BlackBerry shares rallied by the most in almost three months on Wednesday after the company posted better-than-expected third quarter results and said it expects full-year revenue at the high end of its range.
Shares in the company jumped more than 10 per cent to $12 a share – taking its year-to-date gains to 68 per cent – as the company boosted its margins and said its revenues fell less than feared. Revenues fell 22 per cent from a year ago to $226m but topped the average analyst forecast of $215.4m.
The result was helped by 3,000 orders from customers – including NATO, the US justice department, the department of defense and the Dutch government.
Sales at its enterprise and software services climbed nearly 11 per cent year-on-year to $97m, while those from its handheld devices fell to just $9m from $62m in the year ago quarter.
The company’s loss widened to $275m or 52 cents in a share in the three months ended in November, compared with a loss of $117m or 22 cents a share in the year ago period. Stripping out the amortisation of certain assets, legal costs and restructuring charges the company reported adjusted earnings of 3 cents a share, topping the average analyst estimate for the company to break even.
Meanwhile, the company’s gross margin climbed to 74.3 per cent, from 66.8 per cent in the year ago quarter.
“Our momentum continues, with the delivery of a strong third quarter; I am very pleased with our results. Our progress, in both our financial and strategic objectives, is notable,” said John Chen, Executive Chairman and CEO, BlackBerry.
“We achieved records in software and services revenue and total company gross margin; breaking the records we set last quarter. We expanded our position in key verticals and geographies, with many new partners and highly competitive customer wins.”
“Our strategy is working and our execution is yielding results, we are a market leader in secure endpoint management and embedded software. The validation we have received, from partners, customers and industry experts around the world, speaks for itself.”
“BlackBerry’s market opportunity is significant and, based on our progress so far in FY18, I am pleased with our near-term outlook and longer-term potential.”
Looking ahead, the company said expect full-year adjusted revenue to come in at the high end of its range of $920m to $950m and software and services revenue to grow between 10 to 15 per cent.
Q3 Highlights
- Total company revenue of $235 million (non-GAAP) and $226 million (GAAP)
- Record software and services revenue of $199 million (non-GAAP) and $190 million (GAAP), breaking the record set last quarter
- Record gross margin of 77% (non-GAAP) and 74% (GAAP), breaking the record set last quarter
- Operating income of $16 million (non-GAAP) and operating loss of $258 million (GAAP); positive non-GAAP operating income for the seventh consecutive quarter
- EPS of $0.03 (non-GAAP) and loss of ($0.52) (GAAP)
- Adjusted EBITDA of $35 million; positive for the fifteenth consecutive quarter
- Total cash balance of $2.5 billion at the end of the fiscal third quarter
- Highly competitive customer wins, in regulated industries, including NATO, the U.S. Department of Justice, U.S. Department of Defense, the Dutch Government, Deutsche Bank and more
- New cybersecurity practice launched to enable GDPR compliance in Europe
- The only vendor, with a single platform offering, recognized by Gartner in all eight categories of their Market Guide for Information-Centric Endpoint and Mobile Protection
- Ranked an EMM leader by Forrester, for the third consecutive year
- BlackBerry QNX design wins with ten automotive suppliers in the quarter. We now partner with the top three automotive tier ones; Bosch, Denso and Magna
- Strategic expansion of Qualcomm relationship, in connected and autonomous vehicle platforms
- Patent licensing agreement signed with Teletry, enabling a market opportunity of the majority of smartphone manufacturers worldwide
- After the quarter closed we announced in partnership with Denso, that we have started development of the world’s first integrated Human Machine Interface Platform (HMI). Intel is collaborating in the development of this product
Q3 Results
Non-GAAP revenue for the third quarter of fiscal 2018 was $235 million with GAAP revenue of $226 million. Approximately 75% of third quarter software and services revenue (excluding IP licensing and professional services) was recurring. BlackBerry had approximately 3,000 enterprise customer orders in the quarter.
Non-GAAP operating income was $16 million, and non-GAAP earnings per share was $0.03 (basic and diluted). GAAP operating loss was $258 million. GAAP net loss for the quarter was $275 million, or $0.52 per share (basic and diluted). GAAP net income includes $23 million in amortization of acquired intangibles, $20 million in restructuring charges, a charge of $77 million of fair value adjustment related to the debentures, and other amounts as summarized in a table below.
Total cash, cash equivalents, short-term and long-term investments were approximately $2.5 billion as of November 30, 2017. This reflects usage of free cash of $9 million, which includes cash used in operations of $4 million and capital expenditures of $5 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 $1.9 billion. The cash impact of the Nokia arbitration decision will be reflected in the fourth quarter of fiscal 2018. There were no purchase orders with contract manufacturers at the end of the third quarter of fiscal 2018, down from $35 million a year ago.
Outlook
BlackBerry are maintaining our guidance for the full year fiscal 2018:
- Total non-GAAP revenue guidance is maintained, in the range of $920 million to $950 million. Given the strength of our first three quarters and our outlook for the full year fiscal 2018, we expect to come in the mid to higher end of that range
- Total non-GAAP software and services revenue growth in the range of 10 percent to 15 percent
- Positive non-GAAP EPS for the full year
- Positive free cash flow for the full year, before taking into account the net impact of arbitration awards and damages, as well as costs related to restructuring and transition from the hardware business
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:
(United States dollars, in millions except per share data)
| Q3 Fiscal 2018 Non-GAAP Adjustments | For the Nine Months Ended November 30, 2017 (in millions, except for per share amounts) |
||||||||||||||||||||
| Income statement location | Revenue | Gross margin(1) (before taxes) |
Gross margin % (before taxes) | Income (loss) before income taxes | Net income (loss) | Basic earnings (loss) per share | |||||||||||||||
| As reported | $ | 226 | $ | 168 | 74.3 | % | $ | (275 | ) | $ | (275 | ) | $ | (0.52 | ) | ||||||
| Debentures fair value adjustment (2) | Debentures fair value adjustment | – | – | – | % | 77 | 77 | ||||||||||||||
| RAP charges (3) | Cost of sales | – | 2 | 0.9 | % | 2 | 2 | ||||||||||||||
| RAP charges (3) | Research and development | – | – | – | % | 1 | 1 | ||||||||||||||
| RAP charges (3) | Selling, marketing and administration | – | – | – | % | 17 | 17 | ||||||||||||||
| Software deferred revenue acquired (4) | Revenue | 9 | 9 | 1.0 | % | 9 | 9 | ||||||||||||||
| 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 | – | – | – | % | 8 | 8 | ||||||||||||||
| Acquired intangibles amortization (6) | Amortization | – | – | – | % | 23 | 23 | ||||||||||||||
| Business acquisition and integration costs (7) | Selling, marketing and administration | – | – | – | % | 1 | 1 | ||||||||||||||
| Nokia arbitration charge (8) | Arbitration charges | – | – | – | % | 132 | 132 | ||||||||||||||
| Nokia arbitration charge (8) | Investment income (loss), net | – | – | – | % | 17 | 17 | ||||||||||||||
| Adjusted | $ | 235 | $ | 180 | 76.6 | % | $ | 16 | $ | 16 | $ | 0.03 | |||||||||
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.
| (1) | During the third quarter of fiscal 2018, the Company reported GAAP gross margin of $168 million or 74.3% of revenue. Excluding the impact of the resource alignment program (“RAP”) charges and stock compensation expense included in cost of sales and software deferred revenue acquired included in revenue, the non-GAAP gross margin was $180 million, or 76.6% of revenue. |
| (2) | During the third quarter of fiscal 2018, the Company recorded the Q3 Fiscal 2018 Debentures Fair Value Adjustment of $77 million. This adjustment was presented on a separate line in the Consolidated Statements of Operations. |
| (3) | During the third quarter of fiscal 2018, the Company incurred charges related to the RAP of approximately $20 million, of which $2 million was included in cost of sales, $1 million was included in research and development expense and $12 million was included in selling, marketing and administration expense. |
| (4) | During the third quarter of fiscal 2018, the Company recorded software deferred revenue acquired but not recognized due to business combination accounting rules of $11 million, which was included in enterprise software and services revenue. |
| (5) | During the third quarter of fiscal 2018, the Company recorded stock compensation expense of $12 million, of which $1 million was included in cost of sales, $3 million was included in research and development, and $8 million was included in selling, marketing and administration expenses. |
| (6) | During the third quarter of fiscal 2018, the Company recorded amortization of intangible assets acquired through business combinations of $23 million, which was included in amortization expense. |
| (7) | During the third quarter of fiscal 2018, the Company recorded business acquisition and integration costs incurred through business combinations of $1 million, which was included in selling, marketing and administration expenses. |
| (8) | During the third quarter of fiscal 2018, the Company recorded the Nokia arbitration charge of $149 million, of which $132 million was presented on a separate line in the Consolidated Statements of Operations, and $17 million was included in investment income (loss). |
Supplementary Geographic Revenue Breakdown
| BlackBerry Limited |
| (United States dollars, in millions) |
| Revenue by Region |
| For the quarters ended | |||||||||||||||||||||||||||||
| November 30, 2017 |
August 31, 2017 |
May 31, 2017 |
February 28, 2017 | November 30, 2016 | |||||||||||||||||||||||||
| North America | $ | 133 | 58.9 | % | $ | 133 | 55.9 | % | $ | 127 | 54.0 | % | $ | 166 | 58.0 | % | $ | 167 | 57.8 | % | |||||||||
| Europe, Middle East and Africa | 69 | 30.5 | % | 76 | 31.9 | % | 70 | 29.8 | % | 83 | 29.0 | % | 87 | 30.1 | % | ||||||||||||||
| Latin America | 3 | 1.3 | % | 4 | 1.7 | % | 4 | 1.7 | % | 5 | 1.8 | % | 7 | 2.4 | % | ||||||||||||||
| Asia Pacific | 21 | 9.3 | % | 25 | 10.5 | % | 34 | 14.5 | % | 32 | 11.2 | % | 28 | 9.7 | % | ||||||||||||||
| Total | $ | 226 | 100.0 | % | $ | 238 | 100.0 | % | $ | 235 | 100.0 | % | $ | 286 | 100.0 | % | $ | 289 | 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 | |||||||||||||||||||||
| Three months ended | Three months ended | Three months ended | |||||||||||||||||||||
| November 30, 2017 | November 30, 2016 | November 30, 2017 | November 30, 2016 | November 30, 2017 | November 30, 2016 | ||||||||||||||||||
| Enterprise software and services | $ | 97 | $ | 87 | $ | 9 | $ | 12 | $ | 106 | $ | 99 | |||||||||||
| BlackBerry Technology Solutions | 43 | 43 | – | – | 43 | 43 | |||||||||||||||||
| Licensing, IP and other | 50 | 30 | – | – | 50 | 30 | |||||||||||||||||
| Handheld devices | 9 | 62 | – | – | 9 | 62 | |||||||||||||||||
| SAF | 27 | 67 | – | – | 27 | 67 | |||||||||||||||||
| Total | $ | 226 | $ | 289 | $ | 9 | $ | 12 | $ | 235 | $ | 301 | |||||||||||
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 1-844-309-0607 or by logging on here. A replay of the conference call will also be available at approximately 11 a.m. ET by dialing 1-855-859-2056 or 1-404-537-3406 and entering Conference ID #3192119 at the link above.
Consolidated Statements of Operations
| For the three months ended | ||||||||||||||
| November 30, 2017 | August 31, 2017 |
November 30, 2016 | ||||||||||||
| Revenue | $ | 226 | $ | 238 | $ | 289 | ||||||||
| Cost of sales | 58 | 63 | 96 | |||||||||||
| Gross margin | 168 | 175 | 193 | |||||||||||
| Gross margin % | 74.3 | % | 73.5 | % | 66.8 | % | ||||||||
| Operating expenses | ||||||||||||||
| Research and development | 60 | 60 | 75 | |||||||||||
| Selling, marketing and administration | 118 | 110 | 141 | |||||||||||
| Amortization | 37 | 39 | 43 | |||||||||||
| Impairment of long-lived assets | – | 11 | – | |||||||||||
| Loss on sale, disposal and abandonment of long-lived assets | 2 | 3 | 46 | |||||||||||
| Debentures fair value adjustment | 77 | (70 | ) | 2 | ||||||||||
| Arbitration charges | 132 | – | – | |||||||||||
| 426 | 153 | 307 | ||||||||||||
| Operating income (loss) | (258 | ) | 22 | (114 | ) | |||||||||
| Investment income (loss), net | (17 | ) | 1 | (4 | ) | |||||||||
| Income (loss) before income taxes | (275 | ) | 23 | (118 | ) | |||||||||
| Provision for (recovery of) income taxes | – | 4 | (1 | ) | ||||||||||
| Net income (loss) | $ | (275 | ) | $ | 19 | $ | (117 | ) | ||||||
| Earnings (loss) per share | ||||||||||||||
| Basic | $ | (0.52 | ) | $ | 0.04 | $ | (0.22 | ) | ||||||
| Diluted | $ | (0.52 | ) | $ | (0.07 | ) | $ | (0.22 | ) | |||||
| Weighted-average number of common shares outstanding (000’s) | ||||||||||||||
| Basic | 532,496 | 531,381 | 526,102 | |||||||||||
| Diluted | 532,496 | 606,645 | 526,102 | |||||||||||
| Total common shares outstanding (000’s) | 536,307 | 530,411 | 529,962 | |||||||||||
| BlackBerry Limited |
| Incorporated under the Laws of Ontario |
| (United States dollars, in millions except per share data) (unaudited) |
Consolidated Balance Sheets
| As at | |||||||||
| November 30, 2017 | February 28, 2017 | ||||||||
| Assets | |||||||||
| Current | |||||||||
| Cash and cash equivalents | $ | 529 | $ | 734 | |||||
| Short-term investments | 1,894 | 644 | |||||||
| Accounts receivable, net | 164 | 200 | |||||||
| Other receivables | 33 | 27 | |||||||
| Inventories | 3 | 26 | |||||||
| Income taxes receivable | 22 | 31 | |||||||
| Other current assets | 36 | 55 | |||||||
| 2,681 | 1,717 | ||||||||
| Long-term receivables | 30 | 7 | |||||||
| Long-term investments | 55 | 269 | |||||||
| Restricted cash and cash equivalents | 45 | 51 | |||||||
| Property, plant and equipment, net | 68 | 91 | |||||||
| Goodwill | 567 | 559 | |||||||
| Intangible assets, net | 502 | 602 | |||||||
| $ | 3,948 | $ | 3,296 | ||||||
| Liabilities | |||||||||
| Current | |||||||||
| Accounts payable | $ | 63 | $ | 128 | |||||
| Accrued liabilities | 357 | 258 | |||||||
| Income taxes payable | 19 | 14 | |||||||
| Deferred revenue | 190 | 239 | |||||||
| 629 | 639 | ||||||||
| Long-term debt | 816 | 591 | |||||||
| Deferred income tax liability | 7 | 9 | |||||||
| 1,452 | 1,239 | ||||||||
| Shareholders’ equity | |||||||||
| Capital stock and additional paid-in capital | 2,546 | 2,512 | |||||||
| Deficit | (37 | ) | (438 | ) | |||||
| Accumulated other comprehensive loss | (13 | ) | (17 | ) | |||||
| 2,496 | 2,057 | ||||||||
| $ | 3,948 | $ | 3,296 | ||||||
| BlackBerry Limited |
| Incorporated under the Laws of Ontario |
| (United States dollars, in millions except per share data) (unaudited) |
Consolidated Statements of Cash Flows
| For the nine months ended | ||||||||
| November 30, 2017 | November 30, 2016 | |||||||
| Cash flows from operating activities | ||||||||
| Net income (loss) | $ | 415 | $ | (1,159 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Amortization | 138 | 182 | ||||||
| Deferred income taxes | (3 | ) | 32 | |||||
| Stock-based compensation | 36 | 45 | ||||||
| Impairment of goodwill | – | 57 | ||||||
| Impairment of long-lived assets | 11 | 501 | ||||||
| Loss on sale, disposal and abandonment of long-lived assets | 5 | 170 | ||||||
| Other-than-temporary impairment on cost-based investments | – | 8 | ||||||
| Debentures fair value adjustment | 225 | 40 | ||||||
| Long-term receivables | (23 | ) | – | |||||
| Other | (2 | ) | 6 | |||||
| Net changes in working capital items: | ||||||||
| Accounts receivable, net | 36 | 147 | ||||||
| Other receivables | (6 | ) | 10 | |||||
| Inventories | 23 | 99 | ||||||
| Income taxes receivable | 4 | 1 | ||||||
| Other current assets | 17 | 31 | ||||||
| Accounts payable | (65 | ) | (181 | ) | ||||
| Income taxes payable | 5 | (29 | ) | |||||
| Accrued liabilities | 99 | (84 | ) | |||||
| Deferred revenue | (49 | ) | (118 | ) | ||||
| Net cash provided by (used in) operating activities | 866 | (242 | ) | |||||
| Cash flows from investing activities | ||||||||
| Acquisition of long-term investments | (27 | ) | (429 | ) | ||||
| Proceeds on sale or maturity of long-term investments | 77 | 215 | ||||||
| Acquisition of property, plant and equipment | (11 | ) | (14 | ) | ||||
| Proceeds on sale of property, plant and equipment | 3 | 4 | ||||||
| Acquisition of intangible assets | (22 | ) | (28 | ) | ||||
| Business acquisitions, net of cash acquired | – | (5 | ) | |||||
| Acquisition of short-term investments | (2,715 | ) | (901 | ) | ||||
| Proceeds on sale or maturity of short-term investments | 1,626 | 1,985 | ||||||
| Conversion of cost-based investment to equity securities | – | 10 | ||||||
| Net cash provided by (used in) investing activities | (1,069 | ) | 837 | |||||
| Cash flows from financing activities | ||||||||
| Issuance of common shares | 7 | 5 | ||||||
| Payment of contingent consideration from business acquisitions | – | (15 | ) | |||||
| Common shares repurchased | (18 | ) | – | |||||
| Effect of foreign exchange loss on restricted cash and cash equivalents | – | (3 | ) | |||||
| Transfer to restricted cash and cash equivalents | 6 | 2 | ||||||
| Repurchase of 6% Debentures | – | (1,315 | ) | |||||
| Issuance of 3.75% Debentures | – | 605 | ||||||
| Net cash used in financing activities | (5 | ) | (721 | ) | ||||
| Effect of foreign exchange gain on cash and cash equivalents | 3 | (1 | ) | |||||
| Net decrease in cash and cash equivalents during the period | (205 | ) | (127 | ) | ||||
| Cash and cash equivalents, beginning of period | 734 | 957 | ||||||
| Cash and cash equivalents, end of period | $ | 529 | $ | 830 | ||||
| As at | November 30, 2017 | February 28, 2017 | ||||||
| Cash and cash equivalents | $ | 529 | $ | 734 | ||||
| Short-term investments | 1,894 | 644 | ||||||
| Long-term investments | 55 | 269 | ||||||
| Restricted cash | 45 | 51 | ||||||
| $ | 2,523 | $ | 1,698 | |||||
