Bridgeline Digital, Inc. Fiscal 2013 Form 10-K Summary
Business Context and Reporting Period
Bridgeline Digital develops and delivers the iAPPS web engagement management platform, integrating content management, eCommerce, eMarketing, social media and analytics. Revenue is generated from digital engagement services, managed hosting, and subscription or perpetual software licenses. The filing covers the fiscal year ended September 30, 2013; it is an annual filing rather than a quarterly report.
During fiscal 2013, the Company acquired ElementsLocal, a SaaS franchise web-platform developer with more than 3,200 franchises on its platform. Bridgeline had approximately 2,500 active customers and 165 employees worldwide at year-end. No customer represented more than 10% of revenue.
Financial Performance and Position
| Metric | Fiscal 2013 | Fiscal 2012 | Change |
|---|---|---|---|
| Total revenue | $24.5 million | $26.3 million | Down 7% |
| iAPPS-related revenue | $18.8 million | $16.6 million | Up 13% |
| Subscription and perpetual-license revenue | $4.0 million | $2.5 million | Up 59% |
| Recurring revenue | $5.1 million | $4.2 million | Up 23% |
| Digital engagement services | $18.6 million | $21.3 million | Down 13% |
| Managed service hosting | $1.9 million | $2.5 million | Down 24% |
| Gross profit | $13.0 million | $14.5 million | Down 11% |
| Gross margin | 52.9% | 55.2% | Down 2.3 percentage points |
| Loss from operations | $(3.2) million | $(0.6) million | Loss increased |
| Net loss | $(3.6) million | $(0.9) million | Loss increased |
| Adjusted EBITDA | $(0.7) million | $2.0 million | Declined $2.7 million |
| Basic and diluted loss per share | $(0.23) | $(0.07) | Worsened |
| Cash flow from operations | $(77) thousand | $279 thousand | Declined |
| Cash and cash equivalents | $2.8 million | $2.1 million | Increased $0.7 million |
At September 30, 2013, total assets were $37.0 million and stockholders’ equity was $22.7 million. Total debt was $5.9 million, including $3.5 million under the Silicon Valley Bank credit line, $272 thousand under a term loan, and $2.0 million of 10% secured subordinated convertible notes. Current liabilities were $6.9 million versus current assets of $7.0 million.
Investing activities used $2.3 million, including $814 thousand of capitalized software development costs, $545 thousand for equipment and improvements, acquisition spending and contingent acquisition payments. Financing activities provided $3.0 million, primarily from equity issuance, convertible debt and bank borrowings.
Material Changes Versus the Prior Comparable Period
- Total revenue declined because non-iAPPS digital engagement revenue fell $3.9 million, or 50%, and managed hosting revenue declined $596 thousand.
- Growth in iAPPS-related services, subscription licenses and recurring revenue partially offset the decline in non-iAPPS activities.
- Gross margin decreased as the Company experienced unused digital-engagement capacity and higher costs associated with subscription licenses, software amortization and network operations.
- Sales and marketing expense increased 11% and general and administrative expense increased 14%, while total operating expenses increased 7% despite lower revenue.
- The Company’s operating loss increased to $3.2 million, and adjusted EBITDA shifted from positive $2.0 million to negative $0.7 million.
- Shares outstanding increased to 18.3 million from 15.2 million, primarily reflecting a $2.3 million common-stock private placement, acquisition-related equity issuance and other equity activity.
- Goodwill increased to $23.8 million from $21.5 million following acquisitions and contingent consideration. Management’s qualitative impairment review did not identify a required goodwill impairment charge.
Guidance, Outlook, Risks, Contingencies and Unusual Items
Management did not provide formal revenue or earnings guidance. Management stated that cash generated from operations, bank financing, common-stock proceeds and convertible debt were expected to fund working-capital and capital-expenditure needs for the foreseeable future. Management also expected subscription-license cost percentages to improve in fiscal 2014 as the ElementsLocal acquisition and additional iAPPS license sales expanded the customer base.
- In December 2013, BridgeBank replaced the prior SVB facility with up to $5.0 million of revolving credit, subject to borrowing-base limits, secured by substantially all assets and intellectual property and subject to financial covenants.
- The Company raised an additional $1.0 million of 10% secured subordinated convertible notes in November 2013, bringing the total notes issued under the arrangement to $3.0 million. The notes are convertible at $1.30 per share and mature three years from issuance.
- Debt, leases and contingent acquisition payments represented approximately $14.1 million of disclosed contractual obligations, excluding up to $0.8 million of potential common-stock earnout consideration.
- ElementsLocal consideration included $463 thousand in cash, $604 thousand in common stock, assumed debt of $188 thousand, and contingent consideration of up to $904 thousand in cash and $396 thousand in stock.
- The Company settled litigation with e.Magination’s principal owner for total payments of $300 thousand, payable over 18 months beginning in August 2013.
- The Company reported a federal net operating loss carryforward of approximately $8.0 million, but maintained a full valuation allowance against net deferred tax assets. Utilization may be restricted under Internal Revenue Code Section 382; the Company had not completed a Section 382 analysis.
- Principal risks include sustained operating losses and limited operating cash flow, dependence on financing, debt and covenant compliance, volatile revenue and lengthy sales cycles, customer renewal rates, intense competition, rapid technology changes, software security and performance, intellectual-property claims, third-party hosting disruptions, acquisition integration, and dependence on key personnel.
- The Company’s common stock was relatively thinly traded and volatile; fiscal 2013 closing prices ranged from $0.99 to $2.40. No cash dividends were declared or paid, and none were anticipated.
Important Facts for Investors to Verify
- Verify the Company’s post-year-end liquidity, borrowing availability and compliance with BridgeBank financial covenants.
- Assess whether iAPPS, subscription and recurring-revenue growth can offset continued declines in non-iAPPS services and hosting revenue.
- Review gross-margin trends and whether subscription-license costs declined as management expected in fiscal 2014.
- Evaluate the sustainability of operations given the fiscal 2013 operating loss, negative operating cash flow and dependence on external financing.
- Review potential dilution from convertible notes, warrants, stock options and contingent acquisition shares.
- Assess goodwill and intangible-asset valuation, particularly because goodwill represented $23.8 million of the $37.0 million asset base.
- Confirm the amount and timing of contingent earnouts, lease obligations, debt maturities and other contractual payments.
- Consider the limitations of adjusted EBITDA, which is a non-GAAP measure and declined to negative $0.7 million.