BSQUARE Corporation
Q4 2020 Earnings Call Transcript

Published: 18 Mar 2021

[Operator:]

Good day, and welcome to the Bsquare Corporation Fourth Quarter 2020 Financial Results Conference Call. Today's conference is being recorded. And at this time, I'd like to turn the conference over to Mr. Steven Gottlieb, Vice President of Corporate Affairs. Please go ahead, sir.

[Steven Gottlieb:]

Thank you, and good afternoon, everyone. Before we begin, I'd like to remind you that this call is being webcast and the recording of the call and the text of our prepared remarks will be available on Bsquare's Web site. During this call, we will be making forward-looking statements. These statements are based on current expectations and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially. During this call, management will also refer to GAAP to non-GAAP financial measures. Please refer to the cautionary text regarding forward-looking statements, as well as the non-GAAP reconciliations to comparable GAAP financial measures contained in Bsquare's earnings release issued today on our website at www.bsquare.com under Investors. All per share amounts discussed today are fully diluted numbers where applicable.

[Ralph Derrickson:]

Good afternoon, and welcome to the Bsquare quarterly earnings call. Thank you for taking the time to be with us this afternoon. Our plan, as usual, will be to take you through the Q4 and full year 2020 financial results, provide our perspectives on the business and answer any questions you may have for us today. For anyone who would like to arrange a follow-up conversation, please contact Steven Gottlieb, VP of Corporate Affairs, who is responsible for Investor Relations and let off our call today. Joining me on the call is Chris Wheaton, fellow entrepreneur and Bsquare's CFO and COO. I will get us started and then hand things off to Chris. For people who have been following us for a while, you know that we've been in rebuilding mode since I joined the company two years ago. You can see those rebuilding efforts in our 2020 results, including a $7.3 million improvement in our net loss over 2019 and improved balance sheet with cash growing year-over-year. We started 2020 with a plan and expense structure that made sense for the business, but that is not the entire story. In 2020, we also had an entrepreneurial leadership team who acted aggressively in response to rapidly changing business conditions, minimizing cash burn and identifying opportunities to stretch our resources. While our financial results signal that Bsquare is stabilizing, the business building isn't complete. We had hoped to grow revenue in 2020. Our strong Q1 2020 revenue on the heels of three quarters of improving revenue before that gave us hope. Those notions were quickly dispelled, however, with the arrival of the COVID-19 pandemic and the disruption that ensued. The disruptions did slow our revenue growth but did not slow our work with our large IoT customers. The investments we have been making there started to bear fruit in 2020, including last month's announcement of our expanded relationship with Itron. The experience we are gaining serving them, as well as our other large IoT customers, will result in improvements to our service and software offerings for a long time to come. Personally, I am proud that our technology is contributing to efforts to intelligently manage energy and the resources of our planning. Before I turn things over to Chris Wheaton to review the quarter and year in detail, I'd like to take a moment to speak to Chris' expanding role, how we are organized and the entrepreneurial culture we are building. Bsquare today is essentially composed of two integrated teams

[Chris Wheaton:]

Thank you, Ralph, and good afternoon, investors. As Ralph mentioned, he asked me to take on COO responsibilities and leadership of the commitment team, which has added a new dimension to my role. But on the call today, I'm the CFO and I've been looking forward to this chance to convey to you our fourth quarter results and to discuss the financial highlights of 2020, first full year of my tenure at Bsquare. 2020 was a year marked by macroeconomic challenges that no one foresaw and that certainly were not part of our original plans. Despite these challenges, 2020 will also be the year in a Bsquare story that was marked by increased instability and return to progress against business fundamentals. It's this kind of steady progress that has allowed us to adapt to the challenges of 2020, and it's the measures of steady progress that I'm eager to share with you today. Turning now to the financial headlines for the fourth quarter and full year results for 2020. Total revenue for the fourth quarter of 2020 was $11.1 million, which is 6% higher than the third quarter. Revenue in our Partner Solutions segment composed primarily of sales of Microsoft software was flat quarter-over-quarter, reflecting the continuing pressure that pandemic has put on our customers, especially customers in hospitality, casino gaming and point-of-sale systems. For the Partner Solutions segment, a remarkable first quarter was followed by a difficult second quarter. And revenue in the second half of the year, while stable, has not returned to its peak. Soft revenue performance in Partner Solutions was considerably but not entirely offset by stable and relatively strong gross profits. Segment gross margins were at 15.7% in Q4 2020, down from an unusually high 19.1% in Q3, as large rebates from Microsoft in the third quarter were not repeated in fourth. The second half of 2020 produced gross margins of 17.4% in the segment compared to the first half 16.3%, a modest increase, but more importantly, a relatively stable result.

[Ralph Derrickson:]

Thank you, Chris. During our earnings calls last year, you heard me speak of the increasing alignment between our Partner Solutions and Edge to Cloud business segments. I'd like to expand on that and share how our customers' experiences will enhance that alignment and shape our strategy moving forward. What we're finding is that our customers' product strategies are increasingly heterogeneous, that is to say they have different versions of their products with different operating systems and different operating environments, and they need our help. This year, Microsoft is introducing their next-generation embedded OS, and that will create new opportunities for our customers and for Bsquare to assist them. Linux and Android are increasingly prevalent in the world of IoT and bring their own set of challenges. At the same time, our customers' products are being deployed into multi-cloud environments, AWS, Azure and Google Cloud, creating new complexities and again, Bsquare is a natural partner. The next step in our customers' progression is to operate and manage their devices centrally as a fleet. And for that, they need 24/7 operation support. The skill set is not their core competence, but it's something we can offer.

[Operator:]

[Ralph Derrickson:]

Thank you for your time and attention today. I think we'll close the call now.

[Operator:]

Thank you. That does conclude today's conference. We do thank you for your participation, and you may now disconnect.