Bridgeline Digital, Inc. — FY2020 Form 10-K Summary
Business context and reporting period
Bridgeline Digital provides digital experience software and services, including the Unbound platform, OrchestraCMS, Celebros Search, SaaS and perpetual licenses, hosting, implementation, web development, digital strategy, analytics and related professional services. The company operates in the United States and internationally through subsidiaries in Canada, India and Australia.
This annual report covers the fiscal year ended September 30, 2020, with fiscal 2019 as the comparable period. The filing was signed December 23, 2020. Bridgeline is a smaller reporting company listed on Nasdaq under BLIN.
Financial performance and liquidity
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Total revenue | $10.907 million | $9.952 million | Up 10% |
| Digital engagement services revenue | $3.409 million | $4.117 million | Down 17% |
| Subscription and perpetual license revenue | $7.498 million | $5.835 million | Up 29% |
| Gross profit | $6.400 million | $4.592 million | Up 39% |
| Gross margin | 59% | 46% | Up 13 percentage points |
| Loss from operations | $(1.644) million | $(11.068) million | Improved $9.424 million |
| Net income/(loss) | $326 thousand | $(9.474) million | Improved $9.800 million |
| Net loss attributable to common shareholders | $(2.094) million | $(9.789) million | Improved $7.695 million |
| Basic loss per share | $(0.59) | $(8.16) | Improved |
| Adjusted EBITDA | $(116) thousand | $(5.385) million | Improved $5.269 million |
| Cash used in operating activities | $(498) thousand | $(4.203) million | Improved $3.705 million |
Subscription and perpetual licenses represented 69% of revenue, compared with 59% in fiscal 2019. The shift toward higher-margin license revenue, workforce reductions and lower third-party consulting costs contributed to the gross-margin improvement.
Cash and cash equivalents were $861 thousand at September 30, 2020, compared with $296 thousand at September 30, 2019. Total current assets were $1.905 million versus current liabilities of $3.605 million, indicating a working-capital deficit of approximately $1.700 million. Total liabilities were $6.304 million and stockholders’ equity was $4.356 million.
The company received a $1.048 million Paycheck Protection Program loan. It recognized $960 thousand as government grant income and reported the remaining $88 thousand as a current PPP liability. Management expected full forgiveness but stated that forgiveness was not assured.
There were no cash flows from investing activities in fiscal 2020. Financing activities provided $1.048 million, primarily from the PPP loan. The company had no outstanding bank line of credit or Montage term loan at year-end. Warrant liabilities were $2.486 million, down from $3.514 million.
Material changes versus fiscal 2019
- Revenue increased 10%, driven by a $1.663 million increase in subscription and perpetual license revenue, including $3.7 million of license revenue from the 2019 acquisitions, partly offset by canceled legacy SaaS subscriptions.
- Digital engagement services revenue declined $708 thousand because of fewer new service engagements.
- Operating expenses declined 49% to $8.044 million. Sales and marketing, general and administrative, and research and development expenses declined primarily because of lower headcount and personnel costs.
- Fiscal 2020 included a $366 thousand restructuring charge related to a 15-position workforce reduction in the United States and Canada. Fiscal 2019 included a $3.732 million goodwill impairment charge and $428 thousand of acquisition-related expenses.
- The company recorded a $1.028 million gain from the change in fair value of warrant liabilities, compared with a $13.404 million gain in fiscal 2019. Fiscal 2019 also included an $11.272 million warrant liability expense.
- The company reported GAAP net income, but common shareholders remained subject to a $2.314 million deemed dividend related to the amendment of Series A preferred stock and $106 thousand of preferred dividends. Consequently, net loss attributable to common shareholders was $2.094 million.
- No acquisitions occurred in fiscal 2020. The 2019 Seevolution and Stantive acquisitions contributed to the increased license mix and generated approximately $2.145 million of revenue in fiscal 2019.
- Common shares outstanding increased to 4,420,170 at September 30, 2020 from 2,798,475 at September 30, 2019. The company also had approximately 5.493 million warrants and 613,201 stock options outstanding at year-end, creating substantial potential dilution.
Guidance, outlook, risks and unusual items
Management did not provide specific revenue, earnings or margin guidance. Management stated that future revenues and cash flows are expected to supplement working capital, but also disclosed that additional financing may be needed to fund operations over the next twelve months.
The auditor included an explanatory going-concern paragraph. Management and the auditor stated that the company’s working-capital deficiency, historical losses, operating cash usage and need for additional financing raise substantial doubt about its ability to continue as a going concern for at least twelve months after the filing. The financial statements were not adjusted for this uncertainty.
On August 17, 2020, the company established an at-the-market offering for up to $4.796 million of common stock, with a 2.5% placement fee. No shares had been sold under the offering as of September 30, 2020, and there was no assurance that the offering would generate proceeds.
COVID-19 created uncertainty regarding customer demand, collections, employee availability, operations, liquidity and access to capital. The company adjusted operations to protect employees and customers and maintained tight control over discretionary spending.
Key ongoing risks include customer renewal and concentration risk, intense competition, long sales cycles, reliance on Amazon Web Services, cybersecurity and data privacy exposure, rapid technological change, potential product defects, intellectual-property claims, Nasdaq minimum bid-price compliance, dependence on key personnel and the possibility of additional restructuring or financing.
The company had more than 200 active customers; one customer represented approximately 12% of fiscal 2020 revenue. Operating lease obligations totaled approximately $761 thousand under the contractual-obligations presentation, while the lease-liability schedule reported a $294 thousand present value for commenced leases at year-end. No material legal proceedings were pending.
Most important facts for investors to verify
- Whether the PPP loan was ultimately forgiven in full and whether any repayment obligation remains.
- Available cash, operating cash burn and the timing, pricing and dilution implications of any financing under the ATM offering.
- Progress toward positive operating cash flow and sustainable profitability excluding PPP grant income, warrant fair-value gains and other unusual items.
- Customer retention, renewal rates and the effect of canceled legacy SaaS subscriptions on recurring revenue.
- The company’s ability to maintain Nasdaq listing requirements, particularly the $1.00 minimum closing bid-price requirement.
- The potential dilution from approximately 5.493 million outstanding warrants, preferred-stock conversion rights and 613,201 stock options compared with 4.420 million common shares outstanding.
- COVID-19 effects on bookings, collections, customer budgets and access to capital.
- Future goodwill and intangible-asset impairment risk, given the $5.557 million goodwill balance and continuing operating losses.