Bridgeline Digital, Inc. — Fiscal 2021 Form 10-K Summary
Reporting period: Fiscal year ended September 30, 2021. The filing is an annual report, not a standalone fourth-quarter report. Bridgeline provides marketing technology software and digital engagement services through its Unbound platform, OrchestraCMS, Celebros Search, Woorank and Hawk Search products. Its offerings include SaaS and perpetual licenses, hosting, search, personalization, eCommerce, content management, marketing automation and professional services.
Key Financial Metrics
| Metric | Fiscal 2021 | Fiscal 2020 | Change |
|---|---|---|---|
| Total revenue | $13.259 million | $10.907 million | Up 22% |
| Digital engagement services revenue | $3.296 million | $3.409 million | Down 3% |
| Subscription and perpetual license revenue | $9.963 million | $7.498 million | Up 33% |
| Gross profit | $8.726 million | $6.400 million | Up 36% |
| Gross margin | 66% | 59% | Improved 7 percentage points |
| Loss from operations | $1.183 million | $1.644 million | Improved 28% |
| Net income (loss) | $(6.689) million | $0.326 million | Declined $7.015 million |
| Net loss attributable to common shareholders | $(8.704) million | $(2.094) million | Worsened $6.610 million |
| Basic and diluted loss per share | $(1.47) | $(0.59) | Worsened |
| Cash used in operating activities | $(0.989) million | $(0.498) million | Higher use of cash |
| Cash used in investing activities | $(4.517) million | None reported | Primarily acquisitions |
| Cash provided by financing activities | $13.473 million | $1.048 million | Higher financing inflows |
| Cash and cash equivalents at period-end | $8.852 million | $0.861 million | Up $7.991 million |
- Revenue mix shifted toward higher-margin licenses: licenses represented 75% of revenue versus 69% in fiscal 2020.
- Operating expenses increased 23% to $9.909 million. Research and development rose 45% to $2.387 million, while restructuring and acquisition-related expenses rose to $1.235 million.
- The reported $5.885 million loss from the change in fair value of warrant liabilities was the primary reason for the large GAAP net loss. Fiscal 2020 included a $1.028 million warrant-liability gain.
- Fiscal 2021 included an $1.174 million income-tax benefit, primarily associated with the release of valuation allowance following the Hawk Search acquisition.
- Management reported Adjusted EBITDA of $1.442 million in the reconciliation, compared with $(0.116) million in fiscal 2020. Elsewhere in the MD&A, the filing states fiscal 2021 Adjusted EBITDA was $1.839 million; investors should reconcile this apparent inconsistency to the source calculation.
Financial Position, Debt and Liquidity
- Total assets increased to $34.967 million from $10.660 million, largely reflecting the Woorank and Hawk Search acquisitions.
- Total liabilities were $17.390 million, including $1.929 million of long-term debt, $4.404 million of warrant liabilities and $3.649 million of contingent consideration obligations.
- Current liabilities totaled $8.335 million, including $3.463 million of current purchase-price and contingent-consideration obligations and $2.097 million of deferred revenue.
- Debt maturities totaled $1.929 million, with $732 thousand payable within the next twelve months. Deferred purchase-price payments totaled $2.4 million, of which $2.2 million was expected within twelve months. Contingent consideration totaled $3.4 million, with $1.2 million expected within twelve months.
- Operating cash flow remained negative despite improved operating results. Financing inflows included approximately $5.8 million from Series A warrant exercises, $4.6 million from May 2021 common-stock and preferred-stock offerings, and approximately $2.5 million from a February 2021 common-stock offering.
- The $1.048 million PPP loan was fully forgiven, with final forgiveness approved by the SBA in August 2021.
- Stockholders’ equity increased to $17.577 million from $4.356 million, principally due to equity issuances and warrant exercises, partially offset by losses and deemed dividends.
Material Changes Versus Fiscal 2020
- Bridgeline acquired Woorank on March 1, 2021, for approximately $2.4 million, and Hawk Search on May 28, 2021, for approximately $9.9 million. The acquisitions added approximately $2.9 million of fiscal 2021 revenue and increased goodwill by $10.428 million and intangible assets by approximately $5.138 million.
- License revenue grew substantially, driven by multi-year renewals and the acquired businesses, while digital engagement services revenue declined modestly.
- Gross margin improved from 59% to 66%, reflecting a greater license mix, lower headcount and reduced third-party consultant costs.
- Operating loss narrowed, but net results deteriorated because of the warrant-liability remeasurement loss, increased interest and other expense, lower PPP grant income and a $2.015 million deemed dividend related to the Series D preferred stock beneficial conversion feature.
- Common shares outstanding increased from 4.420 million to 10.187 million. All Series D preferred shares issued in May 2021 were converted into common shares during the fourth quarter of fiscal 2021.
- At September 30, 2021, the Company had 1.789 million shares issuable under outstanding warrants and 799,201 outstanding stock options, creating material potential dilution.
Outlook, Commentary, Risks and Unusual Items
- Management intends to pursue continued organic growth, recurring license revenue and potential acquisitions to expand distribution, customers and development capabilities. No quantified revenue, profitability or cash-flow guidance was provided.
- Management stated that future revenues and cash flows are expected to supplement working capital and that the Company has a cost structure intended to support growth; however, operating cash flow was negative in fiscal 2021 and the Company acknowledges that additional financing may be required.
- Key risks include continued net losses, inability to achieve or sustain profitability, dependence on license renewals, competition and pricing pressure, long sales cycles, reliance on Amazon Web Services, cybersecurity and data-privacy exposure, rapid technological change, acquisition integration, personnel retention, COVID-19 effects and potential NASDAQ listing compliance issues.
- The Company reported an accumulated deficit of approximately $82.3 million and states that it may require additional financing to execute its business plan.
- Goodwill and long-lived assets were tested for impairment; no impairment was recorded for fiscal 2021 or 2020. The filing identifies business-combination valuation and derivative/warrant valuation as critical audit matters.
- The prior fiscal-year audit report contained a going-concern explanatory paragraph. The fiscal 2021 audit opinion presented the financial statements fairly but did not include such an explanatory paragraph.
- There were no material legal proceedings, no material subsequent events requiring adjustment or disclosure, and no off-balance-sheet arrangements other than operating leases.
- Marcum LLP was dismissed in February 2021 and PKF O’Connor Davies LLP was appointed as the fiscal 2021 auditor.
Important Facts for Investors to Verify
- Reconcile the conflicting fiscal 2021 Adjusted EBITDA figures of $1.442 million and $1.839 million.
- Assess whether the acquired Woorank and Hawk Search businesses can sustain the reported license-revenue growth and achieve the revenue targets underlying contingent consideration.
- Review near-term liquidity after considering $732 thousand of debt maturities, $2.2 million of deferred purchase-price payments and $1.2 million of expected contingent-consideration payments.
- Evaluate the effect of 1.789 million outstanding warrants, 799,201 options and other potentially issuable shares on dilution and warrant-liability volatility.
- Monitor recurring operating cash flow, customer renewal rates and the Company’s need for additional debt or equity financing.
- Review the assumptions supporting goodwill, intangible-asset and contingent-consideration valuations, including projected revenue, discount rates and volatility.
- Confirm the impact of COVID-19, cybersecurity, data-privacy, AWS service interruptions and competition on customer retention and margins.