Bsquare Reports Second Quarter 2018 Financial Results

BELLEVUE, Wash., Aug. 13, 2018 /PRNewswire/ -- Bsquare Corporation (NASDAQ: BSQR) (the "Company") today announced financial results for the second quarter of 2018. Bsquare also announced the appointment of Rob Peters, a principal of Palogic Value Management, L.P., one of the Company's largest shareholders, to the Company's board of directors in place of Bob DeSantis, who has resigned as a director due to increased demands on his time from his current position. The Company further announced the establishment of a board-level Strategic Review Committee to be chaired by Ryan Vardeman, who joined the Company's board of directors in June of this year.

"During the second quarter we pursued a set of initiatives intended to put our DataV Industrial Internet of Things ("IIoT") business on a sounder footing," stated Acting CEO Kevin Walsh. "In the quarter we added $1.4 million in new DataV bookings from existing customers, which includes the production deployment SaaS agreement with a Fortune 100 customer announced in May. Nevertheless, results from our DataV business fell short of expectations. Initiatives we have undertaken included a narrowing of product focus; increasing our go-to-market alignment with Amazon Web Services ("AWS"); and reducing our annualized operating expense levels by approximately $6.0 million in order to improve our overall financial position. We believe that these and other changes, including strong receivables collections, will result in a significant reduction in our cash burn; we expect that second half 2018 net cash usage will be in the range of $1.0 million to $2.0 million."

Mr. Walsh continued, "Our third-party software business, largely comprised of Microsoft embedded and IoT software, performed above expectations, resulting in overall revenue above the top end of our second quarter guidance range. We continue to strive to manage this business efficiently while targeting new areas for growth."

Second Quarter 2018 Financial Highlights

    --  Revenue for the quarter was $19.2 million, up 1.9% compared to the
        second quarter of 2017 and down 7.1% compared to the first quarter of
        2018.
    --  Net loss for the quarter was $3.7 million, or $0.29 per diluted share,
        compared to net loss of $2.6 million, or $0.20 per diluted share, in the
        second quarter of 2017 and net loss of $2.4 million, or $0.19 per
        diluted share, in the first quarter of 2018.
    --  Adjusted EBITDAS ((1)) was negative $3.6 million, down $1.5 million from
        the second quarter of 2017 and down $1.6 million from the first quarter
        of 2018.
    --  Cash, cash equivalents and short-term investments at June 30, 2018
        totaled $17.9 million, a decrease of approximately $9.4 million from
        June 30, 2017 and $3.6 million from March 31, 2018.

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


                                               Three Months Ended
                                               ------------------

                         June 30, 2018               June 30, 2017          Q2-Q2 Change (2) March 31, 2018          Q2-Q1 Change (2)
                         -------------               -------------          ---------------  --------------          ---------------

    Revenue:

    Third-party software               $16,992                      $15,505                                   $1,487                     $16,064        $928

    Proprietary software                   281                          481                                    (200)                      1,795     (1,514)

    Professional
     engineering service                 1,930                        2,862                                    (932)                      2,819       (889)
                                         -----                        -----                                     ----                       -----        ----

    Total revenue                       19,203                       18,848                                      355                      20,678     (1,475)

    Total gross profit                  $3,261                       $3,873                                   $(612)                     $5,200    $(1,939)

    Gross margins:

    Third-party software                 14.8%                       15.5%                                  (0.7)%                      16.9%     (2.1)%

    Proprietary software                 64.4%                       91.9%                                 (27.5)%                      97.7%    (33.3)%

    Professional
     engineering service                 29.4%                       36.0%                                  (6.6)%                      26.1%       3.3%

    Total gross margin                   17.0%                       20.5%                                  (3.5)%                      25.1%     (8.1)%

    Total operating
     expenses                           $6,979                       $6,492                                     $487                      $7,678      $(699)

    Net loss                           (3,683)                     (2,560)                                 (1,123)                    (2,434)    (1,249)

    Per diluted share                   (0.29)                      (0.20)                                  (0.09)                     (0.19)     (0.10)

    Adjusted EBITDAS (1)               (3,570)                     (2,041)                                 (1,529)                    (2,006)    (1,564)

    Cash, cash
     equivalents and
     short-term
     investments                       $17,861                      $27,296                                 $(9,435)                    $21,435    $(3,574)


    Notes:

    (1)             Adjusted EBITDAS = loss from
                    operations before depreciation,
                    amortization and stock
                    compensation expense. Adjusted
                    EBITDAS is a non-GAAP measurement
                    (reconciliation provided after
                    financial statement tables).

    (2)             For gross margin, amount represents
                    percentage point change.

Financial Commentary on Second Quarter 2018 Results (Compared to Second Quarter 2017)

    --  Third-party software revenue increased for the quarterly period,
        primarily due to higher sales of Microsoft Windows Embedded operating
        systems, partially offset by lower sales to Honeywell.
    --  Proprietary software revenue decreased for the quarterly period,
        primarily due to lower sales of other proprietary software.
    --  Professional engineering service revenue decreased for the quarterly
        period, primarily due to the completion in 2017 of several existing
        customer projects.
    --  Operating expenses increased for the quarterly period, due to continued
        R&D investment in DataV, partially offset by lower SG&A expenses from
        lower stock compensation and recruiting fees.

Additional DataV Metrics (Including Non-GAAP Measures)

    --  During the second quarter of 2018, we recorded $1.4 million in DataV
        bookings (a non-GAAP measure defined as the contract value of new
        agreements signed with customers).
    --  DataV backlog (a non-GAAP measure defined as total DataV bookings less
        DataV revenue recognized to date) was $5.9 million at June 30, 2018,
        compared to approximately $6.5 million at December 31, 2017.
    --  Total deferred revenue at June 30, 2018 was $2.1 million, compared to
        $3.3 million at December 31, 2017. The June 30, 2018 balance included
        DataV deferred revenue of $1.7 million. The deferred revenue balances
        relating to our DataV sales do not represent the total contract value of
        our DataV agreements.
    --  DataV unbilled deferred revenue (a non-GAAP measure defined as future
        contract billings that have not been invoiced and, accordingly, are not
        included in deferred revenue) was approximately $4.2 million at June 30,
        2018 and approximately $3.7 million at December 31, 2017.

Bookings, backlog and unbilled deferred revenue are non-GAAP measures. These non-GAAP measures have been included because management believes they provide meaningful information related to our DataV product sales, since revenue from such sales may be recognized in different periods than those in which orders have been received or cash has been collected.

Third Quarter and Second Half 2018 Outlook

Management currently has the following expectations for the third quarter of 2018:

    --  Revenue in the range of $17.0 million to $19.0 million.
    --  Blended gross margin in the 16% to 18% range.
    --  A sequential reduction in net loss due to lower overall compensation,
        marketing, sales and administrative costs resulting from recent expense
        reductions.

Management currently has the following expectations for the second half of 2018:

    --  Net cash usage of $1.0 million to $2.0 million.

Conference Call

Management will host a conference call today, August 13, 2018, at 5 p.m. Eastern Time (2 p.m. Pacific Time). To access the call dial 1-888-394-8218 or 1-323-701-0225 for international callers, and reference "BSQUARE Corporation Second Quarter 2018 Earnings Conference Call." A replay will be available for two weeks following the call by dialing 1-844-512-2921, or 1-412-317-6671 for international callers; reference pin number 6328213. 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 these assets 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 Industrial Internet of Things 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 IIoT 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 regarding 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(TM), the Industrial 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; whether we are able to maintain our favorable relationship with Microsoft as a systems integrator and distributor; our success in leveraging strategic partnering initiatives with companies such as Microsoft, AWS 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)


                                                      June 30, 2018              December 31, 2017
                                                      -------------              -----------------

                                                       (Unaudited)

                        ASSETS

    Current assets:

    Cash and cash equivalents                                            $10,238                          $12,859

    Short-term investments                                               7,623                           11,895

    Accounts receivable, net of allowance for
     doubtful accounts of $50 and $50 at June
     30, 2018 and December 31, 2017,
     respectively                                                       16,219                           18,014

    Contract assets                                                        923                              937

    Prepaid expenses and other current assets                              511                              548
                                                                           ---                              ---

    Total current assets                                                35,514                           44,253

    Equipment, furniture and leasehold
     improvements, less accumulated
     depreciation                                                        1,220                              989

    Intangible assets, less accumulated
     amortization                                                          316                              365

    Goodwill                                                             3,738                            3,738

    Other non-current assets                                               212                               89
                                                                           ---                              ---

    Total assets                                                         $41,000                          $49,434
                                                                         =======                          =======

         LIABILITIES AND SHAREHOLDERS' EQUITY

    Current liabilities:

    Third-party software fees
     payable                                                              $9,619                          $10,547

    Accounts payable                                                       382                              375

    Accrued compensation                                                 1,871                            2,266

    Other accrued expenses                                                 745                              681

    Deferred rent                                                          347                              339

    Deferred revenue                                                     1,225                            3,219
                                                                         -----                            -----

    Total current liabilities                                           14,189                           17,427

    Deferred rent, long-term                                               340                              516

    Deferred revenue, long-term                                            836                               61

    Commitments and contingencies

    Shareholders' equity:

    Preferred stock, no par: 10,000,000
     shares authorized; no shares issued and
     outstanding                                                  -                                -

    Common stock, no par: 37,500,000 shares
     authorized; 12,712,134 and 12,664,489
     shares issued and outstanding at June
     30, 2018 and December 31, 2017,
     respectively                                                      137,932                          137,622

    Accumulated other comprehensive loss                                 (904)                           (916)

    Accumulated deficit                                              (111,393)                       (105,276)
                                                                      --------                         --------

    Total shareholders' equity                                          25,635                           31,430
                                                                        ------                           ------

    Total liabilities and
     shareholders' equity                                                $41,000                          $49,434
                                                                         =======                          =======


                                                          BSQUARE CORPORATION

                                            CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                                (In thousands, except per share amounts)

                                                              (Unaudited)


                                       Three Months Ended June 30,                     Six Months Ended June 30,
                                     ---------------------------                 -------------------------

                                           2018                  2017                     2018                    2017
                                           ----                  ----                     ----                    ----

    Revenue:

    Third-party software                           $16,992                            $15,505                            $33,056           $32,302

    Proprietary software                             281                                481                              2,076             3,135

    Professional engineering service               1,930                              2,862                              4,749             6,252
                                                   -----                              -----                              -----             -----

    Total revenue                                 19,203                             18,848                             39,881            41,689

    Cost of revenue:

    Third-party software                          14,480                             13,103                             27,834            27,185

    Proprietary software                             100                                 39                                141                71

    Professional engineering service               1,362                              1,833                              3,445             4,307
                                                   -----                              -----                              -----             -----

    Total cost of revenue                         15,942                             14,975                             31,420            31,563
                                                  ------                             ------                             ------            ------

    Gross profit                                   3,261                              3,873                              8,461            10,126

    Operating expenses:

    Selling, general and
     administrative                                4,901                              5,046                             10,349             9,911

    Research and development                       2,078                              1,446                              4,308             2,793
                                                   -----                              -----                              -----             -----

    Total operating expenses                       6,979                              6,492                             14,657            12,704
                                                   -----                              -----                             ------            ------

    Loss from operations                         (3,718)                           (2,619)                           (6,196)          (2,578)

    Other income, net                                 47                                 59                                 91               114
                                                     ---                                ---                                ---               ---

    Loss before income taxes                     (3,671)                           (2,560)                           (6,105)          (2,464)

    Income tax benefit (expense)           (12)                                 -                              (12)              106
                                            ---                                ---                               ---               ---

    Net loss                                      $(3,683)                          $(2,560)                          $(6,117)         $(2,358)
                                                   =======                            =======                            =======           =======

    Basic loss per share                           $(0.29)                           $(0.20)                           $(0.48)          $(0.19)

    Diluted loss per share                         $(0.29)                           $(0.20)                           $(0.48)          $(0.19)

    Shares used in per share
     calculations:

    Basic                                         12,697                             12,577                             12,685            12,563

    Diluted                                       12,697                             12,577                             12,685            12,563


                                                                  BSQUARE CORPORATION

                                     NON-GAAP INFORMATION AND RECONCILIATION TO COMPARABLE GAAP FINANCIAL MEASURES

                                                               (In thousands, unaudited)


                                                                 Three Months Ended June 30,                     Six Months Ended June 30,
                                                                 ---------------------------                     -------------------------

                                                                     2018                  2017                     2018                   2017
                                                                     ----                  ----                     ----                   ----

    Loss from operations as reported                                        $(3,718)                          $(2,619)                         $(6,196)   $(2,578)

    Depreciation and amortization                                              164                                167                               305         320

    Stock-based compensation                                                  (16)                               411                               315         810
                                                                               ---                                ---                               ---         ---

    Adjusted EBITDAS (1)                                                    $(3,570)                          $(2,041)                         $(5,576)   $(1,448)
                                                                             =======                            =======                           =======     =======


    (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 income
                    (loss) from operations 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
                    (used) by 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