BlackBerry beat quarterly revenue estimates on Friday, boosted by sales from its licensing and cybersecurity businesses.
Despite the revenue increase, the company lost US$32 million in the quarter compared with a profit of US$59 million in the same quarter last year.
Adjusted gross margin was 74.2% compared to the 75.2% in last year’s quarter. BlackBerry generated $37M in FCF in the quarter. Cash from operations was $40M and capex totaled $3M.
U.S.-listed shares of the company rose 5.8 per cent to US$6.14 in premarket trading.
The company’s adjusted revenue rose 23 per cent to US$280 million, beating average analysts’ estimate of US$275.7 million, according to IBES data from Refinitiv.
BlackBerry reported a revenue of US$40 million from recently acquired Cylance, a California-based cyber security business whose software uses machine learning to avoid security breaches.
On a per share basis, the company’s loss widened to 7 cents from 1 cent, a year earlier.
“BlackBerry achieved sequential growth in revenue across all of our software businesses while generating healthy non-GAAP profitability and free cash flow as we continue to invest in our future,” said John Chen, Executive Chairman and CEO, BlackBerry.
“I am pleased with our progress. Our pipeline is growing as we deliver against our product roadmap and execute on our go-to-market expansion.”
Third Quarter Fiscal 2020 Results
Total company non-GAAP revenue for the third quarter of fiscal 2020 was $280 million, up 23% year-over-year. Total company GAAP revenue for the third quarter of fiscal 2020 was $267 million, up 18% year-over-year. Total non-GAAP software and services revenue was $275 million, up 26% year-over-year.
Total GAAP software and services revenue was $262 million, up 21% year-over-year. Third quarter recurring non-GAAP software and services revenue (excluding IP licensing and professional services) was over 90%. Non-GAAP gross margin was 77% and GAAP gross margin was 74%.
Total company non-GAAP operating earnings was $20 million. Total company GAAP operating loss was $29 million. Non-GAAP earnings per share was $0.03 (basic and diluted). GAAP net loss was $0.06 per basic share and $0.07 per diluted share.
GAAP net loss includes $35 million for acquired intangibles amortization expense, $15 million in stock compensation expense, $10 million in restructuring charges, a benefit of $20 million related to the fair value adjustment on the debentures, and other amounts as summarised in a table below.
Total cash, cash equivalents, short-term and long-term investments was $970 million as of November 30, 2019. Free cash flow generated, before considering the impact of acquisition and integration expenses, restructuring costs and legal proceedings, was $41 million. Cash generated from operations was $40 million and capital expenditures were $3 million.
Reconciliation of GAAP revenue, gross margin, gross margin percentage, income (loss) before income taxes, net income (loss) and basic earnings (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 November 30, 2019:
| Q3 Fiscal 2020 Non-GAAP Adjustments | For the Three Months Ended November 30, 2019 | |||||||||||||||||||||||
| (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 | $ | 267 | $ | 198 | 74.2 | % | $ | (30) | $ | (32) | $ | (0.06) | ||||||||||||
| Debentures fair value adjustment (2) | Debentures fair value adjustment | — | — | — | % | (20) | (20) | |||||||||||||||||
| Restructuring charges (3) | Cost of sales | — | 3 | 1.1 | % | 3 | 3 | |||||||||||||||||
| Restructuring charges (3) | Selling, marketing and administration | — | — | — | % | 7 | 7 | |||||||||||||||||
| Software deferred revenue acquired(4) | Revenue | 13 | 13 | 1.1 | % | 13 | 13 | |||||||||||||||||
| Software deferred commission expense acquired (5) | Selling, marketing and administration | — | — | — | % | (4) | (4) | |||||||||||||||||
| Stock compensation expense (6) | Cost of sales | — | 1 | 0.4 | % | 1 | 1 | |||||||||||||||||
| Stock compensation expense (6) | Research and development | — | — | — | % | 4 | 4 | |||||||||||||||||
| Stock compensation expense (6) | Selling, marketing and administration | — | — | — | % | 10 | 10 | |||||||||||||||||
| Acquired intangibles amortization (7) | Amortization | — | — | — | % | 35 | 35 | |||||||||||||||||
| Adjusted | $ | 280 | $ | 215 | 76.8 | % | $ | 19 | $ | 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 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 third quarter of fiscal 2020, the Company reported GAAP gross margin of $198 million or 74.2% of revenue. Excluding the impact of stock compensation expense and restructuring charges included in cost of sales and software deferred revenue acquired included in revenue, non-GAAP gross margin was $215 million, or 76.8% of revenue. |
| (2) | During the third quarter of fiscal 2020, the Company recorded the Q3 Fiscal 2020 Debentures Fair Value Adjustment of $20 million. This adjustment was presented on a separate line in the Consolidated Statements of Operations. |
| (3) | During the third quarter of fiscal 2020, the Company incurred restructuring charges of approximately $10 million, of which $3 million was included in cost of sales and $7 million was included selling, marketing and administration expense. |
| (4) | During the third quarter of fiscal 2020, the Company recorded software deferred revenue acquired but not recognized due to business combination accounting rules of $13 million, which was included in BlackBerry Cylance revenue. |
| (5) | During the third quarter of fiscal 2020, the Company recorded deferred commission expense acquired but not recognized due to business combination accounting rules of approximately of $4 million. |
| (6) | During the third quarter of fiscal 2020, the Company recorded stock compensation expense of $15 million, of which $1 million was included in cost of sales, $4 million was included in research and development, and $10 million was included in selling, marketing and administration expense. |
| (7) | During the third quarter of fiscal 2020, the Company recorded amortization of intangible assets acquired through business combinations of $35 million, which was included in amortization expense. |
Supplementary Geographic Revenue Breakdown
| BlackBerry Limited | |||||||||||||||||||||||||||||||||||
| (United States dollars, in millions) | |||||||||||||||||||||||||||||||||||
| Revenue by Region | |||||||||||||||||||||||||||||||||||
| For the Quarters Ended | |||||||||||||||||||||||||||||||||||
| November 30, 2019 | August 31, 2019 | May 31, 2019 | February 28, 2019 | November 30, 2018 | |||||||||||||||||||||||||||||||
| North America | $ | 188 | 70.4 | % | $ | 179 | 73.4 | % | $ | 160 | 64.8 | % | $ | 176 | 69.0 | % | $ | 151 | 66.8 | % | |||||||||||||||
| Europe, Middle Eastand Africa | 60 | 22.5 | % | 47 | 19.3 | % | 61 | 24.7 | % | 61 | 23.9 | % | 56 | 24.8 | % | ||||||||||||||||||||
| Other regions | 19 | 7.1 | % | 18 | 7.3 | % | 26 | 10.5 | % | 18 | 7.1 | % | 19 | 8.4 | % | ||||||||||||||||||||
| Total | $ | 267 | 100.0 | % | $ | 244 | 100.0 | % | $ | 247 | 100.0 | % | $ | 255 | 100.0 | % | $ | 226 | 100.0 | % |
Supplementary Revenue by Product and Service Type Breakdown
| BlackBerry Limited | |||||||||||||||||||||||
| (United States dollars, in millions) | |||||||||||||||||||||||
| Revenue by Product and Service Type | |||||||||||||||||||||||
| U.S. GAAP | Adjustments | Non-GAAP | |||||||||||||||||||||
| For the Three Months Ended | For the Three Months Ended | For the Three Months Ended | |||||||||||||||||||||
| November 30, 2019 | November 30, 2018 | November 30, 2019 | November 30, 2018 | November 30, 2019 | November 30, 2018 | ||||||||||||||||||
| IoT | $ | 145 | $ | 148 | $ | — | $ | 2 | $ | 145 | $ | 150 | |||||||||||
| BlackBerry Cylance | 40 | 1 | 13 | — | 53 | 1 | |||||||||||||||||
| Licensing | 77 | 68 | — | — | 77 | 68 | |||||||||||||||||
| Other | 5 | 9 | — | — | 5 | 9 | |||||||||||||||||
| Total | $ | 267 | $ | 226 | $ | 13 | $ | 2 | $ | 280 | $ | 228 |
| 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 Nine Months Ended | |||||||||||||||||||
| November 30, 2019 | August 31, 2019 | November 30, 2018 | November 30, 2019 | November 30, 2018 | ||||||||||||||||
| Revenue | $ | 267 | $ | 244 | $ | 226 | $ | 758 | $ | 649 | ||||||||||
| Cost of sales | 69 | 68 | 56 | 207 | 157 | |||||||||||||||
| Gross margin | 198 | 176 | 170 | 551 | 492 | |||||||||||||||
| Gross margin % | 74.2 | % | 72.1 | % | 75.2 | % | 72.7 | % | 75.8 | % | ||||||||||
| Operating expenses | ||||||||||||||||||||
| Research and development | 66 | 62 | 55 | 199 | 167 | |||||||||||||||
| Selling, marketing and administration | 132 | 132 | 93 | 385 | 299 | |||||||||||||||
| Amortization | 49 | 48 | 33 | 146 | 105 | |||||||||||||||
| Debentures fair value adjustment | (20) | (23) | (69) | (71) | (111) | |||||||||||||||
| 227 | 219 | 112 | 659 | 460 | ||||||||||||||||
| Operating income (loss) | (29) | (43) | 58 | (108) | 32 | |||||||||||||||
| Investment income (loss), net | (1) | — | 2 | 2 | 13 | |||||||||||||||
| Income (loss) before income taxes | (30) | (43) | 60 | (106) | 45 | |||||||||||||||
| Provision for income taxes | 2 | 1 | 1 | 5 | 3 | |||||||||||||||
| Net income (loss) | $ | (32) | $ | (44) | $ | 59 | $ | (111) | $ | 42 | ||||||||||
| Earnings (loss) per share | ||||||||||||||||||||
| Basic | $ | (0.06) | $ | (0.08) | $ | 0.11 | $ | (0.20) | $ | 0.08 | ||||||||||
| Diluted | $ | (0.07) | $ | (0.10) | $ | (0.01) | $ | (0.27) | $ | (0.09) | ||||||||||
| Weighted-average number of common shares outstanding (000s) | ||||||||||||||||||||
| Basic | 554,585 | 552,343 | 540,406 | 552,931 | 538,251 | |||||||||||||||
| Diluted | 615,085 | 612,843 | 600,906 | 613,431 | 598,751 | |||||||||||||||
| Total common shares outstanding (000s) | 552,132 | 548,336 | 547,084 | 552,132 | 547,084 |
| BlackBerry Limited | ||||||||
| Incorporated under the Laws of Ontario | ||||||||
| (United States dollars, in millions) (unaudited) | ||||||||
| Consolidated Balance Sheets | ||||||||
| As at | ||||||||
| November 30, 2019 | February 28, 2019 | |||||||
| Assets | ||||||||
| Current | ||||||||
| Cash and cash equivalents | $ | 515 | $ | 548 | ||||
| Short-term investments | 367 | 368 | ||||||
| Accounts receivable, net | 216 | 233 | ||||||
| Other receivables | 13 | 19 | ||||||
| Income taxes receivable | 10 | 9 | ||||||
| Other current assets | 58 | 56 | ||||||
| 1,179 | 1,233 | |||||||
| Restricted cash and cash equivalents | 32 | 34 | ||||||
| Long-term investments | 56 | 55 | ||||||
| Other long-term assets | 23 | 28 | ||||||
| Deferred income tax assets | — | 2 | ||||||
| Operating lease right-of-use assets | 133 | — | ||||||
| Property, plant and equipment, net | 76 | 85 | ||||||
| Goodwill | 1,459 | 1,463 | ||||||
| Intangible assets, net | 955 | 1,068 | ||||||
| $ | 3,913 | $ | 3,968 | |||||
| Liabilities | ||||||||
| Current | ||||||||
| Accounts payable | $ | 27 | $ | 48 | ||||
| Accrued liabilities | 193 | 192 | ||||||
| Income taxes payable | 19 | 17 | ||||||
| Debentures | 609 | — | ||||||
| Deferred revenue, current | 264 | 253 | ||||||
| 1,112 | 510 | |||||||
| Deferred revenue, non-current | 117 | 136 | ||||||
| Operating lease liabilities | 127 | — | ||||||
| Other long-term liabilities | 8 | 19 | ||||||
| Long-term debentures | — | 665 | ||||||
| Deferred income tax liabilities | 1 | 2 | ||||||
| 1,365 | 1,332 | |||||||
| Shareholders’ equity | ||||||||
| Capital stock and additional paid-in capital | 2,742 | 2,688 | ||||||
| Deficit | (157) | (32) | ||||||
| Accumulated other comprehensive loss | (37) | (20) | ||||||
| 2,548 | 2,636 | |||||||
| $ | 3,913 | $ | 3,968 |
| BlackBerry Limited | |||||||
| Incorporated under the Laws of Ontario | |||||||
| (United States dollars, in millions) (unaudited) | |||||||
| Consolidated Statements of Cash Flows | |||||||
| For the Nine Months Ended | |||||||
| November 30, 2019 | November 30, 2018 | ||||||
| Cash flows from operating activities | |||||||
| Net income (loss) | $ | (111) | $ | 42 | |||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | |||||||
| Amortization | 160 | 116 | |||||
| Stock-based compensation | 46 | 53 | |||||
| Non-cash consideration received from contract with a customer | (8) | — | |||||
| Debentures fair value adjustment | (71) | (111) | |||||
| Other long-term assets | — | 2 | |||||
| Operating leases | (12) | — | |||||
| Other | 9 | 4 | |||||
| Net changes in working capital items: | |||||||
| Accounts receivable, net | 17 | 13 | |||||
| Other receivables | 6 | 46 | |||||
| Income taxes receivable | (1) | 13 | |||||
| Other assets | 3 | (1) | |||||
| Accounts payable | (21) | (14) | |||||
| Income taxes payable | 2 | (1) | |||||
| Accrued liabilities | (24) | (57) | |||||
| Deferred revenue | (10) | (23) | |||||
| Other long-term liabilities | 7 | — | |||||
| Net cash provided by (used in) operating activities | (8) | 82 | |||||
| Cash flows from investing activities | |||||||
| Acquisition of long-term investments | (1) | (2) | |||||
| Proceeds on sale or maturity of long-term investments | — | 2 | |||||
| Acquisition of property, plant and equipment | (9) | (14) | |||||
| Proceeds on sale of property, plant and equipment | — | 1 | |||||
| Acquisition of intangible assets | (24) | (24) | |||||
| Business acquisitions, net of cash acquired | 1 | — | |||||
| Acquisition of short-term investments | (829) | (2,754) | |||||
| Proceeds on sale or maturity of short-term investments | 830 | 2,962 | |||||
| Net cash provided by (used in) investing activities | (32) | 171 | |||||
| Cash flows from financing activities | |||||||
| Issuance of common shares | 8 | 5 | |||||
| Finance lease liability | (2) | — | |||||
| Net cash provided by financing activities | 6 | 5 | |||||
| Effect of foreign exchange loss on cash, cash equivalents, restricted cash, and restricted cash equivalents | (1) | (3) | |||||
| Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents during the period | (35) | 255 | |||||
| Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period | 582 | 855 | |||||
| Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period | $ | 547 | $ | 1,110 | |||
| As at | November 30, 2019 | February 28, 2019 | |||||
| Cash and cash equivalents | $ | 515 | $ | 548 | |||
| Restricted cash and cash equivalents | $ | 32 | $ | 34 | |||
| Short-term investments | $ | 367 | $ | 368 | |||
| Long-term investments | $ | 56 | $ | 55 |
