Bridgeline Digital, Inc. — Q1 FY2024 Summary
Reporting period: Three months ended December 31, 2023; Form 10-Q filed February 14, 2024. Amounts are in thousands unless otherwise stated. Bridgeline provides cloud-based SaaS and perpetual-license marketing technology, including search, personalization, SEO, content management, eCommerce and digital engagement products. The Company reports more than 2,000 active customers and no customer represented more than 10% of revenue.
Financial Results and Key Metrics
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Total revenue | $3,755 | $4,083 | Down 8% |
| Subscription and perpetual-license revenue | $3,086 | $3,229 | Down 4% |
| Digital engagement services revenue | $669 | $854 | Down 22% |
| Gross profit | $2,552 | $2,804 | Down 9% |
| Gross margin | 68% | 69% | Down 1 percentage point |
| Loss from operations | ($635) | ($362) | Loss increased $273 |
| Net loss | ($622) | ($80) | Loss increased $542 |
| Adjusted EBITDA | ($117) | $115 | Down $232 |
| Basic and diluted loss per share | ($0.06) | ($0.01) | Worsened |
- Revenue mix: Subscription and perpetual-license revenue represented 82% of total revenue, compared with 79% in the prior-year quarter. Subscription revenue was $2,706, maintenance revenue was $124, and hosting revenue was $256.
- Operating expenses: Sales and marketing declined 24% to $913; general and administrative expense declined 6% to $781; research and development increased 46% to $1,093; and depreciation and amortization was $385.
- Non-cash and unusual items: The Company recognized an $18 gain from the change in fair value of warrant liabilities, compared with a $297 gain in the prior-year quarter. Stock-based compensation was $112, and restructuring and acquisition-related expense was $15.
- Cash flow: Operating cash use was $896, compared with $82 in the prior-year quarter. Financing cash use was $84, primarily for long-term debt payments; there was no investing cash use.
- Liquidity: Cash and cash equivalents declined to $1,409 at December 31, 2023 from $2,377 at September 30, 2023. Current assets were $3,123 versus current liabilities of $4,378. The Company stated that it is maintaining tight control over discretionary spending.
- Debt: Total long-term debt was $646, including $213 due within the next 12 months. Debt consists principally of a term loan and seller’s note assumed in a 2021 acquisition.
- Equity and potential dilution: Common shares outstanding were 10,417,609. Outstanding options totaled 1,802,479 and warrants totaled 1,702,888; 350 shares of Series C preferred stock were convertible into 38,889 common shares.
Material Changes Versus the Prior Comparable Period
- Total revenue decreased $328, or 8%, primarily reflecting lower digital engagement services revenue and a reduction in revenue from a particular customer.
- Gross profit declined $252, while gross margin decreased modestly to 68% from 69%. Digital engagement services costs represented 56% of related revenue versus 49% in the prior-year quarter.
- Operating loss expanded to $635 from $362. Higher research and development personnel costs more than offset lower sales and marketing and general and administrative spending.
- Net loss increased substantially because of the larger operating loss and the absence of the prior year’s $297 warrant-liability gain.
- Operating cash burn increased to $896, driven by the higher net loss, increased accounts receivable and prepaid expenses, and a $402 decrease in deferred revenue.
- Deferred revenue declined to $1,660 current and $345 long-term from $2,084 current and $345 long-term at September 30, 2023.
Outlook, Risks and Unusual Items
- No specific revenue, profitability or cash-flow guidance was provided in the filing.
- Management expects future revenue and cash flows to supplement working capital and believes its cost structure can support future revenue growth, but the Company has a history of operating losses and continued negative operating cash flow.
- The Company may issue 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 financing would be available on acceptable terms.
- Key risks include customer retention and upgrades, recurring-revenue growth, demand for the platform, competition, rapid technology changes, cybersecurity and data privacy incidents, acquisition integration, financial-market instability, stock-price volatility, Nasdaq listing compliance and internal-control effectiveness.
- Goodwill was $8,468 and intangible assets were $4,544 at December 31, 2023. Future impairment could result from lower projected revenue or financial performance, adverse economic or competitive conditions, acquisitions or a decline in market value.
- The Company reported no material legal proceedings, no material changes to previously disclosed risk factors and no material subsequent events requiring disclosure. Disclosure controls were assessed as effective.
- The Company adopted the current expected credit loss standard and reported no material impact. It also adopted business-combination contract-liability guidance with no material impact.
- In February 2024, subsequent to quarter-end, the Company issued 250,000 management stock options at an exercise price of $0.83, vesting quarterly over three years.
Investor Verification Items
- Verify the Company’s ability to reduce operating cash burn and fund operations with only $1.4 million of cash at quarter-end.
- Assess whether the revenue decline, particularly in digital engagement services, is temporary or reflects continuing customer or demand weakness.
- Monitor research and development spending and whether increased investment produces measurable revenue or recurring-revenue growth.
- Review debt maturities, lease obligations and the timing of required cash payments, including $213 of current debt obligations and approximately $184 of net lease commitments.
- Evaluate potential dilution from 1.7 million warrants, 1.8 million options and convertible Series C preferred stock.
- Review the terms and feasibility of any future debt or equity financing under the $50 million shelf registration.
- Track warrant-liability remeasurement, goodwill and intangible-asset impairment exposure, and the effect of these non-cash items on reported earnings.