BSQUARE Reports Second Quarter and First Half of 2015 Results

Second Quarter Net Income $1.9 million; EPS $0.15

Aug 13, 2015, 16:10 ET from BSQUARE Corporation

BELLEVUE, Wash., Aug. 13, 2015 /PRNewswire/ -- BSQUARE Corporation (NASDAQ: BSQR), a leading enabler of smart, connected systems and emerging provider of actionable data solutions for the Internet of Things (IoT), today announced financial results for the second quarter and first half of 2015.

Second Quarter 2015 Financial Highlights

  • Revenue was $28.9 million, a 10% increase compared to the first quarter of 2015 and a 25% increase over the second quarter of 2014.
  • Net income was $1.9 million, or $0.15 per share, compared to net income of $1.8 million, or $0.15 per share, in the first quarter of 2015 and net income of $0.7 million, or $0.06 per share, in the year-ago quarter.
  • Adjusted EBITDAS* was $2.3 million, approximately the same as reported in the first quarter of 2015, and an increase of approximately $1.2 million compared to $1.1 million in the year-ago quarter.
  • Cash and investments at June 30, 2015 were $29.7 million, up $2.8 million from March 31, 2015.

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


Three Months Ended



6/30/2015



3/31/2015



6/30/2014


Revenue:












Third-party Software

$

23,316



$

19,808



$

16,965


Engineering Services


5,197




4,477




5,642


Proprietary Software


360




1,980




448


Total Revenue


28,873




26,265




23,055


Total Gross Profit


5,232




5,449




4,265


Gross Margins:












Third-party Software


15

%



14

%



13

%

Engineering Services


29

%



17

%



31

%

Proprietary Software


64

%



93

%



58

%

Total Gross Margin


18

%



21

%



18

%

Total Operating Expenses


3,361




3,573




3,595


Net Income

$

1,885



$

1,823



$

651


Per Share-Diluted

$

0.15



$

0.15



$

0.06


Adjusted EBITDAS*

$

2,318



$

2,286



$

1,051


Cash and Investments EoQ**

$

29,680



$

26,844



$

24,381



Notes:

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 each date above was $250,000).

CEO Commentary

Jerry Chase, President and CEO of BSQUARE, commented, "Second quarter improvements in financial performance were the result of continued focus and execution on our core businesses. Regarding new product initiatives, we continue to expect revenue for DataV products and services in 2015, building on the decades of experience we have with smart, connected systems."


Financial Commentary on Second Quarter 2015 Results (Compared to First Quarter 2015)

  • Revenue from third-party software was $23.3 million, an increase of 18% from $19.8 million in the first quarter of 2015, due to strong customer demand and Microsoft fiscal year-end incentives.
  • The decrease in proprietary software margin, down 31% or 29 percentage points, resulted from sales of BSQUARE legacy software in the first quarter that exceeded the historical trend, combined with a relatively fixed cost of sales.
  • The increases in engineering services revenue, up $720,000 or 16%, and in engineering services margin, up 71% or 12 percentage points, were due primarily to increased utilization percentages combined with higher average billable rates.
  • The increase in cash and investments of $2.8 million was due to Adjusted EBITDAS contribution of $2.3 million, combined with the timing of cash collections and accrued liability payments. Days sales outstanding (DSO) remained relatively consistent at 49 days at June 30, 2015, compared to 47 days at March 31, 2015 and 49 days at December 31, 2014.

First Half 2015 Financial Highlights

  • Revenue was $55.1 million, a 20% increase compared to $45.8 million for the year-ago period, driven by increased software revenue.
  • Net income was $3.7 million or $0.30 per share, a $3.5 million increase compared to net income of $0.3 million or $0.02 per share in the first six months of 2014. Increased software revenue, higher margins and lower operating costs all contributed to this improvement.
  • Adjusted EBITDAS* was $4.6 million, an increase of $3.3 million compared to $1.3 million in the year-ago period.

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


Six Months Ended



6/30/2015



6/30/2014


Revenue:








Third-party Software

$

43,124



$

34,660


Engineering Services


9,674




9,923


Proprietary Software


2,340




1,203


Total Revenue


55,138




45,786


Total Gross Profit


10,681




7,800


Gross Margins:


-




-


Third-party Software


15

%



13

%

Engineering Services


23

%



24

%

Proprietary Software


89

%



71

%

Total Gross Margin


19

%



17

%

Total Operating Expenses


6,934




7,327


Net Income

$

3,708



$

258


Per Share-Diluted

$

0.30



$

0.02


Adjusted EBITDAS*

$

4,604



$

1,261


Cash and Investments EoQ**

$

29,680



$

24,381



Notes:

*

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 each date above was $250,000).

Financial Commentary on First Half 2015 Results (compared to First Half 2014)

  • Revenue from third-party software was $43.1 million, a 24% increase from $34.7 million recorded in the prior year period, due to strong customer demand and Microsoft fiscal year-end incentives.
  • Third-party gross profit was $6.4 million, a $1.8 million or 39% increase from $4.6 million in the prior year period. The increase was due to the 24% revenue increase and improved operational efficiencies, product mix and customer mix, contributing to an increase in gross margin percentage from 13% in the six months ended June 30, 2014 to 15% in the current year period.
  • Engineering services gross profit was $2.3 million, slightly lower than the $2.4 million in the prior year period. The 2014 period included the completion of a large hand-held terminal project in Japan that resulted in the recognition of $478,000 of revenue and gross profit in the second quarter of 2014.
  • Proprietary software gross profit was $2.1 million, an increase of $1.2 million from $0.9 million in the prior year period. The increase was due to sales of our legacy software in the first quarter of 2015 that exceeded the historical trend combined with a relatively fixed cost of sales.
  • Operating expenses totaled $6.9 million, a decrease of $0.4 million from $7.3 million in the prior year period. This decrease was due to the operational efficiencies and reduction in overhead costs implemented in late 2013 that were fully realized in the second half of 2014.

Outlook

Management currently has the following expectations for Q3 2015:

  • Total revenue will be in the range of $26 to $28 million;
  • Third-party software revenue will be lower in the second half of 2015 due to Microsoft year-end incentives in the second quarter;
  • Gross margin for services will be in the mid 20% range;
  • Operating expenses will increase as we continue to focus on our IoT initiatives;
  • Continued GAAP profitability; and
  • Accounts receivable balance is expected to increase during the third quarter and continue to grow for the balance of 2015 as we have selectively provided extended payment terms to a highly credit-worthy customer. Management believes this new arrangement will leverage our strong cash position to improve our third-party gross margins and profitability. Our accounts receivable balance and DSO metrics will therefore grow, with a commensurate decrease in cash and/or short-term investments balances.

Conference Call

Management will host a conference call today, August 13, 2015, at 5 p.m. Eastern Time (2 p.m. Pacific Time). To access the call dial 1-888-277-7102 or 1-913-312-1236 for international callers, and reference "BSQUARE Corporation Second 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 8858621. A live and replay Webcast of the call will be available at www.bsquare.com in the investor relations section.

About BSQUARE Corporation

BSQUARE Corporation (NASDAQ: BSQR) is a leading enabler of smart, connected systems and an emerging provider of actionable data solutions for the Internet of Things (IoT). 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 growth and profitability, and cash and investments; and strategies for customer retention, growth, product and service development, 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, MobileV™, and our product and service offerings more generally; our success in leveraging strategic partnering initiatives with companies such as Microsoft, Intel, Aava Mobile and Future Electronics; 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, DataV and MobileV 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,

2015

December 31,

2014

(Unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

11,966

$

13,127

Short-term investments

17,464

13,263

Accounts receivable, net of allowance for doubtful accounts of $36 at June 30, 2015 and $125 at December 31, 2014

15,418

13,626

Deferred tax assets

11

10

Prepaid expenses and other current assets

698

717

Total current assets

45,557

40,743

Equipment, furniture and leasehold improvements, net

1,159

1,336

Restricted cash

250

250

Deferred income taxes

393

391

Intangible assets, net

661

729

Goodwill

3,738

3,738

Other non-current assets

55

54

Total assets

$

51,813

$

47,241

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Third-party software fees payable

$

12,361

$

12,247

Accounts payable

191

165

Accrued compensation

2,173

2,106

Other accrued expenses

1,501

1,539

Deferred rent, current portion

287

275

Deferred revenue

634

712

Total current liabilities

17,147

17,044

Deferred tax liability

145

144

Deferred rent

1,332

1,476

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; 11,930,441 shares issued and outstanding at June 30, 2015 and 11,767,577 shares issued and outstanding at December 31, 2014

131,962

131,071

Accumulated other comprehensive loss

(833)

(846)

Accumulated deficit

(97,940)

(101,648)

Total shareholders' equity

33,189

28,577

Total liabilities and shareholders' equity

$

51,813

$

47,241

 

BSQUARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts) (Unaudited)

Three Months Ended

June 30,

Six Months Ended

June 30,

2015

2014

2015

2014

Revenue:

Software

$

23,676

$

17,413

$

45,464

$

35,863

Service

5,197

5,642

9,674

9,923

Total revenue

28,873

23,055

55,138

45,786

Cost of revenue:

Software

19,956

14,874

37,034

30,429

Service

3,685

3,916

7,423

7,557

Total cost of revenue

23,641

18,790

44,457

37,986

Gross profit

5,232

4,265

10,681

7,800

Operating expenses:

Selling, general and administrative

2,939

3,172

5,946

6,472

Research and development

422

423

988

855

Total operating expenses

3,361

3,595

6,934

7,327

Income from operations

1,871

670

3,747

473

Other income (expense), net

68

(11)

92

(102)

Income before income taxes

1,939

659

3,839

371

Income tax expense

(54)

(8)

(131)

(113)

Net income

$

1,885

$

651

$

3,708

$

258

Basic income per share

$

0.16

$

0.06

$

0.31

$

0.02

Diluted income per share

$

0.15

$

0.06

$

0.30

$

0.02

Shares used in calculation of income per share:

Basic

11,856

11,510

11,826

11,451

Diluted

12,295

11,715

12,195

11,681

 

BSQUARE CORPORATION

NON-GAAP INFORMATION AND RECONCILIATION TO COMPARABLE GAAP FINANCIAL MEASURES

(In thousands, unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

2015

2014

2015

2014

Adjusted EBITDAS:

Operating income as reported

$

1,871

$

670

$

3,747

$

473

Depreciation and amortization

142

162

288

325

Stock-based compensation expense

305

219

569

463

Adjusted EBITDAS (1)

$

2,318

$

1,051

$

4,604

$

1,261

(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 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 net income and other GAAP financial performance measures, including an indirect measure of operating cash flow.

 

 

 

SOURCE BSQUARE Corporation



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