BlackBerry FY 2019 First Quarter Results Beat Estimates as Stock Falls

17,380

BlackBerry today reported financial results for the three months ended May 31, 2018. BlackBerry’s results were better than analysts were expecting, but a double-digit revenue decline and a worsening GAAP net income appears to be driving down the stock. Another factor would be that guidance for the full year calls for a slowdown in software and services growth compared to the first quarter.

BlackBerry reported first-quarter non-GAAP revenue of $217 million, down 11% year over year but about $7.4 million above the average analyst estimate.

Total non-GAAP software and services revenue of $193 million, up 14% year- over-year. Total GAAP software and services revenue was $189 million, up 18% year-over-year. Approximately 86% of first quarter software and services revenue (excluding IP licensing and professional services) was recurring, up from approximately 70% in the fourth quarter of fiscal year 2018. Gross margin of 76% (both non-GAAP and GAAP).

Non-GAAP operating income was $12 million, and positive for the ninth consecutive quarter. GAAP operating loss was $65 million. Non-GAAP earnings per share was $0.03 (basic and diluted). GAAP net loss for the quarter was $0.11 per share (basic and diluted). GAAP net loss includes a charge of $28 million related to the fair value adjustment on the debentures, $22 million in acquired intangibles amortization expense, $18 million in stock compensation expense, $4 million in restructuring charges, and other amounts as summarized in a table below.

Total cash, cash equivalents, short-term and long-term investments were approximately $2.3 billion as of May 31, 2018. Free cash flow, before considering the impact of restructuring and legal proceedings, was positive $3 million. Cash used in operations was $7 million and capital expenditures were $5 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 $1.7 billion.

“We are off to a solid start in fiscal 2019, with 14% year-over-year growth in total software and services revenue driven by strong double-digit billings and an increase in recurring revenue,” said John Chen, Executive Chairman and CEO, BlackBerry.

“I am pleased that BlackBerry QNX software is now embedded in over 120 million automobiles worldwide, doubling the install base in the last three years. We are very excited about the opportunities ahead of us in automobiles and in other EoT verticals.”

BlackBerry’s outlook for fiscal 2019 is as follows:

  • Total company software and services billings growth is expected to be double-digits
  • 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
  • Total software and services revenue growth of between 8% to 10% year-over-year

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- 866-496-6675 or by logging on here. A replay of the conference call will also be available at approximately 11 a.m. ET by dialing 1-888-203-1112 and entering Conference ID #8263166 and at the link above.

Full Results

Reconciliation of GAAP revenue, gross margin, gross margin percentage, loss before income taxes, net loss and basic loss 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 May 31, 2018:

Q1 Fiscal 2019 Non-GAAP Adjustments For the Three Months Ended May 31,2018
(in millions, except for per share amounts) 
Income statement
location
Revenue  Gross
margin 
(before taxes) 
Gross margin 
(before 
taxes) 
Income (loss)
before 
income taxes 
Net  income 
(loss) 
 Basic earnings 
(loss) per 
share
As reported $ 213 $ 161  75.6% (59) $ (60) $ (0.11)
Debentures fair value adjustment (2) Debentures fair value adjustment  —% 28 28
Resource Alignment Program charges (3) Research and development  —% 2 2
Resource Alignment Program charges (3) Selling, marketing and administration  —% 2 2
Software deferred revenue acquired (4) Revenue 4 4  0.4% 4 4
Stock compensation expense (5) Cost of sales 1  0.5% 1 1
Stock compensation expense (5) Research and development  —% 3 3
Stock compensation expense (5) Selling, marketing and administration —% 14 14
Acquired intangibles amortization (6) Amortization —% 22 22
Business acquisition and integration costs (7) Selling, marketing and administration —% 1 1
Adjusted $ 217 $ 166 76.5% $ 18 $  17 $ 0.03

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 first quarter of fiscal 2019, the Company reported GAAP gross margin of $161 million or 75.6% of revenue. Excluding the impact of stock compensation expense included in cost of sales and software deferred revenue acquired included in revenue, the non-GAAP gross margin was $166 million, or 76.5% of revenue.
  2. During the first quarter of fiscal 2019, the Company recorded the Q1 Fiscal 2019 Debentures Fair Value Adjustment of $28 million. This adjustment was presented on a separate line in the Consolidated Statements of Operations.
  3. During the first quarter of fiscal 2019, the Company incurred charges related to the Resource Alignment Program of approximately $4 million, of which $2 million was included in research and development and $2 million was included in selling, marketing and administration expense.
  4. During the first 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 first quarter of fiscal 2019, the Company recorded stock compensation expense of $18 million, of which $1 million was included in cost of sales, $3 million was included in research and development, and $14 million was included in selling, marketing and administration expenses.
  6. During the first 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 first quarter of fiscal 2019, the Company recorded business acquisition and integration costs incurred through business combinations of $1 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
May 31, 2018 February 28, 2018 November 30, 2017 August 31, 2017 May 31, 2017
North America $ 139 65.3 % $ 147 63.1 % $ 133 58.9 % $ 133 55.9 % $ 127 54.0 %
Europe, Middle East and
Africa 52 24.4 % 63 27.0 % 69 30.5 % 76 31.9 % 70 29.8 %
Other regions 22 10.3 % 23 9.9 % 24 10.6 % 29 12.2 % 38 16.2 %
Total $ 213 100.0 % $ 233 100.0 % $ 226 100.0 % $ 238 100.0 % $ 235 100.0 %

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
May 31, 2018 May 31, 2017 May 31, 2018 May 31, 2017 May 31, 2018 May 31, 2017
Enterprise software and services $ 79 $ 92 $ 4 $ 9 $ 83 $ 101
BlackBerry Technology Solutions 47 36 47 36
Licensing, IP and other 63 32 63 32
Handheld devices 8 37 8 37
SAF 16 38 16 38
Total $ 213 $ 235 $ 4 $ 9 $ 217 $ 244

 

 

 

 

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
May 31, 2018
February 28, 2018
May 31, 2017
Revenue $ 213  $ 233 $ 235
Cost of sales 52  56 85
Gross margin 161  177 150
Gross margin % 75.6% 76.0% 63.8%
Operating expenses  
Research and development 61  58 61
Selling, marketing and administration 100  133 110
Amortization 37  37 40
Debentures fair value adjustment 28  (34) 218
Qualcomm arbitration award   (815)
226  194 (386)
Operating income (loss) (65) (17) 536
Investment income, net 6  3 136
Income (loss) before income taxes (59) (14) 672
Provision for (recovery of) income taxes 1  (4) 1
Net income (loss) $ (60) $ (10) $ 671
Earnings (loss) per share  
Basic $ (0.11) $ (0.02) $ 1.26
Diluted $ (0.11) $ (0.06) $ 1.23
 
 
Weighted-average number of common shares outstanding (000’s)  
 
Basic 536,964 536,594 531,096
Diluted 536,964 597,094 544,077
Total common shares outstanding (000’s) 537,112 536,734 531,476
BlackBerry Limited
Incorporated under the Laws of Ontario
(United States dollars, in millions) (unaudited)
Consolidated Balance Sheets
As at
May 31, 2018 May 31, 2018
Assets
Current
Cash and cash equivalents $   520   $   816
Short-term investments   1,725   1,443
Accounts receivable, net   126   151
Other receivables   63   71
Income taxes receivable   17   26
Other current assets   56   38
  2,507   2,545
Restricted cash and cash equivalents   35   39
Long-term investments   55   55
Other long-term assets   30   28
Deferred income tax assets   2   3
Property, plant and equipment, net   64   64
Goodwill   566   569
Intangible assets, net   447   477
$   3,706   $   3,780
Liabilities
Current
 
Accounts payable $   37   $   46
Accrued liabilities   162   205
Income taxes payable   19   18
Deferred revenue, current   166   142
  384   411
Deferred revenue, non-current   111   53
Other long-term liabilities   20   23
Long-term debt   810   782
Deferred income tax liabilities   5   6
    1,330     1,275
Shareholders’ equity  
Capital stock and additional paid-in capital   2,580   2,560
Deficit   (185 ) (45)
Accumulated other comprehensive loss   (19 ) (10)
  2,376   2,505
$ 3,706   $ 3,780
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 Three Months Ended
  May 31, 2018
   May 31, 2017
Cash flows from operating activities
Net income (loss) $   (60 ) $   671
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:  
Amortization   41   51
Stock-based compensation   18   13
Debentures fair value adjustment   28   218
Other   2   1
Net changes in working capital items:  
Accounts receivable, net   25   35
Other receivables   8   1
Income taxes receivable   9   (2 )
Other assets   (10 ) 21
Accounts payable   (9 ) (59 )
Income taxes payable   1   1
Accrued liabilities   (42 ) (50 )
Deferred revenue   (15 ) (36 )
Other long-term liabilities   (3 ) (2 )
Net cash provided by (used in) operating activities (7 ) 863
Acquisition of long-term investments   (25 )
Acquisition of property, plant and equipment (5 ) (3 )
Proceeds on sale of property, plant and equipment   1
Acquisition of intangible assets (7 ) (7 )
Acquisition of short-term investments (1,011 ) (1,015 )
Proceeds on sale or maturity of short-term investments 730   378
Net cash used in investing activities   (293 )   (671 )
Cash flows from financing activities
Issuance of common shares 2   3
Net cash provided by financing activities 2   3
Effect of foreign exchange gain (loss) on cash, cash equivalents, restricted cash, and restricted cash equivalents (2 ) 1
Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents during the period  (300 ) 196
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 $ 555 $ 981
As at May 31, 2018 February 28, 2018
Cash and cash equivalents $ 520 $ 816
Short-term investments $ 1,725 $ 1,443
Long-term investments $ 55 $ 55
Restricted cash and cash equivalents $ 35 $ 39

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