BSQUARE Reports Third Quarter 2004 Results; Company Reports First Profitable Quarter Since 2001.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. -- BSQUARE Corporation (Nasdaq:BSQR) today reported financial results for the third quarter ended September September: see month. 30, 2004. The company reported net income for the quarter of $208,000 ($0.01 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), which included $39,000 in income from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the . This marked the first profitable quarter for the company since the first quarter of 2001. The third quarter 2004 net income compared to a net loss of $3.0 million ($0.08 per diluted share) in the third quarter of 2003, and a net loss of $5.1 million ($0.14 per diluted share) in the second quarter of 2004. Total revenue for the quarter was $10.6 million, compared to $9.4 million in the third quarter of 2003 and $8.8 million in the second quarter of 2004. "This quarter represented a significant milestone for our company," said Brian Crowley Brian Crowley (born March 4, 1964) is an Irish politician and Member of the European Parliament for Ireland South for Fianna Fáil. He is co-president of the Union for a Europe of Nations group in the European Parliament in which Fianna Fáil sits. , president and chief executive officer of BSQUARE. "We achieved bottom-line profitability ahead of expectations and also generated positive cash flow. It's been over three years since BSQUARE could point to either of these achievements, and it speaks to the success of our turnaround Turnaround A situation where a company that has had poor performance for an extended period of time experiences a positive reversal. Notes: A speculator may profit from a turnaround if he or she accurately anticipates the improvement of a poorly performing company. initiatives, the hard work of our employees and our focus on building a sustainable market leadership position in the embedded Inserted into. See embedded system. space." Don Bibeault, chairman of BSQUARE's Board of Directors, added: "BSQUARE has completed the first phases of its turnaround according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. the plan formulated for·mu·late tr.v. for·mu·lat·ed, for·mu·lat·ing, for·mu·lates 1. a. To state as or reduce to a formula. b. To express in systematic terms or concepts. c. last year. Management has done well in executing against the plan. Each of BSQUARE's product lines is contributive, the company is debt free, has reasonable cash resources, great technical expertise, dedicated employees and a strong customer base. What remains to be done is to deliver consistent operating results in order to strengthen our core business while we work diligently dil·i·gent adj. Marked by persevering, painstaking effort. See Synonyms at busy. [Middle English, from Old French, from Latin d to implement growth strategies that leverage a solid operating platform here at BSQUARE." Key achievements during the quarter included: --BSQUARE reported its first net income on a quarterly basis since the first quarter of 2001. The return to profitability was achieved through a combination of top-line growth and prudent expense management. The company also reported income from continuing operations of $39,000 in the current quarter. Income from continuing operations represents the results of the company's ongoing business -- providing software and services to smart device makers; --Following record SDIO See SDIO card. Now! sales in the second quarter of 2004, the company reported another quarter of strong sales with the number of SDIO Now! licensees expanding to 75 leading device makers, including Symbol, Widcomm (Broadcom), Ratoc Systems, EOps Technology, ST, SiRF, Abocom, and others. The company will release its latest SDIO Now! version 2.0 software in November; --The company renewed its annual Microsoft Original Equipment Manufacturer distribution agreement to provide OEMs with Microsoft Windows See Windows. (operating system) Microsoft Windows - Microsoft's proprietary window system and user interface software released in 1985 to run on top of MS-DOS. Widely criticised for being too slow (hence "Windoze", "Microsloth Windows") on the machines available then. Embedded operating systems An operating system used in special-purpose applications (embedded systems). Embedded operating systems are typically very compact and often designed for real time operations. See embedded Linux, QNX, OS-9, Windows XP Embedded, Windows CE, VxWorks and Symbian OS. for dedicated purpose computing computing - computer devices. In addition to its historical territories of the US and Canada, the new agreement expands BSQUARE's distribution rights to include Mexico for the first time; --Sales of Microsoft embedded operating system toolkits, which are typically purchased early in the development process and are a forward-looking indicator of Microsoft embedded operating system license sales, increased 93% from the second quarter of 2004; --BSQUARE completed 11 service engagements. Highlighting the company's breadth of software and services expertise, these engagements included software development and quality assurance for a Windows Mobile-based Smartphone A cellular telephone with information access. It provides digital voice service as well as any combination of e-mail, text messaging, pager, Web access, voice recognition, still and/or video camera, MP3, TV or video player and organizer (see PDA). , development of Windows CE (Windows Consumer Electronics) Microsoft's version of Windows for handheld devices and embedded systems that use x86, ARM, MIPS and SHx CPUs. Windows CE .NET superseded Windows CE 3.0. 5.0-based board support packages for leading silicon vendors, quality assurance testing for a Windows CE handheld device, Windows CE development for industrial devices and Pocket PC development for a consumer automotive device; --The company introduced five new packaged services offerings which make it easy for device makers to gain quick access to BSQUARE's deep expertise on Windows Embedded and Windows Mobile The Windows platform from Microsoft for handheld devices, including PDAs, cellphones and Portable Media Centers. See Pocket PC, Pocket PC Phone Edition, Smartphone and Portable Media Center. devices. The company's new service offerings include Feasibility Studies The analysis of a problem to determine if it can be solved effectively. The operational (will it work?), economical (costs and benefits) and technical (can it be built?) aspects are part of the study. Results of the study determine whether the solution should be implemented. , Short-Term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. Service Packages, Quality Assurance Service Packages, SDIO JumpStart, and Secure JumpStart; and --BSQUARE participated in Microsoft's October announcement of the new Windows Embedded for Point of Sale (WEPOS WEPOS Windows Embedded Point of Service (Microsoft) WEPOS Windows Embedded for Point of Service ) platform. BSQUARE is a systems integrator An individual or organization that builds systems from a variety of diverse components. With increasing complexity of technology, more customers want complete solutions to information problems, requiring hardware, software and networking expertise in a multivendor environment. for WEPOS and will resell re·sell tr.v. re·sold , re·sell·ing, re·sells 1. To sell again. 2. To sell (a product or service) to the public or to an end user, especially as an authorized dealer. the platform to device makers and retailers when available in the first half of 2005, along with complementary BSQUARE service and product offerings. Commenting on the achievements during the quarter, Crowley noted, "Income from continuing operations is a key number that we are focused on. The shutdown shut·down n. A cessation of operations or activity, as at a factory. shutdown Noun the closing of a factory, shop, or other business Verb shut down of the Power Handheld unit and resolution of other legacy issues in the last year contributed significantly to the progress made this quarter, allowing us to focus our resources on our continuing business." Software and Service Results Software revenue in the third quarter was $8.1 million, including $7.4 million in sales of Microsoft embedded software Instructions that permanently reside in a ROM or flash memory chip. Embedded software may be immediately available to the CPU or, for faster execution, may be transferred to RAM first and then executed. . This compared to software revenue of $7.1 million in the third quarter of 2003 and $6.0 million in the second quarter of 2004, including $5.9 million and $5.2 million in sales of Microsoft embedded software, respectively. Crowley commented, "All of our core software products performed well this quarter. Software revenue rebounded from last quarter, as we predicted, based largely on increased volume at several of our significant Microsoft licensing accounts." During the quarter, the company announced SDIO Now! version 2.0, which will ship in November. This new version contains functionality requested by current SDIO Now! licensees, including support for the SD Card Association's latest SDIO specification, substantial performance enhancements, support for Windows CE 5.0 and Microsoft's next generation Windows Mobile platform, and other capabilities. "The release of our SDIO Now! version 2.0 provides our customers with the most up-to-date SDIO technology including functionality only available from BSQUARE," commented Crowley. "We are continuing to invest in new SDIO functionality which we believe will sustain market demand throughout 2005." Software gross margin was 21% for the third quarter, compared to 30% and 25% for the third quarter of 2003 and the second quarter of 2004, respectively. Lower software gross margin this quarter reflected revenue from Microsoft and other third-party products, which generally carry lower margins, representing a larger percentage of overall software revenue. Service revenue for the quarter was $2.4 million, compared to $2.3 million in the third quarter of 2003 and $2.8 million in the second quarter of 2004. "Perhaps the only meaningful disappointment in the third quarter was the performance in our service revenue line," Crowley commented. "We experienced some contract signing delays during the quarter. In addition, revenue on certain projects was deferred into the fourth quarter that we expected to recognize in the third quarter. However, our sales pipeline is healthy and we expect improvement in this revenue line." Service gross margin was 24% in the third quarter of 2004, compared to (6)% in the third quarter of 2003 and 24% in the second quarter of 2004. While third quarter 2004 service revenue was lower than the second quarter by 15%, the company was able to manage its service costs to keep them in-line In-line Used in the context of general equities. (1) An order or market in a specific security within the inside market; 2) any announcement (earnings) that adheres closely to Wall Street analysts' expectations. with the lower revenue level. Operating Expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. and Other Financial Items During the quarter, operating expenses related to research and development and sales, general and administrative activities were $2.4 million, compared to $2.8 million in the third quarter of 2003 and $2.9 million in the second quarter of 2004. The second quarter of 2004 included costs related to the Microsoft royalty audit settlement of $310,000. Scott Mahan, BSQUARE's chief financial officer, commented, "We reduced operating expenses in several areas during the third quarter, in addition to cutbacks realized previously through our turnaround efforts. The reductions during the quarter came primarily in the areas of professional fees, payroll and marketing programs. Aggressive expense management continues to be a key focus for the company." The company increased its balance of cash and cash equivalents, short-term investments and restricted cash by $100,000 during the quarter. Significant cash uses included $315,000 related to the discontinued dis·con·tin·ue v. dis·con·tin·ued, dis·con·tin·u·ing, dis·con·tin·ues v.tr. 1. To stop doing or providing (something); end or abandon: Power Handheld business unit, $300,000 in lease 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). payments and $370,000 in capital expenditures largely related to the company's new headquarters. These cash uses were offset by positive working capital impacts. At September 30, 2004, BSQUARE had a balance of $14.1 million in cash and cash equivalents, restricted cash and short-term investments, compared with $14.0 million at the end of the second quarter of 2004. The company has no outstanding debt. Growth Initiatives "In addition to our SDIO Now! efforts, the company has been devoting resources to other 2005 product growth initiatives," Crowley noted. "As next generation devices become increasingly more sophisticated and complex, requiring greater connectivity, more memory, more powerful processors, sophisticated graphics and, of course, more lines of code The statements and instructions that a programmer writes when creating a program. One line of this "source code" may generate one machine instruction or several depending on the programming language. A line of code in assembly language is typically turned into one machine instruction. to develop, our customers are asking for solutions that help manage this complexity, provide a positive end user experience and accelerate device introductions. We believe there is a sizable siz·a·ble also size·a·ble adj. Of considerable size; fairly large. siz  a·ble·ness n. and
growing opportunity for BSQUARE to provide software solutions to these
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 ODM (Original Design Manufacturer) A contract manufacturer that uses its own designs and intellectual property (IP). See contract manufacturer. customers, including software technology derived from our
Power Handheld device, new SDIO-based solutions and other device
software solutions. In addition, we are actively exploring acquisitions
and partnerships that fit the strategic direction of our core businesses
and can accelerate these efforts."Conference Call Management will host a conference call today, November 4, 2004, at 5:00 p.m. Eastern time (2:00 p.m. Pacific time). To access the call, please dial 800-218-4007 or 303-205-0044 and reference "BSQUARE" or conference ID 11010859. A replay will be available for one week following the call by dialing 800-405-2236 or 303-590-3000; reference conference ID 11010859. A live and replay webcast of the call will be available at www.BSQUARE.com in the investor relations Investor relations The process by which the corporation communicates with its investors. section. About BSQUARE BSQUARE is a leading global provider of software, engineering services and consulting for the smart device market. Since 1994, BSQUARE has provided world-class device makers with the building blocks necessary to design, develop, and test innovative products quickly and cost effectively. A sample of BSQUARE customers includes Motorola, Hewlett-Packard, Texas Instruments See TI. (company) Texas Instruments - (TI) A US electronics company. A TI engineer, Jack Kilby invented the integrated circuit in 1958. Three TI employees left the company in 1982 to start Compaq. , NEC (NEC Corporation, Tokyo, www.nec.com, www.necus.com) An electronics conglomerate known in the U.S. for its monitors. In Japan, it had the lion's share of the PC market until the late 1990s (see PC 98). NEC was founded in Tokyo in 1899 as Nippon Electric Company, Ltd. , HTC HTC HTML (Hyper Text Markup Language) Component HTC High Tech Computer Corp (Taiwan, China) HTC Hennepin Technical College (Minnesota) HTC High-Throughput Computing , Microsoft and others. BSQUARE is one of Microsoft's largest value-added partners worldwide for Windows Embedded software, a Gold-level Systems Integrator of the year and a leading Windows Mobile solutions provider for Smartphone and Pocket PC. BSQUARE is a Texas Instruments-licensed Independent OMAP OMAP Office of Medical Assistance Programs (Oregon Department of Human Services) OMAP Open Multimedia Applications Platform (Texas Instruments semiconductor operating system) (TM) (Open Multimedia Application Platform) Technology Center. The company's SDIO Now! technology has been adopted by over 75 top-tier smart device makers. 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 projected financial results and proprietary products strategy. 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; our ability to successfully support our operations; competition; and intellectual property risks. 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, 2003, 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 in our subsequent Quarterly Reports 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)
Sept. 30, Dec. 31,
2004 2003
----------- ---------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 7,415 $ 5,700
Restricted cash 1,457 3,906
Short-term investments 4,050 8,139
Accounts receivable, net 5,842 6,263
Current assets of discontinued operations -- 2,401
Prepaid expenses and other current assets 511 856
--------- --------
Total current assets 19,275 27,265
Furniture, equipment and leasehold improvements,
net 863 640
Restricted cash 1,200 --
Non-current assets of discontinued operations -- 1,660
Other assets -- 548
--------- --------
Total assets $ 21,338 $ 30,113
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,629 $ 3,541
Accrued compensation 1,082 1,063
Accrued restructuring costs 388 1,433
Other accrued expenses 4,216 3,592
Deferred revenue 549 1,146
--------- --------
Total current liabilities 8,864 10,775
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,
37,935,199 shares as of September 30, 2004 and
37,503,176 shares as of December 31, 2003 118,171 117,889
Accumulated other comprehensive loss (410) (392)
Accumulated deficit (105,287) (98,159)
--------- --------
Total shareholders' equity 12,474 19,338
--------- --------
Total liabilities and shareholders' equity $ 21,338 $ 30,113
========= ========
BSQUARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
------------------------------------
2004 2003 2004 2003
------- ------- ------- --------
(unaudited)
Revenue:
Software $ 8,138 $ 7,101 $21,840 $ 19,570
Service 2,431 2,307 8,150 7,287
------- ------- ------- --------
Total revenue 10,569 9,408 29,990 26,857
------- ------- ------- --------
Cost of revenue:
Software 6,407 5,002 16,960 14,566
Service 1,859 2,441 6,097 7,317
------- ------- ------- --------
Total cost of revenue 8,266 7,443 23,057 21,883
------- ------- ------- --------
Gross profit 2,303 1,965 6,933 4,974
Operating expenses:
Selling, general and
administrative 2,119 2,684 7,319 9,719
Research and development 234 97 579 1,640
Impairment of goodwill and other
intangible assets -- -- -- 435
Restructuring and related charges
(credits) -- 360 40 (2,416)
------- ------- ------- --------
Total operating expenses 2,353 3,141 7,938 9,378
------- ------- ------- --------
Loss from operations (50) (1,176) (1,005) (4,404)
Other income, net 89 735 187 954
------- ------- ------- --------
Loss from continuing operations
before income taxes 39 (441) (818) (3,450)
Income tax provision -- (40) -- (69)
------- ------- ------- --------
Income (loss) from continuing
operations 39 (481) (818) (3,519)
Income (loss) from discontinued
operations 169 (2,488) (6,310) (6,792)
------- ------- ------- --------
Net income (loss) $ 208 $(2,969) $(7,128) $(10,311)
======= ======= ======= ========
Basic income (loss) per share:
Income (loss) from continuing
operations $ 0.00 $ (0.01) $ (0.02) $ (0.10)
Income (loss) from discontinued
operations 0.01 (0.07) (0.17) (0.18)
------- ------- ------- --------
Basic income (loss) per share$ 0.01 $ (0.08) $ (0.19) $ (0.28)
======= ======= ======= ========
Diluted income (loss) per share:
Income (loss) from continuing
operations $ 0.00 $ (0.01) $ (0.02) $ (0.10)
Income (loss) from discontinued
operations 0.01 (0.07) (0.17) (0.18)
------- ------- ------- --------
Diluted income (loss) per
share $ 0.01 $ (0.08) $ (0.19) $ (0.28)
======= ======= ======= ========
Shares used in calculation of
income (loss) per share:
Basic 37,933 37,323 37,798 37,179
======= ======= ======= ========
Diluted 38,366 37,323 37,798 37,179
======= ======= ======= ========
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