Bridgeline Digital, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Bridgeline provides digital experience software and services, including SaaS and perpetual-license offerings, digital engagement services, eCommerce, content management, site search, marketing automation, portals and analytics. The filing covers the quarter and six months ended March 31, 2020. The financial statements are unaudited and presented in thousands, except per-share and share data.
Key Financial Metrics
| Metric | Three months ended March 31, 2020 | Three months ended March 31, 2019 | Six months ended March 31, 2020 | Six months ended March 31, 2019 |
|---|---|---|---|---|
| Revenue | $2.738 million | $2.196 million | $5.570 million | $4.571 million |
| Gross profit | $1.554 million | $0.589 million | $3.027 million | $1.475 million |
| Gross margin | 57% | 27% | 54% | 32% |
| Operating loss | $(0.997) million | $(1.971) million | $(1.958) million | $(6.705) million |
| Net income (loss) | $0.822 million | $(12.522) million | $0.959 million | $(17.477) million |
| Net income (loss) applicable to common shareholders | $0.795 million | $(12.600) million | $(1.461) million | $(17.634) million |
| Adjusted EBITDA | $(0.331) million | $(1.546) million | $(0.999) million | $(2.412) million |
| Cash flow from operations | Not separately provided for the quarter | Not separately provided for the quarter | $(0.090) million | $(2.549) million |
- Subscription and perpetual-license revenue increased 43% year over year in the quarter to $1.839 million and increased 38% for the six-month period to $3.575 million. Digital engagement services revenue was approximately flat.
- Revenue from the United States was $2.252 million in the quarter and $4.657 million for the six months; international revenue was $0.486 million and $0.913 million, respectively.
- The quarterly net income included a $1.820 million gain from the change in fair value of warrant liabilities. The six-month net income included a $2.921 million gain from this item.
- Cash and cash equivalents were $0.234 million at March 31, 2020, down from $0.296 million at September 30, 2019. Total current assets were $1.437 million versus current liabilities of $5.291 million.
- The Company reported zero debt at March 31, 2020. On April 17, 2020, it obtained a $1.0475 million Paycheck Protection Program loan bearing 1% interest, with potential forgiveness subject to program requirements.
- Total liabilities were $6.117 million and stockholders’ equity was $4.670 million at March 31, 2020. Warrant liabilities declined to $0.593 million from $3.514 million at September 30, 2019.
Material Changes Versus the Prior Comparable Period
- Revenue increased 25% in the quarter and 22% for the six months, primarily from license revenue contributed by two fiscal 2019 acquisitions, partially offset by canceled legacy SaaS subscriptions.
- Gross margin expanded substantially because of workforce reductions, lower delivery and subcontractor costs, and a greater mix of higher-margin license revenue.
- Operating losses narrowed, particularly for the six-month period, because the prior year included a $3.732 million goodwill impairment charge. The current period included no goodwill impairment.
- Operating expenses were essentially flat in the quarter at $2.551 million but declined 39% for the six months to $4.985 million. Depreciation and amortization increased because of acquisition-related intangible assets.
- The prior-year period included a $11.272 million warrant liability expense related to the Series C financing and $0.304 million of acquisition-related expenses. These charges did not recur.
- The Company amended its Series A convertible preferred stock in December 2019, reducing the conversion price to $1.75 per share and recognizing a $2.314 million deemed dividend. This caused a net loss applicable to common shareholders for the six-month period despite reported GAAP net income.
- Common shares outstanding increased to 3,412,281 at March 31, 2020 from 2,798,475 at September 30, 2019, primarily reflecting conversion of Series A preferred stock. The Company also had 5,493,130 warrants and 593,201 options outstanding at quarter-end.
Guidance, Outlook, Risks and Unusual Items
- Management did not provide quantitative revenue or earnings guidance.
- Management expects acquired businesses to contribute additional revenue and cash flow as integration continues, while maintaining tight control over discretionary spending.
- Management stated that the COVID-19 pandemic could affect operations, revenue, profitability and financial position, but the magnitude and duration were uncertain as of the filing.
- The Company implemented a March 2020 reduction in force affecting 15 U.S. and Canadian positions and recorded approximately $0.365 million of related expense, of which $0.155 million had been paid by March 31, 2020.
- Management concluded that there was substantial doubt about the Company’s ability to continue as a going concern for at least twelve months after issuance of the filing. Additional financing was considered necessary, but no definitive financing agreement was in place as of the filing date.
- The PPP loan provides near-term liquidity but creates debt and may be forgiven only to the extent the Company satisfies applicable payroll, rent and utility requirements. The filing does not state the amount ultimately expected to be forgiven.
- Customer concentration remained material: one customer represented approximately 13% of quarterly revenue and 12% of six-month revenue. Two customers represented approximately 18% and 14% of accounts receivable at March 31, 2020.
- Future results remain exposed to COVID-19, customer renewals and cancellations, competition, technology and cybersecurity risks, dependence on key personnel, limited access to capital, Nasdaq listing requirements, warrant and preferred-stock dilution, and potential impairment of goodwill or intangible assets.
- The Company reported no material legal proceedings and stated that its disclosure controls and procedures were effective as of March 31, 2020.
Most Important Facts for Investors to Verify
- Whether the Company can obtain sufficient financing and resolve the disclosed going-concern uncertainty.
- The post-quarter effect of COVID-19 on bookings, renewals, cancellations, collections and cash flow.
- The terms, use of proceeds and forgiveness status of the $1.0475 million PPP loan.
- Whether improved gross margins and reduced operating expenses are sustainable after restructuring and acquisition-related benefits.
- The potential dilution from 5.493 million outstanding warrants, 593,201 options and convertible preferred stock.
- The impact of the Series A preferred-stock conversion terms, accrued dividends and liquidation preference on common shareholders.
- The valuation sensitivity of the remaining $0.593 million Level 3 warrant liability and related non-cash gains or losses.
- Customer concentration, accounts-receivable collectibility and the adequacy of the $0.113 million allowance for doubtful accounts.