SOURCE: BSQUARE Corporation

BSQUARE Corporation

November 12, 2013 16:15 ET

Bsquare Reports Third Quarter 2013 Results

BELLEVUE, WA--(Marketwired - Nov 12, 2013) - BSQUARE Corporation (NASDAQ: BSQR), a leading enabler of smart, connected systems, today announced financial results for the third quarter and nine months ended September 30, 2013. Total revenue for the quarter was $23.6 million, up 8% compared to the second quarter of 2013 and down 8% year-over-year. Total revenue for the nine months was $66.3 million, down 12% year-over-year. The net loss for the quarter was $3.6 million, or $0.32 per share, compared to a net loss of $805,000, or $0.07 per share, in the second quarter of 2013 and compared to net income of $610,000, or $0.05 per share, in the year-ago quarter. The net loss for the nine months was $5.2 million, or $0.47 per share, compared to net income of $220,000, or $0.02 per share, in the year-ago period. Both the three-month and nine-month periods in 2013 included the negative effect of a $2.2 million increase in the Company's deferred tax asset allowance ($0.19 per share effect for the three months and $0.20 per share for the nine months). Adjusted EBITDAS for the quarter was negative $1.0 million compared to negative $337,000 in the second quarter of 2013 and positive $1.2 million in the year-ago quarter. Adjusted EBITDAS for the nine months was negative $1.8 million compared to positive $2.0 million in the year-ago period.

Details as follows (unaudited, in 000's except per share amounts):

    Three Months Ended  
    9/30/2013     6/30/2013     9/30/2012  
Revenue:                  
  Third-party Software   $ 18,004     $ 16,254     $ 18,339  
  Engineering Services     5,116       4,986       5,850  
  Proprietary Software     452       597       1,296  
Total Revenue     23,572       21,837       25,485  
Total Gross Profit     3,369       3,793       4,842  
Gross Margins:                        
  Third-party Software     13 %     16 %     16 %
  Engineering Services     17 %     18 %     16 %
  Proprietary Software     42 %     63 %     80 %
Total Gross Margin     14 %     17 %     19 %
Total Operating Expenses     4,764       4,579       3,727  
Net Loss   $ (3,567 )   $ (805 )   $ 610  
  Per Share-Diluted   $ (0.32 )   $ (0.07 )   $ 0.05  
Adjusted EBITDAS   $ (994 )   $ (337 )   $ 1,183  
Cash and Investments EoQ   $ 21,539     $ 20,977     $ 19,554  
                         
                         
                         

Notes:
Adjusted EBITDAS = Operating income (loss) before depreciation, amortization and stock compensation expense. Adjusted EBITDAS is a non-GAAP measurement (reconciliation provided after financial statement tables).
Cash and Investments EoQ includes both short and long-term amounts (long-term at 9/30/13 = $250,000).

CEO Commentary
Jerry Chase, interim Chief Executive Officer of Bsquare, commented on results and the business, "During the quarter we continued to deliver important products and services to the smart connected device ecosystem. Our financial results to date have not met our goals or expectations. As a result, during Q3 and continuing into Q4 Bsquare has taken significant steps to correct this situation, better position the Company to serve its customers and to return the company to a sound financial footing in 2014. In July we added two new Board members, Harel Kodesh and myself. In parallel, Andrew Harries was appointed as Board Chair to lead the Board as it works with management to re-shape Bsquare's strategic direction. In September Brian Crowley stepped down as CEO, and I was appointed interim CEO. In October the Company implemented a restructuring that included a workforce reduction that impacted approximately 20% of the Company's personnel and targeted approximately $4 million in annual cost savings. These actions and the resulting severance and restructuring costs have affected, or will negatively affect, our Q3 and Q4 results but will largely be complete by the fourth quarter, and will position the Company to enter 2014 on a more stable footing. Going forward, Bsquare will maintain its focus on building strategic solutions for our customers, and building and maintaining a solid financial foundation. In addition we believe Bsquare is well positioned to increase its participation in the rapidly growing Internet of Things market. As we drive to grow in this market, we will initially seek to deepen and broaden our relationships with our base of world-class customers."

Financial Commentary on Third Quarter Results (Comparison to Second Quarter Results)

  • The increase in third-party software sales, up $1.8 million or 11%, was due to an increase in Microsoft Windows Embedded operating system sales which, in turn, was driven by higher volumes across all customer segments;
  • The decrease in proprietary software revenue, down $145,000 or 24%, was driven by declines in several product lines, none of which was individually significant;
  • The decrease in third-party software margin, down 19% or three percentage points, was driven by lower Microsoft margins, a heavier concentration of sales in our lowest margin product line, Microsoft Windows embedded operating systems, and lower rebate;
  • The decline in proprietary software margin, down 33% or 21 percentage points, was driven by the decline in revenue given a relatively fixed cost of sales;
  • The increase in operating expenses, up $185,000 or 4%, was driven by severance costs associated with an executive departure;
  • The net loss increase was driven by the aforementioned factors and a $2.2 million, or $0.19 per share, increase in the Company's U.S. deferred tax asset allowance; and
  • Cash was up $562,000 driven by positive working capital changes and restricted cash decreased by $625,000 from June 30, 2013 as a result of a lease amendment.

Outlook

The Company currently has the following expectations for Q4 2013:

  • Total revenue is expected to be in the range of $22 million to $24 million; and
  • Cash and investments are projected to decline by approximately $1.8 million from September 30, 2013 due primarily to negative working capital effects and expenditures associated with the restructuring.

Conference Call

Management will host a conference call today, November 12, 2013, at 5 p.m. Eastern Time (2 p.m. Pacific Time). To access the call dial 1-877-941-8416, or +1-480-629-9808 for international callers, and reference "BSQUARE Corporation Third Quarter 2013 Earnings Conference Call." A replay will be available for two weeks following the call by dialing 1-877-870-5176, or +1-858-384-5517 for international callers; reference pin number 4647277. A live and replay Webcast of the call will be available at www.bsquare.com in the investor relations section.

About BSQUARE Corporation
Bsquare, a global leader in embedded solutions, applies experience and expertise on leading platforms to create new connections with customers, new business models and to enable new ways of working and communicating. Bsquare serves customers by forging connections among the partners, people, tools and technology needed to create smart connected devices. For more information, visit www.bsquare.com.

This release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, among others, statements relating to our financial results in future periods such as anticipated revenue, margins, spending, profitability, and cash and investments; anticipated levels of capital expenditures; future market conditions; potential sales or projects in our pipeline; expectations for specific customers, geographies or products; and anticipated effects of our restructuring. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: whether we are able to maintain our favorable relationship with Microsoft; changes in customer demand for our engineering services; the extent to which we are successful in gaining new long-term relationships with customers and retaining existing ones; our ability to execute our sales and marketing strategies for our service offerings, third-party products, and our proprietary products; our ability to execute our international expansion strategies; our success in leveraging strategic partnering initiatives with companies such as Qualcomm; our management of risks associated with protection of intellectual property and potential infringement claims; our success in integrating acquisitions such as MPC Data; our ability to implement workforce reductions in various geographies; possible changes in the size and components of the expected charges associated with the restructuring; risks associated with our ability to achieve the anticipated benefits of the restructuring; and such other risk factors as discussed in our most recent Annual Report on Form 10-K and other filings with the SEC. Any forward-looking statement made by us in this release is based only on information currently available to us and speaks only as of the date on which it is made. Except as may be required by law, we undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

BSQUARE is a registered trademark of BSQUARE Corporation. All other product and company names herein may be trademarks of their respective owners.

   
   
   
BSQUARE CORPORATION  
CONDENSED CONSOLIDATED BALANCE SHEETS  
(In thousands, except share amounts)  
   
             
    September 30,
2013
    December 31,
2012
 
    (Unaudited)        
ASSETS            
Current assets:            
  Cash and cash equivalents   $ 13,236     $ 9,903  
  Short-term investments     8,053       9,826  
  Accounts receivable, net of allowance for doubtful accounts of $263 at September 30, 2013 and $200 at December 31, 2012     12,811       16,095  
  Deferred tax assets     160       296  
  Prepaid expenses and other current assets     1,300       858  
                   
    Total current assets     35,560       36,978  
Equipment, furniture and leasehold improvements, net     561       759  
Restricted cash     250       875  
Deferred tax assets     210       2,255  
Intangible assets, net     897       1,069  
Goodwill     3,738       3,738  
Other non-current assets     93       117  
                 
    Total assets   $ 41,309     $ 45,791  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY                
Current liabilities:                
  Third-party software fees payable   $ 11,055     $ 11,099  
  Accounts payable     778       553  
  Accrued compensation     1,986       2,205  
  Other accrued expenses     1,332       1,732  
  Deferred revenue     1,074       837  
                     
    Total current liabilities     16,225       16,426  
Deferred tax liability     206       206  
Deferred rent     422       154  
Shareholders' equity:                
  Preferred stock, no par value: 10,000,000 shares authorized; no shares issued and outstanding     --       --  
  Common stock, no par value: 37,500,000 shares authorized; 11,203,707 shares issued and outstanding at September 30, 2013 and 11,065,217 shares issued and outstanding at December 31, 2012     129,215       128,474  
  Accumulated other comprehensive loss     (791 )     (733 )
  Accumulated deficit     (103,968 )     (98,736 )
                   
    Total shareholders' equity     24,456       29,005  
                     
    Total liabilities and shareholders' equity   $ 41,309     $ 45,791  
                 
                 
                 
BSQUARE CORPORATION  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS  
(In thousands, except per share amounts) (Unaudited)  
   
                         
    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2013
    2012
    2013
    2012
 
Revenue:                        
  Software   $ 18,456     $ 19,635     $ 51,818     $ 55,645  
  Service     5,116       5,850       14,461       19,893  
                                 
    Total revenue     23,572       25,485       66,279       75,538  
                                 
Cost of revenue:                                
  Software     15,965       15,730       43,087       45,094  
  Service     4,238       4,913       12,683       16,410  
                                 
    Total cost of revenue     20,203       20,643       55,770       61,504  
                                 
      Gross profit     3,369       4,842       10,509       14,034  
Operating expenses:                                
  Selling, general and administrative     3,960       2,866       11,432       10,557  
  Research and development     804       861       2,205       2,909  
                                 
      Total operating expenses     4,764       3,727       13,637       13,466  
                                 
Income (loss) from operations     (1,395 )     1,115       (3,128 )     568  
Other income (expense), net     (15 )     28       100       122  
                                 
Income (loss) before income taxes     (1,410 )     1,143       (3,028 )     690  
Income tax expense     (2,157 )     (533 )     (2,206 )     (470 )
                                 
Net income (loss)   $ (3,567 )   $ 610     $ (5,234 )   $ 220  
                                 
Basic income (loss) per share   $ (0.32 )   $ 0.06     $ (0.47 )   $ 0.02  
                                 
Diluted income (loss) per share   $ (0.32 )   $ 0.05     $ (0.47 )   $ 0.02  
                                 
Shares used in calculation of income (loss) per share:                                
  Basic     11,194       10,943       11,150       10,935  
                                 
  Diluted     11,194       11,474       11,150       11,450  
                                 
 
 
 
BSQUARE CORPORATION
NON-GAAP INFORMATION AND RECONCILIATION TO COMPARABLE GAAP FINANCIAL MEASURES
(In thousands, unaudited)
 
    Three Months Ended
September 30,
  Nine Months Ended
September 30,
    2013   2012   2013   2012
                 
Adjusted EBITDAS:                
  Operating income (loss), as reported   $ (1,395)   $1,115   $ (3,128)   $568
  Depreciation and amortization   181   275   586   758
  Stock-based compensation expense   220   (207)   726   685
                 
Adjusted EBITDAS (1)   $ (994)   $1,183   $ (1,816)   $ 2,011
                 
                 
                 
(1) Adjusted EBITDAS is a non-GAAP financial measure. Generally, a non-GAAP financial measure is a numerical measure of a company's performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. Adjusted EBITDAS is defined as operating income (loss) before depreciation expense on fixed assets and amortization expense (including impairment) on intangible assets, and stock-based compensation expense. Adjusted EBITDAS should not be construed as a substitute for net income (loss) or net cash provided by (used in) operating activities (all as determined in accordance with GAAP) for the purpose of analyzing our operating performance, financial position and cash flows, as Adjusted EBITDAS is not defined by GAAP. However, the Company regards Adjusted EBITDAS as a complement to net income and other GAAP financial performance measures, including an indirect measure of operating cash flow.
 

Contact Information

  • Bsquare Contact:
    Scott Mahan
    BSQUARE Corporation
    +1 425.519.5900
    Email Contact

    Investor Contact:
    Brett Maas
    Hayden IR
    + 1 646.536.7331
    Email Contact