BlackBerry Reported Fiscal 2020 Second Quarter Results Tuesday, reporting a net loss of $44 million in the quarter ended Aug. 31, compared to a profit of $43 million a year previous. Total revenue rose about 16% to $244 million.
Total company non-GAAP revenue for the second quarter of fiscal 2020 was $261 million, up 22% year-over-year. Total company GAAP revenue for the second quarter of fiscal 2020 was $244 million, up 16% year-over-year. Total non-GAAP software and services revenue was $256 million, up 30% year-over-year. Total GAAP software and services revenue was $239 million, up 24% year-over-year. Second quarter recurring non-GAAP software and services revenue (excluding IP licensing and professional services) was over 90%. Non-GAAP gross margin was 75% and GAAP gross margin was 72%.
Total company non-GAAP operating earnings was $2 million. Total company GAAP operating loss was $43 million. Non-GAAP earnings per share was $0.00 (basic and diluted). GAAP net loss was $0.08 per basic share and $0.10 per diluted share. GAAP net loss includes $36 million for acquired intangibles amortisation expense, $14 million in stock compensation expense, $2 million in acquisition and integration charges, a benefit of $23 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 $938 million as of August 31, 2019. Free cash flow generated, before considering the impact of acquisition and integration expenses, restructuring costs and legal proceedings, was $17 million. Cash generated from operations was $18 million and capital expenditures were $4 million.
“In the quarter, our QNX, Cylance and Licensing businesses executed at or better than our expectations. We achieved break-even non-GAAP earnings per share and generated free cash flow even with increased investments in sales and product development to support future growth,” said John Chen, Executive Chairman and CEO, BlackBerry.
“We are encouraged by the positive reception on BlackBerry Intelligent Security, and we have a number of exciting new product launches in the next six months.”
“Recent market consolidation has validated our thought leadership and the holistic strategy we shared last year. We are integrating our endpoint management and AI technologies and capabilities on one platform to address the high-growth endpoint security market.”
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- 877-682-6267 or by logging on at BlackBerry.com/Investors. 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 #6987534 and at the link above. 1-800-585-8367 and entering Conference ID #6987534 and at the link above.
Management Change
With its focus on long-term, sustainable growth, BlackBerry announces that Steve Capelli will move into the newly-created role of Chief Revenue Officer to drive revenue-generating and business development activities across the company. BlackBerry promotes Steve Rai from Deputy Chief Financial Officer to Chief Financial Officer. These changes take effect as of October 1, 2019.
Outlook
BlackBerry estimates fiscal 2020 total company non-GAAP revenue growth to be in the range of 23% to 25%, driven by a double-digit percentage increase in billings year-over-year, and non-GAAP profitability for fiscal 2020.
BlackBerry Fiscal 2020 Second Quarter Results
| Q2 Fiscal 2020 Non-GAAP Adjustments | For the Three Months Ended August 31, 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 | $ | 244 | $ | 176 | 72.1 | % | $ | (43) | $ | (44) | $ | (0.08) | ||||||||||||
| Debentures fair value adjustment (2) | Debentures fair value adjustment | — | — | — | % | (23) | (23) | |||||||||||||||||
| Restructuring charges (3) | Cost of sales | — | 1 | 0.4 | % | 1 | 1 | |||||||||||||||||
| Restructuring charges (3) | Selling, marketing and administration | — | — | — | % | 2 | 2 | |||||||||||||||||
| Software deferred revenue acquired (4) | Revenue | 17 | 17 | 1.8 | % | 17 | 17 | |||||||||||||||||
| 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 | — | — | — | % | 3 | 3 | |||||||||||||||||
| Stock compensation expense (6) | Selling, marketing and administration | — | — | — | % | 10 | 10 | |||||||||||||||||
| Acquired intangibles amortization (7) | Amortization | — | — | — | % | 36 | 36 | |||||||||||||||||
| Business acquisition and integration costs (8) | Selling, marketing and administration | — | — | — | % | 2 | 2 | |||||||||||||||||
| Adjusted | $ | 261 | $ | 195 | 74.7 | % | $ | 2 | $ | 1 | $ | 0.00 | ||||||||||||
Supplementary Geographic Revenue Breakdown
| BlackBerry Limited | |||||||||||||||||||||||||||||||||||
| (United States dollars, in millions) | |||||||||||||||||||||||||||||||||||
| Revenue by Region | |||||||||||||||||||||||||||||||||||
| For the Quarters Ended | |||||||||||||||||||||||||||||||||||
| August 31, 2019 | May 31, 2019 | February 28, 2019 | November 30, 2018 | August 31, 2018 | |||||||||||||||||||||||||||||||
| North America | $ | 179 | 73.4 | % | $ | 160 | 64.8 | % | $ | 176 | 69.0 | % | $ | 151 | 66.8 | % | $ | 133 | 63.3 | % | |||||||||||||||
| Europe, Middle East and Africa | 47 | 19.3 | % | 61 | 24.7 | % | 61 | 23.9 | % | 56 | 24.8 | % | 53 | 25.3 | % | ||||||||||||||||||||
| Other regions | 18 | 7.3 | % | 26 | 10.5 | % | 18 | 7.1 | % | 19 | 8.4 | % | 24 | 11.4 | % | ||||||||||||||||||||
| Total | $ | 244 | 100.0 | % | $ | 247 | 100.0 | % | $ | 255 | 100.0 | % | $ | 226 | 100.0 | % | $ | 210 | 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 | |||||||||||||||||||||
| August 31, 2019 | August 31, 2018 | August 31, 2019 | August 31, 2018 | August 31, 2019 | August 31, 2018 | ||||||||||||||||||
| IoT | $ | 133 | $ | 137 | $ | 1 | $ | 4 | $ | 134 | $ | 141 | |||||||||||
| BlackBerry Cylance | 35 | — | 16 | — | 51 | — | |||||||||||||||||
| Licensing | 71 | 56 | — | — | 71 | 56 | |||||||||||||||||
| Other | 5 | 17 | — | — | 5 | 17 | |||||||||||||||||
| Total | $ | 244 | $ | 210 | $ | 17 | $ | 4 | $ | 261 | $ | 214 | |||||||||||
| 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 Six Months Ended | |||||||||||||||||||
| August 31, 2019 | May 31, 2019 | August 31, 2018 | August 31, 2019 | August 31, 2018 | ||||||||||||||||
| Revenue | $ | 244 | $ | 247 | $ | 210 | $ | 491 | $ | 423 | ||||||||||
| Cost of sales | 68 | 70 | 49 | 138 | 101 | |||||||||||||||
| Gross margin | 176 | 177 | 161 | 353 | 322 | |||||||||||||||
| Gross margin % | 72.1 | % | 71.7 | % | 76.7 | % | 71.9 | % | 76.1 | % | ||||||||||
| Operating expenses | ||||||||||||||||||||
| Research and development | 62 | 71 | 51 | 133 | 112 | |||||||||||||||
| Selling, marketing and administration | 132 | 121 | 106 | 253 | 206 | |||||||||||||||
| Amortization | 48 | 49 | 35 | 97 | 72 | |||||||||||||||
| Debentures fair value adjustment | (23) | (28) | (70) | (51) | (42) | |||||||||||||||
| 219 | 213 | 122 | 432 | 348 | ||||||||||||||||
| Operating income (loss) | (43) | (36) | 39 | (79) | (26) | |||||||||||||||
| Investment income, net | — | 3 | 5 | 3 | 11 | |||||||||||||||
| Income (loss) before income taxes | (43) | (33) | 44 | (76) | (15) | |||||||||||||||
| Provision for income taxes | 1 | 2 | 1 | 3 | 2 | |||||||||||||||
| Net income (loss) | $ | (44) | $ | (35) | $ | 43 | $ | (79) | $ | (17) | ||||||||||
| Earnings (loss) per share | ||||||||||||||||||||
| Basic | $ | (0.08) | $ | (0.06) | $ | 0.08 | $ | (0.14) | $ | (0.03) | ||||||||||
| Diluted | $ | (0.10) | $ | (0.09) | $ | (0.04) | $ | (0.19) | $ | (0.08) | ||||||||||
| Weighted-average number of common shares outstanding (000s) | ||||||||||||||||||||
| Basic | 552,343 | 551,845 | 537,299 | 552,096 | 537,136 | |||||||||||||||
| Diluted | 612,843 | 612,345 | 597,799 | 612,596 | 597,636 | |||||||||||||||
| Total common shares outstanding (000s) | 548,336 | 547,922 | 537,768 | 548,336 | 537,768 | |||||||||||||||
| BlackBerry Limited | ||||||||
| Incorporated under the Laws of Ontario | ||||||||
| (United States dollars, in millions) (unaudited) | ||||||||
| Consolidated Balance Sheets | ||||||||
| As at | ||||||||
| August 31, 2019 | February 28, 2019 | |||||||
| Assets | ||||||||
| Current | ||||||||
| Cash and cash equivalents | $ | 460 | $ | 548 | ||||
| Short-term investments | 389 | 368 | ||||||
| Accounts receivable, net | 194 | 194 | ||||||
| Other receivables | 18 | 19 | ||||||
| Income taxes receivable | 10 | 9 | ||||||
| Other current assets | 60 | 56 | ||||||
| 1,131 | 1,194 | |||||||
| Restricted cash and cash equivalents | 34 | 34 | ||||||
| Long-term investments | 55 | 55 | ||||||
| Other long-term assets | 35 | 28 | ||||||
| Deferred income tax assets | — | 2 | ||||||
| Operating lease right-of-use assets | 145 | — | ||||||
| Property, plant and equipment, net | 79 | 85 | ||||||
| Goodwill | 1,458 | 1,463 | ||||||
| Intangible assets, net | 996 | 1,068 | ||||||
| $ | 3,933 | $ | 3,929 | |||||
| Liabilities | ||||||||
| Current | ||||||||
| Accounts payable | $ | 37 | $ | 48 | ||||
| Accrued liabilities | 191 | 192 | ||||||
| Income taxes payable | 18 | 17 | ||||||
| Deferred revenue, current | 249 | 214 | ||||||
| 495 | 471 | |||||||
| Deferred revenue, non-current | 107 | 136 | ||||||
| Operating lease liabilities | 135 | — | ||||||
| Other long-term liabilities | 6 | 19 | ||||||
| Long-term debt | 627 | 665 | ||||||
| Deferred income tax liabilities | 1 | 2 | ||||||
| 1,371 | 1,293 | |||||||
| Shareholders’ equity | ||||||||
| Capital stock and additional paid-in capital | 2,722 | 2,688 | ||||||
| Deficit | (125) | (32) | ||||||
| Accumulated other comprehensive loss | (35) | (20) | ||||||
| 2,562 | 2,636 | |||||||
| $ | 3,933 | $ | 3,929 | |||||
| BlackBerry Limited | |||||||
| Incorporated under the Laws of Ontario | |||||||
| (United States dollars, in millions) (unaudited) | |||||||
| Consolidated Statements of Cash Flows | |||||||
| For the Six Months Ended | |||||||
| August 31, 2019 | August 31, 2018 | ||||||
| Cash flows from operating activities | |||||||
| Net loss | $ | (79) | $ | (17) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
| Amortization | 107 | 79 | |||||
| Deferred income taxes | 1 | — | |||||
| Stock-based compensation | 31 | 39 | |||||
| Non-cash consideration received from contract with a customer | (8) | — | |||||
| Debentures fair value adjustment | (51) | (42) | |||||
| Operating leases | (10) | — | |||||
| Other | 4 | 2 | |||||
| Net changes in working capital items: | |||||||
| Accounts receivable, net | — | 6 | |||||
| Other receivables | 1 | 19 | |||||
| Income taxes receivable | (1) | 11 | |||||
| Other assets | (10) | (9) | |||||
| Accounts payable | (11) | (12) | |||||
| Income taxes payable | 1 | 2 | |||||
| Accrued liabilities | (26) | (43) | |||||
| Deferred revenue | 4 | (7) | |||||
| Other long-term liabilities | — | (6) | |||||
| Net cash provided by (used in) operating activities | (47) | 22 | |||||
| Cash flows from investing activities | |||||||
| Acquisition of long-term investments | — | (1) | |||||
| Acquisition of property, plant and equipment | (6) | (9) | |||||
| Proceeds on sale of property, plant and equipment | — | 1 | |||||
| Acquisition of intangible assets | (16) | (16) | |||||
| Business acquisitions, net of cash acquired | 1 | — | |||||
| Acquisition of short-term investments | (553) | (2,178) | |||||
| Proceeds on sale or maturity of short-term investments | 532 | 1,939 | |||||
| Net cash used in investing activities | (42) | (264) | |||||
| Cash flows from financing activities | |||||||
| Issuance of common shares | 3 | 2 | |||||
| Finance lease liability | (1) | — | |||||
| Net cash provided by financing activities | 2 | 2 | |||||
| Effect of foreign exchange loss on cash, cash equivalents, restricted cash, and restricted cash equivalents | (1) | (2) | |||||
| Net decrease in cash, cash equivalents, restricted cash, and restricted cash equivalents during the period | (88) | (242) | |||||
| Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period | 582 | 855 | |||||
| Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period | $ | 494 | $ | 613 | |||
| As at | August 31, 2019 | February 28, 2019 | |||||
| Cash and cash equivalents | $ | 460 | $ | 548 | |||
| Restricted cash and cash equivalents | $ | 34 | $ | 34 | |||
| Short-term investments | $ | 389 | $ | 368 | |||
| Long-term investments | $ | 55 | $ | 55 | |||
