Bsquare Reports Fourth Quarter and Full Year 2018 Results
BELLEVUE, Wash., Feb. 25, 2019 /PRNewswire/ -- BSQUARE Corporation (NASDAQ: BSQR) today announced financial results for the fourth quarter and full year ended December 31, 2018.
"During the fourth quarter we increased our emphasis on IoT services and recalibrated our investment in DataV software, increased investment in our software distribution business and continued to develop our key partnerships with Microsoft and Amazon Web Services (AWS), with whom we signed a three-year collaboration agreement," said Kevin Walsh, acting CEO. "Last week we announced the appointment of Ralph Derrickson as president and CEO and to the company's board of directors, effective March 11th. Ralph brings broad strategic and technical experience to Bsquare and we are confident in his ability to accelerate our plans to establish a fiscally responsible long-term strategy for growth and value creation."
Fourth Quarter 2018 Financial Summary
-- Revenue for the quarter was $16.8 million, down 14% compared to the
fourth quarter of 2017 and up 1% sequentially compared to the third
quarter of 2018.
-- Operating expenses in the fourth quarter included a one-time non-cash
charge to write-off $3.7 million in goodwill associated with a 2011
acquisition which was deemed impaired at December 31,2018
-- Including the goodwill impairment charge of $3.7 million, net loss for
the current quarter was $5.5 million, or $(0.43) per diluted share,
compared to net loss of $4.2 million, or $(0.33) per diluted share, in
the fourth quarter of 2017 and net loss of $2.1 million, or $(0.16) per
diluted share, in the third quarter of 2018.
-- Excluding the goodwill impairment charge of $3.7 million, net loss for
the current quarter was $1.8 million, or $(0.14) per diluted share, as
adjusted.((1))
-- Adjusted EBITDAS((2)) for the quarter was negative $1.6 million, an
improvement of $2.1 million from the fourth quarter of 2017 and was
approximately level compared to the third quarter of 2018.
-- Cash, cash equivalents, short-term investments and restricted cash
totaled $16.9 million at December 31, 2018 (including restricted cash of
$0.5 million), which decreased approximately $7.8 million from December
31, 2017 and $0.3 million from September 30, 2018.
Details as follows (unaudited, in thousands except percentages and per share amounts):
Three Months Ended
December December Q4-Q4 September
31, 31, 30, Q4-Q3
2018 2017 Change (2) 2018 Change (2)
Revenue:
Third-party
software $
13,862 $
17,213 $
(3,351) $
14,241 $
(379)
Proprietary software 1,082 311 771 796 286
Professional
engineering service 1,895 1,945 (50) 1,657 238
Total revenue $
16,839 $
19,469 $
(2,630) $
16,694 $
145
Total gross profit $
3,690 $
3,616 74 $
3,359 $
331
Gross margins (3):
Third-party 17 17
%
(-)
% 16
% 1
software % %
Proprietary software 87 81
% 6 86
% 1
% % %
Professional 24 26
% (2) 26
% (2)
engineering service % % %
Total gross margin 22 19
% 3 20
% 2
% % %
Total operating
expenses $
9,293 $
7,913 $
1,380 $
5,491 $
3,802
Net loss $
(5,533) $
(4,232) $
(1,301) $
(2,087) $
(3,446)
Per diluted share $
(0.43) $
(0.33) $
(0.10) $
(0.16) $
(0.27)
Net loss excluding
goodwill impairment
(1) $
(1,795) $
(4,232) $
2,437 $
(2,087) $
292
Per diluted share
excluding goodwill
impairment (1) $
(0.14) $
(0.33) $
0.19 $
(0.16) $
0.02
Adjusted EBITDAS (2) $
(1,634) $
(3,739) $
2,168 $
(1,666) $
32
Cash, restricted
cash, cash
equivalents and
short-term
investments $
16,940 $
24,754 $
(7,814) $
17,271 $
(331)
Notes:
(1) Net loss excluding goodwill impairment
and per diluted share excluding
goodwill impairment are non-GAAP
measurements.
(2) Adjusted EBITDAS = Operating loss
before depreciation, amortization,
stock compensation expense and
goodwill impairment. Adjusted
EBITDAS is a non-GAAP measurement
(reconciliation provided after
financial statement tables).
(3) For gross margin, amount represents
percentage point change.
Financial Commentary on Fourth Quarter 2018 Results (Compared to Fourth Quarter 2017)
-- Third-party software revenue decreased for the fourth quarter of 2018
compared to the prior year period, primarily due to lower sales of
Microsoft Windows Embedded operating systems to Honeywell.
-- Proprietary software revenue increased compared to the prior year period
primarily as a result of recognition of Itron DataV revenue, which began
in the first quarter of 2018. Proprietary software gross margin
increased vs. the prior year quarter due to improved margins on DataV
licenses.
-- Professional engineering service revenue decreased slightly, primarily
from decreased legacy services revenue, partially offset by increased
revenue from DataV services. Professional engineering service gross
margin decreased versus the prior year quarter primarily due to several
projects being completed in 2017.
-- Operating expenses, excluding the goodwill impairment charge of $3.7
million, decreased when compared to the fourth quarter of 2017 due to
lower salary, benefit, and marketing costs in selling, general and
administrative expense areas from 2018 spending reductions.
-- Excluding the goodwill impairment charge of $3.7 million, net loss for
the current quarter decreased by $2.4 million, or $0.19 per diluted
share, as adjusted, vs. the fourth quarter of 2017.
Full Year 2018 Financial Summary
-- Revenue was $73.4 million, down 9% compared to 2017.
-- Including the goodwill impairment charge of $3.7 million, net loss was
$13.7 million, or $(1.08) per diluted share, compared to a net loss of
$9.1 million, or $(0.72) per diluted share, in 2017.
-- Excluding the goodwill impairment charge of $3.7 million, net loss for
the year was $(10.0) million, or $(0.79) per diluted share, as adjusted.
-- Adjusted EBITDAS((1)) was negative $8.9 million, compared to negative
$7.6 million in the prior year.
Details as follows (unaudited, in thousands except percentages and per share amounts):
Year Ended
December December
31, 31, Change (2)
2018 2017
Revenue:
Third-party
software $
61,159 $
65,755 $
(4,596)
Proprietary software 3,954 4,646 (692)
Professional
engineering service 8,301 10,410 (2,109)
Total revenue $
73,414 $
80,811 $
(7,397)
Total gross profit $
15,510 $
18,122 (2,612)
Gross margins (3):
Third-party 16 16
software % %
(-) %
Proprietary software 90 96 (6)
% % %
Professional 26 29 (3)
engineering service % % %
Total gross margin 21 22 (1)
% % %
Total operating
expenses $
29,441 $
27,543 $
1,898
Net loss $
(13,737) $
(9,058) $
(4,679)
Per diluted share $
(1.08) $
(0.72) $
(0.36)
Net loss excluding
goodwill impairment
(1) $
(9,999) (9,058) (941)
Per diluted share
excluding goodwill
impairment (1) $
(0.79) $
(0.72) $
(0.07)
Adjusted EBITDAS (2) $
(8,876) $
(7,030) $
(1,300)
Notes:
(1)
Net loss excluding goodwill impairment
and per diluted share excluding
goodwill impairment are non-GAAP
measurements.
(2)
Adjusted EBITDAS = Operating loss
before depreciation, amortization,
stock compensation expense, and
goodwill impairment. Adjusted EBITDAS
is a non-GAAP measurement
(reconciliation provided after
financial statement tables).
(3) For gross margin, amount represents
percentage point change.
Additional DataV Metrics (Including Non-GAAP Measures) (unaudited)
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.
-- During the fourth 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 and adjustments such as de-bookings)
was $6.5 million at both December 31, 2018 and December 31, 2017.
-- Total deferred revenue at December 30, 2018 was $2.7 million, compared
to $3.3 million at December 31, 2017. The year end 2018 balance included
DataV deferred revenue of $2.3 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 $4.2 million at December
31, 2018 and approximately $3.7 million at December 31, 2017.
First Quarter 2019 Outlook
Management currently has the following expectations for the first quarter of 2019:
-- Revenue in the range of $15 million to $17 million;
-- Blended gross margin in the 15% to 17% range, due to lower sequential
contribution from proprietary software revenue, and;
-- A moderate increase from Q4 2018 cash utilization, adjusted for
approximately $1.3 million of final Honeywell collections resulting from
the 2018 loss of EMEA sales.
Conference Call
Management will host a conference call today, February 25, 2019, at 5 p.m. Eastern Standard Time (2 p.m. Pacific Standard Time.) To access the call dial 1-800-263-0877 or 1-646-828-8143 for international callers, and reference "Bsquare Corporation Fourth 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 7785310. 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) (unaudited)
December 31,
2018 2017
ASSETS
Current assets:
Cash and cash equivalents $
10,005 $
12,859
Restricted cash 263
Short-term investments 6,409 11,895
Accounts receivable, net of allowance
for doubtful accounts of $40 at
December 31, 2018 and $50 at December
31, 2017 11,581 18,014
Prepaid expenses and other current
assets 685 548
Contract assets 1,053 937
Total current assets 29,996 44,253
Restricted cash, long term 263
Equipment, furniture and leasehold
improvements, net 911 989
Deferred tax assets 7
Intangible assets, net 267 365
Goodwill 3,738
Other non-current assets including
contract assets 550 89
Total assets $
31,994 $
49,434
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Third-party software fees payable $
7,620 $
10,547
Accounts payable 565 375
Accrued compensation 1,629 2,266
Other accrued expenses 653 681
Deferred rent, current portion 347 339
Deferred revenue 1,652 3,219
Total current liabilities 12,466 17,427
Deferred tax liability
Deferred rent 150 516
Deferred revenue 1,037 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; 12,777,573 issued and
outstanding at December 31, 2018 and
12,664,489 issued and outstanding at
December 31, 2017 138,280 137,622
Accumulated other comprehensive loss (926) (916)
Accumulated deficit (119,013) (105,276)
Total shareholders' equity 18,341 31,430
Total liabilities and shareholders'
equity $
31,994 $
49,434
BSQUARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts) (unaudited)
Three Months Ended December 31, Year Ended December 31,
---
2018 2017 2018 2017
---
Revenue:
Third-party software $
13,862 $
17,213 $
61,159 $
65,755
Proprietary software 1,082 311 3,954 4,646
Professional engineering service 1,895 1,945 8,301 10,410
Total revenue 16,839 19,469 73,414 80,811
Cost of revenue:
Third-party software 11,571 14,357 51,408 55,161
Proprietary software 142 58 394 163
Professional engineering service 1,436 1,438 6,102 7,365
Total cost of revenue 13,149 15,853 57,904 62,689
Gross profit 3,690 3,616 15,510 18,122
Operating expenses:
Selling, general and
administrative 3,526 5,733 17,074 20,982
Research and development 2,029 2,180 8,629 6,561
Goodwill impairment 3,738 3,738
Total operating expenses 9,293 7,913 29,441 27,543
Loss from operations (5,603) (4,297) (13,931) (9,421)
Other income, net 51 66 207 214
Loss before income taxes (5,552) (4,231) (13,724) (9,207)
Income tax benefit (expense) 19 (1) (13) 149
Net loss $
(5,533) $
(4,232) $
(13,737) $
(9,058)
===
Basic loss per share $
(0.43) $
(0.33) $
(1.08) $
(0.72)
Diluted loss per share $
(0.43) $
(0.33) $
(1.08) $
(0.72)
Shares used in per share
calculations:
Basic 12,755 12,640 12,712 12,594
Diluted 12,755 12,640 12,712 12,594
BSQUARE CORPORATION
NON-GAAP INFORMATION AND RECONCILIATION TO COMPARABLE GAAP FINANCIAL MEASURES
(In thousands) (unaudited)
Three Months Ended December 31, Year Ended December 31,
---
2018 2017 2018 2017
---
Loss from operations as
reported $
(5,603) $
(4,297) $
(13,931) $
(9,421)
Depreciation and amortization 173 151 639 634
Stock-based compensation 58 407 678 1,757
Goodwill impairment 3,738 3,738
Adjusted EBITDAS (1) $
(1,634) $
(3,739) $
(8,876) $
(7,030)
===
(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, stock-based
compensation expense, and goodwill
impairment. 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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