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BlackBerry Reports Fiscal Year 2019 First Quarter Results
[June 22, 2018]

BlackBerry Reports Fiscal Year 2019 First Quarter Results


  • Non-GAAP total software and services revenue of $193 million, up 14% year-over-year; GAAP total software and services revenue of $189 million, up 18% year-over-year

  • Total software and services billings grew double-digits from the prior year period

  • Recurring software and services revenue of 86%

WATERLOO, Ontario, June 22, 2018 (GLOBE NEWSWIRE) -- BlackBerry Limited (NYSE:BB) (TSX:BB), an enterprise software and services company focused on securing and managing IoT endpoints, today reported financial results for the three months ended May 31, 2018 (all figures in U.S. dollars and U.S. GAAP, except where otherwise indicated).

First Quarter Fiscal 2019 Results

  • Total company non-GAAP revenue for the first quarter of fiscal 2019 was $217 million with GAAP revenue of $213 million. Total non-GAAP software and services revenue of $193 million, up 14% year- over-year. Total GAAP software and services revenue was $189 million, up 18% year-over-year. Approximately 86% of first quarter software and services revenue (excluding IP licensing and professional services) was recurring, up from approximately 70% in the fourth quarter of fiscal year 2018. Gross margin of 76% (both non-GAAP and GAAP).
     
  • Non-GAAP operating income was $12 million, and positive for the ninth consecutive quarter. GAAP operating loss was $65 million. Non-GAAP earnings per share was $0.03 (basic and diluted). GAAP net loss for the quarter was $0.11 per share (basic and diluted). GAAP net loss includes a charge of $28 million related to the fair value adjustment on the debentures, $22 million in acquired intangibles amortization expense, $18 million in stock compensation expense, $4 million in restructuring charges, and other amounts as summarized in a table below.
     
  • Total cash, cash equivalents, short-term and long-term investments were approximately $2.3 billion as of May 31, 2018. Free cash flow, before considering the impact of restructuring and legal proceedings, was positive $3 million. Cash used in operations was $7 million and capital expenditures were $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 $1.7 billion.

“We are off to a solid start in fiscal 2019, with 14% year-over-year growth in total software and services revenue driven by strong double-digit billings and an increase in recurring revenue” said John Chen, Executive Chairman and CEO, BlackBerry. “I am pleased that BlackBerry QNX software is now embedded in over 120 million automobiles worldwide, doubling the install base in the last three years. We are very excited about the opportunities ahead of us in automobiles and in other EoT verticals.”

Outlook

BlackBerry’s outlook for fiscal 2019 is as follows:

  • Total company software and services billings growth is expected to be double-digits
  • Non-GAAP EPS is expected to be positive
  • Free cash flow is expected to be positive for the full year, before considering the impact of restructuring and legal proceedings
  • Total software and services revenue growth of between 8% to 10% year-over-year

Reconciliation of GAAP revenue, gross margin, gross margin percentage, loss before income taxes, net loss and basic loss per share to Non-GAAP revenue, gross margin, gross margin percentage, income before income taxes, net income and basic earnings per share for the three months ended May 31, 2018:

                    
Q1 Fiscal 2019 Non-GAAP Adjustments  For the Three Months Ended May 31,2018
(in millions, except for per share amounts) 
 Income statement
location
 Revenue  Gross
margin
(before taxes) 
 Gross margin
% (before
taxes) 
 Income (loss)
before
income taxes 
 Net  income
(loss) 
  Basic earnings
(loss) per
share
As reported   $213 $161  75.6% (59)  $(60)  $(0.11)
Debentures fair value adjustment (2)Debentures fair value adjustment      —% 28   28   
Resource Alignment Program charges (3)Research and development      —%     
Resource Alignment Program charges (3)Selling, marketing and administration       —%     
Software deferred revenue acquired (4)Revenue  4  4  0.4%     
Stock compensation expense (5)Cost of sales    1  0.5%     
Stock compensation expense (5)Research and development      —%     
Stock compensation expense (5)Selling, marketing and administration     —% 14   14   
Acquired intangibles amortization (6)Amortization     —% 22   22   
Business acquisition and integration costs (7)Selling, marketing and administration     —%     
Adjusted  $217 $166 76.5% 18 $ 17  $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 first quarter of fiscal 2019, the Company reported GAAP gross margin of $161 million or 75.6% of revenue. Excluding the impact of stock compensation expense included in cost of sales and software deferred revenue acquired included in revenue, the non-GAAP gross margin was $166 million, or 76.5% of revenue.
  2. During the first quarter of fiscal 2019, the Company recorded the Q1 Fiscal 2019 Debentures Fair Value Adjustment of $28 million. This adjustment was presented on a separate line in the Consolidated Statements of Operations.
  3. During the first quarter of fiscal 2019, the Company incurred charges related to the Resource Alignment Program of approximately $4 million, of which $2 million was included in research and development and $2 million was included in selling, marketing and administration expense.
  4. During the first quarter of fiscal 2019, the Company recorded software deferred revenue acquired but not recognized due to business combination accounting rules of $4 million, which was included in enterprise software and services revenue.
  5. During the first quarter of fiscal 2019, the Company recorded stock compensation expense of $18 million, of which $1 million was included in cost of sales, $3 million was included in research and development, and $14 million was included in selling, marketing and administration expenses.
  6. During the first quarter of fiscal 2019, the Company recorded amortization of intangible assets acquired through business combinations of $22 million, which was included in amortization expense.
  7. During the first quarter of fiscal 2019, the Company recorded business acquisition and integration costs incurred through business combinations of $1 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, 2018 February 28, 2018 November 30, 2017 August 31, 2017 May 31, 2017
North America$139 65.3% $147 63.1% $133 58.9% $133 55.9% $127 54.0%
Europe, Middle East and          
Africa 52 24.4%  63 27.0%  69 30.5%  76 31.9%  70 29.8%
Other regions 22 10.3%  23 9.9%  24 10.6%  29 12.2%  38 16.2%
           
Total$213 100.0% $233 100.0% $226 100.0% $238 100.0% $235 100.0%
                              

Supplementary Revenue by Product and Service Type Breakdown

 
 
BlackBerry Limited
(United States dollars, in millions)
Revenue by Product and Service Type
    
US GAAPAdjustmentsNon-GAAP
 For the Three Months EndedFor the Three Months EndedFor the Three Months Ended
 May 31, 2018 May 31, 2017May 31, 2018May 31, 2017May 31, 2018May 31, 2017
Enterprise software and services$79 $92 $4 $9 $83 $101
BlackBerry Technology Solutions 47  36      47  36
Licensing, IP and other 63  32      63  32
Handheld devices 8  37      8  37
SAF 16  38      16  38
Total$213 $235 $4 $9 $217 $244
                  

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- 866-496-6675 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 1-888-203-1112 and entering Conference ID #8263166 and at the link above.

About BlackBerry
BlackBerry is an enterprise software and services company focused on securing and managing IoT endpoints. The company does this with BlackBerry Secure, an end-to-end Enterprise of Things platform, comprised of its enterprise communication and collaboration software and safety-certified embedded solutions.

Based in Waterloo, Ontario, BlackBerry was founded in 1984 and operates in North America, Europe, Asia, Australia, Middle East, Latin America and Africa. The Company trades under the ticker symbol "BB" on the Toronto Stock Exchange and the New York Stock Exchange. For more information visit BlackBerry.com, and follow the company on LinkedIn, Twitter and Facebook.

Investor Contact:
BlackBerry Investor Relations
+1-519-888-7465
investor_relations@blackberry.com

Media Contact:
BlackBerry Media Relations
(519) 597-7273
mediarelations@blackberry.com

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 and its intentions to grow revenue and increase and enhance its product and service offerings; and the Company’s expectations regarding its free cash flow, intellectual property revenue, recurring revenue, total software and services revenue, total software and services billings growth, non-GAAP gross margin and non-GAAP earnings per share for fiscal 2019.

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 or achieve sustained profitability; the intense competition faced by BlackBerry; the occurrence or perception of a breach of BlackBerry’s network or product security measures or an inappropriate disclosure of confidential or personal information; risks related to BlackBerry’s continuing 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 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, which may negatively affect BlackBerry’s results of operations; risks related to BlackBerry’s products and services being dependent upon interoperability with rapidly changing systems provided by third parties; BlackBerry’s ability to generate revenue and profitability through the licensing of security software and services or the BlackBerry brand to device manufacturers; 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; the risk that BlackBerry could be found to have infringed on the intellectual property rights of others; the risk that litigation against BlackBerry may result in adverse outcomes; risks related to the use and management of user data and personal information, which could give rise to liabilities as a result of legal, customer and other third-party requirements; BlackBerry’s ability to obtain rights to use third-party software; the substantial asset risk faced by BlackBerry, including the potential for charges related to its long-lived assets and goodwill; risks related to BlackBerry’s indebtedness, which could adversely affect its operating flexibility and financial condition; risks related to government regulations applicable to BlackBerry’s products and services, including products containing encryption capabilities, which could negatively impact BlackBerry’s business; risks related to foreign operations, including fluctuations in foreign currencies; risks associated with any errors in BlackBerry’s products and services, which can be difficult to remedy and could have a material adverse effect on BlackBerry’s business; 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; BlackBerry’s reliance on third parties to manufacture and repair its hardware products; risks related to fostering an ecosystem of third-party application developers; risks related to regulations regarding health and safety, hazardous materials usage and conflict minerals, and to product certification risks; 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; and risks related to adverse economic and geopolitical conditions. 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. Any statements that are forward-looking statements are intended to enable BlackBerry’s shareholders to view the anticipated performance and prospects of BlackBerry from management’s perspective at the time such statements are made, and they are subject to the risks that are inherent in all forward-looking statements, as described above, as well as difficulties in forecasting BlackBerry’s financial results and performance for future periods, particularly over longer periods, given the ongoing transition in BlackBerry’s business strategy and the rapid technological changes, evolving industry standards, intense competition and short product life cycles that characterize the industries in which BlackBerry operates. 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.

 
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, 2018
 February 28, 2018
 May 31, 2017
Revenue $213  $233  $235 
Cost of sales 52  56  85 
Gross margin 161  177  150 
Gross margin % 75.6% 76.0% 63.8%
Operating expenses    
Research and development 61  58  61 
Selling, marketing and administration 100  133  110 
Amortization 37  37  40 
Debentures fair value adjustment 28  (34) 218 
Qualcomm arbitration award   —  (815)
  226  194  (386)
Operating income (loss) (65) (17) 536 
Investment income, net 6   136 
Income (loss) before income taxes (59) (14) 672 
Provision for (recovery of) income taxes 1  (4) 
Net income (loss) $(60) $(10) $671 
Earnings (loss) per share    
Basic $(0.11) $(0.02) $1.26 
Diluted $(0.11) $(0.06) $1.23
     
     
Weighted-average number of common shares outstanding (000’s)    
     
Basic 536,964 536,594 531,096
Diluted 536,964 597,094 544,077
Total common shares outstanding (000’s) 537,112 536,734 531,476
          


 
BlackBerry Limited
Incorporated under the Laws of Ontario
(United States dollars, in millions) (unaudited)
 
Consolidated Balance Sheets
 
 As at
  May 31, 2018  May 31, 2018 
Assets     
Current     
Cash and cash equivalents$  520 $  816 
Short-term investments 1,725  1,443 
Accounts receivable, net 126  151 
Other receivables 63  71 
Income taxes receivable 17  26 
Other current assets 56  38 
  2,507  2,545 
Restricted cash and cash equivalents 35  39 
Long-term investments 55  55 
Other long-term assets 30  28 
Deferred income tax assets 2  
Property, plant and equipment, net 64  64 
Goodwill 566  569 
Intangible assets, net 447  477 
 $  3,706 $  3,780 
Liabilities
Current
   
Accounts payable$  37 $  46 
Accrued liabilities 162  205 
Income taxes payable 19  18 
Deferred revenue, current 166  142
  384  411 
Deferred revenue, non-current 111  53 
Other long-term liabilities 20  23 
Long-term debt 810  782 
Deferred income tax liabilities 5  
    1,330    1,275 
Shareholders’ equity  
Capital stock and additional paid-in capital 2,580  2,560 
Deficit (185) (45)
Accumulated other comprehensive loss (19) (10)
  2,376  2,505 
 $3,706 $3,780 
       


 
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 Three Months Ended
   May 31, 2018
     May 31, 2017 
Cash flows from operating activities  
Net income (loss)$  (60) $  671 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:  
Amortization 41   51 
Stock-based compensation 18   13 
Debentures fair value adjustment 28   218 
Other 2   1 
Net changes in working capital items:  
Accounts receivable, net 25   35 
Other receivables 8   1 
Income taxes receivable 9   (2)
Other assets (10)  21 
Accounts payable (9)  (59)
Income taxes payable 1   1 
Accrued liabilities (42)  (50)
Deferred revenue (15)  (36)
Other long-term liabilities (3)  (2)
Net cash provided by (used in) operating activities (7)  863 
Acquisition of long-term investments    (25)
Acquisition of property, plant and equipment (5)  (3)
Proceeds on sale of property, plant and equipment    1 
Acquisition of intangible assets (7)  (7)
Acquisition of short-term investments (1,011)  (1,015)
Proceeds on sale or maturity of short-term investments 730   378 
Net cash used in investing activities   (293)    (671)
Cash flows from financing activities   
Issuance of common shares 2   3 
Net cash provided by financing activities 2   3 
Effect of foreign exchange gain (loss) on cash, cash equivalents, restricted cash, and restricted cash equivalents (2)  1 
Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents during the period  (300)  196 
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period 855   785 
Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period$555  $981 
        
As at May 31, 2018   February 28, 2018 
Cash and cash equivalents$520  $816 
Short-term investments$1,725  $1,443 
Long-term investments$55  $55 
Restricted cash and cash equivalents$35  $39 

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