------- Roger E. Kahn, Bridgeline Digital, Inc. - President, CEO & Director [21] -------------------------------------------------------------------------------- Thank you, Ren. We look forward to continued success in 2021. We're off to a great start. Woorank is excellent, and we have lots of different ways that we're going to deliver value for our shareholders by expanding our customer base, by expanding our product line, it's going to be a very exciting year. Thank you all for listening. And have a wonderful 2021. Be safe. -------------------------------------------------------------------------------- Operator [22] -------------------------------------------------------------------------------- Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.