[Management View]
Bridgeline Digital reported total revenue of $3.8 million for Q3 2025, with subscription license revenue rising to $3.1 million (81% of total revenue) and services revenue declining to $700,000 (19% of total revenue). Hawk Search contributed over 60% of quarterly revenue, supported by strong customer expansion, high net revenue retention (114%), and recognition as the top B2B search software provider by Gartner. The company doubled its marketing budget to $500,000 per quarter, leveraging strategic partnerships and events to accelerate lead generation and shorten sales cycles.

[Outlook]
Management guided professional services revenue to remain steady at $750,000 per quarter with a 50% gross margin through fiscal 2025 and 2026. The focus remains on growing subscription license revenue, driven by Hawk Search's AI-powered features and customer adoption. Marketing investments are expected to sustain at $500,000 per quarter, with continued emphasis on expanding customer acquisition and pipeline development.

[Financial Performance]
Revenue declined slightly YoY from $3.9 million to $3.8 million, while subscription license revenue grew from $3.0 million to $3.1 million. Services revenue fell from $900,000 to $700,000. Gross margin decreased to 66% from 68%, with subscription license gross margin at 70% (down from 72%) and services gross margin at 50% (down from 58%). Operating expenses increased to $3.2 million from $3.1 million, and net loss widened to $800,000 from $300,000. Adjusted EBITDA was negative $330,000, compared to positive $3,000 in the prior-year period.

[Q&A Highlights]
Question 1: How has your customer acquisition strategy evolved?
Answer: Bridgeline has shifted from experimenting with two-thirds of its marketing budget to investing two-thirds in proven campaigns, leveraging analytics to optimize lead generation. Analyst recognition and customer satisfaction are now integrated into the sales cycle to accelerate decision-making.

Question 2: Where does your pipeline stand regarding new and existing customers?
Answer: About 60% of sales are to existing customers, reflecting strong product value and reducing customer acquisition costs. Existing customers are expanding investments in AI-driven products like SmartSearch, contributing to 114% net revenue retention.

Question 3: Are you receiving customer feedback on new technology enhancements?
Answer: Feedback from professional services and customer success teams drives product innovation, leading to features like multisite management and advanced analytics. AI-powered SmartSearch and MCP were developed in response to customer needs and technological advancements.

Question 4: Will marketing spend continue at current levels?
Answer: Marketing spend has doubled to $500,000 per quarter following a March capital raise and is expected to remain at this level through fiscal Q1 2026, producing strong lead generation and pipeline development.

Question 5: How are competitors responding to Hawk Search's success?
Answer: Competitors often offer free professional services to compensate for gaps in capabilities, but Bridgeline emphasizes the sustainability and scalability of its out-of-the-box solutions.

Question 6: What is the outlook for professional services revenue?
Answer: Professional services revenue is expected to remain consistent at $750,000 per quarter, with a focus on growing subscription licenses and leveraging agency partnerships for implementation.

Question 7: Does Hawk Search have significant customer concentration?
Answer: No single customer contributes 5% or more of Hawk Search revenue. Strategic relationships with partners like Hewlett Packard and Consolidated Electrical Distributors drive innovation and growth.

[Sentiment Analysis]
Management conveyed optimism about Hawk Search's growth trajectory and the impact of marketing investments. Analysts expressed encouragement regarding execution and pipeline development, with questions focused on sustainability and competitive positioning.

[Quarterly Comparison]
| Metric | Q3 2025 | Q3 2024 | YoY Change |
|-------------------------------|-----------------|-----------------|------------------|
| Total Revenue | $3.8M | $3.9M | -2.6% |
| Subscription License Revenue | $3.1M | $3.0M | +3.3% |
| Services Revenue | $0.7M | $0.9M | -22.2% |
| Gross Margin | 66% | 68% | -2pp |
| Net Loss | $0.8M | $0.3M | +166.7% |
| Adjusted EBITDA | -$0.33M | $0.003M | N/A |

[Risks and Concerns]
1. Declining services revenue and gross margins may impact overall profitability.
2. Increased marketing spend requires sustained ROI to justify long-term investment.
3. Competitive pressures, including free professional services from rivals, could challenge customer acquisition.
4. Dependence on Hawk Search for growth may expose the company to risks if adoption slows.

[Final Takeaway]
Bridgeline Digital's Q3 2025 results highlight Hawk Search as the primary growth driver, supported by strategic marketing expansion and product innovation. While subscription license revenue is growing, declining services revenue and widening losses underscore the need for operational efficiency. Management's focus on AI-powered features and customer retention positions the company for sustained growth, but competitive pressures and execution risks remain key considerations for investors.