BlackBerry Q3 Fiscal 2016 Results beats Estimates

BlackBerry has announced their Q3 Fiscal 2016 results today,Ã‚Â reporting higher revenue and a smaller loss than analysts were expecting.

The company’s revenue was US$557 million, which is $64 million above the general estimate and up from US$548 million a year ago.

The company’s net loss was US$89 million or 17 cents per share under standard accounting rules. After adjustments, BlackBerry’s loss was US$15 million or three cents per share Ã¢â‚¬â€ far less than estimates.

Analysts projected that BlackBerry would report a loss of 14 cents per share and US$489 million of revenue for the quarter.

Q3 Highlights

Non-GAAP total revenue of $557 million, up 14 percent over Q2 FY16
Non-GAAP software and services revenue of $162 million, up 183 percent year over year and up 119 percent quarter over quarter
Adjusted EBITDA of $114 million
Cash and investments balance of $2.71 billion at the end of the fiscal quarter, including the impact of the recent acquisitions of AtHoc and Good Technology
Non-GAAP loss of ($0.03) per share
Completed the acquisitions of AtHoc and Good Technology
Launched the PRIV in November, the only smartphone that combines BlackBerry-level security with the Google Play App Store’s 1.6 million apps
Confirmed plans to release OS version 10.3.3 on BlackBerry 10 to support NIAP certification

Q3 Results

Non-GAAP revenue for the third quarter of fiscal 2016 was $557 million with GAAP revenue of $548 million. GAAP revenue reflects a purchase accounting write down of deferred revenue associated with recent acquisitions. The non-GAAP revenue breakdown for the quarter was approximately 29% for software and services, 31% for service access fees (SAF), and 40% for hardware and other revenue.

BlackBerry had 2,713 enterprise customer wins in the quarter. Approximately 70% of third quarter software revenue was recurring.

Non-GAAP net loss for the third quarter was ($15) million, or ($0.03) per share. GAAP net loss for the quarter was ($89) million, or ($0.17) per basic share. Basic GAAP net income reflects a purchase accounting impact of $9 million on GAAP revenue, a non-cash credit associated with the change in the fair value of the debentures of $5 million (the “Q3 Fiscal 2016 Debentures Fair Value Adjustment”), pre-tax charges of $38 million related to restructuring and acquisition costs, stock compensation of $14 million, and amortization of acquired intangibles of $18 million. The impact of these adjustments on GAAP net income and earnings per share is summarized in a table below.

Total cash, cash equivalents, short-term and long-term investments was $2.71 billion as of November 28, 2015. This reflects $15 million of positive free cash flow, $636 million used in acquisition costs for AtHoc and Good Technology and $10 million used to repurchase 1.6 million shares. Excluding $1.25 billion in the face value of our debt, the net cash balance at the end of the quarter was $1.46 billion. Purchase orders with contract manufacturers totaled approximately $298 million at the end of the third quarter, compared to $248 million at the end of the second quarter and down from $565 million in the year ago quarter. Operating cash flow was $19 million.

“I am pleased with our continued progress on BlackBerry’s strategic priorities, leading to 14 percent sequential growth in total revenue for Q3. We delivered accelerating growth in enterprise software and higher revenue across all of our areas of focus,” said Executive Chairman and Chief Executive Officer John Chen.

“Our new PRIV device has been well received since its launch in November, and we are expanding distribution to additional carriers around the world in the next several quarters.

“BlackBerry has a solid financial foundation, and we are executing well. To sustain our current direction, we are stepping up investments to drive continued software growth and the additional PRIV launches. I anticipate this will result in sequential revenue growth in our software, hardware and messaging businesses in Q4.”

Outlook

The company continues to anticipate positive free cash flow and adjusted EBITDA.

Reconciliation of GAAP gross margin, gross margin percentage, income before income taxes, net income and earnings per share to Non-GAAP gross margin, gross margin percentage, loss before income taxes, net loss and loss per share:

(United States dollars, in millions except per share data)
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Q3 Fiscal 2016 Non-GAAP Adjustments		For the Three Months Ended November 28, 2015 (in millions)
	Income statement location	Gross margin (before taxes)⁽¹⁾		Gross margin % (before taxes)⁽¹⁾	Loss before income taxes			Net loss			Basic loss per share
As reported		$	236	43.1 %	$	(120	)	$	(89	)	$	(0.17	)
Debentures fair value adjustment⁽²⁾	Debentures fair value adjustment		–	– %		(5	)		(5	)
RAP charges ⁽³⁾	Cost of sales		5	0.9 %		5			5
RAP charges ⁽³⁾	Research and development		–	– %		2			2
RAP charges ⁽³⁾	Selling, marketing and administration		–	– %		26			26
CORE program charges⁽⁴⁾	Selling, marketing and administration		–	– %		(6	)		(6	)
Software deferred revenue acquired⁽⁵⁾	Revenue		9	0.9 %		9			9
Stock compensation expense⁽⁶⁾	Research and development		–	– %		4			4
Stock compensation expense⁽⁶⁾	Selling, marketing and administration		–	– %		10			10
Acquired intangibles amortization⁽⁷⁾	Amortization		–	– %		18			18
Business acquisition costs⁽⁸⁾	Selling, marketing and administration		–	– %		11			11
Adjusted		$	250	44.9 %	$	(46	)	$	(15	)	$	(0.03	)

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Note: Non-GAAP gross margin, non-GAAP gross margin percentage, non-GAAP loss before income taxes, non- GAAP net loss and non-GAAP loss 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.
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	(1)	During the third quarter of fiscal 2016, the Company reported GAAP gross margin of $236 million or 43.1% of revenue. Excluding the impact of the resource alignment program (“RAP”) charges included in cost of sales and software deferred revenue acquired included in revenue, the non-GAAP gross margin was $250 million or 44.9% of revenue.
	(2)	During the third quarter of fiscal 2016, the Company recorded the Q3 Fiscal 2016 Debentures Fair Value Adjustment of $5 million. This adjustment was presented on a separate line in the Consolidated Statement of Operations.
	(3)	During the third quarter of fiscal 2016, the Company incurred charges related to the RAP of $33 million pre-tax and after tax, of which $5 million were included in cost of sales, $2 million were included in research and development and $26 million were included in selling, marketing, and administration expenses.
	(4)	During the third quarter of fiscal 2016, the Company recovered charges related to the CORE program of $6 million, which were included in selling, marketing, and administration expenses.
	(5)	During the third quarter of fiscal 2016, he Company recorded software deferred revenue acquired but not recognized due to business combination accounting rules of $9 million, which were included in revenue.
	(6)	During the third quarter of fiscal 2016, the Company recorded stock compensation expense of $14 million, of which $4 million were included in research and development, and $10 million were included in selling, marketing, and administration expenses.
	(7)	During the third quarter of fiscal 2016, the Company recorded amortization of intangible assets acquired through business combinations of $18 million, which were included in amortization expense.
	(8)	During the third quarter of fiscal 2016, the Company recorded acquisition costs incurred through business combinations of $11 million, which were included in selling, marketing, and administration expenses.

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Supplementary Geographic Revenue Breakdown
Blackberry LimitedÃ‚Â (United States dollars, in millions) Revenue by Region
	For the quarter ended
	November 28, 2015			August 29, 2015			May 30, 2015			February 28, 2015			November 29, 2014
North America	$	275	50.2%	$	176	36.0%	$	285	43.3%	$	205	31.0%	$	213	26.9%
Europe, Middle East and Africa		194	35.4%		202	41.2%		245	37.2%		283	42.9%		366	46.1%
Latin America		24	4.4%		33	6.7%		42	6.4%		60	9.1%		84	10.6%
Asia Pacific		55	10.0%		79	16.1%		86	13.1%		112	17.0%		130	16.4%
Total	$	548	100.0%	$	490	100.0%	$	658	100.0%	$	660	100.0%	$	793	100.0%

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Consolidated Statements of Operations

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[table style=”table-striped”]

		For the three months ended									For the nine months ended
		November 28, 2015			August 29, 2015			November 29, 2014			November 28, 2015			November 29, 2014
Revenue		$	548		$	490		$	793		$	1,696		$	2,675
Cost of sales
	Cost of sales		304			301			365			935			1,358
	Inventory write-down		9			4			24			33			54
	Supply commitment charges		(1	)		–			(6	)		(3	)		(23	)
			312			305			383			965			1,389
Gross margin			236			185			410			731			1,286
	Gross margin %		43.1	%		37.8	%		51.7	%		43.1	%		48.1	%
Operating expenses
	Research and development		100			122			154			361			577
	Selling, marketing and administration		177			191			171			542			766
	Amortization		68			67			74			200			230
	Debentures fair value adjustment		(5	)		(228	)		150			(390	)		30
			340			152			549			713			1,603
Operating income (loss)			(104	)		33			(139	)		18			(317	)
	Investment loss, net		(16	)		(12	)		(21	)		(44	)		(67	)
Income (loss) before income taxes			(120	)		21			(160	)		(26	)		(384	)
Recovery of income taxes			(31	)		(30	)		(12	)		(56	)		(52	)
Net income (loss)		$	(89	)	$	51		$	(148	)	$	30		$	(332	)
Earnings (loss) per share
	Basic	$	(0.17	)	$	0.10		$	(0.28	)	$	0.06		$	(0.63	)
	Diluted	$	(0.17	)	$	(0.24	)	$	(0.28	)	$	(0.46	)	$	(0.63	)
Weighted-average number of common
shares outstanding (000’s)
	Basic		525,103			526,314			528,090			526,879			527,350
	Diluted		525,103			667,321			528,090			651,879			527,350
Total common shares outstanding			525,701			524,211			528,511			525,701			528,511

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(United States dollars, in millions except per share data) (unaudited)

Consolidated Balance Sheets

As at		November 28, 2015			February 28, 2015
Assets
Current
	Cash and cash equivalents	$	1,123		$	1,233
	Short-term investments		1,175			1,658
	Accounts receivable, net		380			503
	Other receivables		45			97
	Inventories		144			122
	Income taxes receivable		9			169
	Other current assets		134			375
	Deferred income tax asset		2			10
			3,012			4,167
Long-term investments			350			316
Restricted cash			58			59
Property, plant and equipment, net			449			556
Goodwill			607			85
Intangible assets, net			1,413			1,375
		$	5,889		$	6,558
Liabilities
Current
	Accounts payable	$	269		$	235
	Accrued liabilities		402			667
	Deferred revenue		430			470
			1,101			1,372
Long-term debt			1,317			1,707
Deferred income tax liability			17			48
			2,435			3,127
Shareholders’ Equity
Capital stock and additional paid-in capital			2,454			2,444
Retained earnings			1,018			1,010
Accumulated other comprehensive loss			(18	)		(23	)
			3,454			3,431
		$	5,889		$	6,558

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Consolidated Statements of Cash Flows
		Nine Months Ended
		November 28, 2015			November 29, 2014
Cash flows from operating activities
Net income (loss)		$	30		$	(332	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Amortization		489			532
	Deferred income taxes		(67	)		47
	Stock-based compensation		42			36
	Loss on disposal of property, plant and equipment		46			126
	Debentures fair value adjustment		(390	)		30
	Other		23			13
Net changes in working capital items:
	Accounts receivable, net		158			351
	Other receivables		54			13
	Inventories		(22	)		142
	Income taxes receivable		157			229
	Other current assets		222			176
	Accounts payable		13			(256	)
	Accrued liabilities		(281	)		(369	)
	Deferred revenue		(217	)		(135	)
Net cash provided by operating activities			257			603
Cash flows from investing activities
Acquisition of long-term investments			(275	)		(215	)
Proceeds on sale or maturity of long-term investments			141			19
Acquisition of property, plant and equipment			(25	)		(71	)
Proceeds on sale of property, plant and equipment			–			348
Acquisition of intangible assets			(43	)		(388	)
Business acquisitions, net of cash acquired			(689	)		(40	)
Acquisition of short-term investments			(2,091	)		(1,973	)
Proceeds on sale or maturity of short-term investments			2,674			1,701
Net cash used in investing activities			(308	)		(619	)
Cash flows from financing activities
Issuance of common shares			3			6
Common shares repurchased			(57	)		–
Transfer from (to) restricted cash			4			(65	)
Net cash used in financing activities			(50	)		(59	)
Effect of foreign exchange loss on cash and cash equivalents			(9	)		(6	)
Net decrease in cash and cash equivalents during the period			(110	)		(81	)
Cash and cash equivalents, beginning of period			1,233			1,579
Cash and cash equivalents, end of period		$	1,123		$	1,498

As at		November 28, 2015			August 29, 2015
Cash and cash equivalents		$	1,123		$	1,447
Short-term investments			1,175			1,573
Long-term investments			350			277
Restricted cash			58			56
		$	2,706		$	3,35

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Conference Call and Webcast

A conference call and live webcast will be held beginning at 8 am ET, which can be accessed by dialing 1-888-428- 9507 or by logging on atÃ‚Â ca.blackberry.com/company/investors/events.html. A replay of the conference call will also be available at approximately 10 am ET by dialing 1-647-436-0148 and entering pass code 8820480# or by clicking the link above. This replay will be available until 10 am ET January 3, 2016.