Bridgeline Digital, Inc. 10-Q Summary
Business Context and Reporting Period
This Quarterly Report on Form 10-Q covers the period ended June 30, 2010. Bridgeline Digital, Inc. (formerly Bridgeline Software, Inc.) is a developer of web engagement management software (iAPPS) and interactive technology solutions. The company operates from its headquarters in Woburn, MA, with regional offices across the U.S. and a subsidiary in Bangalore, India. The company is classified as a smaller reporting company.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2010 | Nine Months Ended June 30, 2010 |
|---|---|---|
| Total Revenue | $5.80 million | $16.67 million |
| Gross Profit | $3.12 million (53.9% margin) | $8.95 million (53.7% margin) |
| Net Income | $35,000 | $275,000 |
| Adjusted EBITDA | $598,000 | $1.81 million |
| Cash from Operations | N/A | $1.72 million |
| Cash and Equivalents (End of Period) | $2.86 million | |
| Total Debt (Current + Long Term) | $2.15 million |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased 3% ($204k) for the quarter and 10% ($1.9m) for the nine-month period compared to the prior year. This was driven by a 7% drop in web application development services and a 25% drop in managed service hosting, attributed to a strategic shift toward iAPPS opportunities and general economic conditions.
- License Growth: Subscription and perpetual license revenue increased significantly, up 129% for the quarter and 44% for the nine-month period.
- Profitability: Net income decreased 80% for the quarter ($178k to $35k) and 51% for the nine-month period ($561k to $275k). Operating income declined due to lower revenue and increased professional fees related to acquisitions.
- Acquisitions: The company acquired TMX Interactive, Inc. in May 2010. Goodwill increased by $1.69 million due to this acquisition and $1.3 million from accrued earnouts on prior acquisitions.
Outlook, Risks, and Unusual Items
- Subsequent Acquisition: On July 9, 2010, the company acquired e.magination Network, LLC for $2.65 million in cash plus up to $2.07 million in contingent consideration (cash and stock earnouts).
- Liquidity: The company maintains a $5 million revolving credit facility with Silicon Valley Bank. As of June 30, $1.7 million was outstanding, which was repaid in July 2010. Management believes cash from operations and the credit line are sufficient for foreseeable needs.
- Goodwill Impairment Risk: Goodwill represents a significant portion of assets ($16.9 million). The company notes that if market capitalization declines or earnout payments increase the carrying value, future impairment charges may be necessary.
- Customer Concentration: No single customer represented more than 10% of revenue, though two customers each represented 6% of revenue in the quarter.
Investor Verification Checklist
- Verify the status of the $1.7 million in contingent earnout payments required to be met by June 2012 to avoid goodwill write-downs.
- Confirm the integration progress and revenue contribution of the TMX Interactive and e.magination acquisitions.
- Monitor the trend in web application development services revenue, which continues to decline as the company pivots to software licensing.
- Review the company's ability to maintain its Nasdaq listing requirements given the modest net income and accumulated deficit of $15.3 million.
- Assess the impact of the new $5 million credit facility covenants on future operational flexibility.