BlackBerry

BlackBerry beats estimates as quarterly revenue rises

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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 Cylance40

1

13

—

53

1
Licensing77

68

—

—

77

68
Other5

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:


Amortization160

116
Stock-based compensation46

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)

—
Other9

4
Net changes in working capital items:


Accounts receivable, net17

13
Other receivables6

46
Income taxes receivable(1)

13
Other assets3

(1)
Accounts payable(21)

(14)
Income taxes payable2

(1)
Accrued liabilities(24)

(57)
Deferred revenue(10)

(23)
Other long-term liabilities7

—
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 acquired1

—
Acquisition of short-term investments(829)

(2,754)
Proceeds on sale or maturity of short-term investments830

2,962
Net cash provided by (used in) investing activities(32)

171
Cash flows from financing activities


Issuance of common shares8

5
Finance lease liability(2)

—
Net cash provided by financing activities6

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 period582

855
Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period$547

$1,110




As atNovember 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