Bridgeline Digital, Inc.

Good afternoon everyone and welcome to the Bridgeline Digital second quarter 2025 earnings call. At this time all participants are in a listen only mode and the floor will be open for questions following the presentation. If anyone should require operator assistance during the conference please press star zero on your phone keypad. Please note this conference is being recorded. I will now turn the conference over to your host Tom Windhouser, CFO. The floor is yours.

Excellent. Thank you. Good afternoon, everyone. Thanks for joining us today. My name is Tom Windhouser, and I'm the Chief Financial Officer at Bridgeline Digital. I'm pleased to welcome you to our fiscal 2025 second quarter conference call. On the call with us today is Ari Khan, Bridgeline's President and CEO, who will 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 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 we report today should not be considered an indication of future performance. Changes in economic, business, competitive, technological, regulatory, or other factors could cause Bridgeline's actual results to differ materially from those expressed or implied by the projections or form-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 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's President and CEO. Ari?

Thank you, Tom. Good afternoon, everyone. We continue to have strong sales for Hawk Search products. Bridgeline is not only winning new customers, it is expanding within the Bridgeline existing customer base thanks to Hawk AI. In Q2 FY25, Bridgeline signed 20 license sales, adding $1.7 million in new contracts and $700,000 in annual recurring revenues. Our sales cycle is only 120 days with a 19% win rate on qualified leads. Year to date, we booked 4.2 million in contracts with 1.6 million in annual recurring revenue. We accomplished this with less than $250,000 per quarter in ad spend. Our high ROI in marketing proves strong demand for our Hawk AI products, a strong e-commerce market in general, and suggest that we should increase investments in sales and marketing. To build on this momentum, our board and executive team led a $2.2 million capital raise. BridgeLine executives, board members, and shareholders participated in the raise. The raise was straight common stock and above market. The proceeds will be used to expand sales and marketing. Specifically, we will expand our lead generation budget, including conferences, online ads, and direct outreach. This increased lead gen was launched on April 1st, 2025, and is funded through the rest of the year, and we are already seeing results. Our sales cycle is fast, so we expect to see an impact from the increased ad spend in our fourth quarter. We measure a 120-day sales cycle from the time of first contact with a prospective buyer to closing the sale. Thus, April ad spend can impact August bookings. We have outstanding marketing automation that will allow us to increase lead generation and nurturing activities without a large headcount increase. This means our go-to-market campaigns are highly scalable and not limited by the number of people on our team. Doubling the investment and ad spend is intended to double the leads and, in turn, double sales. Hawk Search has been a huge market. We have plenty of room for growth relative to our budget and market share. We're excited about the future for the company. We are in the leader position in AI-powered e-commerce search. We expect to increase our leadership with this marketing investment. Our revenue, which for the second quarter increased broadly be broken into two segments, core and non-core. Core revenue comes from our e-commerce 360 products led by Hawk Search and WooRank. Core revenue is more than 60% of our subscription revenue. It has double-digit growth with net revenue retention of 113% and CAC payback better than 20 months. Essentially, all of our new sales are core products. Our non-core products represent the balance of our revenue. Most of our services revenue is non-core. These products generate strong gross margins with minimal operating expenses and help fund growth for core. Some of our largest non-core customers have recently purchased core products. In recent quarters, non-core revenue has declined at nearly the same rate core revenue grew, leaving total revenue relatively flat. We expect this balance to continue through the second half of FY25 with core revenue growth outpacing non-core impact in Q1 for FY26. In addition to core being an even larger percentage of total revenue, in Q1 of FY26, today's increased investments in marketing will further generate core revenue growth. This quarter, Hawk Search expanded its Hawk AI feature set with the launch of smart conversion and a new smart response component that transforms traditional search into an interactive dialogue. Users can engage in a threaded conversation with Hawk AI agents to narrow down complex product needs. This allows Hawk Search to perform all the actions of a chatbot, including answering detailed questions about products and account history. We also released a RapidUI 2.0 product, which supports the latest Hawk AI products, including smart response and smart conversion. The RapidUI 2.0 interface leverages a streaming API to enable real-time, multi-turn interactions with Hawk AI agents for fast and interactive search. HawkSearch also launched a new software development kit for BigCommerce Catalyst Connector. BigCommerce's Catalyst framework built on Next.js gives merchants and developers more flexibility and control over storefront experiences. The new SDK expands HawkSearch's capabilities within the BigCommerce customer base. Last quarter, we discussed how Q1 sales were the second best sales quarter in company history. We had another great and strong sales quarter in Q2, and our first half license sales increased year over year by 24% to $1.6 million in annual recurring revenue from $1.3 million in ARR in the first half of FY24, a 24% increase in ARR new sales. Customer wins and other highlights this quarter include Do It Best, the largest network of independent home improvement stores in the U.S. HawkSearch will help Do It Best increase order value, drive higher conversion rates, and increase traffic to their online store. Another important sale was to a Fortune 500 technology company who selected HawkSearch to power its e-commerce search in the Americas and Asia. The technology company is licensed hybrid search, which bundles HawkSearch keyword and HawkSearch concept search to deliver faster, more accurate results for complex long-tail queries. A B2B North American distributor selected HawkSearch to power four of its e-commerce websites. The multi-site engagement leverages HawkSearch's native optimizely X-Connect product and includes concept search, smart insight management, and AI-powered personalization and recommendations. A global technology firm based in the Middle East has selected HawkSearch to deliver AI-personalized results in both English and Arabic. Built on HawkSearch's flexible API and SaaS hybrid infrastructure, the mobile-first implementation is engineered for high-speed performance and scalability. This continued momentum positions us for growth in 2026 as we expand our reach in B2B e-commerce, providing cutting-edge AI search solutions that drive revenue and enhance customer engagement. Our recent investments in R&D have opened the door to partners whose customers need the latest AI-powered e-commerce tools. Partner-led sales have faster sales cycles, a higher win rate, and lower marketing costs. Park Search partnered with Shopware, a global open source e-commerce platform serving over 100,000 merchants. Known for its flexibility, AI-first architecture, and strong mid-market and enterprise presence, Shopware empowers brands to create immersive shopping experiences. This quarter, Park Search also partnered with Groove Commerce, a leading B2B e-commerce agency, to integrate Bridgeline's AI-powered search technology into their solution for B2B merchants. As part of this initiative to strengthen joint go-to-market efforts, Bridgeline's EVP of products and strategy, John Murcott, presented on the future of AI in e-commerce at Groove's Customer Summit last month. Over the past year, we have launched eight AI-powered products, In Q2, we began to see those releases gain market traction with enhancements like smart conversion and real-time streaming APIs. Our suite of AI products is more dynamic and interactive than ever before. This quarter marks a true turning point in our growth strategy. The expanded marketing budget is already fueling demand across our core verticals, and we're seeing higher conversion rates as a direct result of our go-to-market machine and increased campaign automation. So at this time, I'd like to turn the call back over to our Chief Financial Officer, Tom Wendhouse.