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Bsquare Reports Second Quarter 2016 Financial Results

08/03/16 at 4:10 pm EDT
First large-scale DataVTM contract awarded; Q2 Revenue $22.7 million; Q2 Net Loss $(0.2) mil.; Q2 EPS $(0.02); Q2 Adjusted EBITDAS* $0.3 mil.

BELLEVUE, Wash., Aug. 3, 2016 /PRNewswire/ -- Bsquare Corporation (NASDAQ: BSQR) today announced financial results for the second quarter and first half of 2016.

Jerry Chase, Bsquare President and CEO, commented, "Despite a decline in revenue in our traditional businesses, the second quarter was critically important for Bsquare as we announced the first large-scale contract for DataV, our Internet of Things (IoT) software offering. This contract with a Fortune 500 industrial company, initially valued at $4.3 million, includes not only DataV software, but also DataV Services, a new systems integration capability that leverages our traditional professional engineering services expertise. As a result, we are accelerating our investment in DataV, which will primarily be reflected in increased R&D and sales and marketing spending and a shift in engineering services from our traditional focus toward DataV Services."

Chase continued, "To align resources with our key DataV growth initiatives, on July 28 our board of directors approved a restructuring plan that will reduce the size of our engineering services organization. We will be reallocating 21 engineers to DataV R&D and DataV Services, and a total of 26 employees and contractors will be involved in a workforce reduction, representing approximately 13% of our total workforce. We expect this plan will result in approximately $1.8 million in annualized cost savings once implemented. These actions and the resulting severance and restructuring costs will negatively impact our Q3 results, and we anticipate that they will be mostly completed during the third quarter of 2016. We currently expect to incur pre-tax restructuring charges to our GAAP financial results of approximately $0.6 million in the third quarter of 2016."

Q2 2016 Financial Highlights

  • Secured first large-scale customer for DataV with a $4.3 million contract for software licenses, systems integration services and maintenance and support. As described in an earlier release, while we expect the majority of the cash proceeds from the contract will be received in the current year, revenue will be recognized over a three-year period.
  • Revenue was $22.7 million, an 11% decrease compared to the first quarter of 2016 and a 21% decrease from the second quarter of 2015.
  • Net loss was $(0.2) million, or $(0.02) per share, compared to net income of $0.5 million, or $0.04 per share, in the first quarter of 2016 and net income of $1.9 million, or $0.15 per share, in the year-ago quarter.
  • Adjusted EBITDAS was $282,000, a decrease of approximately $0.9 million from $1.2 million recorded in the first quarter of 2016 and a decrease of $2.0 million from $2.3 million recorded in the second quarter of 2015.
  • Cash and investments at June 30, 2016 totaled $27.1 million, a decrease of $728,000 from March 31, 2016.

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


Three Months Ended



6/30/2016



3/31/2016



6/30/2015


Revenue:












Third-party Software

$

18,337



$

19,917



$

23,316


Engineering Services


4,003




5,272




5,197


Proprietary Software


398




250




360


Total Revenue


22,738




25,439




28,873


Total Gross Profit


3,893




4,296




5,232


Gross Margins:












Third-party Software


16

%



14

%



15

%

Engineering Services


15

%



24

%



29

%

Proprietary Software


69

%



56

%



64

%

Total Gross Margin


17

%



17

%



18

%

Total Operating Expenses


3,978




3,647




3,361


Net Income (Loss)

$

(185)



$

500



$

1,885


Per Share-Diluted

$

(0.02)



$

0.04



$

0.15


Adjusted EBITDAS*

$

282



$

1,213



$

2,318


Cash and Investments EoQ**

$

27,148



$

27,876



$

29,680


 

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 Second Quarter 2016 Results (Compared to First Quarter 2016)

  • Secured first large-scale DataV contract with Q2 bookings of $4.3 million. Revenue recognized from those bookings was approximately $71,000. Although the majority of the cash from this engagement is expected to be received in 2016, the revenue will be recognized over a three-year period. We anticipate providing additional DataV financial metrics in future periods.
  • Revenue from third-party software was $18.3 million, a decrease of 8% from $19.9 million in the first quarter of 2016, due primarily to lower sales of Microsoft software as a result of timing of customer purchases.
  • Engineering services revenue decreased $1.3 million, or 24%, to $4.0 million, while engineering services margin decreased by nine percentage points to 15%. The margin decrease resulted from a combination of lower revenue and utilization rates resulting from the completion of several large projects.
  • The decrease in cash and investments of $728,000 during the second quarter of 2016 was primarily due to a decrease in third-party software fees payable, partially offset by a decrease in accounts receivable and the positive Adjusted EBITDAS contribution of $282,000. Days sales outstanding (DSO) increased to 78 days at June 30, 2016, from 70 days at December 31, 2015 and 49 days at June 30, 2015. The DSO increase is a result of extended payment terms granted to a Fortune 100 customer.

First Half 2016 Financial Highlights

  • Revenue was $48.2 million, a 13% decrease compared to $55.1 million for the year-ago period, driven by decreases in third-party software sales, engineering services revenue and proprietary software sales.
  • Net income was $0.3 million, or $0.03 per share, a $3.4 million decrease compared to net income of $3.7 million, or $0.30 per share, in the first six months of 2015.
  • Adjusted EBITDAS was $1.5 million, a decrease of $3.1 million compared to $4.6 million in the year-ago period.

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


Six Months Ended



6/30/2016



6/30/2015


Revenue:








Third-party Software

$

38,254



$

43,124


Engineering Services


9,275




9,674


Proprietary Software


648




2,340


Total Revenue


48,177




55,138


Total Gross Profit


8,189




10,681


Gross Margins:








Third-party Software


15

%



15

%

Engineering Services


21

%



23

%

Proprietary Software


64

%



89

%

Total Gross Margin


17

%



19

%

Total Operating Expenses


7,625




6,934


Net Income (Loss)

$

315



$

3,708


Per Share-Diluted

$

0.03



$

0.30


Adjusted EBITDAS*

$

1,495



$

4,604


Cash and Investments EoQ**

$

27,148



$

29,680


 

Financial Commentary on First Half 2016 Results (Compared to First Half 2015)

  • Revenue from third-party software was $38.3 million, an 11% decrease from $43.1 million recorded in the prior year period due to a $1.7 million decrease in sales of Windows Embedded operating systems and a $2.1 million decrease in sales of Windows Mobile operating systems.
  • Third-party gross profit was $5.9 million, a $0.5 million or 8% decrease from $6.4 million in the prior year period. The decrease was volume driven.
  • Engineering services gross profit was $1.9 million, a $344,000 decrease from the prior year period, due to the decrease in revenue and lower utilization rates driven by the completion of a number of North American projects.
  • Proprietary software gross profit was $0.4 million, a decrease of $1.7 million from $2.1 million in the prior year period. The decrease was due to sales of our legacy software in the first half of 2015 that exceeded the historical trend combined with a relatively fixed cost of sales.
  • Operating expenses totaled $7.6 million, an increase of $691,000 from $6.9 million in the prior year period. This increase was due to higher R&D and marketing spending on our new DataV software product line.

Q3 2016 Outlook

Management currently has the following expectations for Q3 2016:

  • DataV:
    • Bookings will increase sequentially;
    • Cash collections for previously-booked software and services will commence;
    • DataV revenue will generally be recognized over the life of the contract; and
    • Operating expenses will continue to reflect increased investments in DataV R&D and sales and marketing in an effort to capitalize on a growing customer pipeline;
  • Total revenue will be in the range of $20 to $22 million;
  • Gross margin percentage for engineering services will continue to be lower than we have historically achieved as a result of our business transition to DataV;
  • Despite increased investment in DataV, cash flow will be positive;
  • Q3 GAAP net loss with implementation of our restructuring plan, including approximately $600,000 in estimated severance charges; and
  • Accounts receivable balance, which has been growing due to extended payment terms granted to a highly creditworthy customer, is expected to plateau or decline marginally during Q3.

Additionally, management expects that its commitment to significant investments in DataV will result in net losses in upcoming quarters as Bsquare transitions to DataV. However, we expect that these investments will be funded by ongoing cash flow.

Conference Call

Management will host a conference call today, August 3, 2016, at 5 p.m. Eastern Time (2 p.m. Pacific Time). To access the call dial 1-877-874-1565 or 1-719-325-4755 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 5264948. 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: 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; the extent to which we are successful in gaining new long-term customers and retaining existing ones; our success in leveraging strategic partnering initiatives with companies such as Microsoft and Amazon Web Services; whether we are able to maintain our favorable relationship with Microsoft as a systems integrator and distributor; 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)



June 30,

2016



December 31,

2015


(Unaudited)





ASSETS







Current assets:







Cash and cash equivalents

$

10,619



$

16,443

Short-term investments


16,279




13,280

Accounts receivable, net of allowance for doubtful accounts of $62 at June 30, 2016 and December 31, 2015


19,377




19,009

Prepaid expenses and other current assets


784




580

Total current assets


47,059




49,312

Equipment, furniture and leasehold improvements, net


1,037




1,167

Restricted cash equivalents


250




250

Deferred tax assets


17




145

Intangible assets, net


526




594

Goodwill


3,738




3,738

Other non-current assets


53




52

Total assets

$

52,680



$

55,258

LIABILITIES AND SHAREHOLDERS' EQUITY







Current liabilities:







Third-party software fees payable

$

8,403



$

11,789

Accounts payable


328




188

Accrued compensation


2,093




2,390

Other accrued expenses


1,715




1,277

Deferred rent, current portion


309




298

Deferred revenue


559




1,135

Total current liabilities


13,407




17,077

Deferred tax liability


87




97

Deferred rent


1,020




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; 12,243,330 shares issued and outstanding at June 30, 2016 and 12,092,598 shares issued and outstanding at December 31, 2015


134,264




133,331

Accumulated other comprehensive loss


(858)




(869)

Accumulated deficit


(95,240)




(95,555)

Total shareholders' equity


38,166




36,907

Total liabilities and shareholders' equity

$

52,680



$

55,258

 

BSQUARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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



Three Months Ended

June 30,



Six Months Ended

June 30,


2016



2015



2016



2015

Revenue:















Software

$

18,735



$

23,676



$

38,902



$

45,464

Service


4,003




5,197




9,275




9,674

Total revenue


22,738




28,873




48,177




55,138

Cost of revenue:















Software


15,459




19,956




32,620




37,034

Service


3,386




3,685




7,368




7,423

Total cost of revenue


18,845




23,641




39,988




44,457

Gross profit


3,893




5,232




8,189




10,681

Operating expenses:















Selling, general and administrative


3,204




2,939




6,410




5,946

Research and development


774




422




1,215




988

Total operating expenses


3,978




3,361




7,625




6,934

Income (loss) from operations


(85)




1,871




564




3,747

Other income, net


55




68




76




92

Income (loss) before income taxes


(30)




1,939




640




3,839

Income tax expense


(155)




(54)




(325)




(131)

Net income (loss)

$

(185)



$

1,885



$

315



$

3,708

Basic income (loss) per share

$

(0.02)



$

0.16



$

0.03



$

0.31

Diluted income (loss) per share

$

(0.02)



$

0.15



$

0.03



$

0.30

Shares used in calculation of income (loss) per share:















Basic


12,152




11,856




12,127




11,826

Diluted


12,152




12,295




12,559




12,195

 

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,


2016



2015



2016



2015

Adjusted EBITDAS:















Operating income as reported

$

(85)



$

1,871



$

564



$

3,747

Depreciation and amortization


152




142




303




288

Stock-based compensation expense


215




305




628




569

Adjusted EBITDAS (1)

$

282



$

2,318



$

1,495



$

4,604



(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.

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/bsquare-reports-second-quarter-2016-financial-results-300308739.html

SOURCE Bsquare

BSQUARE Contact: Jerry Chase, President and CEO, BSQUARE Corporation, +1 425.519.5900, investorrelations@bsquare.com; Investor Contact: Leslie Phillips, The Blueshirt Group, + 1 415.217.5869, leslie@blueshirtgroup.com