Bridgeline Digital, Inc. — Fiscal 2022 Second-Quarter Form 10-Q
Reporting period: Three and six months ended March 31, 2022; filed May 12, 2022. The interim financial statements are unaudited and presented under U.S. GAAP. Bridgeline provides digital experience, eCommerce, search, SEO, marketing and related SaaS, perpetual-license and professional services through its Unbound, OrchestraCMS, Celebros, Woorank and Hawk Search products.
Key Financial Metrics
| Metric | Three months ended March 31 | Six months ended March 31 |
|---|---|---|
| Total revenue | $4.1 million, up 43% | $8.4 million, up 47% |
| Subscription and perpetual-license revenue | $3.3 million, up 66%; 80% of revenue | $6.7 million, up 69%; 80% of revenue |
| Digital engagement services revenue | $0.8 million, down 8% | $1.7 million, down 2% |
| Gross profit | $2.8 million | $5.8 million |
| Gross margin | 68%, versus 63% | 69%, versus 65% |
| Operating income/(loss) | $(0.6) million | $(1.1) million |
| Net income/(loss) | $0.3 million, or $0.03 diluted EPS | $2.2 million, or $0.10 diluted EPS |
| Adjusted EBITDA | $(0.1) million | $0.03 million |
| Operating cash flow | Not separately reported for the quarter | $(0.9) million |
Sales and marketing expense increased 142% in the quarter and 158% for the six-month period. Research and development expense increased 81% and 108%, respectively. Total operating expenses increased 75% in the quarter and 89% for the six-month period, primarily reflecting costs associated with the fiscal 2021 acquisitions and increased sales and marketing investment.
Balance Sheet, Debt and Liquidity
- Cash and cash equivalents were $4.7 million at March 31, 2022, down from $8.9 million at September 30, 2021.
- Total current assets were $6.6 million versus $10.4 million at September 30, 2021; current liabilities were $7.0 million versus $8.3 million.
- Total debt was $1.3 million, including $0.5 million due within 12 months; long-term debt was $0.8 million.
- Contingent consideration payable was $2.7 million, all classified as current at March 31, 2022. Approximately $2.2 million related to the Hawk Search acquisition and approximately $0.5 million related to Woorank.
- Cash used in financing activities was $3.2 million, primarily due to $2.7 million of contingent consideration and deferred purchase-price payments and $0.5 million of debt repayments.
- Management stated that future revenue and cash flows are expected to supplement working capital and that the Company believes its cost structure supports future growth. The filing does not provide formal revenue, earnings or cash-flow guidance.
Material Changes and Unusual Items
- Revenue growth was driven by higher subscription and perpetual-license revenue, including renewals and contributions from the Woorank and Hawk Search acquisitions.
- Net income was substantially affected by non-cash fair-value gains on warrant liabilities of $0.4 million in the quarter and $2.9 million year to date. The comparable prior-year periods included losses of $0.4 million and $1.9 million, respectively.
- The six-month net income also included a $0.4 million gain from the change in fair value of contingent consideration and other non-operating items. These fair-value adjustments are subject to valuation assumptions and may create earnings volatility.
- Despite positive reported net income, the Company remained loss-making at the operating level and generated negative operating cash flow. Adjusted EBITDA declined from $0.2 million to $(0.1) million for the quarter and from $0.9 million to $0.03 million for the six-month period.
- Intangible assets declined to $7.0 million from $7.8 million, primarily due to amortization; goodwill was $16.0 million and was unchanged.
- The Company had 1.76 million warrants outstanding at March 31, 2022, and 0.7 million stock options outstanding, creating potential dilution. Warrant liabilities were $1.5 million, down from $4.4 million at September 30, 2021.
Outlook, Risks and Contingencies
- Management intends to continue evaluating acquisitions to expand distribution, customers, sales capacity and development resources. Integration may require significant resources and may not produce expected synergies.
- Principal disclosed risks include customer retention and upgrades, recurring-revenue growth, competition, rapid technology changes, cybersecurity and data-privacy incidents, interoperability with third-party platforms, acquisition execution, remote-work disruption, stock-price volatility and continued NASDAQ listing.
- The Company may sell up to $50 million of debt or equity securities under an effective shelf registration, although no active offering was outstanding as of the filing date and there is no assurance that financing will occur on acceptable terms.
- Debt maturities total $1.3 million, operating lease commitments total $0.4 million gross, and contingent consideration obligations total $2.7 million. The filing indicates approximately $2.7 million of contingent consideration is expected to be paid within the next 12 months, subject to achievement and valuation of acquisition targets.
- No material legal proceedings, material warranty reserves or significant indemnification claims were reported. Disclosure controls and procedures were deemed effective as of March 31, 2022.
Investor Verification Items
- Verify whether subscription growth and improved gross margins are sustainable after the full integration of Woorank and Hawk Search.
- Separate operating performance and cash generation from non-cash warrant and contingent-consideration fair-value gains.
- Assess liquidity after the $4.2 million decline in cash during the first six months and scheduled debt, lease and acquisition-related payments.
- Review the assumptions underlying contingent consideration, warrant valuations, goodwill and intangible-asset impairment testing.
- Monitor potential dilution from approximately 1.76 million warrants, stock options, convertible preferred stock and any future securities issuance under the shelf registration.