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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