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Bsquare Reports First Quarter 2016 Financial Results

05/05/16 at 4:10 pm EDT
Revenue $25.4 million; Net Income $0.5 million; EPS $0.04; Adjusted EBITDAS* $1.2 million

BELLEVUE, Wash., May 5, 2016 /PRNewswire/ -- Bsquare Corporation (NASDAQ: BSQR) today announced financial results for the first quarter of 2016.

Jerry Chase, Bsquare President and CEO, commented, "During the first quarter we continued to see solid execution across our traditional businesses as we transition to increased focus on DataV™, our IoT software solution. On the DataV front, we are encouraged by a customer pipeline that is growing both quantitatively and qualitatively, representing opportunities across an array of industrial sectors. For that reason, during the first quarter we increased the investments we are making in DataV across R&D, sales, and marketing. We expect to accelerate that level of market demand-driven investment in the second quarter in order to more fully capitalize on this growing opportunity."

Q1 2016 Financial Highlights

  • Revenue was $25.4 million, a 2% increase compared to the fourth quarter of 2015 and a 3% decrease over the first quarter of 2015.
  • Net income was $0.5 million, or $0.04 per share, compared to $1.1 million, or $0.09 per share, in the fourth quarter of 2015 and $1.8 million, or $0.15 per share, in the year-ago quarter.
  • Adjusted EBITDAS was $1.2 million, a decrease of approximately $0.7 million from $1.9 million recorded in the fourth quarter of 2015 and a decrease of $1.1 million from the $2.3 million recorded in the first quarter of 2015.
  • Cash and investments at March 31, 2016 were $27.9 million, a decrease of $2.1 million from December 31, 2015.

Details as follows (unaudited, in thousands except per share amounts):


Three Months Ended



3/31/2016



12/31/2015



3/31/2015


Revenue:












Third-party Software

$

19,917



$

18,971



$

19,808


Engineering Services


5,272




5,499




4,477


Proprietary Software


250




558




1,980


Total Revenue


25,439




25,028




26,265


Total Gross Profit


4,296




4,916




5,449


Gross Margins:












Third-party Software


14

%



15

%



14

%

Engineering Services


24

%



29

%



17

%

Proprietary Software


56

%



80

%



93

%

Total Gross Margin


17

%



20

%



21

%

Total Operating Expenses


3,647




3,619




3,573


Net Income

$

500



$

1,140



$

1,823


Per Share-Diluted

$

0.04



$

0.09



$

0.15


Adjusted EBITDAS*

$

1,213



$

1,941



$

2,286


Cash and Investments EoQ**

$

27,876



$

29,973



$

26,844


 

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 each date above was $250,000).

Financial Commentary on First Quarter 2016 Results (Compared to Fourth Quarter 2015)

  • Revenue from third-party software was $19.9 million, an increase of 5% from $19.0 million in the fourth quarter of 2015, due primarily to strong sales of Microsoft software.
  • Engineering services revenue decreased $227,000, or 4%, to $5.3 million, while engineering services margin decreased by five percentage points to 24%. The margin decrease resulted from a combination of lower revenue and utilization, coupled with seasonality of expenses.
  • The decrease in cash and investments of $2.1 million was primarily due to a combination of increases in accounts receivable and decreases in accrued compensation, partially offset by the positive Adjusted EBITDAS contribution of $1.2 million. Days sales outstanding (DSO) increased to 76 days at March 31, 2016, from 70 days at December 31, 2015 and 47 days at March 31, 2015. The DSO increase is a result of extended payment terms granted to a Fortune 100 customer.

Q2 2016 Outlook

Management currently has the following expectations for Q2 2016:

  • Total revenue will be in the range of $23.5 to $25.5 million;
  • Gross margin percentage for Engineering Services will be down slightly;
  • Increased investments in DataV R&D, sales and marketing in an effort to capitalize on a growing customer pipeline;
  • Positive Adjusted EBITDAS; and
  • Accounts receivable balance, which has been growing due to extended payment terms granted to a highly creditworthy customer, is expected to plateau by the end of Q2.

Conference Call

Management will host a conference call today, May 5, 2016, at 5 p.m. Eastern Time (2 p.m. Pacific Time). To access the call dial 1-877-397-0272 or 1-719-325-4749 for international callers, and reference "Bsquare Corporation First Quarter 2016 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 6691453. A live and replay Webcast of the call will be available at www.bsquare.com in the investor relations section.

About Bsquare Corporation

For more than two decades, Bsquare has helped its customers extract business value from a broad array of physical assets by making them intelligent, connecting them, and using the data they generate to optimize business processes. Bsquare DataV software solutions can be deployed by a wide variety of enterprises to create business-focused Internet of Things (IoT) systems that more effectively monitor device data, automate processes, predict events and produce better business outcomes. Bsquare goes a step further by coupling its purpose-built DataV software with comprehensive analytic and engineering services that help organizations of all types make IoT a business reality. For more information, visit www.bsquare.com.

Cautionary Note Regarding Forward-Looking Statements

This release contains "forward-looking statements" within the meaning of the safe-harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: "expect," "believe," "plan," "strategy," "future," "may," "should," "will," and similar references to future periods. Examples of forward-looking statements include, among others: statements we make regarding expected operating results in future periods, such as anticipated revenue, gross margins, profitability, cash and investments; and strategies for customer retention, growth, new product and service developments, and market position. Forward-looking statements are neither historical facts nor assurances about future performance. Instead, they are based on current beliefs, expectations and assumptions about the future of our business and other future conditions. 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 extent to which we are successful in gaining new long-term customers and retaining existing ones; whether we are able to maintain our favorable relationship with Microsoft as a systems integrator and distributor; our ability to execute our development initiatives and sales and marketing strategies around DataV™, the Internet of Things, and our product and service offerings more generally; our success in leveraging strategic partnering initiatives with companies such as Microsoft and Intel; and such other risk factors as discussed in our most recent Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. 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, the Bsquare Logo, and DataV are trademarks of Bsquare Corporation in the U.S. and other countries. Other names and brands herein may be trademarks of others.

BSQUARE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)



March 31,

2016



December 31,

2015



(Unaudited)






ASSETS








Current assets:








Cash and cash equivalents

$

12,342



$

16,443


Short-term investments


15,284




13,280


Accounts receivable, net of allowance for doubtful accounts of $62 at March 31, 2016 and December 31, 2015


21,323




19,009


Prepaid expenses and other current assets


734




580


Total current assets


49,683




49,312


Equipment, furniture and leasehold improvements, net


1,088




1,167


Restricted cash equivalents


250




250


Deferred tax assets


17




145


Intangible assets, net


560




594


Goodwill


3,738




3,738


Other non-current assets


53




52


Total assets

$

55,389



$

55,258


LIABILITIES AND SHAREHOLDERS' EQUITY








Current liabilities:








Third-party software fees payable

$

12,045



$

11,789


Accounts payable


470




188


Accrued compensation


1,553




2,390


Other accrued expenses


1,208




1,277


Deferred rent, current portion


304




298


Deferred revenue


742




1,135


Total current liabilities


16,322




17,077


Deferred tax liability


94




97


Deferred rent


1,100




1,177


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; 12,124,035 shares issued and outstanding at March 31, 2016 and 12,092,598 shares issued and outstanding at December 31, 2015


133,774




133,331


Accumulated other comprehensive loss


(846)




(869)


Accumulated deficit


(95,055)




(95,555)


Total shareholders' equity


37,873




36,907


Total liabilities and shareholders' equity

$

55,389



$

55,258


 

BSQUARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts) (Unaudited)



Three Months Ended

March 31,



2016



2015


Revenue:








Software

$

20,167



$

21,788


Service


5,272




4,477


Total revenue


25,439




26,265


Cost of revenue:








Software


17,161




17,078


Service


3,982




3,738


Total cost of revenue


21,143




20,816


Gross profit


4,296




5,449


Operating expenses:








Selling, general and administrative


3,206




3,007


Research and development


441




566


Total operating expenses


3,647




3,573


Income from operations


649




1,876


Other income, net


21




24


Income before income taxes


670




1,900


Income tax expense


(170)




(77)


Net income

$

500



$

1,823


Basic income per share

$

0.04



$

0.15


Diluted income per share

$

0.04



$

0.15


Shares used in calculation of income per share:








Basic


12,102




11,778


Diluted


12,531




12,057


 

BSQUARE CORPORATION

NON-GAAP INFORMATION AND RECONCILIATION TO COMPARABLE GAAP FINANCIAL MEASURES

(In thousands, unaudited)



Three Months Ended



March 31,



2016



2015


Adjusted EBITDAS:








Operating income as reported

$

649



$

1,876


Depreciation and amortization


151




154


Stock-based compensation expense


413




228


Adjusted EBITDAS (1)

$

1,213



$

2,258


 

(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, Bsquare regards Adjusted EBITDAS as a complement to net income and other GAAP financial performance measures, including an indirect measure of operating cash flow.

 

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SOURCE Bsquare

Bsquare Contact: Marty Heimbigner, CFO, Bsquare Corporation, +1 425.519.5900, investorrelations@bsquare.com, Investor Contact: Leslie Phillips, The Blueshirt Group, + 1 415.217.5869, leslie@blueshirtgroup.com