Bsquare Reports Fourth Quarter and Full Year 2013 Results

BELLEVUE, WA–(Marketwired – Feb 25, 2014) – BSQUARE Corporation (NASDAQ: BSQR), a leading enabler of smart, connected systems, today announced financial results for the fourth quarter and full year ended December 31, 2013. Total revenue for the quarter was $25.8 million, up 10% compared to the third quarter of 2013 and flat year-over-year. Total revenue for the year was $92.1 million, down 9% from 2012. The net loss for the quarter was $23,000, or $0.00 per share, compared to a net loss of $3.6 million, or $0.32 per share, in the third quarter of 2013 and net income of $696,000, or $0.06 per share, in the year-ago quarter. The net loss for the year was $5.3 million, or $0.47 per share, compared to net income of $916,000, or $0.08 per share, in 2012. Third quarter 2013 and full year 2013 results included the negative effect of a $2.2 million increase in the Company’s deferred tax asset valuation allowance ($0.19 per share effect for the three months and $0.20 per share for the year). Adjusted EBITDAS for the quarter was $345,000 compared to negative $994,000 in the third quarter of 2013 and positive $1.1 million in the year-ago quarter. Adjusted EBITDAS for the year was negative $1.5 million compared to positive $3.1 million in 2012.

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

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 12/31/13 = $250,000).

CEO Commentary
Jerry Chase, President and Chief Executive Officer of Bsquare, commented, “This was an important quarter for Bsquare, as we executed on a significant restructuring which positioned the Company for achieving our profitability objective which we currently expect in mid-2014. We remain focused on expanding our relationships with our existing world-class customers, and growing our presence within the Internet of Things ecosystem. I am increasingly excited about the opportunities before us. We have work to do, but I believe we are in a stronger competitive position as we end 2013 than we were at the beginning of the year, with the focus, opportunities and cost structure to deliver improved bottom-line results in 2014 and beyond.”

“In my short time here at Bsquare, I have been impressed with the team and encouraged by the significant opportunities before the Company,” continued Mr. Chase. “After productive discussions with the Board, and careful consideration, I am excited to formalize my position as chief executive officer and lead the Company in its efforts to increase shareholder value. What began as a short-term project to put the Company back on track has evolved into a long-term passion, as I join a solid team with the goal of taking Bsquare to the next level in its evolution.”

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

• The increase in third-party software sales, up $3.1 million or 17%, was due to a significant Adobe Flash sale and increased Microsoft Windows Mobile operating system sales;
• The decrease in engineering services revenue, down $873,000 or 17%, was primarily due to the MyFord Touch program and, to a lesser extent, decreases at some of the Company’s other larger customers;
• The increase in third-party software margin, up 46% or six percentage points, was driven by the significant Adobe Flash sale;
• The decrease in engineering services margin, down 59% or 10 percentage points, was driven primarily by an 8% decline in the Company’s realized rate per hour; and
• The decrease in operating expenses, down $273,000 or 6%, was driven by the cost reductions enacted this quarter and, to a lesser extent, lower marketing program costs.

Outlook
The Company currently has the following expectations for Q1 2014:

• Total revenue is expected to be in the range of $20 million to $22 million; and
• Cash and investments are projected to decline slightly from December 31, 2013.

Conference Call
Management will host a conference call today, February 25, 2014, at 5 p.m. Eastern Standard Time (2 p.m. Pacific Standard Time). To access the call dial 1-877-941-2068 or +1-480-629-9857 for international callers, and reference “BSQUARE Corporation Fourth Quarter 2013 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 4667623. 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, margins, spending, 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; expectations for specific customers, geographies or products; 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; changes in customer demand for our engineering services; the extent to which we are successful in gaining new long-term relationships with customers and retaining existing ones; our ability to execute our sales and marketing strategies around the Internet of Things and our product and service offerings more generally; our success in leveraging strategic partnering initiatives with companies such as Qualcomm; 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.