Bridgeline Digital, Inc. — Fiscal 2019 Form 10-K Summary
Business context and reporting period
Bridgeline Digital provides digital experience software and services, including content management, eCommerce, marketing automation, social media management, analytics, site search and managed hosting. Its offerings include the cloud-based Unbound platform, OrchestraCMS for Salesforce and Celebros Search.
The filing covers the fiscal year ended September 30, 2019, with fiscal 2018 as the comparable period. The company is a smaller reporting company listed on Nasdaq under BLIN. The filing was signed December 27, 2019.
Financial performance and condition
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Total revenue | $9.952 million | $13.568 million | Down 27% |
| Digital engagement services revenue | $4.117 million | $6.914 million | Down 40% |
| Subscription and perpetual licenses | $4.837 million | $5.609 million | Down 14% |
| Managed service hosting | $998 thousand | $1.045 million | Down 4% |
| Gross profit | $4.592 million | $6.820 million | Down 33% |
| Gross margin | 46% | 50% | Down 4 percentage points |
| Loss from operations | $(11.068) million | $(6.989) million | Loss increased 58% |
| Net loss | $(9.474) million | $(7.219) million | Loss increased 31% |
| Net loss attributable to common shareholders | $(9.789) million | $(7.529) million | Loss increased 30% |
| Basic loss per share | $(8.16) | $(89.05) | Improved after reverse split and share issuance |
| Adjusted EBITDA | $(5.160) million | $(1.059) million | Loss increased |
Operating expenses rose to $15.660 million from $13.809 million. Sales and marketing expense increased 22% to $4.824 million, general and administrative expense increased 6% to $3.246 million, and research and development expense increased 36% to $2.185 million. The filing also reports a $3.732 million goodwill impairment charge, $1.053 million of restructuring and acquisition-related expenses, and $620 thousand of depreciation and amortization.
Cash used in operating activities was $4.203 million, compared with $1.114 million in fiscal 2018. Cash used in investing activities was $5.699 million, primarily for acquisitions, compared with $50 thousand in fiscal 2018. Financing activities provided $9.547 million, principally from equity offerings.
At September 30, 2019, cash and cash equivalents were $296 thousand, accounts receivable net was $979 thousand, total assets were $11.155 million and total stockholders’ equity was $3.796 million. The company reported no outstanding debt at year-end, compared with $3.591 million at September 30, 2018. Warrant liabilities were $3.514 million.
Material changes versus the prior period
- Revenue declined $3.616 million, primarily because of lower digital engagement services revenue and the loss of a large SaaS customer.
- Gross margin fell from 50% to 46%. Management attributed the decline primarily to the lower services revenue mix and fixed costs associated with the cloud hosting model.
- Subscription and perpetual license revenue represented 49% of total revenue, versus 41% in fiscal 2018, while services revenue fell to 41% from 51%.
- Goodwill impairment declined to $3.732 million from $4.859 million, but the company remained substantially loss-making.
- The company completed the Seevolution asset acquisition for approximately $995 thousand of total consideration, including cash, deferred payments and 40,000 common shares, and acquired Stantive Technologies and its Australian subsidiary for approximately $5.2 million in cash.
- Acquisitions contributed approximately $2.145 million of fiscal 2019 revenue.
- The company completed a 1-for-50 reverse stock split effective May 1, 2019 and increased authorized shares before the reverse split from 50 million to 2.5 billion, subsequently reducing the authorized shares to 50 million on a post-split basis.
- The company raised approximately $5.0 million of net proceeds in an October 2018 offering and approximately $9.1 million in a March 2019 private offering. Proceeds were used to repay debt and fund the Stantive acquisition.
- ASC 606 was adopted using the modified retrospective method effective October 1, 2018. The filing states that revenue recognition was substantially unchanged; accumulated deficit decreased by approximately $78 thousand at adoption.
Guidance, outlook, commentary, risks and unusual items
Management expects acquisitions and newly acquired customers to supplement working capital and believes the cost structure can support future revenue growth. However, the filing provides no quantitative revenue, profitability or cash-flow guidance.
Management states that additional financing is required to adequately fund operations over the next twelve months. No definitive financing agreement was in place when the annual report was filed, and management concluded that substantial doubt existed regarding the company’s ability to continue as a going concern. The independent auditor included a going-concern explanatory paragraph.
Fiscal 2019 results included significant non-recurring or unusual items: $3.732 million of goodwill impairment, $1.053 million of restructuring and acquisition-related expenses, an $11.272 million warrant liability expense associated with the Series C preferred financing, and a $13.404 million gain from changes in the fair value of warrant liabilities. These warrant-related amounts materially affected reported net loss and other income.
Key disclosed risks include continuing operating losses, limited liquidity and dependence on additional financing, customer concentration, declining license renewals, intense competition, long and variable sales cycles, reliance on Amazon Web Services, cybersecurity and data-security exposure, intellectual-property risks, potential dilution from preferred stock and warrants, stock-price volatility and Nasdaq listing requirements. Two customers represented approximately 26% of fiscal 2019 revenue in aggregate.
The company had approximately $34 million of federal and $30 million of state net operating loss carryforwards, but substantially all deferred tax assets were subject to a valuation allowance. Net operating losses may also be limited under Internal Revenue Code Section 382.
Important facts for investors to verify
- Whether the company obtained sufficient financing after filing to address the disclosed going-concern uncertainty.
- Cash burn, customer collections, deferred revenue and operating cash flow in subsequent quarters.
- Revenue retention and renewal rates, particularly for the large customers whose contracts materially affect results.
- Post-acquisition revenue growth, integration costs and performance of the Seevolution and Stantive assets.
- The potential dilution from approximately 5.494 million outstanding warrants at September 30, 2019, Series A and Series C preferred stock, and other equity awards.
- The composition and future volatility of the $3.514 million warrant liability and related fair-value gains or losses.
- Whether recurring revenue and gross margins improve sufficiently to offset continued operating expenses and amortization.
- Compliance with Nasdaq minimum bid-price and other listing requirements.
- Lease commitments, restructuring obligations and the planned wind-down of Indian operations.