BlackBerry today reported financial results for the three months ended August 31, 2018 with second-quarter profit more than doubled, beating Wall Street estimates. Lower expenses helped offset a drop in enterprise software and services revenue and U.S.-listed shares of the company were up 2.7 percent premarket.
The company’s expenses fell in the quarter. Selling and marketing costs dropped about 6 percent to US$106 million, while research and development costs fell 15 percent. Enterprise software and services revenue fell 3 percent to US$88 million in the second quarter ended Aug. 31. On a per share basis, the company reported a loss of 4 cents, compared with a loss of 8 cents per share in the year-ago quarter.
Excluding items, the company earned 4 cents per share, beating analysts’ average estimate of 1 cent, according to Thomson Reuters I/B/E/S. Total revenue fell 13 percent to US$210 million.
Total company non-GAAP revenue for the second quarter of fiscal 2019 was $214 million with GAAP revenue of $210 million. Total non-GAAP software and services revenue of $197 million, up 1% year-over-year. Total GAAP software and services revenue was $193 million, up 4% year-over-year. Approximately 81% of second quarter software and services revenue (excluding IP licensing and professional services) was recurring. Non-GAAP gross margin was 78% and GAAP gross margin was 77%.
Non-GAAP operating income was $17 million, and positive for the tenth consecutive quarter. GAAP operating income was $39 million. Non-GAAP earnings per share was $0.04 (basic and diluted). GAAP net income for the quarter was $0.08 per basic share and a GAAP net loss of $0.04 per diluted share. GAAP net income includes $22 million for acquired intangibles amortization expense, $21 million in stock compensation expense, $3 million in restructuring charges, a benefit of $70 million related to the fair value adjustment on the debentures, and other amounts as summarized in a table below.
Total cash, cash equivalents, short-term and long-term investments was $2.4 billion as of August 31, 2018. Free cash flow, before considering the impact of restructuring and legal proceedings, was positive $37 million. Cash generated from operations was $31 million and capital expenditures were $4 million. Excluding $605 million in the face value of the company’s debt, the net cash balance at the end of the quarter was $1.7 billion.
BlackBerry re-affirmed its outlook for fiscal 2019, as follows:
Total company software and services billings growth is expected to be double-digits Total software and services revenue growth of between 8% to 10% year-over-year Non-GAAP EPS is expected to be positive Free cash flow is expected to be positive for the full year, before considering the impact of restructuring and legal proceedings“In the quarter, we exceeded our financial expectations driven by sequential growth in both our BlackBerry Technology Solutions and Enterprise Software and Services businesses” said John Chen, Executive Chairman and CEO, BlackBerry.
“I am very encouraged by BlackBerry’s leadership opportunities in the fast-growing Enterprise of Things, and by our strategy to capitalise on these significant future opportunities with BlackBerry Spark, our platform to securely communicate and collaborate between smart endpoints.”
Reconciliation of GAAP revenue, gross margin, gross margin percentage, income before income taxes, net income and basic earnings per share to Non-GAAP revenue, gross margin, gross margin percentage, income before income taxes, net income and basic earnings per share for the three months ended August 31, 2018:
Q2 Fiscal 2019 Non-GAAP Adjustments
For the Three Months Ended August 31, 2018
(in millions, except for per share amounts)
Incomestatement
location
Revenue
Gross margin(before taxes)
Gross margin% (beforetaxes)
Incomebeforeincome taxes
Net income
Basicearnings pershare
As reported
$
210
$
161
76.7
%
$
44
$
43
$
0.08
Debentures fair value adjustment (2)
Debentures fair value adjustment
—
—
—
%
(70)
(70)
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
4
4
0.5
%
4
4
Stock compensation expense (5)
Cost of sales
—
1
0.4
%
1
1
Stock compensation
expense (5)
Research and development
—
—
—
%
3
3
Stock compensation
expense (5)
Selling, marketing and administration
—
—
—
%
17
17
Acquired intangibles amortization (6)
Amortization
—
—
—
%
22
22
Business acquisition and integration costs recovered (7)
Selling, marketing and administration
—
—
—
%
(2)
(2)
Adjusted
$
214
$
167
78.0
%
$
22
$
21
$
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 basic earnings 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.
During the second quarter of fiscal 2019, the Company reported GAAP gross margin of $161 million or 76.7% of revenue. Excluding the impact of restructuring charges and stock compensation expense included in cost of sales and software deferred revenue acquired included in revenue, the non-GAAP gross margin was $167 million, or 78.0% of revenue. During the second quarter of fiscal 2019, the Company recorded the Q2 Fiscal 2019 Debentures Fair Value Adjustment of $70 million. This adjustment was presented on a separate line in the Consolidated Statements of Operations. During the second quarter of fiscal 2019, the Company incurred restructuring charges of approximately $3 million, of which $1 million was included in cost of sales and $2 million was included in selling, marketing and administration expense. During the second quarter of fiscal 2019, the Company recorded software deferred revenue acquired but not recognized due to business combination accounting rules of $4 million, which was included in enterprise software and services revenue. During the second quarter of fiscal 2019, the Company recorded stock compensation expense of $21 million, of which $1 million was included in cost of sales, $3 million was included in research and development, and $17 million was included in selling, marketing and administration expense. During the second quarter of fiscal 2019, the Company recorded amortization of intangible assets acquired through business combinations of $22 million, which was included in amortization expense. During the second quarter of fiscal 2019, the Company recorded business acquisition and integration costs recovered through business combinations of $2 million, which was included in selling, marketing and administration expense.Supplementary Geographic Revenue Breakdown
BlackBerry Limited
(United States dollars, in millions)
Revenue by Region
For the Quarters Ended
August 31, 2018
May 31, 2018
February 28, 2018
November 30, 2017
August 31, 2017
North America
$
133
63.3
%
$
139
65.3
%
$
147
63.1
%
$
133
58.9
%
$
133
55.9
%
Europe, Middle East and Africa
53
25.3
%
52
24.4
%
63
27.0
%
69
30.5
%
76
31.9
%
Other regions
24
11.4
%
22
10.3
%
23
9.9
%
24
10.6
%
29
12.2
%
Total
$
210
100.0
%
$
213
100.0
%
$
233
100.0
%
$
226
100.0
%
$
238
100.0
%
Supplementary Revenue by Product and Service Type Breakdown
BlackBerry Limited
(United States dollars, in millions)
Revenue by Product and Service Type
US GAAP
Adjustments
Non-GAAP
For the Three Months Ended
For the Three Months Ended
For the Three Months Ended
August 31,2018
August 31,2017
August 31,2018
August 31,2017
August 31,2018
August 31,2017
Enterprise software and services
$
88
$
91
$
4
$
11
$
92
$
102
BlackBerry Technology Solutions
49
38
—
—
49
38
Licensing, IP and other
56
56
—
—
56
56
Handheld devices
5
16
—
—
5
16
SAF
12
37
—
—
12
37
Total
$
210
$
238
$
4
$
11
$
214
$
249
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,
2018
May 31,2018
August 31,2017
August 31,2018
August 31,2017
Revenue
$
210
$
213
$
238
$
423
$
473
Cost of sales
49
52
63
101
148
Gross margin
161
161
175
322
325
Gross margin %
76.7
%
75.6
%
73.5
%
76.1
%
68.7
%
Operating expenses
Research and development
51
61
60
112
121
Selling, marketing and administration
106
100
113
206
223
Amortization
35
37
39
72
79
Impairment of long-lived assets
—
—
11
—
11
Debentures fair value adjustment
(70)
28
(70)
(42)
148
Qualcomm arbitration award
—
—
—
—
(815)
122
226
153
348
(233)
Operating income (loss)
39
(65)
22
(26)
558
Investment income, net
5
6
1
11
137
Income (loss) before income taxes
44
(59)
23
(15)
695
Provision for income taxes
1
1
4
2
5
Net income (loss)
$
43
$
(60)
$
19
$
(17)
$
690
Earnings (loss) per share
Basic
$
0.08
$
(0.11)
$
0.04
$
(0.03)
$
1.30
Diluted
$
(0.04)
$
(0.11)
$
(0.08)
$
(0.08)
$
1.26
Weighted-average number of common shares outstanding (000s)
Basic
537,299
536,964
531,381
537,136
531,234
Diluted
597,799
536,964
591,881
597,636
546,132
Total common shares outstanding (000s)
537,768
537,112
530,411
537,768
530,411
BlackBerry Limited
Incorporated under the Laws of Ontario
(United States dollars, in millions) (unaudited)
Consolidated Balance Sheets
As at
August 31, 2018
February 28, 2018
Assets
Current
Cash and cash equivalents
$
581
$
816
Short-term investments
1,683
1,443
Accounts receivable, net
145
151
Other receivables
52
71
Income taxes receivable
15
26
Other current assets
52
38
2,528
2,545
Restricted cash and cash equivalents
32
39
Long-term investments
56
55
Other long-term assets
33
28
Deferred income tax assets
2
3
Property, plant and equipment, net
63
64
Goodwill
566
569
Intangible assets, net
422
477
$
3,702
$
3,780
Liabilities
Current
Accounts payable
$
34
$
46
Accrued liabilities
162
205
Income taxes payable
20
18
Deferred revenue, current
177
142
393
411
Deferred revenue, non-current
108
53
Other long-term liabilities
17
23
Long-term debt
739
782
Deferred income tax liabilities
5
6
1,262
1,275
Shareholders’ equity
Capital stock and additional paid-in capital
2,600
2,560
Deficit
(142)
(45)
Accumulated other comprehensive loss
(18)
(10)
2,440
2,505
$
3,702
$
3,780
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, 2018
August 31, 2017
Cash flows from operating activities
Net income (loss)
$
(17)
$
690
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization
79
96
Deferred income taxes
—
(2)
Stock-based compensation
39
24
Impairment of long-lived assets
—
11
Loss on sale, disposal and abandonment of long-lived assets
—
4
Debentures fair value adjustment
(42)
148
Other long-term receivables
—
(30)
Other
2
(3)
Net changes in working capital items:
Accounts receivable, net
6
45
Other receivables
19
(11)
Income taxes receivable
11
(2)
Other assets
(9)
31
Accounts payable
(12)
(43)
Income taxes payable
2
4
Accrued liabilities
(43)
(49)
Deferred revenue
(7)
(42)
Other long-term liabilities
(6)
(4)
Net cash provided by operating activities
22
867
Cash flows from investing activities
Acquisition of long-term investments
(1)
(25)
Proceeds on sale or maturity of long-term investments
—
1
Acquisition of property, plant and equipment
(9)
(6)
Proceeds on sale of property, plant and equipment
1
3
Acquisition of intangible assets
(16)
(14)
Acquisition of short-term investments
(2,178)
(1,693)
Proceeds on sale or maturity of short-term investments
1,939
732
Net cash used in investing activities
(264)
(1,002)
Cash flows from financing activities
Issuance of common shares
2
3
Common shares repurchased
—
(17)
Net cash provided by (used in) financing activities
2
(14)
Effect of foreign exchange gain (loss) on cash, cash equivalents, restricted cash, and restricted cash equivalents
(2)
3
Net decrease in cash, cash equivalents, restricted cash, and restricted cash equivalents during the period
(242)
(146)
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period
855
785
Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period
$
613
$
639
As at
August 31, 2018
February 28, 2018
Cash and cash equivalents
$
581
$
816
Restricted cash and cash equivalents
$
32
$
39
Short-term investments
$
1,683
$
1,443
Long-term investments
$
56
$
55
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 dialing 1- 866-393-4306 or by logging on here.
A replay of the conference call will also be available at approximately 11 a.m. ET by dialing 1-800-585-8367 and entering Conference ID #7069667 and at the link above.
