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Bsquare Reports Second Quarter and First Half 2014 Results

Company Returns to Profitability, Reports $0.06 EPS

BELLEVUE, WA -- (Marketwired) -- 08/14/14 -- BSQUARE Corporation (NASDAQ: BSQR), a leading enabler of smart, connected systems, today announced financial results for the second quarter and six months ended June 30, 2014. Total revenue for the quarter was $23.1 million, up 1% compared to the first quarter of 2014 and up 6% year-over-year. Total revenue for the six months was $45.8 million, up 7% from 2013. Net income for the quarter was $651,000, or $0.06 per share, compared to a net loss of $393,000, or $0.03 per share, in the first quarter of 2014 and a net loss of $805,000, or $0.07 per share, in the year-ago quarter. Net income for the six months was $258,000, or $0.02 per share, compared to a net loss of $1.7 million, or $0.15 per share, in 2013. Adjusted EBITDAS for the quarter was $1.1 million compared to $210,000 in the first quarter of 2014 and negative $337,000 in the year-ago quarter. Adjusted EBITDAS for the six months was $1.3 million compared to negative $822,000 in 2013. Cash and investments at June 30, 2014 were $24.4 million, up $1.2 million from March 31, 2014.

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

                     -------------------------------------------------------
                            Three Months Ended           Six Months Ended
                     -------------------------------------------------------
                     6/30/2014  3/31/2014  6/30/2013  6/30/2014   6/30/2013
                     -------------------------------------------------------
Revenue:
  Third-party
   Software          $  16,965  $  17,695  $  16,254  $  34,660  $   31,745
  Engineering
   Services              5,642      4,281      4,986      9,923       9,345
  Proprietary
   Software                448        755        597      1,203       1,617
                     -------------------------------------------------------
Total Revenue           23,055     22,731     21,837     45,786      42,707
                     -------------------------------------------------------
Total Gross Profit       4,265      3,535      3,793      7,800       7,140
Gross Margins:
  Third-party
   Software                 13%        13%        16%        13%         16%
  Engineering
   Services                 31%        15%        18%        24%         10%
  Proprietary
   Software                 58%        78%        63%        71%         75%
                     -------------------------------------------------------
Total Gross Margin          18%        16%        17%        17%         17%
                     -------------------------------------------------------
Total Operating
 Expenses                3,595      3,732      4,579      7,327       8,873
                     -------------------------------------------------------
Net Income (Loss)    $     651  $    (393) $    (805) $     258  $   (1,667)
                     =======================================================
  Per Share-Diluted  $    0.06  $   (0.03) $   (0.07) $    0.02  $    (0.15)
                     =======================================================
Adjusted EBITDAS     $   1,051  $     210  $    (337) $   1,261  $     (822)
                     =======================================================
Cash and Investments
 EoQ                 $  24,381  $  23,226  $  20,997  $  24,381  $   20,977
                     -------------------------------------------------------

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 6/30/14 = $250,000).

CEO Commentary

Jerry Chase, President and CEO of Bsquare, commented, "The second quarter represented significant operational improvement for Bsquare. Financially, we reported sequential and year-over year revenue growth and we achieved GAAP profitability. As we have previously stated, 2014 is a building year for our DataV Internet of Things initiative with initial revenue not expected until 2015. We currently expect that our third quarter will also be GAAP profitable."

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

  • The increase in engineering services revenue, up $1.4 million or 32%, was driven by strength in all regions. Japan contributed $533,000 of the increase which was primarily driven by the recognition of $478,000 in revenue and gross profit resulting from the completion of a large hand-held terminal project;

  • The increase in engineering services margin, up 107% or 16 percentage points, was driven by the aforementioned Japan revenue recognition impact, without which service margin would have been 24% in the quarter, and by improvements in both utilization and realized rate per hour; and

  • The increase in cash and investments from March 31, 2014 of $1.2 million, was driven by a decline in DSOs from 52 in Q1 of 2014 to 44 in Q2 of 2014 coupled with EBITDAS contribution.

Outlook

The Company currently has the following expectations for Q3 2014:

  • Total revenue is expected to be in the range of $23 million to $25 million; and

  • Cash and investments are projected to decline approximately $1.4 million from June 30, 2014.

Conference Call

Management will host a conference call today, August 14, 2014, at 5 p.m. Eastern Time (2 p.m. Pacific Time). To access the call dial 1-888-710-3987 or 1-913-312-0935 for international callers, and reference "BSQUARE Corporation Second 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 6000320. 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; and our strategies for product development and market position, including within the Internet of Things market. 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)

                                                  June 30,     December 31,
                                                    2014           2013
                                               -------------  -------------
                                                (Unaudited)
                    ASSETS
Current assets:
  Cash and cash equivalents                    $      11,102  $      13,510
  Short-term investments                              13,029          7,295
  Accounts receivable, net of allowance for
   doubtful accounts of $216 at June 30, 2014
   and $214 at December 31, 2013                      11,235         15,893
  Prepaid expenses and other current assets            1,575          2,325
                                               -------------  -------------
    Total current assets                              36,941         39,023
Equipment, furniture and leasehold
 improvements, net                                     1,342            411
Restricted cash                                          250            250
Deferred income taxes                                    304            304
Intangible assets, net                                   796            863
Goodwill                                               3,738          3,738
Other non-current assets                                  57             59
                                               -------------  -------------
    Total assets                               $      43,428  $      44,648
                                               =============  =============

     LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Third-party software fees payable            $       9,528  $      12,746
  Accounts payable                                        61            634
  Accrued compensation                                 2,160          2,383
  Other accrued expenses                               1,661          1,249
  Deferred revenue                                     2,008          2,177
                                               -------------  -------------
    Total current liabilities                         15,418         19,189
Deferred income taxes                                    144            144
Deferred rent                                          1,780            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
  11,610,107 shares issued and outstanding at
   June 30, 2014 and
  11,294,682 shares issued and outstanding at
   December 31, 2013                                 130,449        129,423
  Accumulated other comprehensive loss                  (628)          (759)
  Accumulated deficit                               (103,735)      (103,993)
                                               -------------  -------------
    Total shareholders' equity                        26,086         24,671
                                               -------------  -------------
    Total liabilities and shareholders' equity $      43,428  $      44,648
                                               =============  =============



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

                                  Three Months Ended     Six Months Ended
                                       June 30,              June 30,
                                    2014       2013       2014       2013
                                 ---------  ---------  ---------  ---------
Revenue:
  Software                       $  17,413  $  16,851  $  35,863  $  33,362
  Service                            5,642      4,986      9,923      9,345
                                 ---------  ---------  ---------  ---------
    Total revenue                   23,055     21,837     45,786     42,707
                                 ---------  ---------  ---------  ---------
Cost of revenue:
  Software                          14,874     13,955     30,429     27,122
  Service                            3,916      4,089      7,557      8,445
                                 ---------  ---------  ---------  ---------
    Total cost of revenue           18,790     18,044     37,986     35,567
                                 ---------  ---------  ---------  ---------
      Gross profit                   4,265      3,793      7,800      7,140
Operating expenses:
  Selling, general and
   administrative                    3,172      3,841      6,472      7,472
  Research and development             423        738        855      1,401
                                 ---------  ---------  ---------  ---------
    Total operating expenses         3,595      4,579      7,327      8,873
                                 ---------  ---------  ---------  ---------
Income (loss) from operations          670       (786)       473     (1,733)
Other income (expense), net            (11)        25       (102)       115
                                 ---------  ---------  ---------  ---------
Income (loss) before income
 taxes                                 659       (761)       371     (1,618)
Income tax expense                      (8)       (44)      (113)       (49)
                                 ---------  ---------  ---------  ---------
Net income (loss)                $     651  $    (805) $     258  $  (1,667)
                                 =========  =========  =========  =========
Basic income (loss) per share    $     .06  $   (0.07) $     .02  $   (0.15)
                                 =========  =========  =========  =========
Diluted income (loss) per share  $     .06  $   (0.07) $     .02  $   (0.15)
                                 =========  =========  =========  =========
Shares used in calculation of
 income (loss) per share:
  Basic                             11,510     11,149     11,451     11,128
                                 =========  =========  =========  =========
  Diluted                           11,715     11,149     11,681     11,128
                                 =========  =========  =========  =========



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

                                    Three Months ended    Six Months ended
                                         June 30,             June 30,
                                   -------------------  -------------------
                                      2014      2013       2014      2013
                                   --------- ---------  --------- ---------

Adjusted EBITDAS:
  Operating income (loss) as
   reported                        $     670 $    (786) $     473 $  (1,733)
  Depreciation and amortization          162       195        325       405
  Stock-based compensation expense       219       254        463       506
                                   --------- ---------  --------- ---------

Adjusted EBITDAS (1)               $   1,051 $    (337) $   1,261 $    (822)
                                   ========= =========  ========= =========


(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:
Jerry Chase
BSQUARE Corporation
+1 425.519.5900
Email Contact

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

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