BSQUARE Corporation

ladies and gentlemen if you could please remain online the call will begin shortly ladies and gentlemen if you could please remain online the call will begin shortly so © transcript Emily Beynon Thank you. Thank you. Greetings and welcome to the B-Square Corporation first quarter 2023 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and then zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Ralph C. Derrickson, the President and CEO. Thank you, and you may proceed, sir.

Thank you. Good afternoon, investors, and welcome to the Q1 2023 B-Square quarterly earnings call. Joining me today is Cheryl Wynn, B-Square's chief financial officer. Before we go any further, we'd like to remind you the call is being webcast and a recording of the call and the text of our prepared remarks will be available on the B-Square website. During today's call, we will be making forward-looking statements. These statements are based on current expectations and assumptions that are subject to risk and uncertainties that could cause actual results to differ materially. In our commentary, we may also refer to GAAP and non-GAAP financial measures. Please refer to the cautionary text regarding forward-looking statements contained in B-Square's earnings release issued today and on our website at www.bsquare.com under investors. All per share amounts discussed today are fully diluted numbers where applicable. We will be taking questions after our prepared remarks. For anyone who would like to arrange a follow-up conversation with us, please send an email to investorrelations at bsquare.com. This mailbox is monitored regularly, and you will get a response within one business day. Okay, with that out of the way, let's turn our attention to the Q1 2023 results. We are pleased with the significant quarter-over-quarter improvement in our loss from operations. As we've shared in recent calls, running the business as efficiently as possible is a priority for us, and it was gratifying to see it play out in our numbers in the first quarter. Let's start by having Cheryl take us through the Q1 results in detail, and I'll continue my remarks after that. Cheryl, over to you.

Thank you, Ralph, and good afternoon, investors. Today, I'll be providing an overview of our financial results for the first quarter of 2023. Most of my comparisons will be to the fourth quarter of 2022. I'll let you know when I'm comparing to other periods. I'll start with a review of our income statement and then move to a discussion of our balance sheet. Total revenue for the first quarter was approximately $8.1 million, which was an increase of $200,000 or 2% from the fourth quarter. The partner solution segment drove the increase as revenue from the edge to cloud segment was flat quarter over quarter. The favorable revenue results drove a total increase in gross profit of $49,000. Let's take a look at our revenue and gross profit results at a segment level starting first with Partner Solutions. Partner Solutions revenue increased $190,000 or 3% quarter-over-quarter. The increase was largely due to one additional shipping day in the first quarter compared to the fourth quarter. Daily average sales were flat quarter-over-quarter. Commensurate with the revenue increase, Partner Solutions' gross profit increased $34,000. Gross margin rate improved 10 basis points driven by customer and product mix. In the edge-to-cloud segment, revenue was $874,000, which was in line with the fourth quarter. Some favorability in cost of revenue drove a 180 basis point improvement in gross margin rate, resulting in a small increase in the segment's gross profit. Turning our attention now to expenses. Total operating expenses were $1.7 million, which was a $1 million decrease from the fourth quarter. Of this improvement, $200,000 was due to restructuring charges that were recorded in the fourth quarter and did not recur in the first quarter. The rest of the quarter-over-quarter improvement, or $800,000, was driven by decreases in our selling, general, and administrative, or SG&A, costs. Marketing expenses were the most notable driver of the decrease. In the fourth quarter of 2022, we incurred professional fees related to the completion of a significant overhaul and upgrade of our website. Also marketing related, in the first quarter, we recognized a larger amount of cooperative rebate dollars from Microsoft as compared to the fourth quarter. The other driver of the quarter-over-quarter decrease in SG&A costs was labor and benefits due in part to the reduction in forced action that was executed in December 2022. Research and development expenses were up very slightly quarter-over-quarter. As you may recall, during the third quarter of 2022, we implemented an investment strategy intended to take advantage of rising interest rates while maintaining a focus on liquidity. Our Q1 results include $360,000 of interest income. We intend to continue investing our cash reserves for the foreseeable future until there is an alternative use of the reserves that will produce a higher return for our shareholders. We are utilizing a laddered investment strategy, staggering maturity dates so that the portions of our portfolio mature at regular intervals. This strategy ensures that our liquidity is readily accessible and available to fund strategic growth investments. Overall loss from operations for the quarter was $448,000 compared to the fourth quarter loss from operations of $1.5 million. This $1 million improvement was primarily driven by the decrease in operating expenses discussed earlier. Net loss for the quarter was $71,000, less than a penny per diluted share, which was a significant improvement over the fourth quarter net loss of $1.2 million, or six cents per diluted share. Turning now to the balance sheet. Cash, cash equivalents, restricted cash, and short-term investments totaled $34 million on March 31, 2023, a decrease of $1.7 million compared to December 31, 2022. $400,000 of the cash decrease was driven by share repurchases. $500,000 of the cash decrease was due to annual prepaid items, including corporate insurance. And the balance of the change, or $800,000, was primarily timing related, stemming from changes in our working capital account balances. As a reminder, we announced a plan to repurchase up to $5 million worth of our common stock. The plan is intended to return value to our shareholders without compromising our ability to pursue organic growth or strategic alternatives. During the first quarter of 2023, the company repurchased approximately 304,000 shares for $400,000. In total, we have repurchased approximately 483,000 shares for $600,000. This concludes my summary of our first quarter results, and I'll turn it back to Ralph now.