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BSQUARE Reports Third Quarter 2011 Results
Quarter Includes Accretive Contribution From MPC Data Ltd. Acquisition

BELLEVUE, WA, Nov 10, 2011 (MARKETWIRE via COMTEX) -- BSQUARE Corporation (NASDAQ: BSQR), a leading enabler of smart, connected devices, today announced financial results for the third quarter and nine months ended September 30, 2011. Total revenue for the quarter was $24.0 million, down 5% year-over-year, while total revenue for the nine months was $73.5 million, up 6% year-over-year. The Company generated a net loss for the quarter of $166,000, or $0.02 per share, down 118% year-over-year, while net income for the nine months was $39,000, or $0.00 per share, down 97% year-over-year. EBITDA for the quarter was $297,000, or $0.03 per share, down 80% year-over-year, while EBITDA for the nine months was $2.2 million, or $0.19 per share, down 34% year-over-year. The Company's recently announced acquisition of MPC Data, which closed on September 11, 2011 contributed $333,000 of revenue for the quarter. MPC also contributed $118,000, or $0.01 per share, in net income and $140,000, or $0.01 per share, in EBITDA. The Company incurred $152,000 in transaction-related expenses which negatively affected the quarter.

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

                ------------------------------------------------------------
                       Three Months Ended            Nine Months Ended
                ------------------------------------------------------------
                 9/30/2011 9/30/2010 Inc/(Dec) 9/30/2011 9/30/2010 Inc/(Dec)
                ------------------------------------------------------------
Revenue:
  Third-party
   Software      $ 15,593  $ 18,031       -14% $ 48,259  $ 45,359         6%
  Engineering
   Services         7,008     6,213        13%   20,630    20,805        -1%
  Proprietary
   Software         1,428     1,094        31%    4,570     3,024        51%
                ------------------------------------------------------------
Total Revenue      24,029    25,338        -5%   73,459    69,188         6%
                ------------------------------------------------------------
Total Gross
 Profit             4,804     5,041        -5%   15,161    13,999         8%
Gross Margins:
  Third-party
   Software            15%       15%        0%       15%       14%        7%
  Engineering
   Services            23%       24%       -4%       22%       23%       -4%
  Proprietary
   Software            62%       83%      -25%       75%       85%      -12%
                ------------------------------------------------------------
Total Gross
 Margin                20%       20%        0%       21%       20%        5%
                ------------------------------------------------------------
Total Operating
 Expenses           5,282     4,046       -31%   15,220    11,872       -28%
                ------------------------------------------------------------
Net Income
 (Loss)          $   (166) $    936      -118% $     39  $  1,469       -97%
                ============================================================
  Per Share-
   Diluted       $  (0.02) $   0.09      -122% $   0.00  $   0.14      -100%
                ============================================================
EBITDA*          $    297  $  1,486       -80% $  2,225  $  3,369       -34%
                ============================================================
  Per Share-
   Diluted       $   0.03  $   0.14       -79% $   0.19  $   0.33       -42%
                ============================================================
Cash and
 Investments**   $ 17,696  $ 21,494       -18% $ 17,696  $ 21,494       -18%
                ------------------------------------------------------------


Notes:

*EBITDA = Earnings before interest, taxes, depreciation, amortization and stock compensation expense and 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 9/30/11 = $1.0 million).

CEO Commentary on Business and Financial Results

Brian Crowley, chief executive officer of BSQUARE, commented on the current quarter results and business activity: "Over the last year, we have made numerous strategic investments to better position BSQUARE in the rapidly growing and evolving smart, connected devices marketplace. We believe we are making the right investments: growing our international sales footprint, expanding our Asia development capabilities and investing in our Handset Certification Platform. We are confident that the acquisition of MPC Data will provide a solid base of operations to drive European product and service sales, and MPC Data was immediately accretive in the quarter. We have more than doubled the size of our Asia engineering teams over the past few quarters, and the utilization of those engineers on billable projects is ramping up every week. Our Handset Certification Platform installation at China Mobile is up and running and we are still in discussion with a North American mobile network operator on starting a Handset Certification Platform trial this year. This incremental progress reinforces our confidence that we are on the right, long-term, strategic path. In the short-term, these investments have meant incremental expense, but the revenue has not yet reached the level we need, leading to the disappointing results for this quarter."

"In the near-term, we are focused on improved sales execution, particularly aligning our sales efforts to match the engineering resources we have on staff," Crowley continued. "Improving our engineering utilization will help increase our service margins, which remain sub-optimal. As we scale our business, we will benefit from the larger, but more strategically relevant infrastructure we have built in the last year. Overall, I am disappointed with this quarter's results, but I remain optimistic about our overall business opportunities and believe we have a platform from which we can drive revenue growth and incremental profitability."

Financial Commentary on Three Month Results

--  The decrease in third-party software sales, down $2.4 million, or 14%,
    was driven by lower purchasing volumes from several of the Company's
    larger Microsoft(R) General Embedded licensing customers. These
    customers' purchasing volumes declined in the first half of 2011 due
    to excess inventory levels but order volumes did improve sequentially;
--  The increase in service revenue, up $795,000 or 13%, was due to MPC
    Data, which contributed $330,000 in the quarter, and growth in North
    America;
--  The increase in proprietary software revenue, up $334,000, or 31%, was
    driven by a $440,000 increase in sales of lower-margin BSQUARE
    Development Platform products which, in turn, caused proprietary
    software gross margin to decline;
--  Service margin declined one percentage point despite a 13% increase in
    service revenue due primarily to a 5% decline in the realized rate per
    hour;
--  The increase in operating expenses, up $1.2 million, or 31%, was
    driven by the Company's international expansion, incremental MPC Data
    costs of $66,000, transaction-related expenses of $152,000 and
    additional stock compensation expense of $302,000, or $0.03 per share;
    and
--  Quarter-end cash and investments of $17.7 million, including long-term
    amounts, were down $5.5 million compared to June 30, 2011, and $3.8
    million year-over-year. During the quarter, the Company paid $4.8
    million in purchase price consideration related to the MPC Data
    acquisition and also incurred the transaction expenses noted earlier.
    Additionally, subsequent to quarter-end, the Company paid $1.4 million
    in additional purchase price consideration under the terms of the
    stock purchase agreement. DSO increased to 59 days in Q3 compared to
    52 in Q2, excluding the effect of MPC Data.

Outlook

The Company currently has the following expectations for Q4 as compared to the current quarter:

--  Total revenue is expected to be in the range of $24 million to $26
    million. Third-party software sales and proprietary software sales are
    expected to be flat to up slightly, whereas service revenue is
    expected to increase as a result of the full-quarter effect of the MPC
    Data acquisition and growth in North America;
--  Bottom-line profitability and EBITDA are expected to improve; and
--  Cash and investments are projected to increase by approximately $1.0
    million despite the additional MPC Data purchase price consideration
    paid in Q4.

Conference Call

Management will host a conference call today, November 10, 2011, at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). To access the call dial 1-877-941-4775, or 1-480-629-9761 for international callers, and reference "BSQUARE Corporation Third Quarter 2011 Earnings Conference Call." A replay will be available for one week following the call by dialing 1-877-870-5176, or 1-858-384-5517 for international callers; reference pin number 4484046. A live and replay Audiocast of the call will be available at www.bsquare.com in the investor relations section.

About BSQUARE

BSQUARE is an industry leader with a proven track record in providing production-ready software products, engineering services, solutions and automated testing for smart, connected devices. With deep technical knowledge of mobile and embedded technologies, BSQUARE enables device makers to develop and ship best in class products. Since 1994, BSQUARE has provided satisfied customers with innovative software solutions allowing them to get to market faster with reduced risk and cost. For more information, visit www.bsquare.com.

BSQUARE is a registered trademark of BSQUARE Corporation. All other product and company names herein may be trademarks of their respective owners.

This release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements relating to our projected financial results, including but not limited to, forecasts for revenue, margins, profitability, cash, investments, and potential impairments, or future and potential sales or projects and expectations with respect to specific customers, geographies or products. All of the statements contained herein that do not relate to matters of historical fact should be considered forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from such statements. There can be no assurance that forward-looking statements will be achieved. Important factors that could cause actual results to differ materially from those indicated in forward-looking statements include: whether we are able to maintain our existing favorable relationships with Microsoft Corporation and Ford Motor Company; risks, uncertainties and changes in financial condition; our ability to execute our product and sales strategies for TestQuest, HCP, and other products and services; intellectual property risks; and risks associated with our international expansion, acquisition integration and ongoing operations. Therefore, all forward-looking statements should be considered in light of various important factors including, but not limited to, the risks and uncertainties listed above. Except as required by law, we make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date any such statement is made. Please also refer to our most recent Quarterly Report on Form 10-Q, Annual Report on Form 10-K and other filings with the Securities and Exchange Commission for other important risk factors that could cause actual results to differ materially from those indicated in any forward-looking statements.

                            BSQUARE CORPORATION
                   CONDENSED CONSOLIDATED BALANCE SHEETS
                    (In thousands, except share amounts)

                                              September 30,   December 31,
                                                  2011            2010
                                             --------------  --------------
                                               (Unaudited)
                   ASSETS
Current assets:
  Cash and cash equivalents                  $        9,053  $       10,814
  Short-term investments                              7,652          11,329
  Accounts receivable, net of allowance for
   doubtful accounts of $288 at September
   30, 2011 and $290 at December 31, 2010            16,476          14,128
  Deferred tax assets                                   145             145
  Prepaid expenses and other current assets           1,037             403
                                             --------------  --------------
    Total current assets                             34,363          36,819
Long-term investment                                    116             122
Equipment, furniture and leasehold
 improvements, net                                      946             653
Intangible assets, net                                2,064           1,049
Restricted cash                                         875             875
Deferred tax assets                                   2,495           2,495
Goodwill                                              3,989              --
Other non-current assets                                 91              83
                                             --------------  --------------
    Total assets                             $       44,939  $       42,096
                                             ==============  ==============

    LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Third-party software fees payable          $       10,101  $       11,132
  Accounts payable                                      373             261
  Accrued compensation                                2,062           2,497
  Other accrued expenses and liabilities              3,949           1,467
  Deferred revenue                                      984           1,417
                                             --------------  --------------
    Total current liabilities                        17,469          16,774
Deferred rent                                           187             240
Long-term tax liability                                 368              --
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; 10,698,230 shares
   issued and outstanding at September 30,
   2011 and 10,415,541 shares issued and
   outstanding at December 31, 2010                 126,682         124,716
  Accumulated other comprehensive loss                 (617)           (445)
  Accumulated deficit                               (99,150)        (99,189)
                                             --------------  --------------
    Total shareholders' equity                       26,915          25,082
                                             --------------  --------------
    Total liabilities and shareholders'
     equity                                  $       44,939  $       42,096
                                             ==============  ==============



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


                                     Three Months Ended   Nine Months Ended
                                        September 30,       September 30,
                                     ------------------  ------------------
                                       2011      2010      2011      2010
                                     --------  --------  --------  --------
Revenue:
  Software                           $ 17,021  $ 19,125  $ 52,829  $ 48,383
  Service                               7,008     6,213    20,630    20,805
                                     --------  --------  --------  --------
    Total revenue                      24,029    25,338    73,459    69,188
                                     --------  --------  --------  --------
Cost of revenue:
  Software                             13,856    15,588    42,233    39,265
  Service                               5,369     4,709    16,065    15,924
                                     --------  --------  --------  --------
    Total cost of revenue              19,225    20,297    58,298    55,189
                                     --------  --------  --------  --------
      Gross profit                      4,804     5,041    15,161    13,999
Operating expenses:
  Selling, general and
   administrative                       4,332     3,280    12,371     9,397
  Research and development                950       766     2,849     2,475
                                     --------  --------  --------  --------
    Total operating expenses            5,282     4,046    15,220    11,872
                                     --------  --------  --------  --------
Income (loss) from operations            (478)      995       (59)    2,127
Other income (expense)                     43        16        85      (477)
                                     --------  --------  --------  --------
Income (loss) before income taxes        (435)    1,011        26     1,650
Income tax benefit (expense)              269       (75)       13      (181)
                                     --------  --------  --------  --------
Net income (loss)                    $   (166) $    936  $     39  $  1,469
                                     ========  ========  ========  ========
Basic income (loss) per share        $  (0.02) $   0.09  $   0.00  $   0.14
                                     ========  ========  ========  ========
Diluted income (loss) per share      $  (0.02) $   0.09  $   0.00  $   0.14
                                     ========  ========  ========  ========
Shares used in calculation of income
 per share:
  Basic                                10,610    10,196    10,578    10,160
                                     ========  ========  ========  ========
  Diluted                              10,610    10,390    11,780    10,340
                                     ========  ========  ========  ========



                             BSQUARE CORPORATION
    NON-GAAP INFORMATION AND RECONCILIATION TO COMPARABLE GAAP FINANCIAL
                                   MEASURES
            (In thousands, except per share amounts) (Unaudited)


                                      Three months ended   Nine months ended
                                         September 30,       September 30,
                                      ------------------  ------------------
                                        2011      2010      2011      2010
                                      --------  --------  --------  --------

EBITDA:
  Net income (loss) as reported       $   (166) $    936  $     39  $  1,469
  Income tax expense (benefit)            (269)       75       (13)      181
  Other income (expense)                   (43)      (16)      (85)      477
  Depreciation and amortization            197       215       599       688
  Stock-based compensation expense         578       276     1,685       554
                                      --------  --------  --------  --------

EBITDA (1)                            $    297  $  1,486  $  2,225  $  3,369
                                      ========  ========  ========  ========

EBITDA per diluted share              $   0.03  $   0.14  $   0.19  $   0.33
                                      ========  ========  ========  ========

Diluted Shares                          10,610    10,390    11,780    10,340
                                      ========  ========  ========  ========


(1) EBITDA 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. EBITDA is defined as net
 income (loss) before income taxes, interest income, depreciation and
 amortization, and stock-based compensation. EBITDA 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 EBITDA is not defined by GAAP. However, management believes that
 EBITDA provides meaningful additional information about our performance and
 regards EBITDA as a complement to net income and other GAAP financial
 performance measures, including an indirect measure of operating cash flow.

Company Contact:
Scott Mahan
CFO
BSQUARE Corporation
425.519.5900

 

Investor Contact:
Brett Maas
Hayden IR
646.536.7331

 

SOURCE: BSQUARE Corporation