Bridgeline Digital, Inc. — Q2 FY2021 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, site search, content management, eCommerce, marketing automation, analytics and SEO tools. The report covers the three and six months ended March 31, 2021, compared with the corresponding 2020 periods. The company is a smaller reporting company listed on Nasdaq under BLIN.
Key financial metrics
| Metric | Three months ended March 31 | Six months ended March 31 |
|---|---|---|
| Total revenue | $2.874 million, up 5% | $5.710 million, up 2% |
| Subscription and perpetual-license revenue | $1.989 million, up 8% | $3.988 million, up 12% |
| Digital engagement services revenue | $885 thousand, down 2% | $1.722 million, down 14% |
| Gross profit | $1.808 million | $3.687 million |
| Gross margin | 63%, versus 57% | 65%, versus 54% |
| Operating income (loss) | $(127) thousand, versus $(997) thousand | $52 thousand, versus $(1.958) million |
| Net income (loss) | $(556) thousand, versus $822 thousand | $(1.718) million, versus $959 thousand |
| Adjusted EBITDA | $235 thousand, versus $(331) thousand | $907 thousand, versus $(999) thousand |
| Operating cash flow | Not separately provided for the quarter | $203 thousand, versus $(90) thousand |
Basic and diluted loss per share was $(0.11) for the quarter and $(0.36) for the six-month period. Results were materially affected by noncash warrant-liability remeasurement losses of $418 thousand for the quarter and $1.859 million for the six months; the comparable prior-year periods included gains of $1.820 million and $2.921 million, respectively.
At March 31, 2021, cash and cash equivalents were $3.497 million, compared with $861 thousand at September 30, 2020. Total current assets were $5.145 million and current liabilities were $6.459 million. Total debt was $2.120 million, including $659 thousand due within one year. Warrant liabilities were $4.205 million, and stockholders’ equity was $5.389 million.
Material changes versus the prior comparable period
- Revenue increased modestly, driven by subscription and license growth, including multi-year renewals and one month of Woorank revenue. Digital engagement services declined.
- Gross margin expanded by six percentage points for the quarter and 11 percentage points for the six months, primarily from lower headcount and a greater mix of higher-margin license revenue.
- Operating expenses declined 24% for the quarter and 27% for the six months, mainly from lower sales and marketing, general and administrative, headcount and hosting-related costs. Research and development increased slightly.
- The company acquired Woorank SRL on March 1, 2021, for preliminary total consideration of $2.779 million, including cash, stock, seller financing and contingent consideration. The acquisition contributed $153 thousand of revenue during the quarter.
- The acquisition added approximately $2.1 million of assumed debt, a $352 thousand seller note, $487 thousand of deferred purchase consideration and $1.6 million of contingent earn-out obligations.
- Common shares outstanding increased to 5.392 million at March 31, 2021 from 4.420 million at September 30, 2020, primarily reflecting equity issuance, warrant and option exercises, and acquisition consideration.
- Cash increased by $2.636 million during the six months, including $2.104 million from financing activities, principally the February registered direct offering that generated approximately $2.5 million net.
Guidance, outlook, risks and unusual items
Management stated that it is maintaining tight control over discretionary spending and believes revenue and working capital are sufficient to support future growth. The filing does not provide formal revenue, earnings or cash-flow guidance.
- On May 11, 2021, the company agreed to acquire Hawk Search for approximately $9.25 million, subject to adjustments, with potential total consideration of up to $11.83 million including earn-out payments. Closing was conditioned on financing, approvals and other customary conditions.
- On May 14, 2021, the company raised approximately $2.4 million gross through a common-stock offering and approximately $2.7 million gross through a Series D preferred-stock private placement with warrants. The proceeds were intended partly to fund Hawk Search payments and working capital.
- The company suspended its at-the-market offering in December 2020 and had sold no shares under that facility as of March 31, 2021. Management noted uncertainty regarding future financing and the ability to achieve revenue growth and improved cash flows.
- The company recognized $88 thousand of PPP grant income and applied for full forgiveness of its $1.048 million PPP loan. Forgiveness had not been objectively assured as of the filing.
- COVID-19 may affect operations, customers, suppliers, revenues, profitability and liquidity. Other key risks include customer retention, competition, cybersecurity and data privacy, technology changes, acquisition integration, dilution, Nasdaq listing compliance and the company’s history of losses.
- One customer represented approximately 10% of quarterly and six-month revenue. Two customers represented approximately 28% and 18% of accounts receivable at March 31, 2021.
- The filing reports no material legal proceedings and states that disclosure controls and procedures were effective as of March 31, 2021.
Important facts for investors to verify
- Whether Hawk Search closed on the stated timetable and the final purchase price, financing terms, earn-out exposure and integration results.
- The final accounting and fair values for the Woorank acquisition, including goodwill, intangible assets, contingent consideration and acquired debt.
- Whether the PPP loan was forgiven in full and whether any repayment obligation or adjustment arose.
- Liquidity after the May 2021 equity and preferred-stock financings, including cash available for Hawk Search payments and debt service.
- The sustainability of improved gross margins and Adjusted EBITDA, given continued GAAP losses and significant noncash warrant remeasurement volatility.
- Potential dilution from approximately 2.945 million outstanding warrants, options, convertible preferred stock and contingent acquisition shares.
- Customer concentration, recurring subscription growth, retention and renewal performance, and the effect of COVID-19 on demand.