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-yearConference 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 $ 0.03Note: 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.
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. 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. 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. 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. 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. 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. 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
