Bridgeline Digital, Inc. 10-K

Item 1. Business.   Overview   Bridgeline Digital is a marketing technology software company that helps companies grow online revenue and share information with customers, partners and employees.   Bridgeline’s Unbound platform is a Digital Experience Platform that includes Web Content Management, eCommerce, eMarketing, Social Media management, and Web Analytics.   Bridgeline’s Unbound platform, combined with its professional services, assists customers in driving lead generation, increasing revenue, improving customer service and loyalty, enhancing employee knowledge, and reducing operational costs.    Our Unbound Franchise product empowers large franchises, brand networks, and other multi-unit organizations to manage a large hierarchy of digital properties at scale.   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; uniquely combining content with business data, processes and applications across any channel or device, including Salesforce Communities, social media, portals, intranets, websites, applications and services.   3     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 the 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 software as a service (“ SaaS ”) model, whose flexible architecture provides customers hosting and support. Additionally, Unbound and Hawk Search are available via a traditional perpetual licensing business model, in which the software resides on a dedicated infrastructure in either the customer’s facility, or manage-hosted by Bridgeline via a cloud-based 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, Illinois; Raleigh, North Carolina; 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 Illinois, United States and Bridgeline Digital Belgium BV, located in Brussels, Belgium.   Products and Services   Products   Bridgeline Unbound Platform   Subscription and Perpetual Licenses   Bridgeline Unbound is available as either a SaaS or perpetual license and is reported as subscription and perpetual licenses in the accompanying consolidated financial statements.   The Bridgeline Unbound platform provides a unified common set of shared software modules that are critical to websites, on-line stores, intranets, extranets, and portals. The Bridgeline Unbound platform empowers companies and developers to create websites, web applications and online stores with advanced business logic, state-of-the-art graphical user interfaces, and improved quality.   4     The Bridgeline Unbound suite of products includes:   ● Bridgeline Unbound Experience Manager is a suite that includes Bridgeline Content Manager, Bridgeline Unbound Marketing, and Bridgeline Unbound Insights that empowers marketers to easily create personalized customer journeys. Each Unbound implementation incorporates a set of flexible templates and modules to accelerate implementation speed and reduce costs.      ● Bridgeline Unbound Content Manager is a Digital Experience Platform (“DXP”) that allows non-technical users to create, edit, and publish content via a browser-based interface. The advanced, easy-to-use interface allows businesses to keep content and promotions fresh, whether for a public commercial site or a company intranet. Bridgeline Unbound Content Manager handles the presentation of content based on a sophisticated indexing and security scheme that includes management of front-end access to online applications. The system provides a library to manage permissions, versions and organization of different content types, including multimedia files and images with advanced workflows.    ● Bridgeline Unbound Commerce is an online B2B and B2C Commerce solution that allows users to sell products and services online to both domestic and international markets. The customizable dashboard provides customers with a real-time overview of the performance of their online stores, including sales trends, demographics, profit margins, inventory levels, inventory alerts, fulfillment deficiencies, average check out times, potential production issues, and delivery times. Bridgeline Unbound Commerce also provides backend access to payment and shipping gateways.   ●          Bridgeline Unbound Marketing  is a Marketing Automation Platform (“MAP”) that helps marketers drive more qualified traffic to their sites through personalized and highly targeted marketing automation flows. Bridgeline Unbound Marketing's feature set includes end-to-end campaign administration - from drag-and-drop landing pages with our flexible form builder to behavior-based drip email campaigns, add-on dynamic contact and distribution list management, event-based response marketing, wizard-driven email campaign creation, and built-in goal tracking tools to measure campaign effectiveness and ROI.   ● Bridgeline Unbound   Insights provides the ability to manage, measure and optimize web properties by recording detailed events and to subsequently mine data within a web application for statistical analysis. Through user-definable web reports, Bridgeline Unbound Insights provides deep insight into areas like visitor usage, content access, age of content, actions taken, event triggers, and reports on both client and server-side events.     ● Bridgeline Unbound   Social is a social media management solution that empowers customers to easily set up customized watch lists tailored by social network, topic, or author to monitor relevant conversations happening on social media, popular websites and blogs. Customers can also prioritize and engage in conversations across the web and leverage the power of publishing content to department, dealer, franchise or other social media accounts.   5     ● Bridgeline Unbound   Translate is a translation product that allows companies with web sites in multiple languages to create, approve, and publish content with automated and human translation services.     ● Bridgeline Unbound Franchises is a web content management and eCommerce platform built specifically to support the needs of multi-unit organizations and franchises. Bridgeline Unbound Franchise acts as a control center for a large organization’s distributed websites, enabling local content publishing that is managed through a workflow approval process that gives corporate marketing control of the brand and message.   Bridgeline also provides an alternative Digital Experience Platform that is 100% native on Salesforce called OrchestraCMS. This software is available as a SaaS license and is reported as subscription licenses in the accompanying consolidated financial statements.   ● OrchestraCMS by Bridgeline is built 100% native on Salesforce. OrchestraCMS helps Salesforce customers create digital experiences for their customers, partners, and employees - combining content with business data, processes and applications across any channel or device, including Salesforce Communities, social media, portals, intranets, websites, applications and services.   OrchestraCMS also has a rich set of APIs to enable development of custom solutions, third-party integrations and delivery of digital transformation initiatives on the Salesforce platform, helping customers drive deeper engagement and collaboration, increase efficiency and minimize risk.   Bridgeline offers an enterprise site search solution with its Celebros Search product. This software is available as a SaaS license and is reported as subscription licenses in the accompanying consolidated financial statements.   ● Celebros Search by Bridgeline is a commerce-oriented, site search product that provides for Natural Language Processing and incorporates artificial intelligence to present relevant search results based on long-tail keyword searches. Celebros Search is a semantic search and conversion technology that is available in seven languages. Celebros Search has plug-ins into the Bridgeline Unbound Commerce offering in addition to many other third-party Commerce platforms such as Magento, Shopify, Hybris and more.   ● Hawk Search by Bridgeline , 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.     ● Woorank by Bridgeline is a Search Engine Optimization (“SEO”) audit tool that generates an instant audit of the 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.   6     Services   Revenue from Digital Engagement Services   Revenue from all digital engagement services is reported as ‘ Digital engagement services ’ in the accompanying consolidated financial statements.   Digital Engagement Services   Digital engagement services address specific customer needs such as digital strategy, web design and web development, usability engineering, information architecture, and SEO for their mission critical website, intranet or online store. Application development engagements are often sold as part of a multiple element arrangement that includes our software products, hosting arrangements (i.e., Managed Service Hosting) that provide for the use of certain hardware and infrastructure through our partnership with Amazon Web Services or professional services retained after completion of the application development.   Sales and Marketing   Overview   Bridgeline employs a direct sales force which focuses its efforts on selling to mid-sized and large companies. These companies are generally categorized in the following vertical markets: financial services, franchise/dealer networks, retail brand names, health services and life sciences, high technology (software and hardware), credit unions and regional banks, as well as associations and foundations.   We also pursue strategic alliances and partnerships to enhance the sales and distribution opportunities of Bridgeline intellectual property.   7     Organic Growth from Existing Customer Base   Our business development professionals seek ongoing business opportunities within our existing customer base and within other operating divisions or subsidiaries of our existing customer base.   New Customer Acquisition   We identify customers within our vertical expertise (financial services, franchise/dealer networks, retail brand names, health services and life sciences, high technology (software and hardware), credit unions and regional banks, as well as associations and foundations). Our business development professionals create an annual territory plan identifying various strategies to engage our target customers.   Customer Retention Programs   We use digital marketing capabilities when marketing to our customer base. We make available via email and on our website Bridgeline-authored white papers, featured case studies, and other Company-related announcements. We also host educational on-line webinars, face-to-face seminars and training.   New Lead Generation Programs   We generate targeted leads and new business opportunities by leveraging on-line marketing strategies. We receive leads by maximizing the SEO capabilities of our own website. Through our website, we provide various educational whitepapers and promote upcoming on-line seminars. In addition, we utilize banner advertisements on various independent newsletters and paid search advertisements that are linked to our website. We also participate and exhibit at targeted events.   Social Media Programs   We market Bridgeline’s upcoming events, white papers, blogs, case studies, digital product tutorials, announcements, and related articles frequently on leading social media platforms such as Twitter, LinkedIn, YouTube and Facebook.   Acquisitions   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 total purchase price of $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) $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. Under certain conditions, up to € 600 thousand (approximately $723 thousand) of the purchase price is payable, at the Company’s discretion, in shares of the Company’s common stock, par value $0.001 per share (“common stock”), at a price per share equal to the greater of (i) the closing price of the Company’s common stock on the date of issuance or (ii) $3.38. 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, an Illinois corporation. The total purchase price of $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, and (3) $2,000 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 December 31, 2022.   The acquisition date fair value of contingent consideration was $2.2 million.   There were no acquisitions during the fiscal year ended September 30, 2020.   Research and Development   We have research and development activities focusing on creating new products and innovations, product enhancements, and funding future market opportunities. Research and development expenses were approximately $2.4 million or 18% of revenues and $1.6 million or 15% of revenues during fiscal 2021 and 2020, respectively.   8     Employees   Human Capital   Bridgeline is dedicated to creating the best digital presence for our customers, and our employees are critical to achieving this mission. In order to continue to design innovative experiences and products, and compete and succeed in our highly competitive and rapidly evolving market, we continue to attract and retain experienced and talented employees. As part of these efforts, we strive to offer a competitive compensation and benefits program, foster a community where everyone feels included and empowered to do to their best work.   As of September 30, 2021, we had approximately 60 full-time employees. Of our full-time employees, approximately 48 were in the United States and the remaining were in our various international locations. None of our employees are represented by a labor union or covered by a collective bargaining agreement.   Compensation and Benefits Program   Our compensation program is designed to attract and reward talented individuals who possess the skills necessary to support our business objectives, assist in the achievement of our strategic goals and create long-term value for our stockholders. We provide employees with compensation packages that include base salary, incentive bonuses, and long-term stock option awards tied to the value of our stock price. We believe that a compensation program with both short-term and long-term awards provides fair and competitive compensation and aligns employee and stockholder interests, including by incentivizing business and individual performance (pay for performance), motivating based on long-term company performance and integrating compensation with our business plans. In addition to cash and equity compensation, we also offer employees benefits such as life and health (medical, dental & vision) insurance, paid time off, paid parental leave, and a 401(k) plan.   Customers   We primarily serve the following vertical markets that we believe have a history of investing in information technology enhancements and initiatives:     ● Financial Services   ● Franchise/Dealer Networks   ● Retail Brand Names   ● Health Services and Life Sciences   ● High Technology (software and hardware)   ● Credit Unions and Regional Banks   ● Associations and Foundations   For the year ended September 30, 2021, no customer exceeded 10% of the Company’s total revenues. For the year ended September 30, 2020, one customer generated approximately 12% of our revenue.   Competition   The markets for our products and services, including software for web content management, eCommerce platform software, eMarketing software, web analytics software and digital engagement services are highly competitive, fragmented, and rapidly changing. Barriers to entry in such markets remain relatively low. The markets are significantly affected by new product introductions and other market activities of industry participants. With the introduction of new technologies and market entrants, we expect competition to persist and intensify in the future.   We believe we compete adequately with others and we distinguish ourselves from our competitors in a number of ways, including:     ● We believe our competitors generally offer their web application software as a single point of entry type product (such as content management only, or commerce only) as compared to the deeply integrated approach provided by Bridgeline’s platforms.     ● We believe our competitors can generally only deploy their solutions in either a Cloud/SaaS environment or in a dedicated server environment. Bridgeline’s platform’s architecture is flexible and some are capable of being deployed in either a Cloud/SaaS or dedicated server environment.   9       ● We believe the majority of our competitors do not provide interactive technology development services that complement their software products. Our ability to develop mission critical websites and online stores on our own deeply integrated platforms provides a quality end-to-end solution that distinguishes us from our competitors.     ● We believe the interface of the Bridgeline platforms have been designed for ease of use without substantial technical skills.     ● Finally, we believe the Bridgeline platforms offers a competitive price-to-functionality ratio when compared to our competitors.   Patents, Trademarks, and Trade Secrets   We own a number of trade secrets, licenses and trademarks related to Bridgeline products and services and their loss could have a material adverse effect on the Company. We do not own any patents. For additional information see Risk Factor –  If we are unable to protect our proprietary technology and other intellectual property rights, our ability to compete in the marketplace may be substantially reduced.   Available Information   This Annual Report on Form 10-K, as well as our quarterly reports on Form 10-Q and current reports on Form 8-K, along with any amendments to those reports, are made available upon request, on our website www.bridgeline.com as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). Copies of the following are also available through our website on the “About – Investor Relations” page and are available in print to any shareholder who requests it:   ● Code of Business Ethics   ● Committee Charters for the following Board Committees:   o Nominating and Corporate Governance Committee o Audit Committee o Compensation Committee       The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Information regarding the SEC’s Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information and can be found at http://www.sec.gov.