Bridgeline Digital, Inc. Q2 FY2025 earnings call

• HawkSearch products had strong sales in Q2 FY '25, with 20 licensed sales adding $1.7 million in new contracts and $700,000 in annual recurring revenue. Year-to-date, $4.2 million in contracts and $1.6 million in ARR were booked.
• Led a $2.2 million capital raise to expand sales and marketing, with proceeds used to increase lead generation budget including conferences, online ads, and direct outreach.
• HawkSearch expanded its Hawk AI feature set with Smart Conversation and Rapid UI 2.0, and launched a new SDK for BigCommerce's Catalyst connector.
• Partnered with Shopware and Groove Commerce to enhance go-to-market efforts, and launched eight AI-powered products, seeing market traction with enhancements like Smart Conversation.

Core revenue, from e-commerce 360 products led by HawkSearch and WooRank, is more than 60% of subscription revenue, with double-digit growth, net revenue retention of 113%, and CAC payback better than 20 months. Noncore products represent the balance of revenue, with most services revenue being noncore, generating strong gross margins with minimal operating expenses. In Q2 FY '25, core revenue had double-digit growth, while noncore revenue declined at a rate similar to core revenue growth, keeping total revenue relatively flat.

• The $2.2 million capital raise for sales and marketing, starting April 1, 2025, is expected to lead to an increase in deal flow starting in the fourth quarter of FY '25, with revenue impact in the first quarter of FY '26.
• Services revenue balance is expected to continue through the second half of FY '25, with core revenue growth outpacing noncore revenue impact.

• Forward-looking statements are subject to risks and uncertainties from economic, business, competitive, technological, regulatory factors.
• Changes in these factors could materially affect Bridgeline's actual results from those expressed or implied by forward-looking statements.

Q: Are you at an inflection point to increase your sales efforts to bring in new customers?

A: Both product competitiveness and market conditions make now the time to increase sales investments. The $2.2 million capital raise was for this reason, with a 120-day sales cycle expecting deal flow increase in Q4 FY '25 and revenue impact in Q1 FY '26.

Q: Do we have a handle on the return we should see for every extra dollar spent on acquiring a new customer?

A: We model CAC payback and LTV to CAC ratio, generally seeing around a 3x LTV-to-CAC ratio, with CAC including all customer acquisition costs and long-term value based on 75% gross margin and 5-year customer lifespan.

Q: What is the standard contract length currently?

A: The average initial contract is 30 months (2.5 years), and customers tend to buy twice as much software from us over their lifespan as their initial contracts.

Q: How many languages does HawkSearch support?

A: Our default large language model supports 50 languages, and adding a second language is free if it's in our foundation model, though additional effort may be needed for product catalog localization.

Q: Have you had conversations about AOV pricing?

A: AOV pricing is not standard yet in our space, with mid-market customers more open but not common, and larger enterprise customers less so.