Bridgeline Digital, Inc. — Q1 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. Its offerings are delivered primarily through cloud-based SaaS arrangements, with certain perpetual-license options. The report covers the three months ended December 31, 2022, compared with the three months ended December 31, 2021. The filing was signed February 14, 2023.
Financial Metrics
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Total revenue | $4.083 million | $4.286 million | Down 5% |
| Digital engagement services revenue | $854 thousand | $869 thousand | Down 2% |
| Subscription and perpetual-license revenue | $3.229 million | $3.417 million | Down 6% |
| Gross profit | $2.804 million | $3.006 million | Down 7% |
| Gross margin | 69% | 70% | Down 1 percentage point |
| Loss from operations | $(362) thousand | $(479) thousand | Improved by $117 thousand |
| Net income/(loss) | $(80) thousand | $1.872 million | Down $1.952 million |
| Adjusted EBITDA | $115 thousand | $106 thousand | Up 8% |
| Operating cash flow | $(82) thousand | $79 thousand | Declined $161 thousand |
Basic and diluted loss per share was $(0.01), compared with basic earnings per share of $0.18 and diluted earnings per share of $0.06 in the prior-year quarter. The prior-year earnings benefited substantially from a $2.441 million gain in the fair value of warrant liabilities; the current quarter included a $297 thousand gain.
At December 31, 2022, cash and cash equivalents were $2.508 million, compared with $2.856 million at September 30, 2022. Current assets were $4.674 million and current liabilities were $5.072 million. Accounts receivable, net, increased to $1.589 million from $1.182 million, while deferred revenue was $1.913 million.
Total debt was $1.068 million, including $443 thousand classified as current and $625 thousand long term. Approximately $423 thousand of debt was scheduled to mature during the remaining fiscal 2023 period. The company also reported operating lease liabilities of $539 thousand, including $199 thousand current.
Material Changes Versus the Prior Comparable Period
- Revenue decreased 5%, primarily because a large customer restructured its website and reduced its subscription by approximately half, and because the prior-year quarter included approximately $100 thousand of non-recurring perpetual-license revenue.
- Gross margin declined to 69% from 70%, principally because of a lower proportion of higher-margin license revenue and increased subscription-related hosting costs.
- Operating expenses decreased 9% to $3.166 million. Sales and marketing, general and administrative, research and development, and depreciation and amortization expenses all declined; restructuring and acquisition-related expenses fell to zero from $98 thousand.
- Operating loss improved despite lower revenue, but net income declined sharply because the prior-year period included a much larger warrant-liability fair-value gain.
- Operating cash flow changed from a $79 thousand inflow to an $82 thousand outflow, primarily due to increases in accounts receivable and prepaid and other current assets.
- Financing cash use declined to $296 thousand from $2.504 million, primarily reflecting lower contingent-consideration and debt payments.
Outlook, Risks, Contingencies and Unusual Items
Management stated that the company has historically incurred operating losses and has used cash on hand and financing activities to fund operations and product development. Management believes future revenue and cash flows will supplement working capital and that the current cost structure supports future revenue growth. No specific revenue, earnings or cash-flow guidance was provided.
The company may sell up to $50 million of debt or equity securities under its effective shelf registration, although no offering was active at the filing date and there was no assurance that securities would be offered or sold successfully.
- Warrant liabilities were $452 thousand at December 31, 2022 and are remeasured using Level 3 valuation inputs, including stock-price volatility. Changes in these valuations can materially affect reported earnings without corresponding operating cash flows.
- The company had 1.758 million warrants outstanding and 1.192 million stock options outstanding, creating potential dilution. The 350 outstanding Series C preferred shares were convertible into 38,889 common shares.
- Key disclosed risks include customer retention and upgrades, recurring-revenue growth, demand for products, competition, technological change, cybersecurity and data breaches, acquisition integration, operating losses, liquidity, stock-price volatility, NASDAQ listing requirements 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 requiring adjustment or disclosure.
- Disclosure controls and procedures were assessed as effective as of December 31, 2022, with no material changes to internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Whether subscription revenue stabilizes following the large customer restructuring and whether recurring revenue resumes growth.
- Whether the company can generate consistent positive operating cash flow with only $2.508 million of cash at quarter-end and $423 thousand of debt due during the remaining fiscal 2023 period.
- The sensitivity of earnings and equity value to non-cash warrant-liability remeasurement and the company’s substantial outstanding options and warrants.
- Whether Adjusted EBITDA remains positive while GAAP operating and net income results remain negative; Adjusted EBITDA is a non-GAAP measure and is not a substitute for cash flow or GAAP profitability.
- The company’s ability to fund operations through internal cash generation or future securities offerings without materially diluting existing shareholders.