Press Release

BSQUARE Reports Third Quarter 2010 Results
Second Best Top-Line Results Ever Highlights Quarter

BELLEVUE, WA, Nov 11, 2010 (MARKETWIRE via COMTEX) -- BSQUARE Corporation (NASDAQ: BSQR) today announced financial results for the third quarter and the nine months ended September 30, 2010. Total revenue for the quarter was $25.3 million, up 55% year-over-year, while total revenue for the nine months was $69.2 million, up 41%. Net income for the quarter was $936,000, or $0.09 per diluted share, up 1,218% year-over-year, while net income for the nine months was $1.5 million, or $0.14 per diluted share, up 347%. Details as follows:

                          Three Months Ended         Nine Months Ended
                      -------------------------  -------------------------
                      9/30/10  9/30/09 Inc/(Dec) 9/30/10  9/30/09 Inc/(Dec)
                      -------  -------  -------  -------  -------  -------
Revenue:
  Third-party
   Software           $18,031  $ 8,929      102% $45,359  $22,907       98%
  Engineering
   Services             6,213    6,523       -5%  20,805   23,191      -10%
  Proprietary
   Software             1,094      947       16%   3,024    3,092       -2%
                      -------  -------  -------  -------  -------  -------
Total Revenue          25,338   16,399       55%  69,188   49,190       41%
                      -------  -------  -------  -------  -------  -------
Total Gross Profit      5,041    3,402       48%  13,999   12,239       14%
Gross Margins:
  Third-party
   Software                15%      17%     -12%      14%      16%     -13%
  Engineering
   Services                24%      17%      41%      23%      25%      -8%
  Proprietary
   Software                83%      84%      -1%      85%      87%      -2%
                      -------  -------  -------  -------  -------  -------
Total Gross Margin         20%      21%      -5%      20%      25%      -5%
                      -------  -------  -------  -------  -------  -------
Total Operating
 Expenses               4,046    3,332       21%  11,872   12,029       -1%
                      -------  -------  -------  -------  -------  -------
Net Income            $   936  $    71    1,218% $ 1,469  $   329      347%
                      =======  =======  =======  =======  =======  =======
  Per Share-Diluted   $  0.09  $  0.01      800% $  0.14  $  0.03      367%
                      =======  =======  =======  =======  =======  =======
EBITDAS               $ 1,486  $   477      212% $ 3,369  $ 1,537      119%
                      =======  =======  =======  =======  =======  =======
  Per Share-Diluted   $  0.14  $  0.05      208% $  0.33  $  0.15      117%
                      =======  =======  =======  =======  =======  =======
Cash and Investments
 EoQ                  $21,494  $15,574       38% $21,494  $15,574       38%
                      =======  =======  =======  =======  =======  =======
Notes:
Amounts in 000's except for Net Income and EBITDAS per Share.
Cash and Investments EoQ includes both short and long-term amounts.
EBITDAS = Earnings before interest, taxes, depreciation, amortization and
stock compensation expense and is a non-GAAP measurement (reconciliation
provided after financial statement tables).

CEO Commentary on Business and Financial Results

Brian Crowley, chief executive officer of BSQUARE, commented on the current quarter results and business activity, "I am quite pleased with our third quarter results. We made progress across the board: third-party product sales were strong; service results out of Asia were strong; service gross margin improved as we put the Ford overruns behind us; we launched our telematics competency center with Ford; we strengthened our management team with the hiring of John Traynor as our Vice President of Products; and, finally, we launched and gained initial customer traction with our TestQuest Handset Certification Platform."

Financial Commentary on Three Month Results

-- Growth in third-party software sales (up $9.1 million year-over-year,
   or 102%) was driven by a 14% increase in the Microsoft General Embedded
   customer base and a 60% increase in average purchasing volume per
   customer, coupled with $3.1 million in Microsoft Windows Mobile
   licensing sales (compared to none in prior year). Third-party software
   sales came in better-than-expected for the quarter;
-- The decline in engineering service revenue (down $310,000
   year-over-year, or 5%) was driven by Ford ($2.5 million in current
   quarter versus $3.3 million in prior year). Ford revenue slightly
   exceeded expectations while overall service revenue met expectations;
-- The 12% (two percentage points) decline in third-party software gross
   margin was driven by a significant, higher-margin Flash Lite license
   sale that benefited the prior year. Overall, margins on sales of
   Microsoft operating systems held steady;
-- Service margin increased 41% (seven percentage points) due to
   improvement in Ford-related project margin, improved margin in Asia
   and a decline in low-margin rebillable service revenue. Service margin
   for the quarter was roughly in-line with expectations;
-- Operating expenses increased $714,000, or 21%, due to a $534,000,
   or $0.05 per diluted share, legal liability reversal which benefited
   the prior year. Further, the current quarter included a $253,000,
   or $0.02 per diluted share, accrual of year-end bonuses based on the
   expected achievement thereof (compared to none in the prior year).
   Excluding the bonus accrual, total operating expenses were in-line
   with expectations and roughly flat sequentially from Q2; and
-- Quarter-end cash and investments of $21.5 million (including both
   short and long-term) came in higher than the previously provided
   expectation of $20.5 million due to stronger-than-expected sales and
   improvement in DSOs (43 days this quarter compared to 57 days in Q2).

Outlook

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

-- Improvement across all revenue lines in Q4. Based on current forecasts,
   management expects total revenue of $26 million to $28 million;
-- Improvement in total gross margin and, in particular, service margin;
-- Improvement in profitability provided the Company does not take an
   impairment charge (non-cash expense) relative to the Company's
   TestQuest intangible assets ($1.1 million net balance as of
   September 30, 2010); and
-- A $1.0 million to 1.3 million increase in the Company's cash and
   investment balances.

Conference Call

Management will host a conference call today, November 11, 2010, at 5 p.m. Eastern Time (2 p.m. Pacific Time). To access the call, dial 877-941-8416, or 480-629-9808 for international callers, and reference "BSQUARE Corporation Third Quarter 2010 Earnings Conference Call." A replay will be available for one week following the call by dialing 877-870-5176 or 858-384-5517 for international callers; reference PIN number 4374200. A live and replay Webcast 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 and engineering services that enable embedded solutions and smart devices. 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 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 and other products; intellectual property risks; and risks associated with our international 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 SEC 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,
                                                    2010          2009
                                                ------------- -------------
                                                (Unaudited)
                      ASSETS
Current assets:
   Cash and cash equivalents                    $      12,474 $      12,918
   Short-term investments                               7,317            --
   Accounts receivable, net of allowance for
    doubtful accounts of $217 at September 30,
    2010 and $201 at December 31, 2009                 11,899         9,192
   Prepaid expenses and other current assets              494           648
                                                ------------- -------------
      Total current assets                             32,184        22,758
Long-term investments                                     828         4,189
Restricted cash                                           875           900
Equipment, furniture and leasehold
 improvements, net                                        625           823
Intangible assets, net                                  1,143         1,511
Other non-current assets                                   84            90
                                                ------------- -------------
      Total assets                              $      35,739 $      30,271
                                                ============= =============
       LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Third-party software fees payable            $      10,635 $       5,235
   Accounts payable                                       185           299
   Accrued compensation                                 1,789         1,837
   Other accrued expenses                               1,234         1,422
   Deferred revenue                                     1,942         3,693
                                                ------------- -------------
      Total current liabilities                        15,785        12,486
Deferred rent                                             258           311
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; 10,256,163 shares issued
    and outstanding at September 30, 2010 and
    10,162,589 shares issued and outstanding at
    December 31, 2009                                 124,050       123,572
   Accumulated other comprehensive loss                 (471)         (746)
   Accumulated deficit                              (103,883)     (105,352)
                                                ------------- -------------
      Total shareholders' equity                       19,696        17,474
                                                ------------- -------------
      Total liabilities and shareholders'
       equity                                   $      35,739 $      30,271
                                                ============= =============
                            BSQUARE CORPORATION
                CONDENSED CONSOLIDATED STATEMENTS OF INCOME
           (In thousands, except per share amounts) (Unaudited)
                                    Three Months Ended   Nine Months Ended
                                        September 30,       September 30,
                                    ------------------- ------------------
                                      2010      2009      2010      2009
                                    --------- --------- --------- --------
Revenue:
   Software                         $  19,125 $   9,876 $  48,383 $ 25,999
   Service                              6,213     6,523    20,805   23,191
                                    --------- --------- --------- --------
      Total revenue                    25,338    16,399    69,188   49,190
                                    --------- --------- --------- --------
Cost of revenue:
   Software                            15,588     7,561    39,265   19,598
   Service (1)                          4,709     5,436    15,924   17,353
                                    --------- --------- --------- --------
      Total cost of revenue            20,297    12,997    55,189   36,951
                                    --------- --------- --------- --------
         Gross profit                   5,041     3,402    13,999   12,239
Operating expenses:
   Selling, general and
    administrative (1)                  3,280     2,426     9,397    8,821
   Research and development (1)           766       906     2,475    3,208
                                    --------- --------- --------- --------
      Total operating expenses          4,046     3,332    11,872   12,029
                                    --------- --------- --------- --------
Income from operations                    995        70     2,127      210
Other income (expense)                     16        22      (477)     126
                                    --------- --------- --------- --------
Income before income taxes              1,011        92     1,650      336
Income tax expense                        (75)      (21)     (181)      (7)
                                    --------- --------- --------- --------
Net income                          $     936 $      71 $   1,469 $    329
                                    ========= ========= ========= ========
Basic income per share              $    0.09 $    0.01 $    0.14 $   0.03
                                    ========= ========= ========= ========
Diluted income per share            $    0.09 $    0.01 $    0.14 $   0.03
                                    ========= ========= ========= ========
Shares used in calculation of
 income per share:
   Basic                               10,196    10,126    10,160   10,108
                                    ========= ========= ========= ========
   Diluted                             10,390    10,265    10,340   10,244
                                    ========= ========= ========= ========
(1) Includes the following amounts
     related to stock-based
     compensation expense:
Cost of revenue -- service          $      78 $      68 $     197 $    210
Selling, general and administrative       187       107       327      389
Research and development                   11        10        30       23
                                    --------- --------- --------- --------
Total stock-based compensation
 expense                            $     276 $     185 $     554 $    622
                                    ========= ========= ========= ========
                            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,
                                    ------------------  ------------------
                                      2010      2009      2010      2009
                                    --------  --------  --------  --------
EBITDAS:
  Net income as reported            $    936  $     71  $  1,469  $    329
  Income tax expense                      75        21       181         7
  Interest and other income
   (expense)                             (16)      (22)      477      (126)
  Depreciation and amortization          215       222       690       705
  Stock-based compensation expense       276       185       554       622
                                    --------  --------  --------  --------
EBITDAS (1)                         $  1,486  $    477  $  3,371  $  1,537
                                    ========  ========  ========  ========
EBITDAS per diluted share           $   0.14  $   0.05  $   0.33  $   0.15
                                    ========  ========  ========  ========
Diluted Shares                        10,390    10,265    10,340    10,244
                                    ========  ========  ========  ========
(1) 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. EBITDAS is
defined as net income (loss) before income taxes, interest income,
depreciation and amortization, and stock-based compensation. 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 EBITDAS is not defined by GAAP. However, the
Company regards EBITDAS as a complement to net income and other GAAP
financial performance measures, including an indirect measure of operating
cash flow.

Contacts:
Brett Maas
Hayden IR
(646) 536-7331
Scott Mahan
CFO
BSQUARE Corporation
(425) 519-5900

SOURCE: BSQUARE Corporation

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