BlackBerry today reported financial results for the three months and fiscal year ended February 28, 2017. The company reported a smaller quarterly loss as operating costs nearly halved, narrowing its loss from a year earlier and posting above-consensus adjusted profit.
A per-share loss of 10 cents in the fourth quarter was more than a quarter wider than the loss a year earlier.
Q4 Highlights
- Q4 non-GAAP total revenue of $297 million; GAAP total revenue of $286 million
- Q4 non-GAAP Company total software and services revenues of $193 million; GAAP Company total software and services revenues of $182 million
- Q4 non-GAAP gross margin of 65%; GAAP gross margin of 60%
- Q4 adjusted EBITDA of $42 million; positive for thirteenth consecutive quarter
- Q4 cash flow from operations of $19 million; free cash flow of $16 million
- Total cash balance increased by $89 million to $1.7 billion at the end of the fiscal fourth quarter
Q4 Results
Non-GAAP revenue for the fourth quarter of fiscal 2017 was $297 million with GAAP revenue of $286 million. Approximately 80% of the fourth quarter Software & Services segment revenue (excluding IP licensing and professional services) was recurring. BlackBerry had over 3,500 enterprise customer orders in the quarter.
Non-GAAP operating income was $13 million, and non-GAAP earnings per share was $0.04. GAAP net loss for the quarter was $47 million, or ($0.09) per basic share. GAAP operating loss was $57 million, which includes $28 million in amortization of acquired intangibles, $25 million in restructuring charges, a benefit of $16 million of fair value adjustment related to the debentures and other amounts as summarized in a table below.
Total cash, cash equivalents, short-term and long-term investments increased by $89 million to approximately $1.7 billion as of February 28, 2017. This reflects free cash flow of $16 million, which includes cash flow from operations of $19 million. Excluding $605 million in the face value of the Company’s debt, the net cash balance at the end of the quarter was approximately $1.1 billion. There were no purchase orders with contract manufacturers at the end of the fourth quarter, compared to $35 million at the end of the third quarter and down from $162 million a year ago.
“I am pleased to report that our Q4 results came in at or above expectations in all major metrics,” said John Chen, Executive Chairman and CEO, BlackBerry.
“In the quarter, we continued to grow our mix of software and services revenue across the company. In turn, this allowed us to expand our operating margin and report positive free cash flow. In addition, our balance sheet continues to strengthen and benefit from reduced capital requirements with our focus on software and licensing.”
Chen continued,
“In our areas of strategic focus, we are executing well and gaining traction,”
“In our enterprise business, we had one of our best-ever software billings quarters, driven by strength across regulated and non-regulated industries. Enhancing our position in public sector, we recently achieved FedRAMP certification for the U.S. government. In IOT appliances, we won new business and secured six new customer trials for Radar. We demonstrated our autonomous driving technology platform at CES 2017. In mobile software licensing, we signed our third major agreement, and we now have global coverage. We are entering the next phase in sub-licensing our secure software to a variety of new mobile endpoints. We also entered the CPaaS market with the launch of our BBM Enterprise Software Development Kit, which will expand our addressable opportunity in a high growth segment.”
“Looking ahead to fiscal 2018, we expect to grow at or above the overall market in our software business. We also expect to be profitable on a non-GAAP basis and to generate positive free cash flow for the full year.”
Reconciliation of the Company’s segment results to the consolidated results:
(United States dollars, in millions)
| For the Three Months Ended February 28, 2017 (in millions) |
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| Software & Services | Mobility Solutions | SAF | Segment totals | Corporate unallocated | Subtotal | Non-GAAP adjustments | Consolidated U.S. GAAP | |||||||||||
| Revenue | $ | 166 | $ | 82 | $ | 49 | $ | 297 | $ | – | $ | 297 | $ | (11 | ) | $ | 286 | |
| Cost of goods sold | 34 | 54 | 15 | 103 | – | 103 | 11 | 114 | ||||||||||
| Gross margin | 132 | 28 | 34 | 194 | – | 194 | (22 | ) | 172 | |||||||||
| Operating expenses | 89 | 8 | 1 | 98 | 83 | 181 | 48 | 229 | ||||||||||
| Operating income (loss) | $ | 43 | $ | 20 | $ | 33 | $ | 96 | $ | 83 | $ | 13 | $ | (70 | ) | $ | (57 | ) |
Reconciliation of GAAP revenue, gross margin, gross margin percentage, loss before income taxes, net loss and loss per share to Non-GAAP revenue, gross margin, gross margin percentage, income before income taxes, net income and income per share:
(United States dollars, in millions except per share data)
| Q4 Fiscal 2017 Non-GAAP Adjustments | For the Three Months Ended February 28, 2017 (in millions) |
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| 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 | $286 | $172 | 60.1 | % | $(49 | ) | $(47 | ) | $(0.09 | ) | |
| Inventory write-down (2) | Cost of sales | – | 4 | 1.4 | % | 4 | 4 | ||||
| Debentures fair value adjustment(3) | Debentures fair value adjustment | – | – | – | % | (16 | ) | (16 | ) | ||
| Selective patent abandonment (4) | Loss on sale, disposal and abandonment | – | – | – | % | 1 | 1 | ||||
| RAP charges (4) | Cost of sales | – | 6 | 2.1 | % | 6 | 6 | ||||
| RAP charges (4) | Research and development | – | – | – | % | 3 | 3 | ||||
| RAP charges (4) | Selling, marketing and administration | – | – | – | % | 15 | 15 | ||||
| Software deferred revenue acquired(5) | Revenue | 11 | 11 | 1.4 | % | 11 | 11 | ||||
| Stock compensation expense (6) | Cost of sales | – | 1 | 0.3 | % | 1 | 1 | ||||
| Stock compensation expense (6) | Research and development | – | – | – | % | 5 | 5 | ||||
| Stock compensation expense (6) | Selling, marketing and administration | – | – | – | % | 9 | 9 | ||||
| Acquired intangibles amortization (7) | Amortization | – | – | – | % | 28 | 28 | ||||
| Business acquisition and integration costs(8) | Selling, marketing and administration | – | – | – | % | 3 | 3 | ||||
| $297 | $194 | 65.3 | % | $21 | $23 | $0.04 | |||||
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 income 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 fourth quarter of fiscal 2017, the Company reported GAAP gross margin of $172 million or 60.1% of revenue. Excluding the impact of the inventory write-down and 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 $194 million, or 65.3% of revenue. |
| (2) | During the fourth quarter of fiscal 2017, the Company recorded inventory write-down charges of $4 million, which were included in cost of sales. |
| (3) | During the fourth quarter of fiscal 2017, the Company recorded the Q4 Fiscal 2017 Debentures Fair Value Adjustment of $16 million. This adjustment was presented on a separate line in the Consolidated Statements of Operations. |
| (4) | During the fourth quarter of fiscal 2017, the Company incurred charges related to the RAP of approximately $25 million, of which $1 million were included in loss on sale, disposal and abandonment, $6 million were included in cost of sale, $3 million were included in research and development expense and $15 million were included in selling, marketing and administration expense. |
| (5) | During the fourth quarter of fiscal 2017, the Company recorded software deferred revenue acquired but not recognized due to business combination accounting rules of $11 million, which were included in revenue. |
| (6) | During the fourth quarter of fiscal 2017, the Company recorded stock compensation expense of $15 million, of which $1 million were included in cost of sales, $5 million were included in research and development, and $9 million were included in selling, marketing and administration expenses. |
| (7) | During the fourth quarter of fiscal 2017, the Company recorded amortization of intangible assets acquired through business combinations of $28 million, which were included in amortization expense. |
| (8) | During the fourth quarter of fiscal 2017, the Company recorded business acquisition and integration costs incurred through business combinations of $3 million, which were included in selling, marketing and administration expenses. |
Supplementary Geographic Revenue Breakdown
| BlackBerry Limited | ||||||||||||||||||||
| (United States dollars, in millions) | ||||||||||||||||||||
| Revenue by Region | ||||||||||||||||||||
| For the quarters ended | ||||||||||||||||||||
| February 28, 2017 | November 30, 2016 | August 31, 2016 | May 31, 2016 | February 29, 2016 | ||||||||||||||||
| North America | $ | 166 | 58.0 | % | $ | 167 | 57.8 | % | $ | 190 | 56.9 | % | $ | 195 | 48.8 | % | $ | 216 | 46.5 | % |
| Europe, Middle East and Africa | 83 | 29.0 | % | 87 | 30.1 | % | 100 | 29.9 | % | 155 | 38.7 | % | 175 | 37.7 | % | |||||
| Latin America | 5 | 1.8 | % | 7 | 2.4 | % | 13 | 3.9 | % | 10 | 2.5 | % | 18 | 3.9 | % | |||||
| Asia Pacific | 32 | 11.2 | % | 28 | 9.7 | % | 31 | 9.3 | % | 40 | 10.0 | % | 55 | 11.9 | % | |||||
| Total | $ | 286 | 100.0 | % | $ | 289 | 100.0 | % | $ | 334 | 100.0 | % | $ | 400 | 100.0 | % | $ | 464 | 100.0 | % |
Conference Call and Webcast
A conference call and live webcast will be held beginning at 8 a.m. ET, which can be accessed by dialing 1-844-309-0607 or by logging on here. A replay of the conference call will also be available at approximately 11 a.m. ET by dialing 1-855-859-2056 or 1-404-537-3406 and entering Conference ID #66409061 or by clicking the link above.
| 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 years ended | |||||||||||||||
| February 28, 2017 | November 30, 2016 | February 29, 2016 | February 28, 2017 | February 29, 2016 | ||||||||||||
| Revenue | $ | 286 | $ | 289 | $ | 464 | $ | 1,309 | $ | 2,160 | ||||||
| Cost of sales | 114 | 96 | 254 | 692 | 1,219 | |||||||||||
| Gross margin | 172 | 193 | 210 | 617 | 941 | |||||||||||
| Gross margin % | 60.1 | % | 66.8 | % | 45.3 | % | 47.1 | % | 43.6 | % | ||||||
| Operating expenses | ||||||||||||||||
| Research and development | 57 | 75 | 108 | 306 | 469 | |||||||||||
| Selling, marketing and administration | 144 | 141 | 179 | 553 | 653 | |||||||||||
| Amortization | 45 | 43 | 77 | 186 | 277 | |||||||||||
| Impairment of goodwill | – | – | – | 57 | – | |||||||||||
| Impairment of long-lived assets | – | – | – | 501 | – | |||||||||||
| Loss (gain) on sale, disposal and abandonment of long-lived assets | (1 | ) | 46 | 127 | 171 | 195 | ||||||||||
| Debentures fair value adjustment | (16 | ) | 2 | (40 | ) | 24 | (430 | ) | ||||||||
| 229 | 307 | 451 | 1,798 | 1,164 | ||||||||||||
| Operating loss | (57 | ) | (114 | ) | (241 | ) | (1,181 | ) | (223 | ) | ||||||
| Investment income (loss), net | 8 | (4 | ) | (15 | ) | (27 | ) | (59 | ) | |||||||
| Loss before income taxes | (49 | ) | (118 | ) | (256 | ) | (1,208 | ) | (282 | ) | ||||||
| Recovery of income taxes | (2 | ) | (1 | ) | (18 | ) | (2 | ) | (74 | ) | ||||||
| Net Loss | $ | (47 | ) | $ | (117 | ) | $ | (238 | ) | $ | (1,206 | ) | $ | (208 | ) | |
| Loss per share | ||||||||||||||||
| Basic | $ | (0.09 | ) | $ | (0.22 | ) | $ | (0.45 | ) | $ | (2.30 | ) | $ | (0.40 | ) | |
| Diluted | $ | (0.10 | ) | $ | (0.22 | ) | $ | (0.45 | ) | $ | (2.30 | ) | $ | (0.86 | ) | |
| Weighted-average number of common shares outstanding (000’s) | ||||||||||||||||
| Basic | 530,352 | 526,102 | 524,627 | 525,265 | 526,303 | |||||||||||
| Diluted | 590,852 | 526,102 | 524,627 | 525,265 | 651,303 | |||||||||||
| Total common shares outstanding (000’s) | 530,497 | 529,962 | 521,172 | 530,497 | 521,172 | |||||||||||
| BlackBerry Limited | |||||||
| Incorporated under the Laws of Ontario | |||||||
| (United States dollars, in millions except per share data) (unaudited) | |||||||
| Consolidated Balance Sheets | |||||||
| As at | February 28, 2017 | February 29, 2016 | |||||
| Assets | |||||||
| Current | |||||||
| Cash and cash equivalents | $ | 734 | $ | 957 | |||
| Short-term investments | 644 | 1,420 | |||||
| Accounts receivable, net | 181 | 338 | |||||
| Other receivables | 34 | 51 | |||||
| Inventories | 26 | 143 | |||||
| Income taxes receivable | 17 | – | |||||
| Other current assets | 55 | 102 | |||||
| 1,691 | 3,011 | ||||||
| Long-term investments | 269 | 197 | |||||
| Restricted cash and cash equivalents | 51 | 50 | |||||
| Property, plant and equipment, net | 91 | 412 | |||||
| Goodwill | 559 | 618 | |||||
| Intangible assets, net | 602 | 1,213 | |||||
| Deferred income tax asset | – | 33 | |||||
| $ | 3,263 | $ | 5,534 | ||||
| Liabilities | |||||||
| Current | |||||||
| Accounts payable | $ | 103 | $ | 270 | |||
| Accrued liabilities | 258 | 368 | |||||
| Income taxes payable | – | 9 | |||||
| Deferred revenue | 245 | 392 | |||||
| 606 | 1,039 | ||||||
| Long-term debt | 591 | 1,277 | |||||
| Deferred income tax liability | 9 | 10 | |||||
| 1,206 | 2,326 | ||||||
| Shareholders’ Equity | |||||||
| Capital stock and additional paid-in capital | 2,512 | 2,448 | |||||
| Retained earnings (deficit) | (438 | ) | 768 | ||||
| Accumulated other comprehensive loss | (17 | ) | (8 | ) | |||
| 2,057 | 3,208 | ||||||
| $ | 3,263 | $ | 5,534 | ||||
| BlackBerry Limited | |||||||
| Incorporated under the Laws of Ontario | |||||||
| (United States dollars, in millions except per share data) (unaudited) | |||||||
| Consolidated Statements of Cash Flows | |||||||
| For the years ended | |||||||
| February 28, 2017 | February 29, 2016 | ||||||
| Cash flows from operating activities | |||||||
| Net loss | $ | (1,206 | ) | $ | (208 | ) | |
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||
| Amortization | 239 | 616 | |||||
| Deferred income taxes | 33 | (105 | ) | ||||
| Stock-based compensation | 60 | 60 | |||||
| Impairment of goodwill | 57 | – | |||||
| Impairment of long-lived assets | 501 | – | |||||
| Loss on sale, disposal and abandonment of long-lived assets | 171 | 195 | |||||
| Debentures fair value adjustment | 24 | (430 | ) | ||||
| Other | – | 16 | |||||
| Net changes in working capital items: | |||||||
| Accounts receivable, net | 157 | 200 | |||||
| Other receivables | 17 | 47 | |||||
| Inventories | 117 | (21 | ) | ||||
| Income tax receivable, net | (17 | ) | 166 | ||||
| Other current assets | 45 | 257 | |||||
| Accounts payable | (167 | ) | 14 | ||||
| Accrued liabilities | (99 | ) | (304 | ) | |||
| Income taxes payable | (9 | ) | 9 | ||||
| Deferred revenue | (147 | ) | (255 | ) | |||
| Net cash provided by (used in) operating activities | (224 | ) | 257 | ||||
| Cash flows from investing activities | |||||||
| Acquisition of long-term investments | (430 | ) | (326 | ) | |||
| Proceeds on sale or maturity of long-term investments | 228 | 301 | |||||
| Acquisition of property, plant and equipment | (17 | ) | (32 | ) | |||
| Proceeds on sale of property, plant and equipment | 95 | 4 | |||||
| Acquisition of intangible assets | (52 | ) | (70 | ) | |||
| Business acquisitions, net of cash acquired | (5 | ) | (698 | ) | |||
| Acquisition of short-term investments | (1,366 | ) | (2,764 | ) | |||
| Proceeds on sale or maturity of short-term investments | 2,271 | 3,146 | |||||
| Net cash provided by (used in) investing activities | 724 | (439 | ) | ||||
| Cash flows from financing activities | |||||||
| Issuance of common shares | 5 | 4 | |||||
| Payment of contingent consideration from business acquisitions | (15 | ) | – | ||||
| Excess tax deficiency related to stock-based compensation | (1 | ) | (1 | ) | |||
| Common shares repurchased | – | (93 | ) | ||||
| Effect of foreign exchange gain on restricted cash | (3 | ) | – | ||||
| Repurchase of 6% Debentures | (1,315 | ) | – | ||||
| Issuance of 3.75% Debentures | 605 | – | |||||
| Transfer from restricted cash | 2 | 12 | |||||
| Net cash used in financing activities | (722 | ) | (78 | ) | |||
| Effect of foreign exchange loss on cash and cash equivalents | (1 | ) | (16 | ) | |||
| Net decrease in cash and cash equivalents during the period | (223 | ) | (276 | ) | |||
| Cash and cash equivalents, beginning of period | 957 | 1,233 | |||||
| Cash and cash equivalents, end of period | $ | 734 | $ | 957 | |||
| As at | February 28, 2017 | November 30, 2016 | |||||
| Cash and cash equivalents | $ | 734 | $ | 830 | |||
| Short-term investments | 644 | 459 | |||||
| Long-term investments | 269 | 269 | |||||
| Restricted cash | 51 | 51 | |||||
| $ | 1,698 | $ | 1,609 | ||||
