Bridgeline Digital, Inc. (NASDAQ:BLIN) is a leading marketing technology company that offers a suite of products to help businesses grow their online revenue. The company's flagship product, HawkSearch, is a powerful site search, recommendation, and personalization platform that leverages advanced artificial intelligence (AI) to enhance the customer experience and drive increased sales.

Business Overview

Bridgeline Digital was incorporated in 2000 and is headquartered in Woburn, Massachusetts. The company operates regional field offices in Woodbury, New York; Rosemont, Illinois; Atascadero, California; Ontario, Canada; and Brussels, Belgium. Bridgeline has four wholly-owned subsidiaries, including Bridgeline Digital Pvt. Ltd. in Bangalore, India, Bridgeline Digital Canada, Inc. in Ontario, Canada, Hawk Search Inc. in Rosemont, Illinois, and Bridgeline Digital Belgium BV in Brussels, Belgium.

Bridgeline's product portfolio includes HawkSearch, Celebros Search, Woorank, Unbound, TruPresence, and OrchestraCMS. These solutions cater to the diverse needs of businesses, from e-commerce site search and optimization to content management and digital experience platforms. The company's software is available through a cloud-based Software as a Service (SaaS) model, providing customers with hosting and support services.

Financial Performance

In the fiscal year ended September 30, 2023, Bridgeline reported annual revenue of $15.9 million and a net loss of $9.4 million. The company's annual operating cash flow was $277,000, and its annual free cash flow was $252,000.

For the second quarter of fiscal 2024, which ended on March 31, 2024, Bridgeline reported total revenue of $3.8 million, a decrease of 7% compared to the prior-year period. Subscription and perpetual licenses revenue, which accounted for 79% of total revenue, decreased by 8% to $3.0 million, while digital engagement services revenue decreased by 3% to $794,000.

The company's gross profit for the second quarter of fiscal 2024 was $2.5 million, with a gross profit margin of 66%, compared to 69% in the prior-year period. Operating expenses decreased by 13% to $3.0 million, primarily due to lower sales and marketing expenses. Bridgeline reported a net loss of $602,000 for the quarter, compared to a net loss of $511,000 in the same period last year.

Adjusted EBITDA, a non-GAAP measure, was negative $83,000 for the second quarter of fiscal 2024, an improvement from negative $144,000 in the prior-year period.

Geographical Breakdown

Bridgeline's revenue is primarily generated in the United States, which accounted for 84% of total revenue in the fiscal year ended September 30, 2023. The company's international revenue, primarily from Canada, represented 16% of total revenue during the same period.

Revenue Breakdown and Trends

Bridgeline's revenue is derived from two main sources: subscription and perpetual licenses, and digital engagement services.

Subscription and perpetual licenses revenue, which includes SaaS licenses, maintenance, and hosting, decreased by 8% to $3.0 million in the second quarter of fiscal 2024, compared to $3.3 million in the prior-year period. This decrease was primarily due to reduced subscriptions on legacy products, which offset increases in revenue from the company's flagship product, HawkSearch.

Digital engagement services revenue, which includes professional services such as web development, digital strategy, and usability engineering, decreased by 3% to $794,000 in the second quarter of fiscal 2024, compared to $821,000 in the prior-year period.

The company's management has indicated that the decrease in revenue was due to a reduction in revenue from a particular customer, as well as reduced subscriptions on legacy products. However, the company is seeing strong growth in its HawkSearch product, which now accounts for nearly 60% of subscription revenue and is expected to continue driving the company's revenue growth going forward.

HawkSearch and AI-Driven Innovation

HawkSearch is Bridgeline's flagship product, offering a powerful site search, recommendation, and personalization platform. The company has been investing heavily in enhancing HawkSearch's capabilities, particularly in the area of AI-driven search and product discovery.

In March 2024, Bridgeline launched the latest version of its AI-powered Smart Search feature, which introduces two new ways for customers to interact with search: Concept Search and Image Search. Concept Search allows users to describe their needs in natural language, and the system uses AI models, vector databases, and large language models to find relevant products or information. Image Search enables customers to upload an image of a product, and HawkSearch will display similar items for purchase.

These AI-powered features have already been implemented on several customer sites, including Saviynt, Schaedler Yesco, Nail Gun Depot, Max Warehouse, and Rainbow Resource, with several more new sites slated to launch in the upcoming weeks. Bridgeline's CEO, Ari Kahn, who holds a Ph.D. in AI from the University of Chicago, has highlighted the company's deep expertise in this field, allowing it to quickly incorporate new AI capabilities into its software to benefit customers.

Partnerships and Ecosystem

Bridgeline has been actively building strategic partnerships to expand the reach and adoption of its HawkSearch product. Two key partnerships that are driving new customer acquisition are with Optimizely and BigCommerce.

HawkSearch is now featured on the first page of BigCommerce's app store, giving it prominent visibility to the platform's 60,000 customers, 20% of which have more than 250 products. This represents a significant target market for Bridgeline's AI-powered site search solution.

Additionally, HawkSearch now has a one-click install option for Optimizely customers and is recognized as a top paid app in Optimizely's app store. Bridgeline has partnered with Optimizely on several online webinars and has launched many customer websites recently, positioning HawkSearch to improve site search for more than 1,000 Optimizely-configured commerce customers.

Bridgeline has also partnered with the system integrator Xngage, an expert in Optimizely, to help build the Optimizely connector, further expanding the company's sales opportunities within the Optimizely ecosystem.

Outlook and Growth Strategies

Bridgeline is focused on driving revenue growth, product innovation, and customer success to deliver shareholder value. The company's management has indicated that they expect HawkSearch to continue dominating the company's revenue mix, with subscription revenue from the product expected to surpass all other products combined in the upcoming fiscal year.

The company's pipeline has seen a 35% increase in traffic and a 66% increase in conversion to lead generation compared to the prior year. Bridgeline is also receiving positive reviews and analyst recognition, such as being named a leader in the market technology sector by InfoTech and one of the top 20 e-commerce solution providers of 2024 by ICON Outlook tech magazine.

Bridgeline's management has stated that they do not intend to dilute shareholders in order to generate cash, and they can adjust their marketing spending to manage their cash position, which is expected to have a low point of around $1 million. The company is focused on driving long-term growth and profitability through its HawkSearch product and AI-powered innovations.

Risks and Challenges

While Bridgeline's focus on HawkSearch and AI-driven innovation presents significant growth opportunities, the company also faces several risks and challenges:

1. Dependence on HawkSearch: With HawkSearch accounting for a growing share of the company's revenue, Bridgeline's financial performance is heavily dependent on the continued success and adoption of this product. Any slowdown in HawkSearch's growth could have a material impact on the company's overall performance.

2. Competition in the site search market: Bridgeline faces competition from other providers of site search and product discovery solutions, both in the e-commerce and content management spaces. The company's ability to maintain its competitive edge and continue to innovate will be crucial.

3. Integration and execution risks: As Bridgeline continues to expand its partnerships and integrate its solutions with third-party platforms, the company must effectively manage the integration and execution processes to ensure seamless customer experiences.

4. Macroeconomic conditions: Bridgeline's business could be affected by broader economic trends, such as changes in consumer spending patterns or IT budgets, which could impact the demand for its products and services.

5. Regulatory and compliance risks: As a technology company, Bridgeline must navigate an evolving regulatory landscape, particularly around data privacy and security, to ensure compliance and maintain customer trust.

Conclusion

Bridgeline Digital is a promising marketing technology company that has positioned itself as a leader in AI-powered site search and product discovery solutions. The company's flagship HawkSearch product, with its advanced AI capabilities, is driving strong growth and customer adoption, particularly through strategic partnerships with platforms like BigCommerce and Optimizely.

While Bridgeline faces some risks and challenges, the company's focus on innovation, customer success, and financial discipline positions it well for continued growth and shareholder value creation. As the company continues to execute on its strategies, investors should closely monitor Bridgeline's progress in expanding its HawkSearch customer base, driving subscription revenue, and leveraging its AI expertise to stay ahead of the competition.