Q4 2023 Bridgeline Digital Inc Earnings Call

Presentation

Operator

Thank you for standing by, and welcome to Bridgeline Digital's Fourth Quarter 2023 earnings conference call. (Operator Instructions)
Again. I would now like to hand the call over to CFO, Thomas Windhausen, 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 Digital. I'm pleased to welcome you to our fiscal 2023 fourth quarter conference call. On the call this afternoon is Ari Kahn, Bridgeline President and CEO, who will begin the call with a discussion of our business highlights. I will then update you our financial results for the quarter, and we will conclude by taking questions.
Before we begin, I'd 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 that 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. That report today should not be considered 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 details 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 on the call this afternoon, we'll 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'd now like to turn the call over to Ari Kahn, Bridgeline President and CEO. Ari?

Thank you, Tom, and good afternoon, everyone. In fiscal '23, Bridgeline signed more than $6 million in sales and had a revenue renewal rate of more than 90%. The Hot Search product line led the Company's sales with Hot Search growing to nearly 50% of Bridgeline's revenue with a renewal rate of more than 95%. In our fourth quarter, Bridgeline booked an additional 27 sales for $900,000 in contract value. That adds $375,000 in annual recurring revenue. Bridgeline closed the fourth quarter with a 92% revenue renewal rate for $2 million and renewed contracts totaling $9 million in renewals for the year.
Earlier this year, we explained that a large customer on a legacy product was winding down its license over 2023, which impacted the year's revenue, but at the same time, we delivered strong sales with our core products, especially Hot Search. And our revenue mix is now the low driven by our core product lines, which has seen over $6 million in new customer contracts with a 95% renewal rate. This positions us for growth in 2024, and we expect Hock search to lead the way with our recently released AI. capabilities, such as our Smart Search module. Oxford sales are largely driven through our platform partnerships with big e-commerce sales force and optimized Lilly. We also have agency partners, including X, engage and American Eagle that can drive new talk search sales sales in our fourth quarter included digital, a top multi-family apartments, marketing agency who uses Woorank to grow online revenue for their customers. Agency will deliver will wreck SCO to accelerate its clients' online presence and help businesses accelerate their digital reach recognized areas for growth and implement fast and effective strategies for improvement filter as fast a number one filtration retailer in United States for license talk search to power their online search and recommendations for Hawk search, rapid UI. feature was integrated with their custom e-commerce platform, which allowed filter fab to quickly launch their sites. Another new customer is Trident enterprises, Trident enterprises, a leading live spot stock fencing supplier selected Cox research to grow online revenue. Other big commerce website, Hot Search will help Trident's customers quickly find products and their massive catalog using artificial intelligence powered search, natural language process. The prominent franchise listed in the franchise 500 list selected Bridgeline to presence franchise software to host multiple pages for their over 1800 locations through true presence in high performance local paid system. And another important win was a top financial institution who selected Bridgeline's accessibility product powered by necessity to ensure its website is accessible to all and compliant with the American Disabilities Act. Our partnerships with optimizing and extra Engage is an important part of our future growth. In October, we joined optimizing their annual user conference, where we jointly announced Hock searches integration with optimized lease configured commerce, which you can actually engage connector. This analysis was followed with online webinars to further promote sales of Fox search is now in a unique position to provide site search for more than 1,000 optimized. We configured commerce customers and several have already purchased the license for this integration. We recently announced a reseller partnership with excess to be the market leader in web accessibility. Successively helps over 1,180 thousand companies, including PlayStation Johnson & Johnson's and NBC to improve compliance with American Disability Act and similar legislation in Canada and in Europe, Bridgeline's engineering team has focused on artificial intelligence to improve usability and productivity for both end users and site visitors, unbound added AI assistant to help content creation with G&A. I capabilities to create new content for websites, and this same capability is now available at Hach search landing page creator. Hock search announced an important AI. based capability called Smart Search as part of the key words to concepts initiatives, smart search as two core capabilities that improve sales conversions for Hock search powered websites, concept search and visual search concept. Search uses large language model to enable online shoppers to describe their goals and natural language rather than describe the product that they're searching for, for example, a shopper on a sporting goods sites may search. I am going camping rather than waterproof tents and concept search will return a wet waterproof tech as well as additional items that they may need to purchase. This is important, as many shoppers may know, may not know what specific products they need, and instead only know the goal that they have such as the fact that they're going camping one great part of concept search is that is largely language independent support, 50 languages, even for sites that have not yet been translated. Visual search allows online shoppers to upload an image or even take a picture with their phone to find visually similar products. Industries like fashion retail require this because customers want to find a product that is similar to the one that they've seen before, but not exactly the same, furthering our focus on the franchise market with true credit Bridgeline released multi Engine Management in partnership with an enterprise franchise customer well, the engine management allows franchisors to search and merchandising features across thousands of franchisees site and then allow individual franchisees to further refine their individual site. For example, when they change their clothing, retailers lots to boost certain seasonal products to the top of their search results, they can do so from the multi agent console to automatically boost sales in every single one of their stores who have those items in stock going forward, we expect Hock search and true presence in the important parts of our growth with investments in AI across both both product lines that will drive new sales and upgrades in our existing customer base. Smart Search has been especially strong with seven sales in just the last two months and a pipeline of more hundreds, more than 700,000 in ARR since its release and September. At this time, I'd like to turn the call over to our Chief Financial Officer, Cameron houses. Tom?

I Thanks, Art. I'll provide an update of our financial results for the fourth for the fourth quarter of fiscal 2023, which ended September 30th, 2023. Total revenue for the quarter ended September 30th, 2023 was $3.8 million compared to $4.2 million in the prior year period.
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 for the quarter ended September 30th, 2023 was $3.1 million compared to $3.4 million in the prior year period. As a percentage of total revenue. Subscription licenses revenue was 81% of total revenue for the quarter ended 2023. Services revenue was over $700,000 for the quarter ended September 30th, 23, a slight decrease from just under $800,000 in the prior year fourth quarter.
As a percentage of revenue, services revenue accounted for 19% of total revenue for the quarter ended September 23. Our cost of revenue was $1.2 million for the quarter ended September 23, which is consistent with $1.2 million in the prior year period. And as a result, our gross profit for the quarter ended September '23 was $2.6 million compared to $3.0 million in the prior year period. Overall, our gross profit margin was 68% for the quarter ended September 23 compared to 71% in the prior year period. Our subscription and license gross margins were 73% for the quarter ended September 23 compared to 76% in the prior year period. And our services gross margins were 46% for the quarter ended September 23 compared to 47% in the same period in 22.
Our operating expenses were $10.8 million for the quarter ended September 30th, 23, an increase of $3.4 million in the prior year period. Our operating expenses in the current year quarter included a $7.5 million goodwill impairment charge.
Moving to below OpEx, the change in fair value of our liability classified warrants resulted in non-cash income of $200,000 compared to a slight loss in the prior year period. The change in share price was the primary driver of the change in fair value of the warrant.
Moving to the bottom line, our net loss was $8.1 million for the quarter ended September 30th, 2023, compared to a net loss of $500,000 in the prior year period. In the current year period included the impact of a $7.5 million goodwill impairment.
Moving to EBITDA, our adjusted EBITDA for the quarter and September 23 was negative $100,000 compared to a positive $100,000 in the prior year period. Moving on to our balance sheet, on September 30th, 23, we had cash of $2.4 million and accounts receivable of $1.0 million. Our total debt outstanding at September 30th, 23 was about EUR660,000 or USD700,000. The weighted average interest rate on that is about 4.5% and principal payments are due through 2028. We have no other debt or remaining earnouts from any of our previous acquisitions on our balance sheet. And at September 30, 2013, our total assets were $17.6 million and our total liabilities were $6.2 million.
Finally, I want to give an update on our cap table. As of September 30th, 23, our cap table included 10.4 million of outstanding shares, 39,000 shares from our Series C preferred stock on an as-converted basis, 1.75 million warrants and 1.8 million options in October 23, 54,000 warrants expired that we had just over 1.7 million warrants currently outstanding 900,000 warrants with exercise prices, $4 will expire in less than one year in September 2024.
After that, we will have approximately 800,000 warrants, primarily including 180,000 warrants for the $2.85 exercise price expiring in May 26, and 590,000 warrants for the $2.51 exercise price, which expire in November 2026 because Bridgeline looks forward to continued growth and success in fiscal 24 and beyond as we continue our focus on revenue growth, product innovation, customer success and delivering shareholder value. Thank you for joining us on the call today. And at this time, I'd like to open the call up to questions and answers. Moderator.

Question and Answer Session

Operator

As a reminder, to ask a question, you will need to press star one one on your telephone to remove yourself from the question queue, you may press star one one again. Again, that's star one one. Please stand by while we compile the Q&A roster. Our first question, I'll moment Our first question comes from the line of Mr. Halpern of Taglich Brothers. Your line is open. Please go ahead, Howard.

Hi, guys. Congratulations on navigating a navigating interesting year. It's very hard to hear your voice is. So based on the commentary in the beginning, can we can we assume that the fourth quarter revenue is sort of going to be the low point and sequentially from that $3.8 million, we should start to see see growth of fourth quarter by quarter?

Yes, you should start to see quarter by quarter growth. So last year. We had that important customer on a legacy product wind down beginning the first quarter sequentially each quarter and their final if license decrease is actually Q. one this quarter that we're in right now. However, our other product lines have grown now that now we are more than half our core products which are growing, and that's going to overshadow the legacy decline that we saw in the past.

And how important, I guess was it for you to begin developing the AI capabilities for new customers and to maybe upgrade upgrading and expand was in your existing customer base.?

So, you know, the advancements that have happened in AI is the science in the last two years have been amazing. My background is in a I got a PhD in AI, and I'm very energized and excited over everything that's happened, especially with our area of research called large language models, we've been able to very quickly incorporate capabilities in large language models, specifically into both Hach search and our true present product. These capabilities are allowing our customers to increase the revenue on their websites by allowing the end users of those websites to more naturally search for products, even if they don't know what they need to just say what they're going to do. I'm going to go camping for instance, and have that they say, well, great. If you're going to go camping, here's the products we have that you might want to buy our existing customers. We have tremendous demand for these capabilities in just a very short period of time. We've signed seven licenses within our existing customer base, and we've got a huge pipeline over $700,000 in annual recurring revenue, and we are already winning new customers with these capabilities as well. They really differentiate Hock search from anyone else in the arm in the marketplace shows the Company Bridgeline as a true innovator and leader in artificial intelligence and brings capabilities to true presence that are not there natively within any other page, local pages system, especially a franchise system so we think that this is going to be a huge part of e-commerce, 360 strategy for us differentiator. And we've got the expertise and how to move faster than anyone else.

So as AI. continues to develop, you'll be you'll be able to maintain that cutting edge for your customers?

Yes, you know, it's a Sprint right now to get ahead and we are moving very quickly on. We've got a lead on all of our competitors, one of them. Our goal here is very strong, and I will say that they've got some great capabilities. So the only ones that are in the same area as we are from a lead perspective and one of the amazing things that are happening with AI. and this will be disruptive across many, many industries is that the foundational capabilities from companies like open AI are on mature and easy to develop upon. Now, if you don't understand the underlying concepts, you can get caught up in $1 million debt in, but we do understand the concept. So we don't need the hundreds of millions of dollars to develop for instance, a large language model ourself in the years and years of research. Now those are those capabilities are generally available. We know how to use them, and we're going to move quickly. And this is going to change the on the software industry in many industries because if you can understand the business problems that your customers have and you can solve them in new ways without an army of engineers. And it will level the playing field for companies that are Bridgeline size with companies that are much larger and allow us to innovate through our customer relationships and our deeper understanding of the core business problems that they have as opposed to just raw math. So this is our time we're excited for 2024 that we're going to make big, big moves in AI.

And does does all this also factor in potential acquisitions that you will look for companies now that have to leverage everything that you've developed developed.?

It does. It's interesting because, you know, we have for a long time, how does the thesis that the our customer base and an acquisition is something that is often undervalued and that we this is a big part of our e-commerce 360 capability have an understanding of that and can leverage that with new products to cross-sell.
Now when you take a look at a lot of the businesses that might be acquisition targets a lot of times, they may have challenges with regards to innovating new technologies and that might be one of the reasons why they would be a candidate target for us. But over the years they have accumulated customers, we can approach those customers with new capabilities bring a I swiftly into the products that they're already using and on and grown that customer base. So that is on a certainly an opportunity for us in 2024 and Dom, we're continuing to look at pipeline. It's a challenge. Our stock price is not helpful with regards of doing those acquisitions, obviously on, but our capabilities are there. And we'll continue to evaluate companies and find the right one at the right time to add to our mix will pay

Well, keep up the great work, guys.

Thank you, Howard. At the New Year Utell.

Operator

Thank you. And I would now like to turn the conference back to management for closing remarks.

Great quarter, everybody. Thank you for joining us today. We appreciate your continued support of all of our customers, our partners and our shareholders. We're really excited about our business, ongoing growth, product prospects and the new products that we're releasing. We look forward to speaking with you again in our first quarter fiscal 24 conference call, that will be in February until then Happy New Year as everybody have a great 2024.

Operator

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