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spk01: Good day, and thank you for standing by. Welcome to the BridgeLine Digital second quarter 2023 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during that session, you will need to press star 1-1 on your phone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded, and I would now like to hand the conference over to your speaker today, Mr. Thomas Winnhausen. Mr. Winnhausen, please go ahead.
spk02: Thank you, and good afternoon, everyone. Thank you for joining us today. My name is Tom Winnhausen, the Chief Financial Officer of BridgeLine. I'm pleased to welcome you to our fiscal 2023 second quarter conference call. On the call with us this afternoon is Ari Kahn, Bridgeline's president and CEO. We'll begin the call with a discussion of our business highlights. I will 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 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 provision of the Private Securities Litigation Reform Act of 1995. The internal projections of 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 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 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 will see 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. Thank you, Tom, and good afternoon, everyone.
spk04: In the second quarter, we signed $1.4 million in new sales, including $600,000 in licenses and over $800,000 in services. Hawks Search continues to be our best-selling product, and most Hawks Search contracts have a three-year initial term, creating a strong backlog for future revenues. Hawks Search has organic growth in the high teens and renewal rates of over 95%. This product line represents more than 40% of our revenues. HawkSearch sales are often sourced from partners, which lowers marketing expenses. Key platform partners include Optimizely, BigCommerce, SiteFinity, and Salesforce. Agency and system integrators also drive new sales with several important partners, including XEngage and AmericanEagle.com. Important HawkSearch sales in our second quarter included the expansion of our relationship with UPS through the addition of HawkSearch to their Bridgeline product suite. growth in the footwear market, including Crocs, Foot Locker, and New Balance in Asia, and growth in the B2B industrial distributor market with Blackhawk, Dealers Industrial Supply, and Thomas Scientific. Our go-to-market strategy concentrates on verticals, where we have strong case studies and can dominate with a Be Everywhere campaign. These core sectors include B2B electrical supply, footwear, franchise, and plumbing distribution. WooRank is another important product for Bridgeline, and we've augmented our direct WooRank strategy with partner-driven sales. Last quarter, we announced our partnership with DoDot to sell WooRank in DoDot's app store. This partnership has already sold over 500 WooRank licenses to the DoDot customer base. WooRank allows Doodah users to increase traffic to their sites by improving their rank on search engines such as Google. Through this partnership, more than 450,000 businesses can now add WooRank to their site with a click of a button. Also, Doodah partners with 20,000 digital agencies who can now make bulk purchases of WooRank for their customer bases. We not only grow sales through new product development and acquisition, But we're also able to leverage our customer bases for cross-sales of third-party products. Last week, we announced a partnership with AccessiBe, a market leader in web accessibility. AccessiBe is trusted by over 180,000 customers, including PlayStation, Johnson & Johnson, and NBC, to identify and fix website compliance issues with the American Disability Act and similar legislation in Canada and Europe. With accessibility technology, BridgeLine not only increases our customers' total accessible market to include those with disabilities, but we also reduce our customers' legal risk associated with compliance violations. BridgeLine has delivered several important innovations in our product line this year. Most recently, we announced our Braco release for HawkSearch, which helps boost revenue for our customers while reducing their implementation costs. Bronco improves coordination across our products and pre-tunes HawkSearch-powered websites for their industry while providing more out-of-the-box capabilities to accelerate time to market. Bronco directly embeds WooRank and e-commerce 360 into the HawkSearch dashboard with WooRank customers alerted to SEO opportunities and e-commerce 360, providing advanced analytics and recommendations for bridge-line products and partner products like accessibility. Braco's rapid UI framework provides point-and-click site configuration that enables customers to build and modify their site quickly. It also allows our sales team to easily demonstrate the power of Hawk Search to prospective customers in the context of their own websites. Bronco introduced HawkSearch industry accelerators, which are an important part of our vertical go-to-market strategy. Industry accelerators package domain-specific intelligence that HawkSearch has learned while powering other sites within that industry. When a new site is launched, rather than having to learn the behavior of its customers, It can use machine learning and human intelligence accumulated from similar sites in this industry to inject months of optimizations on day one. For example, our machine learning on the B2B electrical distributor site may discover that beige light switches sell better than orange ones and therefore pushes beige to the top of the webpage and orange towards the bottom. Human configuration may further tune the site to tell us that Cotton and Dub are synonymous color names in customer searching. Bridgeline's industry accelerators package this kind of intelligence from dozens of sites into a single package so that when a new customer within an industry launches a new site, they can immediately incorporate optimizations learned from months or even years of customer behavior across similar sites on day one. In the second quarter, BridgeLine delivered $4.1 million in revenue, including $3.3 million in subscription and license and $800,000 in services. Subscription revenue was influenced this quarter by the full quarter reduction of the large customer we mentioned last quarter, who's renewed for their ninth consecutive year on a legacy BridgeLine product, restructured their website, and this reduced subscription significantly for that account. Regardless of the full three-month impact of this reduction, subscription revenue for the second quarter grew from the first quarter thanks to strong sales and renewals. This quarter, over 200 of Bridgeline's existing customers, representing more than 90% of customers and of recurring revenue that was contracted for renewal during this quarter, renewed for a total contract value of $4 million, with several customers increasing the size of their life Renewals included Global 500 enterprises, such as AstraZeneca, Toyota, and UPS. Our subscription and license revenue is 80% of total revenue for the quarter, with new contracts typically signing for three-year initial terms and generally renewing for multiple subsequent years. At this time, I'd like to turn the call over to our Chief Financial Officer, Tom Winhausen.
spk02: Tom? Thanks, Ari. I'll provide a further update of our financial results for the second quarter of fiscal 2023, which ended March 31st, 2023. Total revenue for the quarter ended March 31st, 2023 was 4.1 million, compared to 4.1 million in the prior year period. Now, going into each component of revenue, our subscription licenses revenue, which is comprised of SAS licenses, maintenance and hosting revenue, and perpetual license revenue, For the quarter was 3.3 million, which was consistent with the prior year period amounts. As a percentage of total revenue, subscription licenses was 80% of total revenue for the quarter ended March 31st, 2023. Our services revenue was 821,000 for the quarter ended March 2023, up slightly from 811,000 in the prior year quarter. As a percentage of total revenue, services revenue accounted for 20% of total revenue for the quarter ended March 31st, 2023. Our cost of revenue decreased to $1.26 million for the quarter ended March 2023, compared to $1.33 million in the prior year period. And as a result, our gross profit increased 49,000, or 2%, to $2.83 million for the quarter ended March 23, as compared to $2.78 million for the prior year period. Overall, our gross profit margin was 69% for the quarter ended March 23, compared to 68% in the prior year period. We had a subscription license growth margin of 74% for the quarter, compared to 74% in the prior year period, and a services growth margin of 49% for the quarter ended March 23, up from 43% in the same period in 2022. Our operating expenses were 3.5 million for the quarter ended March 23, compared to 3.4 million in the prior year period. The increase includes an additional $200,000 of expense across sales and marketing and research and development related to our investments. The change in fair value of our liability classified warrants resulted in a non-cash income of $200,000 for the period ended March 23 compared to income of $400,000 in the prior year period. Our change in share price is the primary driver of the change in fair value of these warrants. Moving on to net income, we had net loss of $500,000 for the fiscal quarter ended March 23 compared to net income of $300,000 in the prior year period. Moving to EBITDA, our adjusted EBITDA for the quarter ended March 2023 with negative 144,000 compared to negative 72,000 in the prior year period. Next, moving on to our balance sheet. At March 31st, 2023, we had cash of 2.8 million and accounts receivable of 1.1 million. Our cash increased this quarter despite debt payments of 300,000 euros in the quarter. Our total debt outstanding as of March 31st, 2023 is 700,000 euros with a weighted average interest rate of 4.1% with principal payments due through 2028. Further, we have no remaining earnouts from any of our previous acquisitions. As of March 31st, 2023, we had total assets of 26.8 million and total liabilities of 6.9 million. We look forward to continued growth and success in fiscal 2023 and beyond as we continue to 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, we'll open the call to questions and answers. Moderator?
spk01: Thank you. To ask a question, please press star 1-1 on your phone and wait for your name to be announced. To withdraw your question, please press star 1-1 again.
spk00: Stand by as we compile the Q&A roster. One moment for our first question. Our first question.
spk03: Could you give us an update on the industry environment in terms of what are you seeing in terms of the market and customer appetite and any particular technologies they're interested in? Thanks.
spk04: Yeah. Thanks, Will. You know, we're seeing our existing customers are continuing to make enhancements to their site. So from that perspective, we're not seeing any change in investments for the industry. New customer acquisition is also on par with last year. So regardless of the recession, for the customer base that we have and the prospective customers that we have, we're not seeing a change. One of the things that we've seen is an awful lot of interest in AI, and that's driving some pretty interesting demand. We're seeing people integrate our software with other products like HubSpot, for example, even ChatGPT. And that's really getting us excited about the potential for offering broader solutions. And we were looking at some partnerships with other companies, including the AccessiBe partnership, where we're able to offer broader solutions with not just the technology that we own ourselves, but incorporating that with other partner products as well.
spk03: Okay, and quick follow-up. In terms of the competitive environment, is that the same? You mentioned AI. Is that having any impact in competition or competitors kind of like in a tit-tat match situation?
spk04: Yeah, not yet. Not yet, but it is coming. The enhancements in AI are a lot of them are open source, like open AI. so forth that are going to allow a lot of companies to rapidly bring new capabilities into their product. And this is actually a big part of our industry accelerator package that we're offering now. We think that the future, the near-term future for AI is not broad-based generative AI like ChatGVT, but instead have domain-specific. So we're using third-party AI products, open AI products. to understand narrow industries like footwear or B2B electrical distributors or plumbing or paint supplies, and to have hyper-strong expertise in those narrow niches so that we can dominate them one at a time.
spk03: All right. Thank you.
spk04: Thank you, Leah.
spk01: Thank you. As a reminder, to ask a question, please press star 11 on your phone and wait for your name to be announced.
spk00: Please stand by as we compile the Q&A roster. I'm not seeing any questions in the queue.
spk01: This will end the Q&A session. I would now like to turn the conference back to management for closing remarks.
spk04: Thank you for joining us today. We appreciate the continued support of our customers, our partners, and of our shareholders. We're excited about our business and ongoing growth prospects, and we look forward to speaking with you again on our third fiscal quarter 2023 conference call, which will be in August 2023. Thank you, everybody, and have a great week.
spk01: This concludes today's conference call. Thank you all for participating. You may now disconnect, and have a pleasant day.
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