BlackBerry reports $782 million in Software and Services in Fourth Quarter and Fiscal Year 2018

BlackBerry today reported financial results for the three months and twelve months ended February 28, 2018.

Total company non-GAAP revenue for the fourth quarter of fiscal 2018 was $239 million with GAAP revenue of $233 million. Total software and services revenue of $218 million (non-GAAP) and $212 million (GAAP) broke the record set last quarter. Approximately 70% of fourth quarter software and services revenue (excluding IP licensing and professional services) was recurring. BlackBerry had approximately 3,500 enterprise customer orders in the quarter.

Non-GAAP operating income was $19 million, and non-GAAP earnings per share was $0.05 (basic and diluted). GAAP operating loss was $17 million. GAAP net loss for the quarter was $0.02 per basic share and $0.06 per diluted share. GAAP net income includes $28 million in restructuring charges, $22 million in acquired intangibles amortization expense, a benefit of $34 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 were approximately $2.4 billion as of February 28, 2018. Free cash flow was $31 million, before considering the costs related to restructuring and transition from the hardware business as well as the net impact of arbitration awards and damages. Cash generated from operations was $35 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 approximately $1.7 billion.

John Chen, Executive Chairman and CEO, BlackBerry said,

“I am very pleased with our execution. We achieved another record quarter in software and services revenue as we grew across all three of our software businesses. We also generated positive non-GAAP EPS and cash flow from operations for the fiscal year,”.

“Customers and partners recognize our technology innovation and market leadership. BlackBerry’s market opportunities in unified endpoint management and embedded software are significant and synergistic, and our innovation and execution give us confidence to be a leader in the Enterprise of Things.”

Fourth Quarter Fiscal 2018 Business and Financial Highlights

Software and services revenue of $218 million (non-GAAP) and $212 million (GAAP), breaking the record set last quarter
Gross margin of 79% (non-GAAP) and 76% (GAAP), breaking the record set last quarter
Operating income of $19 million (non-GAAP) and operating loss of $17 million (GAAP); positive non-GAAP operating income for the eighth consecutive quarter
Secured several notable new BlackBerry QNX design wins and partnerships, including with Baidu (BIDU) and NVIDIA
Launched BlackBerry Jarvis, a binary static analysis Software-as-a-Service (SaaS) tool that can help automakers secure the software supply chain
Expanded BlackBerry Radar partnership with Fleet Complete to their BigRoad Freight program, which supports over 500,000 drivers
Announced a new partnership with Pana-Pacific to make BlackBerry Radar available to more than 2,800 commercial vehicle dealers in North America
After the quarter closed, announced BlackBerry Enterprise BRIDGE, which provides customers a highly secure way to seamlessly use native Microsoft mobile apps from within BlackBerry Dynamics
After the quarter closed, entered into a multi-year agreement with Jaguar Land Rover to develop and license BlackBerry QNX and Certicom (CERTF) technology for their next-generation vehicles

Fiscal 2018 Financial Highlights

Total non-GAAP software and services revenue of $782 million, an increase of 14% year-over-year
Total GAAP software and services revenue of $747 million, an increase of 20% year-over-year
Non-GAAP EPS of $0.14 (per basic and diluted share), an increase from $0.06 in fiscal 2017
GAAP EPS of $0.76 per basic share and $0.74 per diluted share
Free cash flow of $47 million, before considering the costs related to restructuring and transition from the hardware business as well as the net impact of arbitration awards and damages

Fiscal 2019 Outlook

BlackBerry’s outlook for fiscal 2019 is as follows:
Total company software and services billings growth is expected to be double-digits
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

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 February 28, 2018:

Q4 Fiscal 2018 Non-GAAP Adjustments		For the Three Months Ended February 28, 2018 (in millions)
	Income statement location	Revenue		Gross margin (before taxes)		Gross margin % (before taxes)		Income (loss) before income taxes			Net income			Basic earnings per share
As reported		$	233	$	177	76.0	%	$	(14	)	$	(10	)	$	(0.02	)
Debentures fair value adjustment ⁽²⁾	Debentures fair value adjustment	—		—		—	%	(34		)	(34		)
Selective patent abandonment ⁽³⁾	Loss on sale, disposal and abandonment	—		—		—	%	2			2
RAP charges ⁽⁴⁾	Cost of sales	—		3		1.3	%	3			3
RAP charges ⁽⁴⁾	Selling, marketing and administration	—		—		—	%	23			23
Software deferred revenue acquired ⁽⁵⁾	Revenue	6		6		0.5	%	6			6
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	—		—		—	%	9			9
Acquired intangibles amortization ⁽⁷⁾	Amortization	—		—		—	%	22			22
Arbitration awards, net ⁽⁸⁾	Investment income (loss), net	—		—		—	%	(1		)	(1		)
Legacy royalty adjustments ⁽⁹⁾	Cost of sales	—		1		0.5	%	1			1
		$	239	$	188	78.7	%	$	21		$	25		$	0.05

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.

During the fourth quarter of fiscal 2018, the Company reported GAAP gross margin of $177 million or 76.0% of revenue. Excluding the impact of the resource alignment program (“RAP”) charges, stock compensation expense, and legacy royalty adjustments included in cost of sales and software deferred revenue acquired included in revenue, the non-GAAP gross margin was $188 million, or 78.7% of revenue.
During the fourth quarter of fiscal 2018, the Company recorded the Q4 Fiscal 2018 Debentures Fair Value Adjustment of $34 million. This adjustment was presented on a separate line in the Consolidated Statements of Operations.
During the fourth quarter of fiscal 2018, the Company incurred charges related to selective patent abandonments of $2 million, which was included in loss on sale, disposal and abandonment of long-lived assets.
During the fourth quarter of fiscal 2018, the Company incurred charges related to the RAP of approximately $26 million, of which $3 million was included in cost of sales and $23 million was included in selling, marketing and administration expense.
During the fourth quarter of fiscal 2018, the Company recorded software deferred revenue acquired but not recognized due to business combination accounting rules of $6 million, which was included in enterprise software and services revenue.
During the fourth quarter of fiscal 2018, the Company recorded stock compensation expense of $13 million, of which $1 million was included in cost of sales, $3 million was included in research and development, and $9 million was included in selling, marketing and administration expenses.
During the fourth quarter of fiscal 2018, the Company recorded amortization of intangible assets acquired through business combinations of $22 million, which was included in amortization expense.
During the fourth quarter of fiscal 2018, the Company recorded an interest true-up gain relating to the interest paid under the Nokia arbitration of $1 million was included in investment income (loss).
During the fourth quarter of fiscal 2018, the Company recorded a true-up relating to legacy royalty arrangements under the handheld devices business of $1 million, which was included in cost of sales.

Supplementary Geographic Revenue Breakdown

BlackBerry Limited
(United States dollars, in millions)
Revenue by Region

	For the Quarters Ended
	February 28, 2018				November 30, 2017				August 31, 2017				May 31, 2017				February 28, 2017
North America	$	147	63.1	%	$	133	58.9	%	$	133	55.9	%	$	127	54.0	%	$	166	58.0	%
Europe, Middle East and Africa	63		27.0	%	69		30.5	%	76		31.9	%	70		29.8	%	83		29.0	%
Latin America	4		1.7	%	3		1.3	%	4		1.7	%	4		1.7	%	5		1.8	%
Asia Pacific	19		8.2	%	21		9.3	%	25		10.5	%	34		14.5	%	32		11.2	%
Total	$	233	100.0	%	$	226	100.0	%	$	238	100.0	%	$	235	100.0	%	$	286	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
	February 28, 2018		February 28, 2017		February 28, 2018		February 28, 2017		February 28, 2018		February 28, 2017
Enterprise software and services	$	108	$	91	$	6	$	11	$	114	$	102
BlackBerry Technology Solutions	46		35		—		—		46		35
Licensing, IP and other	58		56		—		—		58		56
Handheld devices	2		55		—		—		2		55
SAF	19		49		—		—		19		49
Total	$	233	$	286	$	6	$	11	$	239	$	297

Fiscal 2018 Non-GAAP Adjustments		For the Year Ended February 28, 2018 (in millions)
	Income statement location	Revenue		Gross margin (before taxes)		Gross margin % (before taxes)		Net income before income taxes			Net income			Basic earnings per share
As reported		$	932	$	670	71.9	%	$	406		$	405		$	0.76
LLA Impairment Charge ⁽²⁾	Impairment of long-lived assets	—		—		—	%	11			11
Debentures fair value adjustment ⁽³⁾	Debentures fair value adjustment	—		—		—	%	191			191
Selective patent abandonment ⁽⁴⁾	Loss on sale, disposal and abandonment	—		—		—	%	4			4
RAP charges ⁽⁵⁾	Cost of sales	—		11		1.2	%	11			11
RAP charges ⁽⁵⁾	Research and development	—		—		—	%	5			5
RAP charges ⁽⁵⁾	Selling, marketing and administration	—		—		—	%	62			62
Software deferred revenue acquired ⁽⁶⁾	Revenue	35		35		0.9	%	35			35
Stock compensation expense ⁽⁷⁾	Cost of sales	—		4		0.5	%	4			4
Stock compensation expense ⁽⁷⁾	Research and development	—		—		—	%	12			12
Stock compensation expense ⁽⁷⁾	Selling, marketing and administration	—		—		—	%	33			33
Acquired intangibles amortization ⁽⁸⁾	Amortization	—		—		—	%	95			95
Business acquisition and integration costs ⁽⁹⁾	Selling, marketing and administration	—		—		—	%	14			14
Arbitration awards, net ⁽¹⁰⁾	Arbitration awards, net	—		—		—	%	(683		)	(683		)
Arbitration awards, net ⁽¹⁰⁾	Investment income (loss), net	—		—		—	%	(123		)	(123		)
Legacy royalty adjustments ⁽¹¹⁾	Cost of sales	—		1		0.1	%	1			1
Adjusted		$	967	$	721	74.6	%	$	78		$	77		$	0.14

During fiscal 2018, the Company reported GAAP gross margin of $670 million or 71.9% of revenue. Excluding the impact of the RAP charges, stock compensation expense, and legacy royalty adjustments included in cost of sales and software deferred revenue acquired included in revenue, the non-GAAP gross margin was $721 million, or 74.6% of revenue.
During fiscal 2018, the Company recorded a long-lived asset (“LLA”) impairment charge of $11 million, which was presented on a separate line in the Consolidated Statements of Operations.
During fiscal 2018, the Company recorded the Fiscal 2018 Debentures Fair Value Adjustment of $191 million, which was presented on a separate line in the Consolidated Statements of Operations.
During fiscal 2018, the Company incurred charges related to selective patent abandonments of $4 million, which was included in loss on sale, disposal and abandonment of long-lived assets.
During fiscal 2018, the Company incurred charges related to the RAP of approximately $78 million, of which $11 million was included in cost of sales, $5 million was included in research and development, and $62 million was included in selling, marketing and administration expense.
During fiscal 2018, the Company recorded software deferred revenue acquired but not recognized due to business combination accounting rules of $35 million, which was included in enterprise software and services revenue.
During fiscal 2018, the Company recorded stock compensation expense of $49 million, of which $4 million was included in cost of sales, $12 million was included in research and development, and $33 million was included in selling, marketing and administration expenses.
During fiscal 2018, the Company recorded amortization of intangible assets acquired through business combinations of $95 million, which was included in amortization expense.
During fiscal 2018, the Company recorded business acquisition and integration costs incurred through business combinations of $14 million, which was including in selling, marketing and administration expenses.
During fiscal 2018, the Company recorded net arbitration awards in connection with the Qualcomm and Nokia arbitrations of $806 million, of which $683 million was presented on a separate line in the Consolidated Statements of Operations, and $123 million was included in investment income (loss), net.
During fiscal 2018, the Company recorded a true-up relating to legacy royalty arrangements under the handheld devices business of $1 million, which was included in cost of sales.

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 Years Ended				For the Years Ended				For the Years Ended
	February 28, 2018		February 28, 2017		February 28, 2018		February 28, 2017		February 28, 2018		February 28, 2017
Enterprise software and services	$	388	$	345	$	35	$	65	$	423	$	410
BlackBerry Technology Solutions	163		151		—		—		163		151
Licensing, IP and other	196		126		—		—		196		126
Handheld devices	64		374		—		—		64		374
SAF	121		313		—		—		121		313
Total	$	932	$	1,309	$	35	$	65	$	967	$	1,374

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 1-888-394-8218 or by logging on at http://ca.blackberry.com/company/investors/events.html.

A replay of the conference call will also be available at approximately 11 a.m. ET by dialing 1-888-203-1112 and entering Conference ID #5199837 and at the link above.