Bsquare Reports Fourth Quarter and Full Year 2013 Results

Bsquare Reports Fourth Quarter and Full Year 2013 Results 
Company Announces Permanent CEO 
BELLEVUE, WA -- (Marketwired) -- 02/25/14 --  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, 2013. Total revenue for the quarter was $25.8
million, up 10% compared to the third quarter of 2013 and flat
year-over-year. Total revenue for the year was $92.1 million, down 9%
from 2012. The net loss for the quarter was $23,000, or $0.00 per
share, compared to a net loss of $3.6 million, or $0.32 per share, in
the third quarter of 2013 and net income of $696,000, or $0.06 per
share, in the year-ago quarter. The net loss for the year was $5.3
million, or $0.47 per share, compared to net income of $916,000, or
$0.08 per share, in 2012. Third quarter 2013 and full year 2013
results included the negative effect of a $2.2 million increase in
the Company's deferred tax asset valuation allowance ($0.19 per share
effect for the three months and $0.20 per share for the year).
Adjusted EBITDAS for the quarter was $345,000 compared to negative
$994,000 in the third quarter of 2013 and positive $1.1 million in
the year-ago quarter. Adjusted EBITDAS for the year was negative $1.5
million compared to positive $3.1 million in 2012. 
Details as follows (unaudited, in 000's except per share amounts):  


 
                                                                            
                                                                            
                 ----------------------------------  ---------------------- 
                         Three Months Ended                Year Ended       
                 ----------------------------------  ---------------------- 
                 12/31/2013   9/30/2013  12/31/2012  12/31/2013  12/31/2012 
                 ----------  ----------  ----------  ----------  ---------- 
Revenue:                                                                    
  Third-party                                                               
   Software      $   21,142  $   18,004  $   18,706  $   70,891  $   71,130 
  Engineering                                                               
   Services  
         4,243       5,116       5,661      18,704      25,554 
  Proprietary                                                               
   Software             444         452       1,489       2,513       4,710 
                 ----------  ----------  ----------  ----------  ---------- 
Total Revenue        25,829      23,572      25,856      92,108     101,394 
                 ----------  ----------  ----------  ----------  ---------- 
Total Gross                                                                 
 Profit               4,516       3,369       5,025      15,025      19,059 
Gross Margins:                                                              
  Third-party                                                               
   Software              19%         13%         16%         16%         16%
  Engineering                                                               
   Services               7%         17%         15%         11%         17%
  Proprietary                                                               
   Software              56%         42%         86%         66%         78%
                 ----------  ----------  ----------  ----------  ---------- 
Total Gross                                                                 
 Margin                  17%         14%         19%         16%         19%
                 ----------  ----------  ----------  ----------  ---------- 
Total Operating                                                             
 Expenses             4,491       4,764       4,414      18,128      17,880 
                 ----------  ----------  ----------  ----------  ---------- 
Net Income                                                                  
 (Loss)          $      (23) $   (3,567) $      696  $   (5,257) $      916 
                 ==========  ==========  ==========  ==========  ========== 
  Per Share-                                                                
   Diluted       $    (0.00) $    (0.32) $     0.06  $    (0.47) $     0.08 
                 ==========  ==========  ==========  ==========  ========== 
Adjusted EBITDAS $      345  $     (994) $    1,112  $   (1,504) $    3,123 
                 ==========  ==========  ==========  ==========  ========== 
Cash and                                                                    
 Investments EoQ $   21,055  $   21,539  $   20,604  $   21,055  $   20,604 
                 ----------  ----------  ----------  ----------  ---------- 

 
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 12/31/13 = $250,000). 
CEO Commentary
 Jerry Chase, President and Chief Executive Officer of
Bsquare, commented, "This was an important quarter for Bsquare, as we
executed on a significant restructuring which positioned the Company
for achieving our profitability objective which we currently expect
in mid-2014. We remain focused on expanding our relationships with
our existing world-class customers, and growing our presence within
the Internet of Things ecosystem. I am increasingly excited about the
opportunities before us. We have work to do, but I believe we are in
a stronger competitive position as we end 2013 than we were at the
beginning of the year, with the focus, opportunities and cost
structure to deliver improved bottom-line results in 2014 and
beyond." 
"In my short time here at Bsquare, I have been impressed with the
team and encouraged by the significant opportunities before the
Company," continued Mr. Chase. "After productive discussions with the
Board, and careful consideration, I am excited to formalize my
position as chief executive officer and lead the Company in its
efforts to increase shareholder value. What began as a short-term
project to put the Company back on track has evolved into a long-term
passion, as I join a solid team with the goal of taking Bsquare to
the next level in its evolution." 
Financial Commentary on Fourth Quarter Results (Comparison to Third
Quarter Results) 


 
--  The increase in third-party software sales, up $3.1 million or 17%,
    was due to a significant Adobe Flash sale and increased Microsoft
    Windows Mobile operating system sales;
--  The decrease in engineering services revenue, down $873,000 or 17%,
    was primarily due to the MyFord Touch program and, to a lesser extent,
    decreases at some of the Company's other larger customers;
--  The increase in third-party software margin, up 46% or six percentage
    points, was driven by the significant Adobe Flash sale;
--  The decrease in engineering services margin, down 59% or 10 percentage
    points, was driven primarily by an 8% decline in the Company's
    realized rate per hour; and
--  The decrease in operating expenses, down $273,000 or 6%, was driven by
    the cost reductions enacted this quarter and, to a lesser extent,
    lower market
ing program costs.

  
Outlook 
The Company currently has the following expectations for Q1 2014: 


 
--  Total revenue is expected to be in the range of $20 million to $22
    million; and
--  Cash and investments are projected to decline slightly from December
    31, 2013.

  
Conference Call
 Management will host a conference call today, February
25, 2014, at 5 p.m. Eastern Standard Time (2 p.m. Pacific Standard
Time). To access the call dial 1-877-941-2068 or +1-480-629-9857 for
international callers, and reference "BSQUARE Corporation Fourth
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
4667623. 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, margins, spending,
profitability, and cash and investments; our strategies for customer
retention, growth, and market position, including within the Internet
of Things market; our sales opportunities or pipeline; expectations
for specific customers, geographies or products; and anticipated
effects of our 2013 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 around the Internet of Things and our product and service
offerings more generally; 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; 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)                    
                                                                            
                                                                            
                                                December 31,   December 31, 
                                                    2013           2012     
                                               -------------  ------------- 
                                                                            
                    ASSETS                                                  
Current assets:                                                             
  Cash and cash equivalents                    $      13,510  $       9,903 
  Short-term investments                               7,295          9,826 
  Accounts receivable, net of allowance for                                 
   doubtful accounts of $214 at December 31,                                
   2013 and $200 at December 31, 2012                 15,893         16,095 
  Deferred tax assets                                     12            296 
  Prepaid expenses and other current assets            2,313            858 
                                               -------------  ------------- 
                                                                            
    Total current assets                              39,023         36,978 
Equipment, furniture and leasehold                                          
 improvements, net                                       411            759 
Restricted cash                                          250            875 
Deferred tax assets                                      304          2,255 
Intangible assets, net                                   863          1,069 
Goodwill                                               3,738          3,738 
Other non-current assets                                  59            117 
                                               -------------  ------------- 
                                                                            
    Total assets                               $      44,648  $      45,791 
                                               =============  ============= 
                                                                            
     LIABILITIES AND SHAREHOLDERS' EQUITY                                   
Current liabilities:                                                        
  Third-party software fees payable            $      12,746  $      11,099 
  Accounts payable                                       634            553 
  Accrued compensation                                 2,383          2,205 
  Other accrued expenses                               1,249          1,732 
  Deferred revenue                                     2,177            837 
                                               -------------  ------------- 
                                                                            
    Total current liabilities                         19,189         16,426 
Deferred tax liability                                   144            206 
Deferred rent                                            644            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; 11,294,682 shares issued                              
   and outstanding at December 31, 2013 and                                 
   11,065,217 shares issued and outstanding at                              
   December 31, 2012                                 129,423        128,474 
  Accumulated other comprehensive loss                  (759)          (733)
  Accumulated deficit       
                        (103,993)       (98,736)
                                               -------------  ------------- 
                                                                            
    Total shareholders' equity                        24,671         29,005 
                                               -------------  ------------- 
                                                                            
    Total liabilities and shareholders' equity $      44,648  $      45,791 
                                               =============  ============= 
                                                                            
                                                                            
                                                                            
                                                                            
                            BSQUARE CORPORATION                             
   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS   
            (In thousands, except per share amounts) (Unaudited)            
                                                                            
                                                                            
                               Three Months Ended          Year Ended       
                                  December 31,            December 31,      
                                2013        2012        2013        2012    
                                                                            
                             ----------  ----------  ----------  ---------- 
Revenue:                                                                    
  Software                   $   21,586  $   20,195  $   73,404  $   75,840 
  Service                         4,243       5,661      18,704      25,554 
                             ----------  ----------  ----------  ---------- 
                                                                            
    Total revenue                25,829      25,856      92,108     101,394 
                             ----------  ----------  ----------  ---------- 
                                                                            
Cost of revenue:                                                            
  Software                       17,351      16,018      60,438      61,112 
  Service                         3,962       4,813      16,645      21,223 
                             ----------  ----------  ----------  ---------- 
                                                                            
    Total cost of revenue        21,313      16,081      77,083      82,335 
                             ----------  ----------  ----------  ---------- 
                                                                            
      Gross profit                4,516       5,025      15,025      19,059 
Operating expenses:                                                         
  Selling, general and                                                      
   administrative                 3,940       3,724      15,372      14,281 
  Research and development          551         690       2.756       3,599 
                             ----------  ----------  ----------  ---------- 
                                                                            
    Total operating expenses      4,491       4,414      18,128      17,880 
                             ----------  ----------  ----------  ---------- 
                                                                            
Income (loss) from                                                          
 operations                          25         611      (3,103)      1,179 
Other income (expense), net         (60)        (19)         40         103 
                             ----------  ----------  ----------  ---------- 
                                                                            
Income (loss) before income                                                 
 taxes                              (35)        592      (3,063)      1,282 
Income tax benefit (expense)         12         104      (2,194)       (366)
                             ----------  ----------  ----------  ---------- 
                                                                            
Net income (loss)            $      (23) $      696  $   (5,257) $      916 
                             ==========  ==========  ==========  ========== 
                                                                            
Basic income (loss) per                                                     
 share                       $    (0.00) $     0.06  $    (0.47) $     0.08 
                             ==========  ==========  ==========  ========== 
                                                                            
Diluted income (loss) per                                                   
 share                       $    (0.00) $     0.06  $    (0.47) $     0.08 
                             ==========  ==========  ==========  ========== 
                                                                            
Shares used in calculation                                                  
 of income (loss) per share:                                                
  Basic                          11,246      11,058      11,174      10,945 
                             ==========  ==========  ==========  ========== 
                                                                            
  Diluted                        11,246      11,310      11,174      11,449 
                             ==========  ==========  ==========  ========== 
                                                                            
                                                                            
                                                                            
                                                                            
                             BSQUARE CORPORATION                            
    NON-GAAP INFORMATION AND RECONCILIATION TO COMPARABLE GAAP FINANCIAL    
                                   MEASURES                                 
                          (In thousands, unaudited)                         
                                                                            
                                  Three Months Ended        Year Ended      
                                     December 31,          December 31,     
                                --------------------- ----------------------
                                   2013       2012       2013        2012   
                                ---------- ---------- ----------  ----------
                                                                            
Adjusted EBITDAS:                                                           
  Operating income (loss), as                                               
   reported                     $       25 $      611 $   (3,103) $    1,179
  Depreciation and amortization        148        235        701         993
  Stock-based compensation                                                  
   expense                             172        266        898         951
                                ---------- ---------- ----------  ----------
                                                                            
Adjusted EBITDAS (1)            $      345 $    1,112 $   (1,504) $    3,123
                                ========== ========== ==========  ==========
                                                                            
                                                                            
                                                                            
(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.                    

  
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 
 
 
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