Bsquare Reports Second Quarter and First Half 2014 Results

Bsquare Reports Second Quarter and First Half 2014 Results 
Company Returns to Profitability, Reports $0.06 EPS 
BELLEVUE, WA -- (Marketwired) -- 08/14/14 --  BSQUARE Corporation
(NASDAQ: BSQR), a leading enabler of smart, connected systems, today
announced financial results for the second quarter and six months
ended June 30, 2014. Total revenue for the quarter was $23.1 million,
up 1% compared to the first quarter of 2014 and up 6% year-over-year.
Total revenue for the six months was $45.8 million, up 7% from 2013.
Net income for the quarter was $651,000, or $0.06 per share, compared
to a net loss of $393,000, or $0.03 per share, in the first quarter
of 2014 and a net loss of $805,000, or $0.07 per share, in the
year-ago quarter. Net income for the six months was $258,000, or
$0.02 per share, compared to a net loss of $1.7 million, or $0.15 per
share, in 2013. Adjusted EBITDAS for the quarter was $1.1 million
compared to $210,000 in the first quarter of 2014 and negative
$337,000 in the year-ago quarter. Adjusted EBITDAS for the six months
was $1.3 million compared to negative $822,000 in 2013. Cash and
investments at June 30, 2014 were $24.4 million, up $1.2 million from
March 31, 2014. 
Details as follows (unaudited, in 000's except per share amounts):  


 
                                                                            
                     -------------------------------------------------------
                            Three Months Ended           Six Months Ended   
                     -------------------------------------------------------
                     6/30/2014  3/31/2014  6/30/2013  6/30/2014   6/30/2013 
                     -------------------------------------------------------
Revenue:                                                                    
  Third-party                                                               
   Software          $  16,965  $  17,695  $  16,254  $  34,660  $   31,745 
  Engineering                                                               
   Services              5,642      4,281      4,986      9,923       9,345 
  Proprietary                                                               
   Software                448        755        597      1,203       1,617 
                     -------------------------------------------------------
Total Revenue           23,055     22,731     21,837     45,786      42,707 
                     -------------------------------------------------------
Total Gross Profit       4,265      3,535      3,793      7,800       7,140 
Gross Margins:                                                              
  Third-party                                                               
   Software                 13%        13%        16%        13%         16%
  Engineering                                                               
   Services                 31%        15%        18%        24%         10%
  Proprietary                                                               
   Software                 58%        78%        63%        71%         75%
                     -------------------------------------------------------
Total Gross Margin          18%        16%        17%        17%         17%
                     -------------------------------------------------------
Total Operating                                                             
 Expenses                3,595      3,732      4,579      7,327       8,873 
                     -------------------------------------------------------
Net Income (Loss)    $     651  $    (393) $    (805) $     258  $   (1,667)
                     =======================================================
  Per Share-Diluted  $    0.06  $   (0.03) $   (0.07) $    0.02  $    (0.15)
                     =======================================================
Adjusted EBITDAS     $   1,051  $     210  $    (337) $   1,261  $     (822)
                     =======================================================
Cash and Investments                                                        
 EoQ                 $  24,381  $  23,226  $  20,997  $  24,381  $   20,977 
                     -------------------------------------------------------

 
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 6/30/14 = $250,000). 
CEO Commentary 
Jerry Chase, President and CEO of Bsquare, commented, "The second
quarter represented significant operational improvement for Bsquare.
Financially, we reported sequential and year-over year revenue growth
and we achieved GAAP profitability. As we have 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 our third quarter will also be GAAP profitable." 
Financial Commentary on Second Quarter Results (Comparison to First
Quarter Results) 


 
--  The increase in engineering services revenue, up $1.4 million or 32%,
    was driven by strength in all regions. Japan contributed $533,000 of
    the increase which was primarily driven by the recognition of $478,000
    in revenue and gross profit resulting from the completion of a large
    hand-held terminal project;
    
    
--  The increase in engineering services margin, up 107% or 16 percentage
    points, was driven by the aforementioned Japan revenue recognition
    impact, without which service margin would have been 24% in the
    quarter, and by improvements in both utilization and realized rate per
    hour; and
    
    
--  The increase in cash and investments from March 31, 2014 of $1.2
    million, was driven by a decline in DSOs from 52 in Q1 of 2014 to 44
    in Q2 of 2014 coupled with EBITDAS contribution.

  
Outlook 
The Company currently has the following expectations for Q3 2014: 


 
--  Total revenue is expected to be in the range of $23 million to $25
    million; and
    
    
--  Cash and investments are projected to decline approximately $1.4
    million from June 30, 2014.

  
Conference Call 
Management will host a conference call today, August 14, 2014, at 5
p.m. Eastern Time (2 p.m. Pacific Time). To access the call dial
1-888-710-3987 or 1-913-312-0935 for international callers, and
reference "BSQUARE Corporation Second 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 6000320. 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)                    
                                                                            
                                                  June 30,     December 31, 
                                                    2014           2013     
                                               -------------  ------------- 
                                                (Unaudited)                 
                    ASSETS                                                  
Current assets:                                                             
  Cash and cash equivalents                    $      11,102  $      13,510 
  Short-term investments                              13,029          7,295 
  Accounts receivable, net of allowance for                                 
   doubtful accounts of $216 at June 30, 2014                               
   and $214 at December 31, 2013                      11,235         15,893 
  Prepaid expenses and other current assets            1,575          2,325 
                                               -------------  ------------- 
    Total current assets                              36,941         39,023 
Equipment, furniture and leasehold                                          
 improvements, net                                     1,342            411 
Restricted cash                                          250            250 
Deferred income taxes                                    304            304 
Intangible assets, net                                   796            863 
Goodwill                                               3,738          3,738 
Other non-current assets                                  57             59 
                                               -------------  ------------- 
    Total assets                               $      43,428  $      44,648 
                                               =============  ============= 
                                                                            
     LIABILITIES AND SHAREHOLDERS' EQUITY                                   
Current liabilities:                                                        
  Third-party software fees payable            $       9,528  $      12,746 
  Accounts payable                                        61            634 
  Accrued compensation                                 2,160          2,383 
  Other accrued expenses                               1,661          1,249 
  Deferred revenue                                     2,008          2,177 
                                               -------------  ------------- 
    Total current liabilities                         15,418         19,189 
Deferred income taxes                                    144            144 
Deferred rent                                          1,780            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                                                        
  11,610,107 shares issued and outstanding at                               
   June 30, 2014 and                                                        
  11,294,682 shares issued and outstanding at                               
   December 31, 2013                                 130,449        129,423 
  Accumulated other comprehensive loss                  (628)          (759)
  Accumulated deficit                               (103,735)      (103,993)
                                               -------------  ------------- 
    Total shareholders' equity                        26,086         24,671 
                                               -------------  ------------- 
    Total liabilities and shareholders' equity $      43,428  $      44,648 
                                               =============  ============= 
                                                                            
                                                                            
                                                                            
                            BSQUARE CORPORATION                             
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS               
            (In thousands, except per share amounts) (Unaudited)            
                                                                            
                                  Three Months Ended     Six Months Ended   
                                       June 30,              June 30,       
                                    2014       2013       2014       2013   
                                 ---------  ---------  ---------  --------- 
Revenue:                                                                    
  Software                       $  17,413  $  16,851  $  35,863  $  33,362 
  Service                            5,642      4,986      9,923      9,345 
                                 ---------  ---------  ---------  --------- 
    Total revenue                   23,055     21,837     45,786     42,707 
                                 ---------  ---------  ---------  --------- 
Cost of revenue:                                                            
  Software                          14,874     13,955     30,429     27,122 
  Service                            3,916      4,089      7,557      8,445 
                                 ---------  ---------  ---------  --------- 
    Total cost of revenue           18,790     18,044     37,986     35,567 
                                 ---------  ---------  ---------  --------- 
      Gross profit                   4,265      3,793      7,800      7,140 
Operating expenses:                                                         
  Selling, general and                                                      
   administrative                    3,172      3,841      6,472      7,472 
  Research and development             423        738        855      1,401 
                                 ---------  ---------  ---------  --------- 
    Total operating expenses         3,595      4,579      7,327      8,873 
                                 ---------  ---------  ---------  --------- 
Income (loss) from operations          670       (786)       473     (1,733)
Other income (expense), net            (11)        25       (102)       115 
                                 ---------  ---------  ---------  --------- 
Income (loss) before income                                                 
 taxes                                 659       (761)       371     (1,618)
Income tax expense                      (8)       (44)      (113)       (49)
                                 ---------  ---------  ---------  --------- 
Net income (loss)                $     651  $    (805) $     258  $  (1,667)
                                 =========  =========  =========  ========= 
Basic income (loss) per share    $     .06  $   (0.07) $     .02  $   (0.15)
                                 =========  =========  =========  ========= 
Diluted income (loss) per share  $     .06  $   (0.07) $     .02  $   (0.15)
                                 =========  =========  =========  ========= 
Shares used in calculation of                                               
 income (loss) per share:                                                   
  Basic                             11,510     11,149     11,451     11,128 
                                 =========  =========  =========  ========= 
  Diluted                           11,715     11,149     11,681     11,128 
                                 =========  =========  =========  ========= 
                                                                            
                                                                            
                                                                            
                            BSQUARE CORPORATION                             
    NON-GAAP INFORMATION AND RECONCILIATION TO COMPARABLE GAAP FINANCIAL    
                                  MEASURES                                  
                         (In thousands, unaudited)                          
                                                                            
                                    Three Months ended    Six Months ended  
                                         June 30,             June 30,      
                                   -------------------  ------------------- 
                                      2014      2013       2014      2013   
                                   --------- ---------  --------- --------- 
                                                                            
Adjusted EBITDAS:                                                           
  Operating income (loss) as                                                
   reported                        $     670 $    (786) $     473 $  (1,733)
  Depreciation and amortization          162       195        325       405 
  Stock-based compensation expense       219       254        463       506 
                                   --------- ---------  --------- --------- 
                                                                            
Adjusted EBITDAS (1)               $   1,051 $    (337) $   1,261 $    (822)
                                   ========= =========  ========= ========= 
                                                                            
                                                                            
(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: 
Jerry Chase 
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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