BlackBerry reports $44 million net loss for Fiscal 2020 Second Quarter

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
Q2 Fiscal 2020 Non-GAAP Adjustments		(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