BlackBerry today reported financial results for the three months and fiscal year ended February 29, 2016 (all figures in U.S. dollars and U.S. GAAP, except where otherwise indicated).
Q4 Highlights
- Non-GAAP total revenue of $487 million
- Non-GAAP software and services revenue of $153 million, up 106% percent for the same quarter year over year, allowing software and services revenue to grow to $527 million in FY 2016
- Adjusted EBITDA of $78 million
- Cash and investments balance of $2.62 billion at the end of the fiscal quarter
- Non-GAAP loss of $(0.03) per share
- Unveiled a new QNX software platform to enable automotive companies to build a full range of secured automated driving systems and in-car acoustics
- Showcased at CES, the Internet of Things (IoT) over-the-air software platform as well as BlackBerry Radar, the IoT asset tracking device and software interface
- Launched five secure enterprise mobility management suites, combined complementary BlackBerry and Good capabilities, to provide a holistic management, messaging, collaboration, application enablement and content management platform
- Launched a cybersecurity consulting service to help customers assess and mitigate risks; recently acquired Encription Limited to accelerate these efforts, especially for the connected car and IoT industries
Q4 Results
Non-GAAP revenue for the fourth quarter of fiscal 2016 was $487 million with GAAP revenue of $464 million. GAAP revenue reflects a purchase accounting write down of deferred revenue associated with recent acquisitions. The non-GAAP revenue breakdown for the quarter was approximately 32% for software and services, 29% for service access fees (SAF), and 39% for hardware and other revenue. BlackBerry had over 3,600 enterprise customer wins in the quarter. Approximately 70% of fourth quarter software revenue was recurring.
Non-GAAP net loss for the fourth quarter was $(18) million, or $(0.03) per share. GAAP net loss for the quarter was $(238) million, or $(0.45) per basic share. Basic GAAP net loss reflects a purchase accounting impact of $23 million on GAAP revenue, a non-cash credit associated with the change in the fair value of the debentures of $40 million (the “Q4 Fiscal 2016 Debentures Fair Value Adjustment”), pre-tax charges of $192 million related to restructuring and acquisition costs, stock compensation of $17 million, and amortization of acquired intangibles of $28 million. The impact of these adjustments on GAAP net income and earnings per share is summarized in a table below.
Total cash, cash equivalents, short-term and long-term investments was $2.62 billion as of February 29, 2016. This reflects $6 million of positive free cash flow and $36 million used to repurchase 5 million shares. Excluding $1.25 billion in the face value of our debt, the net cash balance at the end of the quarter was $1.37 billion. Purchase orders with contract manufacturers totalled approximately $162 million at the end of the fourth quarter, compared to $298 million at the end of the third quarter and down from $394 million in the year ago quarter. Operating cash flow was $9 million.
“Overall, BlackBerry’s Q4 performance was solid as we made progress on the key elements of our strategy, which are to grow software faster than the mobility software market, achieve device profitability and generate positive free cash flow,” said Executive Chairman and Chief Executive Officer John Chen.
“We have clearly gained traction and market share in enterprise software. We more than doubled our software and licensing revenue in Q4 and exceeded our target of $500 million for the full year. Looking to FY 2017, our strategy is on track and our growth engines are in place to continue to generate above market growth in software and achieve our profitability objectives,” said Chen.
Outlook
The company expects to grow software and services at around 30 percent. The Company continues to anticipate positive free cash flow and adjusted EBITDA for the full 2017 fiscal year.
Reconciliation of GAAP gross margin, gross margin percentage, loss before income taxes, net loss and basic loss per share to Non-GAAP gross margin, gross margin percentage, loss before income taxes, net loss and basic loss per share:
(United States dollars, in millions except per share data)
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| Q4 Fiscal 2016 Non-GAAP Adjustments | For the Three Months Ended February 29, 2016 (in millions) |
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| Income statement location | Gross margin (before taxes)(1) | Gross margin % (before taxes)(1) | Loss before income taxes | Net loss | Basic loss per share | |||||||||||||||
| As reported | $ | 210 | 45.3 | % | $ | (256 | ) | $ | (238 | ) | $ | (0.45 | ) | |||||||
| Debentures fair value adjustment(2) | Debentures fair value adjustment | – | – | % | (40 | ) | (40 | ) | ||||||||||||
| RAP charges (3) | Cost of sales | 4 | 0.8 | % | 4 | 4 | ||||||||||||||
| RAP charges (3) | Research and development | – | – | % | 18 | 18 | ||||||||||||||
| RAP charges (3) | Selling, marketing and administration | – | – | % | 158 | 158 | ||||||||||||||
| CORE program charges(4) | Selling, marketing and administration | – | – | % | 2 | 2 | ||||||||||||||
| Software deferred revenue acquired(5) | Revenue | 23 | 2.6 | % | 23 | 23 | ||||||||||||||
| Stock compensation expense(6) | Research and development | – | – | % | 5 | 5 | ||||||||||||||
| Stock compensation expense(6) | Selling, marketing and administration | – | – | % | 12 | 12 | ||||||||||||||
| Acquired intangibles amortization(7) | Amortization | – | – | % | 28 | 28 | ||||||||||||||
| Business acquisition and integration costs(8) | Selling, marketing and administration | – | – | % | 10 | 10 | ||||||||||||||
| $ | 237 | 48.7 | % | $ | (36 | ) | $ | (18 | ) | $ | (0.03 | ) | ||||||||
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Note: Non-GAAP gross margin, non-GAAP gross margin percentage, non-GAAP loss before income taxes, non-GAAP net loss and non-GAAP basic loss 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 2016, the Company reported GAAP gross margin of $210 million or 45.3% of revenue. Excluding the impact of 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 $237 million or 48.7% of revenue.
- During the fourth quarter of fiscal 2016, the Company recorded the Q4 Fiscal 2016 Debentures Fair Value Adjustment of $40 million. This adjustment was presented on a separate line in the Consolidated Statements of Operations.
- During the fourth quarter of fiscal 2016, the Company incurred charges related to the RAP of approximately $180 million pre-tax and after tax, of which $4 million were included in cost of sales, $18 million were included in research and development and $158 million were included in selling, marketing and administration expenses.
- During the fourth quarter of fiscal 2016, the Company incurred charges related to the CORE program of $2 million, which were included in selling, marketing and administration expenses.
- During the fourth quarter of fiscal 2016, the Company recorded software deferred revenue acquired but not recognized due to business combination accounting rules of $23 million, which were included in revenue.
- During the fourth quarter of fiscal 2016, the Company recorded stock compensation expense of $17 million, of which $5 million were included in research and development, and $12 million were included in selling, marketing and administration expenses.
- During the fourth quarter of fiscal 2016, the Company recorded amortization of intangible assets acquired through business combinations of $28 million, which were included in amortization expense.
- During the fourth quarter of fiscal 2016, the Company recorded business acquisition and integration costs incurred through business combinations of $10 million, which were included in selling, marketing and administration expenses.
Supplementary Geographic Revenue Breakdown
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| Blackberry Limited | |||||||||||||||||||||||||||||
| (United States dollars, in millions) | |||||||||||||||||||||||||||||
| Revenue by Region | |||||||||||||||||||||||||||||
| For the quarters ended | |||||||||||||||||||||||||||||
| February 29, 2016 | November 28, 2015 | August 29, 2015 | May 30, 2015 | February 28, 2015 | |||||||||||||||||||||||||
| North America | $ | 216 | 46.5 | % | $ | 275 | 50.2 | % | $ | 176 | 36.0 | % | $ | 285 | 43.3 | % | $ | 205 | 31.0 | % | |||||||||
| Europe, Middle East and Africa | 175 | 37.7 | % | 194 | 35.4 | % | 202 | 41.2 | % | 245 | 37.2 | % | 283 | 42.9 | % | ||||||||||||||
| Latin America | 18 | 3.9 | % | 24 | 4.4 | % | 33 | 6.7 | % | 42 | 6.4 | % | 60 | 9.1 | % | ||||||||||||||
| Asia Pacific | 55 | 11.9 | % | 55 | 10.0 | % | 79 | 16.1 | % | 86 | 13.1 | % | 112 | 17.0 | % | ||||||||||||||
| Total | $ | 464 | 100.0 | % | $ | 548 | 100.0 | % | $ | 490 | 100.0 | % | $ | 658 | 100.0 | % | $ | 660 | 100.0 | % | |||||||||
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| BlackBerry Limited | ||||||||||||||||||||
| Incorporated under the Laws of Ontario | ||||||||||||||||||||
| (United States dollars, in millions except share and per share amounts) | ||||||||||||||||||||
| Consolidated Statements of Operations | ||||||||||||||||||||
| For the three months ended | For the years ended | |||||||||||||||||||
| February 29, 2016 | November 28, 2015 | February 28, 2015 | February 29, 2016 | February 28, 2015 | ||||||||||||||||
| Revenue | $ | 464 | $ | 548 | $ | 660 | $ | 2,160 | $ | 3,335 | ||||||||||
| Cost of sales | ||||||||||||||||||||
| Cost of sales | 251 | 304 | 311 | 1,186 | 1,669 | |||||||||||||||
| Inventory write-down | 3 | 9 | 41 | 36 | 95 | |||||||||||||||
| Supply commitment charges | – | (1 | ) | (10 | ) | (3 | ) | (33 | ) | |||||||||||
| 254 | 312 | 342 | 1,219 | 1,731 | ||||||||||||||||
| Gross margin | 210 | 236 | 318 | 941 | 1,604 | |||||||||||||||
| Gross margin % | 45.3 | % | 43.1 | % | 48.2 | % | 43.6 | % | 48.1 | % | ||||||||||
| Operating expenses | ||||||||||||||||||||
| Research and development | 108 | 100 | 134 | 469 | 711 | |||||||||||||||
| Selling, marketing and administration | 179 | 175 | 138 | 712 | 904 | |||||||||||||||
| Amortization | 77 | 68 | 68 | 277 | 298 | |||||||||||||||
| Abandonment/impairment of long-lived assets | 127 | 2 | 34 | 136 | 34 | |||||||||||||||
| Debentures fair value adjustment | (40 | ) | (5 | ) | 50 | (430 | ) | 80 | ||||||||||||
| 451 | 340 | 424 | 1,164 | 2,027 | ||||||||||||||||
| Operating loss | (241 | ) | (104 | ) | (106 | ) | (223 | ) | (423 | ) | ||||||||||
| Investment income (loss), net | (15 | ) | (16 | ) | 105 | (59 | ) | 38 | ||||||||||||
| Loss before income taxes | (256 | ) | (120 | ) | (1 | ) | (282 | ) | (385 | ) | ||||||||||
| Recovery of income taxes | (18 | ) | (31 | ) | (29 | ) | (74 | ) | (81 | ) | ||||||||||
| Net income (loss) | $ | (238 | ) | $ | (89 | ) | $ | 28 | $ | (208 | ) | $ | (304 | ) | ||||||
| Earnings (loss) per share | ||||||||||||||||||||
| Basic | $ | (0.45 | ) | $ | (0.17 | ) | $ | 0.05 | $ | (0.40 | ) | $ | (0.58 | ) | ||||||
| Diluted | $ | (0.45 | ) | $ | (0.17 | ) | $ | 0.05 | $ | (0.86 | ) | $ | (0.58 | ) | ||||||
| Weighted-average number of common shares outstanding (000’s) | ||||||||||||||||||||
| Basic | 524,627 | 525,103 | 528,685 | 526,303 | 527,684 | |||||||||||||||
| Diluted | 524,627 | 525,103 | 528,685 | 651,303 | 527,684 | |||||||||||||||
| Total common shares outstanding (000’s) | 521,172 | 525,701 | 528,802 | 521,172 | 528,802 | |||||||||||||||
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| BlackBerry Limited | |||||||||
| Incorporated under the Laws of Ontario | |||||||||
| (United States dollars, in millions except per share data) | |||||||||
| Consolidated Balance Sheets | |||||||||
| As at | February 29, 2016 | February 28, 2015 | |||||||
| Assets | |||||||||
| Current | |||||||||
| Cash and cash equivalents | $ | 957 | $ | 1,233 | |||||
| Short-term investments | 1,420 | 1,658 | |||||||
| Accounts receivable, net | 338 | 503 | |||||||
| Other receivables | 51 | 97 | |||||||
| Inventories | 143 | 122 | |||||||
| Income taxes receivable | – | 169 | |||||||
| Other current assets | 102 | 375 | |||||||
| Deferred income tax asset | – | 10 | |||||||
| 3,011 | 4,167 | ||||||||
| Long-term investments | 197 | 316 | |||||||
| Restricted cash | 50 | 59 | |||||||
| Property, plant and equipment, net | 412 | 556 | |||||||
| Goodwill | 618 | 85 | |||||||
| Intangible assets, net | 1,213 | 1,375 | |||||||
| Deferred income tax asset | 33 | – | |||||||
| $ | 5,534 | $ | 6,558 | ||||||
| Liabilities | |||||||||
| Current | |||||||||
| Accounts payable | $ | 270 | $ | 235 | |||||
| Accrued liabilities | 368 | 667 | |||||||
| Income taxes payable | 9 | – | |||||||
| Deferred revenue | 392 | 470 | |||||||
| 1,039 | 1,372 | ||||||||
| Long-term debt | 1,277 | 1,707 | |||||||
| Deferred income tax liability | 10 | 48 | |||||||
| 2,326 | 3,127 | ||||||||
| Shareholders’ equity | |||||||||
| Capital stock and additional paid-in capital | 2,448 | 2,444 | |||||||
| Retained earnings | 768 | 1,010 | |||||||
| Accumulated other comprehensive loss | (8 | ) | (23 | ) | |||||
| 3,208 | 3,431 | ||||||||
| $ | 5,534 | $ | 6,558 | ||||||
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| BlackBerry Limited | |||||||||
| Incorporated under the Laws of Ontario | |||||||||
| (United States dollars, in millions except per share data) | |||||||||
| Consolidated Statements of Cash Flows | |||||||||
| For the years ended | |||||||||
| February 29, 2016 | February 28, 2015 | ||||||||
| Cash flows from operating activities | |||||||||
| Net loss | $ | (208 | ) | $ | (304 | ) | |||
| Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||||
| Amortization | 616 | 694 | |||||||
| Deferred income taxes | (105 | ) | 62 | ||||||
| Stock-based compensation | 60 | 50 | |||||||
| Abandonment/impairment of long-lived assets | 136 | 34 | |||||||
| Loss on disposal of property, plant and equipment | 59 | 135 | |||||||
| Debentures fair value adjustment | (430 | ) | 80 | ||||||
| Other | 16 | 3 | |||||||
| Net changes in working capital items | 113 | 59 | |||||||
| Net cash provided by operating activities | 257 | 813 | |||||||
| Cash flows from investing activities | |||||||||
| Acquisition of long-term investments | (326 | ) | (802 | ) | |||||
| Proceeds on sale or maturity of long-term investments | 301 | 515 | |||||||
| Acquisition of property, plant and equipment | (32 | ) | (87 | ) | |||||
| Proceeds on sale of property, plant and equipment | 4 | 348 | |||||||
| Acquisition of intangible assets | (70 | ) | (421 | ) | |||||
| Business acquisitions, net of cash acquired | (698 | ) | (119 | ) | |||||
| Acquisition of short-term investments | (2,764 | ) | (2,949 | ) | |||||
| Proceeds on sale or maturity of short-term investments | 3,146 | 2,342 | |||||||
| Net cash used in investing activities | (439 | ) | (1,173 | ) | |||||
| Cash flows from financing activities | |||||||||
| Issuance of common shares | 4 | 6 | |||||||
| Excess tax benefit (deficiency) related to stock-based compensation | (1 | ) | 8 | ||||||
| Sale of treasury stock | – | 61 | |||||||
| Common shares repurchased | (93 | ) | – | ||||||
| Transfer from (to) restricted cash | 12 | (59 | ) | ||||||
| Net cash provided by (used in) financing activities | (78 | ) | 16 | ||||||
| Effect of foreign exchange loss on cash and cash equivalents | (16 | ) | (2 | ) | |||||
| Net decrease in cash and cash equivalents for the year | (276 | ) | (346 | ) | |||||
| Cash and cash equivalents, beginning of year | 1,233 | 1,579 | |||||||
| Cash and cash equivalents, end of year | $ | 957 | $ | 1,233 | |||||
| As at | February 29, 2016 | November 28, 2015 | |||||||
| Cash and cash equivalents | $ | 957 | $ | 1,123 | |||||
| Short-term investments | 1,420 | 1,175 | |||||||
| Long-term investments | 197 | 350 | |||||||
| Restricted cash | 50 | 58 | |||||||
| $ | 2,624 | $ | 2,706 | ||||||
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Conference Call and Webcast
A conference call and live webcast will be held beginning at 8 am ET, which can be accessed by dialing 1-866-438-1903 or by logging on at ca.blackberry.com/company/investors/events.html. A replay of the conference call will also be available at approximately 11 am ET by dialling 1-855-859-2056 or 1-404-537-3406 and entering Conference ID # 47747014 or by clicking the link above.
