Good day, and thank you for standing by. Welcome to the Bridgeline Digital, Inc. First Quarter 2022 earnings call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star one on your telephone. Please be advised that this call is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your host today, Thomas Windhausen, Chief Financial Officer. Please go ahead.
Thank you, operator, and good afternoon, everyone. Thank you for joining us today. My name is Thomas Windhausen, and I'm the Chief Financial Officer for Bridgeline Digital. I'm pleased to welcome you to our fiscal 2022 first quarter conference call. On the call this afternoon is Ari Kahn, Bridgeline Digital's President and CEO, who will begin with a discussion of our business highlights. I'll then update you on our financial results for the quarter, and we'll conclude by taking questions.
Before we begin, I'd like to remind listeners that during this conference call, comments that we make regarding Bridgeline that are not historical facts are forward-looking statements with the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are subject to certain uncertainties that could cause such 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. Results reported today should not be considered as an indication of future performance.
Changes in economics, business, competitive, technological, regulatory, and other factors, such as the impact of public health measures, 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 these factors and other risks that may impact our business, please review the reports and documents filed from time to time by Bridgeline Digital with the Securities and Exchange Commission. Also, please note that on the call this afternoon, we'll 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 by visiting our website. I would now like to turn the call over to Ari Kahn, our President and CEO. Ari?
Thank you, Tom, and good afternoon, everyone. We had another great quarter that laid the foundation for continued growth. Subscription and license revenue increased by 71% to $3.1 million, which makes up 80% of our total revenue now. Subscription and license revenues have a 76% gross margin, and customers generally sign three-year initial engagements that automatically renew annually thereafter. We ended the quarter with $6.4 million in cash, and that was after paying $2.5 million in deferred acquisition costs for WooRank and HawkSearch. Our cash balance and the fact that we delivered positive adjusted EBITDA positions us well to continue our investments in sales and marketing and product innovation. HawkSearch and Celebros are leading our organic growth with several new customers, cross-sales into our existing customer base and outstanding partner-led deals.
WooRank is winning new customers and cross-selling across our customer base as well. We expect our sales momentum to grow, and in the first half of our second quarter, we've already exceeded the new customer sales made in our first quarter. We made substantial investments in our partner network last year that are delivering new customers every month. Salesforce, BigCommerce, and Optimizely are generating great sales as well as leads for future sales. Our presence in their marketplace exposes us to thousands of prospective customers at a much more efficient marketing cost than we could otherwise achieve. We've built a dedicated partner team with three full-time channel managers who are responsible for strengthening our relationships and expanding output with partners. ISV partnerships, in addition to agency partnerships like americaneagle.com, are bringing us into opportunities with faster sales cycles and stronger close rates than ever before.
In the quarter, this quarter, we won sales with multiple major hospitals, technology companies, pharmaceuticals, gaming businesses, distributors, and associations. All our sales have additional upsale opportunities to generate even greater revenue as we move forward. Our new DataBravo product has been a hit, and we signed a long-term license with a sales intelligence company to help them provide web intelligence to their customers. DataBravo mines SEO content accumulated by WooRank to identify trends and competitive differentiators related to websites. An online marketing promotional product company with over 40,000 customers chose HawkSearch to power their commerce site. We're quickly becoming the preferred search solution in the promotional product sector with a string of recent wins, including another market leader selecting our natural language processing search. Natural language is a crucial solution for customizable products as it allows users to search for specific and unique product features.
We're also gaining traction with multiple customers in the B2B distributor vertical, especially electrical and plumbing. Our customers organize their large online product offerings and help drive sales and increase order size. We have several differentiating capabilities in this area, and we have excellent references from leading B2B distributors to continue to bring us new deals. Bridgeline is expanding our presence in the multi-location sector, including franchises and other multi-location businesses. Our reputation and experience in this sector are significant and continue to drive new business. We will present at the International Franchise Association Conference later this month, and there we'll release our newest product line, TruPresence. TruPresence is a suite of e-commerce apps specifically tuned for multi-location companies. We are committed to innovation for franchises and expect to continue winning new customers in this sector.
Last year, we made two acquisitions, and we'll continue to evaluate strategic opportunities. We only consider acquisitions that are accretive, offer a customer base to whom we can cross-sell our existing products, and which have products that can be sold into our customer base in addition to new customers. We look at companies globally with an emphasis on North America and Europe. The marketing technology sector has many acquisition opportunities, which allows us to be selective and find great matches, just as we did in 2021 with WooRank and HawkSearch. Bridgeline is a healthy company with organic growth, positive adjusted EBITDA, and cash. We'll continue to invest in sales and marketing as well as product innovation to further increase shareholder value. At this time, I'd like to turn the call over to our Chief Financial Officer, Thomas Windhausen. Tom?
Thanks, Ari. I'm excited to further share with you our positive financial results for the first quarter of fiscal 2022, which ended December 31, 2021, with you this afternoon. Our total revenue for the quarter ended December 31, 2021, which is comprised of both subscription license revenue and services revenue, was $4.3 million versus $2.8 million in the prior year period. Now going into each component of revenue. Our subscription license revenue, which is comprised of SaaS licenses, maintenance and hosting revenue, and professional license revenue, increased 71% for the quarter ended December 31, 2021 to $3.4 million, from $2 million in the prior year period.
As a percentage of total revenue, that subscription license revenue increased by 10 percentage points to be 80% of total revenue for the quarter ended December 31, 2021, compared to 70% in the prior year period. This increase in subscription and license revenue as a percent of total revenue was driven by the prior acquisitions of WooRank and HawkSearch, which have a high percentage of subscription revenue. Services revenue increased also to $0.9 million for the quarter ended December 31, 2021, as compared to $0.8 million in the prior year period. As a percentage of total revenue, services revenue accounted for 20% of total revenue for the quarter. Cost of revenue increased 34% or $0.3 million to be $1.3 million for the quarter ended December 31, 2021, compared to $1 million in the prior year period.
As a result, gross profit increased 60% or $1.1 million to $3 million for the quarter ended December 31, 2021, as compared to $1.9 million in the prior year period. Our gross profit margin increased to 70% for the quarter ended December 31, 2021, compared to 66% in the prior year period. That was a 76% margin for subscription licenses for the three months ended December versus 71% in the prior year, and 48% margins for services revenue for the three months ended December 31, 2021, as compared to 55% in the prior year. Moving on to operating expenses. They increased to $3.5 million for the quarter ended December 31, 2021, from $1.7 million in the prior year period.
The increase in operating expenses include the operating costs from last year's acquisitions. Income from operations was a loss of $0.5 million for the quarter, as compared to income from operations of $0.2 million for the prior year period. For the quarter ended December 31, we had a change in fair value of our liability-classified warrants, which resulted in non-cash income of $2.4 million, as compared to a $1.4 million non-cash loss for the prior year period. Our change in share price is the primary driver of the changes in fair value of the warrants.
As a result, net income was $0.9 million for the fiscal quarter ended December 31, 2021, or $0.18 per share for basic EPS as compared to a net loss of $1.2 million or a loss of $0.26 per share for basic EPS in the prior year. The change in net income was primarily driven by the fair value adjustments for the warrants. That resulted in adjusted EBITDA for the quarter of $0.1 million compared to $0.7 million in the prior year period.
Moving to our balance sheet, as Ari mentioned, we have cash of $6.4 million and accounts receivable of $1.3 million at December 31, 2021, compared to September 30, 2021, when we had cash of $8.9 million and accounts receivable of $1.4 million. At December 31, 2021, our total assets were $32.2 million and our total liabilities were $12.6 million. We look forward to continued success in 2022 and beyond as we continue to focus on revenue growth, expanding customer success, technical innovation, and delivering shareholder value. Thank you for joining us on the call today. At this time, we'd like to open up the call to questions and answers. Operator?
Thank you. As a reminder, to ask a question, you'll need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Howard Halpern from Taglich Brothers. Your line is now open.
Great quarter, guys.
Thank you, Howard.
First question really relates to the development of your partner network. How do you envision that growing and how is that helping you drive sales growth?
It's really great. We've got three full-time people focused on our partners. There's two classes of partners. There are the ISVs, Independent Software Vendors, and there are the agencies. They're very different, and they both help us in great ways. The ISVs, which include Salesforce, Optimizely, BigCommerce, they generally are selling platform software like content management solutions that our software runs on top of, and they generally have marketplaces. With Optimizely and BigCommerce, we've been hosting webinars to their customer base in conjunction with them, explaining to their customers how our software can help drive more revenue for them. This results in a rather quick sales cycle because the customers don't need to buy a platform. They already have one. This is just an add-on to the platform that they've already invested ins.
In addition to that, we sit in their marketplaces so that even customers who don't attend a webinar can browse the marketplace, find us and buy our software. On the agencies side, these are digital agencies who are reselling platforms like Optimizely, for example, doing a full implementation of it, and are trusted advisors to their customers as to all the different technologies that are needed for success, and they include us in their recommendations. Both sides have opportunities for huge growth for us. We're relatively small in a more than $6 billion market, and I can see just with any one of these, Salesforce, Optimizely, BigCommerce, the ability for us to grow tremendously, and we've got great relationships.
Okay. Can you talk about a little bit more about the cross-selling program that you have, and what kind of penetration?
Yep.
have you gained from, you know, customers that you acquired a year or two ago?
Yes. Yeah. Today we have five full-time people dedicated to cross-selling within our customer base. We sold more software to our existing customers this quarter than we did to new customers, and that's great. That's exactly what we want because you don't have to spend any marketing dollars running ads or anything to get the attention of your existing customers. Your customer acquisition cost is much lower. Our team, we call them customer success, they're responsible for selling licenses. They have one pipeline for that. They're responsible for also selling professional services, so that's where they further customize our software. They have another pipeline. Then finally, they're responsible for renewals of existing customers. They exceeded their goals for the quarter. They've got a great pipeline going forward.
A strategic part of our inorganic growth will be to acquire companies that both have products that our customer success team can sell into our current customer base and also have customers that our customer success team can sell our current products into.
Okay. In terms of, you know, continuing to upgrade and integrate and expand the technology that you have, are you also getting customer feedback on what they want or need and seeing how that might fit into future product offerings?
Absolutely. Our team that's responsible for that is called product management. There are two people in product management. They have their directive is to collect information from existing customers, from competitors, from analysts, and also from our own engineering team, compile that information and present it to executive management and to customers for prioritization and then to set our roadmap and our deadlines. We have briefing meetings with key customers regularly to show them where they fit on that roadmap. Sometimes our customers want a particular feature that perhaps is not a high priority from a broader market perspective. In those instances, our customers pay us. They pay for the R&D to accelerate that feature on the roadmap. That's been going on for years now.
We pretty much always have a paid-for feature coming into our product set. We're announcing right now TruPresence.
Right.
What TruPresence is, and we're debuting at the International Franchise Association Conference in two weeks, is all of our technology that is related to franchise is now being packaged into a consistent suite of software for our customers like 7-Eleven, like CVS, AlphaGraphics, Sport Clips, The UPS Store. We've got a very strong foothold in franchise space today. Those customers have very specific needs. They bring them to us all the time. We've responded to those. This is a chance where we can expand in a market that has very little competition. No one's focused on that space. We've got features, we've got customers, so the barrier of entry for us is almost nothing.
Okay. Just one last one. Over the next couple of years, do you anticipate, you know, getting to maybe a 90-10 split in the revenue mix or where you are now is where you might stay?
Yeah. I actually think that we are going to increase our license as a percentage of revenue. I don't know that it will be 90%-10%. I think we're close, and I think that 85%-15% is a healthy number. Let me expand on that. First of all, we believe that making our software more and more out of the box increases the return on investment for our customers. Not only is there implementation costs in terms of consulting dollars for our customers, but a lot of time on theirs if they have to customize. We have a big prioritization of out of the box. Now that said, every customer has some unique needs, and we learn a tremendous amount from our customers when we're deeply engaged with them to implement those needs.
Although we've got SaaS products like WooRank, for example, which is completely hands-off, point and click and buy, we'll continue to have products like many of our TruPresence products, like TruPresence Pages, that require some implementation. 85/15 in the marketing technology space is a ratio that we think is healthy.
Okay. Well, guys, keep up the great work.
Thank you, Howard. We appreciate it.
Thank you. Our next question comes from Orin Hirschman from AIGH Investment Partners. Your line is now open.
Hi. Thank you. It's Orin Hirschman with AIGH.
It's Orin Hirschman.
Good. How are you?
Very good.
In terms of TruPresence or a lot of the customers that are existing customers, is there an upsell opportunity as well as if they were to expand and some of the existing customers, some of the bigger ones, were they signed like years ago, you know, and now the chance to be able to convert some of it to SaaS?
That's exactly right. The TruPresence customers, we've already begun, not under the TruPresence brand, but we've already begun, cross-selling into them, and now everything is being packaged and customized specifically for franchise under TruPresence brand. One of the biggest products that have been selling into our franchise customers is WooRank. WooRank allows companies to increase the traffic to their website by giving them a view of their website from Google's perspective so that they can tune it and make it more visible. In the franchise space, each individual franchisee has local competition. You can imagine Sport Clips, a barbershop customer of ours, that they're really competing with a barbershop across the street, not so much the national barbershop chain. WooRank allows them to compare themselves to their local competition, so that's very big. The second one is DataBravo.
DataBravo collects information about groups of sites and advises competitively as to what the opportunities are to beat everybody in that group. Again, a great franchise space. We're seeing a lot of cross-sale demand from the franchise customers. Out of the gate, we're coming really strong in franchise, and some of these customers are not exactly franchise, but they operate like a franchise. We've got AstraZeneca. We've got Bristol Myers Squibb, Allergan, Sanofi, MRC Global, Triumph Motorcycles, Sears, big brands with big needs. They've been feeding us a lot of information, and we're gonna be very strong in this space.
You mentioned a product that I'm not familiar with from before, product DataBravo that you just mentioned.
That's right.
Can you tell us, just refresh us on that? If it's a new product, tell us more about it, and have you sold any of it yet?
Yeah, we have sold, and in fact, this quarter we had a very strong sale of DataBravo. So DataBravo was a minor product within the WooRank company that wasn't really being marketed. In fact, it wasn't even launched at the time that we did the acquisition, and we finished it up with the WooRank team and launched it. DataBravo collects. WooRank collects information about an individual website. DataBravo combines the information from all WooRank customers, identifies trends, and makes broader recommendations on an industry basis. DataBravo can be licensed as a data set to companies that are selling, for instance, sales intelligence information. We've got a pharmaceutical company that is using it to collect competitive information from competitor websites.
We've got a fintech company that's using it to evaluate actual acquisition opportunities from online information. It's a very powerful and unique set of data. I don't know anyone that has data even close to DataBravo, and it was a hidden gem that we got for free inside of WooRank.
It sounds like it's early on, though, because it was by WooRank. How long does this? When was this officially launched?
It was officially launched in July, and right now we have, I believe, 6 customers, something around there. The customers are generally paying between $2,000-$10,000 a month for access to the data.
Okay. This is a SaaS offering, multi-year SaaS offering as well?
Yeah. Yeah. Subscription.
Is the idea to be able to sell this product? It sounds like a very useful product that people can understand the use very quickly, to just the WooRank customers, or if it's possible to moving into HawkSearch and other customers? I'm not sure.
It is possible to move it into the other customers. In fact, this quarter that we just closed, we sold it to new customers that were not in the WooRank group at all. It's got demand. Another thing that's gonna be interesting with DataBravo is it's going to allow us for TruPresence to have a data set that no one else has in that industry. Some of that data we'll give away in order to generate a stronger brand inside of a franchise, and then we'll be able to license the different additional information to franchises after they get a taste of the free stuff.
Okay. Final question. What percent of the sales in Q4 were related to search?
In Q4, t he search-related licensed sales were approximately 75%. I don't have the exact number. Search is driving our organic growth. That is very strong. On the M&A front, we see search opportunities. It's a little bit of a crowded space. We think we can accumulate businesses in that space. It's a growth area for us.
Is it growing double digits?
Yeah. It's growing at nearly 20%.
Organically?
Organic growth, yeah.
Is there opportunity to accelerate that further? If so, what do you do? Because obviously without having a big name or brand, it's growing real fast, must be off of the capabilities. What can you do further? Can you make it easier to install, like you said, out of the box so to speak as opposed to the customization aspect?
Yeah. A couple of things there. Making it easier to install is important. The partnership is very important. BigCommerce, Salesforce, these guys can drive a ton of leads for us. You should take a look at Coveo, C-O-V-E-O, and their ticker is CVO.TO. They just went public in November on the Toronto Exchange. They're trading really healthily. They've been growing. They are a competitor, but there's a lot. Nobody in this space owns a majority of it. We've got an opportunity to grow as fast or faster than anybody else, and it gives you an example of what other companies can do when they're focused purely on search.
My final question. You know, obviously a partner like BigCommerce is a marquee name and also yet still small enough where maybe you don't get lost in the shuffle.
Right.
I guess a partner like that, have they come online yet? Couldn't have come online yet with meaningful sales. Have they come online yet with the first sales? When does that really begin in earnings?
We had sales with BigCommerce just last quarter. We've had sales with them prior to that but in a less organized way, without the formal contract. We've got a joint webinar, I think, next week with them, and we're already jointly reaching out to their customers, and they've provided a pipeline for us. They're going right now. Optimizely is basically in the same position. Salesforce is huge, a little harder to get their attention and less organized in terms of the relationship, but nevertheless generate sales for us as well. For all of these partners, we have several existing customers today.
Right. What you're saying is it's early on in these relationships.
That's right. It's early on, and I am expecting the partnerships to be attached to almost every Hawk sale. Last quarter, every Hawk sale had a partner attached to it. The quarter before that, all but one or two. It's a very important part of our lead gen.
Okay, great. Okay, thanks. I'm gonna let other people ask.
Thank you, Ari.
Thank you. Next, star one if you'd like to ask a question. I would now like to go ahead and I'm showing no further questions. I would now like to go ahead and turn the call back over to Ari Kahn for closing remarks.
Thank you everybody for joining us today. We appreciate the continued support of our customers and our shareholders. We're excited about our business model and the ongoing growth opportunities and look forward to speaking with you again on our Q2 fiscal 2022 conference call. Stay healthy and well. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.