Bridgeline Digital, Inc. — Q3 FY2023 Form 10-Q Summary
Business context and reporting period
Bridgeline Digital provides marketing technology products, including HawkSearch, Celebros Search, Woorank, Unbound, TruPresence and OrchestraCMS. Products are primarily delivered through cloud-based SaaS, with certain perpetual-license and hosted options, supplemented by digital engagement services. The filing covers the three and nine months ended June 30, 2023, compared with the same periods in 2022. The company reported more than 2,000 active customers, with no customer representing more than 10% of revenue.
Financial performance and liquidity
| Metric | Q3 FY2023 | Q3 FY2022 | YTD FY2023 | YTD FY2022 |
|---|---|---|---|---|
| Total revenue | $3.910 million | $4.206 million | $12.087 million | $12.609 million |
| Subscription and perpetual-license revenue | $3.168 million | $3.394 million | $9.670 million | $10.117 million |
| Digital engagement services revenue | $0.742 million | $0.812 million | $2.417 million | $2.492 million |
| Gross profit | $2.643 million | $2.935 million | $8.279 million | $8.724 million |
| Gross margin | 68% | 70% | 68% | 69% |
| Loss from operations | $(0.665) million | $(0.403) million | $(1.689) million | $(1.488) million |
| Net income (loss) | $(0.781) million | $0.403 million | $(1.372) million | $2.620 million |
| Adjusted EBITDA | $(0.163) million | $0.063 million | $(0.192) million | $0.097 million |
| Operating cash flow | Not separately provided | Not separately provided | $0.349 million | $(0.998) million |
Q3 basic and diluted loss per share was $(0.07), compared with income per share of $0.04 in the prior-year quarter. Year-to-date basic and diluted loss per share was $(0.13), compared with prior-year basic and diluted income per share of $0.26 and $0.25, respectively.
- Cash and cash equivalents were $2.607 million at June 30, 2023, down from $2.856 million at September 30, 2022.
- Total debt was $0.743 million, including $0.210 million due within 12 months; aggregate debt fair value was approximately $0.6 million.
- Total current assets were $4.012 million versus current liabilities of $4.889 million, resulting in working capital of approximately $(0.877) million.
- Deferred revenue increased to $2.512 million current and $0.346 million long-term, compared with $1.943 million current and $0.384 million long-term at September 30, 2022.
- YTD investing cash use was $0.023 million, and financing cash use was $0.635 million, primarily for debt and contingent-consideration payments.
Material changes versus the prior comparable periods
- Revenue declined 7% in Q3 and 4% year to date. Subscription and perpetual-license revenue declined 7% in Q3 and 4% year to date; management attributed the year-to-date decline partly to reduced revenue from a particular customer and $0.1 million of prior-year perpetual-license sales.
- Digital engagement services revenue declined 9% in Q3 and 3% year to date.
- Gross margin decreased to 68% from 70% in Q3 and to 68% from 69% year to date.
- Sales and marketing expense decreased 13% in Q3 and 2% year to date, while research and development expense increased 21% in Q3 and 5% year to date, primarily due to personnel costs.
- Operating loss widened by $0.262 million in Q3 and $0.201 million year to date despite lower operating expenses overall.
- The prior-year periods benefited substantially from non-cash gains on warrant-liability remeasurement: $0.818 million in Q3 2022 and $3.693 million year to date, versus a $0.107 million loss in Q3 2023 and a $0.361 million gain year to date.
- Year-to-date operating cash flow improved to $0.349 million from $(0.998) million, primarily reflecting changes in accounts receivable and deferred revenue.
Guidance, outlook, risks and unusual items
The filing does not provide specific revenue, earnings or cash-flow guidance. Management stated that future revenue and cash flows are expected to supplement working capital and that the company believes its cost structure supports future revenue growth. The company has historically incurred operating losses and may use cash on hand and financing activities to fund operations and product development.
- The company may offer up to $50 million of debt or equity securities under its effective shelf registration, although no offering was active as of the filing date and there is no assurance that securities will be sold.
- Approximately $0.7 million of acquisition-related debt remained outstanding at June 30, 2023, with approximately $0.2 million payable over the next 12 months. Gross operating-lease obligations were approximately $0.4 million, with approximately $0.2 million due within 12 months.
- Warrant liabilities were $0.388 million at June 30, 2023 and are measured using Level 3 valuation inputs, including volatility and other assumptions. Changes in the stock price and valuation assumptions can materially affect earnings.
- The company had $15.985 million of goodwill and $5.236 million of net intangible assets. Future impairment could result from lower revenue, weaker financial performance, competitive or economic pressures, acquisitions or a decline in market value.
- Key disclosed risks include customer retention and upgrades, recurring-revenue growth, demand for the platform, competition, rapid technology changes, cybersecurity and data breaches, interoperability, acquisition execution, financing and banking-market conditions, stock-price volatility, Nasdaq listing compliance and internal controls.
- The company reported no material legal proceedings, no material changes to previously disclosed risk factors, no material warranty exposure and no material subsequent events. Disclosure controls were assessed as effective as of June 30, 2023.
Important facts for investors to verify
- Whether revenue declines stabilize and recurring SaaS revenue returns to growth.
- Whether the company can sustain positive operating cash flow while cash remains relatively limited and working capital is negative.
- Progress toward reducing operating losses and achieving positive Adjusted EBITDA, recognizing that Adjusted EBITDA is non-GAAP and was negative in both reported 2023 periods.
- Debt repayment requirements, potential financing needs and any future use of the $50 million shelf registration.
- The potential dilution and earnings volatility associated with 1.758 million outstanding warrants, 1.637 million outstanding options and convertible Series C preferred stock.
- Whether goodwill and intangible assets remain recoverable under changing revenue, profitability and market-value assumptions.