Bridgeline Digital (BLIN) Q3 FY2026 Earnings Call: Core Revenue Growth Narrows Losses

Bridgeline Digital (NASDAQ: BLIN) reported fiscal third-quarter 2026 revenue of $3.9 million for the period ended June 30, 2026. Core product growth and lower operating expenses helped narrow both the net loss and adjusted EBITDA loss.

Key Takeaways

• Total revenue increased to $3.9 million from $3.8 million in the prior-year quarter, while core product revenue rose to $2.4 million from $2.2 million.
• Core products represented 62% of total revenue and 66% of subscription revenue, up from 57% and 58%, respectively, a year earlier.
• Bridgeline signed nine new customers and 19 subscription contracts, generating $1.7 million in total contract value and more than $370,000 in annual recurring revenue.
• Core net revenue retention was 106%, reflecting customer retention and expansion across the core product portfolio.
• Net loss narrowed to $500,000 from $800,000, while adjusted EBITDA improved to negative $102,000 from negative $330,000.
• Management expects the company to remain approximately cash neutral in 2027, with some quarters modestly negative and others modestly positive.

Key Financial Data

Business and Operating Performance

HawkSearch remained the main growth engine. The company tied its record with nine new customer wins, while 10 existing customers purchased additional licenses. The resulting 19 subscription contracts carried $1.7 million in total contract value and more than $370,000 in ARR.

New business included a U.S. wholesale distributor that selected HawkSearch for a BigCommerce platform after a 14-day sales cycle. The deployment covers about 25,000 products and more than 450,000 monthly sessions.

A home and garden supplier launched the first two of five contracted deployments across its B2B and direct-to-consumer portfolio, covering approximately 80,000 SKUs. A large enterprise wholesale distributor also selected HawkSearch for five commerce sites, with potential expansion to eight.

HawkSearch was ranked first for the B2B search use case in Gartner’s 2026 Critical Capabilities for Search and Product Discovery, marking the second consecutive year it received that ranking. Bridgeline also reported increased adoption and pipeline activity for its AI Agent Suite, including Shopping Assistant and Analytics Assistant.

Management Outlook

Management expects core products to exceed 70% of total revenue and 75% of subscription revenue next year, based on current core growth and legacy-product attrition. The company said that, under those conditions, double-digit core compound annual growth could translate into double-digit growth for total revenue.

Bridgeline currently spends about $350,000 per quarter on lead generation. Management expects to maintain that level without significant cash burn, citing internal operating synergies and greater use of artificial intelligence.

For 2027, management expects cash flow to remain broadly neutral, with modest positive or negative results depending on the quarter. The company intends to prioritize growth investment rather than maximize near-term cash generation, while seeking to avoid a non-accretive capital raise.

Risks and Points to Watch

Bridgeline remained loss-making in the quarter, despite improvement in net loss and adjusted EBITDA. Subscription and services gross margins also declined from the prior-year period.

Legacy-product attrition continues to offset part of the growth generated by HawkSearch and other core products. Management’s expectation for total revenue to reach double-digit growth depends on the core business continuing to expand and becoming a larger share of the revenue mix.

The company ended the quarter with $1.5 million in cash. Management said discretionary advertising spending provides flexibility to manage cash flow, but its cash-neutral outlook remains dependent on operating performance and spending discipline.

Investor Q&A Highlights

Management said the increased sales and marketing investment funded by the March 2025 capital raise produced a positive return, pointing to two consecutive quarters of record new-logo sales. Current lead-generation spending is approximately $350,000 per quarter.

Asked when core growth could offset legacy declines, management said core products already account for 62% of total revenue and 66% of subscription revenue. It expects those figures to rise above 70% and 75%, respectively, next year.

Management also emphasized Bridgeline’s transition from a digital-agency roll-up into a software-focused business centered on HawkSearch, supported by cash-generating legacy products and a balance sheet carrying $187,000 of debt at June 30, 2026.

Full Earnings Call Transcript

Complete Earnings Call Transcript

Management Remarks

Operator

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.

Thomas Windhausen

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?

Roger Kahn

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?

Thomas Windhausen

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.

Thomas Windhausen

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?

Roger Kahn

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.

Thomas Windhausen

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?

Roger Kahn

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.

Thomas Windhausen

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?

Roger Kahn

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.

Thomas Windhausen

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.

Roger Kahn

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.

Thomas Windhausen

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

Operator

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

Thomas Windhausen

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

Roger Kahn

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.

Operator

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.