BlackBerry

BlackBerry Reports Software and Services Growth of 106 Percent for Q4 and 113 Percent for Fiscal 2016

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)
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.

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. 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.