BlackBerry

BlackBerry Fiscal Year 2019 Second Quarter Results beats Street estimates

BlackBerry today reported financial results for the three months ended August 31, 2018 with second-quarter profit more than doubled, beating Wall Street estimates. Lower expenses helped offset a drop in enterprise software and services revenue and U.S.-listed shares of the company were up 2.7 percent premarket.

The company’s expenses fell in the quarter. Selling and marketing costs dropped about 6 percent to US$106 million, while research and development costs fell 15 percent. Enterprise software and services revenue fell 3 percent to US$88 million in the second quarter ended Aug. 31. On a per share basis, the company reported a loss of 4 cents, compared with a loss of 8 cents per share in the year-ago quarter.

Excluding items, the company earned 4 cents per share, beating analysts’ average estimate of 1 cent, according to Thomson Reuters I/B/E/S. Total revenue fell 13 percent to US$210 million.

Total company non-GAAP revenue for the second quarter of fiscal 2019 was $214 million with GAAP revenue of $210 million. Total non-GAAP software and services revenue of $197 million, up 1% year-over-year. Total GAAP software and services revenue was $193 million, up 4% year-over-year. Approximately 81% of second quarter software and services revenue (excluding IP licensing and professional services) was recurring. Non-GAAP gross margin was 78% and GAAP gross margin was 77%.

Non-GAAP operating income was $17 million, and positive for the tenth consecutive quarter. GAAP operating income was $39 million. Non-GAAP earnings per share was $0.04 (basic and diluted). GAAP net income for the quarter was $0.08 per basic share and a GAAP net loss of $0.04 per diluted share. GAAP net income includes $22 million for acquired intangibles amortization expense, $21 million in stock compensation expense, $3 million in restructuring charges, a benefit of $70 million related to the fair value adjustment on the debentures, and other amounts as summarized in a table below.

Total cash, cash equivalents, short-term and long-term investments was $2.4 billion as of August 31, 2018. Free cash flow, before considering the impact of restructuring and legal proceedings, was positive $37 million. Cash generated from operations was $31 million and capital expenditures were $4 million. Excluding $605 million in the face value of the company’s debt, the net cash balance at the end of the quarter was $1.7 billion.

BlackBerry re-affirmed its outlook for fiscal 2019, as follows:

  • Total company software and services billings growth is expected to be double-digits
  • Total software and services revenue growth of between 8% to 10% year-over-year
  • Non-GAAP EPS is expected to be positive
  • Free cash flow is expected to be positive for the full year, before considering the impact of restructuring and legal proceedings

“In the quarter, we exceeded our financial expectations driven by sequential growth in both our BlackBerry Technology Solutions and Enterprise Software and Services businesses” said John Chen, Executive Chairman and CEO, BlackBerry.

“I am very encouraged by BlackBerry’s leadership opportunities in the fast-growing Enterprise of Things, and by our strategy to capitalise on these significant future opportunities with BlackBerry Spark, our platform to securely communicate and collaborate between smart endpoints.”

Reconciliation of GAAP revenue, gross margin, gross margin percentage, income before income taxes, net income and basic earnings per share to Non-GAAP revenue, gross margin, gross margin percentage, income before income taxes, net income and basic earnings per share for the three months ended August 31, 2018:

Q2 Fiscal 2019 Non-GAAP Adjustments

For the Three Months Ended August 31, 2018

(in millions, except for per share amounts)

Income
statement

location

Revenue

Gross margin
(before taxes)

Gross margin
(before
taxes)

Income
before
income taxes

Net income

Basic
earnings per
share

As reported

$

210

$

161

76.7

%

$

44

$

43

$

0.08

Debentures fair value adjustment (2)

Debentures fair value adjustment

%

(70)

(70)

Restructuring charges (3)

Cost of sales

1

0.4

%

1

1

Restructuring charges (3)

Selling, marketing and administration

%

2

2

Software deferred revenue acquired (4)

Revenue

4

4

0.5

%

4

4

Stock compensation    expense (5)

Cost of sales

1

0.4

%

1

1

Stock compensation

expense (5)

Research and development

%

3

3

Stock compensation

expense (5)

Selling, marketing and administration

%

17

17

Acquired intangibles amortization (6)

Amortization

%

22

22

Business acquisition and integration costs recovered (7)

Selling, marketing and administration

%

(2)

(2)

Adjusted

$

214

$

167

78.0

%

$

22

$

21

$

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 basic earnings 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 second quarter of fiscal 2019, the Company reported GAAP gross margin of $161 million or 76.7% of revenue. Excluding the impact of restructuring charges and stock compensation expense included in cost of sales and software deferred revenue acquired included in revenue, the non-GAAP gross margin was $167 million, or 78.0% of revenue.
  2. During the second quarter of fiscal 2019, the Company recorded the Q2 Fiscal 2019 Debentures Fair Value Adjustment of $70 million. This adjustment was presented on a separate line in the Consolidated Statements of Operations.
  3. During the second quarter of fiscal 2019, the Company incurred restructuring charges of approximately $3 million, of which $1 million was included in cost of sales and $2 million was included in selling, marketing and administration expense.
  4. During the second quarter of fiscal 2019, the Company recorded software deferred revenue acquired but not recognized due to business combination accounting rules of $4 million, which was included in enterprise software and services revenue.
  5. During the second quarter of fiscal 2019, the Company recorded stock compensation expense of $21 million, of which $1 million was included in cost of sales, $3 million was included in research and development, and $17 million was included in selling, marketing and administration expense.
  6. During the second quarter of fiscal 2019, the Company recorded amortization of intangible assets acquired through business combinations of $22 million, which was included in amortization expense.
  7. During the second quarter of fiscal 2019, the Company recorded business acquisition and integration costs recovered through business combinations of $2 million, which was included in selling, marketing and administration expense.

Supplementary Geographic Revenue Breakdown

BlackBerry Limited

(United States dollars, in millions)

Revenue by Region

For the Quarters Ended

August 31, 2018

May 31, 2018

February 28, 2018

November 30, 2017

August 31, 2017

North America

$

133

63.3

%

$

139

65.3

%

$

147

63.1

%

$

133

58.9

%

$

133

55.9

%

Europe, Middle East and Africa

53

25.3

%

52

24.4

%

63

27.0

%

69

30.5

%

76

31.9

%

Other regions

24

11.4

%

22

10.3

%

23

9.9

%

24

10.6

%

29

12.2

%

Total

$

210

100.0

%

$

213

100.0

%

$

233

100.0

%

$

226

100.0

%

$

238

100.0

%

Supplementary Revenue by Product and Service Type Breakdown

BlackBerry Limited

(United States dollars, in millions)

Revenue by Product and Service Type

US GAAP

Adjustments

Non-GAAP

For the Three Months Ended

For the Three Months Ended

For the Three Months Ended

August 31,
2018

August 31,
2017

August 31,
2018

August 31,
2017

August 31,
2018

August 31,
2017

Enterprise software and services

$

88

$

91

$

4

$

11

$

92

$

102

BlackBerry Technology Solutions

49

38

49

38

Licensing, IP and other

56

56

56

56

Handheld devices

5

16

5

16

SAF

12

37

12

37

Total

$

210

$

238

$

4

$

11

$

214

$

249

 

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 Ended

For the Six Months Ended

August 31,

2018

May 31,
2018

August 31,
2017

August 31,
2018

August 31,
2017

Revenue

$

210

$

213

$

238

$

423

$

473

Cost of sales

49

52

63

101

148

Gross margin

161

161

175

322

325

  Gross margin %

76.7

%

75.6

%

73.5

%

76.1

%

68.7

%

Operating expenses

Research and development

51

61

60

112

121

Selling, marketing and administration

106

100

113

206

223

Amortization

35

37

39

72

79

Impairment of long-lived assets

11

11

Debentures fair value adjustment

(70)

28

(70)

(42)

148

Qualcomm arbitration award

(815)

122

226

153

348

(233)

Operating income (loss)

39

(65)

22

(26)

558

Investment income, net

5

6

1

11

137

Income (loss) before income taxes

44

(59)

23

(15)

695

Provision for income taxes

1

1

4

2

5

Net income (loss)

$

43

$

(60)

$

19

$

(17)

$

690

Earnings (loss) per share

Basic

$

0.08

$

(0.11)

$

0.04

$

(0.03)

$

1.30

Diluted

$

(0.04)

$

(0.11)

$

(0.08)

$

(0.08)

$

1.26

Weighted-average number of common shares outstanding (000s)

Basic

537,299

536,964

531,381

537,136

531,234

Diluted

597,799

536,964

591,881

597,636

546,132

Total common shares outstanding (000s)

537,768

537,112

530,411

537,768

530,411

 

BlackBerry Limited

Incorporated under the Laws of Ontario

(United States dollars, in millions) (unaudited)

Consolidated Balance Sheets

As at

August 31, 2018

February 28, 2018

Assets

Current

Cash and cash equivalents

$

581

$

816

Short-term investments

1,683

1,443

Accounts receivable, net

145

151

Other receivables

52

71

Income taxes receivable

15

26

Other current assets

52

38

2,528

2,545

Restricted cash and cash equivalents

32

39

Long-term investments

56

55

Other long-term assets

33

28

Deferred income tax assets

2

3

Property, plant and equipment, net

63

64

Goodwill

566

569

Intangible assets, net

422

477

$

3,702

$

3,780

Liabilities

Current

Accounts payable

$

34

$

46

Accrued liabilities

162

205

Income taxes payable

20

18

Deferred revenue, current

177

142

393

411

Deferred revenue, non-current

108

53

Other long-term liabilities

17

23

Long-term debt

739

782

Deferred income tax liabilities

5

6

1,262

1,275

Shareholders’ equity

Capital stock and additional paid-in capital

2,600

2,560

Deficit

(142)

(45)

Accumulated other comprehensive loss

(18)

(10)

2,440

2,505

$

3,702

$

3,780

 

BlackBerry Limited

Incorporated under the Laws of Ontario

(United States dollars, in millions) (unaudited)

Consolidated Statements of Cash Flows

For the Six Months Ended

August 31, 2018

August 31, 2017

Cash flows from operating activities

Net income (loss)

$

(17)

$

690

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

  Amortization

79

96

  Deferred income taxes

(2)

  Stock-based compensation

39

24

  Impairment of long-lived assets

11

  Loss on sale, disposal and abandonment of long-lived assets

4

  Debentures fair value adjustment

(42)

148

  Other long-term receivables

(30)

  Other

2

(3)

Net changes in working capital items:

  Accounts receivable, net

6

45

  Other receivables

19

(11)

  Income taxes receivable

11

(2)

  Other assets

(9)

31

  Accounts payable

(12)

(43)

  Income taxes payable

2

4

  Accrued liabilities

(43)

(49)

  Deferred revenue

(7)

(42)

  Other long-term liabilities

(6)

(4)

Net cash provided by operating activities

22

867

Cash flows from investing activities

Acquisition of long-term investments

(1)

(25)

Proceeds on sale or maturity of long-term investments

1

Acquisition of property, plant and equipment

(9)

(6)

Proceeds on sale of property, plant and equipment

1

3

Acquisition of intangible assets

(16)

(14)

Acquisition of short-term investments

(2,178)

(1,693)

Proceeds on sale or maturity of short-term investments

1,939

732

Net cash used in investing activities

(264)

(1,002)

Cash flows from financing activities

Issuance of common shares

2

3

Common shares repurchased

(17)

Net cash provided by (used in) financing activities

2

(14)

Effect of foreign exchange gain (loss) on cash, cash equivalents, restricted cash, and restricted cash equivalents

(2)

3

Net decrease in cash, cash equivalents, restricted cash, and restricted cash equivalents during the period

(242)

(146)

Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period

855

785

Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period

$

613

$

639

As at

August 31, 2018

February 28, 2018

Cash and cash equivalents

$

581

$

816

Restricted cash and cash equivalents

$

32

$

39

Short-term investments

$

1,683

$

1,443

Long-term investments

$

56

$

55

 

Conference Call and Webcast

A conference call and live webcast will be held today beginning at 8 a.m. ET, which can be accessed by dialing 1- 866-393-4306 or by logging on here.

A replay of the conference call will also be available at approximately 11 a.m. ET by dialing 1-800-585-8367 and entering Conference ID #7069667 and at the link above.

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