BlackBerry has announced their Q3 Fiscal 2016 results today, 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  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)
[table style=”table-striped”]
| 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 | ) | ||||||
[/table]
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.
[table style=”table-striped”]
| (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. | |
[/table]
[table style=”table-striped”]
| Supplementary Geographic Revenue Breakdown | |||||||||||||||||||
| Blackberry Limited (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% | ||||
[/table]
[table style=”table-striped”]
| Consolidated Statements of Operations |
[/table]
[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 | |||||||||||||||
[/table]
[table style=”table-striped”]
| (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 | |||||
[/table]
[table style=”table-striped”]
| 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 | |||||
[/table]
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 at 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.
