Q3 2020 Bsquare Corp Earnings Call
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Please standby.
Good day, ladies and gentlemen, and welcome to the P. Square Corporation third quarter 2020 financial results call. This conference is being recorded.
At this time I would like to turn the conference over to Mr., Stephen Gottlieb Vice President Corporate Affairs. Please go ahead.
Thank you and good afternoon, everyone.
Before we begin we'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 these scores website.
During this call we will be making forward looking statements.
Fitness are based on current expectations.
The assumptions that are subject to risks and uncertainties that could cause actual results to differ materially.
During this call management will also occur in GAAP and non-GAAP financial measures.
Please refer to the cautionary check regarding forward looking statements.
The non-GAAP reconciliations you can.
Terrible GAAP financial measures continue to be towards the earnings release issued today on our website at www dot piece, where dot com under investors.
All per share amounts discussed today are fully diluted numbers where applicable.
Now I'd like to turn the call over to Ralph there can be square president and CEO.
Thank you Stephen.
Good afternoon, and welcome to the Beach Square Q3, 2020 earnings call.
Thanks for taking the time to participate in todays review of peace, whereas Q.
Q3 financial results joining.
Joining me on today's call is Chris, Sweden, Fellow entrepreneur and Beach, where Chief Financial Officer.
Thank you Joe to take you through the Q3 2020 financial results provide our perspectives on the business and answer any questions you may have for us today.
For those who would like to arrange a follow up conversation. Please contact Stephen Gottlieb VP of corporate Affairs, who is responsible for investor relations and lead off our call today.
You can reach Stephen by E Mail at Steven G. at the square Dotcom.
Let's turn our attention to be square Q3 results starting with revenue we saw healthy increases over Q2, 2020, and both the partner solutions and edge the cloud business segments.
Total revenue was up 17.
Percent over last quarter.
It is not clear if this is the beginning of a sustained recovery we have over 600 active partner solutions customers, who in turn sell their products into a diverse set of markets clearly some of our customers end markets have thrive in the current environment, while others have faltered.
We continue to work closely with all our customers as they seek to adapt to the changing market conditions.
And just the cloud revenue improved as well during the quarter. The heavy investments we made to address issues with prior deliveries to our large customers are easy and as a result billable billable activity has increased.
In addition to improving our customer relationships. This work is helping us improve our product offering.
Im confident these investments in our large customers will pay dividends as we look to grow the business in 2021.
In both business segments, we benefited from our renewed commitment to partnership.
I firmly believe that we win by serving our customers. Their success is our success and I'm proud of the progress we made restoring our customers confidence in D. square.
Turning next to operations I'm pleased to share that we saw continued improvement this quarter as you know I have been laser focused on managing costs.
And shifting the company to a more appropriate expense structure that effort played a significant role in delivering the smallest did net quarterly loss since I joined the company and in keeping our cash utilization to breakeven.
While I realize there is more to making these were successful in managing expense.
Without careful and deliberate attention to it we would not have created the breathing room, we need to pursue new opportunities or financial upside that is why I have placed such a heavy premium.
Heavy emphasis rather on it especially during this early phases of our business results.
Let me turn things over to Chris now.
Take us through the quarters financial results in detail.
Thank you Ralph and good afternoon investors.
As Rob noted our third quarter results can be relatively good news right.
Year to share the highlights with you.
I believe these financial results represent both great progress and a stable basis from which we turned our attention to profitable growth.
Perhaps most importantly, our cash and cash equivalents, including restricted cash totaled $12.6 million on September Thirtyth 2040.
An amount virtually unchanged from June Thirtyth 2020.
Ongoing cash management and now well established disciplined throughout the company has allowed us to migrate our operations to a more sustainable balance between cash and.
I suppose and outflows.
Importantly, our or more sustainable sales gives us room to maneuver. The degree degree of freedom to invest that has not been for these for quite some time.
Pretty early performance.
We recognized $10.4 million in revenue in Q3 2020.
That amount.
Up $1.5 million or 17% over the second quarter of 2014.
What's notable is that this overall revenue increase was driven by higher sales in both the partner solutions segment and that nets to cloud segments.
Partner solutions revenue in Q3 was $9.1 million compared to 8.1 million in Q2.
Well, it's not clear to the shock delivered by the initial days of the COVID-19 fit into his fully dissipated we are noticing generally more stable ordering patterns.
Furthermore, partner solutions gross margins in Q3, 2020 were 19% up from 14% in second quarter.
An unusually favorable mix of products to use.
Combined with changes in key rebate programs that have always been present in our Microsoft partnership reduced our cost of revenue significantly.
We're not counting on the rebate to continue in Q3 Q3 levels the ongoing value we deliver to our customers. In this segment is reflected in a relatively stable gross margins we've enjoyed in 2020.
It is to cloud.
The customer investments we made throughout 2020 are now winding down and providing a return segment revenue in Q3 was $1.3 million, an increase of more than 57% compared to last quarter.
Gross margins for Q3 turned positive result, we've not posted since the fourth quarter of last year.
We'll continue to see can drive growth.
While this segment using the positive outcomes, we deliver for our customers as a springboard for deeper and even more valuable relationships.
Net loss for the current quarter was only $100000 or one cents per diluted share compared to a net loss of $1.1 million or eight cents per diluted share in the second quarter of 2014.
As Ralph said a lot of time before.
With an delivered such a small net loss was well before this time with the company since.
Back to the first quarter of 2017, nearly four years ago. When the company delivered better net income results than those we provided today.
Finally, adjusted EBITDA as a key measure of performance that we believe represents the core operations of the company was approximately $300000.
For the $1.1 million improvement over the negative 800000, all result in the second quarter 2020.
We're finding ways to make each segment more profitable even as we produce and right size our operational expenses in future quarters will actively seek methods to continue that trend by pursuing greater convergence between our two business segments.
Ralph will provide more detail.
In a moment.
In preparing today's remarks that comment so frequently looking back on the four quarters of hard work. This past as I first spoke with you I hope that the quality of today's results also gives you the same sense of accomplishment and I know like deal.
I'm proud of how far resource calm both financially and operationally the team. We've assembled is built for an exciting future.
And we'll be operating from a position stability created by the quality of our business fundamentals.
A year ago, we reported cash for approximately $1 million.
Compared to cash flow breakeven today, a year ago, we had $3.8 million in operating expenses compared to $2 million today.
Simply put these were a different company than it was 12 months ago.
We've come a long way over the past year to dump so in a business environment. Unlike any other.
The confidence I have in our ability to create and manage opportunities for profitable growth has been bolstered rather than diminished by the pandemic induced challenges that these last two quarters were often are here to use entrepreneurial muscle to find opportunities through innovation and coated has not slowed that intent.
Or reduced our confidence.
Nonetheless, our fortunes are of course tied to those of our customers the uncertainty surrounding the speed and global economic recovery remains presence in meaningful.
Until the disruptions caused by the pandemic or fully receded, we cannot accurately predict our customers buying behaviors.
Predicting revenue another key performance indicator.
As difficult as best as a result, we're not providing guidance at this time.
With that let me turn call back to Rob.
Thank you for those remarks, Chris.
My arrival at the square, we have pursued a series of initiatives designed to rebuild the business of those initiatives operating excellence has dominant.
In the last five quarters and much of our reporting to you.
As Chris described that foundation of operational excellence is now in place so I'd like to focus on some of the other critical business rebuilding activities that are well underway.
As you recall the other initiatives I announced back in May of last.
Last year included revising our go to market strategy strengthening our strategic partnerships and offering customers an edge to cloud software and services solution.
Im pleased with the progress we've made on all fronts by.
By its nature some of that progress is faster and more visible while other progress has been more deliberate and for now.
And behind the scenes.
Let's start with the first initiative to revising our go to market strategy you have no doubt seen substantial changes to our strategy messaging and even our look on our website.
On prior calls Youve heard me describe a growing synergies between the needs of our partner solutions and our efforts to cloud customer.
Okay.
Customers in both segments are encountering a common complication at the heart of Aiotv, specifically the challenge of deploying and operating devices securely in a widely heterogeneous persistently connected system.
As we've seen working with our large biotech customers this isn't a software.
The problem is equally as service and operation problem for.
For these customers, we don't large components of their system and we are now playing a key role in operating in.
Our partner solutions customers encounter the same challenge that arrive at it from the individual device.
For these customers, who are helping them design and.
Or care their products to operate as part of the system.
Once again this is as much an operation service challenge and that is a software problem.
This commonality in our customer base is what inspired the statement on our website and that is what we used to frame every customer conversation our technology.
He is powering the next generation of intelligent devices and systems.
Turning next to the initiative to improve our partnerships that work has been twofold.
Our technology partnerships and our customer partnerships first we have doubled down on our Microsoft technology partnership wide.
Because today the bulk of our revenue comes from licensing Microsoft less technology to purpose built device makers.
This generates cash for us and provides an on ramp for our legacy customers to the intelligent devices systems business I just described.
That parser partnership isn't limited to just less software.
We support Azure and other technologies that are part of Microsoft's Io T solutions.
We also continue to operate some of our largest customers on the AAMC platform and that relationship is critical to us and to our customers.
Turning to our customer partnerships.
A highlight for market research work.
This quarter, we deal built these correct has a reputation for consistently creative technical support and service.
And the partner solutions segment, we had help customers get their products to market faster and reduced their unit cost.
And the X the cloud segment, we invested aggressively to address issues with prior commitments.
And.
In both segments, we are forging strong relationships that are improving our product and now helping our customers meet their goals.
The last initiative I'd like to touch on today is improving our product and service offerings.
This work takes more time, because it can only happen as a result of collaboration between.
Our customers.
And our engineering and operations service teams, we've made great strides in harvesting software components and operations expertise that we can deploy and operate at scale.
Would you have not yet heard from me partnering when you have not yet heard me talk a lot about is new customers or.
Three products in this area high of intentionally chosen to wait to be certain that what we're doing is something that we can sell deliver and operate at scale. We don't want to be just another company hyping some future technology, we want to be able to speak to what we are already doing successfully and repeatedly and when we do speak we want.
Humor customers to speak alongside US until then we will continue to work methodically to refine our offerings in collaboration with our customers and our technology partners to prepare these square for accelerated growth.
I will close my remarks was that we.
We have the potential to be an important company in the rapidly evolving world of into.
Teligent devices and systems and I look forward to sharing more as we transition from rebuilding to growth.
Thank you very much.
Moderator. Please open the line for questions now.
Thank you and ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad, if youre using a speakerphone please make.
Morning.
Turned off to allow your signal to reach our equipment.
Once again, everyone that is star one if you have a question and we'll pause for just a moment.
At this time no one has signaled once.
Again, ladies and gentlemen, please press star one if you have a question.
At this time no one has signaled to ask a question.
Thank you moderator I think we can close the line now thank you everyone.
For joining us today for those individuals who would like a borrower coffee contracts, even Valerie if you.
Corporate affairs arrange that.
We didn't actually get a question now would you like to take it.
Yes. Thank you and you will hear that question from Richard car Gencorp.
Hi, guys.
I apologize if you hear any background noise since.
My landlord today to decide to power wash the building.
Unfortunately.
Okay. Good to hear from you.
Yes, thanks, good quarter in June Thirtyth.
Balance sheet to September Thirtyth.
Since your sales increased over the last quarter I would have expect accounts receivable to increase but in fact.
Down by a considerable amount.
And current assets are down by a noticeable amount from the last quarter as well so would it be a fair.
Fair assessment.
Okay.
To state that the main reason why you didn't burn much cash this quarter was that you were more aggressive in collecting.
Okay.
Yes, let me turn that question Richard over to Chris the field for you.
Hi, Richard.
Is that I don't think it is quite.
Right characterize a bit more aggressive I think it's just a matter of normal timing.
We were not particularly aggressive this quarter or unaddressed of last quarter I just think it is a right.
All right. So they know it is a combination of when the sales came in in Q1 and were paid in Q.
Three relatively in the sales into Q3, and we are not yet paid in Q3, we have customers that out.
Longer than 30 days terms, so sometimes those those receivables can linger for a while ago in sheet.
Okay. Yes, that's all ahead. Thank you.
Great. Thanks for the question Thanks Richard.
And no further questions everyone.
Thank you. Thank you moderator I think we can close the call now on the hill and ladies.
And gentlemen that does conclude today's conference I would like to thank you all for your participation today you may now disconnect.
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