Bridgeline Digital, Inc. — Form 10-Q Summary
Reporting period: Three and six months ended March 31, 2016; filed May 16, 2016. Bridgeline provides digital engagement software and services through its iAPPS platform, including web content management, eCommerce, eMarketing, analytics, SaaS subscriptions, perpetual licenses, professional services, and managed hosting. The company had approximately 3,000 customers and 5,434,306 common shares outstanding as of May 3, 2016.
Financial performance and position
| Metric | Three months ended March 31, 2016 | Three months ended March 31, 2015 | Six months ended March 31, 2016 | Six months ended March 31, 2015 |
|---|---|---|---|---|
| Total revenue | $4.231 million | $4.787 million | $8.474 million | $9.799 million |
| Gross profit | $2.243 million | $1.737 million | $4.397 million | $3.682 million |
| Gross margin | 53% | 36% | 52% | 38% |
| Operating loss | $(677) thousand | $(1.842) million | $(1.736) million | $(3.754) million |
| Net loss | $(1.005) million | $(2.073) million | $(2.353) million | $(4.183) million |
| Net loss applicable to common shareholders | $(1.037) million | $(2.103) million | $(2.417) million | $(4.234) million |
| Loss per common share | $(0.20) | $(0.49) | $(0.46) | $(0.98) |
| Adjusted EBITDA | $25 thousand | $(1.174) million | $90 thousand | $(2.420) million |
- Revenue mix: Digital engagement services were $2.389 million for the quarter, down 22%; subscription and perpetual licenses were $1.522 million, up 12%; and managed hosting was $320 thousand, down 14%. Six-month changes were down 24%, up 11%, and down 14%, respectively.
- Cash flow: Cash used in operating activities was $729 thousand for the six months, compared with $2.193 million used in the prior-year period. Investing cash use was $50 thousand. Financing activities provided $593 thousand.
- Cash and liquidity: Cash and cash equivalents were $154 thousand at March 31, 2016, down from $337 thousand at September 30, 2015. Accounts receivable and unbilled receivables were $2.239 million.
- Debt: Total debt was $8.246 million, including $2.315 million of line-of-credit borrowings, $3.0 million of subordinated convertible debt, and $3.0 million of shareholder term notes. Current debt was $5.315 million and long-term debt was $2.931 million.
- Balance sheet: Total assets were $17.736 million, total liabilities were $13.612 million, and stockholders’ equity was $4.124 million. Goodwill remained $12.641 million following a $10.5 million impairment charge recorded in fiscal 2015.
Material changes versus the prior comparable period
- Revenue declined 12% in the quarter and 14% for the six months, primarily because of fewer new iAPPS implementations and lower non-iAPPS service and hosting revenue.
- Gross margin improved substantially to 53% for the quarter and 52% for the six months, primarily from aligning labor and facility costs with lower expected revenue.
- Sales and marketing, general and administrative, and research and development expenses declined as a result of lower headcount and facility costs. Total operating expenses fell 18% in both comparison periods.
- Restructuring charges were $194 thousand in the quarter and $780 thousand for the six months, related to workforce reductions, lease terminations, and office consolidation. Accrued restructuring liabilities totaled $738 thousand at March 31, 2016.
- Adjusted EBITDA improved to positive $25 thousand for the quarter and $90 thousand for the six months, but GAAP net losses continued.
- The company raised $669 thousand net from issuing 680,000 common shares and received $1.0 million in shareholder term-note proceeds during the six months.
Guidance, outlook, risks, and unusual items
- Management stated that expense reductions, debt restructuring, equity financing, and potential additional working capital were expected to fund operations for at least the next twelve months, but acknowledged that this depended on closing a new bank facility and converting a significant portion of convertible debt to equity.
- A March 2016 term sheet contemplated replacing the BridgeBank facility with a new revolving facility of up to $3.0 million at an indicated interest rate of 5.25%, compared with 8.25% under BridgeBank. The new agreement had not yet been executed as of the filing date.
- On April 29, 2016, shareholders approved proposals allowing conversion of up to $3.0 million of shareholder term notes and $3.0 million of convertible notes into common stock at $0.75 per share, subject to the applicable agreements and holder actions.
- On May 11, 2016, the company issued 1,806,680 common shares for net proceeds of approximately $1.2 million in the first closing of a term-note financing.
- The company was not in compliance with Nasdaq’s $1.00 minimum bid-price requirement. It had until August 23, 2016 to regain compliance, subject to possible additional review or compliance periods; delisting could reduce liquidity and impair future capital raising.
- Management identified continuing operating losses, limited cash, debt maturities, dependence on financing and debt conversions, revenue volatility, competition, customer renewals, technology and security risks, key-person dependence, and internal-control risks as material considerations.
- No material legal proceedings were reported. The company stated that disclosure controls and procedures were effective and that no material changes had occurred in internal control over financial reporting.
Important facts for investors to verify
- Whether the replacement bank credit facility was executed on the anticipated timetable and whether its borrowing availability and covenant requirements were sufficient.
- How much of the $3.0 million convertible notes and $3.0 million of shareholder term notes ultimately converted to equity, and the resulting dilution.
- The company’s ability to maintain Nasdaq listing compliance and access additional capital if required.
- Whether positive Adjusted EBITDA can be sustained while revenue remains below the prior-year level; Adjusted EBITDA is non-GAAP and does not eliminate the company’s continuing GAAP losses or cash requirements.
- The pace of recovery in digital engagement services and the sustainability of improved gross margins after restructuring benefits are realized.
- The timing and cash requirements of remaining debt, contingent acquisition payments, preferred-stock dividends, lease obligations, and restructuring liabilities.