BlackBerry Q4 Fiscal 2017 brings a smaller quarterly loss as operating costs nearly halved

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BlackBerry today reported financial results for the three months and fiscal year ended February 28, 2017. The company reported a smaller quarterly loss as operating costs nearly halved, narrowing its loss from a year earlier and posting above-consensus adjusted profit.

A per-share loss of 10 cents in the fourth quarter was more than a quarter wider than the loss a year earlier.

Q4 Highlights

  • Q4 non-GAAP total revenue of $297 million; GAAP total revenue of $286 million
  • Q4 non-GAAP Company total software and services revenues of $193 million; GAAP Company total software and services revenues of $182 million
  • Q4 non-GAAP gross margin of 65%; GAAP gross margin of 60%
  • Q4 adjusted EBITDA of $42 million; positive for thirteenth consecutive quarter
  • Q4 cash flow from operations of $19 million; free cash flow of $16 million
  • Total cash balance increased by $89 million to $1.7 billion at the end of the fiscal fourth quarter

Q4 Results

Non-GAAP revenue for the fourth quarter of fiscal 2017 was $297 million with GAAP revenue of $286 million. Approximately 80% of the fourth quarter Software & Services segment revenue (excluding IP licensing and professional services) was recurring. BlackBerry had over 3,500 enterprise customer orders in the quarter.

Non-GAAP operating income was $13 million, and non-GAAP earnings per share was $0.04. GAAP net loss for the quarter was $47 million, or ($0.09) per basic share. GAAP operating loss was $57 million, which includes $28 million in amortization of acquired intangibles, $25 million in restructuring charges, a benefit of $16 million of fair value adjustment related to the debentures and other amounts as summarized in a table below.

Total cash, cash equivalents, short-term and long-term investments increased by $89 million to approximately $1.7 billion as of February 28, 2017. This reflects free cash flow of $16 million, which includes cash flow from operations of $19 million. Excluding $605 million in the face value of the Company’s debt, the net cash balance at the end of the quarter was approximately $1.1 billion. There were no purchase orders with contract manufacturers at the end of the fourth quarter, compared to $35 million at the end of the third quarter and down from $162 million a year ago.

“I am pleased to report that our Q4 results came in at or above expectations in all major metrics,” said John Chen, Executive Chairman and CEO, BlackBerry.

“In the quarter, we continued to grow our mix of software and services revenue across the company. In turn, this allowed us to expand our operating margin and report positive free cash flow. In addition, our balance sheet continues to strengthen and benefit from reduced capital requirements with our focus on software and licensing.”

Chen continued,

“In our areas of strategic focus, we are executing well and gaining traction,”

“In our enterprise business, we had one of our best-ever software billings quarters, driven by strength across regulated and non-regulated industries. Enhancing our position in public sector, we recently achieved FedRAMP certification for the U.S. government. In IOT appliances, we won new business and secured six new customer trials for Radar. We demonstrated our autonomous driving technology platform at CES 2017. In mobile software licensing, we signed our third major agreement, and we now have global coverage. We are entering the next phase in sub-licensing our secure software to a variety of new mobile endpoints. We also entered the CPaaS market with the launch of our BBM Enterprise Software Development Kit, which will expand our addressable opportunity in a high growth segment.”

“Looking ahead to fiscal 2018, we expect to grow at or above the overall market in our software business. We also expect to be profitable on a non-GAAP basis and to generate positive free cash flow for the full year.”

Reconciliation of the Company’s segment results to the consolidated results:

(United States dollars, in millions)

For the Three Months Ended February 28, 2017
(in millions)
Software & ServicesMobility SolutionsSAFSegment totalsCorporate unallocatedSubtotalNon-GAAP adjustmentsConsolidated U.S. GAAP
Revenue$166$82$49$297$$297$(11)$286
Cost of goods sold34541510310311114
Gross margin1322834194194(22)172
Operating expenses8981988318148229
Operating income (loss)$43$20$33$96$83$13$(70)$(57)

Reconciliation of GAAP revenue, gross margin, gross margin percentage, loss before income taxes, net loss and loss per share to Non-GAAP revenue, gross margin, gross margin percentage, income before income taxes, net income and income per share:

(United States dollars, in millions except per share data)

Q4 Fiscal 2017 Non-GAAP AdjustmentsFor the Three Months Ended February 28, 2017
(in millions)
Income statement locationRevenueGross margin (before taxes)Gross margin % (before taxes)Income (loss) before income taxesNet income (loss)Basic earnings (loss) per share
As reported$286$17260.1%$(49)$(47)$(0.09)
Inventory write-down (2)Cost of sales41.4%44
Debentures fair value adjustment(3)Debentures fair value adjustment%(16)(16)
Selective patent abandonment (4)Loss on sale, disposal and abandonment%11
RAP charges (4)Cost of sales62.1%66
RAP charges (4)Research and development%33
RAP charges (4)Selling, marketing and administration%1515
Software deferred revenue acquired(5)Revenue11111.4%1111
Stock compensation expense (6)Cost of sales10.3%11
Stock compensation expense (6)Research and development%55
Stock compensation expense (6)Selling, marketing and administration%99
Acquired intangibles amortization (7)Amortization%2828
Business acquisition and integration costs(8)Selling, marketing and administration%33
$297$19465.3%$21$23$0.04

Note: Non-GAAP revenue, non-GAAP gross margin, non-GAAP gross margin percentage, non-GAAP income before income taxes, non-GAAP net income and non-GAAP income per share do not have a standardized meaning prescribed by GAAP and thus are not comparable to similarly titled measures presented by other issuers. The Company believes that the presentation of these non-GAAP measures enables the Company and its shareholders to better assess the Company’s operating results relative to its operating results in prior periods and improves the comparability of the information presented. Investors should consider these non-GAAP measures in the context of the Company’s GAAP results.

(1)During the fourth quarter of fiscal 2017, the Company reported GAAP gross margin of $172 million or 60.1% of revenue. Excluding the impact of the inventory write-down and the resource alignment program (“RAP”) charges included in cost of sales and software deferred revenue acquired included in revenue, the non-GAAP gross margin was $194 million, or 65.3% of revenue.
(2)During the fourth quarter of fiscal 2017, the Company recorded inventory write-down charges of $4 million, which were included in cost of sales.
(3)During the fourth quarter of fiscal 2017, the Company recorded the Q4 Fiscal 2017 Debentures Fair Value Adjustment of $16 million. This adjustment was presented on a separate line in the Consolidated Statements of Operations.
(4)During the fourth quarter of fiscal 2017, the Company incurred charges related to the RAP of approximately $25 million, of which $1 million were included in loss on sale, disposal and abandonment, $6 million were included in cost of sale, $3 million were included in research and development expense and $15 million were included in selling, marketing and administration expense.
(5)During the fourth quarter of fiscal 2017, the Company recorded software deferred revenue acquired but not recognized due to business combination accounting rules of $11 million, which were included in revenue.
(6)During the fourth quarter of fiscal 2017, the Company recorded stock compensation expense of $15 million, of which $1 million were included in cost of sales, $5 million were included in research and development, and $9 million were included in selling, marketing and administration expenses.
(7)During the fourth quarter of fiscal 2017, the Company recorded amortization of intangible assets acquired through business combinations of $28 million, which were included in amortization expense.
(8)During the fourth quarter of fiscal 2017, the Company recorded business acquisition and integration costs incurred through business combinations of $3 million, which were included in selling, marketing and administration expenses.

Supplementary Geographic Revenue Breakdown

BlackBerry Limited
(United States dollars, in millions)
Revenue by Region
For the quarters ended
February 28, 2017November 30, 2016August 31, 2016May 31, 2016February 29, 2016
North America$16658.0%$16757.8%$19056.9%$19548.8%$21646.5%
Europe, Middle East and Africa8329.0%8730.1%10029.9%15538.7%17537.7%
Latin America51.8%72.4%133.9%102.5%183.9%
Asia Pacific3211.2%289.7%319.3%4010.0%5511.9%
Total$286100.0%$289100.0%$334100.0%$400100.0%$464100.0%

Conference Call and Webcast

A conference call and live webcast will be held beginning at 8 a.m. ET, which can be accessed by dialing 1-844-309-0607 or by logging on here. A replay of the conference call will also be available at approximately 11 a.m. ET by dialing 1-855-859-2056 or 1-404-537-3406 and entering Conference ID #66409061 or by clicking the link above.

 

BlackBerry Limited
Incorporated under the Laws of Ontario
(United States dollars, in millions except share and per share amounts) (unaudited)
Consolidated Statements of Operations
For the three months endedFor the years ended
February 28, 2017November 30, 2016February 29, 2016February 28, 2017February 29, 2016
Revenue$286$289$464$1,309$2,160
Cost of sales114962546921,219
Gross margin172193210617941
Gross margin %60.1%66.8%45.3%47.1%43.6%
Operating expenses
Research and development5775108306469
Selling, marketing and administration144141179553653
Amortization454377186277
Impairment of goodwill57
Impairment of long-lived assets501
Loss (gain) on sale, disposal and abandonment of long-lived assets(1)46127171195
Debentures fair value adjustment(16)2(40)24(430)
2293074511,7981,164
Operating loss(57)(114)(241)(1,181)(223)
Investment income (loss), net8(4)(15)(27)(59)
Loss before income taxes(49)(118)(256)(1,208)(282)
Recovery of income taxes(2)(1)(18)(2)(74)
Net Loss$(47)$(117)$(238)$(1,206)$(208)
Loss per share
Basic$(0.09)$(0.22)$(0.45)$(2.30)$(0.40)
Diluted$(0.10)$(0.22)$(0.45)$(2.30)$(0.86)
Weighted-average number of common shares outstanding (000’s)
Basic530,352526,102524,627525,265526,303
Diluted590,852526,102524,627525,265651,303
Total common shares outstanding (000’s)530,497529,962521,172530,497521,172

 

 

BlackBerry Limited
Incorporated under the Laws of Ontario
(United States dollars, in millions except per share data) (unaudited)
Consolidated Balance Sheets
As atFebruary 28, 2017February 29, 2016
Assets
Current
Cash and cash equivalents$734$957
Short-term investments6441,420
Accounts receivable, net181338
Other receivables3451
Inventories26143
Income taxes receivable17
Other current assets55102
1,6913,011
Long-term investments269197
Restricted cash and cash equivalents5150
Property, plant and equipment, net91412
Goodwill559618
Intangible assets, net6021,213
Deferred income tax asset33
$3,263$5,534
Liabilities
Current
Accounts payable$103$270
Accrued liabilities258368
Income taxes payable9
Deferred revenue245392
6061,039
Long-term debt5911,277
Deferred income tax liability910
1,2062,326
Shareholders’ Equity
Capital stock and additional paid-in capital2,5122,448
Retained earnings (deficit)(438)768
Accumulated other comprehensive loss(17)(8)
2,0573,208
$3,263$5,534

 

 

BlackBerry Limited
Incorporated under the Laws of Ontario
(United States dollars, in millions except per share data) (unaudited)
Consolidated Statements of Cash Flows
For the years ended
February 28, 2017February 29, 2016
Cash flows from operating activities
Net loss$(1,206)$(208)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Amortization239616
Deferred income taxes33(105)
Stock-based compensation6060
Impairment of goodwill57
Impairment of long-lived assets501
Loss on sale, disposal and abandonment of long-lived assets171195
Debentures fair value adjustment24(430)
Other16
Net changes in working capital items:
Accounts receivable, net157200
Other receivables1747
Inventories117(21)
Income tax receivable, net(17)166
Other current assets45257
Accounts payable(167)14
Accrued liabilities(99)(304)
Income taxes payable(9)9
Deferred revenue(147)(255)
Net cash provided by (used in) operating activities(224)257
Cash flows from investing activities
Acquisition of long-term investments(430)(326)
Proceeds on sale or maturity of long-term investments228301
Acquisition of property, plant and equipment(17)(32)
Proceeds on sale of property, plant and equipment954
Acquisition of intangible assets(52)(70)
Business acquisitions, net of cash acquired(5)(698)
Acquisition of short-term investments(1,366)(2,764)
Proceeds on sale or maturity of short-term investments2,2713,146
Net cash provided by (used in) investing activities724(439)
Cash flows from financing activities
Issuance of common shares54
Payment of contingent consideration from business acquisitions(15)
Excess tax deficiency related to stock-based compensation(1)(1)
Common shares repurchased(93)
Effect of foreign exchange gain on restricted cash(3)
Repurchase of 6% Debentures(1,315)
Issuance of 3.75% Debentures605
Transfer from restricted cash212
Net cash used in financing activities(722)(78)
Effect of foreign exchange loss on cash and cash equivalents(1)(16)
Net decrease in cash and cash equivalents during the period(223)(276)
Cash and cash equivalents, beginning of period9571,233
Cash and cash equivalents, end of period$734$957
As atFebruary 28, 2017November 30, 2016
Cash and cash equivalents$734$830
Short-term investments644459
Long-term investments269269
Restricted cash5151
$1,698$1,609

 

 

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