BB
Blackberry Ltd
$13.53
$.25
1.88%
BlackBerry Reports Record Software and Services Revenue for the Second Consecutive Quarter in Q3 Fiscal 2018
Wednesday, December 20, 2017  7:00:21 AM ET

- Record total company gross margin of 77 percent (non-GAAP) and 74 percent (GAAP) for the second consecutive quarter - Double digit software and services billings growth year over year for the second consecutive quarter

WATERLOO, ONTARIO--(Marketwired - Dec. 20, 2017) - BlackBerry Limited (BB)(TSX:BB), a cybersecurity software and services company dedicated to securing the enterprise of things, today reported financial results for the three months ended November 30, 2017 (all figures in U.S. dollars and U.S. GAAP, except where otherwise indicated).

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.

"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," said Chen. "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." 

Outlook

We 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
  Gross margin % (before taxes)   Income (loss) before income taxes
  Net income (loss)
  Basic earnings (loss) per share
margin(1)
(before taxes)
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,
  August 31,
  May 31,
  February 28, 2017
  November 30, 2016
2017
2017
2017
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 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 1-855-859-2056 or 1-404-537-3406 and entering Conference ID #3192119 and at the link above.

About BlackBerry

BlackBerry is a cybersecurity software and services company dedicated to securing the enterprise of things. Based in Waterloo, Ontario, the company was founded in 1984 and operates in North America, Europe, Asia, Australia, Middle East, Latin America and Africa. The Company trades under the ticker symbols "BB" on the Toronto Stock Exchange and "BB" on the New York Stock Exchange. For more information, visit www.BlackBerry.com.

Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

This news release contains forward-looking statements within the meaning of certain securities laws, including under the U.S. Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws, including statements regarding: the Company’s plans, strategies and objectives, including the anticipated benefits of its strategic initiatives; the Company’s expectations regarding anticipated demand for, and the timing of, product and service offerings; the Company’s expectations regarding its free cash flow for fiscal 2018; the Company’s expectations regarding the generation of software and services revenues; and the Company’s expectations regarding its total non-GAAP revenue and earnings per share for fiscal 2018.

The words "expect", "anticipate", "estimate", "may", "will", "should", "could", "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, historical trends, current conditions and expected future developments, as well as other factors that BlackBerry believes are appropriate in the circumstances. Many factors could cause BlackBerry’s actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements, including the following risks: BlackBerry’s ability to enhance, develop, introduce or monetize products and services for the enterprise market in a timely manner with competitive pricing, features and performance; BlackBerry’s ability to maintain or expand its customer base for its software and services offerings to grow revenue, achieve sustained profitability or offset the decline in BlackBerry’s service access fees; the intense competition faced by BlackBerry; risks related to BlackBerry’s ability to attract new personnel, retain existing key personnel and manage its staffing effectively; BlackBerry’s dependence on its relationships with resellers and distributors; the occurrence or perception of a breach of BlackBerry’s security measures, or an inappropriate disclosure of confidential or personal information; the risk that sales to large enterprise customers and to customers in highly regulated industries and governmental entities can be highly competitive and require compliance with stringent regulation; 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 successfully generate revenue and profitability through the licensing of security software and services or the BlackBerry brand to device manufacturers; the risk that network disruptions or other business interruptions could have a material adverse effect on BlackBerry’s business and harm its reputation; risks related to acquisitions, divestitures, investments and other business initiatives; the risk of litigation against the Company resulting in adverse outcomes; the risk that failure to protect BlackBerry’s intellectual property could harm its ability to compete effectively and BlackBerry may not earn the revenues it expects from intellectual property rights; BlackBerry’s reliance on third parties to manufacture and repair its hardware products; BlackBerry’s ability to obtain rights to use software or components supplied by third parties; the substantial asset risk faced by BlackBerry, including the potential for additional charges related to its long-lived assets and goodwill; risks associated with BlackBerry’s ability to maintain or increase its liquidity; risks related to BlackBerry’s indebtedness; the risk that BlackBerry could be found to have infringed on the intellectual property rights of others; risks related to government regulations applicable to BlackBerry’s products and services, including products containing encryption capabilities; risks related to the use and management of user data and personal information; risks related to foreign operations, including fluctuations in foreign currencies; risks associated with any errors in BlackBerry’s products and services; the risk of a negative impact on BlackBerry’s business as a result of actions of activist shareholders; risks related to fostering an ecosystem of third-party application developers; risks related to the failure of BlackBerry’s suppliers, subcontractors, third-party distributors and representatives to use acceptable ethical business practices or comply with applicable laws; risks related to health and safety and hazardous materials usage regulations, and product 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 provision changes, the adoption of new tax legislation, or exposure to additional tax liabilities; risks related to the fluctuation of BlackBerry’s quarterly revenue and operating results; the volatility of the market price of BlackBerry’s common shares; risks related to adverse economic and geopolitical conditions; market and credit risk associated with BlackBerry’s cash, cash equivalents and short-term or long-term investments; the risk that future issuances of common shares by BlackBerry will be dilutive to existing shareholders; and the potential consequences for BlackBerry’s shareholders in the United States if BlackBerry is or was a passive foreign investment company. 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). All of these factors should be considered carefully, and 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 applicable law.

© 2017 BlackBerry Limited. Trademarks, including but not limited to BLACKBERRY, BBM, BES, EMBLEM Design, ATHOC and SECUSMART are the trademarks or registered trademarks of BlackBerry Limited, its subsidiaries and/or affiliates, used under license, and the exclusive rights to such trademarks are expressly reserved. 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
 
  November 30, 2017
  August 31,
  November 30, 2016
2017
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
 

Investor Contact: BlackBerry Investor Relations +1-519-888-7465 investor_relations@blackberry.com Media Contact: BlackBerry Media Relations (519) 597-7273 mediarelations@blackberry.com