Bsquare Reports Fourth Quarter and Full Year 2012 Results

Bsquare Reports Fourth Quarter and Full Year 2012 Results 
Company Reports Year-over-Year Improvement in Revenue and Net Income 
BELLEVUE, WA -- (Marketwire) -- 02/21/13 --  BSQUARE Corporation
(NASDAQ: BSQR), a leading enabler of smart, connected systems, today
announced financial results for the fourth quarter and full year
ended December 31, 2012. Total revenue for the quarter was $25.9
million, up 11% year-over-year, while total revenue for the year was
$101.4 million, up 5%. Net income for the quarter was $696,000, or
$0.06 per share, compared to a net loss of $502,000, or $0.05 per
share, in the prior year. The prior year was negatively affected by a
$518,000, or $0.05 per share, impairment charge related to the
Company's previously acquired TestQuest technology offset by
$317,000, or $0.03 per share, in Auction Rate Security-related gains.
The Company's net income for the year was $916,000, or $0.08 per
share, compared to a net loss of $463,000, or $0.04 per share, in the
prior year. Adjusted EBITDAS for the quarter was $1.1 million, up
229% year-over-year, while Adjusted EBITDAS for the year was $3.1
million, up 22%.  
Details as follows (unaudited, in 000's except per share amounts):  


 
                                                                            
                  ----------------------------------------------------------
                       Three Months Ended               Year Ended          
                  ----------------------------------------------------------
                  12/31/    12/31/      Inc/     12/31/   12/31/      Inc/ 
                   2012      2011      (Dec)*     2012     2011      (Dec)*     
                  ----------------------------------------------------------
Revenue:                                                                    
  Third-party                                                               
   Software       $18,706  $14,444         30% $ 71,130  $62,703         13%
  Engineering                                                               
   Services         5,661    7,903        -28%   25,554   28,533        -10%
  Proprietary                                                               
   Software         1,489    1,037         44%    4,710    5,607        -16%
  
                ----------------------------------------------------------
Total Revenue      25,856   23,384         11%  101,394   96,843          5%
                  ----------------------------------------------------------
Total Gross                                                                 
 Profit             5,025    4,288         17%   19,059   19,449         -2%
Gross Margins:                                                              
  Third-party                                                               
   Software            16%      16%         0%       16%      15%         7%
  Engineering                                                               
   Services            15%      21%       -29%       17%      22%       -23%
  Proprietary                                                               
   Software            86%      23%       274%       78%      65%        20%
                  ----------------------------------------------------------
Total Gross                                                                 
 Margin                19%      18%         6%       19%      20%        -5%
                  ----------------------------------------------------------
Total Operating                                                             
 Expenses           4,414    5,280         16%   17,880   20,500         13%
                  ----------------------------------------------------------
Net Income (Loss) $   696  $  (502)       239% $    916  $  (463)       298%
                  ==========================================================
  Per Share-                                                                
   Diluted        $  0.06  $ (0.05)       220% $   0.08  $ (0.04)       300%
                  ==========================================================
Adjusted EBITDAS  $ 1,112  $   338        229% $  3,123  $ 2,563         22%
                  ==========================================================
Cash and                                                                    
 Investments EoQ  $20,604  $18,999          8% $ 20,604  $18,999          8%
                  ----------------------------------------------------------

 
* Percentage changes calculated as to whether effect is positive or
negative on net income. 
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 12/31/12
= $875,000). 
CEO Commentary 
Brian Crowley, chief executive officer for Bsquare, commented on Q4
results and business activity, "Fourth quarter revenue came in at the
high end of our expectations, and combined with our previously
announced expense reductions, drove solid performance in the quarter.
Our primary focus continues to be accelerating revenue growth through
our Windows 8 and Windows Phone 8 initiatives, growing our HTML5
product and engineering service revenue, and maintaining revenue from
TestQuest and our other products." 
Since its last earnings announcement, the Company made progress on a
number of key initiatives, including: 


 
--  Launched a Windows 8 and Windows Phone 8 porting service for Android,
    iOS and legacy Windows applications and completed several porting
    projects. The service ports existing applications from various
    platforms to Windows 8 or Windows Phone 8 quickly and affordably,
    delivering completed applications for submission for Windows Store and
    Windows Phone Store certification;
    
    
--  Enhanced the management team with the addition of Mike Stipe as Sr.
    Vice President of Worldwide Sales and Marketing, bringing more than 26
    years of sales experience in executive and management positions at
    both Fortune 500 and entrepreneurial technology companies;
    
    
--  Honored by Microsoft as a 2012 Americas Windows Embedded Partner
    Excellence Award recipient for technical excellence for the Bsquare
    HTML5 Rendering Engine. The Award recognizes Bsquare for its
    development of a robust HTML5 and JavaScript environment that allows
    OEMs developing with the Windows Embedded Compact and Windows Embedded
    Handheld platforms to deliver rich HTML5-based user experiences,
    streamline development and future-proof their devices;
    
    
--  Announced the availability of a new Bsquare Board Support Package for
    the Texas Instruments Jacinto 4 / DM8148. The new Board Support
    Package enables streamlined development on these Texas Instruments
    development platforms, which are ideally suited for human machine
    interfaces in automotive and industrial applications;
    
    
--  Announced the availability of a new Bsquare Board Support Package for
    Freescale i.MX 6. The new Board Support Package enables streamlined
    development on the Freescale development platform, which is ideally
    suited for applications such as human machine interfaces in
    automotive, healthcare, industrial and in-flight entertainment
    markets; a
nd
    
    
--  Strengthened its corporate governance team with the addition of Andrew
    Harries to its Board of Directors.

  
Financial Commentary on Fourth Quarter Results (Y/Y Comparison) 


 
--  The increase in third-party software sales, up $4.3 million, or 30%,
    was driven primarily by a $5.1 million increase in sales of Windows
    Embedded and Windows Mobile operating systems which, in turn, was
    driven by an increase in sales to a North American customer and a
    customer in Asia as a result of pricing commitment buyouts, and
    expansion of Windows Embedded sales into Europe;
    
    
--  The decrease in engineering services revenue, down $2.2 million, or
    28%, was primarily driven by a $1.9 million decline in North American
    service revenue resulting from the MyFord Touch(TM) program;
    
    
--  The decrease in service margin, down 29% or six percentage points, was
    driven by a decline in utilization;
    
    
--  The increase in proprietary software margin, up 274% or 63 percentage
    points, was primarily driven by a TestQuest impairment charge of
    $518,000 that negatively affected the year-ago quarter;
    
    
--  The decline in operating expenses, down $866,000, or 16%, was
    primarily attributable to decreases in research and development
    (R&D) and sales expense. The R&D decline was driven by
    previously announced headcount and other cost reductions made in the
    third quarter while the sales expense reduction was driven by lower
    headcount and related costs associated with reductions made during the
    year, some of which have since been backfilled; and
    
    
--  Quarter-end cash and investments of $20.6 million, including long-term
    amounts, increased by $1.1 million compared to September 30, 2012,
    driven largely by positive operating results.

  
Outlook 
The Company currently has the following expectations for Q1 2013: 


 
--  Total revenue is expected to be in the range of $21 million to $23
    million. Revenue is expected to be down sequentially due to several
    Microsoft licensing customers who bought out their annual pricing
    commitments in Q4 2012 and are not expected to begin ordering at
    normal volumes again until the second quarter; a decline in service
    revenue due to service projects that completed in the fourth quarter
    with replacement projects not expected to ramp up until the second
    quarter; and a large TestQuest order in Q4 that is not expected to
    reoccur in Q1; and
    
    
--  Cash and investments are projected to be flat, to down slightly, from
    December 31, 2012.

  
Conference Call 
Management will host a conference call today, February 21, 2013, at
5:00 p.m. Eastern Standard Time (2:00 p.m. Pacific Standard Time). To
access the call dial 1-888-846-5003, or +1 480-629-9856 for
international callers, and reference "BSQUARE Corporation Fourth
Quarter and Year End 2012 Earnings Conference Call." A replay will be
available for one week following the call by dialing 1-877-870-5176,
or +1 858-384-5517 for international callers; reference pin number
4593174. 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; and expectations for specific customers,
geographies or products. 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 such as TestQuest; 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; 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 CORPORATION                             
                        CONSOLIDATED BALANCE SHEETS                         
             (In thousands, except share and per share amounts)             
                                                                            
                                                                            
                                                           December 31,     
                                                      --------------------- 
                                                         2012        2011   
                                                      ---------   --------- 
                       ASSETS                                               
Current assets:                                                             
  Cash and cash equivalents                           $   9,903   $   8,505 
  Short-term investments                                  9,826       9,619 
  Accounts r
eceivable, net of allowance for doubtful                        
   accounts of $200 at December 31, 2012 and $311 at                        
   December 31, 2011                                     16,095      13,403 
  Deferred tax assets                                       296         520 
  Prepaid expenses and other current assets                 858       1,281 
                                                      ---------   --------- 
                                                                            
    Total current assets                                 36,978      33,328 
Equipment, furniture and leasehold improvements, net        759       1,037 
Restricted cash                                             875         875 
Deferred tax assets                                       2,255       2,302 
Intangible assets, net                                    1,069       1,390 
Goodwill                                                  3,738       3,738 
Other non-current assets                                    117         122 
                                                      ---------   --------- 
                                                                            
    Total assets                                      $  45,791   $  42,792 
                                                      =========   ========= 
                                                                            
        LIABILITIES AND SHAREHOLDERS' EQUITY                                
Current liabilities:                                                        
  Third-party software fees payable                   $  11,099   $   8,460 
  Accounts payable                                          553         695 
  Other accrued expenses                                  1,732       2,330 
  Accrued compensation                                    2,205       2,645 
  Deferred revenue                                          837       1,233 
                                                      ---------   --------- 
                                                                            
    Total current liabilities                            16,426      15,363 
Deferred tax liability                                      206         210 
Deferred rent                                               154         184 
Commitments and contingencies                                               
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; 11,065,217 shares issued and                                 
   outstanding at December 31, 2012 and 10,874,050                          
   shares issued and outstanding at December 31,                            
   2011                                                 128,474     127,318 
  Accumulated other comprehensive loss                     (733)       (631)
  Accumulated deficit                                   (98,736)    (99,652)
                                                      ---------   --------- 
    Total shareholders' equity                           29,005      27,035 
                                                      ---------   --------- 
    Total liabilities and shareholders' equity        $  45,791   $  42,792 
                                                      =========   ========= 
                                                                            
                                                                            
                                                                            
                            BSQUARE CORPORATION                             
                   CONSOLIDATED STATEMENTS OF OPERATIONS                    
                  (In thousands, except per share amounts)                  
                                                                            
                                                                            
                                                    Year Ended December 31, 
                                                    ----------------------- 
                                                       2012         2011    
                                                    ----------   ---------- 
Revenue:                                                                    
  Software                                          $   75,840   $   68,310 
  Service                                               25,554       28,533 
                                                    ----------   ---------- 
    Total revenue                                      101,394       96,843 
                                                    ----------   ---------- 
                                                                            
Cost of revenue:                                                            
  Software                                              61,112       55,110 
  Service                                               21,223       22,284 
                                                    ----------   ---------- 
    Total cost of revenue                               82,335       77,394 
                                                    ----------   ---------- 
    Gross profit                                        19,059       19,449 
                                                    ----------   ---------- 
                                                                            
Operating expenses:                                                         
  Selling, general and administrative                   14,281       16,667 
  Research and development                               3,599        3,833 
                                                    ----------   ---------- 
    Total operating expenses                            17,880       20,500 
                                                    ----------   ---------- 
Income (loss) from operations                            1,179       (1,051)
Other income, net                                          103          422 
                                                    ----------   ---------- 
Income (loss) before income taxes                        1,282         (629)
Income tax benefit (expense)                              (366)         166 
                                                    ----------   ---------- 
Net income (loss)                                   $      916   $     (463)
                                                    ==========   ========== 
Basic income (loss) per share                       $     0.08   $    (0.04)
                                                    ==========   ========== 
Diluted income (loss) per share                     $     0.08   $    (0.04)
                                                    ==========   ========== 
Shares used in calculation of income (loss) per                             
 share:                                                                     
  Basic                                                 10,945       10,594 
                                                    ==========   ========== 
  Diluted                                               11,449       10,594 
                                                    ==========   ========== 
                                                                            
                                                                            
                                                                            
                            BSQUARE CORPORATION                             
    NON-GAAP INFORMATION AND RECONCILIATION TO COMPARABLE GAAP FINANCIAL    
              
                    MEASURES                                  
                         (In thousands, unaudited)                          
                                                                            
                              Three months ended       Twelve months ended  
                                 December 31,             December 31,      
                            ----------------------   ---------------------- 
                               2012        2011         2012        2011    
                            ----------  ----------   ----------  ---------- 
                                                                            
Adjusted EBITDAS:                                                           
  Operating income (loss)                                                   
   as reported              $      611  $     (992)  $    1,179  $   (1,051)
  Depreciation and                                                          
   amortization                    235         837          993       1,436 
  Stock-based compensation                                                  
   expense                         266         493          951       2,178 
                            ----------  ----------   ----------  ---------- 
                                                                            
Adjusted EBITDAS (1)        $    1,112  $      338   $    3,123  $    2,563 
                            ==========  ==========   ==========  ========== 

 
BSQUARE is a registered trademark of BSQUARE Corporation. All other
product and company names herein may be trademarks of their
respective owners.  
Bsquare Contact: 
Scott Mahan 
BSQUARE Corporation 
+1 425.519.5900 
investorrelations@bsquare.com  
Investor Contact:
Brett Maas Hayden IR
+ 1 646.536.7331 
Brett@haydenir.com