Bsquare Reports Fourth Quarter and Full Year 2015 Results

Full Year Earnings per Share increases from $0.20 in 2014 to $0.49 in 2015

Feb 11, 2016, 16:10 ET from Bsquare Corporation

BELLEVUE, Wash., Feb. 11, 2016 /PRNewswire/ -- Bsquare Corporation (NASDAQ: BSQR) today announced financial results for the fourth quarter and full year ended December 31, 2015.

Jerry Chase, Bsquare President and Chief Executive Officer, commented, "During 2015 we focused on execution within our core businesses while laying the groundwork for DataV, our new Internet of Things (IoT) software offering. As a result, we were able to deliver profits in each quarter and more than doubled our year-over-year earnings per share. Further, during the fourth quarter, we engaged with customers on paid commercial trials of DataV."

Mr. Chase continued, "For 2016, we will continue to focus on profitability and cash flow from our professional engineering services and embedded software businesses. We anticipate continued customer traction with respect to DataV, which we believe will further enhance shareholder value."

Q4 2015 Financial Highlights

Total revenue for the quarter was $25.0 million, down 5% compared to the third quarter of 2015, and down 2% from the prior year period. Net income for the quarter was $1.1 million, or $0.09 per share, compared to net income of $1.2 million, or $0.10 per share, in the third quarter of 2015 and net income of $1.4 million, or $0.12 per share, in the year-ago quarter. The fourth quarter of 2014 included recognition of $598,000 of revenue and gross profit resulting from completion of a large hand-held project in Japan. Adjusted EBITDAS for the fourth quarter of 2015 was $1.9 million, compared to $2.0 million in the third quarter of 2015 and $1.7 million in the year-ago quarter. Our cash and investments (including restricted cash) increased to $30.0 million at the end of the fourth quarter of 2015.

Details as follows (unaudited, in 000's except per share amounts): 

Three Months Ended

12/31/2015

9/30/2015

12/31/2014

Revenue:

Third-party Software

$

18,971

$

20,790

$

20,056

Engineering Services

5,499

5,220

4,979

Proprietary Software

558

425

560

Total Revenue

25,028

26,435

25,595

Total Gross Profit

4,916

4,873

4,764

Gross Margins:

Third-party Software

15

%

15

%

14

%

Engineering Services

29

%

26

%

29

%

Proprietary Software

80

%

74

%

85

%

Total Gross Margin

20

%

18

%

19

%

Total Operating Expenses

3,619

3,486

3,476

Net Income

$

1,140

$

1,245

$

1,396

Per Share-Diluted

$

0.09

$

0.10

$

0.12

Adjusted EBITDAS*

$

1,941

$

1,977

$

1,725

Cash and Investments EoQ**

$

29,973

$

29,561

$

26,640

*   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 12/31/15 = $250,000).

Financial Commentary on Fourth Quarter 2015 Results (Comparison to Third Quarter 2015)

  • Third-party software sales decreased $1.8 million, or 9%, due to decreases in sales of Microsoft Embedded software and Windows Mobile operating systems and as a result of timing of customer orders;
  • Engineering services revenue increased $279,000, or 5%, driven primarily by increases in revenue from North American projects;
  • Engineering services margin increased three percentage points to 29%, primarily due to improved utilization;
  • Operating expenses increased $133,000, or 4%, driven primarily by increased sales expenses associated with the timing of customer bookings signed in the fourth quarter and the related sales commissions, as well as increased investment in marketing programs to support our DataV product initiatives; and
  • Cash and investments increased $0.4 million in the fourth quarter primarily due to Adjusted EBITDAS contribution, partially offset by changes in working capital. Days sales outstanding (DSO) was 70 for Q4, 54 for Q3 and 49 for Q4 2014. As previously disclosed, we are providing extended payment terms to a highly credit-worthy customer and this has resulted in an increase in our DSO.

Full Year 2015 Financial Highlights

Total revenue for 2015 was $106.6 million, up 11% from 2014. Net income for 2015 was $6.1 million, or $0.49 per diluted share, compared to net income of $2.3 million, or $0.20 per share, in 2014. Adjusted EBITDAS was $8.5 million for 2015 compared to $4.1 million in 2014. Cash and investments increased by $3.3 million during the 2015 full year period.

Details as follows (unaudited, in 000's except per share amounts):

Year Ended

Revenue:

12/31/2015

12/31/2014

Third-party Software

$

82,885

$

73,933

Engineering Services

20,393

19,669

Proprietary Software

3,323

2,314

Total Revenue

106,601

95,916

Total Gross Profit

20,470

16,527

Gross Margins:

Third-party Software

15

%

14

%

Engineering Services

25

%

24

%

Proprietary Software

85

%

75

%

Total Gross Margin

19

%

17

%

Total Operating Expenses

14,039

14,043

Net Income

$

6,093

$

2,345

Per Share-Diluted

$

0.49

$

0.20

Adjusted EBITDAS*

$

8,522

$

4,090

Cash and Investments EoQ**

$

29,973

$

26,640

*   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 12/31/15 = $250,000).

Financial Commentary on 2015 Full Year Results (Comparison to 2014 Full Year Results)

  • Third-party software sales increased by $9.0 million, or 12%, primarily due to increased customer demand, in particular from our largest customer;
  • The increase in engineering services revenue of $0.7 million, or 4%, was driven primarily by increases in revenue from North American projects, partially offset by decreases in revenue from Asia as a result of the completion of a large handheld project in Japan in 2014;
  • The increase in third-party software margin, up one percentage point, was driven primarily by improved operational efficiencies as well as a more favorable product and customer mix;
  • The increase in engineering services margin, up one percentage point, was primarily due to improved utilization;
  • Operating expenses were relatively flat year-over-year, with small decreases in research and development and marketing offset by increases in sales and general and administrative spending; and
  • Non-cash stock-based compensation expenses increased approximately $0.5 million to $1.5 million in 2015 as a result of awards to employees and higher prevailing stock prices during 2015.

Q1 2016 Outlook

  • Bsquare has often experienced quarterly fluctuations in revenue, and first quarter results have historically been among the company's lowest revenue periods. Management currently expects revenue for the first quarter to be in the range of $23 million to $25 million;
  • Gross margin for services will continue in the mid-20% range;
  • Increased bookings and revenue from DataV;
  • Continued GAAP profitability; and
  • As previously noted, we expect our accounts receivable balance will continue to increase during the first few months of 2016 due to extended payment terms granted to a highly credit-worthy customer.

Conference Call

Management will host a conference call today, February 11, 2016, at 5 p.m. Eastern Standard Time (2 p.m. Pacific Standard Time.) To access the call dial 1-888-262-8973 or 1-913-312-0387 for international callers, and reference "Bsquare Corporation Fourth Quarter 2015 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 224142. 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)

December 31,

2015

2014

ASSETS

Current assets:

Cash and cash equivalents

$

16,443

$

13,127

Short-term investments

13,280

13,263

Accounts receivable, net of allowance for doubtful accounts of $62 at December 31, 2015 and $125 at December 31, 2014

19,009

13,626

Prepaid expenses and other current assets

580

717

Total current assets

49,312

40,733

Equipment, furniture and leasehold improvements, net

1,167

1,336

Restricted cash equivalents

250

250

Deferred tax assets

145

401

Intangible assets, net

594

729

Goodwill

3,738

3,738

Other non-current assets

52

54

Total assets

$

55,258

$

47,241

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Third-party software fees payable

$

11,789

$

12,247

Accounts payable

188

165

Accrued compensation

2,390

2,106

Other accrued expenses

1,277

1,539

Deferred rent, current portion

298

275

Deferred revenue

1,135

712

Total current liabilities

17,077

17,044

Deferred tax liability

97

144

Deferred rent

1,177

1,476

Commitments and contingencies

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; 12,092,598 shares issued and outstanding at December 31, 2015 and 11,767,577 shares issued and outstanding at December 31, 2014

133,331

131,071

Accumulated other comprehensive loss

(869)

(846)

Accumulated deficit

(95,555)

(101,648)

Total shareholders' equity

36,907

28,577

Total liabilities and shareholders' equity

$

55,258

$

47,241

 

BSQUARE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)

Three Months Ended

Year Ended

December 31,

December 31,

2015

2014

2015

2014

Revenue:

Software

$

19,529

$

20,616

$

86,208

$

76,247

Service

5,499

4,979

20,393

19,669

Total revenue

25,028

25,595

106,601

95,916

Cost of revenue:

Software

16,205

17,300

70,937

64,489

Service

3,907

3,531

15,194

14,900

Total cost of revenue

20,112

20,831

86,131

79,389

Gross profit

4,916

4,764

20,470

16,527

Operating expenses:

Selling, general and administrative

3,280

3,011

12,400

12,363

Research and development

339

465

1,639

1,680

Total operating expenses

3,619

3,476

14,039

14,043

Income from operations

1,297

1,288

6,431

2,484

Other income (expense), net

8

17

132

(101)

Income before income taxes

1,305

1,305

6,563

2,383

Income tax expense

(165)

91

(470)

(38)

Net income

$

1,140

$

1,396

$

6,093

$

2,345

Basic income per share

$

0.09

$

0.12

$

0.51

$

0.20

Diluted income per share

$

0.09

$

0.12

$

0.49

$

0.20

Shares used in calculation of income per share:

Basic

12,047

11,735

11,938

11,574

Diluted

12,649

11,945

12,419

11,788

 

BSQUARE CORPORATION NON-GAAP INFORMATION AND RECONCILIATION TO COMPARABLE GAAP FINANCIAL MEASURES (In thousands, unaudited)

Three Months Ended

Year Ended

December 31,

December 31,

2015

2014

2015

2014

Adjusted EBITDAS:

Income from operations, as reported

$

1,297

$

1,288

$

6,431

$

2,484

Depreciation and amortization

150

146

575

624

Stock-based compensation expense

494

291

1,516

982

Adjusted EBITDAS (1)

$

1,941

$

1,725

$

8,522

$

4,090

(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 income (loss) from operations, 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, the Company regards Adjusted EBITDAS as a complement to income (loss) from operations, net income (loss) and other GAAP financial performance measures, including an indirect measure of operating cash flow.

 

SOURCE Bsquare Corporation



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