Workflow
BSQUARE(BSQR) - 2022 Q4 - Annual Report
BSQRBSQUARE(BSQR)2023-03-07 21:08
Transcript

Financial Performance - Total revenue decreased by 3.9millionor103.9 million or 10% in 2022, with Partner Solutions revenue down by 3.4 million (9%) and Edge to Cloud revenue down by 0.5million(130.5 million (13%) compared to 2021[165][166]. - Total revenue for the year ended December 31, 2022, was 36,487 thousand, a decrease of 10% from 40,367thousandin2021[194].−Grossprofitfortheyearwas40,367 thousand in 2021[194]. - Gross profit for the year was 5,453 thousand, showing a slight increase of 1% compared to 5,415thousandinthepreviousyear[194].−Netlossfortheyearwas5,415 thousand in the previous year[194]. - Net loss for the year was 3,858 thousand, representing a 72% increase from a net loss of 2,242thousandin2021[194].−PartnerSolutionsrevenuedecreasedto2,242 thousand in 2021[194]. - Partner Solutions revenue decreased to 33,119 thousand in 2022 from 36,516thousandin2021,whileEdgetoCloudrevenuedecreasedto36,516 thousand in 2021, while Edge to Cloud revenue decreased to 3,368 thousand from 3,851thousand[202].−Operatingexpensesincreasedto3,851 thousand[202]. - Operating expenses increased to 9,719 thousand in 2022, up 4% from 9,307thousandin2021[194].−Otherincomedecreasedsignificantlyto9,307 thousand in 2021[194]. - Other income decreased significantly to 408 thousand in 2022, down 75% from 1,650thousandin2021[194].MarketandCompetitiveLandscape−Bsquare′sexpertiseindevelopingandoperatinglargeIoTsystemsisseenasasustainablecompetitiveadvantage,potentiallyleadingtonewrevenueopportunities[26].−ThecompetitionintheIoT−relatedsoftwareandengineeringservicesmarketissignificant,withexpectationsofincreasedcompetitiveattentionin2022andbeyond[92].−Thecompanyfacescompetitionfromlargercompetitorswithgreaterfinancialresources,whichmayimpactpricingstrategies[93].−ThemarketsforMicrosoftWindowsIoTandWindowsMobileoperatingsystemshavedeclined,whichcouldnegativelyimpactthecompany′sbusinessandoperatingresults[102].RevenueSourcesandCustomerTrends−ThecompanyrecognizesrevenueandcostofsalesforitsIoToperationsservicesunderthename"EdgetoCloud"[26].−Bsquare′stargetmarketforOSsoftwareandservicesincludesconnecteddevicemanufacturersacrossvarioussectors,includingretail,healthcare,andentertainment[25].−Bsquare′scustomersincreasinglyrecognizethatIoToperationsarenotcorecompetencies,leadingtoatrendofoutsourcingtheseoperationstoreducecostsandmitigaterisks[38].−In2022,customersoutsideofNorthAmericageneratedapproximately81,650 thousand in 2021[194]. Market and Competitive Landscape - Bsquare's expertise in developing and operating large IoT systems is seen as a sustainable competitive advantage, potentially leading to new revenue opportunities[26]. - The competition in the IoT-related software and engineering services market is significant, with expectations of increased competitive attention in 2022 and beyond[92]. - The company faces competition from larger competitors with greater financial resources, which may impact pricing strategies[93]. - The markets for Microsoft Windows IoT and Windows Mobile operating systems have declined, which could negatively impact the company's business and operating results[102]. Revenue Sources and Customer Trends - The company recognizes revenue and cost of sales for its IoT operations services under the name "Edge to Cloud"[26]. - Bsquare's target market for OS software and services includes connected device manufacturers across various sectors, including retail, healthcare, and entertainment[25]. - Bsquare's customers increasingly recognize that IoT operations are not core competencies, leading to a trend of outsourcing these operations to reduce costs and mitigate risks[38]. - In 2022, customers outside of North America generated approximately 8% of total revenue, compared to 14% in 2021[65]. - The Partner Solutions segment accounted for 91% of total revenue in 2022, while Edge to Cloud accounted for 9%[165]. Operational Challenges - The company faces longer collection cycles in North America and unfavorable changes in regulatory practices and tariffs, which may adversely affect financial results[95]. - Continued supply chain disruptions and economic uncertainty adversely impacted customer demand for embedded operating systems[165]. - The company relies on third-party manufacturers and suppliers, and any errors or defects could negatively impact revenue and market acceptance[75]. - The company may face claims of infringement or invalidity related to its software products, which could result in significant costs and liabilities[79]. - The uncertain geopolitical environment and changing economic conditions may adversely affect the company's operating results[96]. Investment and Development - The company invested over 1.5 million in product development in 2022, with 0.5millioncapitalizedasinternallydevelopedsoftware[188].−Cash,cashequivalents,restrictedcash,andshort−terminvestmentsdecreasedby0.5 million capitalized as internally developed software[188]. - Cash, cash equivalents, restricted cash, and short-term investments decreased by 4.5 million during 2022, primarily due to operations and investments in new product offerings[158]. - The company began making investments late in Q3 2022, resulting in increased interest income for Q4 2022[91]. Cost Management and Financial Strategy - Selling, general, and administrative expenses increased by 469,000or6469,000 or 6% year-over-year, totaling 8.5 million in 2022[172]. - Research and development expenses decreased by 262,000or20262,000 or 20% in 2022, totaling 1.0 million[172]. - The gross margin improved to 15% in 2022 from 13% in 2021, reflecting decreased costs of revenue in the Edge to Cloud segment[169][171]. - The gross margin for Partner Solutions improved to 15% in 2022 from 14% in 2021, while Edge to Cloud gross margin increased significantly to 18% from 10%[196]. - A reduction in force was executed in Q4 2022, resulting in nearly a 20% decrease in headcount and incurring 0.2millioninone−timeterminationbenefits[130].RegulatoryandComplianceIssues−Thecompanyissubjecttocomplextaxregulationsandpotentialunknowntaxexposure,whichcouldsignificantlyaffectitsresultsofoperations[112].−Compliancewithevolvingdataprivacyregulations,suchasGDPRandCCPA,maylimittheuseandadoptionofthecompany′sproductsandservices[141].−Thecompanyreliesonthird−partysoftwarelicenses,andanyinabilitytolicensekeysoftwarecouldharmitsbusiness[136].ShareholderActions−ThecompanyannouncedaShareRepurchasePlantobuybackupto0.2 million in one-time termination benefits[130]. Regulatory and Compliance Issues - The company is subject to complex tax regulations and potential unknown tax exposure, which could significantly affect its results of operations[112]. - Compliance with evolving data privacy regulations, such as GDPR and CCPA, may limit the use and adoption of the company's products and services[141]. - The company relies on third-party software licenses, and any inability to license key software could harm its business[136]. Shareholder Actions - The company announced a Share Repurchase Plan to buy back up to 5 million of its common stock, repurchasing 178,857 shares for approximately $0.2 million in Q4 2022[157]. - The company anticipates retaining future earnings for business development and does not expect to declare cash dividends in the foreseeable future[145].