•

Revenue increased to $16.7 million, up $1.3 million or 8.4% from $15.4 million in the fourth quarter of 2019, the third consecutive period of increases.

•

Partner Solutions segment revenue was up 21% over the prior quarter, driven by strong demand for our embedded operating system products from Microsoft and other third parties.

•

Edge to Cloud segment revenue, while lower in Q1 2020 compared to Q4 2019, was anticipated as we transitioned away from DataV to our new B2IQ suite of software and services.

•

Operating expenses for the quarter were at their lowest level since the first quarter of 2019 and operating expenses, excluding restructuring costs, declined for the fifth consecutive quarter.

•

Net loss for the current quarter was $0.5 million, or $0.04 per diluted share, compared to net loss of $1.4 million, or $0.10 per diluted share, in the fourth quarter of 2019.

•

Adjusted EBITDAS was approximately break-even, compared to negative $0.3 million in the fourth quarter of 2019.

•

Cash, cash equivalents, restricted cash, and short-term investments on March 31, 2020 totaled $10.6 million, an increase of approximately $0.1 million from December 31, 2019.

Three Months Ended

March 31, 2020

December 31, 2019

Quarter-over-Quarter Change

March 31, 2019

Year-over-Year Change

Revenue:

Partner Solutions

$

15,905

$

13,287

$

2,618

$

13,101

$

2,804

Edge to Cloud

824

2,079

(1,255

)

1,995

(1,171

)

Total revenue

16,729

15,366

1,363

15,096

1,633

Total gross profit

$

2,585

$

2,650

$

(65

)

$

2,391

$

194

Gross margins ⁽¹⁾:

Partner Solutions

17

%

14

%

3

%

15

%

2

%

Edge to Cloud

(20

)%

35

%

(55

)%

22

%

(42

)%

Total gross margin

15

%

17

%

(2

)%

16

%

(1

)%

Total operating expenses

3,024

4,027

(1,003

)

5,270

(2,246

)

Total operating expenses excluding restructuring costs ⁽²⁾

3,024

3,313

(289

)

5,270

(2,246

)

Net loss

(474

)

(1,360

)

886

(2,846

)

2,372

Per diluted share

(0.04

)

(0.10

)

0.06

(0.22

)

0.18

Net loss excluding restructuring costs ⁽²⁾

(474

)

(646

)

172

(2,846

)

2,372

Per diluted share excluding restructuring costs ⁽²⁾

(0.04

)

(0.05

)

0.01

(0.22

)

0.18

Adjusted EBITDAS ⁽²⁾

(28

)

(314

)

286

(2,517

)

2,489

Cash, restricted cash, cash equivalents and short-term investments

$

10,644

$

10,561

$

83

$

15,263

$

(4,619

)

⁽¹⁾

Quarter-over-quarter change and year-over-year change represent percentage point change.

⁽²⁾

Total operating expenses excluding restructuring costs, net loss excluding restructuring costs, net loss per diluted share excluding restructuring costs, and Adjusted EBITDAS are non-GAAP financial measures (reconciliation provided after financial statement tables).

•

Partner Solutions revenue increased for the quarterly period, driven by higher sales of Microsoft operating systems and other embedded software.

•

Edge to Cloud revenue decreased when compared to the prior year quarterly period, primarily from completion of software consulting projects during 2019.

•

Total operating expenses, both including and excluding restructuring costs, decreased when compared to the first quarter of 2019 due to lower salary, benefit and marketing costs from the continuing benefits of prior period spending reduction initiatives.

•

Net loss, both including and excluding restructuring costs, for the current quarter decreased by $2.4 million, or $(0.18) per diluted share, as adjusted, vs. the first quarter of 2019.

BSQUARE Contact:

Investor Contact:

Christopher Wheaton, Chief Financial Officer

Leslie Phillips

BSQUARE Corporation

The Blueshirt Group

+1 425.519.5900

+ 1 415.217.5869

investorrelations@bsquare.com

leslie@blueshirtgroup.com

March 31, 2020

December 31, 2019

(Unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

10,044

$

7,712

Restricted cash

600

600

Short-term investments

—

2,249

Accounts receivable, net of allowance for doubtful accounts of $65 and $31 at March 31, 2020 and December 31, 2019, respectively

10,092

9,216

Contract assets

558

494

Prepaid expenses and other current assets

708

244

Total current assets

22,002

20,515

Equipment, furniture and leasehold improvements, less accumulated depreciation

155

252

Deferred tax assets

7

7

Intangible assets, less accumulated amortization

144

169

Right-of-use lease asset, net

1,499

1,828

Other non-current assets

166

284

Total assets

$

23,973

$

23,055

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Third-party software fees payable

$

8,579

$

7,224

Accounts payable

457

408

Accrued compensation

576

1,001

Other accrued expenses

771

306

Deferred revenue

2,052

1,559

Operating lease

421

702

Total current liabilities

12,856

11,200

Deferred revenue, long-term

548

903

Operating lease, long-term

1,168

1,256

Shareholders' equity:

Preferred stock, no par: 10,000,000 shares authorized; no shares issued and outstanding

—

—

Common stock, no par: 37,500,000 shares authorized; 13,098,718 and 13,042,293 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively

139,091

138,877

Accumulated other comprehensive loss

(1,022

)

(987

)

Accumulated deficit

(128,668

)

(128,194

)

Total shareholders' equity

9,401

9,696

Total liabilities and shareholders' equity

$

23,973

$

23,055

Three Months Ended March 31,

2020

2019

Revenue:

Partner Solutions

$

15,905

$

13,101

Edge to Cloud

824

1,995

Total revenue

16,729

15,096

Cost of revenue:

Partner Solutions

13,156

11,149

Edge to Cloud

988

1,556

Total cost of revenue

14,144

12,705

Gross profit

2,585

2,391

Operating expenses:

Selling, general and administrative

2,897

2,934

Research and development

127

2,336

Total operating expenses

3,024

5,270

Loss from operations

(439

)

(2,879

)

Other income (loss), net

(35

)

33

Loss before income taxes

(474

)

(2,846

)

Income tax benefit

—

—

Net loss

$

(474

)

$

(2,846

)

Basic loss per share

$

(0.04

)

$

(0.22

)

Diluted loss per share

$

(0.04

)

$

(0.22

)

Net loss excluding restructuring costs (3)

$

(474

)

$

(2,846

)

Per diluted share excluding restructuring costs (3)

$

(0.04

)

$

(0.22

)

Shares used in per share calculations:

Basic

13,055

12,795

Diluted

13,055

12,795

Adjusted EBITDAS

Three Months Ended

March 31, 2020

December 31, 2019

March 31, 2019

Loss from operations as reported

$

(439

)

$

(1,377

)

$

(2,879

)

Depreciation and amortization

196

201

194

Stock-based compensation

215

148

168

Restructuring costs

—

714

—

Adjusted EBITDAS ⁽¹⁾

$

(28

)

$

(314

)

$

(2,517

)

⁽¹⁾

Adjusted EBITDAS is a non-GAAP financial measure that BSQUARE defines as income (loss) from operations before depreciation expense on fixed assets and amortization expense (including impairment) on intangible assets, stock-based compensation expense, restructuring costs, and goodwill impairment (when applicable). Adjusted EBITDAS should not be construed as a substitute for net income (loss) or net cash provided (used) by operating activities (all as determined in accordance with GAAP) for the purpose of analyzing our operating performance, financial position and cash flows. Adjusted EBITDAS has limitations, including that it does not reflect our entire cost structure to operate our business (such as the cost of replacing assets being depreciated or amortized, capital expenditures, and stock-based compensation expenses which we expect to continue being meaningful, and income tax expense (benefit)) and may not be comparable to similarly titled measures used by other companies. However, BSQUARE regards Adjusted EBITDAS as a complement to net income and other GAAP financial performance measures. BSQUARE uses Adjusted EBITDAS to evaluate BSQUARE’s financial performance and the effectiveness of its business strategies on a consistent basis across reporting periods, and BSQUARE believes the measure is often used by analysts, investors and other interested parties to evaluate comparable companies.

Total operating expenses excluding restructuring costs

Three Months Ended

March 31, 2020

December 31, 2019

March 31, 2019

Total operating expenses

$

3,024

$

4,027

$

5,270

Restructuring costs

—

714

—

Total operating expenses excluding restructuring costs ⁽¹⁾

$

3,024

$

3,313

$

5,270

⁽¹⁾

Total operating expenses excluding restructuring costs and goodwill impairment is a non-GAAP financial measure that BSQUARE defines as total operating expenses, plus an add-back for restructuring costs (and goodwill impairment, when applicable). This measure should not be construed as a substitute for total operating loss for the purpose of analyzing our operating performance, and it has limitations, including that it does not reflect our entire cost structure to operate our business. However, BSQUARE regards this measure as a complement to GAAP operating expenses because it excludes costs that may not be indicative of operating performance. BSQUARE uses this measure to evaluate its financial performance and the effectiveness of its business strategies on a consistent basis across reporting periods, and BSQUARE believes the measure is often used by analysts, investors and other interested parties to evaluate comparable companies.

Net loss excluding restructuring costs

Three Months Ended

March 31, 2020

December 31, 2019

March 31, 2019

Net loss

$

(474

)

$

(1,360

)

$

(2,846

)

Restructuring costs

—

714

—

Net loss excluding restructuring costs (1)

$

(474

)

$

(646

)

$

(2,846

)

⁽¹⁾

Net loss excluding restructuring costs is a non-GAAP financial measure that BSQUARE defines as net loss, plus an add-back for restructuring costs (and goodwill impairment, when applicable). This measure should not be construed as a substitute for total operating loss for the purpose of analyzing our operating performance, and it has limitations, including that it does not reflect our entire cost structure to operate our business. However, BSQUARE regards this measure as a complement to GAAP net loss because it excludes costs that may not be indicative of operating performance. BSQUARE uses this measure to evaluate its financial performance and the effectiveness of its business strategies on a consistent basis across reporting periods, and BSQUARE believes the measure is often used by analysts, investors and other interested parties to evaluate comparable companies.

Net loss per diluted share excluding restructuring costs

Three Months Ended

March 31, 2020

December 31, 2019

March 31, 2019

Diluted loss per share

$

(0.04

)

$

(0.10

)

$

(0.22

)

Restructuring costs

—

(0.05

)

—

Net loss excluding restructuring costs ⁽¹⁾

(0.04

)

(0.05

)

$

(0.22

)

⁽¹⁾

Net loss excluding restructuring costs is a non-GAAP financial measure that BSQUARE defines as diluted loss per share, plus an add-back for the per diluted share amount of restructuring costs (and goodwill impairment, when applicable). Other than being expressed on a per diluted share basis, this measure is the same as net loss excluding restructuring costs, has the same limitations, and is used and disclosed by BSQUARE for the same reasons.