SOURCE: BSQUARE Corporation

BSQUARE Corporation

November 13, 2014 16:15 ET

Bsquare Reports Third Quarter 2014 Results

Company Continues Profitability, Reports $0.06 EPS

BELLEVUE, WA--(Marketwired - Nov 13, 2014) - 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, 2014. Total revenue for the quarter was $24.5 million, up 6% compared to the second quarter of 2014 and up 4% year-over-year. Total revenue for the nine months was $70.3 million, up 6% from the same period in 2013. Net income for the quarter was $691,000, or $0.06 per share, compared to net income of $651,000, or $0.06 per share, in the second quarter of 2014 and a net loss of $3.6 million, or $0.32 per share, in the year-ago quarter. Net income for the nine months was $949,000, or $0.08 per share, compared to a net loss of $5.2 million, or $0.47 per share, for the same period in 2013. Adjusted EBITDAS for the quarter was $1.1 million, which was the same result for the second quarter of 2014 and an increase of $2.1 million compared to negative $1.0 million in the year-ago quarter. Adjusted EBITDAS for the nine months was $2.4 million compared to negative $1.8 million for the same period in 2013. Cash and investments at September 30, 2014 were $25.5 million, up $1.1 million from June 30, 2014.

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

             
    Three Months Ended     Nine Months Ended  
    9/30/2014     6/30/2014     9/30/2013     9/30/2014     9/30/2013  
Revenue:                                        
  Third-party Software   $ 19,217     $ 16,965     $ 18,004     $ 53,877     $ 49,749  
  Engineering Services     4,767       5,642       5,116       14,690       14,461  
  Proprietary Software     551       448       452       1,754       2,069  
Total Revenue     24,535       23,055       23,572       70,321       66,279  
Total Gross Profit     3,963       4,265       3,369       11,763       10,509  
Gross Margins:                                        
  Third-party Software     14 %     13 %     13 %     13 %     15 %
  Engineering Services     20 %     31 %     17 %     23 %     12 %
  Proprietary Software     74 %     58 %     42 %     72 %     68 %
Total Gross Margin     16 %     18 %     14 %     17 %     16 %
Total Operating Expenses     3,240       3,595       4,764       10,567       13,637  
Net Income (Loss)   $ 691     $ 651     $ (3,567 )   $ 949     $ (5,234 )
  Per Share-Diluted   $ 0.06     $ 0.06     $ (0.32 )   $ 0.08     $ (0.47 )
Adjusted EBITDAS*   $ 1,105     $ 1,051     $ (994 )   $ 2,366     $ (1,816 )
Cash and Investments EoQ**   $ 25,471     $ 24,381     $ 21,539     $ 25,471     $ 21,539  
                                         

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 9/30/14 = $250,000).

CEO Commentary
Jerry Chase, President and CEO of Bsquare, commented, "Third quarter performance showed continued, steady operational improvements. We reported sequential and year-over-year revenue growth, we achieved sequential GAAP profitability and a $4.3 million year over year increase in net income. As previously stated, 2014 is a building year for our DataV Internet of Things initiative with initial revenue not expected until 2015. We currently expect that Q4 will also be GAAP profitable."

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

  • The increase in third-party software revenue of $2.3 million, or 13%, was primarily driven by sales of Microsoft Windows Mobile operating systems;

  • The decrease in engineering services revenue, down $875,000 or 16%, was due primarily to recognition of revenue in the prior quarter from one of two large hand-held terminal projects completed in Japan;

  • The increase in third-party software margin, up 8% or 1 percentage point, was driven by a heavier concentration of sales of Microsoft Windows Mobile operating systems which is a higher margin product line;

  • The decrease in engineering services margin, down 35% or 11 percentage points, was due to the impact of the aforementioned project completed in Japan as well as a decrease in utilization and realized rate per hour;

  • The increase in proprietary software margin, up 28% or 16 percentage points, was driven by the increase in revenue on a relatively fixed cost of sales;

  • The decrease in operating expenses, down $355,000 or 10%, was primarily due to lower selling, general and administrative costs; and

  • The increase in cash and investments of $1.1 million was due to EBITDAS contribution as days sales outstanding, (DSOs) was stable at 44 for both Q3 and Q2 of 2014.

Outlook

The Company currently has the following expectations for Q4 2014:

  • Total revenue is expected to be in the range of $24.5 million to $26.5 million; and

  • As noted in our last earnings call, the second of two hand-held terminal projects for a customer in Japan will be completed. Using the zero profit percentage of completion accounting method, revenue and gross margin will be positively impacted in Q4 by an amount similar to what was recognized in Q2. Under the zero profit percentage of completion accounting method, revenue is recognized equal to delivery cost during the project and the gross profit is recognized as revenue at completion.

Conference Call

Management will host a conference call today, November 13, 2014, at 5 p.m. Eastern Time (2 p.m. Pacific Time). To access the call dial 1-888-656-7432 or 1-913-312-0402 for international callers, and reference "BSQUARE Corporation Third Quarter 2014 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 2995109. 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 we make regarding our financial results in future periods such as anticipated revenue, profitability, and cash and investments; and our strategies for product development and market position, including within the Internet of Things market. 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; the extent to which we are successful in retaining existing customers and adding new long-term relationships; our ability to execute our sales and marketing strategies around the Internet of Things and our product and service offerings more generally; our management of risks associated with protection of intellectual property and potential infringement claims; risks associated with recent changes in our senior management team; risks associated with our ability to achieve the anticipated benefits of our 2013 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,
2014
    December 31,
2013
 
    (Unaudited)        
ASSETS                
Current assets:                
  Cash and cash equivalents   $ 12,575     $ 13,510  
  Short-term investments     12,646       7,295  
  Accounts receivable, net of allowance for doubtful accounts of $214 at September 30, 2014 and $214 at December 31, 2013     11,749       15,893  
  Prepaid expenses and other current assets     457       2,325  
    Total current assets     37,427       39,023  
Equipment, furniture and leasehold improvements, net     1,405       411  
Restricted cash     250       250  
Deferred income taxes     304       304  
Intangible assets, net     762       863  
Goodwill     3,738       3,738  
Other non-current assets     56       59  
    Total assets   $ 43,942     $ 44,648  
LIABILITIES AND SHAREHOLDERS' EQUITY                
Current liabilities:                
  Third-party software fees payable   $ 9,941     $ 12,746  
  Accounts payable     171       634  
  Accrued compensation     1,843       2,383  
  Other accrued expenses     1,607       1,249  
  Deferred revenue     1,504       2,177  
    Total current liabilities     15,066       19,189  
Deferred income taxes     144       144  
Deferred rent     1,792       644  
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 11,722,591 shares issued and outstanding at September 30, 2014 and 11,294,682 shares issued and outstanding at December 31, 2013     130,709       129,423  
  Accumulated other comprehensive loss     (725 )     (759 )
  Accumulated deficit     (103,044 )     (103,993 )
    Total shareholders' equity     26,940       24,671  
    Total liabilities and shareholders' equity   $ 43,942     $ 44,648  
                 
                 
   
   
BSQUARE CORPORATION  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
(In thousands, except per share amounts) (Unaudited)  
   
    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2014     2013     2014     2013  
Revenue:                                
  Software   $ 19,768     $ 18,456     $ 55,631     $ 51,818  
  Service     4,767       5,116       14,690       14,461  
    Total revenue     24,535       23,572       70,321       66,279  
Cost of revenue:                                
  Software     16,760       15,965       47,189       43,087  
  Service     3,812       4,238       11,369       12,683  
    Total cost of revenue     20,572       20,203       58,558       55,770  
      Gross profit     3,963       3,369       11,763       10,509  
Operating expenses:                                
  Selling, general and administrative     2,880       3,960       9,352       11,432  
  Research and development     360       804       1,215       2,205  
    Total operating expenses     3,240       4,764       10,567       13,637  
Income (loss) from operations     723       (1,395 )     1,196       (3,128 )
Other income (expense), net     (16 )     (15 )     (118 )     100  
Income (loss) before income taxes     707       (1,410 )     1,078       (3,028 )
Income tax expense     (16 )     (2,157 )     (129 )     (2,206 )
Net income (loss)   $ 691     $ (3,567 )   $ 949     $ (5,234 )
Basic income (loss) per share   $ 0.06     $ (0.32 )   $ 0.08     $ (0.47 )
Diluted income (loss) per share   $ 0.06     $ (0.32 )   $ 0.08     $ (0.47 )
Shares used in calculation of income (loss) per share:                                
  Basic     11,655       11,194       11,520       11,150  
  Diluted     11,832       11,194       11,732       11,150  
                                 
                                 
   
   
BSQUARE CORPORATION  
NON-GAAP INFORMATION AND RECONCILIATION TO COMPARABLE GAAP FINANCIAL MEASURES  
(In thousands, unaudited)  
   
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2014   2013     2014   2013  
Adjusted EBITDAS:                            
  Operating income (loss) as reported   $ 723   $ (1,395 )   $ 1,196   $ (3,128 )
  Depreciation and amortization     154     181       479     586  
  Stock-based compensation expense     228     220       691     726  
Adjusted EBITDAS (1)   $ 1,105   $ (994 )   $ 2,366   $ (1,816 )
                             
(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:
    Jerry Chase
    BSQUARE Corporation
    +1 425.519.5900
    Email Contact

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