Bridgeline Digital's 2025 Q4 Earnings Call: Contradictions Emerge on AI Focus, Customer Retention, and Revenue Growth Strategies

Date of Call: December 18, 2025

Financials Results

• Revenue: $3.9M for Q4 FY2025 (quarter ended Sept 30, 2025), flat YOY (compared to $3.9M in the prior-year period); subscription revenue $3.1M (81% of total), services $0.7M (19% of total).
• Gross Margin: 66% overall for Q4 FY2025 (subscription gross margin 69%, services gross margin 50%); cost of revenue $1.3M vs $1.2M prior year.

Guidance:

• Company will continue to report HawkSearch ARR growth quarterly and expects HawkSearch to dominate company financials in FY2026.
• Management expects legacy-product decline to abate in 2026 as core HawkSearch growth accelerates.
• Maintain marketing/ad spend of $500,000 per quarter and an overall sales & marketing run-rate of about $1.1M per quarter in FY2026; will reassess based on cash and profitability later in 2026.
• Partnerships (Salesforce AppExchange, Unilog) are expected to begin contributing and accelerate revenue conversion in FY2026.

Business Commentary:

* Core Product Revenue Growth: - Bridgeline Digital reported that core products led by HawkSearch Suite and AI products contributed to 58% of total revenue, amounting to $8.9 million, and over 60% of subscription revenue, at $7.4 million, with a gross margin of 75%. - The growth was driven by customer satisfaction, with high net revenue retention rates, and the addition of new AI products that enhanced the company's offerings.

• Improved Sales Efficiency:
• The average sales cycle for HawkSearch reduced from 160 days in fiscal 2024 to 92 days in fiscal 2025.

• This improvement was attributed to increased customer confidence, indicated by a higher initial investment in associated products, leading to a more decisive sales process.

• Partnership Expansion:

• Bridgeline established strategic partnerships with Unilog and Salesforce, expanding its addressable market and accelerating the sales cycle.

• These partnerships allowed HawkSearch to be integrated into their platforms, increasing visibility and accessibility for potential customers.

• Investment in Marketing Budget:

• The company injected $2 million of capital, including investments from its executive team and board, to expand the marketing budget.
• This investment aimed to increase brand awareness and lead generation, contributing to a 65% larger sales pipeline at the end of fiscal 2025 compared to the beginning of the year.

Sentiment Analysis:

Overall Tone: Positive

• "HawkSearch Suite... reaching 58% of our total revenue or $8.9 million"; "117% net revenue retention"; "average sales cycle reduced from 160 days ... to just 92 days"; "we've doubled our ad spend to $500,000 per quarter"; "we have a 65% larger pipeline at the end of fiscal 2025."

Q&A:

• Question from Casey Ryan (WestPark Capital, Inc., Research Division): 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?
  Response: The $8.9M ARR cited is HawkSearch-specific; total ARR/subscription-related cumulative revenue is $12.4M with an additional $3M in services.

• Question from Casey Ryan (WestPark Capital, Inc., Research Division): Will this ARR number be something you continue to share quarterly or will it be an annual number reported only at year-end?
  Response: Management intends to continue sharing HawkSearch ARR every quarter.

• Question from Casey Ryan (WestPark Capital, Inc., Research Division): On HawkSearch, have there been meaningful changes in contract length or commitment levels given dollars are clearly going up?
  Response: Average contract length remains about 2–3 years, but key changes are a shorter sales cycle (160 → 92 days) and a 35% increase in average ARR per sale (from $18.5K to $25K).

• Question from Casey Ryan (WestPark Capital, Inc., Research Division): Is the Salesforce AppExchange integration live and impactful to the September quarter or will its revenue/activations show up more in the December quarter and beyond?
  Response: AppExchange just started contributing—one sale in the September quarter with additional deals in the pipeline and expected acceleration in the current quarter and beyond.

• Question from Casey Ryan (WestPark Capital, Inc., Research Division): The sales and marketing spend was about $1.1M in the September quarter; can you confirm your comfort with that spend level moving forward?
  Response: Yes—management believes ~$1.1M per quarter (including $500K ad spend) is the appropriate S&M run-rate for 2026 and will reassess later in the year based on cash and profitability.

Contradiction Point 1

Market Focus and Interest in AI

It involves shifts in the company's focus and market interest in AI, which could impact strategic decisions, product development, and investor perception.

Can you clarify the shared ARR number and if it applies to all customers and products? - Casey Ryan (WestPark Capital)

2025Q4: We will continue to share this metric to underscore the focus on core products' growth. - Roger Kahn(CEO)

Can you provide an update on industry trends and customer interest in specific technologies? - Unidentified Analyst

2023Q2: One of the things that we’ve seen is an awful lot of interest in AI, and that’s driving some pretty interesting demand. - Ari Kahn(CEO)

Contradiction Point 2

Churn Rate and Customer Base Stability

It involves differing statements on the stability of the customer base and churn rate, which are critical for understanding the company's customer retention and growth strategies.

What is the outlook for non-HawkSearch revenue stability and growth potential? - Casey Ryan (WestPark Capital)

2025Q4: We expect our core HawkSearch revenue to dominate overall growth, with less than 4% churn rate in the stable customer base. - Roger Kahn(CEO)

Could you provide an update on the industry environment, including market conditions and customer interest in specific technologies? - Unidentified Analyst

2023Q2: We’re seeing the – our existing customers are continuing to make enhancements to their site. - Ari Kahn(CEO)

Contradiction Point 3

Sales Cycle and Customer Decisiveness

It involves changes in the sales cycle and customer decisiveness, which are crucial for understanding the company's growth trajectory and sales strategy.

Have there been notable changes in contract lengths or customer commitments related to HawkSearch? - Casey Ryan (WestPark Capital)

2025Q4: There's increased customer decisiveness, with an average sales cycle shortening from 160 to 92 days. - Roger Kahn(CEO)

Are you at an inflection point to boost sales efforts for new customers? - Howard Halpern (Taglich Brothers)

2025Q2: We're really not increasing sales and marketing personnel at this time because our automated go-to-market machine allows us to both generate and nurture leads -- and nurture leads with AI agents and push them through the funnel without increasing labor. - Ari Kahn(CEO)

Contradiction Point 4

Non-Core Revenue Stability

It involves the stability and potential growth of the non-HawkSearch revenue base, which impacts the overall revenue growth and diversification of the company.

Could you clarify the stability and growth potential of non-HawkSearch revenue? - Casey Ryan (WestPark Capital)

2025Q4: We expect our core HawkSearch revenue to dominate overall growth, with less than 4% churn rate in the stable customer base. - Roger Kahn(CEO)

When can we expect to see top-line revenue growth? - Howard Halpern (Taglich Brothers)

2025Q2: Growth in top line revenue. So in recent quarters, noncore revenue declined at nearly the same rate that core revenue grew, leaving us relatively flat overall. - Ari Kahn(CEO)

Contradiction Point 5

Customer Acquisition Strategy and New Customer Focus

It involves changes in the focus and strategy of customer acquisition, which could impact sales growth and new customer onboarding.

How stable is the non-HawkSearch revenue base and what growth potential does it have? - Casey Ryan (WestPark Capital)

2025Q4: We expect our core HawkSearch revenue to dominate overall growth, with less than 4% churn rate in the stable customer base. Our focus remains on growth through product innovation and market recognition. - Roger Kahn(CEO)

How has your customer acquisition strategy evolved? - Howard Halpern (Taglich Brothers)

2025Q3: Bridgeline has seen more bookings to existing customers than to new customers this year, with about 60% of sales coming from existing clients. This is attributed to high customer retention and expansion of services. The company aims to continue this trend while increasing marketing efforts to attract new customers. - Roger Kahn(CEO)