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Bsquare Reports Fourth Quarter and Full Year 2013 Results

Company Announces Permanent CEO

BELLEVUE, WA -- (Marketwired) -- 02/25/14 -- 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):


                 ----------------------------------  ----------------------
                         Three Months Ended                Year Ended
                 ----------------------------------  ----------------------
                 12/31/2013   9/30/2013  12/31/2012  12/31/2013  12/31/2012
                 ----------  ----------  ----------  ----------  ----------
Revenue:
  Third-party
   Software      $   21,142  $   18,004  $   18,706  $   70,891  $   71,130
  Engineering
   Services           4,243       5,116       5,661      18,704      25,554
  Proprietary
   Software             444         452       1,489       2,513       4,710
                 ----------  ----------  ----------  ----------  ----------
Total Revenue        25,829      23,572      25,856      92,108     101,394
                 ----------  ----------  ----------  ----------  ----------
Total Gross
 Profit               4,516       3,369       5,025      15,025      19,059
Gross Margins:
  Third-party
   Software              19%         13%         16%         16%         16%
  Engineering
   Services               7%         17%         15%         11%         17%
  Proprietary
   Software              56%         42%         86%         66%         78%
                 ----------  ----------  ----------  ----------  ----------
Total Gross
 Margin                  17%         14%         19%         16%         19%
                 ----------  ----------  ----------  ----------  ----------
Total Operating
 Expenses             4,491       4,764       4,414      18,128      17,880
                 ----------  ----------  ----------  ----------  ----------
Net Income
 (Loss)          $      (23) $   (3,567) $      696  $   (5,257) $      916
                 ==========  ==========  ==========  ==========  ==========
  Per Share-
   Diluted       $    (0.00) $    (0.32) $     0.06  $    (0.47) $     0.08
                 ==========  ==========  ==========  ==========  ==========
Adjusted EBITDAS $      345  $     (994) $    1,112  $   (1,504) $    3,123
                 ==========  ==========  ==========  ==========  ==========
Cash and
 Investments EoQ $   21,055  $   21,539  $   20,604  $   21,055  $   20,604
                 ----------  ----------  ----------  ----------  ----------


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.


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


                                                December 31,   December 31,
                                                    2013           2012
                                               -------------  -------------

                    ASSETS
Current assets:
  Cash and cash equivalents                    $      13,510  $       9,903
  Short-term investments                               7,295          9,826
  Accounts receivable, net of allowance for
   doubtful accounts of $214 at December 31,
   2013 and $200 at December 31, 2012                 15,893         16,095
  Deferred tax assets                                     12            296
  Prepaid expenses and other current assets            2,313            858
                                               -------------  -------------

    Total current assets                              39,023         36,978
Equipment, furniture and leasehold
 improvements, net                                       411            759
Restricted cash                                          250            875
Deferred tax assets                                      304          2,255
Intangible assets, net                                   863          1,069
Goodwill                                               3,738          3,738
Other non-current assets                                  59            117
                                               -------------  -------------

    Total assets                               $      44,648  $      45,791
                                               =============  =============

     LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Third-party software fees payable            $      12,746  $      11,099
  Accounts payable                                       634            553
  Accrued compensation                                 2,383          2,205
  Other accrued expenses                               1,249          1,732
  Deferred revenue                                     2,177            837
                                               -------------  -------------

    Total current liabilities                         19,189         16,426
Deferred tax liability                                   144            206
Deferred rent                                            644            154
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; 11,294,682 shares issued
   and outstanding at December 31, 2013 and
   11,065,217 shares issued and outstanding at
   December 31, 2012                                 129,423        128,474
  Accumulated other comprehensive loss                  (759)          (733)
  Accumulated deficit                               (103,993)       (98,736)
                                               -------------  -------------

    Total shareholders' equity                        24,671         29,005
                                               -------------  -------------

    Total liabilities and shareholders' equity $      44,648  $      45,791
                                               =============  =============




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


                               Three Months Ended          Year Ended
                                  December 31,            December 31,
                                2013        2012        2013        2012

                             ----------  ----------  ----------  ----------
Revenue:
  Software                   $   21,586  $   20,195  $   73,404  $   75,840
  Service                         4,243       5,661      18,704      25,554
                             ----------  ----------  ----------  ----------

    Total revenue                25,829      25,856      92,108     101,394
                             ----------  ----------  ----------  ----------

Cost of revenue:
  Software                       17,351      16,018      60,438      61,112
  Service                         3,962       4,813      16,645      21,223
                             ----------  ----------  ----------  ----------

    Total cost of revenue        21,313      16,081      77,083      82,335
                             ----------  ----------  ----------  ----------

      Gross profit                4,516       5,025      15,025      19,059
Operating expenses:
  Selling, general and
   administrative                 3,940       3,724      15,372      14,281
  Research and development          551         690       2.756       3,599
                             ----------  ----------  ----------  ----------

    Total operating expenses      4,491       4,414      18,128      17,880
                             ----------  ----------  ----------  ----------

Income (loss) from
 operations                          25         611      (3,103)      1,179
Other income (expense), net         (60)        (19)         40         103
                             ----------  ----------  ----------  ----------

Income (loss) before income
 taxes                              (35)        592      (3,063)      1,282
Income tax benefit (expense)         12         104      (2,194)       (366)
                             ----------  ----------  ----------  ----------

Net income (loss)            $      (23) $      696  $   (5,257) $      916
                             ==========  ==========  ==========  ==========

Basic income (loss) per
 share                       $    (0.00) $     0.06  $    (0.47) $     0.08
                             ==========  ==========  ==========  ==========

Diluted income (loss) per
 share                       $    (0.00) $     0.06  $    (0.47) $     0.08
                             ==========  ==========  ==========  ==========

Shares used in calculation
 of income (loss) per share:
  Basic                          11,246      11,058      11,174      10,945
                             ==========  ==========  ==========  ==========

  Diluted                        11,246      11,310      11,174      11,449
                             ==========  ==========  ==========  ==========




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

                                  Three Months Ended        Year Ended
                                     December 31,          December 31,
                                --------------------- ----------------------
                                   2013       2012       2013        2012
                                ---------- ---------- ----------  ----------

Adjusted EBITDAS:
  Operating income (loss), as
   reported                     $       25 $      611 $   (3,103) $    1,179
  Depreciation and amortization        148        235        701         993
  Stock-based compensation
   expense                             172        266        898         951
                                ---------- ---------- ----------  ----------

Adjusted EBITDAS (1)            $      345 $    1,112 $   (1,504) $    3,123
                                ========== ========== ==========  ==========



(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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