Bridgeline Digital, Inc. Aktie

Good afternoon, and welcome to Bridgeline Digital's Third Quarter 2026 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Tom Windhausen, CFO. The floor is yours.

Thank you. Thank you very much, and good afternoon, everyone. Thanks for joining us today. My name is Tom Windhausen, I'm the Chief Financial Officer of Bridgeline Digital, Inc. I'm pleased to welcome you today to our fiscal 2026 third quarter conference call. On the call today is Mr. Ari Kahn, Bridgeline's President and CEO. He'll begin the call with a discussion of our business highlights. And then I'll update you on our financial results for the quarter, and we'll conclude by taking 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, and those are based upon 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, 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 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. This 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.

Reconciliations of those non-GAAP financial measures to our most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website. I'd now like to turn the call over to Mr. Ari Kahn, Bridgeline's President and CEO. Ari?

Thank you, Tom, and good afternoon, everyone. Before I review the quarter, I want to briefly frame what Bridgeline does and why our strategy matters. Bridgeline is a MarTech marketing technology software company that helps businesses grow online revenue by delivering more traffic to their websites, converting more visitors of those websites into purchasers and increasing the average order for each purchase.

Our software supports both B2C and B2B businesses, and we're particularly strong with manufacturers and distributors that manage complex catalogs and sophisticated digital commerce requirements. As Bridgeline has evolved, certain products have shown such great promise that we drive most of our R&D and marketing investments towards them.

Collectively, we call these products core, and we use the term legacy for the rest of our products. Our core products include HawkSearch suite of AI-powered search and product discovery solutions. Our legacy products continue to contribute profit that helps fund investments and growth in the core product lines. Because our financial statements consolidate core and legacy, total company results do not always show the revenue growth profile of our core business.

That's why we also discuss core revenue mix, core net revenue retention, core growth and new annual recurring revenue for our core products. Sales momentum remained strong in the third quarter. Last quarter, we set a record of 9 new customer wins. And this quarter, we tied that record. In addition to winning 9 new customers, 10 existing customers purchased additional license from us, resulting in 19 new subscription contracts and $1.7 million in total contract value with more than $370,000 in annual recurring revenue.

This performance demonstrates continued demand for our AI-powered product discovery solutions across both new customers and expansion opportunities. Core net revenue retention was 106%, reflecting strong retention and expansion across the core customer base. Core product revenue grew to $2.4 million for the quarter compared to $2.2 million in the prior year period and 13% growth in the trailing 12 months. Core revenue is now 62% of total revenue and 66% of subscription revenue compared to 57% of total revenue and 58% of subscription revenue in the prior year quarter, respectively. Investors and stock analysts often ask us to separate core and legacy revenue to provide additional details for valuation calculations, recognizing the inefficiency in capital markets for microcap stocks such as Bridgeline because core and legacy products have different growth profiles, they also have different valuation metrics.

Growing AI SaaS companies with products like our core product lines are often valued with a multiple of 3x SaaS revenue and 1x services revenue, for example. Nongrowing SaaS companies that generate gross profit like our legacy product lines often have multiples closer to 1x SaaS and 1.5x services, for instance. Investors may use such multiples with our legacy revenue results in addition to the value of our core products for valuation analysis. The third quarter marked a record time quarter for new customer acquisitions, 9 customer logo wins, 19 subscription contracts in total.

And examples during this quarter include a U.S.-based wholesale distributor of pet, farm and garden and home products, who selected HawkSearch for its BigCommerce e-commerce platform following a 14-day sales cycle. That's right 14, 14. That's how quick the sales cycle is.

The deployment supports approximately 25,000 products and more than 450,000 monthly sessions. Another win for the quarter is a leading home garden supplier who launched the first 2 of 5 contracted HawkSearch deployments across its B2B and D2C direct-to-consumer e-commerce portfolio, covering approximately 80,000 SKUs with additional deployments scheduled for the future.

A large-scale enterprise wholesale distributor selected HawkSearch to power search and product discovery across 5 commerce sites with the potential to expand to 8 sites. Collectively, these wins and launches demonstrate HawkSearch's strength in complex commerce environments, including large product catalogs, multisite deployments, wholesale distribution networks and sophisticated B2B buying experiences.

On the product side, HawkSearch was ranked #1 for the B2B search use case in Gartner's Critical Capabilities for Search and Product Discovery of 2026. This is the second consecutive year that HawkSearch was selected to be #1 for B2B search by Gartner. This recognition is particularly meaningful because Gartner is widely relied upon by organizations when evaluating technology platforms.

Unlike consumer commerce, B2B organizations must support customer-specific pricing product entitlements, complex catalogs and purchasing workflows designed for professional buyers rather than casual shoppers. HawkSearch leadership in B2B commerce reflects its deep expertise in solving these challenges for manufacturers, distributors and industrial suppliers, helping earn recognition as the highest scoring solution in Gartner's B2B use case. This quarter, we expanded the adoption of HawkSearch AI Agent Suite.

Customer sales and pipeline activity grew for Shopping Assistant, Analytics Assistant and other AI-powered commerce tools as businesses increasingly look to use AI to improve product discovery and online revenue with HawkSearch. Customers and business buyers alike are becoming more accustomed to conversational experiences that allow them to ask questions, receive recommendations and quickly find products that they need. HawkSearch provides this experience to our customers. In addition, we advanced the Hawk AI Shopping Assistant with our Aura AI Agent Framework to connect product discovery with inventory, pricing, entitlements, order history and other commerce workflows. Together, these innovations help customers deliver more intelligent personalized buying experiences across both B2B and B2C commerce environments.

Our strategy is to continue growing core revenue, expanding ARR through new customers and existing customer adoption, maintain strong retention and use AI to help customers drive more revenue from their digital commerce operations. The quarter's sales, customer deployments and product progress reinforce HawkSearch's value for businesses with complex catalogs, multisite requirements and sophisticated B2B commerce needs. Now I'll turn the call over to our Chief Financial Officer, Tom Windhausen, to share details. Tom?

Thanks, Ari. I'll provide an update of our financial results for the third quarter of fiscal 2026, which ended June 30, 2026. Total revenue for the quarter ended June 2026 was $3.9 million compared to $3.8 million in the prior year period. And as we look at the components of revenue, our subscription revenue, which is comprised of SaaS licenses, maintenance and hosting was $3.1 million for the quarter ended June '26 compared to $3.1 million in the prior year period.

Subscription revenue was 79% of total revenue compared to 81% in the prior year. Services revenue was $0.8 million for the quarter ended June '26 compared to $700,000 in the prior year period, and our services revenue accounted for 21% of that revenue compared to 19% last year. Cost of revenue was $1.4 million for the quarter ended June '26 compared to $1.3 million in the prior year, and our gross profit then was $2.5 million for the quarter ended June '26 compared to $2.5 million in the prior year period. Our overall gross margin was 46% for the quarter ended June 2026 with subscription gross margin of 69% compared to 70% in the prior year and services margin of 47% compared to 50% in the prior year. Our operating expenses were $3.0 million for the quarter ended June '26 compared to $3.2 million in the prior year.

And our net loss then was only $500,000 for the quarter ended June '26 compared to a net loss of $800,000 in the prior year period. Moving to adjusted EBITDA. Our adjusted EBITDA for the quarter ended June was negative $102,000 compared to a negative $330,000 in the prior year same period. And moving to our balance sheet. On June 30, the company had cash of $1.5 million and accounts receivable of $1.2 million. Our total debt outstanding as of June 30, 2026, was $187,000 with a weighted average interest rate of 3.5% and principal payments due equally through 2028.

At June '26, our total assets were $15.3 million and our total liabilities were $6.4 million. Finally, a quick update on our cap table, which as of June 30 included 12.6 million shares, 660,000 warrants and 2.1 million options. Of those 660,000 warrants, 592,000 of them with a $2.51 exercise price expire in November 2026, with the remaining 70,000 warrants not expiring until March 2030 at $1.88 exercise price.

We'll now transition over to a Q&A period. But operator, as you check for those questions, I do have some questions that were sent in advance, so we will start with those. We had questions come in from a long-term investor. 3 questions. First question, about a year ago, we had the $2 million capital raise. And then we mentioned that we'd be spending roughly $500,000 a quarter in advertising for the next 4 quarters. So now for these upcoming quarters, how do we see our advertising spending currently?

So March 2025, we raised $2 million above market explicitly to invest in ad spend for sales and marketing to capitalize on the momentum that we've been seeing at that time, both by experimenting with new lead sources and then expanding investments in existing ones. I'm happy to say that this was a successful investment, as shown by the last 2 quarters of record new logo sales, right?

So when we invest in sales and marketing, it's not so much about upselling existing customers, which is an important part of our growth, but in attracting new ones. We did experiments. We expanded investments in known lead sources. And all in all, we had good ROI.

Today, we're at about $350,000 per quarter in lead spend. And going forward, even though we've deployed most of the capital from that raise, I think we got $1.5 million in the bank at the end of this quarter.

Going forward, we expect to be able to remain at the current level. We've created several synergies within the business that will allow us to maintain this level of ad spend investment without significant cash burn. And I'm happy to say that thanks to our internal sophistication with artificial intelligence, we've become a much more efficient organization than I think many have.

The second question talks about pipeline. So the nature of our business is that we have revenue coming in at the back of the pipeline -- sorry, we have more business and revenue coming in the back of the pipeline than ending at the front of the pipeline. We understand that these forward-looking statements, but can we get an idea of how cash flow will progress over the next 2 quarters? And will it be positive?

Got it. Sure. Yes. Well, that is the nature of SaaS in general from a cash flow perspective. You're signing multiyear contracts and a lot of times, the payback, customer acquisition cost payback in the MarTech sector is 24 months or higher.

And the great thing about this industry is that once you lock in these longer-term contracts, you take your foot off of the gas and start -- I don't want to say [ cruising ] money, but it's not a bad place to be in, and that's where we're heading.

We do ensure that our negative cash flow is less than our discretionary spending so that it's easier for us to manage cash flow without having to, for example, change headcounts, but instead pull back on things like specifically ad spend. And that we always have more than a year of cash. So we balance our spending growth and are going to likely remain cash neutral, which is kind of where we are right now.

In 2027, that means some quarters will have minor negative and others minor positive. But our strategy in 2027 is not going to be a bottom line focused cash-generating business. We think there's greater shareholder value in investing as much as we can in growth without positioning ourselves to have to do a non-accretive capital raise. And as the largest investor in the business, I am well aligned with that thought process.

Excellent. Next question asks about some history. So it acknowledges Ari has been with the company for the last 10 years, seeing lots of changes in the business. What is it that we could share with shareholders in regards to our financial health now compared to the past? And secondly, if someone asked why they should invest in Bridgeline, what do you tell them?

It's dangerous I could go into all sorts of ancient history and talk for a long time. I'll try not to. When I first came -- became involved in Bridgeline, it was a completely different company. It was a roll-up of digital agencies, made a valid attempt at being that type of entity, but it wasn't quite working. The revenue was declining. The company was burning a lot of cash and the cap table was problematic.

I invested in the company. I originally invested about -- I think it was $250,000 before I became actively involved from a management perspective because specifically, I saw that there was a lot of value in the customer base that the software that it did have could be cash generating and that the market space overall was getting ready for a lot of opportunities to happen and one could see exactly where they were.

But I've been around the block long enough as one of the founders in content management back in the dot-com booms and with the PhD in AI to have a good sense that we could do something special with the business. So we started off really resetting the company, looking for acquisitions. Now we're talking about the 2016, '17. It took a little while. We found Celebros, which was really an important acquisition for the business in terms of getting the direction into -- getting the business pointed in a direction to be squarely a software company that can be partnered with e-commerce platforms and agencies. And Celebros is really a competitor to HawkSearch and is in a growth area well positioned for AI. We acquired OrchestraCMS and WooRank, both of which are cash flowing.

And after a long courtmanship with HawkSearch, it took several years to make that happen, but HawkSearch is such a great product, we were able to make it happen. We did that acquisition and shifted towards a company that has a true opportunity for organic growth. Now it doesn't mean that everything is going to be organic going forward.

But with that type of a platform, we became a business with a clean cap table, with a clean balance sheet with a growing software with small competitors and great partners. I, at that point, personally invested well over $1 million in common stock open market buys, supporting the business. We did an above-market raise, which we spoke about just a minute ago to test out and expand on the sales and marketing capabilities.

And today, I think that you're really in a position where you've got a well-aligned leadership team, money where their mouth is all in with deep experience in AI, right? My experience in AI is from the early 1990s. So this isn't like Johnny come lately stuff, deep experience in e-commerce, super successful, but successful in the dot-com e-commerce space.

But most importantly, a truly well positioned product that delivers clear value to its customers, whose customers put their money where their mouth is and reinvest and expand their investment in the HawkSearch product suite that is squarely in the sweet spot for artificial intelligence.

Search, product discovery and agent recommendations are exactly what large language model with this particular form of artificial intelligence are best at, and you don't need to be a multibillion-dollar business to implement that stuff. It levels the playing field where a dedicated, well-aligned team like Bridgeline can leapfrog over other businesses and deliver outsized investor returns. And I don't want to understate this at all. Clean cap table and balance sheet is an important part of all that and huge investor alignment is as well.

Excellent. We had one other question from a different investor came in. Is there an expected time frame for the growth in HawkSearch's core business to offset the decline in the legacy business? So when we can start seeing that growth.

This is an important aspect because one of the challenges for Bridgeline investors is transparency. We spoke about it at the beginning of this, really be able to understand because we've got this dichotomy of legacy and core products, when do the core product dominate everything so you can truly just count on the cumulative revenues and expenses as representing the vast majority of the business and see exactly where everything is going. And it's been a little bit of a long haul game there, and I think it's been a worthy investment. Today, our core is 62% of revenue, 66% of subscription revenue.

And at the current -- at our current growth rates, our current growth rates, which I think are going to accelerate, but at the current rates and the attrition of legacy that is kind of part of the equation. I'm expecting us to be over 70% of core next year and over 75% of core subscription next year. That means the double-digit CAGR, compounded annual growth rate in core should deliver double-digit CAGR in overall revenue as well.

And that's when you really start seeing, I think, the multiples for HawkSearch overall starting to look more like what you see for a typical software company that has a single product that looks like our core products. And my expectation is that there'll be some happy investors at that point.

Excellent. Thank you. Operator, are there any questions that have been submitted any questions pending on the line?

I'm not seeing any questions in the queue at the moment. [Operator Instructions]

We'll wait 10, 15 seconds here. Right. If no questions have further come in, we'll wrap up the call.

Well, everybody, thank you so much for joining us on our call today, and we really appreciate the continued support from our investors, but also our customers and partners. We remain confident in Bridgeline's opportunity to help customers drive more online revenue through AI-powered product discovery or complex commerce solutions. And we also look forward to speaking with you again on our fourth quarter fiscal 2026 conference call. Until then, be well.

Thank you very much. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. We thank you for your participation.

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 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. 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 and 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 Oracle 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 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 Prizzi 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's Rufus and Walmart's Sparky leading the way. Most B2C sites are building their shopping assistants off their support chatbot, 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 plan 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 500 70-volt breakers, 600, 100 amp breakers, et cetera, and then suggests a 20% overage for backstock 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 expire in May '26 and 592,000 warrants of $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. 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. Three 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.

Good day, everyone, and welcome to the Bridgeline Digital First Quarter 2026 Earnings Call. [Operator Instructions]

It is now my pleasure to hand the floor over to your host, Thomas Windhausen. Sir, the floor is yours.

Thank you. Thank you, everyone, for joining us this afternoon. My name is Thomas Windhausen. I'm the Chief Financial Officer of Bridgeline Digital, Inc. We're pleased to welcome you to our fiscal 2026 first quarter conference call. On the call with me today is our President and CEO, Ari Kahn, who will begin the call with a discussion of our business highlights. Then I'll update you on our financial results for the quarter, and we'll conclude with some questions.

Before I begin, I'd like to remind listeners that during the conference call, comments we make regarding Bridgeline that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Security Act of 1934 and are subject to risks and uncertainties that could cause such statements to differ materially from actual future events or results. The statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and the internal projections and beliefs upon which we base our expectations today may change over time, and we expressly disclaim and assume no obligation to inform you if they do.

The results we report today will not be considered an indication of future performance. Changes in our economic, business, competitive, technological, regulatory and other factors could cause our results to differ materially from those expressed or implied by the projections or forward-looking statements made today. For more information, you can review our filings from time to time on the Securities and Exchange Commission website. On the call today, we'll also discuss some non-GAAP financial measures, and we have a reconciliation of those GAAP -- of our GAAP financials to those non-GAAP measures in our earnings release, which is on our website.

I'd now like to turn the call over to Ari Kahn, Bridgeline's President and CEO. Ari?

Thank you, Tom, and good afternoon, everyone. Bridgeline's core products led by HawkSearch Suite and our AI products continue to lead our growth and our customers are having an outstanding experience as they've proven with their pocketbooks when they repeatedly increase their investment into their HawkSearch subscription and purchase add-on products as well. Enhanced hosting, expanded usage packages and the AI suite are all upsells to our existing customer base. Search is the heart of the online shopping experience for both B2B and B2C sites with HawkSearch acting as our customers' online salesperson who intelligently interacts with their customers to increase traffic conversion and order size.

Core products at Bridgeline are now 60% of our total revenue, growing 17% to $2.4 million this quarter from $2.0 million last quarter and was $9.2 million on the trailing 12-month basis versus $8.8 million for the prior 12 months. HawkSearch is an even larger percentage of our subscription revenue, now representing 63% of the subscription revenue at $2 million of revenue versus $1.9 million last quarter. Net revenue retention, which includes renewals and license expansion was 107% for our core product line. This demonstrates best-of-class customer satisfaction and how quickly our customers are adopting our new products. These new products include Smart Search, Visual Search, Smart Response and our latest AI agents such as the Search Assistant, Analytics Assistant and Merchandising Assistant.

New customer acquisition continues to grow with an average ARR per customer increasing by 12% this quarter to $28,000 from $25,000 last quarter. After customers make their initial purchase, they tend to subscribe to additional HawkSearch products. We have more than 200 customers in HawkSearch with an average subscription per customer of $33,000, up from an average of $30,000 last quarter and up from $25,000 in Q1 of our fiscal 2025. This quarter, we sold 13 new licenses with $1.2 million in total contract value for over $350,000 in ARR and $700,000 in professional services.

More than half of our new license sales include one of our AI products in their initial purchase with many customers adding AI capabilities to their license after they go live with HawkSearch. In our first quarter of fiscal '26, we won several new customers, including many B2B manufacturing and distribution customers, where we're growing so quickly and where HawkSearch was ranked #1 in Gartner's 2025 Critical Capabilities Report.

Some recent new customers include a national closeout retailer with more than 170 locations and a rapidly expanding e-commerce presence who selected HawkSearch to power their online store. The retailer replaced their previous search software with HawkSearch to increase online revenue because of HawkSearch's AI-driven relevance and filtering capabilities. A leading U.S. distributor of specialty lighting products is leveraging HawkSearch's Smart Search, so their customers can search with images, concepts and questions that enhance their ability to find items quickly and accurately.

A Midwest B2B distributor using to optimize the e-commerce platform launched HawkSearch to elevate its online product discovery and delivery with an exceptional digital experience to its customers in the construction, industrial, plumbing and HVAC industries. And a leading wholesale supplier serving both B2B and B2C selected HawkSearch to power product discovery across 5 e-commerce sites. This supplier chose HawkSearch for its B2B foundation, multisite support and AI-driven recommendations.

Also, a national industrial B2B supplier selected HawkSearch to improve search relevancy, engage logged-in customers and enable stronger merchandising capabilities. This industrial B2B supplier used HawkSearch's AI relevance tuning and boost and Barry rules to enhance product discovery by providing precise control over how products are ranked and surfaced to customers. Because we made early investments in AI and have a clean product architecture, we're able to rapidly release new products that drive revenue for our more than 200 customers and to win more new customers against less nimble competitors.

In Q1, we released Spark, our next-generation user experience platform for administrators. Spark natively integrates Hawk AI capabilities with advanced analytics, including merchandising and analytics assistance. Spark represents a significant step in modernizing the user experience, while enabling scalable AI innovation across the platforms. We've also introduced contextual fields for HawkSearch. Contextual fields enable franchises and chains to provide customer-specific pricing and availability per store. This quarter, a customer leveraged contextual fields to provide contextual information across 120,000 products and 7,000 stores with more than 1,000 real-time update per minute.

HawkSearch advanced analytics API was released this quarter, and it allows AI agents to integrate with HawkSearch analytics for greater visibility into customer behavior for automating, merchandising. And HawkSearch launched AI content extractor to accelerate customer adoption by having an agent examine the customers' product catalog and marketing materials to automatically configure HawkSearch.

With our pipeline of new products that drive value to existing customers and increase new customer wins, we expect HawkSearch and our core products to become over 70% of overall revenue this year, and that will drive faster, more profitable growth for Bridgeline as a whole. Because of outstanding customer satisfaction, our growth is expected to continue to be efficient, allowing us to invest more in new products that drive customer and shareholder value.

Now with that, I'll turn the call over to our Chief Financial Officer, Tom Windhausen, who will share additional details. Tom?

Great. Thanks, Ari. I'll provide an update on our financial results for the first quarter of fiscal 2026, which ended December 31, 2025. Our total revenue for the quarter ended December 31, 2025 was $3.9 million compared to $3.8 million in the prior year period. As we look at components of revenue, we'll start with subscription revenue, which is comprised of our SaaS licenses, maintenance and hosting. And for the quarter ended December 25 was $3.2 million compared to $3.0 million in the prior year period. As a percentage of revenue, that puts subscription revenue at 81% of total revenue for the quarter ended December '25.

Moving to services. The services revenue was $758,000 for the quarter ended December '25 versus $743,000 in the prior year period, and that puts services revenue at 19% of total revenue for the quarter ended December '25. Our cost of revenue was $1.3 million for the quarter December '25 compared to $1.3 million in the prior year period, and that left our gross profit at $2.6 million, an increase from $2.5 million in the prior year comparable period.

The overall gross profit percentage was 66% with subscription gross margin at 69% compared to 71% previously, and services gross margin this quarter was 55% versus only 51% in the prior year same period. That resulted in operating expenses of $2.8 million for the year ended quarter, December 31, '25, down from $3 million in the prior year comparable period. And that put our net loss at $100,000 negative loss compared to a loss of $600,000 in the prior year period. And we also ended up with positive EBITDA in the first quarter. Adjusted EBITDA was a positive $122,000 compared to negative adjusted EBITDA of $193,000 in the prior year period.

As we move on to our balance sheet, at December 31, '25, we had cash of $1.5 million and accounts receivable of $1.6 million, and our total debt was down to EUR 200,000, which is about USD 236,000, 3.25% average interest rate, and those payments are due throughout 2028. Besides that, we have no other debt or contingent payments or earn-outs remaining from any previous transactions. Our total assets were $15.7 million at December 31, 2025, and liabilities were $6.2 million.

Looking at our cap table, at December 31, 2025, we had 12.2 million shares outstanding, 860,000 warrants and just under 2 million stock options. Those 860,000 warrants have 2 primary tranches, 167,000, which expire on May 26 at $2.85 and $592,000 with an exercise price of $2.51, which expire in November 2026. Bridgeline looks forward to continued growth and success in '26 and beyond, and we continue to 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, we'll open up the call to questions and answers. Moderator?

Certainly. [Operator Instructions] Your first question is coming from Casey Ryan from WestPark Capital.

Well, so I just want to jump into these ARR figures and make sure that we're understanding them correctly because they're impressive, right? So, I think I have -- and you guys can correct me if I'm wrong, but for '24, we talked about $18.5 million as an ARR number. And then on the last call, we talked about this $25,000 figure, and now we're quoting a $33,000 figure. That trend-wise also tracks with the new customer ARR numbers that you're giving out. I think in Q4, September quarter, you talked about 18 customers doing about $1.25 million of ARR and now you're talking about 13 customers doing $1.2 million. So, kind of the point is it's clear that people are spending more money maybe on a per customer basis. But we're not quite seeing as big a jump yet in the revenue figures. And I just want to talk about the mechanics of how ARR blends into your future numbers and impacts future numbers, I guess.

Yes. So yes, so here, let's -- I'm going to tease out just a couple of details here, starting with the per customer and per new customer sales. We've got -- for winning new customers, an average of $28,000 in ARR this year. It's 12% up -- or this quarter, which is 12% up from the $25,000 for winning a new customer in our Q4. And then after those customers buy things, most of our customers end up investing even more with us. So, if you take a look at our overall revenue divided by our number of customers, we're now at $33,000 per customer compared to $30,000 last quarter and $25,000 a year before. So, those are the numbers, which I think you just pointed out, and I just reiterated.

Sure.

So, net revenue retention is one of our core metrics that we evaluate every month, and our customer success team internally is focused on that and that's 107%. That represents customers renewing, customers buying additional products from us. And then also when customers renew, sometimes they have increased the usage of our product and we'll have to renew to a higher set of limits in their license. So, all of those contribute to our growth. And then, of course, churn, where a customer doesn't renew pulls away from the NRR. So, we feel pretty good about the 107%. It was down from last quarter. I think last quarter it was 116%, but 107% is still very good for the industry, but we had less growth this quarter than we did in our Q4 2025.

I see. And maybe that response sort of leads us into the conversation. And I think the answer is there are lots of targets and customers to go after. But has anything changed? Like has the fact that your average package is going up, has that taken some people out of the market for your services just in that it's a more robust tool? Or do you still feel like there are these hundreds of thousands of people to win still?

Yes. I think that the total addressable market for us has not changed. What we're seeing is that we've -- on the initial purchase last year, people were still not as inclined to buy the AI add-ons they needed to be proven. And that adoption is more ready now, more readily purchased than before. So, our customers that we won last year are now buying -- adding on to their base license Smart Search and Smart Response and the new customers are buying those more often right out of the gate.

Okay. Okay. And so that's good. So, certainly, that can sort of be a tailwind for NRR sort of that like net purchase number as we move through '26. And then sort of the other question I was wondering about is, have things changed competitively? Has anybody seen your success and tried to sort of bring product into the sales channels that you are? Or have people fallen away and maybe said this isn't for us, we're not winning here and HawkSearch is gating us?

Yes, yes. So, in our deals, we're still seeing the same top competitors as we did in 2025. So, that hasn't changed. And we think that one of the ways that we're differentiating now even better than we were last year is through our analytics. So, at the end of the day, you cannot have artificial intelligence without data. There's a saying of you got artificial intelligence and artificial stupidity. And if you don't have sufficient data behind these AI agents, you get dumb agents. So, what we did, which is different than what anyone else has done is we have created a data lake that allows all of our customers to have their data, their analytics, which person clicked on what link and bought what product and so forth, all provided inside of a private lake for them. And then we're creating a library of agents and they can create their own AI agents themselves that are able to monitor that lake and automatically tune HawkSearch for them based on current customer behavior.

And this is really driving -- is raising a lot of eyebrows on our prospective customers and existing customers. Everyone is really excited and interested about that, and that is helping to differentiate and win more deals for us.

Okay. Yes, that's terrific to hear. Sort of just -- sorry if I'm jumping around, I just want to go back to the ARR figure just for a minute. The growth in it has been impressive and very important and obviously paints a good sort of trend line to sort of future growth. Should we expect growth rates like we've seen over the last 18 months? Or has that sort of just been a spike as we've added the AI features and maybe that will start to level off and maybe not be as explosive as it's been or maybe it will continue?

We're actually expecting it to continue. So, our HawkSearch had 17% growth rate this quarter, and our goal is to get that all the way up to 20% this year. So, we expect to see that continue to increase, and it will increase for 2 reasons. One is we've got a very solid pipeline of new customers that we're selling to. And two, as we continue to release products, our existing customers, which we've got more than 200 have a lot -- there's a lot of room inside of that customer base for add-on growth. So, both of those are going to contribute to that growth and allow us to grow even quicker. And kind of going back a little bit to your previous question, the -- our sweet spot market, so we sell to B2B and B2C, but we've really been very strong in B2B manufacturing and distributors. And that marketplace itself is relative to our size, infinitely big and is maturing very quickly with respect to technology adoption. So, we feel really good about that specific market in addition to selling elsewhere, but we want to be very targeted with our marketing dollars and most of them point towards that market because we have such a high win rate there.

Right. Okay. And thank you for mentioning the marketing dollars. I know you didn't call that out specifically, but there were some, I think, indication that last quarter, you guys were saying, "Hey, we want to spend more -- a little bit more on sales and marketing and do it smartly. As we've gone through just this sort of October, December period, have you felt like the spend has matched what your plans were? Or have they been above or below? Or how qualitatively?

Yes, yes. So, we did a pretty good consistency with our cost per lead. So, the marketing dollars are working well. We do want more marketing dollars, but not by injecting capital at bad dollar rates. So, there's a lot of room for growth for us. And the marketing is effective. We're seeing great success at industry conferences. An example of one that we do very well at is B2B online Chicago each spring. We also have our own customer conference that our partners are invited to and they actually do sponsorships. So, about 60% of the cost of that customer conference is actually covered by our partners. Our customers come to that, prospective customers do, and that has a great impact on revenue as well and is very efficient.

So, we're feeling pretty good about the marketing dollars, and we need to continue to find ways to invest even more because we know which campaigns work, which conferences work and where to be.

Right, right. Okay. Terrific. One last question. Just on the gross margin line. It's been pretty stable within a few points, I think, for quite a while. And is that something we should expect? I mean, is there any reason to think that maybe with the new products that we're burdening the GM line a little bit or maybe there's some expansion because of the pricing changes. But what are your thoughts about just kind of that mid-60s range, if that would be expected to change meaningfully?

Yes. Yes. So, we do expect to -- the combined gross margin of our services and subscriptions to stay in the mid-60s, 65% to 67%. And we look at that on a line item basis in terms of our professional services gross margin and our subscription gross margin because there's different characteristics within those. This quarter, our services gross margin was unusually high. It was 55% plus another -- and then 69% for subscription.

On the services line, the low 50s, I think, is where we're going to continue to be. So, maybe say, 53% running there, which is a little bit better than last year, but it's because the value that we're delivering, especially in the context of a lot of the AI initiatives is so much higher that we are able to bill a higher rate. And then on the subscription side, which is dominated by our hosting costs, should hover around 70% going forward. So for the rest of this year, that's what we should be looking for. And then you combine the 2 of those together and you can call that between 65% and 67%.

Okay. Great. That's a terrific outlook and really very strong trend continuation from last year. So, congratulations on a good quarter and I'll jump back in the queue.

Thank you. [Operator Instructions] Thank you. There are no further questions in the queue.

Well, thank you, everybody, for joining us today. We appreciate your continued support, the support of all of our customers, partners and our shareholders. We're excited about our business and ongoing growth prospects. This is an exciting time indeed. AI is making huge changes to the industry, especially marketing, and we have made the investments to continue to innovate in this area, very exciting time. We look forward to speaking with you again on our second quarter fiscal 2026 conference call, which will be in May. Until then, be well.

Thank you, everyone. This concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.

Greetings. Welcome to the Bridgeline Digital Fourth Quarter 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Thomas Windhausen. You may begin.

Thank you, and good afternoon, everyone. Thank you for joining us today. My name is Thomas Windhausen, and I'm the Chief Financial Officer of Bridgeline Digital. I'm pleased to welcome you to our fiscal 2025 fourth 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 will then update you on our financial results for the quarter, and we will conclude by taking questions. Before we begin, I'd like to remind listeners that during the conference call, comments that are made regarding Bridgeline that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934 and are subject to risks and uncertainties that could cause our statements to differ materially from actual future events or results.

These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The internal projections and beliefs upon which we base our expectations today may change over time, and we expressly disclaim and assume no obligation to inform you if they do. The results that we report today should not be considered as an indication of future performance. Changes in economic, business, competitive, technological, regulatory and other factors could cause Bridgeline's actual results to differ materially from those expressed or implied by the projections or forward-looking statements made today.

For more detailed information about the factors and other risks that may have an impact on our business, please review the reports and documents as filed from time to time by Bridgeline Digital with the Securities and Exchange Commission. Also, please note that on the call this afternoon, we will discuss some non-GAAP financial measures when commenting on the company's financial performance. We provide a reconciliation of our GAAP financials to these non-GAAP measures in our earnings release. You can obtain a copy of our earnings release from our website. I'd now like to turn the call over to Ari Kahn, Bridgeline's President and CEO. Ari?

Thank you, Tom. Good afternoon, everyone. It's been a transformative year for Bridgeline with our core products, led by HawkSearch Suite and its AI products, reaching 58% of our total revenue or $8.9 million and over 60% of our subscription revenue, $7.4 million with 75% gross margin.

Validating our dominance in the B2B segment, Gartner ranked HawkSearch #1 for the B2B search use case in their 2025 Critical Capabilities report. HawkSearch customers voted with their pocketbooks by renewing their subscription, expanding their license limits and investing in our AI products. Together, this resulted in 117% net revenue retention and 16% CAGR for our core products. HawkSearch's average sales cycle reduced from 160 days in fiscal 2024 to just 92 days in fiscal 2025, and our average ARR per sale grew by 35% from $18,500 to $25,000.

This year, we sold 83 licenses with $6.9 million in total contract value for $2.4 million in ARR. This is an 18% increase over fiscal 2024, which itself was a 74% increase over fiscal 2023. 2024, 74% increase was hard to top, but we did it. We start fiscal 2026 with 65% larger sales pipeline, a shorter sales cycle, a higher average sales size and top analyst recognition from Gartner compared to the beginning of fiscal 2025. Of course, we want cumulative growth for the total whole company, and it's been a long haul with our core product growth being dampened by the decline of our legacy products.

This dampening is expected to end in 2026 with continued and accelerated growth for HawkSearch, driving growth to significantly more than 60% of the total revenue. I'm very proud of our customer satisfaction, proven by our customers expanding their investment in HawkSearch products. Net revenue retention of 117% is outstanding, and we achieved 117% NRR because higher renewal rates, less than 4% churn, upgrades by customers to increase usage limits and customers adding new products like our AI-powered Smart Search. Techo-Bloc is a great example. They're in the manufacturing and distribution segment for hardscaping products. They're a happy customer who added Smart Search and Smart Response this year, which analyzes Techo-Bloc's technical documents so their customers can ask complex questions to HawkSearch and quickly make purchasing decisions without having to do time-consuming research on their own.

Do it Best is a long-standing HawkSearch customer. And with their recent acquisition of True Value Hardware, they're making substantial investments in HawkSearch. Do it Best now powers search for 170,000 products with real-time inventory in the search and real-time pricing for 3,000 locations and is planned to grow to over 9,000 stores in 2026 as the True Value stores are added. Like HP, this is a great example of HawkSearch at enterprise scale.

Another example of expansion within our customer base is a national distributor for foodservice and industrial packaging, who implemented HawkSearch AI recommendations across their product categories to help their customers buy products that they otherwise may have forgotten to purchase. The distributor is now seeing 5x greater revenue from their homepage and 7x more revenue on their checkout screen. Just imagine that. Results like this are why HawkSearch customers renew and expand their investment. Core revenue not only grew from existing customers expanding their investment, but it also grew from new customer wins.

In fiscal 2025, we added 28 new logos. These are customers with whom we had no prior relationship to our customer base. The new logos added $2 million in total contract value with $700,000 in annual recurring revenue, and we expect them to buy additional products and expand their license usage limits just as our existing customers do as they start to see the success on their sites with HawkSearch. One of our new customers is Culligan, a brand providing water softening, filtration and drinking solutions to 140 million customers globally. Culligan has both SmartSearch and SmartResponse and recently told us that their site engagement is up 30% since launching HawkSearch.

Another one of our new customers is ADENTRA, a multibillion-dollar distributor of architectural building products with 6 brands across 83 regions and 60,000 customers. ADENTRA is using Smart Search and HawkSearch's out-of-the-box unit of measure to drive revenues in an industry where there are several methods of describing and measuring products. This year, we injected $2 million of capital into the company, including investments from our executive team and Board with the expressed purpose of expanding our marketing budget to get the word out about how great HawkSearch is and how happy our customers are.

As a result of this investment, we have a 65% larger pipeline at the end of fiscal 2025 than we did at the beginning of the year. We have a 40% more efficient sales cycle, and we have a 35% larger average sales size with industry recognition from Gartner ranking us HawkSearch #1 in the B2B search space. The primary challenge will continue to be our marketing budget. We are great on product, great on customer satisfaction, great with analyst approval. We need to be in every deal by continuing to market the HawkSearch brand. We've doubled our ad spend to $500,000 per quarter, and we'll continue this level of marketing throughout 2026, at which time we'll assess our marketing budget and cash reserves as well as our profitability for continued growth.

Another important part of our growth is our partnerships. HawkSearch lends itself to both agency and platform partners. These are partners that generate sales. An important partnership that was established in fiscal 2025 is with Unilog. Unilog offers a SaaS platform for B2B e-commerce and product management, helping businesses streamline operations and enhance digital storefronts. Unilog has embedded HawkSearch into their platform so that their 500 customers can easily choose to add HawkSearch to their website. This partnership will expand our total addressable market and further accelerate our sales cycle.

Salesforce customers can now access HawkSearch directly through the AppExchange to drive quick improvements in their revenue. This is another very important partnership for us, and it further expands our TAM to an ecosystem of tens of thousands of prospective customers. Our sales and partnership advances were largely driven by product innovations, especially in the field of artificial intelligence. We released 6 new products this year, all of which are powered by neural networks. Our new products allowed us to expand sales within our existing customers, win new customers and create general industry recognition as the leader in AI product discovery with Gartner ranking us #1.

We released Smart Search, our large language model foundation for AI, Smart Response, Gen AI technology to drive revenue conversationally. Smart Agents, MCP agentic artificial intelligence to automate and integrate with third parties. We released multisite management, which is our franchise and chain system that allows centralized management of thousands of online stores like the example I gave you with Do it Best. We released Rapid UI. Rapid UI reduces implementation effort for customers and expands our TAM to include mid-market and SMB. We also released advanced analytics, a data lake to improve intelligence and reporting for our customers and their AI agents.

Agentic AI and analytics will be an important focus for 2026 as our customers move towards a more automated sales cycle, sometimes even selling to agents rather than people, and our HawkSearch platform is uniquely positioned to help them beat their competition to the evolution in our market with AI. 2025 was indeed a transformative year, 6 new product launches, customers voting with their pocketbooks, renewing and expanding licenses for 117% NRR, 18% increase in sales over 2024, which was a 74% increase over 2023, sales efficiency accelerating from 160 days to 92 days, 35% increase in average revenue per sale and ending the year with a 65% larger sales pipeline than we started the year with.

Core product revenue is the focus, and we have the marketing budget to continue this trajectory. We expect the decline of legacy products to reduce in 2026 and our cumulative financials to show the strength of our core products and their leadership in AI product discovery.

Now I'll turn the call over to our Chief Financial Officer, Tom Windhausen, to share additional details. Tom?

Thanks, Ari. I'll provide an update of our financial results for the fourth quarter of fiscal 2025, which ended September 30, 2025. Total revenue for the quarter ended September 30, 2025, was $3.9 million compared to $3.9 million in the prior year period. And looking at the components of revenue, our subscription revenue, which is comprised of SaaS licenses, maintenance and hosting revenue for the quarter ended September 2025 was $3.1 million as compared to $3 million in the prior year period. And as a percentage of total revenue, subscription revenue was 81% of total for the quarter ended September '25.

Our services revenue was $700,000 for the quarter ended September '25 compared to $800,000 in the prior year period for a percentage of total revenue of services accounting for 19% of total revenue. Our cost of revenue was $1.3 million for the quarter ended September 30, '25 compared to $1.2 million in the prior year period. And as a result, our gross profit was $2.5 million for the quarter ended September 30, '25. Our overall gross profit margin was 66% for the quarter ended September '25, with subscription gross margin at 69% and services gross margin at 50%. Our operating expenses were $3 million for the quarter ended September 30, a decrease from $3.1 million in the prior year period, and our net loss was $400,000 for the fiscal quarter ended September '25 compared to a net loss of $400,000 in the prior year.

Finally, our adjusted EBITDA for the quarter ended September '25 was minus $169,000 compared to $5,000 positive in the prior year comparable 3-month period. Moving to our balance sheet. On September 30, '25, we had cash of $1.6 million and accounts receivable of $1.5 million. Our total debt outstanding as of September 30 was EUR 278,000, approximately USD 326,000 with a weighted average interest rate of currently 3.4% and principal payments due evenly through 2028. We have no other debt or remaining earn-outs from any previous acquisitions. And at September 30, we had total assets of $15 million and total liabilities of $5.8 million.

Finally, I'll give a quick update on our cap table, which at September 30, '25 included 12.2 million outstanding shares, 862,000 warrants and just under 2 million stock options outstanding. The 852,000 warrants consist primarily of 167,000 with a $2.85 exercise price expiring in May '26 and $592,000 with an exercise price of $2.51 expiring in November 2026. Bridgeline looks forward to continued growth and success in fiscal '26 and beyond as we continue our focus on revenue, product innovation, customer success and delivering shareholder value. We want to thank you all for joining us on the call today.

And at this time, we'd like to open the call to questions and answers. Moderator, can you help us with that process?

[Operator Instructions] First question comes from Casey Ryan with WestPark Capital.

I wanted to ask about this ARR number that you are sharing with us. It looks like that's the first time you've done that or the first time in a while. And I just wanted to clarify that that's across all customers and all products or maybe that was a HawkSearch-focused metric?

So for the $8.9 million in ARR, that is HawkSearch. And so the -- our total cumulative revenue of $15.4 million includes $12.4 million in ARR and, I guess, subscription revenue, of which $8.9 million is HawkSearch is core. We like to use the term core because HawkSearch is a suite and there's other products in there. And then there's another $3 million in services. We've not broken out the services detail. It actually does find it though because $8.9 million minus, I don't know maybe...

Right. Well, so I'll just say this ARR number is excellent, right, and tremendous growth year-over-year. But also, is it one that you believe you can continue to share with us as we move through the year? Or will this kind of be an annual number that you put out at the end of the day?

That's a really important point. And this right here, we're essentially telling you and the market that, that is our intention. We believe that the future of Bridgeline is HawkSearch, the core products. That's what to really watch, and we're going to continue to share every quarter that growth. Our expectation is that as we go through 2026 that, that is going to dominate our overall financials and the characteristics that we're seeing right now on that core component itself will be the characteristics that we have in the long term for the business as a whole.

Okay. Well, terrific. I'm happy for the addition of this metric. And obviously, it's showing very strong performance, which is really good. I also wanted to ask about on HawkSearch, if there had been any meaningful changes or trends with -- in regards to sort of contract length or what levels people were committing to in terms of time, dollars are clearly going up.

Yes. Yes. Dollars are going up. The contract length itself has not changed. And we've heard in adjacent industries of contract lengths actually reducing as people became a little bit less committed. We've not seen that. So our average contract length, we shoot for 3 years when we have initial engagements, and that's negotiated to 2. And the average is going to be somewhere between 2 and 3 in 2025. That was consistent with what we saw in '24 and in '23. The big things that we saw change in 2025 were, first of all, how decisive prospective customers were. I mean, going from 160 days to 92 days. And frankly, I don't know if 92 days is the right average to expect going forward for -- when I say 90 days, that's from the first second that we meet someone to the point that they either say yes or no to doing business with us including lost sales, incredibly fast.

So people become more decisive. Also, they're making a higher initial investment where last year, we would see $18,500 as our average in terms of the annual recurring revenue, not the total contract value, but the ARR. Going to 25 shows a much stronger level of confidence that this is going to be a meaningful product for them and they're willing to go in a deeper level on day 1. Because our price didn't go up by 35%. I mean our list price went up by, I don't know, 4% or 5%. And then we also have additional products. So they're buying more components on day 1 than they might have bought the year before, too.

Yes. Well, I mean, all these metrics are really quite impressive, to be perfectly honest. And so we've been challenged with some sort of shedding of legacy businesses or older products that you've sort of talked about over the course of this fiscal year. That remainder sort of non-HawkSearch revenue, it sounds like you have more confidence in that base that you have today being stable to up potentially in FY '26.

Absolutely. And our HawkSearch customers have less than 4% churn rate. So we've got really excellent stickiness. And the ones that do churn are probably, I don't know, 5 or 6 years old even pre the acquisition in Bridgeline. So that's a super stable customer base. The reality is that when I came into this business and over the years, we had some old products that although the products themselves were good, we're in areas that other companies were making exponentially higher investments than Bridgeline, long sales cycles and not a good place for the company. So we looked hard over really 2028, 2029, 2020, found HawkSearch in 2019, did that acquisition, and that was the heart of the transformation. We picked up Cellebrite, which is another search product before that. But all along, it was about finding a product that delivered true value to customers that had an efficient sales cycle. and high-quality revenue. And then we got lucky because AI hit and search is in the sweet spot for the particular types of AI technologies that are rapidly maturing. So we were able to quickly add 6 new products to the HawkSearch suite because it was really well fitted for the latest technologies. And I think that's really exciting. I think that analysts, especially Gartner love what we did. Our customers certainly love it, and a lot of the innovation was driven by them, and it's getting proven.

Yes. Well, it certainly does seem like it's showing up here in the metrics for this quarter for sure. So just 2 more questions. I mean there's a lot to sort of unpack here, I think, in this quarter, which has been really exciting. You mentioned the ability for customers to sort of turn on the product, HawkSearch through the Salesforce AppExchange. I just wanted to ask if that was live and impactful to the September quarter or if that's really something that's going to -- in terms of revenue and sort of activations sort of hit for the first time more in the December quarter and then moving forward?

It's really just hitting for the first time. I think we had a sale in the September quarter, but we've got a couple in the pipe this quarter and then it's going to accelerate from there. So that's further growth. And the Unilog, even though obviously way smaller business than Salesforce, almost every small business than Salesforce, but is one that is, I think, going to be a really good partnership for us. Their customers are all in the manufacturing and distribution B2B space. They're a specialty platform for that specific market. That is our #1 market. We sell all over the place, and we've got Hewlett Packard in the B2C world. But when it comes to B2B for distributors and manufacturers, there are very unique problems that they have that no one else can solve like we do, the ability to easily find products by their SKU to be able to have agents upload complex shopping lists and auto negotiate and add those to their cart and other capabilities that we do and the Unilog customers are going to love us.

Okay. Good. Well, that's helpful to understand that how that specialization could be even more impactful even though Unilog might not be a name that would jump off the screen initially for someone like myself.

Exactly. Yes.

One last question. This has all been really helpful. The sales and marketing spend was nominally $1.1 million in the September quarter. And I think you said that, that's sort of the rate to expect moving forward and that you'd reevaluate at the end of '26. But that's a good level that's up from what it had been previous. And so I just want to confirm and talk about your comfort with that spend level as we move forward.

Yes. I think that's the right level for us in 2026. So what that level includes is $500,000 in what we call ad spend. So that's conferences and webinars and online ads and stuff like that, nonpersonnel. And that includes personnel and commissions and then includes subscriptions to our information systems like Salesforce and so on. So the -- we doubled the ad spend component of that with the goal of completely saturating our salespeople with leads and hey, I want them to be the highest paid people in the company. So we have -- our lead flow is that -- so ad spend goes out the door, $500,000 a quarter, goes into 2 BDRs.

So we have 2 BDRs. They do the initial contact. If it's a very small deal, they also have the ability to earn a commission and close deals themselves. But for the most part, the deals then flow to a team of 2 BDEs, executive salespeople plus a working VP of Sales. So those 3 people close the deals. Then we have a customer success team whose job is to educate existing customers on our new products so they can buy those. Look for opportunities from a professional services perspective to add value to our customers and to get renewals. And that is a working manager and 2 people.

So you've got on the direct sales side, 2 BDRs, 2 BDEs plus working manager, on the customer success side, 2 CSDs plus working manager. And then in the sales, in the marketing team itself, we have 3 full time and some consultants. And that right there is, I think, a good team for our current ability to invest in sales. I definitely want to find a way to get more money because I think that we're -- have a lot of growth potential, but we have to be very cognizant, obviously, of the stock price and not diluting anybody, especially me because my wife will kill me, but that's -- so there you go, there's a lot of details.

Yes. Well, that is tremendous detail and tremendously helpful. Well, look, it feels like '26 is really setting up very strongly with some optionality with Unilog and Salesforce and some of these automated channels potentially driving even more upside if people adopt the product faster than maybe what you've modeled so far. So tremendous quarter.

Thank you, Casey.

We have reached the end of the question-and-answer session, and I will now turn the call over to management for closing remarks.

Thank you, John. Thank you, everybody, for joining us today. We so much appreciate the continued support of all of our investors, of our customers, of our partners, great stakeholders in this business. We're excited about the business, ongoing growth prospects, and we look forward to speaking with you again in our first quarter fiscal 2026 conference call, which will be in February of 2026. Until then, be well.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.