Bsquare Reports Third Quarter 2018 Financial Results
BELLEVUE, Wash., Nov. 12, 2018 /PRNewswire/ -- Bsquare Corporation (NASDAQ: BSQR) today announced financial results for the third quarter of 2018.
"Our third quarter financial results reflect progress on a number of fronts," said Kevin Walsh, Acting CEO. "We have reduced operating expenses by removing approximately $6 million in annualized costs from the business over the past two quarters, and we have decreased our quarterly cash usage."
"As we enter 2019, the importance of our IoT services business, as well as strengthening our partnerships with AWS and Microsoft Azure as the industry shifts toward cloud-anchored IoT infrastructure, are key elements of our strategy. As we ramp our IoT services offerings in response to customer demand, we will continue to make targeted investments in DataV; we believe our IoT services business provides an inroad to eventual DataV sales. And, we are also implementing new initiatives in our third-party software business that we believe will allow us to grow this business while complementing our IoT services. Taken together, we believe these changes will result in positioning Bsquare as a trusted IoT solutions provider and will help us return to profitability in the second half of 2019. As a result, the board considers it timely to launch the search for a permanent CEO."
Third Quarter 2018 Financial Highlights
-- Revenue for the quarter was $16.7 million, down 15.1% compared to the
third quarter of 2017 and down 13.1% compared to the second quarter of
2018.
-- Net loss for the quarter was $2.1 million, or $0.16 per diluted share,
compared to a net loss of $2.5 million, or $0.20 per diluted share, in
the third quarter of 2017 and a net loss of $3.7 million, or $0.29 per
diluted share, in the second quarter of 2018.
-- Adjusted EBITDAS ((1)) was negative $1.7 million, up $0.2 million from
the third quarter of 2017 and up $1.9 million from the second quarter of
2018.
-- Cash, cash equivalents and short-term investments at September 30, 2018
totaled $17.3 million, a decrease of $9.5 million from September 30,
2017 and $0.6 million from June 30, 2018 due to a combination of lower
operating expenses and strong cash collections.
Details as follows (unaudited, in thousands except percentages and per share amounts):
Three Months Ended
September September Q3-Q3 Change (2) June
30, 30, 30, 2018 Q3-Q2 Change (2)
2018 2017
Revenue:
Third-party
software $
14,241 $
16,240 $
(1,999) $
16,992 $
(2,751)
Proprietary software 796 1,200 (404) 281 515
Professional
engineering service 1,657 2,213 (556) 1,930 (273)
Total revenue 16,694 19,653 (2,959) 19,203 (2,509)
Total gross profit $
3,359 $
4,380 $
(1,021) $
3,261 $
98
Gross margins:
Third-party 15.7 16.1 (0.4) 14.8
software % % % % 0.9
%
Proprietary software 86.1 97.2 (11.1) 64.4 21.7
% % % % %
Professional 26.3 26.8 (0.5) 29.4 (3.1)
engineering service % % % % %
Total gross margin 20.1 22.3 (2.2) 17.0
% % % % 3.1
%
Total operating
expenses $
5,491 $
6,926 $
(1,435) $
6,979 $
(1,488)
Net loss (2,087) (2,468) 381 (3,683) 1,596
Per diluted share (0.16) (0.20) 0.04 (0.29) 0.13
Adjusted EBITDAS (1) (1,666) (1,843) 177 (3,570) 1,904
Cash, cash
equivalents and
short-term
investments $
17,271 $
26,758 $
(9,487) $
17,861 $
(590)
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 Third Quarter 2018 Results (Compared to Third Quarter 2017)
-- Third-party software revenue decreased for the quarterly period,
primarily due to lower sales of Microsoft Windows Embedded operating
systems to Honeywell.
-- Proprietary software revenue decreased for the quarterly period,
primarily due to lower sales of other (non-DataV) proprietary software.
-- Professional engineering service revenue decreased for the quarterly
period, primarily due to the completion of several existing customer
projects in 2017.
-- Operating expenses decreased for the quarterly period, primarily due to
lower salaries and related benefits in Selling and General &
Administrative expense from spending reductions in fiscal 2018,
partially offset by Research and Development investment made in DataV.
Additional DataV Metrics (Including Non-GAAP Measures)
-- During the third quarter of 2018, we recorded $1.0 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 and adjustments such as de-bookings)
was $6.5 million at both September 30, 2018 and December 31, 2017.
-- Total deferred revenue at September 30, 2018 was $2.4 million, compared
to $3.3 million at December 31, 2017. The September 30, 2018 balance
included DataV deferred revenue of $1.9 million. The DataV deferred
revenue balances 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 $4.6 million at
September 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.
Fourth Quarter 2018 Outlook
Management currently has the following expectations for the fourth quarter of 2018:
-- Revenue in the range of $15.5 million to $17.5 million.
-- Blended gross margin in the 18% to 22% range.
-- Net cash usage of $0.5 million to $1.5 million.
Conference Call
Management will host a conference call today, November 12, 2018, at 5 p.m. Eastern Time (2 p.m. Pacific Time). To access the call dial 1-800-289-0438 or 1-323-794-2423 for international callers, and reference "BSQUARE Corporation Third 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 5720283. 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)
September
30, 2018 December 31, 2017
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $
11,392 $
12,859
Short-term investments 5,879 11,895
Accounts receivable, net of allowance
for doubtful accounts of $49 and $50 at
September 30, 2018 and December 31,
2017, respectively 13,124 18,014
Contract assets 1,030 937
Prepaid expenses and other current
assets 677 548
Total current assets 32,102 44,253
Equipment, furniture and leasehold
improvements, less accumulated
depreciation 1,306 989
Intangible assets, less accumulated
amortization 291 365
Goodwill 3,738 3,738
Other non-current assets 211 89
Total assets $
37,648 $
49,434
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Third-party software fees payable $
7,882 $
10,547
Accounts payable 329 375
Accrued compensation 2,016 2,266
Other accrued expenses 535 681
Deferred rent 355 339
Deferred revenue 1,627 3,219
Total current liabilities 12,744 17,427
Deferred rent, long-term 247 516
Deferred revenue, long-term 799 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; 12,747,225 and 12,664,489
shares issued and outstanding at
September 30, 2018 and December 31,
2017, respectively 138,223 137,622
Accumulated other comprehensive loss (885) (916)
Accumulated deficit (113,480) (105,276)
Total shareholders' equity 23,858 31,430
Total liabilities and shareholders'
equity $
37,648 $
49,434
BSQUARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended September Nine Months Ended September
30,
30,
2018 2017 2018 2017
Revenue:
Third-party software $
14,241 $
16,240 $
47,297 $
48,542
Proprietary software 796 1,200 2,872 4,335
Professional engineering service 1,657 2,213 6,406 8,465
Total revenue 16,694 19,653 56,575 61,342
Cost of revenue:
Third-party software 12,003 13,619 39,837 40,804
Proprietary software 111 34 252 105
Professional engineering service 1,221 1,620 4,666 5,927
Total cost of revenue 13,335 15,273 44,755 46,836
Gross profit 3,359 4,380 11,820 14,506
Operating expenses:
Selling, general and
administrative 3,199 5,338 13,548 15,249
Research and development 2,292 1,588 6,600 4,381
Total operating expenses 5,491 6,926 20,148 19,630
Loss from operations (2,132) (2,546) (8,328) (5,124)
Other income, net 65 34 156 148
Loss before income taxes (2,067) (2,512) (8,172) (4,976)
Income tax benefit (expense) (20) 44 (32) 150
Net loss $
(2,087) $
(2,468) $
(8,204) $
(4,826)
Basic loss per share $
(0.16) $
(0.20) $
(0.65) $
(0.38)
Diluted loss per share $
(0.16) $
(0.20) $
(0.65) $
(0.38)
Shares used in per share
calculations:
Basic 12,721 12,607 12,697 12,578
Diluted 12,721 12,607 12,697 12,578
BSQUARE CORPORATION
NON-GAAP INFORMATION AND RECONCILIATION TO COMPARABLE GAAP FINANCIAL MEASURES
(In thousands, unaudited)
Three Months Ended September Nine Months Ended September
30,
30,
2018 2017 2018 2017
Loss from operations
as reported $
(2,132) $
(2,546) $
(8,328) $
(5,124)
Depreciation and amortization 161 163 466 483
Stock-based compensation 305 540 620 1,350
Adjusted EBITDAS (1) $
(1,666) $
(1,843) $
(7,242) $
(3,291)
(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
