Bsquare Corp (NASDAQ:BSQR) Q2 2021 Earnings Conference Call August 12, 2021 5:00 PM ET
Steven Gottlieb - VP, Marketing
Ralph Derrickson - President, CEO & Director
Christopher Wheaton - CFO, COO, Secretary & Treasurer
Conference Call Participants
Good day, and welcome to the Bsquare Corporation's Second Quarter 2021 Financial Results Call. Today's conference is being recorded.
At this time, I'd like to turn the conference over to Steven Gottlieb, Vice President of Corporate Affairs. Please go ahead, sir.
Thank you, and good afternoon, everyone. Before we begin, we'd like to remind you that this call is being webcast and that a recording of the call and the text of our prepared remarks will be available on Bsquare's website.
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 and non-GAAP financial measures. Please refer to the cautionary text regarding forward-looking statements as well as the non-GAAP reconciliation 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.
Now I'd like to turn the call over to Ralph Derrickson, Bsquare's President and CEO.
Thank you, Steven. Good afternoon, and welcome to the Q2 2021 Bsquare Quarterly Earnings Call. I hope summer has treated you well and that you, along with your family and friends, are safe and healthy. Thank you for taking the time to be with us this afternoon.
Today's call will follow the same format as previous earnings calls. Along with Chris Wheaton, fellow entrepreneur and Bsquare's CFO and COO, I will take you through the Q2 financial results, provide commentary 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 led off our call today. I will get us started by providing some perspectives on the quarter and we'll then hand things off to Chris for a review of the financial results.
Total revenue for the quarter was $10.7 million. This was an increase in revenue over both the first quarter of 2021 and the second quarter of 2020. COVID-19-related supply chain issues eased for some of our Partner Solutions customers during the quarter, but it is not clear that this is an indication of a sustained recovery. Combination of increased revenue, flat expenses and forgiveness of our 2020 Paycheck Protection Program loan, drove quarter-over-quarter improvements in our bottom line. The business used cash during the quarter, in part to fund measured investments in developing products that powered the connected economy.
Our business building continued in Q2 2021 with focus and discipline. Subsequent to the close of the quarter, our financial reserves were bolstered by additional cash generated from our previously announced at-the-market stock sale program, which I'll discuss in more detail at the end of this call. In the meantime, let me hand things off to Chris to get into the details of the quarter.
Thank you, Ralph, and good afternoon, investors. Let's get right to the financial details of the quarter. Revenue for Q2 2021 was $10.7 million, an increase of $700,000 or 7% from Q1 2021. Total revenue was up $1.7 million or 20% when compared to the second quarter of 2020, which appears to represent the revenue low point since the onset of the COVID pandemic. Since then, our revenue has generally trended upward with variations for seasonality in Partner Solutions orders and revenue recognition timing for Edge to Cloud contracts.
Partner Solutions drove the total revenue improvement in Q2 with an increase of $1.2 million or 13% over Q1 2021 and an increase of $1.9 million or 23% over the comparative period in 2020. Ordering activity was up in June 2021 with more than one of our larger customers sharing with us that their critical chip shortages had eased during the quarter. Despite the Q2 improvement, Partner Solutions revenue continues to be highly variable and generally lags pre-COVID levels.
In the Edge to Cloud segment, revenue declined $500,000 from Q1 2021. This decrease was due to deferred revenue recognition in Q1 that did not reoccur in Q2 as well as purchasing delays from one of our key customers. These delays were unexpected and unrelated to our activities or deliverables.
Edge to Cloud revenue decreased compared to the second quarter of 2020 by $100,000, a small decrease, driven largely by the completion of certain professional services projects for our smaller customers. These revenue trends reflect an intentional shift to focus to our larger customers and to product development opportunities.
Second quarter Partner Solutions gross margin rate was 13.9%, down from 15.2% in the first quarter of 2021 and down from 14.4% in Q2 2020, both due to minor fluctuations in customer and product mix.
Edge to Cloud gross margin rate decreased compared to both Q1 2021 and Q2 2020. Edge to cloud cost of revenue consists primarily of labor costs that remained relatively stable across periods. As a result, gross margin in this segment fluctuates based on revenue and has been inconsistent between periods. With the Edge to Cloud revenue down compared to both Q1 2021 and Q2 2020, gross margin was also down.
Q2 2021 total operating expenses were flat compared to the first quarter, increasing by less than $100,000 and an increase primarily attributable to the cost of the ATM program that Ralph mentioned earlier. Second quarter 2021 operating expense increased compared to the second quarter of 2020 due to onetime professional fees and a decrease in rebates and cooperative marketing reimbursements provided by Microsoft. In the second quarter of 2020, Microsoft temporarily increased the availability of these rebates to help distributors maneuver the difficult and uncertain environment created by the onset of the pandemic.
In addition, operating expenses continue to benefit from the works done in 2019 and 2020 to rightsize our cost structure to fit our business model. Net income for the current quarter was $300,000 or $0.02 per diluted share compared to a net loss of $900,000 or $0.07 per diluted share in the first quarter of 2021. Current quarter results also compare favorably to the net loss of $1.1 million or $0.08 per diluted share in Q2 2020.
Positive net income for the quarter and improvements in net income over the prior periods were driven by a nonoperating gain of $1.6 million related to the forgiveness of the company's PPP loan. Cash, cash equivalents and restricted cash totaled $9.2 million on June 30, 2021. The company used $1.1 million during the second quarter of 2021 as compared to $2.6 million used during the first quarter.
Cash used in the quarter was driven by strategic investments, variations in working capital and the loss from operations as our revenue continues to be constrained by COVID-related issues. The June 30 cash balance includes $350,000 of net proceeds from the sale of the Bsquare common stock that took place during the quarter. Ralph will speak to additional fundraising that took place subsequent to quarter end.
As always, thank you for your time and attention. I look forward to answering your questions at the end of the call. Let me now turn things back over to Ralph.
Thank you, Chris. That does it for our discussion of the second quarter. Let's turn our attention now to our fundraising, which has been generating questions as of late.
In Q1, we filed a $50 million shelf registration statement. Shortly thereafter, we filed a $25 million at-the-market, or ATM prospectus supplement. By July, we had exhausted our fundraising capacity and filed a subsequent $25 million ATM prospectus supplement, representing the balance of our $50 million shelf. Total fundraising to date is $32.1 million net from the sale of 6.9 million shares of common stock. As described in our filings, we intend to use the ATM proceeds to supplement operational cash and systematically pursue new opportunities for growth.
We have recently received a number of inquiries regarding our funding status and intentions, which I believe I've addressed here, but prompts me to remind investors to review our EDGAR filings for additional information. I'd also like to add that it is our policy not to comment on our share price on market activity or our ongoing offering.
Thank you for your time today. Operator, would you please open the line for questions? And while that is happening, let me remind you that if you would like to arrange a follow-up discussion with Chris and me, please contact Steven Gottlieb. Thank you. Operator, please open the line.
[Operator Instructions]. And there are no questions at this time. I will now turn the call over to Mr. Derrickson for any additional or closing remarks.
Thank you for participating in our call today. If you have any questions or would like to arrange a follow-up discussion, please contact Steven Gottlieb, and thank you, and good afternoon.
That will conclude today's conference. Thank you for your participation. You may now disconnect.