BRIDGELINE DIGITAL, INC.
The Company typically issues warrants to individual investors and placement agents to purchase shares of the Company’s common stock in connection with public and private placement fund raising activities. Warrants mayalso be issued to individuals or companies in exchange for services provided to the Company. The warrants are typically exercisable six months after the issue date, expire in five years, and contain a cashless exercise provision and piggyback registration rights.
The weighted-average option fair values, as determined using the Black-Scholes option valuation model, and the assumptions used to estimate these values for stock options granted during the six monthsperiods ended March 31, 2022 are as follows:
The expected option term is the number of years the Company estimates the options will be outstanding prior to exercise based on historical trends of employee turnover. Expected volatility is based on historical daily price changes of the Company’s common stock for a period equal to the expected life. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant. The expected dividend yield is zero since the Company does not currently pay cash dividends on its common stock and does not anticipate doing so in the foreseeable future.
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
9. Net Income (Loss) Per Share Attributable to Common Shareholders
Basic net income (loss) per share is computed by dividing net income (loss) applicable to common shareholders by the weighted average number of common shares outstanding. Diluted net loss per share attributable to common shareholders is computed using the weighted average number of common shares outstanding during the period plus the dilutive effect of outstanding stock options and warrants using the “treasury stock” method and convertible preferred stock using the “as-if-converted” method. The computation of diluted earnings per share does not include the effect of outstanding stock options, warrants and convertible preferred stock that are considered anti-dilutive.
Basic and diluted net income (loss) per share is computed as follows:
(in thousands, except per share data) | | Three Months Ended
March 31, | | | Six Months Ended
March 31, | | | Three Months Ended
March 31, | | | Six Months Ended
March 31, | |
| | | 2022 | | | 2021 | | | 2022 | | | 2021 | | | 2023 | | | 2022 | | | 2023 | | | 2022 | |
Numerator: | | | | | | | | | | | | | | | | |
Net income (loss) – basic earnings per share | | $ | 346 | | | $ | (556 | ) | | $ | 2,217 | | | $ | (1,718 | ) | | $ | (511 | ) | | $ | 346 | | | $ | (591 | ) | | $ | 2,217 | |
Effect of dilutive securities: | | |
Change in fair value of in-the-money warrant derivative liabilities | | | (4 | ) | | | 0 | | | | (1,144 | ) | | | 0 | | | | (3 | ) | | | (4 | ) | | | (5 | ) | | | (1,144 | ) |
Net income (loss) applicable to common shareholders - diluted earnings per share | | $ | 342 | | | $ | (556 | ) | | $ | 1,073 | | | $ | (1,718 | ) | | $ | (514 | ) | | $ | 342 | | | $ | (596 | ) | | $ | 1,073 | |
| | | |
Denominator: | | | | | | | | | | | | | | | | |
Weighted-average shares outstanding for basic earnings per share | | 10,204,276 | | | 4,999,938 | | | 10,196,550 | | | 4,706,869 | | | 10,417,609 | | | 10,204,276 | | | 10,417,609 | | | 10,196,550 | |
Effect of dilutive securities: | | |
Options | | 84,361 | | | 0 | | | 163,530 | | | 0 | | | - | | | 84,361 | | | - | | | 163,530 | |
Warrants | | 13,384 | | | 0 | | | 24,817 | | | 0 | | | 13,101 | | | 13,384 | | | 13,157 | | | 24,817 | |
Preferred stock | | | 38,889 | | | | 0 | | | | 38,889 | | | | 0 | | | | - | | | | 38,889 | | | | - | | | | 38,889 | |
Weighted-average shares outstanding for diluted earnings per share | | | 10,340,910 | | | | 4,999,938 | | | | 10,423,786 | | | | 4,706,869 | | | | 10,430,710 | | | | 10,340,910 | | | | 10,430,766 | | | | 10,423,786 | |
| | | |
Basic net income (loss) per share | | $ | 0.03 | | | $ | (0.11 | ) | | $ | 0.22 | | | $ | (0.36 | ) | | $ | (0.05 | ) | | $ | 0.03 | | | $ | (0.06 | ) | | $ | 0.22 | |
Diluted net income (loss) per share | | $ | 0.03 | | | $ | (0.11 | ) | | $ | 0.10 | | | $ | (0.36 | ) | | $ | (0.05 | ) | | $ | 0.03 | | | $ | (0.06 | ) | | $ | 0.10 | |
Potential common stock equivalents excluded from the computation of diluted net income (loss) per share because their inclusion would have been anti-dilutive were as follows (in shares):
| | | Three Months Ended
March 31, | | | Six Months Ended
March 31, | | | Three Months Ended
March 31, | | | Six Months Ended
March 31, | |
| | | 2022 | | | 2021 | | | 2022 | | | 2021 | | | 2023 | | | 2022 | | | 2023 | | | 2022 | |
Stock options | | 263,938 | | | 573,201 | | | 242,938 | | | 613,201 | | | 1,184,538 | | | 263,938 | | | 1,184,538 | | | 242,938 | |
Warrants | | 1,748,162 | | | 2,945,452 | | | 1,156,056 | | | 5,551,059 | | | 1,743,891 | | | 1,748,162 | | | 1,743,891 | | | 1,156,056 | |
Series C Convertible Preferred Stock | | 0 | | | 350 | | | 0 | | | 350 | | | 350 | | | - | | | 350 | | | - | |
Contingently issuable shares associated with an acquired business | | 0 | | | 216,590 | | | 0 | | | 216,590 | | |
10. Revenues and Other Related Items
Disaggregated Revenues
The Company disaggregates revenue from contracts with customers by geography and product grouping, as it believes this best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
The Company’s revenue by geography (based on customer address) is as follows:
| | | Three Months Ended
March 31, | | | Six Months Ended
March 31, | | | Three Months Ended
March 31, | | | Six Months Ended
March 31, | |
Revenues: | | 2022 | | | 2021 | | | 2022 | | | 2021 | | | 2023 | | | 2022 | | | 2023 | | | 2022 | |
United States | | $ | 3,121 | | | $ | 2,231 | | | $ | 6,481 | | | $ | 4,517 | | | $ | 3,331 | | | $ | 3,121 | | | $ | 6,626 | | | $ | 6,481 | |
International | | | 996 | | | | 643 | | | | 1,922 | | | | 1,193 | | | | 763 | | | | 996 | | | | 1,551 | | | | 1,922 | |
| | | $ | 4,117 | | | $ | 2,874 | | | $ | 8,403 | | | $ | 5,710 | | | $ | 4,094 | | | $ | 4,117 | | | $ | 8,177 | | | $ | 8,403 | |
The largest concentration within the Company’s international revenue geography is within Canada.
Long-lived assets located in foreign jurisdictions aggregated approximately $7.0$6.3 million and $7.5$6.7 million as of March 31, 20222023 and September 30, 2021,2022, respectively.
18
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
The Company’s revenue by type is as follows:
| | | Three Months Ended
March 31, | | | Six Months Ended
March 31, | | | Three Months Ended
March 31, | | | Six Months Ended
March 31, | |
Revenues: | | 2022 | | | 2021 | | | 2022 | | | 2021 | | | 2023 | | | 2022 | | | 2023 | | | 2022 | |
Digital engagement services | | $ | 811 | | | $ | 885 | | | $ | 1,680 | | | $ | 1,722 | | |
Subscription | | 2,953 | | | 1,693 | | | 6,032 | | | 3,383 | | | $ | 2,869 | | | $ | 2,953 | | | $ | 5,701 | | | $ | 6,032 | |
Maintenance | | 120 | | | 83 | | | 237 | | | 175 | | | 146 | | | 120 | | | 282 | | | 237 | |
Hosting | | | 233 | | | | 213 | | | | 454 | | | | 430 | | | 258 | | | 233 | | | 519 | | | 454 | |
| Digital engagement services | | | | 821 | | | | 811 | | | | 1,675 | | | | 1,680 | |
| | | $ | 4,117 | | | $ | 2,874 | | | $ | 8,403 | | | $ | 5,710 | | | $ | 4,094 | | | $ | 4,117 | | | $ | 8,177 | | | $ | 8,403 | |
For the three and six months ended March 31, 2023 and 2022,no customers exceeded 10% of the Company’s total revenue.
Deferred Revenue
Amounts that have been invoiced are recorded in accounts receivable and deferred revenue or revenue, depending on whether the revenue recognition criteria have been met. Deferred revenue represents amounts billed for which revenue has not yet been recognized. Deferred revenue that is expected to be recognized during the succeeding 12-month period is recorded as current deferred revenue, and the remaining portion is recorded as noncurrent deferred revenue included in Other long-term liabilities.
The following table summarizes the classification and net change in deferred revenue as of and for the three months and six months ended March 31, 2022:2023:
| | | Deferred Revenue | |
| | | Current | | | Long-Term | |
Balance as of October 1, 2021 | | $ | 2,097 | | | $ | 418 | |
Increase (decrease) | | | (304 | ) | | | (23 | ) |
Balance as of December 31, 2021 | | $ | 1,793 | | | $ | 395 | |
Increase (decrease) | | | (227 | ) | | | 3 | |
Balance as of March 31, 2022 | | $ | 1,566 | | | $ | 398 | |
| | | Deferred Revenue | |
| | | Current | | | Long-Term | |
Balance as of October 1, 2022 | | $ | 1,943 | | | $ | 384 | |
Increase (decrease) | | | (30 | ) | | | (12 | ) |
Balance as of December 31, 2022 | | $ | 1,913 | | | $ | 372 | |
Increase (decrease) | | | 507 | | | | (24 | ) |
Balance as of March 31, 2023 | | $ | 2,420 | | | $ | 348 | |
11. Income Taxes
Income tax expense consists of the estimated liability for state income taxes owed by the Company. Net operating loss carryforwards are estimated to be sufficient to offset any potential taxable income for all periods presented. During the three months ended March 31, 20222023 and 2021,2022, the Company recognized an income tax expense of $5$10 and $7,$5, respectively, and during the six months ended March 31, 20222023 and 2021,2022, the Company recognized an income tax expense of $8$16 and $1,$8, respectively.
12. Leases
The Company leases facilities in the United States for its corporate and regional field offices. During the three and six months ended March 31, 2022,2023, the Company was also a lessee/sublessor for certain office locations.
DeterminationThe components of Whether a Contract Contains a Leasenet lease costs were as follows:
We determine if an arrangement is a
| | | Three Months Ended
March 31, | | | Six Months Ended
March 31, | |
| | | 2023 | | | 2022 | | | 2023 | | | 2022 | |
Condensed Consolidated Statement of Operations: | | | | | | | | | | | | | | | | |
Operating lease cost | | $ | 50 | | | $ | 34 | | | $ | 100 | | | $ | 78 | |
Variable lease cost | | | 10 | | | | 11 | | | | 20 | | | | 27 | |
Less: Sublease income, net | | | (19 | ) | | | (20 | ) | | | (37 | ) | | | (51 | ) |
Total | | $ | 41 | | | $ | 25 | | | $ | 83 | | | $ | 54 | |
Cash paid for amounts included in the measurement of lease at inception, or upon modificationliabilities was $116 thousand and $177 thousand for the six months ended March 31, 2023 and 2022, all of a contract and classify each lease as either anwhich represents operating or finance lease at commencement. The Company reassesses lease classification subsequent to commencement upon a change to cash flows from operating leases. As of March 31, 2023, the expectedweighted average remaining lease term or a modification towas 3.3 years and the contract. Operating leases represent the Company’s right to use an underlying asset as lessee for the lease term and lease obligations represent the Company’s obligation to make lease payments arising from the lease.weighted average discount rate was 7.0%.
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
A contract contains a lease if the contract conveys the right to control the use of the identified property or equipment, explicitly or implicitly, for a period of time in exchange for consideration. Control of an underlying asset is conveyed if we obtain the rights to direct the use of and obtain substantially all of the economic benefit from the use of the underlying asset. At commencement, contracts containing a lease are further evaluated for classification as an operating lease or finance lease based on their terms.
ROU Model and Determination of Lease Term
The Company uses the Right-of-Use (“ROU”) model to account for leases, which requires an entity to recognize a lease liability and ROU asset on the lease commencement date. A lease liability is measured equal to the present value of the remaining lease payments over the lease term and is discounted using the incremental borrowing rate, as the rates implicit in the Company’s leases are not readily determinable. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. Lease payments include payments made before the commencement date and any residual value guarantees, if applicable. The initial ROU asset consists of the initial measurement of the lease liability, adjusted for any payments made before the commencement date, initial direct costs and lease incentives earned. When determining the lease term, the Company includes option periods when it is reasonably certain that those options will be exercised.
Lease Costs
For operating leases, minimum lease payments, including minimum scheduled rent increases, are recognized as operating lease costs on a straight-line basis over the applicable lease terms. Some operating lease arrangements include variable lease costs, including real estate taxes, insurance, common area maintenance or increases in rental costs related to inflation. Such variable payments, other than those dependent upon a market index or rate, are excluded from the measurement of the lease liability and are expensed when the obligation for those payments is incurred.
Significant Assumptions and Judgments
Management makes certain estimates and assumptions regarding each new lease and sublease agreement, renewal and amendment, including, but not limited to, property values, market rents, useful life of the underlying property, discount rate and probable term, all of which can impact (1) the classification as either an operating or finance lease, (2) measurement of lease liabilities and ROU assets and (3) the term over which the ROU asset and leasehold improvements are amortized. The amount of depreciation and amortization, interest and rent expense would vary if different estimates and assumptions were used.
The components of net lease costs were as follows:
| | | Three Months Ended March 31, | | | Six Months Ended March 31, | |
| | | 2022 | | | 2021 | | | 2022 | | | 2021 | |
Condensed Consolidated Statement of Operations: | | | | | | | | | | | | | | | | |
Operating lease cost | | $ | 34 | | | $ | 29 | | | $ | 78 | | | $ | 47 | |
Variable lease cost | | | 11 | | | | 13 | | | | 27 | | | | 27 | |
Less: Sublease income, net | | | (20) | | | | (26 | ) | | | (51 | ) | | | (51 | ) |
Total | | $ | 25 | | | $ | 16 | | | $ | 54 | | | $ | 23 | |
Cash paid for amounts included in the measurement of lease liabilities was $93 and $117 for the six months ended March 31, 2022 and 2021, all of which represents operating cash flows from operating leases. As of March 31, 2022, the weighted average remaining lease term was 2.9 years and the weighted average discount rate was 7%.
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
At March 31, 2022,2023, future minimum rental commitments under non-cancelable leases with initial or remaining terms in excess of one year were as follows:
| | | Operating Leases | | | Receipts
Subleases | | | Net Leases | |
Fiscal year: | | | | | | | | | | | | |
2022 (remaining) | | $ | 81 | | | $ | 51 | | | $ | 30 | |
2023 | | | 173 | | | | 101 | | | | 72 | |
2024 | | | 116 | | | | 34 | | | | 82 | |
2025 | | | 69 | | | | - | | | | 69 | |
2026 | | | 7 | | | | - | | | | 7 | |
Total lease commitments | | | 446 | | | $ | 186 | | | $ | 260 | |
Less: Amount representing interest | | | (53 | ) | | | | | | | | |
Present value of lease liabilities | | | 393 | | | | | | | | | |
Less: current portion | | | (147 | ) | | | | | | | | |
Operating lease liabilities, net of current portion | | $ | 246 | | | | | | | | | |
As of March 31, 2022, the Company had no lease commitments that extend past 2026.
| | | Operating Leases | | | Receipts
Subleases | | | Net Leases | |
Fiscal year: | | | | | | | | | | | | |
2023 (remaining) | | $ | 117 | | | | 37 | | | | 80 | |
2024 | | | 157 | | | | 25 | | | | 132 | |
2025 | | | 141 | | | | - | | | | 141 | |
2026 | | | 72 | | | | - | | | | 72 | |
2027 | | | 61 | | | | - | | | | 61 | |
Thereafter | | | 9 | | | | - | | | | 9 | |
Total lease commitments | | | 557 | | | | 62 | | | | 495 | |
Less: Amount representing interest | | | (68 | ) | | | | | | | | |
Present value of lease liabilities | | | 489 | | | | | | | | | |
Less: current portion | | | (186 | ) | | | | | | | | |
Operating lease liabilities, net of current portion | | $ | 303 | | | | | | | | | |
13. Commitments and Contingencies
The Company leases certain of its buildings under noncancelable lease agreements. Refer to the Leases footnote (Note 12) of the Notes to the Condensed Consolidated Financial Statements for additional information.
The Company frequently warrants that the technology solutions it develops for its clients will operate in accordance with the project specifications without defects for a specified warranty period, subject to certain limitations that the Company believes are standard in the industry. In the event that defects are discovered during the warranty period, and none of the limitations apply, the Company is obligated to remedy the defects until the solution that the Company provided operates within the project specifications. The Company is not typically obligated by contract to provide its clients with any refunds of the fees they have paid, although a small number of its contracts provide for the payment of liquidated damages upon default. The Company has purchased insurance policies covering professional errors and omissions, property damage and general liability that reduce its monetary exposure for warranty-related claims and enable it to recover a portion of any future amounts paid.
The Company’s contracts typically provide for testing and client acceptance procedures that are designed to mitigate the likelihood of warranty-related claims, although there can be no assurance that such procedures will be effective for each project. The Company has not paid any material amounts related to warranties for its solutions. The Company sometimes commits unanticipated levels of effort to projects to remedy defects covered by its warranties. The Company’s estimate of its exposure to warranties on contracts is immaterial as of March 31, 20222023 and September 30, 2021.2022.
The Company’s agreements with customers generally require the Company to indemnify the customer against claims in which the Company’s products infringe third-party patents, copyrights, or trademarks and indemnify against product liability matters. As of March 31, 20222023 and September 30, 2021,2022, the Company has not experienced any losses related to the indemnification obligations and no significant claims with respect thereto were outstanding. The Company does not expect significant claims related to the indemnification obligations and, consequently, concluded that the fair value of these obligations is negligible, and no related reserves were established.
Litigation
The Company is subject to ordinary routine litigation and claims incidental to its business. As of March 31, 2022,2023, the Company was not engaged with any material legal proceedings.
2420
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
14.Acquisitions
Woorank Acquisition
On March 1, 2021, the Company, pursuant to a Share Purchase Agreement (the “Woorank Purchase Agreement”), acquired all of the issued and outstanding shares of Woorank, an entity located in Belgium. The Company accounted for the Woorank transaction as a business combination in accordance with the Accounting Standard Codification (“ASC”) Topic 805,Business Combinations. The purchase price consisted of (1) cash paid at closing, (2) deferred cash payable in installments post-closing, (3) a seller note issued to one of the selling shareholders, and (4) amounts payable to one selling shareholder as consideration for assistance with certain matters related to the acquisition for a period of one year from the closing date of the acquisition. The Woorank Purchase Agreement also provides for additional consideration, in the event of achievement of certain revenue targets and operational goals, to the selling shareholders pursuant to three separate earn-out provisions. On the closing date, the Company issued 29,433 shares of its common stock for a portion of the purchase price.
The Company accounted for the Woorank transaction as a business combination. The Company determined that the fair value of the gross assets acquired was not concentrated in a single identifiable asset or a group of similar assets. Assets acquired and liabilities assumed have been recognized at their estimated fair values as of the acquisition date. The fair value of common stock issued as part of consideration transferred was determined based on the acquisition date closing market price of the Company’s common stock. The estimated fair value of the contingent consideration was determined based on the Company’s expected probability of future payment, discounted using a weighted average cost of capital. The fair value of the contingent consideration is included within ‘Purchase price and contingent consideration payable’ on the consolidated balance sheets. The fair value of intangible assets was based on valuations using a discounted cash flow model (Level 3 inputs) which requires significant estimates and assumptions, including estimating future revenues and costs. The fair value of debt obligations assumed was based on the interest rates underlying these instruments in relation to the market rates available for similar instruments. The excess of the purchase price over the assets acquired and liabilities assumed was recognized as goodwill. The goodwill is attributable to expected synergies and customer cross-selling opportunities between the Company and Woorank.
Hawk Search Acquisition
On May 28, 2021, the Company, pursuant to a Share Purchase Agreement (the “Hawk Purchase Agreement”), acquired all of the issued and outstanding shares of Hawk Search, an Illinois corporation. The purchase price consisted of (1) an initial cash payment at closing, (2) issuance of 1,500 shares of the Company’s newly designated Series D Preferred Stock, and (3) deferred cash payable on or before December 31, 2021. The Hawk Purchase Agreement also provides for additional consideration, in the event of achievement of certain revenue targets, to the selling shareholders as an additional earn-out, payable no later than January 2023.
The Company accounted for the Hawk Search transaction as a business combination. The Company determined that the fair value of the gross assets acquired was not concentrated in a single identifiable asset of a group of similar assets. Assets acquired and liabilities assumed have been recognized at their estimated fair values as of the acquisition date. The fair value of Series D Preferred Stock issued as part of consideration transferred was determined based on the price paid by third-party investors in the Private Placement (see Note 8) which occurred in close proximity to the acquisition date. As more fully described in Note 8, the Series D Preferred Stock contains an embedded beneficial conversion feature. The intrinsic value of $724 was calculated as of the acquisition date. The fair value of contingent consideration was determined based on the probability of achievement of the revenue targets and operational goals, which includes estimating future revenues. The fair value of intangible assets was based on valuations using a discounted cash flow model (Level 3 inputs) which requires significant estimates and assumptions, including estimating future revenues and costs. The excess of the purchase price over the assets acquired and liabilities assumed was recognized as goodwill. The goodwill is attributable to expected synergies and customer cross-selling opportunities between the Company and Hawk Search.
The acquisition date fair value of consideration transferred was as follows:
| | | Woorank | | | Hawk Search | | | Total | |
Cash paid at or in close proximity to closing | | $ | 285 | | | $ | 4,800 | | | $ | 5,085 | |
Future deferred payments | | | 376 | | | | 2,000 | | | | 2,376 | |
Common stock (29,433 shares at $3.38 per share) | | | 99 | | | | 0 | | | | 99 | |
Series D Convertible Preferred Stock (1,500 shares at $618 per share) | | | 0 | | | | 930 | | | | 930 | |
Seller’s note | | | 352 | | | | 0 | | | | 352 | |
Contingent consideration (earn-outs) | | | 1,289 | | | | 2,190 | | | | 3,479 | |
Total consideration paid | | $ | 2,401 | | | $ | 9,920 | | | $ | 12,321 | |
The acquisition date fair value of assets acquired, and liabilities assumed was as follows:
| | | Woorank | | | Hawk Search (Preliminary) | | | Total | |
Assets acquired: | | | | | | | | | | | | |
Cash | | $ | 577 | | | $ | 100 | | | $ | 677 | |
Non-cash current assets | | | 23 | | | | 780 | | | | 803 | |
Property and equipment | | | 5 | | | | 0 | | | | 5 | |
Intangible assets: | | | | | | | | | | | | |
Acquired software | | | 282 | | | | 560 | | | | 842 | |
Customer relationships | | | 1,280 | | | | 3,410 | | | | 4,690 | |
Domain and trade names | | | 116 | | | | 620 | | | | 736 | |
Goodwill | | | 2,888 | | | | 7,540 | | | | 10,428 | |
Total assets acquired | | | 5,171 | | | | 13,010 | | | | 18,181 | |
Liabilities assumed: | | | | | | | | | | | | |
Current liabilities | | | 208 | | | | 1,909 | | | | 2,117 | |
Assumed debt obligations | | | 2,159 | | | | 0 | | | | 2,159 | |
Deferred tax liabilities | | | 403 | | | | 1,181 | | | | 1,584 | |
Total liabilities assumed | | | 2,770 | | | | 3,090 | | | | 5,860 | |
| | | | | | | | | | | | | |
Total consideration paid | | $ | 2,401 | | | $ | 9,920 | | | $ | 12,321 | |
The average useful lives of the identifiable intangible assets acquired were as follows:
| | | Woorank | | | Hawk Search | |
| | | (in years) | |
Acquired software | | | 5 | | | | 5 | |
Customer relationships | | | 8 | | | | 10 | |
Domain and trade names | | | 12 | | | | 15 | |
Total earnings from the acquisitions are impracticable to disclose as the operations were merged with existing operations and certain costs were not accounted for separately.
Pro Forma Information (Unaudited)
The following is the unaudited pro forma information assuming the acquisitions occurred on October 1, 2020:
| | | Three months ended March 31, 2021 | | | Six months ended March 31, 2021 | |
| | | | | | | | | |
(in thousands, except share and per share data) | | | | | | | | |
| | | | | | | | | |
Revenue | | $ | 4,477 | | | $ | 8,930 | |
| | | | | | | | | |
Net income (loss) attributable to common shareholders - basic | | $ | (653 | ) | | $ | (2,236 | ) |
Net income (loss) attributable to common shareholders - diluted | | $ | (653 | ) | | $ | (2,236 | ) |
| | | | | | | | | |
Net income (loss) per share attributable to common shareholders: | | | | | | | | |
Basic | | $ | (0.13 | ) | | $ | (0.47 | ) |
Diluted | | $ | (0.13 | ) | | $ | (0.47 | ) |
| | | | | | | | | |
Weighted average common shares outstanding - basic | | | 4,999,938 | | | | 4,706,869 | |
Weighted average common shares outstanding - diluted | | | 4,999,938 | | | | 4,706,869 | |
Pro forma information for the three and six months ended March 31, 2022, is not presented as the amounts reported in the Condensed Consolidated Statements of Operations include the activities of these acquisitions for the period then ended.
26
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
15. Related Party Transactions
In October 2013, Mr. Michael Taglich joined the Board of Directors. Michael Taglich is the Chairman and President of Taglich Brothers, Inc. (“Taglich Brothers”), a New York based securities firm. Taglich Brothers were the Placement Agents for many of the Company’s private offerings and debt issuances. In connection with previous private offerings and debt issuances which occurred prior to the fiscal years presented in these consolidated financial statements, Taglich Brothers were granted Placement Agent Warrants to purchase 10,926 shares of common stock at a weighted average price of $761.61 per share. As of March 31, 2023, Michael Taglich beneficially owns approximately 3.6% of the Company’s stock.
In consideration of previous loans made by Michael Taglich to the Company and the personal guaranty on a former third-party credit facility no longer maintained by the Company, Mr. Taglich has been issued warrants to purchase common stock totaling 1,080 shares at an exercise price of $1,000 per share.
In November 2018, the Company engaged Taglich Brothers Inc, on a non-exclusive basis, to perform advisory and investment banking services to identify possible acquisition target possibilities. Michael Taglich, is a director and shareholder of the Company.Company, is the President and Chairman of Taglich Brothers Inc. Fees for the services were $8 per month for three months and $5 per month thereafter, cancellable at any time. Taglich Brothers Inc. could also earn a success fee ranging from $200 thousand for a revenue target acquisition of under $5 million up to $1 million for identifying an acquisition target dependingover $200 million.
Michael Taglich purchased 350 units in the amount of $350 of Series C Preferred Stock and associated warrants in the private transaction consummated on revenueMarch 13, 2019. Mr. Taglich’s purchase was subject to stockholder approval pursuant to Nasdaq Marketplace Rule 5635(c), for which approval by the stockholders of the target.Company was obtained on April 26, 2019.
In connection with the February and May 2021 Offerings, (see Note 8), Taglich Brothers, Inc. received warrants to purchase 82,945 shares of the Company’s common stock with a weighted average exercise price of $3.21 and weighted average term of 5.0 years.
16.15. Subsequent Events
The Company evaluated subsequent events through the date of this filing and concluded there were no material subsequent events requiring adjustment to or disclosure in these interim condensed consolidated financial statements, except as disclosed in Note 8.statements.
2721
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Item 2.
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
All statements included in this section, other than statements or characterizations of historical fact, are forward-looking statements. These “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, are based on our current expectations, estimates and projections about our industry, management's beliefs, and certain assumptions made by us, all of which are subject to change. Forward-looking statements can often be identified by words such as "anticipates," "expects," "intends," "plans," "predicts," "believes," "seeks," "estimates," "may" "will," "should," "would," "could," "potential," "continue," "ongoing," similar expressions, and variations or negatives of these words. These statements appear in a number of places and include statements regarding the intent, belief or current expectations of Bridgeline Digital, Inc. These forward-looking statements are not guarantees of future results and are subject to risks, uncertainties and assumptions, including, but not limited to, the impact of the COVID–19 pandemic and related public health measures onthat may affect our financial results; business operations and the business of our customers, suppliers and partners; our ability to retain and upgrade current customers; increasing our recurring revenue; our ability to attract new customers; our revenue growth rate; our history of net loss and our ability to achieve or maintain profitability; instability in the financial markets, including the banking sector; our liability for any unauthorized access to our data or our users’ content, including through privacy and data security breaches; any decline in demand for our platform or products; changes in the interoperability of our platform across devices, operating systems, and third-party applications that we do no control; competition in our markets; our ability to respond to rapid technological changes, extend our platform, develop new features or products, or gain market acceptance for such new features or products, particularly in light of potential disruptions to the productivity of our employees resulting from remote work; our ability to manage our growth or plan for future growth, and our acquisition of other businesses and the potential of such acquisitions to require significant management attention, disrupt our business, or dilute stockholder value; the volatility of the market price of our common stock; the ability to maintain our listing on the NASDAQ Capital Market; or our ability to maintain an effective system of internal controls as well as other risks described in our filings with the Securities and Exchange Commission. Any of such risks could cause our actual results to differ materially and adversely from those expressed in any forward-looking statement. We urge readers to review carefully the risk factors described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021,2022, as well as in the other documents that we file with the Securities and Exchange Commission.
This section should be read in combination with the accompanying unaudited condensed consolidated financial statements and related notes prepared in accordance with United States generally accepted accounting principles.
Overview
Bridgeline Digital isWe offer a suite of marketing technology software companyproducts that helpshelp companies grow online revenue by driving more traffic to their websites, converting more visitors to purchasers, and share information with customers, partners and employees.increasing average order value.
Bridgeline’sHawkSearch is a site search, recommendation, and personalization application, built for marketers, merchandisers, and developers to enhance, normalize, and enrich an online customer's content search and product discovery experience. HawkSearch leverages advanced artificial intelligence, machine learning and industry-leading merchandising features to deliver accurate and highly relevant results and recommendations derived from multiple data sources.
Celebros Search is a commerce-oriented site search product that provides Natural Language Processing with artificial intelligence to present relevant search results based on long-tail keyword searches with support for multiple languages.
Woorank is a Search Engine Optimization (“SEO”) audit tool that generates an instant performance audit of the site’s technical, on-page, and off-page SEO. Woorank’s clear, actionable insights help companies increase their search engine ranking, while boosting website traffic, audience engagement, conversion, and customer retention rates.
Our Unbound platform is a Digital Experience Platform that includes Web Content Management, eCommerce, eMarketing, Social Media management,Digital Marketing, and Web Analytics.
Bridgeline’s The Unbound platform, combined with its professional services, assists customers in drivingpowering engaging digital experiences that drive lead generation, increasingincrease revenue, improvingimprove customer service and loyalty, enhancingenhance employee knowledge, and reducingreduce operational costs.
Our Unbound FranchiseThe TruPresence product empowers large franchises, brand networks, and other multi-unit organizations to manage a large hierarchy of digital properties at scale. TruPresence provides centralized and distributed management of content and products from parent sites down to multiple child sites for consistency in branding and messaging, while also enabling regional / local site owners to manage the local messaging, products and promotions specific to their local market.
OrchestraCMS is the only content and digital experience platform built 100% native on Salesforce and helps customers create websites and intranets for their customers, partners, and employees;employees. The software uniquely combiningcombines content with business data, processes and applications across any channel or device, including Salesforce Communities, social media, portals, intranets, websites, applications and services.
Celebros Search is a commerce-oriented site search product that provides for Natural Language Processing with artificial intelligence to present relevant search results based on long-tail keyword searches in seven languages.
Woorank SRL (“Woorank”) is a Search Engine Optimization (“SEO”) audit tool that generates an instant audit of a site’s technical, on-page and off-page SEO. Woorank’s clear, actionable insights help companies increase their search ranking, website traffic, audience engagement, conversion, and customer retention rates.
Hawk Search, Inc. (“Hawk Search”) is a search, recommendation, and personalization application built for marketers, merchandisers and developers that enhances, normalizes and enriches a customer's site search and browse experience. Hawk Search leverages advanced artificial intelligence, machine learning and industry-leading analyzers to deliver accurate results from federated data sources.
All of Bridgeline’s software is available through a cloud-based softwareSoftware as a serviceService (“SaaS”) model, whose flexible architecture provides customers hosting and support. Additionally, Unbound and Hawk Search areHawkSearch have the option to be available via a traditional perpetual licensing business model, in which the software residescan reside on a dedicated infrastructure in either on premise at the customer’s facility, or manage-hosted by Bridgeline via a cloud-based, dedicated hosted services model.
Bridgeline Digital was incorporated under the laws of the State of Delaware on August 28, 2000.
Locations
The Company’s corporate office is located in Woburn, Massachusetts. The Company maintains regional field offices serving the following geographical locations: Boston, Massachusetts; Woodbury, New York; Chicago,Rosemont, Illinois; Raleigh, North Carolina;Atascadero, California; Ontario, Canada; and Brussels, Belgium.
The Company has four wholly-owned subsidiaries: Bridgeline Digital Pvt. Ltd., located in Bangalore, India; Bridgeline Digital Canada, Inc., located in Ontario, Canada; Hawk Search Inc. located in Rosemont, Illinois United States; and Bridgeline Digital Belgium BV, located in Brussels, Belgium.
Acquisitions
Bridgeline will continue to evaluate expanding its distribution of Bridgeline Unbound and its interactive development capabilities through acquisitions. We may make additional acquisitions in the foreseeable future. These potential acquisitions will be consistent with our growth strategy by providing Bridgeline with new geographical distribution opportunities, an expanded customer base, an expanded sales force and an expanded developer force. In addition, integrating acquired companies into our existing operations allows us to consolidate the finance, human resources, legal, marketing, and research and development of the acquired businesses with our own internal resources, hence reducing the aggregate of these expenses for the combined businesses and resulting in improved operating results.
On March 1, 2021, the Company, pursuant to a Share Purchase Agreement (the “Woorank Purchase Agreement”), acquired all of the issued and outstanding shares of Woorank SRL (“Woorank”), an entity located in Belgium. The total purchase price of approximately $2.4 million consisted of (1) $285 thousand in cash paid at closing or in close proximity to closing, (2) $376 thousand of deferred cash payable in installments post-closing, (3) a $352 thousand seller note issued to one of the selling shareholders, and (4) amounts payable to one selling shareholder as consideration for assistance with certain matters related to the acquisition for a period of one year from the closing date of the acquisition. The Woorank Purchase Agreement also provides for additional consideration, in the event of achievement of certain revenue targets and operational goals, to the selling shareholders pursuant to three separate earn-out provisions. The acquisition date fair value of contingent consideration was $1.3 million. On the closing date, the Company issued 29,433 shares of its common stock, with an aggregate issuance date fair value of $99 thousand, for a portion of the purchase price.
On May 28, 2021, the Company, pursuant to a Share Purchase Agreement (the “Hawk Purchase Agreement”), acquired all of the issued and outstanding shares of Hawk Search, Inc., an Illinois corporation (“Hawk Search”). The total purchase price of approximately $9.9 million consisted of (1) $4.8 million initial cash payment at closing, (2) issuance of 1,500 shares of the Company’s newly designated Series D Preferred Stock with an aggregate issuance date fair value of $930 thousand, and (3) $2.0 million deferred cash payable on or before December 31, 2021. The Hawk Purchase Agreement also provides for additional consideration, in the event of achievement of certain revenue targets, to the selling shareholders as an additional earn-out, payable no later than January 2023. The acquisition date fair value of contingent consideration was approximately $2.2 million.
Customer Information
We currently have over 2,000 active customers. For the three and six months ended March 31, 2023 and 2022, no customer exceeded 10% of the Company’s revenue. For the three months ended March 31, 2021, one customer represented approximately 10% of the Company’s total revenue. For the six months ended March 31, 2022, no customer exceeded 10% of the Company’s total revenue. For the six months ended March 31, 2021, one customer represented approximately 10% of the Company’s total revenue.
Results of Operations for the Three and Six Months Ended March 31, 20222023 compared to the Three and Six Months Ended March 31, 20212022
Total net revenue for each of the three months ended March 31, 2023 and 2022, was $4.1 million and $2.9$4.1 million, respectively. We had net income (loss) of ($0.5) million and $0.3 million for the three months ended March 31, 2021. We had2023 and 2022, respectively. Included in the net income of $0.3 million and a net loss of ($0.6) million(loss) for the three months ended March 31, 20222023 and 2021, respectively. Included in net income for the three months ended March 31, 2022, and 2021 was a gain/(loss)gain of $0.5$0.2 million and ($0.4)$0.4 million, respectively, as a result of the change in the fair value of certain warrant liabilities. Basic and diluted net income (loss)loss per share attributable to common shareholders was ($0.05) for the three months ended March 31, 2023. Basic and diluted net loss per share attributable to common shareholders was $0.03 and $(0.11) for the three months ended March 31, 2022 and 2021, respectively.2022.
Total net revenue for the six months ended March 31, 2023 and 2022, was $8.2 million and $8.4 million, and $5.7 million for the six months ended March 31, 2021.respectively. We had net income (loss) of ($0.6) million and $2.2 million for the six months ended March 31, 2023 and 2022, and arespectively. Included in the net loss of $1.7 millionincome (loss) for the six months ended March 31, 2021. Included2023, was a gain of $0.5 million and $2.9 million, respectively, as a result of the change in the fair value of certain warrant liabilities. Basic and diluted net incomeloss per share attributable to common shareholders was ($0.06) for the six months ended March 31, 2022 was a gain of $2.9 million as a result of the change in fair value of certain warrant liabilities. Included in the net loss for the six months ended March 31, 2021 was a loss of $1.9 million as a result of the change in fair value of certain warrant liabilities and income of $88 thousand related to government grant income related to the Paycheck Protection Program (“PPP”) loan.2023. Basic net income (loss) per share attributable to common shareholders was $0.22 and ($0.36)diluted net income per share attributed to common shareholders was $0.10 for the six months ended March 31, 2022 and 2021, respectively. Diluted net income (loss) per share attributable to common shareholders was $0.10 and ($0.36) for the six months ended March 31, 2022 and 2021, respectively.2022.
(in thousands) | | Three Months Ended
March 31, | | | Six Months Ended
March 31, | |
| | | | | | | | | | | | | | | | | | | $ | | | % | | | | | | | | | | | | | | | | | | | $ | | | % | |
Revenue | | 2023 | | | % | | | 2022 | | | % | | | Change | | | Change | | | 2023 | | | % | | | 2022 | | | % | | | Change | | | Change | |
Subscription and perpetual licenses | | $ | 3,273 | | | | 80 | % | | $ | 3,306 | | | | 80 | % | | $ | (33 | ) | | | (1 | %) | | $ | 6,502 | | | | 80 | % | | $ | 6,723 | | | | 80 | % | | | (221 | ) | | | (3 | %) |
Digital engagement services | | | 821 | | | | 20 | % | | | 811 | | | | 20 | % | | | 10 | | | | 1 | % | | | 1,675 | | | | 20 | % | | | 1,680 | | | | 20 | % | | | (5 | ) | | | (0 | %) |
Total net revenue | | | 4,094 | | | | | | | | 4,117 | | | | | | | | (23 | ) | | | (1 | %) | | | 8,177 | | | | | | | | 8,403 | | | | | | | | (226 | ) | | | (3 | %) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subscription and perpetual licenses | | | 840 | | | | 26 | % | | | 868 | | | | 26 | % | | | (28 | ) | | | (3 | %) | | | 1,701 | | | | 26 | % | | | 1,697 | | | | 25 | % | | | 4 | | | | 0 | % |
Digital engagement services | | | 422 | | | | 51 | % | | | 466 | | | | 57 | % | | | (44 | ) | | | (9 | %) | | | 840 | | | | 50 | % | | | 917 | | | | 55 | % | | | (77 | ) | | | (8 | %) |
Total cost of revenue | | | 1,262 | | | | 31 | % | | | 1,334 | | | | 32 | % | | | (72 | ) | | | (5 | %) | | | 2,541 | | | | 31 | % | | | 2,614 | | | | 31 | % | | | (73 | ) | | | (3 | %) |
Gross profit | | | 2,832 | | | | 69 | % | | | 2,783 | | | | 68 | % | | | 49 | | | | 2 | % | | | 5,636 | | | | 69 | % | | | 5,789 | | | | 69 | % | | | (153 | ) | | | (3 | %) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sales and marketing | | | 1,386 | | | | 34 | % | | | 1,267 | | | | 31 | % | | | 119 | | | | 9 | % | | | 2,595 | | | | 32 | % | | | 2,498 | | | | 30 | % | | | 96 | | | | 4 | % |
General and administrative | | | 756 | | | | 18 | % | | | 775 | | | | 19 | % | | | (19 | ) | | | (2 | %) | | | 1,588 | | | | 19 | % | | | 1,648 | | | | 20 | % | | | (60 | ) | | | (4 | %) |
Research and development | | | 926 | | | | 23 | % | | | 865 | | | | 21 | % | | | 61 | | | | 7 | % | | | 1,673 | | | | 20 | % | | | 1,724 | | | | 21 | % | | | (101 | ) | | | (6 | %) |
Depreciation and amortization | | | 381 | | | | 9 | % | | | 416 | | | | 10 | % | | | (35 | ) | | | (8 | %) | | | 759 | | | | 9 | % | | | 840 | | | | 10 | % | | | (81 | ) | | | (10 | %) |
Restructuring and acquisition related expenses | | | 45 | | | | 1 | % | | | 66 | | | | 2 | % | | | (21 | ) | | | (32 | %) | | | 45 | | | | 1 | % | | | 164 | | | | 2 | % | | | (119 | ) | | | (73 | %) |
Total operating expenses | | | 3,494 | | | | | | | | 3,389 | | | | | | | | 105 | | | | 3 | % | | | 6,660 | | | | | | | | 6,874 | | | | | | | | (214 | ) | | | (3 | %) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loss from operations | | | (662 | ) | | | | | | | (606 | ) | | | | | | | (56 | ) | | | 9 | % | | | (1,024 | ) | | | | | | | (1,085 | ) | | | | | | | 61 | | | | (6 | %) |
Change in fair value of contingent consideration, interest expense and other, net | | | (10 | ) | | | | | | | 523 | | | | | | | | (533 | ) | | | (102 | %) | | | (19 | ) | | | | | | | 435 | | | | | | | | (454 | ) | | | (104 | %) |
Change in fair value of warrant liabilities | | | 171 | | | | | | | | 434 | | | | | | | | (263 | ) | | | (61 | %) | | | 468 | | | | | | | | 2,875 | | | | | | | | (2,407 | ) | | | (84 | %) |
Income (loss) before income taxes | | | (501 | ) | | | | | | | 351 | | | | | | | | (852 | ) | | | (243 | %) | | | (575 | ) | | | | | | | 2,225 | | | | | | | | (2,800 | ) | | | (126 | %) |
Provision for income taxes | | | 10 | | | | | | | | 5 | | | | | | | | 5 | | | | 100 | % | | | 16 | | | | | | | | 8 | | | | | | | | 8 | | | | 100 | % |
Net income (loss) | | $ | (511 | ) | | | | | | $ | 346 | | | | | | | $ | (857 | ) | | | (248 | %) | | $ | (591 | ) | | | | | | $ | 2,217 | | | | | | | $ | (2,808 | ) | | | (127 | %) |
Non-GAAP Measure: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA | | $ | (144 | ) | | | | | | $ | (72 | ) | | | | | | $ | (72 | ) | | | 100 | % | | $ | (29 | ) | | | | | | $ | 34 | | | | | | | $ | (63 | ) | | | (185 | %) |
(in thousands) | | Three Months Ended
March 31, | | | | | | | | | | | Six Months Ended
March 31, | | | | | | | | | |
| | | | | | | | | | | | $ | | | % | | | | | | | | | | | | $ | | | % | |
Revenue | | 2022 | | | 2021 | | | Change | | | Change | | | 2022 | | | 2021 | | | Change | | | Change | |
Digital engagement services | | $ | 811 | | | $ | 885 | | | $ | (74 | ) | | | (8% | ) | | $ | 1,680 | | | $ | 1,722 | | | | (42 | ) | | | (2% | ) |
% of total net revenue | | | 20 | % | | | 31 | % | | | | | | | | | | | 20 | % | | | 30 | % | | | | | | | | |
Subscription and perpetual licenses | | | 3,306 | | | | 1,989 | | | | 1,317 | | | | 66 | % | | | 6,723 | | | | 3,988 | | | | 2,735 | | | | 69 | % |
% of total net revenue | | | 80 | % | | | 69 | % | | | | | | | | | | | 80 | % | | | 70 | % | | | | | | | | |
Total net revenue | | | 4,117 | | | | 2,874 | | | | 1,243 | | | | 43 | % | | | 8,403 | | | | 5,710 | | | | 2,693 | | | | 47 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Digital engagement services | | | 466 | | | | 474 | | | | (8 | ) | | | (2 | %) | | | 917 | | | | 848 | | | | 69 | | | | 8 | % |
% of digital engagement services revenue | | | 57 | % | | | 54 | % | | | | | | | | | | | 55 | % | | | 49 | % | | | | | | | | |
Subscription and perpetual licenses | | | 868 | | | | 592 | | | | 276 | | | | 47 | % | | | 1,697 | | | | 1,175 | | | | 522 | | | | 44 | % |
% of subscription and perpetual revenue | | | 26 | % | | | 30 | % | | | | | | | | | | | 25 | % | | | 29 | % | | | | | | | | |
Total cost of revenue | | | 1,334 | | | | 1,066 | | | | 268 | | | | 25 | % | | | 2,614 | | | | 2,023 | | | | 591 | | | | 29 | % |
Gross profit | | | 2,783 | | | | 1,808 | | | | 975 | | | | 54 | % | | | 5,789 | | | | 3,687 | | | | 2,102 | | | | 57 | % |
Gross profit margin | | | 68 | % | | | 63 | % | | | | | | | | | | | 69 | % | | | 65 | % | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sales and marketing | | | 1,267 | | | | 524 | | | | 743 | | | | 142 | % | | | 2,498 | | | | 969 | | | | 1,529 | | | | 158 | % |
% of total revenue | | | 31 | % | | | 18 | % | | | | | | | | | | | 30 | % | | | 17 | % | | | | | | | | |
General and administrative | | | 775 | | | | 608 | | | | 167 | | | | 27 | % | | | 1,648 | | | | 1,073 | | | | 575 | | | | 54 | % |
% of total revenue | | | 19 | % | | | 21 | % | | | | | | | | | | | 20 | % | | | 19 | % | | | | | | | | |
Research and development | | | 865 | | | | 479 | | | | 386 | | | | 81 | % | | | 1,724 | | | | 828 | | | | 896 | | | | 108 | % |
% of total revenue | | | 21 | % | | | 17 | % | | | | | | | | | | | 21 | % | | | 15 | % | | | | | | | | |
Depreciation and amortization | | | 416 | | | | 240 | | | | 176 | | | | 73 | % | | | 840 | | | | 471 | | | | 369 | | | | 78 | % |
% of total revenue | | | 10 | % | | | 8 | % | | | | | | | | | | | 10 | % | | | 8 | % | | | | | | | | |
Restructuring and acquisition related expenses | | | 66 | | | | 84 | | | | (18 | ) | | | (21% | ) | | | 164 | | | | 294 | | | | (130 | ) | | | (44% | ) |
% of total revenue | | | 1 | % | | | 3 | % | | | | | | | | | | | 2 | % | | | 5 | % | | | | | | | | |
Total operating expenses | | | 3,389 | | | | 1,935 | | | | 1,454 | | | | 75 | % | | | 6,874 | | | | 3,635 | | | | 3,239 | | | | 89 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from operations | | | (606 | ) | | | (127 | ) | | | (479 | ) | | | 377 | % | | | (1,085 | ) | | | 52 | | | | (1,137 | ) | | | (2,187% | ) |
Change in fair value of contingent consideration, interest income (expense), and other, net | | | 523 | | | | (4 | ) | | | 527 | | | | 13,175 | % | | | 435 | | | | 2 | | | | 433 | | | | 21,650 | % |
Government grant income | | | - | | | | - | | | | - | | | | 0 | % | | | - | | | | 88 | | | | (88 | ) | | | (100% | ) |
Change in fair value of warrant liabilities | | | 434 | | | | (418 | ) | | | 852 | | | | 204 | % | | | 2,875 | | | | (1,859 | ) | | | 4,734 | | | | 255 | % |
Income (loss) before income taxes | | | 351 | | | | (549 | ) | | | 900 | | | | 157 | % | | | 2,225 | | | | (1,717 | ) | | | 3,942 | | | | 230 | % |
Provision for income taxes | | | 5 | | | | 7 | | | | (2 | ) | | | (29% | ) | | | 8 | | | | 1 | | | | 7 | | | | 700 | % |
Net income (loss) | | $ | 346 | | | $ | (556 | ) | | $ | 902 | | | | 162 | % | | $ | 2,217 | | | $ | (1,718 | ) | | $ | 3,935 | | | | 229 | % |
Non-GAAP Measure: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA | | $ | (72 | ) | | $ | 235 | | | $ | (307 | ) | | | (131% | ) | | $ | 34 | | | $ | 907 | | | $ | (873 | ) | | | (96% | ) |
Revenue
Our revenue is derived from two sources: (i) digital engagement services and (ii) subscription and perpetual licenses.
Digital Engagement Services
Digital engagement services revenue is comprised of Bridgeline Unbound implementation, Hawk Search Inc. and retainer-related services. Digital engagement services decreased $74 thousand, or 8%, to $0.8 million for the three months ended March 31, 2022 compared to $0.9 million for the three months ended March 31, 2021 and decreased $42 thousand, or 2%, to $1.7 million for the six months ended March 31, 2022 compared to $1.7 million for the six months ended March 31, 2021. Digital engagement services revenue as a percentage of total revenue decreased to 20% from 31% for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 and decreased to 20% from 30% for the six months ended March 31, 2022 compared to the six months ended March 31, 2021. The decrease as a percentage of total revenue is attributable to the increase in subscription and perpetual licenses including additional revenue related to the fiscal 2021 business acquisitions.and (ii) digital engagement services.
Subscription and Perpetual Licenses
Revenue from subscription (SaaS) and perpetual licenses increased $1.3for the three months ended March 31, 2023 of $3.3 million or 66%, todecreased slightly from $3.3 million for the three months ended March 31, 2022 compared to $2.0 million2022. Revenue from subscription (SaaS) and perpetual licenses for the threesix months ended March 31, 2021 and increased $2.72023 of $6.5 million decreased $0.2 million or 69%3%, tofrom $6.7 million for the six months ended March 31, 2022 compared to $4.0 million2022. The decrease for the six months ended March 31, 2021. The increase for the three and six months ended March 31, 20222023 compared to the prior period is primarily due to an increasepartially resulted from $0.1 million of perpetual license sales in subscriptions and perpetual licenses, including renewals, and the inclusion of revenue from the fiscal 2021 business acquisitions.prior year period. Subscription and perpetual license revenue as a percentage of total revenue increased toremained consistent at 80% for the three and six months ended March 31, 2023 and 2022.
Digital Engagement Services
Revenue from 69%digital engagement services of $0.8 million for the three months ended March 31, 2022 compared to2023 increased slightly from $0.8 million for the three months ended March 31, 2021 and increased to 80%2022. Revenue from 70%digital engagement services for the six months ended March 31, 2023 and 2022 compared to the six months ended March 31, 2021. The increasewas $1.7 million. Digital engagement services revenue as a percentage of total revenue is primarily due to an increase in subscriptionsremained consistent at 20% during the three and perpetual licenses, including renewalssix months ended March 31, 2023 and the inclusion of revenue from the fiscal 2021 business acquisitions.2022.
Cost of Revenue
Total cost of revenue increased $0.3 million, or 25%, toof $1.3 million for the three months ended March 31, 2022 compared to $1.02023 decreased slightly from $1.3 million forin the three months ended March 31, 2021 and increased $0.6 million, or 29%, to $2.6prior comparable period. Total cost of revenue of $2.5 million for the six months ended March 31, 20222023 decreased $0.1 million, or 3%, compared to $2.0$2.6 million for the six months ended March 31, 2021. The gross profit margin increased to 68% for the three months ended March 31, 2022 compared to 63% for the three months ended March 31, 2021 and increased to 69% for the six months ended March 31, 2022 compared to 65% for the six months ended March 31, 2021. The increase in the gross profit margin for the three and six months ended March 31, 2022 compared to the prior period is primarily attributable to the increase in the proportion of license revenue, which is generally associated with higher margins, to digital engagement service revenue.
Cost of Digital Engagement Services
Cost of digital engagement services decreased $8 thousand, or 2%, to $0.5 million for the three months ended March 31, 2022 and 2021 and increased $69 thousand, or 8%, to $1.0 million for the six months ended March 31, 2022 compared to $0.8 million for the six months ended March 31, 2021. The decrease for the three months ended March 31, 2022 compared to the prior period is primarily due to lower revenue and the increase for the six months ended March 31, 2022 compared to the prior period is primarily due to additional personnel costs, including from the fiscal 2021 business acquisitions. The cost of digital engagement services as a percentage of digital engagement services revenue increased to 57% for the three months ended March 31, 2022 compared to 54% for the three months ended March 31, 2021 and increased to 55% for the six months ended March 31, 2022 compared to 49% for the six months ended March 31, 2021. The increases as a percentage of revenues for the three months ended March 31, 2022 compared to the prior period is primarily due to additional personnel costs and six months ended March 31, 2022 compared to the prior periods is primarily due to the overall decrease in digital engagement services revenue.comparable period.
Cost of Subscription and Perpetual License
Cost of subscription and perpetual licenses increased $0.3of $0.8 million or 47%, tofor the three months ended March 31, 2023 decreased 3% from $0.9 million for the three months ended March 31, 2022 compared to $0.6 million for the three months ended March 31, 2021 and increased $0.5 million, or 44%, to $1.7 million for the six months ended March 31, 2022 compared to $1.2 million for the six months ended March 31, 2021.2022. The cost of subscription and perpetual licenses as a percentage of subscription and perpetual license revenue decreased toremained consistent at 26% for the three months ended March 31, 2022 compared to 30%2023 and 2022.
Cost of subscription and perpetual licenses of $1.7 million for the threesix months ended March 31, 20222023 remained consistent with the prior comparable period. The cost of subscription and decreasedperpetual licenses as a percentage of subscription and perpetual license revenue increased to 26% for the six months ended March 31, 2023 from 25% for the six months ended March 31, 2022 compared2022.
The increase as a percentage of revenues is primarily due to 29%the overall decrease in subscription and perpetual license revenue.
Cost of Digital Engagement Services
Cost of digital engagement services of $0.4 million for the three months ended March 31, 2023 decreased 9% from $0.5 million for the three months ended March 31, 2022. The cost of total digital engagement services as a percentage of total digital engagement services revenue decreased to 51% from 57%.
Cost of digital engagement services of $0.8 million for the six months ended March 31, 2023 decreased 8% from $0.9 million for the six months ended March 31, 2022. The decreasescost of total digital engagement services as a percentage of total digital engagement services revenue decreased to 50% from 55%.
The decrease in cost of digital engagement services in each of the three and six month periods is primarily due to an overall decrease in personnel costs.
Gross Profit
Gross profit of $2.8 million for the three months ended March 31, 2023 increased 2%, compared to $2.8 million for the three months ended March 31, 2022. The gross profit margin was 69% and 68% for the three months ended March 31, 2023 and 2022, respectively. Gross profit of $5.6 million decreased $0.2 million, or 3%, for the six months ended March 31, 20222023, compared to $5.8 million for the prior period is primarily due to overall increases in subscriptionsix months ended March 31, 2022. The gross profit margin was consistent of 69% for the six months ended March 31, 2023 and perpetual license revenue.2022.
Operating Expenses
Sales and Marketing Expenses
Sales and marketing expenses of $1.4 million for the three months ended March 31, 2023 increased $0.7 million, or 142%, to9% from $1.3 million for the three months ended March 31, 2022 compared to $0.5 million2022. Sales and marketing expense as a percentage of total revenue was 34% for the three months ended March 31, 20212023 and 31% for the three months ended March 31, 2022.
Sales and marketing expenses of $2.6 million for the six months ended March 31, 2023 increased $1.5 million, or 158%, to4% from $2.5 million for the six months ended March 31, 2022 compared to $1 million2022. Sales and marketing expense as a percentage of total revenue was 32% for the six months ended March 31, 2021. Sales2023 and marketing expenses represented 31% and 18% of total revenue for the three months ended March 31, 2022 and 2021, respectively, and 30% and 17% of total revenue for the six months ended March 31, 2022 and 2021, respectively. 2022.
The increase for the three and six months ended March 31, 2022increases in expenses compared to the prior periodsperiod is primarily attributable to higher personnel costsadditional marketing spend on leads and additional sales and marketing costs, including such additional costs related to the fiscal 2021 business acquisitions.conferences.
General and Administrative Expenses
General and administrative expenses increased $0.2 million, or 27%, toof $0.8 million for the three months ended March 31, 2022 compared to $0.62023 decreased 2% from $0.8 million for the three months ended March 31, 20212022. General and increased $0.6 million, or 54%, to $1.7administrative expense as a percentage of total revenue was 18% for the three months ended March 31, 2023 and 19% for the three months ended March 31, 2022.
General and administrative expenses of $1.6 million for the six months ended March 31, 2022 compared to $1.12023 decreased 4% from $1.6 million for the six months ended March 31, 2021. General and administrative expenses represented 19% and 21% of total revenue for the three months ended March 31, 20222022. General and 2021, respectively, and 20% and 19%administrative expense as a percentage of total revenue was 19% for the sixthree months ended March 31, 20222023 and 2021, respectively. 20% for the three months ended March 31, 2022.
The increasedecrease in expense wascosts in both the three and six month comparable period is primarily due to additional costs related to the fiscal 2021 business acquisitions.lower external professional fees.
Research and Development
Research and development expense increased $0.4 million, or 81%, toexpenses of $0.9 million for the three months ended March 31, 2022 compared to $0.52023 increased 7%, from $0.9 million for the three months ended March 31, 20212022. Research and increased $0.9 million, or 108%, todevelopment expenses as a percentage of total revenue was 23% for the three months ended March 31, 2023 and 21% for the three months ended March 31, 2022.
Research and development expenses of $1.7 million for the six months ended March 31, 2022 compared to $0.82023 decreased $0.1 million, or 3%, from $1.7 million for the six months ended March 31, 2021.2022. Research and development expenses represented 21% and 17%as a percentage of total revenue for the three months ended March 31, 2022 and 2021, respectively and 21% and 15% of total revenuedecreased to 20% for the six months ended March 31, 2022 and 2021, respectively. These increases2023 from 21% for the three and six months ended March 31, 2022 are2022.
The changes for each of the comparable periods is primarily attributable to personnel and other additional costs related to the fiscal 2021 business acquisitions. costs.
Depreciation and Amortization
Depreciation and amortization expense increased $0.2 million, or 73%, toof $0.4 million for the three months ended March 31, 2022 compared to $0.22023 was 8% lower than the $0.4 million for the three months ended March 31, 20212022. Depreciation and increased $0.4 million, or 78%,amortization as a percentage of total revenue decreased to 9% for the three months ended March 31, 2023, compared to 10% for the three months ended March 31, 2022. Depreciation and amortization expense of $0.8 million for the six months ended March 31, 2022 compared to $0.52023 was 10% lower than the $0.8 million for the six months ended March 31, 2021.2022. Depreciation and amortization expense represented 10% and 8%as a percentage of total revenue decreased to 9% for the three and six months ended March 31, 2022 and 2021, respectively.2023, compared to 10% for the six months ended March 31, 2022. These increasesdecreases are primarily due to completion of amortization of certain intangible assets resulting from acquisitions completed during fiscal 2021.prior business acquisitions.
Restructuring and Acquisition-Related Expenses
During the three and six months ended March 31, 2023, the Company incurred acquisition-related expenses of $45 thousand. During the three and six months ended March 31, 2022, the Company incurred acquisition-related expenses of $66 thousand and $0.2 million,$164 thousand, respectively. During the three and six months ended March 31, 2023, expenses incurred were primarily related to legal costs. During the three and six months ended March 31, 2022, expenses incurred were related to further acquisition integrations. During the three and six months ended March 31, 2021, in connection with the acquisition of a business completed during the fiscal 2021 second quarter, the Company incurred acquisition expenses of $84 thousand during the three months ended March 31, 2021 and $0.3 million during the six months ended March 31, 2021. Acquisition-related expenses represented 1% and 2% total revenue for the three and six months ended March 31, 2022, respectively, and represented 3% and 5% of total revenue for the three and six months ended March 31, 2021, respectively.
Income (loss)Loss from Operations
The loss from operations was ($0.6)$0.7 million and $0.6 million for the three months ended March 31, 2023 and 2022, compared to ($0.1)an increase of $0.1 million for the three months ended March 31, 2021.or 9%. The loss from operations was ($1.1)$1.0 million for the six months ended March 31, 2023, compared to a loss from operations of $1.1 million for the six months ended March 31, 2022, compared to income from operationsa decrease of $52 thousand for the six months ended March 31, 2021. Operating expenses increased $1.5$0.1 million or 75%, to $3.4 million for the three months ended March 31, 2022 compared to $1.9 million for the three months ended March 31, 2021 and increased $3.2 million, or 89%, to $6.9 million for the six months ended March 31, 2022 compared to $3.6 million for the six months ended March 31, 2021. The increases for the three and six months ended March 31, 2022 compared to the prior period were primarily due to additional costs related to the acquisition of businesses in fiscal 2021.6%.
Change in fair value of contingent consideration, Interest income (expense)interest expense and other, net; Government grant income; net
During the three and six months ended March 31, 2023, the change in fair value of contingent consideration, interest expense and other, net, decreased $0.5 million and $0.4 million, respectively, compared to the prior period. During the three and six months ended March 31, 2022, change in fair value of contingent consideration, interest expense and other, net, was $0.5 million and $0.4 million, respectively, and was primarily the result of changes in fair value of contingent consideration.
Change in fair value of warrant liabilities
The Company recognized a gain related to the change in fair value of warrant liabilities of $0.2 million and $0.4 million, for the three months ended March 31, 2023 and 2022, compared to a loss of $0.4 million for the three months ended March 31, 2021.respectively. The Company recognized a gain related to the change in fair value of warrant liabilities of $0.5 million and $2.9 million, for the six months ended March 31, 2023 and 2022, compared to a loss of $1.9 million for the six months ended March 31, 2021 related to the change in fair value of warrant liabilities.
During the three and six months ended March 31, 2022, the change in fair value of contingent consideration, interest income (expense) and other, net, was $523 thousand and $435 thousand, respectively, and included non-recurring non-operating costs. During the three and six months ended March 31, 2021, change in fair value of contingent consideration, interest income (expense) and other, net, was ($4) thousand and $2 thousand, respectively and included non-recurring non-operating costs.
During the six months ended March 31, 2021, the Company recognized government grant income of $88 thousand associated with proceeds received under the Paycheck Protection Program deemed probable to be forgiven based on the actual expenditures for qualified expenses during the period. As of the first quarter of fiscal 2021, the Company expended all loan proceeds on qualified expenses incurred during the period. The Company applied for full PPP Loan forgiveness on March 29, 2021 and received approval from the Small Business Administration in August 2021. During the first quarter of fiscal 2021, the remaining loan proceeds were expended on qualified expenses and as a result, the Company recognized $88 thousand as government grant income.respectively.
Provision for Income Taxes
The provision for income tax expensetaxes was $10 thousand for the three months ended March 31, 2023 and $5 thousand for the three months ended March 31, 2022, respectively. The provision for income taxes was $16 thousand for the six months ended March 31, 2023 and $8 thousand for the three and six months ended March 31, 2022, respectively, and $7 and $1 thousand for the three and six months ended March 31, 2021, respectively. Income tax expense represents theconsists of estimated liability for federal and state income taxes owed. We have netowed by the Company. Net operating loss (“NOL”) carryforwards and other deferred tax benefits that are availableestimated to be sufficient to offset any potential taxable income.income for all periods presented. A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. The Company maintains a valuation allowance against its net deferred tax assets.
Adjusted EBITDA
We also measure our performance based on a non-GAAP (“Generally Accepted Accounting Principles”) measurement of earnings before interest, taxes, depreciation, amortization, stock-based compensation expense, impairment of goodwill and intangible assets, non-cash warrant related expenses, other income and expenses, change in fair value of derivative instruments, change in fair value of contingent consideration, and restructuring and acquisition related charges (“Adjusted EBITDA”).
We believe this non-GAAP financial measure of Adjusted EBITDA is useful to management and investors in evaluating our operating performance for the periods presented and provides a tool for evaluating our ongoing operations.
Adjusted EBITDA, however, is not a measure of operating performance under accounting principles generally accepted in the United States of America (“U.S. GAAP”) and should not be considered as an alternative or substitute for U.S. GAAP profitability measures such as (i) income from operations and net income, or (ii) cash flows from operating, investing and financing activities, both as determined in accordance with U.S. GAAP. Adjusted EBITDA as an operating performance measure has material limitations because it excludes the financial statement impact of income taxes, net interest expense, income taxes, depreciation, amortization of intangibles, depreciation,stock-based compensation, goodwill impairment, restructuring charges, acquisition related expenses,changes in fair value of warrant liabilities, loss on disposal of assets, other amortization, changes in fair value of warrant liabilities, changes in fair value of contingent consideration and stock-based compensation,restructuring charges, acquisition related expenses, and therefore does not represent an accurate measure of profitability. As a result, Adjusted EBITDA should be evaluated in conjunction with net income (loss) for a complete analysis of our profitability, as net income (loss) includes the financial statement impact of these items and is the most directly comparable U.S. GAAP operating performance measure to Adjusted EBITDA. Our definition of Adjusted EBITDA may also differ from and therefore may not be comparable with similarly titled measures used by other companies, thereby limiting its usefulness as a comparative measure. Because of the limitations that Adjusted EBITDA has as an analytical tool, investors should not consider it in isolation, or as a substitute for analysis of our operating results as reported under U.S. GAAP.
The following table reconciles net income (loss) (which is the most directly comparable U.S. GAAP operating performance measure) to Adjusted EBITDA (in thousands):
| | | Three Months Ended
March 31, | | | Six Months Ended
March 31, | | | Three Months Ended
March 31, | | | Six Months Ended
March 31, | |
| | | 2022 | | | 2021 | | | 2022 | | | 2021 | | | 2023 | | | 2022 | | | 2023 | | | 2022 | |
Net income (loss) | | $ | 346 | | | $ | (556 | ) | | $ | 2,217 | | | $ | (1,718 | ) | | $ | (511 | ) | | $ | 346 | | | $ | (591 | ) | | $ | 2,217 | |
Provision for income tax | | 5 | | | 7 | | | 8 | | | 1 | | | 10 | | | 5 | | | 16 | | | 8 | |
Change in fair value of contingent consideration, interest income (expense) and other, net | | (523 | ) | | 4 | | | (435 | ) | | (2 | ) | |
Government grant income | | - | | | - | | | - | | | (88 | ) | |
Change in fair value of contingent consideration, interest expense and other, net | | | 10 | | | (523 | ) | | 19 | | | (435 | ) |
Change in fair value of warrants | | (434 | ) | | 418 | | | (2,875 | ) | | 1,859 | | | (171 | ) | | (434 | ) | | (468 | ) | | (2,875 | ) |
Amortization of intangible assets | | 396 | | | 223 | | | 797 | | | 441 | | | 344 | | | 396 | | | 686 | | | 797 | |
Depreciation and other amortization | | 20 | | | 16 | | | 43 | | | 30 | | | 45 | | | 20 | | | 87 | | | 43 | |
Restructuring and acquisition related charges | | 66 | | | 84 | | | 164 | | | 294 | | | 45 | | | 66 | | | 45 | | | 164 | |
Stock-based compensation | | | 52 | | | | 39 | | | | 115 | | | | 90 | | | | 84 | | | | 52 | | | | 177 | | | | 115 | |
Adjusted EBITDA | | $ | (72 | ) | | $ | 235 | | | $ | 34 | | | $ | 907 | | | $ | (144 | ) | | $ | (72 | ) | | $ | (29 | ) | | $ | 34 | |
Adjusted EBITDA decreased year over year, which is primarily attributable additional costs related to the fiscal 2021 business acquisitions as well as additional sales and marketing spend.
Liquidity and Capital Resources
Cash Flows
Operating Activities
Cash provided by operating activities was $0.5 million for the six months ended March 31, 2023, compared to cash used in operating activities wasof $0.9 million for the six months ended March 31, 2022 compared to cash provided by operating activities of $0.2 million for the six months ended March 31, 2021.2022. The change in cash provided by operating activities, compared to the prior period, was primarily due to increases in prepaids and other current assets, increaseschanges in accounts payable and accrued liabilities and decreases in deferred revenue.
Investing Activities
Cash used in investing activities was $16 thousand for the six months ended March 31, 2023, related primarily to purchases of property and equipment. Cash used in investing activities was $76 thousand for the six months ended March 31, 2022, related primarily to software development capitalizedcapitalization costs and purchases of property and equipment. Cash provided by investing activities of $347 thousand for the six months ended March 31, 2021 which related primarily to excess cash acquired in connection with the acquisition of a business over the cash consideration paid during the period.
Financing Activities
Cash used in financing activities was $0.6 million for the six months ended March 31, 2023, primarily related to contingent consideration and long-term debt payments related to acquisitions completed during fiscal 2021. Cash used in financing activities was $3.2 million for the six months ended March 31, 2022, primarily related to payments of long-term debt and deferred purchase price payable and contingent consideration payments made on liabilities from 2021 acquisitions. Cash provided by financing activities was $2.1 million for the six months ended March 31, 2021, which primarily related to net proceeds of approximately $2.5 million from a registered offering and sale of 880,000 shares of the Company’s common stock partially offset by repayments of long-term debt assumed in connection with the acquisition of a business.payments.
Capital Resources and Liquidity Outlook
In connection with a business acquisition completed during the 2021 fiscal year third quarter (Hawk Search), the Company recognized a contingent consideration obligation with a current carrying value of $2.2 million which is payable, no later than January 31, 2023, in the event of achievement of certain revenue targets and operational goals.
In connection with an acquisition of a business completed during the 2021 fiscal year second quarter (Woorank)(WooRank), the Company (1) assumed the outstanding long-term debt obligations of which approximately $1.3$0.8 million remains outstanding at March 31, 20222023, with $0.5$0.2 million payable over the next twelve months and (2) recognized contingent consideration obligation in which approximately $0.5 million remains outstanding at March 31, 2022, which is payable in the next twelve months based upon the achievement of certain revenue targets and operational goals.months.
The Company has historically incurred operating losses and used cash on hand and from financing activities to fund operations as well as develop new products. The Company believes that future revenues and cash flows will supplement its working capital and it has an appropriate cost structure to support future revenue growth.
The Company may offer and sell, from time to time, in one or more offerings, up to $50 million of its debt or equity securities, or any combination thereof. Such securities offerings may be made pursuant to the Company’s currently effective registration statement on Form S-3 (File No. 333-262764), which was initially filed with the Securities and Exchange Commission on February 16, 2022 and declared effective on March 4, 2022 (the “Shelf Registration”). A complete description of the types of securities that the Company may sell is described in the Preliminary Prospectus contained in the Shelf Registration. As of the date of the filing of this Quarterly Report, there are no active offerings for the sale or obligations to purchase any of the Company’s securities pursuant to the Shelf Registration. There can be no assurances that the Company will offer any securities for sale or that if the Company does offer any securities that it will be successful in selling any portion of the securities offered on a timely basis if at all, or on terms acceptable to us. Further, our ability to offer or sell such securities may be limited by rules of the NASDAQ Capital Market.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements, financings or other relationships with unconsolidated entities or other persons.
Contractual Obligations
We lease all of our office locations. The gross obligations for operating leases and subleases is $0.4$0.6 million, andof which $0.2 million respectively, of which $81 thousand and $51 thousand is expected in the next twelve months. Debt payments on the Company’s various debt obligations total $1.3$0.8 million of which $0.5$0.2 million is expected to be paid in the next twelve months. In connection with business acquisitions completed in the Company’s 2021 fiscal year, contingent consideration obligations total $2.7 million, which are expected to be paid in the next twelve months.
Critical Accounting Policies
These critical accounting policies and estimates by our management were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and should be read in conjunction with Note 2 Summary of Significant Accounting Policies to the Consolidated Financial Statements of our Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 20, 2021.21, 2022.
The preparation of financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. We regularly make estimates and assumptions that affect the reported amounts of assets and liabilities. The most significant estimates included in our financial statements are the valuation of accounts receivable and long-term assets, including intangibles, goodwill and deferred tax assets, stock-based compensation, amounts of revenue to be recognized on service contracts in progress, unbilled receivables, and deferred revenue. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected.
We consider the following accounting policies to be both those most important to the portrayal of our financial condition and those that require the most subjective judgment:
| | ● | Revenue recognition; |
| | | |
| ● | Allowance for doubtful accounts; |
| | |
| | ● | Accounting for goodwill and other intangible assets; |
| | ● | Accounting for business combinations; |
| | ● | Accounting for business combinations;common stock purchase warrants; and |
| | |
| | ● | Accounting for stock-based compensation. |
Revenue Recognition
The Company derives its revenue from two sources: (i) Software Licenses, which are comprised of subscription fees ("SaaS"(“SaaS”), perpetual software licenses, and maintenance for post-customer support (“PCS”) on perpetual licenses, and (ii) Digital Engagement Services, which are professional services to implement our products such as web development, digital strategy, information architecture and usability engineering and search. Customers who license the software on a subscription basis, which can be described as “Software as a Service” or “SaaS”, do not take possession of the software.
Revenue is recognized when control of these services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. If the consideration promised in a contract includes a variable amount, for example, overage fees, contingent fees or service level penalties, the Company includes an estimate of the amount it expects to receive for the total transaction price if it is probable that a significant reversal of cumulative revenue recognized will not occur. The Company’s subscription service arrangements are non-cancelable and do not contain refund-type provisions. Revenue is reported net of applicable sales and use tax.
The Company recognizes revenue from contracts with customers using the followinga five-step model, which is described below:
| | •1.
| Identify the customer contract; |
| | •2.
| Identify performance obligations that are distinct; |
| | •3.
| Determine the transaction price; |
| | •4.
| Allocate the transaction price to the distinct performance obligations; and |
| | •5.
| Recognize revenue as the performance obligations are satisfied. |
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts, which represents estimated losses resulting from the inability, failure or refusal of our clients to make required payments.
We analyze historical percentages of uncollectible accounts and changes in payment history when evaluating the adequacy of the allowance for doubtful accounts. We use an internal collection effort, which may include our sales and services groups as we deem appropriate. Although we believe that our allowances are adequate, if the financial condition of our clients deteriorates, resulting in an impairment of their ability to make payments, or if we underestimate the allowances required, additional allowances may be necessary, resulting in increased expense in the period in which such determination is made.
Accounting for Goodwill and Intangible Assets
Goodwill is tested for impairment annually during the fourth quarter of every fiscal year and more frequently if events and circumstances indicate that the asset might be impaired. The purpose of an impairment test is to identify any potential impairment by comparing the carrying value of a reporting unit including goodwill to its fair value. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.
Factors that could lead to a future impairment include material uncertainties such as operational, economic and competitive factors specific to the key assumptions underlying the fair value estimate we use in our impairment testing that have a reasonable possibility of changing. This could include a significant reduction in projected revenues, a deterioration of projected financial performance, future acquisitions and/or mergers, and a decline in our market value as a result of a significant decline in our stock price.
Accounting for Business Combinations
The Company allocates the amount it pays for each acquisition to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, including identifiable intangible assets which arise from a contractual or legal right or are separable from goodwill. The Company bases the fair value of identifiable intangible assets acquired in a business combination on detailed valuations that use information and assumptions provided by management, which consider management’s best estimates of inputs and assumptions that a market participant would use. The Company allocates any excess purchase price that exceeds the fair value of the net tangible and identifiable intangible assets acquired to goodwill. The use of alternative valuation assumptions, including estimated growth rates, cash flows and discounts rates and estimated useful lives could result in different purchase price allocations and amortization expense in current and future periods. Transaction costs associated with these acquisitions are expensed as incurred through general and administrative expense on the consolidated statements of operations. In those circumstances where an acquisition involves a contingent consideration arrangement, the Company recognizes a liability equal to the fair value of the contingent payments expected to be made as of the acquisition date. The Company re-measures this liability each reporting period and recordsrecognizes changes in the fair value through income (loss) before income taxes within the consolidated statements of operations.
Accounting for Common Stock Purchase Warrants
The Company evaluates common stock warrants as they are issued to determine whether they should be classified as an equity instrument or a liability. Those warrants that are classified as a liability are carried at fair value at each reporting period, with changes in their fair value recognized in change in fair value of warrant liabilities in the consolidated statements of operations. The fair value of the Company’s warrant liabilities are valued utilizing Level 3 inputs. Warrant liabilities are valued using a Monte Carlo option-pricing model, which takes into consideration the volatilities of comparable public companies, due to the relatively low trading volume of the Company’s common stock. The Monte Carlo option-pricing model uses certain assumptions, including expected life and annual volatility.
Accounting for Stock-Based Compensation
We maintainAt March 31, 2023, we maintained two stock-based compensation plans, one of which has expired but still contains vested stock options. The two plans are more fully described in Note 12 to the Consolidated Financial Statements8 of our Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 20, 2021.these consolidated financial statements.
The Company accounts for stock-based compensation awards in accordance with ASC 718, Compensation - StockCompensation-Stock Topic of the Codification. Share-based payments (to the extent they are compensatory) are recognized in our Consolidated Statementsconsolidated statements of Operationsoperations based on their fair values.
We recognize stock-based compensation expense for share-based payments issued that are expected to vest on a straight-line basis over the service period of the award, which is generally three years. In determining whether an award is expected to vest, we use an estimated, forward-looking forfeiture rate based upon our historical forfeiture rate and reduce the expense over the recognition period. Estimated forfeiture rates are updated for actual forfeitures quarterly. We also consider, each quarter, whether there have been any significant changes in facts and circumstances that would affect our forfeiture rate. Although we estimate forfeitures based on historical experience, actual forfeitures in the future may differ. In addition, to the extent our actual forfeitures are different than our estimates, we recordrecognize a true-up for the difference in the period that the awards vest, and such true-ups could materially affect our operating results.
We estimate the fair value of employee stock options using the Black-Scholes-Merton option valuation model. The fair value of an award is affected by our stock price on the date of grant as well as other assumptions, including the estimated volatility of our stock price over the term of the awards and the estimated period of time that we expect employees to hold their stock options. The risk-free interest rate assumption we use is based upon United States treasuryTreasury interest rates appropriate for the expected life of the awards. We use the historical volatility of our publicly traded options in order to estimate future stock price trends. In order to determine the estimated period of time that we expect employees to hold their stock options, we use historical trends of employee turnovers. Our expected dividend rate is zero since we do not currently pay cash dividends on our common stock and do not anticipate doing so in the foreseeable future. The aforementioned inputs entered into the option valuation model we use to fair value our stock awards are subjective estimates and changes to these estimates will cause the fair value of our stock awards and related stock-based compensation expense we recordrecognize to vary.
We recordrecognize deferred tax assets for stock-based awards that result in deductions on our income tax returns, based on the amount of stock-based compensation recognized and the statutory tax rate in the jurisdiction in which we will receive a tax deduction.
Item3.Qualitative and Quantitative Disclosures About Market Risk. | Qualitative and Quantitative Disclosures About Market Risk. |
Not required.
Item 4.Controls and Procedures. | Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of March 31, 2022.2023.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Controls
Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving the desired control objectives. Our management recognizes that any control system, no matter how well designed and operated, is based upon certain judgments and assumptions and cannot provide absolute assurance that its objectives will be met. Similarly, an evaluation of controls cannot provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.
PART II – OTHER INFORMATION
ItemItem 1.Legal Proceedings. | Legal Proceedings. |
From time to time, we are subject to ordinary routine litigation and claims incidental to our business. We are not currently involved in any legal proceedings that we believe are material beyond those previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022, filed with the Securities and Exchange Commission on December 20, 2021.21, 2022.
There have been no material changes to the risk factors described under Item2.Unregistered Sales 1A of Equityour Annual Report on Form 10-K for the fiscal year ended September 30, 2022, filed with the Securities and Use of Proceeds.Exchange Commission on December 21, 2022.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
There were no sales of unregistered equity securities in the six months ended March 31, 2022.2023.
Item 3. | Defaults Upon Senior Securities. |
None.
Item 4. | Mine Safety Disclosures. |
Not applicable.
Item 5. | Other Information. |
None.
Item 6. Exhibits. | Exhibits. |
Exhibit No. | | Description of Document |
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3.1 | | Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to our Quarterly Report on Form 10-Q filed on May 15, 2013). |
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3.2 | | Amended and Restated By-laws (incorporated by reference to Exhibit 3.1 to our current Report on Form 8-K filed on December 14, 2018). |
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3.3 | | Amendment to the Amended and Restated By-laws (incorporated by reference to Exhibit 3.1 to our current Report on Form 8-K filed on September 20, 2021). |
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3.4 | | Certificate of Designations of the Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on November 4, 2014). |
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3.33.5
| | Amended and Restated By-laws (incorporated by reference to Exhibit 3.1 to our current Report on Form 8-K filed on December 14, 2018).
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3.4
| | Certificate of Designations of the Series B Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on October 19, 2018). |
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3.5
| | Amendment to the Amended and Restated By-laws (incorporated by reference to Exhibit 3.1 to our current Report on Form 8-K filed on September 20, 2021).
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3.6
| | Certificate of Designation of Preferences, Rights and Limitations of the Series D Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on May 14, 2021).
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10.1*
| | Amendment No. 2 to the Bridgeline Digital, Inc. 2016 Stock Incentive Plan.
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31.1* | | Certification of Chief Executive Officer, pursuant to Section 302 of Sarbanes-Oxley Act of 2002. |
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31.2* | | Certification of Chief Financial Officer, pursuant to Section 302 of Sarbanes-Oxley Act of 2002. |
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32.1* | | Certification of Chief Executive Officer, pursuant to Section 906 of Sarbanes-Oxley Act of 2002. |
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32.2* | | Certification of Chief Financial Officer, pursuant to Section 906 of Sarbanes-Oxley Act of 2002. |
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101.INS** | | Inline XBRL Instance |
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101.SCH** | | Inline XBRL Taxonomy Extension Schema |
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101.CAL** | | Inline XBRL Taxonomy Extension Calculation |
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101.DEF** | | Inline XBRL Taxonomy Extension Definition |
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101.LAB** | | Inline XBRL Taxonomy Extension Labels |
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101.PRE** | | Inline XBRL Taxonomy Extension Presentation |
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104 | | Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101) |
* Filed herewith.
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended and otherwise is not subject to liability under these sections.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | Bridgeline Digital, Inc. |
| | | (Registrant) |
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May 12, 202215, 2023 | | /s/ Roger Kahn |
Date | | Roger Kahn President and Chief Executive Officer (Principal Executive Officer) |
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May 12, 202215, 2023 | | /s/ Thomas R. Windhausen |
Date | | Thomas R. Windhausen Chief Financial Officer (Principal Financial and Accounting Officer) |
