Bridgeline Digital, Inc. Q3 FY2025 earnings call

• In fiscal 2025, signed $1.7 million in contracts adding $600,000 in ARR to subscription revenue; YTD booked $6 million in contracts with over $2 million in ARR.
• Hawk Search is over 60% of total revenue, growing double-digit, net revenue retention 114%; Gartner ranked Hawk Search #1 B2B search.
• Launched Do It Best Hardware; expanded lead gen with doubled ad spend to $500k per quarter, sales cycle contracted to 112 days.
• Added Model Contacts Protocol (MCP) to Hawk Search; had business development successes with major customers like a Fortune 100 tech company and leading electrical distributors.

Total revenue for the quarter ended 06/30/2025 was $3.8 million. Subscription license revenue was $3.1 million (81% of total revenue), up from $3 million in the prior year. Services revenue was $700,000 (19% of total revenue), down from $900,000 in the prior year. Cost of revenue was $1.3 million, resulting in gross profit of $2.5 million. Subscription license gross margins were 70%, services margins were 50%.

• Increased marketing budget to $500k per quarter, expect stronger growth in upcoming quarters.
• First quarter of FY2026 to continue marketing spend at $500k level, reevaluate later.
• Expect Hawk Search growth to become more evident in 2026.

• Competitors offering free professional services to compensate for lack of capabilities, which may not be sustainable.

Q: How has your customer acquisition strategy evolved?

A: We're analytical in marketing, track leads to invest in best-performing campaigns. Now, 2/3 of budget is towards known lead sources.

Q: Where does our pipeline stand in regards to reaching new customers or expanding within existing customers?

A: 60% of sales are to existing customers; expect existing customers to continue representing ~60% of licenses despite expanding marketing.

Q: Are you getting any customer feedback about the new technology enhancements, and how could they always be deployed to expand revenue?

A: Customer feedback drives product ideas; e.g., multisite management and advanced analytics were customer-driven.

Q: How is sales and marketing spend expected to go into FY '26?

A: First quarter of FY2026 to continue marketing spend at $500k level, reevaluate later.

Q: What are competitors doing in response to Hawk Search's success?

A: Competitors sometimes offer free professional services to compensate for lack of capabilities, which isn't sustainable.

Q: What about the trend in digital engagement services revenue?

A: Expect professional services revenue to be around $750k per quarter with 50% gross margin, focusing on growing license revenue.

Q: Any customer concentration in Hawk Search?

A: No 5% customers, but have significant larger customers like Hewlett Packard, but no single customer contributes 5% of revenues.