Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
BLIN > SEC Filings for BLIN > Form 10-K on 20-Dec-2013All Recent SEC Filings

Show all filings for BRIDGELINE DIGITAL, INC.

Form 10-K for BRIDGELINE DIGITAL, INC.


20-Dec-2013

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

This section contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a variety of factors and risks including the impact of the weakness in the U.S. and international economies on our business, our inability to manage our future growth effectively or profitably, fluctuations in our revenue and quarterly results, our license renewal rate, the impact of competition and our ability to maintain margins or market share, the limited market for our common stock, the volatility of the market price of our common stock, the performance of our products, our ability to respond to rapidly evolving technology and customer requirements, our ability to protect our proprietary technology, the security of our software, our dependence on our management team and key personnel, our ability to hire and retain future key personnel, or our ability to maintain an effective system of internal controls. These and other risks are more fully described herein and in our other filings with the Securities and Exchange Commission.

This section should be read in combination with the accompanying audited consolidated financial statements and related notes prepared in accordance with United States generally accepted accounting principles.

Overview

Bridgeline Digital enables its customers to maximize the performance of their mission critical websites, intranets, and online stores. Bridgeline is the developer of the award-winning iAPPS® Web Engagement Management (WEM) product platform and related digital solutions. The iAPPS platform deeply integrates web content management, eCommerce, eMarketing, social media management and web analytics capabilities within the heart of websites or online stores to help marketers deliver web experiences that attract, engage, and convert their customers across all digital channels. Bridgeline's iAPPS platform combined with its digital services assists customers in maximizing on-line revenue, improving customer service and loyalty, enhancing employee knowledge, and reducing operational costs.

In fiscal 2012 Bridgeline Digital announced the release of iAPPSds ("distributed subscription"), a platform that empowers franchise and large dealer networks with state-of-the-art web engagement management platform that provides superior oversight of corporate branding while allowing franchises to modify local content and execute local digital marketing initiatives. iAPPSds deeply integrates content management, eCommerce, eMarketing, social media management and web analytics and is a self-service web platform that is offered to each authorized franchise or dealer for a monthly subscription fee. On August 1, 2013, we acquired franchise web platform developer ElementsLocal, expanding Bridgeline Digital's presence in the franchise market place. Please see Acquisitions section for more detail on the ElementsLocal acquisition.

The iAPPS platform is delivered either through a cloud-based SaaS ("Software as a Service") multi-tenant business model, whose flexible architecture provides customers with state of the art deployment providing maintenance, daily technical operation and support, or via a traditional perpetual licensing business model, in which the iAPPS software resides on a dedicated server in either the customer's facility or Bridgeline's co-managed hosting facility.

In 2013, KMWorld Magazine Editors selected Bridgeline Digital as one of the 100 Companies That Matter in Knowledge Management and also selected iAPPS as a Trend Setting Product in 2012. iAPPS Content Manager and iAPPS Commerce were selected as finalists for the 2013 CODiE Awards for Best Content Management Solution and Best Electronic Commerce Solution, globally. In 2013 the Internet Advertising Competition honored Bridgeline Digital with three awards for iAPPS customer websites. In addition, in 2013 Bridgeline Digital won fifteen Horizon Interactive Awards for outstanding development of web applications and websites and B2B Magazine has selected Bridgeline Digital as one of the Top Interactive Technology companies in the United States.

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 Burlington, Massachusetts. The Company maintains regional field offices serving the following geographical locations: Atlanta, Baltimore, Boston, Chicago, Dallas, Denver, New York, San Diego, San Luis Obispo and Tampa. The Company has one wholly-owned subsidiary, Bridgeline Digital Pvt. Ltd. located in Bangalore, India.

Sales and Marketing

Bridgeline employs a direct sales force and each sale takes on average 180 days to complete. Each franchise/large dealer network sale takes on average 365 days to complete. Our direct sales force focuses its efforts selling to medium-sized and large companies. These companies are generally categorized in the following vertical markets: (i) financial services; (ii) franchises/large dealer networks;
(iii) retail brand names; (iv) health services and life sciences; (v) technology (software and hardware); and (vi) associations and foundations. We have ten geographic locations in the United States with full-time professional direct sales personnel.

We have business development professionals dedicated to identifying and establishing strategic alliances for iAPPS and iAPPSds. In June 2012, Bridgeline announced a strategic alliance with UPS Logistics. Bridgeline and UPS Logistics signed a multi-year agreement to offer B2B and B2C eCommerce web stores with an end-to-end eCommerce offering comprised of Bridgeline's eCommerce Fulfilled™ solution and UPS Logistics and fulfillment services. The combined Bridgeline and UPS Logistics offering provides customers with the ability to manage the eCommerce and supply chain fulfillment needs and was designed to benefit mid-market and larger online web stores who seek end to end solutions.

In July of fiscal 2012 Bridgeline signed a multi-year agreement with The UPS Stores, a national franchise network of over 4,300 locations who license the iAPPSds platform. In July of 2013 we signed a multi-year agreement with a national provider of outsourced sales services with over 300 locations. In August of 2013 we added national brand names such as Sport Clips®, Glass Doctor® and Maaco® to our list of franchise customers via the ElementsLocal acquisition.

We continue to pursue significant strategic alliances that will enhance the sales and distribution opportunities of iAPPS related intellectual property.

Acquisitions

Bridgeline will continue to evaluate expanding its distribution of iAPPS and its interactive development capabilities through acquisitions.

During the fiscal year ended September 30, 2013 we completed one acquisition. On August 1, 2013, we completed the acquisition of ElementsLocal, a California based developer of an online SaaS platform for the franchise marketplace. ElementsLocal had over 3,200 franchises on its platform. We acquired all of the outstanding capital stock of ElementsLocal for consideration consisting of (i) $463 thousand in cash; (ii) $604 thousand in shares of Bridgeline Digital common stock (valued at $1.15 per share);(iii) assumption of $188 thousand of indebtedness; and (iv) contingent consideration of up to $904 thousand in cash and $396 thousand in shares of Bridgeline Digital common stock. The contingent consideration is payable quarterly over the 12 consecutive calendar quarters following the acquisition, contingent upon the acquired business achieving a certain quarterly revenue target during the period. The contingent common stock payable each earnout period is determined by dividing $33 thousand by the greater of: (i) the average closing price for Bridgline Digitial common stock for the 30 day trading period preceding the end of the earnout period, or (ii) $1.17. To the extent that a quarterly revenue target is not met in a particular quarter, the earn-out period will be extended for up to four additional quarters.

During the fiscal year ended September 30, 2012 we completed two acquisitions. On October 3, 2011, we completed the acquisition of Magnetic Corporation ("Magnetic"), an interactive technology company based in Tampa, Florida. We acquired all of the outstanding capital stock of Magnetic for consideration consisting of (i) $150 thousand in cash (ii) assumption of $130 thousand of indebtedness; and (iii) contingent consideration of up to $600 thousand in cash and 166,666 shares of Bridgeline Digital common stock. The contingent consideration is payable quarterly over the 12 consecutive calendar quarters following the acquisition, contingent upon the acquired business achieving certain quarterly revenue and quarterly operating income targets during the period. The contingent common stock has been issued and is being held in escrow pending satisfaction of the applicable targets. To the extent that either the quarterly revenue targets or the quarterly operating income targets are not met in a particular quarter, the earn-out period will be extended for up to four additional quarters.


On May 31, 2012, we completed the acquisition of MarketNet, Inc. ("MarketNet"), an interactive technology company based in Dallas, Texas. Bridgeline acquired all of the outstanding capital stock of MarketNet for consideration consisting of (i) $20 thousand in cash; (ii) assumption of debt of $244 thousand; and (ii) contingent consideration of up to $650 thousand in cash and 204,331 shares of Bridgeline Digital common stock. This contingent consideration is payable quarterly over the 12 consecutive calendar quarters following the acquisition, contingent upon the acquired business achieving certain quarterly revenue and quarterly operating income targets during the period. To the extent that either the quarterly revenue target or the quarterly operating income target is not met in a particular quarter, the earn-out period will be extended for up to four additional quarters. MarketNet is also eligible to earn additional bonus equity consideration of 200,000 shares, if annual net revenues of the acquired business exceed a certain threshold in any fiscal year through September 30, 2015. The contingent common stock has been issued and is being held in escrow pending satisfaction of the applicable targets.

Each of ElementsLocal, Magnetic and MarketNet's operating results are reflected in the condensed consolidated financial statements as of the acquisition date.

We may make additional acquisitions in the foreseeable future. These potential acquisitions are consistent with our iAPPS platform distribution strategy and 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, 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.

Customer Information

We currently have over 2,500 active customers. For the years ended September 30, 2013 and 2012 no one customer represented 10% or more of the Company's total revenue.

Summary of Results of Operations

Total revenue for the fiscal year ended September 30, 2013 ("fiscal 2013") decreased to $24.5 million from $26.3 million for the fiscal year ended September 30, 2012 ("fiscal 2012"). Loss from operations for fiscal 2013 was ($3.2) million compared with loss from operations of ($602) thousand for fiscal 2012. We had a net loss for fiscal 2013 of ($3.6) million compared with a net loss of ($946) thousand for fiscal 2012. Loss per share for fiscal 2013 was ($0.23) compared with loss per share of ($0.07) for fiscal 2012.

Highlights of Fiscal 2013

Financial

? Total iAPPS related revenue increased 13% to $18.8 million in fiscal 2013 from $16.6 million in fiscal 2012

? Total subscription and perpetual license revenue increased $1.5 million, or 59%, compared to fiscal 2012

? Recurring revenue, which reflects amounts that are contractually due to Bridgeline, increased 23% to $5.1 million in fiscal 2013 from $4.2 million in fiscal 2012

? Non-iAPPS related revenue decreased 44%, or $4.3 million, in fiscal 2013 compared to fiscal 2012

Acquisitions, and Product Enhancements

? In the fourth quarter of fiscal 2013, we acquired ElementsLocal, a franchise web platform developer, expanding our presence in the franchise marketplace


? In the third quarter of fiscal 2012 Bridgeline released iAPPS version 5.0 which offered cross-channel interface, personalized to the user and their tasks, mobile & tablet friendly editing for publishing content, video publishing, built-in translation services and other enhancements that allow users to add or change content without needing a developer

RESULTS OF OPERATIONS                                 Year Ended September 30,
                                                                        $               %
(dollars in thousands)                   2013           2012          Change         Change

Revenue
Digital engagement services
iAPPS digital engagement services     $   14,733     $   13,493     $    1,240               9 %
% of total revenue                            60 %           51 %
Other digital engagement services          3,853          7,775         (3,922 )           (50 %)
% of total revenue                            16 %           30 %
Subtotal digital engagement
services                                  18,586         21,268         (2,682 )           (13 %)
% of total revenue                            76 %           81 %
Managed service hosting                    1,921          2,517           (596 )           (24 %)
% of total revenue                             8 %           10 %
Subscription and perpetual licenses        4,000          2,511          1,489              59 %
% of total revenue                            16 %            9 %
Total revenue                             24,507         26,296         (1,789 )            (7 %)

Cost of revenue

Digital engagement services
iAPPS digital engagement cost              7,808          6,342          1,467              23 %
% of iAPPS digital engagement
revenue                                       53 %           47 %
Other digital engagement cost              2,306          4,607         (2,301 )           (50 %)
% of other digital engagement
revenue                                       60 %           59 %
Subtotal digital engagement
services                                  10,114         10,949           (834 )            (8 %)
% of digital engagement revenue               54 %           51 %
Managed service hosting                      317            372            (55 )           (15 %)
% of managed service hosting                  17 %           15 %
Subscription and perpetual licenses        1,108            450            658             146 %
% of subscription and perpetual
licenses revenue                              28 %           18 %
Total cost of revenue                     11,539         11,771           (231 )            (2 %)
Gross profit                              12,968         14,525         (1,558 )           (11 %)
Gross profit margin                         52.9 %         55.2 %

Operating expenses
Sales and marketing                        8,593          7,730            863              11 %
% of total revenue                            35 %           29 %
General and administrative                 4,474          3,931            543              14 %
% of total revenue                            18 %           15 %
Research and development                   1,365          1,456            (91 )            (6 %)
% of total revenue                             6 %            6 %
Depreciation and amortization              1,690          1,729            (39 )            (2 %)
% of total revenue                             7 %            7 %
Impairment of intangible asset                 -            281           (281 )            NA
% of total revenue                             0 %            1 %
Total operating expenses                  16,122         15,127            995               7 %
% of total revenue                            66 %           58 %

Loss from operations                      (3,154 )         (602 )       (2,553 )           424 %
Interest expense, net                       (273 )         (276 )            3              (1 %)
Loss before income taxes                  (3,427 )         (878 )       (2,550 )           291 %
Provision for income taxes                   171             68            103             151 %
Net loss                              $   (3,598 )   $     (946 )   $   (2,653 )           281 %

Adjusted EBITDA                       $     (712 )   $    1,964     $   (2,677 )          (136 %)


Revenue

Our revenue is derived from three sources: (i) digital engagement services (ii) managed service hosting and (iii) subscription and perpetual licenses.

Digital Engagement Services

Digital engagement services revenue is comprised of iAPPS digital engagement services and other services generated from non iAPPS related engagements. Total revenue from digital engagement services decreased $2.7 million, or 13% to $18.6 million for the year ended September 30, 2013 ("fiscal 2013). The decrease in digital engagement services revenue compared to the prior period is due to a decrease in non-iAPPS digital engagement services revenues of $3.9 million, or 50%, when compared to the year ended September 30, 2012 ("fiscal 2012). However, revenue from iAPPS related digital engagement services increased $1.2 million, or 9% to $14.7 million compared to fiscal 2012 as we continue to concentrate on selling higher-margin iAPPS engagements to both new and existing customers.

Digital engagement services revenue as a percentage of total revenue decreased to 76% from 81% in the prior period. The decrease is attributable to a larger mix of iAPPS license related revenue compared to sales of digital engagement services.

Managed Service Hosting

Revenue from managed service hosting decreased $596 thousand from $2.5 million in fiscal 2012. The decrease is due to our efforts to engage with customers that are aligned with our core competencies and proactively end engagements with a number of smaller hosting customers obtained through previous acquisitions.

Managed services revenue as a percentage of total revenue decreased to 8% from 10% in fiscal 2013 due to the ending of engagements with smaller hosting customers obtained through previous acquisitions.

Subscription and Perpetual Licenses

Revenue from subscription and perpetual licenses increased $1.5 million, or 59%, to $4.0 million from $2.5 million in fiscal 2012. The increase is due primarily to a higher amount of subscription license revenues from our new product, iAPPSds, and annual maintenance renewals.

Subscription and perpetual license revenue as a percentage of total revenue increased to 16% from 10% in fiscal 2012 due to the increase in subscription license revenues from our new product, iAPPSds, and annual maintenance renewals.

Costs of Revenue

Total cost of revenue for the fiscal year ended September 30, 2013 decreased $231 thousand, or 2%, to $11.5 million from $11.8 million in fiscal 2012.

Cost of Digital Engagement Services

Cost of digital engagement services decreased $0.8 million, or 8%, compared to fiscal 2012. The cost of total digital engagement services as a percentage of total digital engagement services revenue increased to 54% from 51% in fiscal 2012. This increase is a result of the decrease in non-iAPPS related revenue compared to fiscal 2012.

Cost of iAPPS digital engagement services increased $1.5 million to $7.8 million, an increase of 23% when compared to fiscal 2012. The increase is a result of iAPPS digital engagement service revenue increasing 9% when compared to fiscal 2012. Cost of iAPPS digital engagement services as a percentage of iAPPS digital engagement revenue increased to 53% from 47% due to unused capacity of digital engagement personnel in the third quarter of fiscal 2013 compared to the prior year.


Cost of other digital engagement services for fiscal 2013 decreased $2.3 million to $2.3 million, a decrease of 50% when compared to fiscal 2012. The decrease is due to reducing personnel costs in line with non-iAPPS revenue decrease. The cost of other digital engagement services as a percentage of other digital engagement service revenue increased to 60% in fiscal 2013 from 59% in fiscal 2012.

Cost of Managed Service Hosting

Cost of managed service hosting decreased $55 thousand or 15% when compared to fiscal 2012. The decrease in the amount of managed service hosting costs is due to efforts to streamline costs by ending engagements with non-iAPPS related customers, and our continued investments in our co-managed network operation center to support our core iAPPS customer base. The cost of managed services as a percentage of managed services revenue increased to 17% from 15% in fiscal 2012. This increase was due to managed service hosting revenue from low margin hosting customers decreasing faster than the addition of new, iAPPS related managed service hosting agreements for perpetual licenses.

Cost of Subscription and Perpetual License

Cost of subscription and perpetual licenses increased $658 thousand when compared to fiscal 2012. This is primarily due to the increase in subscription and perpetual license revenue as more of the direct costs associated with our co-managed network operations center are being used to support subscription license revenue, software amortization costs of $270 thousand related to significant enhancements to our iAPPS platform that began in April 2013, investments made in our co-managed network operations center during the period and, to a lesser extent, incremental costs on lower margin, non-iAPPS SaaS licenses from the MarketNet and ElementsLocal acquisitions.

The cost of subscription and perpetual licenses as a percentage of subscription and perpetual license revenue increased to 28% from 18% in fiscal 2012. This is primarily due to a decrease in perpetual license sales when compared to the prior period as perpetual licenses sales can be lumpy and have a significantly lower direct cost than subscription licenses and an increase in software amortization. We expect the increase in costs of subscription and perpetual licenses as a percentage of license revenue to be temporary and should begin to decrease in fiscal 2014 due to the acquisition of ElementsLocal and the expansion of our iAPPS customer base by selling more iAPPS licenses, including iAPPSds.

Gross Profit

Gross profit decreased $1.6 million, or 11%, when compared with fiscal 2012. This was due to the decrease in non-iAPPS related digital engagement revenue of 50%.

Operating Expenses

Sales and Marketing Expenses

Sales and marketing expenses increased $0.9 million, or 11%, compared to fiscal 2012. This increase is primarily attributable to increases associated with personnel and marketing costs related to our acquisitions of MarketNet and ElementsLocal, including personnel costs and marketing costs to promote our iAPPS products. Sales and marketing expense as a percentage of total revenue increased to 35% compared to 29% in fiscal 2012. This increase was due to the decrease in non-iAPPS related digital engagement revenue.

General and Administrative Expenses

General and administrative expenses increased $0.5 million, or 14%, compared to fiscal 2012. The increase was primarily due to costs associated with the settlement of Bridgeline Digital, Inc. vs. e.Magination network, LLC and its principal owner, Daniel Roche, which is described in further detail in Legal Proceedings and fiscal 2012 reflecting a larger reduction of expense for changes in estimate of settlement of contingent earnout payments from prior acquisitions that, in our estimation, will not be achieved.


General and administrative expense as a percentage of revenue increased to 18% compared to 15% in fiscal 2012. General and administrative expenses as a percentage of revenue increased due to the decrease in non-iAPPS related digital engagement revenue.

Research and Development

Research and development expense decreased by $91 thousand, or 6%, compared with fiscal 2012, after capitalization of software development costs. Capitalized software development costs were $640 thousand and $480 thousand for fiscal 2013 and 2012, respectively. The decrease is due to the aforementioned increase in capitalized software and development costs related to enhancements to our existing iAPPS platform.

Depreciation and Amortization

Depreciation and amortization expense decreased by $39 thousand, or 2%, compared to fiscal 2012. This decrease is primarily attributable to a decrease in amortization for intangibles acquired before fiscal 2010 that reached the end of their useful life, offset by additional depreciation expense related to investments made in our co-managed network operation center. Depreciation and amortization was 7% of total revenue for both fiscal 2013 and fiscal 2012.

Impairment of Intangible Asset

We incurred a charge to operations of $281 thousand for impairment charges related to an intangible asset assumed from our fiscal 2010 acquisition of
e.Magination and its wholly-owned subsidiary e.Magination IG, LLC. In the first quarter of fiscal 2012, the Company stopped servicing low margin non-iAPPS opportunities acquired from e.Magination IG, LLC. It was therefore determined that a portion of the customer list was impaired.

Loss from Operations

The loss from operations was ($3.2) million for fiscal 2013 compared to a loss from operations of ($602) thousand for fiscal 2012. This increase in loss from operations is a result of the foregoing.

Provision for Income Taxes

The provision for income tax expense was $171 thousand for fiscal 2013 compared to $68 thousand for fiscal 2012. Income tax expense represents the estimated liability for Federal, state and foreign income taxes owed by the Company, including the alternative minimum tax. This increase is due to deferred tax liabilities related to indefinite lived, tax deductible assets from two previous acquisitions. The Company has net operating loss carryforwards and other deferred tax benefits that are available to offset future taxable income. 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. Accordingly, the Company has established a full valuation allowance against its net deferred tax asset at September 30, 2013 and 2012.

The Federal net operating loss (NOL) carryforward of approximately $8.0 million as of September 30, 2013 expires on various dates through 2028. Internal Revenue Code Section 382 places a limitation on the amount of taxable income which can be offset by NOL carryforwards after a change in control of a loss corporation. Generally, after a change in control, a loss corporation cannot deduct NOL carryforwards in excess of the Section 382 Limitation. Due to these "change of . . .

  Add BLIN to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for BLIN - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.