Bridgeline Software, Inc. - 10-Q Summary
Business Context and Reporting Period
This filing is a Quarterly Report on Form 10-Q for Bridgeline Software, Inc. (a smaller reporting company) for the period ended June 30, 2009. The company develops web application management software (iAPPS, Base10, Orgitecture) and provides interactive business technology solutions, including web development, hosting, and analytics. The company operates regional offices in the U.S. and a development center in Bangalore, India.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2009 | Nine Months Ended June 30, 2009 |
|---|---|---|
| Total Revenue | $6.0 million | $18.6 million |
| Gross Profit | $3.3 million (55% margin) | $10.3 million (55% margin) |
| Net Income | $178,000 | $561,000 |
| Operating Cash Flow | N/A | $2.0 million |
| Cash and Equivalents | $2.8 million (Balance Sheet) | $2.8 million (Balance Sheet) |
| Debt (Line of Credit) | $1.25 million | $1.25 million (Repaid July 2009) |
| Accumulated Deficit | ($15.8 million) | ($15.8 million) |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 5% year-over-year (YoY) for the quarter and 21% YoY for the nine-month period. Application development services grew 8% (quarter) and 20% (nine months), while managed services grew 17% (quarter) and 51% (nine months). Subscription and perpetual license revenue declined 41% for the quarter but grew 7% for the nine months.
- Profitability: Net income increased 166% for the quarter and 160% for the nine months compared to the prior year periods. Operating income improved significantly, rising 373% for the quarter and 280% for the nine months.
- Cost Structure: Cost of revenue increased 3% (quarter) and 16% (nine months). Gross margins improved slightly to 55% from 54% in the prior year periods. Research & Development expenses surged 211% for the quarter and 139% for the nine months due to the relocation of R&D personnel and expensing of software costs.
- Balance Sheet: Accounts receivable decreased from $5.7 million to $4.1 million. Goodwill increased to $13.5 million due to contingent acquisition payments and purchase price allocation adjustments.
Guidance, Outlook, and Risks
- Outlook: Management expects cash from operations and the line of credit to be sufficient for working capital needs. Capital expenditure requirements for the remainder of fiscal 2009 are estimated at $150,000.
- Product Strategy: The company plans to sunset the Orgitecture and Base10 products in December 2010, focusing on the iAPPS suite.
- Internal Controls: The company disclosed a material weakness in internal controls regarding revenue recognition and equity identified in the prior year audit. Management is investing approximately $100,000 to remediate these issues, including hiring personnel and consultants.
- Risks: Key risks include dependence on key personnel, the impact of the global financial deterioration, the ability to maintain Nasdaq listing, and the success of future acquisitions. The company also faces risks related to license renewal rates and competition.
- Debt: The company has a revolving line of credit of up to $3.0 million (secured by all assets). The outstanding balance of $1.25 million was repaid in July 2009.
Investor Verification Checklist
- Verify the sustainability of the 55% gross margin given the shift in revenue mix toward services.
- Confirm the status of the remediation plan for the material weakness in internal controls over financial reporting.
- Monitor the repayment status of the line of credit and any future borrowing needs given the accumulated deficit of $15.8 million.
- Assess the impact of the planned sunset of Base10 and Orgitecture products on future recurring revenue.
- Review the details of contingent acquisition payments (approx. $2.5 million remaining potential liability) for Indigio and Tenth Floor.