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Bsquare Reports First Quarter 2014 Results

BELLEVUE, WA -- (Marketwired) -- 05/15/14 -- BSQUARE Corporation (NASDAQ: BSQR), a leading enabler of smart, connected systems, today announced financial results for the first quarter ended March 31, 2014. Total revenue for the quarter was $22.7 million, down 12% compared to the fourth quarter of 2013 and up 9% year-over-year. The net loss for the quarter was $393,000, or $0.03 per share, compared to a net loss of $23,000, or $0.00 per share, in the fourth quarter of 2013 and a loss of $862,000, or $0.08 per share, in the year-ago quarter. Adjusted EBITDAS for the quarter was $210,000 compared to $345,000 in the fourth quarter of 2013 and negative $485,000 in the year-ago quarter. The Company ended the quarter with $23.2 million in cash and investments, up $2.2 million from December 31, 2013.

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



                                     ---------------------------------------
                                                Three Months Ended
                                     ---------------------------------------
                                        3/31/2014   12/31/2013    3/31/2013
                                     ---------------------------------------
Revenue:
  Third-party Software                $    17,695  $    21,142  $    15,491
  Engineering Services                      4,281        4,243        4,359
  Proprietary Software                        755          444        1,020
                                     ---------------------------------------
Total Revenue                              22,731       25,829       20,870
                                     ---------------------------------------
Total Gross Profit                          3,535        4,516        3,347
Gross Margins:
  Third-party Software                         13%          19%          16%
  Engineering Services                         15%           7%           0%
  Proprietary Software                         78%          56%          83%
                                     ---------------------------------------
Total Gross Margin                             16%          17%          16%
                                     ---------------------------------------
Total Operating Expenses                    3,732        4,491        4,294
                                     ---------------------------------------
Net Loss                              $      (393) $       (23) $      (862)
                                     =======================================
  Per Share-Diluted                   $     (0.03) $     (0.00) $     (0.08)
                                     =======================================
Adjusted EBITDAS                      $       210  $       345  $      (485)
                                     =======================================
Cash and Investments EoQ              $    23,226  $    21,055  $    20,297
                                     ---------------------------------------


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 3/31/14 = $250,000).

CEO Commentary

Jerry Chase, President and Chief Executive Officer of Bsquare, commented, "During Q1 we made solid progress on our commitment to return Bsquare to profitability, as evidenced by the $562,000 reduction in operating expenses and the $695,000 positive swing in Adjusted EBITDAS compared to the year-ago quarter. We continue to engage with potential customers and partners around our Internet of Things initiative, and believe IoT is a promising direction for Bsquare. We currently anticipate revenue from this initiative beginning in 2015. Looking forward, we currently expect to be GAAP profitable in Q2 2014 and believe we have the business structure in place to position Bsquare for success in the coming quarters."

Financial Commentary on First Quarter Results (Comparison to Fourth Quarter Results)

  • The decline in third-party software sales, down $3.4 million or 16%, was primarily due to a significant Adobe Flash sale which benefited the fourth quarter;
  • The decline in third-party software margin, down 32% or six percentage points, was driven by the significant Adobe Flash sale which benefited the fourth quarter;
  • The increase in engineering services margin, up 114% or 8 percentage points, was driven primarily by utilization improvement resulting from the cost reductions enacted in the fourth quarter;
  • The decrease in operating expenses, down $759,000 or 17%, was driven primarily by the cost reductions enacted in the fourth quarter; and
  • The increase in cash, up $2.2 million or 10%, from December 31, 2013 was driven primarily by positive working capital effects.

Outlook

The Company currently has the following expectations for Q2 2014:

  • Total revenue is expected to be in the range of $21 million to $23 million; and
  • Cash and investments are projected to be down approximately $1.5 million from March 31, 2014 due to negative working capital effects.

Conference Call

Management will host a conference call today, May 15, 2014, at 5 p.m. Eastern Daylight Time (2 p.m. Pacific Daylight Time). To access the call dial 1-877-941-2068 or +1-480-629-9712 for international callers, and reference "BSQUARE Corporation First Quarter 2014 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 4680691. A live and replay Webcast of the call will be available at www.bsquare.com in the investor relations section.

About BSQUARE Corporation

Bsquare, a global leader in embedded solutions, applies experience and expertise on leading platforms to create new connections with customers, new business models and to enable new ways of working and communicating. Bsquare serves customers by forging connections among the partners, people, tools and technology needed to create smart connected devices. For more information, visit www.bsquare.com.

This release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, among others, statements we make regarding: our financial results in future periods such as anticipated revenue, profitability, and cash and investments; our strategies for customer retention, growth, and market position, including within the Internet of Things market; our sales opportunities or pipeline; and anticipated effects of our 2013 restructuring. 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 following: whether we are able to maintain our favorable relationship with Microsoft; the extent to which we are successful in retaining existing customers and adding new long-term relationships; our ability to execute our sales and marketing strategies around the Internet of Things and our product and service offerings more generally; our management of risks associated with protection of intellectual property and potential infringement claims; risks associated with recent changes in our senior management team; risks associated with our ability to achieve the anticipated benefits of our 2013 restructuring; and such other risk factors as discussed in our most recent Annual Report on Form 10-K and other filings with the SEC. 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 is a registered trademark of BSQUARE Corporation. All other product and company names herein may be trademarks of their respective owners.



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

                                                    March 31,     December
                                                       2014       31, 2013
                                                   -----------  -----------
                                                   (Unaudited)
                      ASSETS
Current assets:
  Cash and cash equivalents                        $    16,845  $    13,510
  Short-term investments                                 6,131        7,295
  Accounts receivable, net of allowance for
   doubtful accounts of $215 at March 31, 2014 and
   $214 at December 31, 2013                            13,130       15,893
  Deferred income taxes                                     12           12
  Prepaid expenses and other current assets              1,808        2,313
                                                   -----------  -----------

    Total current assets                                37,926       39,023
Equipment, furniture and leasehold improvements,
 net                                                     1,496          411
Restricted cash                                            250          250
Deferred income taxes                                      304          304
Intangible assets, net                                     830          863
Goodwill                                                 3,738        3,738
Other non-current assets                                    57           59
                                                   -----------  -----------

    Total assets                                   $    44,601  $    44,648
                                                   ===========  ===========

       LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Third-party software fees payable                $    11,424  $    12,746
  Accounts payable                                         187          634
  Accrued compensation                                   1,722        2,383
  Other accrued expenses                                 1,711        1,249
  Deferred revenue                                       2,707        2,177
                                                   -----------  -----------

    Total current liabilities                           17,751       19,189
Deferred incomes taxes                                     144          144
Deferred rent                                            1,827          644
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; 11,459,676 shares issued and
   outstanding at March 31, 2014 and 11,294,682
   shares issued and outstanding at December 31,
   2013                                                129,946      129,423
  Accumulated other comprehensive loss                    (682)        (759)
  Accumulated deficit                                 (104,385)    (103,993)
                                                   -----------  -----------

    Total shareholders' equity                          24,879       24,671
                                                   -----------  -----------

    Total liabilities and shareholders' equity     $    44,601  $    44,648
                                                   ===========  ===========




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


                                                      Three Months Ended
                                                           March 31,
                                                   ------------------------
                                                       2014         2013
                                                   -----------  -----------
Revenue:
  Software                                         $    18,450  $    16,511
  Service                                                4,281        4,359
                                                   -----------  -----------

    Total revenue                                       22,731       20,870
                                                   -----------  -----------

Cost of revenue:
  Software                                              15,555       13,167
  Service                                                3,641        4,356
                                                   -----------  -----------

    Total cost of revenue                               19,196       17,523
                                                   -----------  -----------

      Gross profit                                       3,535        3,347
Operating expenses:
  Selling, general and administrative                    3,300        3,631
  Research and development                                 432          663
                                                   -----------  -----------

    Total operating expenses                             3,732        4,294
                                                   -----------  -----------

Loss from operations                                      (197)        (947)
Other income (expense), net                                (91)          90
                                                   -----------  -----------

Loss before income taxes                                  (288)        (857)
Income tax expense                                        (105)          (5)
                                                   -----------  -----------

Net loss                                           $      (393) $      (862)
                                                   ===========  ===========

Basic loss per share                               $     (0.03) $     (0.08)
                                                   ===========  ===========

Diluted loss per share                             $     (0.03) $     (0.08)
                                                   ===========  ===========

Shares used in calculation of loss per share:
  Basic                                                 11,390       11,107
                                                   ===========  ===========

  Diluted                                               11,390       11,107
                                                   ===========  ===========

Comprehensive loss:
Net loss                                           $      (393) $      (862)
Other comprehensive income (expense):
  Foreign currency translation, net of tax                  77          (96)
  Change in unrealized losses on investments, net
   of tax                                                    -           (2)
                                                   -----------  -----------

        Total other comprehensive income (expense)          77          (98)
                                                   -----------  -----------

Comprehensive loss                                 $      (316) $      (960)
                                                   ===========  ===========




                            BSQUARE CORPORATION
    NON-GAAP INFORMATION AND RECONCILIATION TO COMPARABLE GAAP FINANCIAL
                                  MEASURES
                         (In thousands, unaudited)

                                                Three Months Ended
                                       ------------------------------------
                                        March 31,     December   March 31,
                                           2014       31, 2013      2013
                                       -----------  ----------- -----------

Adjusted EBITDAS:
 Operating income (loss), as reported  $      (197) $        25 $      (947)
 Depreciation and amortization                 163          148         210
 Stock-based compensation expense              244          172         252
                                       -----------  ----------- -----------

Adjusted EBITDAS (1)                   $       210  $       345 $      (485)
                                       ===========  =========== ===========

(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.


Bsquare Contact:
Scott Mahan
BSQUARE Corporation
+1 425.519.5900
Email Contact

Investor Contact:
Brett Maas
Hayden IR
+ 1 646.536.7331
Email Contact

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