On Thursday, Bridgeline Digital (NASDAQ:BLIN) discussed second-quarter financial results during its earnings call. The full transcript is provided below.

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Summary

Bridgeline Digital tripled its sales from the previous quarter, closing $2.8 million in total contract value with $1.2 million in annual recurring revenue and securing 19 new sales.

The company's average sales price increased significantly to $44,000, driven by new AI add-ons and larger client acquisitions.

Subscription revenue comprised 80% of total revenue for the quarter, with a net revenue retention rate of 107%.

Bridgeline Digital's Hawk Search suite, including its new AI Shopping Assistant, continues to innovate and drive sales, particularly in the B2B sector.

The company's operating expenses decreased while net loss and adjusted EBITDA showed improvement compared to the prior year.

Bridgeline Digital's pipeline grew by 82% year-over-year with over 500 qualified leads, projecting a potential $1 million in ARR from these leads.

The management highlighted the successful use of capital raised in 2025 to enhance marketing efforts, leading to the best quarter in company history for new logo acquisitions.

Full Transcript

OPERATOR

Good day, everyone. Welcome to the Bridgeline Digital second quarter 2026 earnings call. this time, participants have been placed on a listen only mode. It is now my pleasure to turn the floor over to your host, Thomas Windhausen. The floor is yours.

Thomas Windhausen (Chief Financial Officer)

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 Khan, 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 that 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 10K and our most recent 10Q filing in 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 are 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. Be 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 generally refer to these as non GAAP financial measures and reconciliations. Of the non GAAP financial measures, the most comparable measures calculated and presented in accordance with GAAP are available in the earnings release. I'd now like to turn the call over to Ari Khan, Bridgeline's President and CEO. Ari?

Ari Khan (President and CEO)

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 two a week. Closing 2.8 million in TCV with 1.2 million in annual recurring revenue. We also signed over a million dollars in professional services agreements. The average sales price took a massive leap this quarter to 44,000 in arrangement compared to 30k last quarter and 21,000 a year ago in Q2 of FY25. 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 the 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 Hawk Search'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 Hawk Search number one in their critical capabilities report. Some recent customer wins include a leading global gas provider selecting Hawk Search to power Search across three E commerce sites and one of the most technically complex implementations in Hawk Search's history. The site required multilingual search, customer specific pricing, entitlement based access, dimension based search and multi site management. Also, a wholesale distributor selected Hawk Search to power five sites on its Oro Commerce platform with a clear path for Hawk to power eight of their sites as the relationship expands. Hawk Search was chosen on the strength of its B2B capabilities including keyword management, entitlement personalization, product recommendations unit of Measure and Analytics. A national industrial supplier selected Hawk Search 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 and for specification driven customer searches. Another important part of our growth strategy is partnerships. Hawk Search lends itself naturally to both agency and software platform partners that generate sales. Hawk search received multiple 2026 honors from the Infotech Research Group including Leader in Enterprise Search, Top Product Catalog, Top UX Top Features across eight additional categories based on verified user feedback. In terms of partnerships, Hawk Search and ZNODE announced a partnership bringing AI powered search, merchandising and personalization to manufacturers and distributors on the Znode 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, Carl Prizi to grow our sales pipeline. Our pipe grew by 82% compared to Q2 of FY25 with over 500 qualified leads and more than 5 million in ARR to drive ongoing revenue growth. Hawk Search has been an AI based product suite since long before the new wave of large language models and neural networks in 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 Chatbot, which is designed to answer questions about products but not designed to drive online sales. Hawk Search's entire product suite is always focused on driving online sales for our customers and it empowers companies to drive defined merchandising rules to promote products that grow with full personalization, recommendation and promotions. At its core, the Hawk AI Shopping Assistant is built upon Hawk Search'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 Hawk search 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 are negotiated per customer and shopping is performed by teams. Each customer has pre negotiated contracts to define which products they can access, custom pricing, freight schedules, credit lines, etc. The Hawk Search AI shopping assistant understands our customers, B2B contracts and merchandising rules so it 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 Beat 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's shopping assistant and make a query like I have 50 electricians as customers. My electricians fill two or three houses a year, each one 750k approximately 5,000 square feet. Give me a plan for stocking circuit breakers and panels in my warehouse. Our shopping assistant can then advise given that you're covering southern Ohio where AC is required, you need 570 volt breakers, 600, 100amp breakers, etc. And then suggests a 20% overage for backstop and surplus plus orders, surprise orders. It will say that since the distributor has a $10,000 credit line, it 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. Hawk Search supports that. Hawk Search 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 in Hawk Search suite. Frankly, it's a great time to be in marketing technology because AI has empowered smaller businesses like Hawk Search and Bridgeline to leapfrog larger incumbents and reset the landscape with innovations in AI like the AI Shopping Assistant. With that, I'll turn it over to our Chief Financial Officer, Tom Winhausen to share additional details.

Tom Winhausen

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 3-31-26 was 3.9 million, an increase compared to 3.9 million 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 3-31-26, we had cash of 1.4 million and receivables of 1.4 million. Our total debt was down to €182,000, about 209,000 USD, with a weighted average interest rate of 3.2% in principal payments due through 2028. We have no other debt or earnouts 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. 829,000 warrants consist of 167,000 warrants at $2.85, which expire on May 26, and 592,000 warrants with a $2.51 exercise price which expire in November 2026. Bridgeline 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. Now, this time, I'll share some questions that were sent in in advance. Our first question was about a capital raise last year and how is that driving current sales? All right, okay, that's me. All right.

Ari Khan (President and CEO)

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 raise the money, call it April 1st. That's more or less what happened in 2025. Three months to deploy the capital, you got to sign up for conferences and so forth. It gets you more left to July 1st, give yourselves 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 FY26 versus Q2 of FY25. When I talk about our pipeline, I'm talking about qualified leads. And qualified leads are not subjective qualification where sales guy feels good this morning about the lead and you 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 the 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 5 over 500 leads today with nearly 5.5 million in ARR. So that LEED pipeline by itself at a 20% rate has got a million dollars 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, we measured 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 it's exciting 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.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.