BlackBerry beats Sale Estimates

BlackBerry today reported financial results for the three months ended November 30, 2818, coming in at $0.05 per share, beating Wall Street’s estimates of $0.02 per Share. Revenue for the quarter came in at $226.00 million beating analyst estimates of $215.38 million

The company swung to a profit of $59 million in the quarter ended November 30 from a loss of $275 million a year earlier. On an adjusted basis, the company said it earned 5 cents a share, beating the average analyst estimate of 2 cents. Adjusted revenue in the third quarter was $228 million, compared with the average analyst projection of $215.7 million.

Enterprise software and services revenue was $98 million in the third quarter on an adjusted basis, down 7.5 percent from a year earlier. The company previously said it expects software revenue to under-perform through fiscal 2019 due to a change in accounting standards.

BlackBerry has pivoted away from making phones in recent years, reinventing itself as a security software provider under Chief Executive Officer John Chen. The company offers a range of different product lines, such as systems to manage an entire stable of mobile phones, or to let cars securely update their entertainment systems.

The company reaffirmed its outlook for 2019. It expects total software and services revenue growth of between 8 percent and 10 percent and positive adjusted earnings per share.The Waterloo, Ontario-based company is also looking to push into health care, Chen said earlier this year.

“We delivered another solid quarter of performance, resulting in year-over-year double-digit percentage growth for total software and services revenue, earnings per share, and free cash flow” said John Chen, Executive Chairman and CEO, BlackBerry.

“I’m excited about the pending Cylance acquisition as it will extend our strategy with cutting-edge AI cybersecurity capabilities and, combined with BlackBerry’s capabilities, present the opportunity for revenue acceleration in our businesses, including UEM, QNX and Spark.”

Chen stated that revenue from its handset devices was zero for this quarter, as the company continue to

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 dialling 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 dialling 1-800-585-8367 and entering Conference ID #3276343 and at the link above.

BlackBerry Third Quarter Fiscal 2019 Results

Total company non-GAAP revenue for the third quarter of fiscal 2019 was $228 million with GAAP revenue of $226 million. Total non-GAAP software and services revenue of $219 million, up 10% year-over-year. Total GAAP software and services revenue was $217 million, up 14% year-over-year. Approximately 88% of third quarter software and services revenue (excluding IP licensing and professional services) was recurring after including perpetual licenses that are now recognized ratably. Non-GAAP gross margin was 76% and GAAP gross margin was 75%.
Non-GAAP operating income was $27 million, and positive for the eleventh consecutive quarter. GAAP operating income was $58 million. Non-GAAP earnings per share was $0.05 (basic and diluted). GAAP net income for the quarter was $0.11 per basic share and a GAAP net loss of $0.01 per diluted share. GAAP net income includes $20 million for acquired intangibles amortization expense, $15 million in stock compensation expense, $1 million in restructuring charges, a benefit of $69 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 November 30, 2018. Free cash flow, before considering the impact of restructuring and legal proceedings, was positive $39 million. Cash generated from operations was $62 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 $1.8 billion.

Q3 Fiscal 2019 Non-GAAP Adjustments		For the Three Months Ended November 30, 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		$	226	$	170	75.2	%	$	60	$	59	$	0.11
Debentures fair value adjustment ⁽²⁾	Debentures fair value adjustment	—		—		—	%	(69)		(69)
Restructuring charges ⁽³⁾	Selling, marketing and administration	—		—		—	%	1		1
Software deferred revenue acquired⁽⁴⁾	Revenue	2		2		0.2	%	2		2
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	—		—		—	%	11		11
Acquired intangibles amortization ⁽⁶⁾	Amortization	—		—		—	%	20		20
Adjusted		$	228	$	173	75.9	%	$	29	$	28	$	0.05

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.

During the third quarter of fiscal 2019, the Company reported GAAP gross margin of $170 million or 75.2% of revenue. Excluding the impact of stock compensation expense included in cost of sales and software deferred revenue acquired included in revenue, non-GAAP gross margin was $173 million, or 75.9% of revenue.
During the third quarter of fiscal 2019, the Company recorded the Q3 Fiscal 2019 Debentures Fair Value Adjustment of $69 million. This adjustment was presented on a separate line in the Consolidated Statements of Operations.
During the third quarter of fiscal 2019, the Company incurred restructuring charges of approximately $1 million, which was included in selling, marketing and administration expense.
During the third quarter of fiscal 2019, the Company recorded software deferred revenue acquired but not recognized due to business combination accounting rules of $2 million, which was included in Enterprise software and services revenue.
During the third quarter of fiscal 2019, the Company recorded stock compensation expense of $15 million, of which $1 million was included in cost of sales, $3 million was included in research and development, and $11 million was included in selling, marketing and administration expense.
During the third quarter of fiscal 2019, the Company recorded amortization of intangible assets acquired through business combinations of $20 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, 2018				August 31, 2018				May 31, 2018				February 28, 2018				November 30, 2017
North America	$	151	66.8	%	$	133	63.3	%	$	139	65.3	%	$	147	63.1	%	$	133	58.8	%
Europe, Middle East and Africa	56		24.8	%	53		25.3	%	52		24.4	%	63		27.0	%	69		30.5	%
Other regions	19		8.4	%	24		11.4	%	22		10.3	%	23		9.9	%	24		10.7	%
Total	$	226	100.0	%	$	210	100.0	%	$	213	100.0	%	$	233	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, 2018		November 30, 2017		November 30, 2018		November 30, 2017		November 30, 2018		November 30, 2017
Enterprise software and services	$	96	$	97	$	2	$	9	$	98	$	106
BlackBerry Technology Solutions	53		43		—		—		53		43
Licensing, IP and other	68		50		—		—		68		50
Handheld devices	—		9		—		—		—		9
SAF	9		27		—		—		9		27
Total	$	226	$	226	$	2	$	9	$	228	$	235

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, 2018			August 31, 2018			November 30, 2017			November 30, 2018			November 30, 2017
Revenue	$	226		$	210		$	226		$	649		$	699
Cost of sales	56			49			58			157			206
Gross margin	170			161			168			492			493
Gross margin %	75.2		%	76.7		%	74.3		%	75.8		%	70.5		%
Operating expenses
Research and development	55			51			60			167			181
Selling, marketing and administration	93			106			120			299			343
Amortization	33			35			37			105			116
Debentures fair value adjustment	(69)			(70)			77			(111)			225
Impairment of long-lived assets	—			—			—			—			11
Arbitration charges (awards)	—			—			132			—			(683)
	112			122			426			460			193
Operating income (loss)	58			39			(258)			32			300
Investment income, net	2			5			(17)			13			120
Income (loss) before income taxes	60			44			(275)			45			420
Provision for income taxes	1			1			—			3			5
Net income (loss)	$	59		$	43		$	(275)		$	42		$	415
Earnings (loss) per share
Basic	$	0.11		$	0.08		$	(0.52)		$	0.08		$	0.78
Diluted	$	(0.01)		$	(0.04)		$	(0.52)		$	(0.09)		$	0.76

Weighted-average number of common shares outstanding (000s)
Basic	540,406			537,299			532,496			538,251			531,651
Diluted	600,906			597,799			532,496			598,751			548,514
Total common shares outstanding (000s)	547,084			537,768			536,307			547,084			536,307

BlackBerry Limited
Incorporated under the Laws of Ontario
(United States dollars, in millions) (unaudited)

Consolidated Balance Sheets

	As at
	November 30, 2018		February 28, 2018
Assets
Current
Cash and cash equivalents	$	1,084	$	816
Short-term investments	1,234		1,443
Accounts receivable, net	138		151
Other receivables	25		71
Income taxes receivable	13		26
Other current assets	50		38
	2,544		2,545
Restricted cash and cash equivalents	26		39
Long-term investments	55		55
Other long-term assets	26		28
Deferred income tax assets	2		3
Property, plant and equipment, net	63		64
Goodwill	564		569
Intangible assets, net	396		477
	$	3,676	$	3,780
Liabilities
Current
Accounts payable	$	32	$	46
Accrued liabilities	156		205
Income taxes payable	17		18
Deferred revenue, current	171		142
	376		411
Deferred revenue, non-current	98		53
Other long-term liabilities	14		23
Long-term debt	665		782
Deferred income tax liabilities	4		6
	1,157		1,275
Shareholders’ equity
Capital stock and additional paid-in capital	2,618		2,560
Deficit	(83)		(45)
Accumulated other comprehensive loss	(16)		(10)
	2,519		2,505
	$	3,676	$	3,780

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, 2018		November 30, 2017
Cash flows from operating activities
Net income	$	42	$	415
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization	116		138
Deferred income taxes	(1)		(3)
Stock-based compensation	53		36
Impairment of long-lived assets	—		11
Loss on sale, disposal and abandonment of long-lived assets	2		6
Debentures fair value adjustment	(111)		225
Other long-term assets	2		(23)
Other	3		(3)
Net changes in working capital items:
Accounts receivable, net	13		36
Other receivables	46		(6)
Income taxes receivable	13		4
Other assets	(1)		40
Accounts payable	(14)		(65)
Income taxes payable	(1)		5
Accrued liabilities	(57)		99
Deferred revenue	(23)		(49)
Net cash provided by operating activities	82		866
Cash flows from investing activities
Acquisition of long-term investments	(2)		(27)
Proceeds on sale or maturity of long-term investments	2		77
Acquisition of property, plant and equipment	(14)		(11)
Proceeds on sale of property, plant and equipment	1		3
Acquisition of intangible assets	(24)		(22)
Acquisition of short-term investments	(2,754)		(2,715)
Proceeds on sale or maturity of short-term investments	2,962		1,626
Net cash provided by (used in) investing activities	171		(1,069)
Cash flows from financing activities
Issuance of common shares	5		7
Common shares repurchased	—		(18)
Net cash provided by (used in) financing activities	5		(11)
Effect of foreign exchange gain (loss) on cash, cash equivalents, restricted cash, and restricted cash equivalents	(3)		3
Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents during the period	255		(211)
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	$	1,110	$	574

As at	November 30, 2018		February 28, 2018
Cash and cash equivalents	$	1,084	$	816
Restricted cash and cash equivalents	$	26	$	39
Short-term investments	$	1,234	$	1,443
Long-term investments	$	55	$	55