Bridgeline Digital, Inc. Q3 FY2026 earnings call

• New Customer & Sales Performance

  • Tied the prior quarter's record of nine new customer logo wins, with 10 existing customers purchasing additional licenses, totaling 19 new subscription contracts and $1.7 million in total contract value, including more than $370,000 in new annual recurring revenue
  • Core net revenue retention reached 106%, reflecting strong customer retention and expansion across the core customer base
  • New wins included complex deployments for large wholesale distributors and home/garden suppliers, demonstrating HawkSearch's strength in multi-site, large catalog B2B commerce environments, with some sales cycles as short as 14 days

• Product Recognition & Innovation

  • For the second consecutive year, HawkSearch was ranked #1 for the B2B search use case by Gartner in 2026, recognized for its ability to solve B2B-specific challenges including customer-specific pricing, product entitlements, complex catalogs, and professional purchasing workflows
  • Expanded customer adoption of the HawkSearch AI Agent Suite, with growing sales and pipeline for conversational AI tools including AI shopping assistants and analytics assistants
  • Advanced the Hawk AI Shopping Assistant with the Aura AI Agent Framework, which connects product discovery to backend commerce data including inventory, pricing, customer entitlements, and order history to deliver personalized conversational buying experiences for both B2B and B2C customers

• Financial Performance

  • Consolidated gross profit held steady at $2.5 million, with an overall gross margin of 64%
  • Operating expenses decreased to $3.0 million from $3.2 million in the prior year period
  • Net loss narrowed to $500,000 from $800,000 year-over-year; adjusted EBITDA improved to negative $102,000 from negative $330,000 year-over-year
  • As of June 30, 2026, the company held $1.5 million in cash, with $187,000 in total debt outstanding at a 3.5% weighted average interest rate, and a clean balance sheet with $15.3 million in total assets and $6.4 million in total liabilities

• Corporate Strategy

  • The company prioritizes investment in the high-growth core HawkSearch product line, with legacy product profits funding core R&D and growth initiatives
  • Management maintains alignment with investors, prioritizing balanced growth investment that avoids the need for non-accretive capital raises

Bridgeline Digital splits its business into two core and legacy product segments. The Core segment, consisting of the AI-powered Hawk's Search Suite of search and product discovery solutions, generated $2.4 million in revenue for Q3 2026, representing a 13% growth in trailing 12 months compared to $2.2 million in the prior year period. Core revenue accounts for 62% of total company revenue and 66% of total subscription revenue, up from 57% and 58% respectively in the prior year quarter. The Legacy segment includes the company's older, non-core products which generate steady profit to fund core segment growth. It contributed the remaining 38% of total revenue and 34% of total subscription revenue for the quarter. On a consolidated basis, total company revenue for Q3 2026 was $3.9 million, consisting of $3.1 million in subscription revenue (79% of total revenue) and $0.8 million in services revenue (21% of total revenue), compared to $3.8 million total revenue ($3.1 million subscription, $0.7 million services) in the prior year quarter.

• Core revenue is expected to exceed 70% of total company revenue, and core subscription revenue is expected to exceed 75% of total subscription revenue by next year
• Double-digit compound annual growth rate (CAGR) in core revenue is expected to drive double-digit CAGR for overall consolidated company revenue once core reaches this revenue threshold
• The company expects to maintain current quarterly lead generation ad spend of approximately $350,000, enabled by internal operational efficiencies and synergies that support this level of investment without significant cash burn
• For 2027, the company targets overall cash neutrality, with minor positive or negative cash flow in individual quarters, and will prioritize growth investment over near-term bottom line profitability to maximize long-term shareholder value
• The company maintains a strategy of balancing spending growth to ensure it always holds more than one year of operating cash, and avoids overextending that would require forced, non-accretive capital raises

• Forward-looking statements regarding future growth, cash flow, and product performance involve inherent uncertainties, and actual results may differ materially from expectations based on risk factors outlined in the company's SEC filings (10-K, 10-Q, and other regulatory filings)
• As a microcap public company, Bridgeline faces capital market inefficiencies that can impact valuation visibility
• Legacy segment revenue is gradually declining, and core growth must outpace this decline to deliver overall company revenue growth
• SaaS customer acquisition cost payback in the martech industry typically takes 24 months or longer, creating a lag between investment and cash flow returns

Q: A year ago, the company raised $2 million to fund $500,000 per quarter in advertising for four quarters. What is the expected advertising spend going forward?

A: The $2 million capital raise was explicitly for sales and marketing investment, and the investment was successful, delivering two consecutive quarters of record new logo sales. The company will maintain current ad spend at $350,000 per quarter, supported by internal AI-driven operational efficiencies and synergies that allow this level of investment without significant cash burn, even after deploying most of the original capital raised.

Q: Can management provide an outlook for cash flow over the next two quarters, and will cash flow turn positive?

A: The SaaS martech sector typically has 24+ month customer acquisition cost payback, but long-term multi-year contracts generate stable recurring cash flow once acquired. The company currently maintains negative cash flow only at the level of discretionary spending, so it can adjust ad spend (rather than cutting headcount) to manage liquidity and always holds more than one year of cash. The company targets cash neutrality for 2027, with only minor positive or negative cash flow in individual quarters, and will prioritize growth investment over near-term cash generation to boost long-term shareholder value.

Q: How has Bridgeline's financial health and position changed since Ari Kahn joined the company, and why should investors invest in the business now?

A: When Kahn joined, the company was a declining digital agency roll-up with high cash burn and a problematic cap table. Through strategic acquisitions of Cellebrose, HawkSearch and cash-flowing legacy assets, the company reset to become a focused AI-powered e-commerce SaaS player with a clean cap table, clean balance sheet, and deep AI and e-commerce expertise. Today, the company is well-positioned in the high-growth AI product discovery space, with strong customer retention and expansion, an aligned leadership team with significant personal investment, and the ability to outcompete larger players in the complex B2B commerce niche to deliver outsized investor returns.

Q: When will core business growth fully offset legacy business decline, and when will core dominate overall financial results?

A: Core revenue already represents 62% of total revenue and 66% of subscription revenue. At current core growth rates and legacy attrition, core will exceed 70% of total revenue and 75% of subscription revenue next year. At that point, double-digit core CAGR will drive double-digit overall company revenue CAGR, and the business will trade at a valuation multiple aligned with other growing AI SaaS companies, rather than reflecting the lower multiple of the legacy segment.