Bridgeline Digital, Inc. 10-K

Item 1. Business.   Overview   Bridgeline Digital is a marketing technology company that offers a suite of products that help companies grow online revenue by driving more traffic to their websites, converting more visitors to purchasers, and increasing average order value.   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 HawkSearch have the option to be available via a traditional perpetual licensing business model, in which the software can reside on a dedicated infrastructure either on premise at the customer’s facility, or manage-hosted by Bridgeline via a cloud-based, dedicated hosted services model.   Bridgeline's product offerings include:    HawkSearch: a site search, recommendation, and personalization software application, built for marketers, merchandisers, and developers to enhance, normalize, and enrich an online customer's content search and product discovery experience.    Celebros Search: 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.   Woorank: a Search Engine Optimization (“SEO”) audit tool that generates an instant performance audit of the site’s technical, on-page, and off-page SEO.   Unbound: a Digital Experience Platform that includes Web Content Management, eCommerce, Digital Marketing, and Web Analytics.    TruPresence: a web content management and eCommerce platform that supports the needs of multi-unit organizations and franchises.   OrchestraCMS: 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.     Bridgeline Digital was incorporated under the laws of the State of Delaware on August 28, 2000.     Locations   The Company’s corporate headquarters is located in Woburn, Massachusetts. The Company maintains regional field offices serving the following geographical locations: Woodbury, New York; Rosemont, Illinois; 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 and Bridgeline Digital Belgium BV, located in Brussels, Belgium.     3     Products and Services   Products   Subscription and Perpetual Licenses   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, HawkSearch and Unbound have the option to be available via a traditional perpetual licensing business model, in which the software can reside on a dedicated infrastructure either on premise at the customer’s facility, or manage-hosted by Bridgeline via a cloud-based, dedicated hosted services model. This software is reported as Subscription and Perpetual Licenses in the accompanying consolidated financial statements.   Bridgeline offers enterprise site search solutions with its HawkSearch and Celebros Search products.     ● HawkSearch is an AI-powered site search, recommendation, and personalization software application for marketers, merchandisers, and developers to enhance, normalize, and enrich an online customer's product discovery. HawkSearch leverages artificial intelligence, machine learning and industry-leading merchandising features to deliver accurate, relevant and personalized results and recommendations derived from multiple data sources. HawkSearch has integrations and partner relationships with platforms such as Adobe, BigCommerce, Optimizely, Sitefinity, Shopify and others.     ● Celebros Search 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 Adobe, Hybris and Shopify.   Bridgeline offers Search Engine Optimization auditing through its WooRank by Bridgeline software.      ● 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.   Bridgeline offers franchise marketing software with its TruPresence platform.      ● TruPresence is a Web Content Management and eCommerce platform that supports the needs of multi-unit organizations and franchises. The 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.   Bridgeline offers Bridgeline Unbound as a Digital Experience Platform.      ● Unbound is a Digital Experience Platform that includes Web Content Management, eCommerce, Digital Marketing, and Web Analytics. Unbound Content, Unbound Marketing, Unbound Commerce, and Unbound Insights empower marketers to easily manage their digital experiences and create personalized customer journeys. Each Unbound implementation incorporates a set of flexible templates and modules to accelerate implementation speed and reduce costs. The Unbound platform, combined with its professional services, assists customers in powering engaging digital experiences that drive lead generation, increase revenue, improve customer service and loyalty, enhance employee knowledge, and reduce operational costs.    Bridgeline also offers OrchestraCMS as a Digital Experience Platform.     ● OrchestraCMS is a digital experience platform built 100% native on Salesforce and helps customers create websites and intranets for their customers, partners, and employees. The software combines content with business data, processes and applications, 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.     4     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 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:     ● Associations and Foundations   ● Banks and Credit Unions   ● eCommerce Retailers   ● Franchises & Enterprises   ● Health Services and Life Sciences   ● Industrial Distribution and Wholesale   ● Manufacturers   ● Technology   We also pursue strategic alliances and partnerships to enhance the sales and distribution opportunities of Bridgeline intellectual property. We currently have partner relationships with platforms such as Adobe, BigCommerce, Optimizely, Sitefinity, Shopify, and others.   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. Our business development professionals create an annual territory plan identifying various strategies to prospect and engage our target verticals.   New Lead Generation Programs   We generate targeted leads and new business opportunities by leveraging online marketing strategies. We receive leads by maximizing the SEO capabilities of our own websites. Through our websites, we provide various educational whitepapers and promote upcoming online 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 online and in-person events and conferences.   Customer Retention Programs   We have a dedicated Customer Success team that engages with customers regularly to conduct strategic business reviews and audits to ensure they are getting the most value out of the Bridgeline product offerings. We use surveying techniques to gauge and monitor customer sentiment as well as digital marketing capabilities to inform our customer base of the latest feature releases and product innovations. We make product releases available via email campaigns as well as publication on our website. Bridgeline also provides educational white papers and featured case studies, to inform customers of best practices and enhancements. We also host educational online webinars for customers as well as face-to-face customer focus groups and training sessions.   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.     5     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 $3.7 million or 23% of revenues and $3.2 million or 19% of revenues during fiscal 2023 and 2022, respectively.   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 of inclusion and empower individuals to do their best work.   As of September 30, 2023, we had approximately 55 full-time employees. Of our full-time employees, approximately 40 were in the United States and the remaining were based 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 individuals 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, 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:     ● Associations and Foundations   ● Banks and Credit Unions   ● eCommerce Retailers   ● Franchises & Enterprises   ● Health Services and Life Sciences   ● Industrial Distribution and Wholesale   ● Manufacturers   ● Technology   For the years ended September 30, 2023 and 2022, no customer exceeded 10% of the Company’s total revenues.     6     Competition   The markets for our products and services, including eCommerce platform software, eMarketing software, software for web content management, 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:     ● Our competitors generally offer their web application software with an emphasis on a singular focus/function (such as content management only, or commerce only) as compared to the deeply integrated and multi-faceted approach provided by Bridgeline’s platforms.     ● The architecture comprising Bridgeline’s platforms are flexible and some are capable of being deployed in either a SaaS or dedicated server environment.     ● 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.     ● The interface of the Bridgeline platforms have been designed for ease of use without requiring substantial technical skills from our customers.     ● Finally, we believe the Bridgeline platforms offer 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 stockholder who requests it:     ● Code of Business Ethics     ● Committee Charters for the following Board Committees:   - Nominating and Corporate Governance Committee   - Audit Committee   - 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.   7