BlackBerry Reports Record Software and Services Revenue for Q1 Fiscal 2017
Company delivers positive non-GAAP operating income and breakeven non-GAAP EPS
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WATERLOO, ONTARIO -- (Marketwired) -- 06/23/16 -- BlackBerry Limited (NASDAQ: BBRY)(TSX: BB), a global leader in secure mobile communications, today reported financial results for the three months ended May 31, 2016 (all figures in U.S. dollars and U.S. GAAP, except where otherwise indicated).
Q1 Highlights
-- Company begins reporting multiple business segments: Software and
Services, Service Access Fees (SAF) and Mobility Solutions. Mobility
Solutions includes BlackBerry smartphones and device software licensing
-- Non-GAAP total revenue of $424 million
-- Non-GAAP software and services revenue of $166 million
-- Non-GAAP gross margin of 53%
-- Tenth consecutive quarter of positive adjusted EBITDA
-- Cash and investments balance of $2.5 billion at the end of the first
fiscal quarter
-- Unveiled BlackBerry Radar, a new end-to-end asset tracking system based
on the company's IoT platform, for trucking companies and private fleet
operators
-- BlackBerry named a "Leader" in the Forrester Wave for enterprise file
sync and share for hybrid solutions
-- After the quarter, BlackBerry named a "Leader" in the Gartner Magic
Quadrant for Enterprise Mobility Management Suites
-- New Enterprise Partner Program launched globally to stimulate growth and
drive profit for partners
-- Pentagon Force Protection Agency chooses AtHoc to protect Department of
Defense leadership, staff, and visitors in times of crisis
Q1 Results
Non-GAAP revenue for the first quarter of fiscal 2017 was $424 million with GAAP revenue of $400 million. The non-GAAP revenue breakdown for the quarter was approximately 39% for software and services, 25% for service access fees (SAF), and 36% for mobility solutions.
BlackBerry had approximately 3,300 enterprise customer wins in the quarter. Approximately 74% of the first quarter software revenue was recurring.
Non-GAAP operating income was $14 million, and non-GAAP net income was $0.00 per share for the first quarter. GAAP net loss for the quarter was $670 million, or $(1.28) per basic share. Basic GAAP net loss reflects a non-cash, long lived asset impairment charge of $501 million, a $57 million goodwill impairment charge, inventory write-down of $41 million, $28 million in amortization of acquired intangibles, stock compensation expense of $12 million, purchase accounting deferred revenue write-down of $24 million, $23 million in restructuring charges, $7 million related to acquisition costs, and a non-cash credit of $24 million for our convertible debt. 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 $2.5 billion as of May 31, 2016. This reflects a use of free cash of $65 million, which includes negative $61 million of cash flow from operations. Cash flow from operations before working capital adjustments was negatively impacted by the inventory impairment and excluding the charges, would have been positive. Excluding $1.25 billion in the face value of our debt, the net cash balance at the end of the quarter was $1.3 billion. Purchase orders with contract manufacturers totaled approximately $150 million at the end of the first quarter, compared to $162 million at the end of the fourth quarter and down from $238 million in the year ago quarter.
"BlackBerry is differentiated by cross-platform market leadership in software, an end-to-end secure mobility platform and a strong financial foundation. Our Q1 results highlight these attributes. Excluding IP licensing, we have more than doubled our software revenue on a year-over-year basis for the second consecutive quarter, driven by our EMM, secure messaging and QNX embedded software businesses. In our Mobility Solutions business, our objective is to achieve operating profitability in the short term," said John Chen, Executive Chairman and CEO, BlackBerry.
"Our current plan calls for continued investments to expand our addressable markets and drive sustainable profitability and revenue growth. For the full fiscal year, we are on track to deliver 30 percent revenue growth in software and services. Based on a more efficient operating model, we expect a non-GAAP EPS loss of around 15 cents, compared to the current consensus of a 33 cent loss. We also expect to generate positive free cash flow for the full year."
Outlook
The Company anticipates maintaining a strong cash position and further reallocating additional resources to go-to-market and product development areas as it continues to execute on its strategy of positive adjusted EBITDA for the full 2017 fiscal year.
(United States dollars, in millions except per share data)
Reconciliation of the Company's segment results to the consolidated results:
For the Three Months Ended May 31, 2016
(in millions)
----------------------------------------------------
Software & Mobility Segment
Services Solutions SAF totals
------------ ------------ ------------ ------------
Revenue $ 166 $ 152 $ 106 $ 424
Cost of goods sold 32 140 26 198
------------ ------------ ------------ ------------
Gross margin 134 12 80 226
Operating expenses 97 33 2 132
------------ ------------ ------------ ------------
Operating income (loss) $ 37 $ (21) $ 78 $ 94
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
For the Three Months Ended May 31, 2016
(in millions)
----------------------------------------------------
Corporate Non-GAAP Consolidated
unallocated Subtotal adjustments U.S. GAAP
------------ ------------ ------------ -------------
Revenue $ - $ 424 $ (24) $ 400
Cost of goods sold - 198 48 246
------------ ------------ ------------ -------------
Gross margin - 226 (72) 154
Operating expenses 80 212 597 809
------------ ------------ ------------ -------------
Operating income (loss) $ (80) $ 14 $ (669) $ (655)
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Reconciliation of GAAP gross margin, gross margin percentage, loss before income taxes, net loss and loss per share to Non-GAAP gross margin, gross margin percentage, loss before income taxes, net loss and loss per share:
(United States dollars, in millions except per share data)
For the Three
Months Ended May
31, 2016
Q1 Fiscal 2017 Non-GAAP Adjustments (in millions)
----------------------------------------------------------- ----------------
Income
statement
location Revenue
-------------------------- ---------------
As reported $ 400
LLA Impairment Charge (2) Impairment of
long-lived assets -
Goodwill Impairment Charge (3) Impairment of
goodwill -
Inventory write-down(4) Cost of sales -
Debentures fair value adjustment Debentures fair
(5) value adjustment -
RAP charges (6) Cost of sales -
RAP charges (6) Research and
development -
RAP charges (6) Selling,
marketing
and administration -
CORE program recovery(7) Selling,
marketing
and administration -
Software deferred revenue
acquired(8) Revenue 24
Stock compensation expense(9) Research and
development -
Stock compensation expense(9) Selling,
marketing
and administration -
Acquired intangibles
amortization(10) Amortization -
Business acquisition and Selling,
integration costs(11 ) marketing
and administration -
---------------
Adjusted $ 424
---------------
---------------
Q1 Fiscal 2017 Non-GAAP For the Three Months Ended May 31, 2016
Adjustments (in millions)
----------------------------------------------------------------------------
Gross
Gross margin
margin % Loss
(before (before before
taxes) taxes) income
(1) (1) taxes
--------------------------- --------------
As reported 154 38.5% $ (670)
LLA Impairment Charge (2) - -% 501
Goodwill Impairment Charge (3) - -% 57
Inventory write-down(4) 41 10.3% 41
Debentures fair value adjustment
(5) - -% (24)
RAP charges (6) 7 1.7% 7
RAP charges (6) - -% 2
RAP charges (6) - -% 16
CORE program recovery(7) - -% (2)
Software deferred revenue
acquired(8) 24 2.8% 24
Stock compensation expense(9) - -% 4
Stock compensation expense(9) - -% 8
Acquired intangibles
amortization(10) - -% 28
Business acquisition and
integration costs(11 ) - -% 7
--------------------------- --------------
Adjusted 226 53.3% $ (1)
--------------------------- --------------
--------------------------- --------------
Q1 Fiscal 2017 Non-GAAP For the Three Months Ended May 31, 2016
Adjustments (in millions)
----------------------------------------------------------------------------
Net Basic loss
Loss per share
--------------------- ---------------------
As reported $ (670) $ (1.28)
LLA Impairment Charge (2) 501
Goodwill Impairment Charge (3) 57
Inventory write-down(4) 41
Debentures fair value adjustment
(5) (24)
RAP charges (6) 7
RAP charges (6) 2
RAP charges (6) 16
CORE program recovery(7) (2)
Software deferred revenue
acquired(8) 24
Stock compensation expense(9) 4
Stock compensation expense(9) 8
Acquired intangibles
amortization(10) 28
Business acquisition and
integration costs(11 ) 7
--------------------- ---------------------
Adjusted $ (1) $ 0.00
--------------------- ---------------------
--------------------- ---------------------
Note: Non-GAAP gross margin, non-GAAP gross margin percentage, non-GAAP loss before income taxes, non-GAAP net loss and non-GAAP 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 first quarter of fiscal 2017, the Company reported GAAP
gross margin of $154 million or 38.5% of revenue. Excluding the impact
of the inventory write-down and resource alignment program ("RAP")
charges included in cost of sales and software deferred revenue
acquired included in revenue, the non-GAAP gross margin was $226
million, or 53.3% of revenue.
(2) During the first quarter of fiscal 2017, the Company recorded long-
lived asset impairment charge of $501 million. This adjustment was
presented on a separate line in the Consolidated Statements of
Operations.
(3) During the first quarter of fiscal 2017, the Company recorded goodwill
impairment charge of $57 million. This adjustment was presented on a
separate line in the Consolidated Statements of Operations.
(4) During the first quarter of fiscal 2017, the Company recorded
inventory write-down charges of $41 million, which were included in
cost of sales.
(5) During the first quarter of fiscal 2017, the Company recorded the Q1
Fiscal 2017 Debentures Fair Value Adjustment of $24 million. This
adjustment was presented on a separate line in the Consolidated
Statements of Operations.
(6) During the first quarter of fiscal 2017, the Company incurred charges
related to the RAP of approximately $25 million, of which $7 million
were included in cost of sales, $2 million were included in research
and development and $16 million were included in selling, marketing
and administration expense.
(7) During the first quarter of fiscal 2017, the Company incurred
recoveries related to the CORE program of $2 million, which were
included in selling, marketing, and administration expenses.
(8) During the first quarter of fiscal 2017, the Company recorded software
deferred revenue acquired but not recognized due to business
combination accounting rules of $24 million, which were included in
revenue.
(9) During the first quarter of fiscal 2017, the Company recorded stock
compensation expense of $12 million, of which $4 million were included
in research and development, and $8 million were included in selling,
marketing and administration expenses.
(10) During the first quarter of fiscal 2017, the Company recorded
amortization of intangible assets acquired through business
combinations of $28 million, which were included in amortization
expense.
(11) During the first quarter of fiscal 2017, the Company recorded business
acquisition and integration costs incurred through business
combinations of $7 million, which were included in selling, marketing
and administration expenses.
Supplementary Geographic Revenue Breakdown
BlackBerry Limited
(United States dollars, in millions)
Revenue by Region
For the quarters ended
------------------------------------------------
May 31, February 29, November 28,
2016 2016 2015
--------------- --------------- ---------------
North America $ 195 48.8% $ 216 46.5% $ 275 50.2%
Europe, Middle East
and Africa 155 38.7% 175 37.7% 194 35.4%
Latin America 10 2.5% 18 3.9% 24 4.4%
Asia Pacific 40 10.0% 55 11.9% 55 10.0%
------- ------- ------- ------- ------- -------
Total $ 400 100.0% $ 464 100.0% $ 548 100.0%
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
For the quarters ended
------------------------------------------------
August 29, May 30,
2015 2015
------------------------ -----------------------
North America $ 176 36.0% $ 285 43.3%
Europe, Middle East
and Africa 202 41.2% 245 37.2%
Latin America 33 6.7% 42 6.4%
Asia Pacific 79 16.1% 86 13.1%
------------ ----------- ----------- -----------
Total $ 490 100.0% $ 658 100.0%
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Conference Call and Webcast
A conference call and live webcast will be held beginning at 8 am ET, which can be accessed by dialing 1-844-309-0607 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 am ET by dialing 1-855-859-2056 or 1-404-537-3406 and entering Conference ID # 15218824 or by clicking the link above.
About BlackBerry
BlackBerry is securing a connected world, delivering innovative solutions across the entire mobile ecosystem and beyond. We secure the world's most sensitive data across all end points - from cars to smartphones - making the mobile-first enterprise vision a reality. Founded in 1984 and based in Waterloo, Ontario, BlackBerry operates offices in North America, Europe, Middle East and Africa, Asia Pacific and Latin America. The Company trades under the ticker symbols "BB" on the Toronto Stock Exchange and "BBRY" on the NASDAQ. For more information, visit www.BlackBerry.com.
This news release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and Canadian securities laws, including statements regarding: BlackBerry's expectations regarding its cash flow and adjusted EBITDA; BlackBerry's plans, strategies and objectives; BlackBerry's expectations regarding anticipated demand for and the timing of product and service offerings, including BES12, the Good Secure EMM Suites, BlackBerry smartphones and the BlackBerry IoT Platform; BlackBerry's expectations regarding the generation of revenue from its software, services and other technologies, its expectations regarding the growth of and recurring nature of certain of its software and services revenue, and the ability of such revenue to offset the decline in service access fees revenue; BlackBerry's objectives regarding profitability in its mobility solutions business in the third quarter of fiscal 2017; BlackBerry's anticipated level of decline in service revenue for the next quarter; BlackBerry's expectations for gross margin for the next quarter; BlackBerry's expectations for earnings per share for fiscal 2017; BlackBerry's expectations with respect to the sufficiency of its financial resources and maintaining its strong cash position; and BlackBerry's estimates of purchase obligations and other contractual commitments.
The terms and phrases "expect", "anticipate", "estimate", "may", "will", "should", "intend", "believe", "target", "plan" and similar expressions are intended to identify these forward-looking statements. Forward-looking statements are based on estimates and assumptions made by BlackBerry in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors that BlackBerry believes are relevant.
Many factors could cause BlackBerry's actual results or performance to differ materially from those expressed or implied by the forward-looking statements, including the following risks: BlackBerry's ability to attract new enterprise customers and maintain its existing relationships with its enterprise customers, or transition them to the Company's latest enterprise software platforms and deploy smartphones; BlackBerry's ability to develop, market and distribute an integrated software and services offering, or otherwise monetize its technologies, to grow revenue, or to offset the decline in BlackBerry's service access fees; BlackBerry's ability to enhance its current products and services, or develop new products and services, in a timely manner, at competitive prices, or to meet customer requirements, or accurately predict emerging technological trends; BlackBerry's ability to successfully market and distribute new devices, including the PRIV; intense competition; the occurrence or perception of a breach of BlackBerry's security measures or an inappropriate disclosure of confidential or personal information; risks related to BlackBerry's products and services being dependent upon the interoperability with rapidly changing systems provided by third parties; BlackBerry's ability to attract new personnel and retain key personnel; BlackBerry's dependence on its relationships with network carriers and distributors; risks related to acquisitions and other business initiatives; the risk that network disruptions or other business interruptions could have a material adverse effect on BlackBerry's business and harm its reputation; the risk that failure to protect BlackBerry's intellectual property could harm its ability to compete effectively or impact its ability to earn revenues it expects from intellectual property rights; BlackBerry's reliance on its suppliers for functional components and risks relating to its supply chain; risks related to sales to customers in highly regulated industries and governmental entities;
BlackBerry's reliance on third parties to manufacture and repair its products; BlackBerry's ability to obtain rights to use software or components supplied by third parties; BlackBerry's ability to address inventory and asset risk and the potential for charges related to its inventory and long-lived assets; BlackBerry's ability to maintain or increase its liquidity; risks related to BlackBerry's significant indebtedness; risks related to intellectual property rights; risks related to litigation, including litigation claims arising from BlackBerry's disclosure practices; risks related to government regulations applicable to BlackBerry's products and services, including products containing encryption technology; risks related to the use and disclosure of user and personal information; risks related to foreign operations, including fluctuations in foreign currencies; risks related to potential defects and vulnerabilities in BlackBerry's products; risks as a result of actions of activist shareholders; BlackBerry's ability to supplement and manage its catalogue of third-party applications; risks related to the failure of BlackBerry's suppliers and other parties it does business with to use acceptable ethical business practices or to comply with applicable laws; risks related to health and safety and hazardous materials usage regulations and network certification risks; costs and other burdens associated with regulations regarding conflict minerals; risks related to BlackBerry possibly losing its foreign private issuer status under U.S. federal securities laws; the potential impact of copyright levies in numerous countries; risks related to tax liabilities; risks related to the volatility of the market price of BlackBerry's common shares; risks related to economic and geopolitical conditions; market and credit risk related to BlackBerry's cash and investments; and risks relating to the fluctuation of BlackBerry's quarterly revenue and operating results.
These risk factors and others relating to BlackBerry are discussed in greater detail in BlackBerry's Annual Information Form, which is included in its Annual Report on Form 40-F and the "Cautionary Note Regarding Forward-Looking Statements" section of BlackBerry's MD&A (copies of which filings may be obtained at www.sedar.com or www.sec.gov). Readers should not place undue reliance on BlackBerry's forward-looking statements. BlackBerry has no intention and undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
BlackBerry�, BBM", QNX®, Good® and related trademarks, names and logos are the property of BlackBerry Limited and are registered and/or used in the United States and countries around the world. All other trademarks are the property of their respective owners.
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
--------------------------------
May 31, February May 30,
2016 29, 2016 2015
------------------------------------------- ---------- ---------- ----------
Revenue $ 400 $ 464 $ 658
Cost of sales 246 254 348
---------- ---------- ----------
Gross margin 154 210 310
---------- ---------- ----------
Gross margin % 38.5% 45.3% 47.1%
Operating expenses
Research and development 89 108 139
Selling, marketing and administration 129 179 173
Amortization 54 77 65
Impairment of goodwill 57 - -
Impairment of long-lived assets 501 - -
Abandonment of long-lived assets 3 127 1
Debentures fair value adjustment (24) (40) (157)
---------- ---------- ----------
809 451 221
---------- ---------- ----------
Operating income (loss) (655) (241) 89
Investment loss, net (15) (15) (16)
---------- ---------- ----------
Income (loss) before income taxes (670) (256) 73
Provision for (recovery of) income taxes - (18) 5
---------- ---------- ----------
Net income (loss) $ (670) $ (238) $ 68
---------- ---------- ----------
---------- ---------- ----------
Earnings (loss) per share
Basic $ (1.28) $ (0.45) $ 0.13
---------- ---------- ----------
---------- ---------- ----------
Diluted $ (1.28) $ (0.45) $ (0.10)
---------- ---------- ----------
---------- ---------- ----------
Weighted-average number of common shares
outstanding (000's)
Basic 521,905 524,627 529,235
Diluted 521,905 524,627 670,539
Total common shares outstanding (000's) 522,517 521,172 529,485
BlackBerry Limited
Incorporated under the Laws of Ontario
(United States dollars, in millions except per share data) (unaudited)
Consolidated Balance Sheets
As at May 31, 2016 February 29, 2016
--------------------------------------------------------- ------------------
Assets
Current
Cash and cash equivalents $ 1,225 $ 957
Short-term investments 1,008 1,420
Accounts receivable, net 265 338
Other receivables 55 51
Inventories 127 143
Income taxes receivable 25 -
Other current assets 94 102
--------------- ------------------
2,799 3,011
Long-term investments 246 197
Restricted cash 53 50
Property, plant and equipment, net 391 412
Goodwill 562 618
Intangible assets, net 674 1,213
Deferred income tax asset - 33
--------------- ------------------
$ 4,725 $ 5,534
--------------- ------------------
--------------- ------------------
Liabilities
Current
Accounts payable $ 278 $ 270
Accrued liabilities 305 368
Income taxes payable - 9
Deferred revenue 326 392
--------------- ------------------
909 1,039
Long term debt 1,253 1,277
Deferred income tax liability 9 10
--------------- ------------------
2,171 2,326
--------------- ------------------
Shareholders' Equity
Capital stock and additional paid-in
capital 2,463 2,448
Retained earnings 98 768
Accumulated other comprehensive loss (7) (8)
--------------- ------------------
2,554 3,208
--------------- ------------------
$ 4,725 $ 5,534
--------------- ------------------
--------------- ------------------
BlackBerry Limited
Incorporated under the Laws of Ontario
(United States dollars, in millions except per share data) (unaudited)
Consolidated Statements of Cash Flows
Three Months Ended
-------------------------------
May 31, 2016 May 30, 2015
-------------------------------------------- --------------- ---------------
Cash flows from operating activities
Net income (loss) $ (670) $ 68
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Amortization 72 164
Deferred income taxes 32 2
Stock-based compensation 12 14
Loss on disposal of property, plant and
equipment 1 12
Debentures fair value adjustment (24) (157)
Impairment of goodwill 57 -
Impairment of long-lived assets 501 -
Other-than-temporary impairment on cost-
based investments 7 -
Other 3 16
Net changes in working capital items:
Accounts receivable, net 73 35
Other receivables (4) 4
Inventories 16 (11)
Income tax receivable, net (25) 153
Other current assets 8 124
Accounts payable 8 (86)
Accrued liabilities (53) (191)
Income taxes payable (9) -
Deferred revenue (66) (13)
--------------- ---------------
Net cash provided by (used in) operating
activities (61) 134
--------------- ---------------
Cash flows from investing activities
Acquisition of long-term investments (163) (77)
Proceeds on sale or maturity of long-term
investments 32 1
Acquisition of property, plant and equipment (4) (11)
Acquisition of intangible assets (9) (11)
Business acquisitions, net of cash acquired - (53)
Acquisition of short-term investments (389) (574)
Proceeds on sale or maturity of short-term
investments 875 532
--------------- ---------------
Net cash provided by (used in) investing
activities 342 (193)
--------------- ---------------
Cash flows from financing activities
Issuance of common shares 3 1
Payment of contingent consideration from
business acquisitions (15) -
Effect of foreign exchange gain on
restricted cash (3) (1)
Transfer to restricted cash - 1
--------------- ---------------
Net cash provided by (used in) financing
activities (15) 1
--------------- ---------------
Effect of foreign exchange gain (loss) on
cash and cash equivalents 2 (10)
--------------- ---------------
Net increase (decrease) in cash and cash
equivalents during the period 268 (68)
Cash and cash equivalents, beginning of
period 957 1,233
--------------- ---------------
Cash and cash equivalents, end of period $ 1,225 $ 1,165
--------------- ---------------
--------------- ---------------
-------------------------------------------- --------------- ---------------
As at February 29,
May 31, 2016 2016
-------------------------------------------- --------------- ---------------
Cash and cash equivalents $ 1,225 $ 957
Short-term investments 1,008 1,420
Long-term investments 246 197
Restricted cash 53 50
--------------- ---------------
$ 2,532 $ 2,624
--------------- ---------------
--------------- ---------------
Contacts: Investor Contact: BlackBerry Investor Relations +1-519-888-7465 [email protected] Media Contact: BlackBerry Media Relations (519) 597-7273 [email protected]
Source: BlackBerry Limited
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