Press Release

Bsquare Reports Third Quarter 2017 Financial Results
Q3 Revenue $19.7 million; Q3 EPS $(0.20); seven new DataV pilots signed in Q3

BELLEVUE, Wash., Nov. 7, 2017 /PRNewswire/ -- Bsquare Corporation (NASDAQ: BSQR) today announced financial results for the third quarter of 2017.

Jerry Chase, Bsquare President and CEO, commented, "We are pleased with the continued increase in the level of pilot activity for DataV, our industrial Internet of Things software offering. After closing four new paid pilots during the second quarter, we added seven additional pilots during the third quarter. These pilots are with major industrial businesses and cover all seven of our DataV applications. We expect the majority of these pilots to convert into production deployments as they are successfully concluded. Also after the close of the third quarter, we had our first major DataV subscription renewal booking. This four-year renewal, which was with Itron, Inc., is valued at $2.9 million and, we believe, attests to the value of DataV."

"Based on these results and a strong pipeline, we plan on maintaining an accelerated rate of investment in DataV sales, marketing, service delivery and product development while we continue managing our third-party software and engineering services businesses leanly with an emphasis on cash generation."

Third Quarter 2017 Financial Highlights

  • Revenue for the quarter was $19.7 million, down 13% compared to the third quarter of 2016 and up 4% compared to the second quarter of 2017.
  • Net loss for the quarter was $2.5 million, or $0.20 per diluted share, compared to net loss of $0.1 million, or $0.01 per diluted share, in the third quarter of 2016 and net loss of $2.6 million, or $0.20 per diluted share, in the second quarter of 2017.
  • Adjusted EBITDAS (1) was negative $1.8 million, down $1.8 million from the third quarter of 2016 and improved by $0.2 million from the second quarter of 2017.
  • Cash, cash equivalents and short-term investments at September 30, 2017 totaled $26.8 million, a decrease of approximately $4.8 million from September 30, 2016 and $0.5 million from June 30, 2017.

Details as follows (unaudited, in thousands except percentages and per share amounts):


Three Months Ended











Q3-Q3







Q3-Q2



9/30/2017



9/30/2016



Change (2)



6/30/2017



Change (2)


Revenue:




















Third-party Software

$

16,240



$

18,226



$

(1,986)



$

15,505



$

735


Proprietary Software


1,200




990




210




481




719


Professional Engineering Service


2,213




3,251




(1,038)




2,862




(649)


Total Revenue

$

19,653



$

22,467



$

(2,814)



$

18,848



$

805


Total Gross Profit

$

4,380



$

3,677



$

703



$

3,873



$

507


Gross Margins:




















Third-party Software


16

%



16

%



0

%



15

%



1

%

Proprietary Software


97

%



96

%



1

%



92

%



5

%

Professional Engineering Service


27

%



(8)

%



35

%



36

%



(9)

%

Total Gross Margin


22

%



16

%



6

%



21

%



1

%

Total Operating Expenses

$

6,926



$

4,092



$

2,834



$

6,492



$

434


Net Loss

$

(2,468)



$

(106)



$

(2,362)



$

(2,560)



$

92


Per Share-Diluted

$

(0.20)



$

(0.01)



$

(0.19)



$

(0.20)



$

-


Adjusted EBITDAS (1)

$

(1,843)



$

4



$

(1,847)



$

(2,041)



$

198


Cash, Cash Equivalents and Short-Term Investments

$

26,758



$

31,577



$

(4,819)



$

27,296



$

(538)



Notes:

(1)

Adjusted EBITDAS = Income (loss) from operations before depreciation, amortization and stock compensation expense. Adjusted EBITDAS is a non-GAAP measurement (reconciliation provided after financial statement tables).

(2)

For gross margin, amount represents percentage point change.

Financial Commentary on Third Quarter 2017 Results (Compared to Third Quarter 2016)

  • Third-party software revenue decreased for the third quarter of 2017 compared to the prior year period, primarily due to lower sales of Microsoft Windows Embedded operating systems in the current period.
  • Proprietary software revenue increased, primarily due to DataV software revenue recognized in the current period.
  • Professional engineering service revenue decreased, primarily due to the completion in 2016 and early 2017 of several existing customer projects and a shift in our sales generation and staffing priorities towards DataV. Professional engineering service gross margin increased, primarily due to higher utilization of professional engineering personnel in the current period. In addition, the third quarter of 2016 included restructuring costs (completed in the fourth quarter of 2016).
  • Operating expenses increased, due to continued investment in DataV sales, marketing, service delivery and product development.

Additional DataV Metrics (Including Non-GAAP Measures)

  • During the third quarter of 2017, we recorded $318,000 in DataV bookings (a non-GAAP measure defined as the contract value of new agreements signed with customers), including seven new paid pilots. Cash receipts from DataV contracts totaled $2.1 million in the first nine months of 2017.
  • DataV backlog (a non-GAAP measure defined as total DataV bookings less DataV revenue recognized to date) was $3.5 million at September 30, 2017, compared to approximately $5.7 million at December 31, 2016.
  • Total deferred revenue at September 30, 2017 was $2.7 million, compared to $3.9 million at December 31, 2016. The September 30, 2017 balance included DataV deferred revenue of $2.0 million. The deferred revenue balances relating to our DataV sales do not represent the total contract value of our DataV agreements.
  • DataV unbilled deferred revenue (a non-GAAP measure defined as future contract billings that have not been invoiced and, accordingly, are not included in deferred revenue) was an additional $1.5 million at September 30, 2017 and approximately $2.5 million at December 31, 2016.

Bookings, backlog and unbilled deferred revenue are non-GAAP measures. These non-GAAP measures have been included because management believes they provide meaningful information related to our new DataV product sales, since revenue from such sales may be recognized in different periods than those in which orders have been received or cash has been collected.

Fourth Quarter 2017 Outlook
Management currently has the following expectations for the fourth quarter of 2017:

  • Revenue in the range of $19.0 million to $21.0 million.
  • The Company expects to close additional paid pilots in the quarter, in addition to booking the $2.9 million, 4-year license renewal with Itron, Inc.
  • Blended gross margin in the 18% to 20% range.
  • A net loss, reflecting continued investments in R&D, sales and marketing to grow DataV.

Conference Call

Management will host a conference call today, November 7, 2017, at 5 p.m. Eastern Time (2 p.m. Pacific Time). To access the call dial 1-888-778-9069 or 1-719-457-6931 for international callers, and reference "BSQUARE Corporation Third Quarter 2017 Earnings Conference Call." A replay will be available for two weeks following the call by dialing 1-844-512-2921, or 1-412-317-6671 for international callers; reference pin number 1901116. 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 these assets 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 regarding 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: 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; 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 success in leveraging strategic partnering initiatives with companies such as Microsoft, AWS 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)



September 30, 2017


December 31, 2016


(Unaudited)




ASSETS






Current assets:






Cash and cash equivalents

$

13,131


$

14,312

Short-term investments


13,627



18,888

Accounts receivable, net of allowance for doubtful accounts of $50 at September 30, 2017 and December 31, 2016


16,609



21,579

Prepaid expenses and other current assets


957



878

Contract assets


697



Total current assets


45,021



55,657

Equipment, furniture and leasehold improvements, net


1,019



1,089

Deferred tax assets


7



7

Intangible assets, net


390



464

Goodwill


3,738



3,738

Other non-current assets including contract assets


72



53

Total assets

$

50,247


$

61,008

LIABILITIES AND SHAREHOLDERS' EQUITY






Current liabilities:






Third-party software fees payable

$

7,962


$

14,831

Accounts payable


393



283

Accrued compensation


2,225



2,008

Other accrued expenses


814



714

Deferred rent, current portion


335



321

Deferred revenue


2,622



2,064

Total current liabilities


14,351



20,221

Deferred tax liability




23

Deferred rent


602



854

Deferred revenue


56



1,798

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; 12,625,455 shares issued and outstanding at September 30, 2017 and 12,532,348 shares issued and outstanding at December 31, 2016


137,187



135,660

Accumulated other comprehensive loss


(905)



(941)

Accumulated deficit


(101,044)



(96,607)

Total shareholders' equity


35,238



38,112

Total liabilities and shareholders' equity

$

50,247


$

61,008

 

BSQUARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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



Three Months Ended September 30,


Nine Months Ended September 30,


2017


2016


2017


2016

Revenue:












Software

$

17,440


$

19,216


$

52,877


$

58,118

Professional engineering service


2,213



3,251



8,465



12,526

Total revenue


19,653



22,467



61,342



70,644

Cost of revenue:












Software


13,653



15,281



40,909



47,901

Professional engineering service


1,620



3,509



5,927



10,877

Total cost of revenue


15,273



18,790



46,836



58,778

Gross profit


4,380



3,677



14,506



11,866

Operating expenses:












Selling, general and administrative


5,338



3,283



15,249



9,693

Research and development


1,588



809



4,381



2,024

Total operating expenses


6,926



4,092



19,630



11,717

Income (loss) from operations


(2,546)



(415)



(5,124)



149

Other income, net


34



128



148



204

Income (loss) before income taxes


(2,512)



(287)



(4,976)



353

Income tax benefit (expense)


44



181



150



(144)

Net income (loss)

$

(2,468)


$

(106)


$

(4,826)


$

209

Basic income (loss) per share

$

(0.20)


$

(0.01)


$

(0.38)


$

0.02

Diluted income (loss) per share

$

(0.20)


$

(0.01)


$

(0.38)


$

0.02

Shares used in calculation of income (loss) per share:












Basic


12,607



12,310



12,578



12,189

Diluted


12,607



12,310



12,578



12,576

 

BSQUARE CORPORATION

NON-GAAP INFORMATION AND RECONCILIATION TO COMPARABLE GAAP FINANCIAL MEASURES

(In thousands, unaudited)



Three Months Ended September 30,


Nine Months Ended September 30,


2017


2016


2017


2016

Adjusted EBITDAS:












Income (loss) from operations as reported

$

(2,546)


$

(415)


$

(5,124)


$

149

Depreciation and amortization


163



139



483



442

Stock-based compensation expense


540



280



1,350



908

Adjusted EBITDAS (1)

$

(1,843)


$

4


$

(3,291)


$

1,499



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

 

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SOURCE Bsquare Corporation

BSQUARE Contact: Peter Biere, Chief Financial Officer, BSQUARE Corporation, +1 425.519.5900, investorrelations@bsquare.com; or Investor Contact: Leslie Phillips, The Blueshirt Group, + 1 415.217.5869, leslie@blueshirtgroup.com