BSQUARE Reports Second Quarter Results; Revenue Increases 16 Percent from Prior Quarter; Use of Cash Slows; Non-Recurring Items Increase Cash Balance.Business Editors BELLEVUE Bellevue (bĕl`vy  ).1 City (1990 pop. 30,982), Sarpy co., E Nebr., a suburb of Omaha, on the Missouri River; inc. 1855. , Wash.--(BUSINESS WIRE)--July 24, 2003 BSQUARE Corporation (Nasdaq:BSQR) today reported financial results for the second quarter of 2003, ended June June: see month. 30. Revenue was $9.4 million, up 16 percent, with a net loss of $743,000 ($0.02 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share), compared to revenue of $8.1 million with a net loss of $6.6 million ($0.18 per diluted share), in the prior quarter. The net loss included a net gain of $2.8 million ($0.07 per diluted share) from restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). activities. In the second quarter of 2002, the company reported revenue of $9.5 million and a net loss of $12.7 million ($0.35 per diluted share). In a separate release issued today, the company also announced that Bill Baxter
William Robert Baxter (born November 3, 1946) is a former Australian politician and the current Victorian State President of The Nationals. stepped down from chairman and chief executive officer of BSQUARE effective today. Baxter Bax´ter n. 1. A baker; originally, a female baker. will remain with BSQUARE as chief technology officer focusing on the company's Power Handheld handheld: see personal digital assistant. product and will continue to serve on the company's board. Brian The name Brian (sometimes spelled Bryan) comes from an Irish backround. It is of Celtic origin and its meaning may be "hill" or "strong, noble, and high"[1]. T. Crowley Crowley (krou`lē), city (1990 pop. 13,983), seat of Acadia parish, SW La.; inc. 1888. It is a shipping, milling, and storage center for a large rice-growing area and has a rice experiment station. Oil and natural gas wells are located nearby. , who has served as BSQUARE's vice president of product development, has been named to succeed Baxter as CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. and Don Bibeault, has been named as chairman of the board. A copy of the complete announcement is available at www.bsquare.com. Baxter said these management changes were timed to coincide with the tail end of a lengthy period of restructuring and reorganization and are designed to position BSQUARE for steady growth and a return to profitability within the next 12 months. "For more than two years, BSQUARE has struggled to adapt itself to the realities of the ongoing slump Slump A temporary fall in performance, often describing consistently falling security prices for several weeks or months. in technology markets," Baxter said. "During that time, we have initiated a number of actions aimed at narrowing our business focus, reducing our overhead, and improving our operational efficiency. That effort has resulted in an organization that is just over a third as large as it was at the outset of 2002 and has narrowed its operations to focus on two core lines of business--professional engineering services, or "PES pes (pes) pl. pe´des [L.] 1. foot. 2. any footlike part. pes n. pl. pe·des 1. The foot. 2. ," and distribution of third-party products--and a single new product: our Power Handheld Reference Design. During the second quarter, we saw significant revenue and margin improvement in our PES business, and the growth that has characterized char·ac·ter·ize tr.v. character·ized, character·iz·ing, character·iz·es 1. To describe the qualities or peculiarities of: characterized the warden as ruthless. 2. our distribution business for the past several quarters is continuing in the current quarter. In addition, the development stage of our initial Power Handheld design is nearing completion, and we expect to receive our first commercial orders in the third quarter." "The improvement in professional engineering services was driven by several factors, including increased demand, better utilization, and improved pricing--all of which contributed to a significant improvement in service gross margin," Baxter said. "These improvements are, in part, the result of our ongoing shift in emphasis from bidding on single contracts to building strategic relationships with large OEM (Original Equipment Manufacturer) The rebranding of equipment and selling it. The term initially referred to the company that made the products (the "original" manufacturer), but eventually became widely used to refer to the organization that buys the products and and silicon vendors, which represent major opportunities for repeat business. We believe this new focus will continue to drive growth and yield further margin improvement in our services business." "Margins on product sales also improved during the quarter. With product revenue up four percent sequentially, product gross margin improved 37 percent from 20.1 percent in first quarter to 26.3 percent in second quarter of 2003. This resulted from increased sales of our own products, such as SDIONow!, and better pricing on Microsoft (Microsoft Corporation, Redmond, WA, www.microsoft.com) The most successful and influential software company. Microsoft's software and Intel's hardware pioneered the PC and revolutionized the computer industry. licenses, which represent the bulk of our product sales. We believe our third-party sales will continue to improve, partially due to increased demand from co-marketing Co-marketing is a marketing practice where two companies cooperate with separate distribution channels, sometimes including profit sharing. It is frequently confused with Co-promotion See also Marketing co-operation campaigns. Several additional positive trends in our Microsoft licensing business include a significant increase in toolkit An integrated set of software routines or utilities (tools) that are used to develop and maintain applications and databases. There are toolkits for developing almost anything. See tool, developer's toolkit, library, class library and CASE. sales, which is a leading indicator Leading Indicator A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators are used to predict changes in the economy, but are not always accurate. of product sales as customers typically purchase licenses when they ship devices three to nine months after the tool kit purchase. We are also experiencing growth in the overall embedded Windows See Windows XP Embedded. market through toolkit and licensing sales to many new customers who have previously not licensed embedded Windows operating systems Operating systems can be categorized by technology, ownership, licensing, working state, usage, and by many other characteristics. In practice, many of these groupings may overlap. ," Baxter said. With respect to Power Handheld, Baxter said he is excited to focus more of his attention on development of the product and taking it to the market. Baxter said he believes Power Handheld will begin to contribute significant revenue in the fourth quarter of 2003. Along with the company's operational improvements, vice president of finance and chief financial officer Nogi Asp said management has taken a number of steps that resulted in a reduced use of cash and an improved balance sheet. At the onset of the second quarter, the company expected to use cash of $4 million to $5 million, including $1 million for liabilities related to previous restructurings, but reduced by $2.9 million from an expected refund TO REFUND. To pay back by the party who has received it, to the party who has paid it, money which ought not to have been paid. 2. On a deficiency of assets, executors and administrators cum testamento annexo, are entitled to have refunded to them legacies of prior years' income taxes. During the quarter, the company used $2.3 million for operations, $1.1 million for restructuring, including lease buy downs that will save the company $3.5 million over the next two years. The company also restricted $2.0 million of cash to secure long lead-time lead-time n. The time between the initial stage of a project or policy and the appearance of results: a long lead-time in oil production because of the need for new exploration and drilling. parts for a manufacturer of the Power Handheld. In addition, the company collected $2.8 million from the expected tax refund Tax refund Money back from the government when too much tax has been paid or withheld from a salary. and received a payment of $1.5 million in connection with the settlement of outstanding litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. . At June 30, 2003, the company had a balance of $26.5 million of cash, restricted cash, cash equivalents and investments, which is an increase of approximately $1.0 million over the prior quarter. Conference Call Management will host the conference call today, Thursday Thursday: see week. , July July: see month. 24, 2003, at 2:00 PM Pacific Daylight Time. To access the call, please dial (706) 634-1118 and reference BSQUARE or confirmation #:1817359. The call may also be accessed by web cast at www.BSQUARE.com in the investor relations Investor relations The process by which the corporation communicates with its investors. section. A web cast replay will be available for one year following the call. About BSQUARE BSQUARE accelerates the development, deployment, and management of next-generation smart devices and applications. For nearly a decade, BSQUARE has provided more than 150 world-class world-class adj. 1. Ranking among the foremost in the world; of an international standard of excellence; of the highest order: a world-class figure skater. 2. manufacturers, integrators, and service providers with the building blocks necessary to design, develop, and test innovative products quickly and cost effectively. The company's suite of products and services includes Device Development Solutions, Wireless Solutions, and Custom Engineering Services. BSQUARE offers its customers deep expertise in the latest hardware and software, providing critical engineering services that have resulted in the successful launch of hundreds of new products and applications. For more information, visit BSQUARE at www.bsquare.com or call 888-820-4500. . 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 forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. within the meaning of the safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. provisions of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995, including statements relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc our sales, customer prospects, , financial goals, revenue targets, cash usage and projected financial results. The words "believe," "expect," "intend," "anticipate," variations of such words, and similar expressions identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. Our forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict and could cause actual results to differ materially from those projected. Factors that could affect our actual results include a decline in the market for our products, technology licenses and services, a decline in the market for Windows-based or other smart devices or the failure of this market to develop as anticipated, adverse changes in macro-economic conditions, our ability to successfully implement, execute and make adjustments in our business strategy, business model or product offerings to meet the needs of our current, new and potential customers, risks associated with the effects of our restructurings and our ability to successfully support our operations, competition and intellectual property risks. In addition, demand for our Power Handheld based devices is uncertain and will be affected by a variety of business and economic conditions, including customer-ordering patterns. Major health concerns, such as the possible spread of the SARS illness, could also adversely affect our manufacturing strategy and customer ordering patterns. A more detailed description of certain factors that could affect actual results include, but are not limited to, those discussed in BSQUARE's Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the year ended December 31, 2002 in the section entitled en·ti·tle tr.v. en·ti·tled, en·ti·tling, en·ti·tles 1. To give a name or title to. 2. To furnish with a right or claim to something: "Risk Factors" and those in our subsequent filing on Form 10-Q Form 10-Q See 10-Q. . Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release. We undertake no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or after the date of this release or to reflect the occurrence of unanticipated events.
BSQUARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
June 30, Dec. 31,
2003 2002
-------------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $6,037 $11,041
Restricted cash 2,199 2,582
Short-term investments 13,777 18,444
Accounts receivable, net 6,410 6,494
Income taxes receivable 155 2,934
Prepaid expenses and other
current assets 1,310 1,966
Deferred income taxes 28 28
-------------------
Total current assets 29,916 43,489
Furniture, equipment and leasehold
improvements, net 2,426 3,124
Restricted cash 4,477 3,358
Investments 335 210
Intangible assets, net 558 850
Deposits and other assets 590 2,566
-------------------
Total assets $38,302 $53,597
===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,225 $1,942
Accrued compensation 1,430 3,079
Restructuring costs, current portion 2,426 5,659
Other accrued expenses 2,793 3,204
Deferred income taxes 28 28
Deferred revenue 2,362 1,620
-------------------
Total current liabilities 11,264 15,532
Restructuring costs, net of current
portion 1,086 5,431
-------------------
Total liabilities 12,350 20,963
-------------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value: authorized
10,000,000 shares; no shares issued and
outstanding -- --
Common stock, no par value: authorized
150,000,000 shares, issued and outstanding,
37,194,043 shares as of June 30, 2003
and 36,968,128 shares as of
December 31, 2002 117,675 117,149
Deferred stock-based compensation (7) (15)
Accumulated other comprehensive loss (199) (325)
Accumulated deficit (91,517) (84,175)
-------------------
Total shareholders' equity 25,952 32,634
-------------------
Total liabilities and shareholders'
equity $38,302 $53,597
===================
BSQUARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three Months Six Months
Ended June 30, Ended June 30,
---------------------------------
2003 2002 2003 2002
---------------------------------
(unaudited)
Revenue:
Service $3,012 $5,141 $4,980 $11,148
Product 6,369 4,379 12,469 7,068
---------------------------------
Total revenue 9,381 9,520 17,449 18,216
---------------------------------
Cost of revenue:
Service 2,458 4,551 4,876 8,935
Product 4,691 3,169 9,564 4,220
---------------------------------
Total cost of revenue 7,149 7,720 14,440 13,155
---------------------------------
Gross profit 2,232 1,800 3,009 5,061
Operating expenses:
Research and development 2,128 5,012 5,231 9,154
Selling, general and administrative 3,559 5,332 7,359 9,926
Acquired in-process research and
development -- -- -- 1,698
Amortization of intangible assets 146 688 292 1,109
Impairment of goodwill -- -- 435 --
Restructuring and other related
charges (2,776) -- (2,776) 2,205
---------------------------------
Total operating expenses 3,057 11,032 10,541 24,092
---------------------------------
Loss from operations (825) (9,232) (7,532) (19,031)
Other income (expense), net:
Investment income, net 118 400 306 935
Other income (expense), net (7) (1,759) (87) (1,759)
---------------------------------
Loss before income taxes and
cumulative effect of change in
accounting principle (714) (10,591) (7,313) (19,855)
Provision for income taxes (29) (2,153) (29) (2,124)
---------------------------------
Loss before cumulative effect of
change in accounting principle (743) (12,744) (7,342) (21,979)
Cumulative effect of change in
accounting principle -- -- -- (14,932)
---------------------------------
Net loss $(743)$(12,744)$(7,342)$(36,911)
Basic and diluted loss per share:
Loss before cumulative effect of
change in accounting principle $(0.02) $(0.35) $(0.20) $(0.61)
Cumulative effect of change in
accounting principle -- -- -- (0.42)
---------------------------------
Basic and diluted loss per share $(0.02) $(0.35) $(0.20) $(1.03)
=================================
Shares used in calculation of loss
per share:
Basic and diluted 37,183 36,572 37,106 35,972
=================================
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