Bridgeline Digital, Inc. ($BLIN)

Good day, everyone. Welcome to the Bridgeline Digital Second Quarter 2026 Earnings Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Thomas Windhausen. The floor is yours.

Thank you, and good afternoon, everyone. Thank you for joining us today. My name is Thomas Windhausen, I'm the Chief Financial Officer of Bridgeline Digital. I'm pleased to welcome you to the fiscal 2026 Second Quarter Conference Call. On the call with us today is Ari Kahn, Bridgeline's President and CEO, who will begin the call with a discussion of our business highlights. I'll update you on the financial results, and we'll conclude with some questions. Before we begin, I'd like to remind everyone that our remarks and responses to your questions today may contain forward-looking statements that may be based upon the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including without limitation, those identified in the Risk Factors section of our most recent annual report on Form 10-K and our most recent 10-Q filing and the company's other filings with the Securities and Exchange Commission. Such factors may be updated from time to time in our filings with the SEC, which available on our website. We undertake no obligation to publicly update or revise our forward-looking statements as a result of new information, future events or otherwise. We advised that today's results should not be viewed as an indication of future performance. The call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We can refer to these as non-GAAP financial measures and reconciliations of the non-GAAP financial measures to the most comparable measures calculated presented in accordance with GAAP are available in the earnings release. I'd now like to turn the call over to Ari Kahn, Bridgeline's President and CEO. Ari?

Thank you, Tom. Good afternoon, everyone. Well, I'm happy to say that we tripled last quarter's sales and delivered the most new logo sales of any quarter in the company's history. We won 19 sales this quarter, nearly 2 a week, closing $2.8 million in TCV with $1.2 million in annual recurring revenue. And we also signed over $1 million in professional services agreements. The average sales price took a massive leap this quarter to $44,000 in ARR compared to $30,000 last quarter and $21,000 a year ago in Q2 of FY '25. Above and beyond the increase in our new customer average license price, our existing customers bought an average of $28,000 in ARR for add-on products like our AI visual search. The increase in sales price is largely due to the new AI add-ons that our customers are choosing as well as the fact that we're selling to larger companies with massive catalogs and web traffic requirements. In addition to new sales, we continue to have outstanding customer satisfaction proven by our renewal rates and license expansions. This quarter, our core products had a net revenue retention of 107%. Bridgeline's core products led by HawkSearch's suite of AI products now represent 65% of the company's subscription revenue compared to 61% in Q2 last year. This was the best quarter ever for customer acquisition. The majority of our wins came from B2B manufacturers and distributors, a large total addressable market where Gartner ranked HawkSearch #1 in their critical capabilities report. Some recent customer wins include a leading global gas provider selecting HawkSearch to power search across 3 e-commerce sites in one of the most technically complex implementations in HawkSearch's history. The site required multilingual search, customer-specific pricing, entitlement-based access, dimension-based search and multisite management. Also, a wholesale distributor selected HawkSearch to power 5 sites on its oral commerce platform with a clear path for Hawk to power 8 of their sites as the relationship expands. HawkSearch was chosen on the strength of its B2B capabilities, including keyword management, entitlements, personalization, product recommendations, unit of measure and analytics. A national industrial supplier selected HawkSearch to power search across its large specification-driven catalog of metal and specialty materials with unified search and concept search driving their online revenue by improving conversion rates and reducing friction for specification-driven customer searches. Another important part of our growth strategy is partnerships. HawkSearch lends itself naturally to both agency and software platform partners that generate sales. HawkSearch received multiple 2026 honors from the InfoTech Research Group, including leader in enterprise search, top product catalog, top UX, top features across 8 additional categories based on verified user feedback. In terms of partnerships, HawkSearch and Zenode announced a partnership bringing AI-powered search merchandising and personalization to manufacturers and distributors on the Zenode B2B e-commerce platform, helping buyers find their right products faster, navigate larger catalogs more easily and improve conversion across multiple store and multi-portal experiences. Partners are a big part of our go-to-market strategy and traditional marketing also drives leads for us. We're presenting at in-person conferences more and more like B2B online Chicago and hosting customer conferences to drive sales. And I'm really happy to announce that we recently added a new SVP of Marketing to our team, Kelly Maltman. Kelly is a marketing exec with over a decade of experience leading B2B software sales and is working closely with our EVP of Sales, Karl Pri to grow our sales pipeline. Our pipe grew by 82% compared to Q2 of FY '25 with over 500 qualified leads and more than $5 million in ARR to drive ongoing revenue growth. HawkSearch has been an AI-based product suite since long before the new wave of large language models and neural networks and AI that are making headlines today. This has allowed us to quickly adopt the latest AI technology faster than our competitors are able to. This quarter, we released the Hawk AI Shopping Assistant. B2C shopping assistants are starting to appear with Amazon Rufus and Walmart Sparky leading the way. Most B2C sites are building their shopping assistance off their support chat bot, which is designed to answer questions about products, but not designed to drive online sales. HawkSearch's entire product suite is always focused on driving online sales for our customers, and it empowers companies to define merchandising rules to promote products that grow with full personalization, recommendation and promotions at its core. The Hawk AI shopping assistant is built upon HawkSearch's AI merchandising infrastructure to truly align it with an online store's revenue goals. If you promote a product in Hawk, the AI will automatically promote it in Hawk's Assistant and vice versa. Furthermore, because HawkSearch has full B2B support, the Hawk AI shopping assistant is empowered to handle the complexity of B2B online sales. Everyday B2C concepts like pricing, catalog and shipping are more complex in the B2B world as they're negotiated per customer and shopping is performed by teams. Each customer has prenegotiated contracts to define which products they can access, custom pricing, freight schedules, credit lines, et cetera. The HawkSearch AI shopping assistant understands our customers' B2B contracts and merchandising rules so we can make commercially intelligent recommendations tailored to each individual customer. Here's an example of what the shopping assistant looks like in practice. One of our customers is a master B2B distributor for electronics. It has a massive inventory and its customers are also B2B companies. Its customers are local distributors covering a smaller territory to supply individual electricians. With HawkSearch shopping assistant, a local distributor can log into the master distributor shopping assistant and make a query like I have 50 electricians as customers. My electricians build 2 or 3 houses a year, each one 750,000, approximately 5,000 square feet, give me a plant for stocking circuit breakers and panels in my warehouse. Our shopping assistant can then advise -- given that you're covering Southern Ohio when AC is required, you need 570-volt breakers, 600, 100 amp breakers, et cetera, and then suggests a 20% over for backstop and plus orders -- surprise orders. It will say that if the distributor has a $10,000 credit line recommends quarterly replenishment and to add 5,000 foot cable and bundle it with the breakers to increase its sales. The shopping assistant then asks if it should place the order. That entire experience, the same type of experience you might have with an intelligent salesperson in an office can now happen online at scale, automated, and it happens in the complex B2B world where pricing, catalog, everything is custom negotiated on a per customer basis. We support that. HawkSearch supports that HawkSearch is unique, and this is going to drive a ton of sales for our business. The dialogue that can continue from this can configure the total warehouse for our master distributor as a customer for its customers, local distributors and drive their revenue. With new products like the AI Hawk Shopping Assistant, we expect to see continued acceleration of HawkSearch Suite. Frankly, it's a great time to be in marketing technology because AI has empowered smaller businesses like HawkSearch and Bridgeline to leapfrog larger incumbents and reset the landscape with innovations in AI like the AI shopping assistant. And with that, I'll turn it over to our Chief Financial Officer, Tom Windhausen, to share additional details. Tom?

Thanks, Ari. I'll provide an update on our financial results for the second quarter of fiscal 2026, which ended on March 31, 2026. Total revenue for the quarter ended March 31, '26 was $3.9 million, an increase compared to $3.9 million in the prior year period. When we look at our components of revenue, we'll start with subscription revenue, which is comprised of SaaS licenses, maintenance and hosting. And for the quarter ended March 31, 2026, its revenue was $3.1 million, also increased from $3.1 million in the prior year period. As a percentage of total revenue, subscription revenue was 80% for the quarter ending March 31, 2026. Our services revenue was $799,000 for the quarter ended March 26 compared to $823,000 in the prior year period, and that's the 20% that covers 20% of total revenue. Our cost of revenue was $1.4 million in the quarter ended March 26 compared to $1.3 million in the prior year period, and our gross profit was $2.5 million for the quarter ended March 2026 compared to $2.6 million in the prior year period. Our overall gross margin was 64% for the quarter ended March 26, broken down into subscription revenue of 69% and services gross margin of 47% -- our operating expenses were $2.9 million for the quarter ended March 26, down from $3.4 million in the prior year period, and our net loss was $0.4 million, down from $0.7 million in the prior year period. Finally, our adjusted EBITDA for the quarter was negative $43,000 compared to a negative $239,000 in March of 2025. Moving to our balance sheet. At March 31, '26, we had cash of $1.4 million and receivables of $1.4 million. Our total debt was down to EUR 182,000, about USD 209,000 with a weighted average interest rate of 3.2% and principal payments due through 2028. We have no other debt or earn-outs from our previous acquisitions, and our total assets at March 31, 2026, were $15.3 million with liabilities of $6.1 million. Moving to the cap table. At March 31, 2026, we had 12.6 million shares outstanding, just over 800,000 warrants and 2.2 million options. The 829,000 warrants consist of 167,000 warrants at $2.85, which expired in May 26 and 592,000 warrants of $2.51 exercise price, which expired in November 2026. looks forward to continued growth and success in '26 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'll share some questions that were sent in advance.

Our first question was about the capital raise last year and how is that driving current sales.

All right. So this quarter that we just closed was the best quarter in the company's history for winning new logos. And that's exactly what our goal was when we raised capital at the end of March 2025 to inject $2 million, put that into marketing, get our name out there with all the great technology that we already have, let everybody know about it and win a bunch of deals. This quarter is directly the result of that raise. So we raised the money, call it, April 1. That's more or less what happened in 2025. 3 months to deploy the capital, you got to sign up for conferences and so forth. This gets you more or less to July 1. give yourself a 120- to 150-day sales cycle and all of a sudden, you're in January of this year, the first month of the quarter that we just closed. So this really bodes well for our ability from a marketing organization to generate leads that convert from our ability as a technology company to create products that there is demand for and solve real-world problems. This is above and beyond what I'm super proud of, our customer retention. Remember, we also drive an excellent net revenue retention rate of 107%. That means our existing customers renew their subscriptions and buy the new stuff that we're innovating every day. So we're generating leads. We're going to the right places. We know how to deploy marketing capital and our customers are super happy.

Excellent. Another question came in about pipeline. So let's form that as what does the pipeline look like? And how fast is it growing?

All right. Well, we have nearly doubled our pipeline since last year. I think it's an 82% year-over-year growth, Q2 of FY '26 versus Q2 of FY '25. When I talk about our pipeline, I'm talking about qualified leads. And qualified leads are not subjective qualification where a sales guy feels good this morning about the lead and he might not feel so good about it next day and so forth. For us, we've got a metrics-driven marketing organization that qualifies its lead based on objective behavior. Did the lead attend a webinar? Did they get a demo? Are they returning phone calls? And do they have a pulse, right? Clear measurable things that define a lead objectively. So we've got 82% growth of that. And that rate of -- or that scale at which we're measuring that 82% growth. That's what we call an AQL and our AQLs tend to have a 20% close rate. Now the AQL level today is over 500 leads today with nearly $5.5 million in ARR. So that lead pipeline by itself at a 20% rate has got $1 million in ARR right there in itself. And with the sales cycle of 120 to 150 days and the fact that this pipeline is twice as big as it was last year, and we measure it the same way, I think that really puts us in a healthy position to continue with the momentum that we've got now. Okay. Is that it?

No other questions.

All right. Good. Well, I want to thank everybody for joining us today, and we appreciate your continued support and the support of our customers and partners as well. We're really excited about this business, and it's an exciting time to be in AI, to be in marketing technology and to be a growing company that is in a space that's expanding with lots of new technology. We look forward to speaking with you all again on our third quarter fiscal 2026 conference call that's going to be in April this summer. Until then, be well, and thank you.