BlackBerry Annual General Meeting 2019 | Q1 Earnings 2020

Summary:

• The first full quarter with Cylance results included.

• Management needs to confirm growth strategy.

• Balance sheet strength will be key moving forward.

Press Release:

BlackBerry Reports First Quarter Fiscal 2020

First Quarter Fiscal 2020:

• First quarter fiscal 2020 total company non-GAAP revenue of $267 million, or 23% growth year-over-year; total company GAAP revenue of $247 million, or 16% growth year-over-year
• First quarter fiscal 2020 total non-GAAP Software and Services revenue of $260 million, a record quarterly high; total GAAP Software and Services revenue of $240 million
• First quarter fiscal 2020 non-GAAP BlackBerry Software and Services (excluding Cylance) revenue growth of 8% year-over-year; GAAP BlackBerry Software and Services (excluding Cylance) revenue growth of 10% year-over-year
• First quarter fiscal 2020 non-GAAP earnings per basic and diluted share of $0.01; GAAP loss per basic share of $0.06 and GAAP loss per diluted share of $0.09
• First quarter fiscal 2020 free cash flow usage of $49 million, before considering the impact of acquisition and integration expenses, restructuring costs and legal proceedings; free cash flow usage of $66 million, as reported

WATERLOO, Ont. – June 26, 2019 – BlackBerry Limited (NYSE: BB; TSX: BB) today reported financial results for the three months ended May 31, 2019 (all figures in U.S. dollars and U.S. GAAP, except where otherwise indicated).

First Quarter Fiscal 2020 Results

• Total company non-GAAP revenue for the first quarter of fiscal 2020 was $267 million, up 23% year-over-year.  Total company GAAP revenue for the first quarter of fiscal 2020 was $247 million, up 16% year-over-year.  Total non-GAAP software and services revenue of $260 million, up 35% year-over-year.  Total GAAP software and services revenue was $240 million, up 27% year-over-year.  First quarter recurring non-GAAP software and services revenue (excluding IP licensing and professional services) was above 90%.  Non-GAAP gross margin was 75% and GAAP gross margin was 72%.
• Non-GAAP operating income was $5 million. GAAP operating loss was $36 million. Non-GAAP earnings per share was $0.01 (basic and diluted). GAAP net loss was $0.06 per basic share and $0.09 per diluted share. GAAP net loss includes $35 million for acquired intangibles amortization expense, $17 million in stock compensation expense, $1 million in acquisition and integration charges, a benefit of $28 million related to the fair value adjustment on the debentures, and other amounts as summarized in a table below.
• Total cash, cash equivalents, short-term and long-term investments was $935 million as of May 31, 2019.  Free cash flow used, before considering the impact of acquisition and integration expenses, restructuring costs and legal proceedings, was $49 million.  Cash used in operations was $64 million and capital expenditures were $2 million.

“We are off to a good start to achieve our financial outlook for fiscal 2020,” said John Chen, Executive Chairman and CEO, BlackBerry. “We are ahead of our schedule in our Cylance integration, while investing in the right opportunities to drive long-term growth and profitability for BlackBerry.  Customers are looking forward to our robust product cycle this year, with over 30 new secure communication products and services to be released.”

Outlook

BlackBerry re-affirms its fiscal 2020 outlook of total company year-over-year non-GAAP revenue growth and non-GAAP profitability for fiscal 2020.

Fiscal 2020 total company non-GAAP revenue growth of between 23% and 27%, driven by a double-digit percentage increase in billings.  Non-GAAP revenue growth is broken down as follows:

·        IoT year-over-year non-GAAP revenue growth of between 12% to 16%;

·        BlackBerry Cylance year-over-year non-GAAP revenue growth of between 25% to 30%;

·        Licensing year-over-year non-GAAP revenue decline of 5%; and

·        Non-GAAP service access fees to be between $10 and $20 million of revenue in FY20.

Reconciliation of GAAP revenue, gross margin, gross margin percentage, income (loss) before income taxes, net income (loss) and basic earnings (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 February 28, 2019:

Q1 Fiscal 2020 Non-GAAP Adjustments		For the May 31, 2019
	(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			$	247			$	177			71.7	%		$	(33	)		$	(35	)		$	(0.06	)
Debentures fair value adjustment (2)	Debentures fair value adjustment		—			—			—	%		(28	)		(28	)
RAP charges (3)	Cost of sales		—			1			0.4	%		1			1
Software deferred revenue acquired (4)	Revenue		20			20			2.1	%		20			20
Software deferred commission expense acquired (5)	Selling, marketing and administration		—			—			—	%		(5	)		(5	)
Stock compensation expense (6)	Cost of sales		—			1			0.3	%		1			1
Stock compensation expense (6)	Research and development		—			—			—	%		3			3
Stock compensation expense (6)	Selling, marketing and administration		—			—			—	%		13			13
Acquired intangibles amortization (7)	Amortization		—			—			—	%		35			35
Business acquisition and integration costs (8)	Selling, marketing and administration		—			—			—	%		1			1
Acquisition valuation allowance (9)	Income taxes		—			—			—	%		—			(1	)
Adjusted			$	267			$	199			74.5	%		$	8			$	5			$	0.01

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 basic earnings 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 2020, the Company reported GAAP gross margin of $177 million or 71.7% of revenue. Excluding the impact of stock compensation expense and restructuring charges included in cost of sales and software deferred revenue acquired included in revenue, non-GAAP gross margin was $199 million, or 74.5% of revenue.

(2)        During the first quarter of fiscal 2020, the Company recorded the Q1 Fiscal 2020 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 2020, the Company incurred restructuring charges of approximately $1 million, which was included in cost of sales.

(4)        During the first quarter of fiscal 2020, the Company recorded software deferred revenue acquired but not recognized due to business combination accounting rules of $20 million, of which $19 million was included in BlackBerry Cylance and $1 million was included in IoT.

(5)        During the first quarter of fiscal 2020, the Company recorded deferred commission expense acquired but not recognized due to business combination accounting rules of approximately of $5 million.

(6)        During the first quarter of fiscal 2020, the Company recorded stock compensation expense of $17 million, of which $1 million was included in cost of sales, $3 million was included in research and development, and $13 million was included in selling, marketing and administration expense.

(7)        During the first quarter of fiscal 2020, the Company recorded amortization of intangible assets acquired through business combinations of $35 million, which was included in amortization expense.

(8)        During the first quarter of fiscal 2020, the Company recorded business acquisition and integration costs incurred through business combinations of $1 million, which was including in selling, marketing and administration expenses.

(9)        During the first quarter of fiscal 2020, the Company recorded income tax valuation allowance related to the acquisition of Cylance Inc. of $1 million, which was included in provision for income taxes.

Supplementary Geographic Revenue Breakdown

BlackBerry Limited

(United States dollars, in millions)

Revenue by Region

		For the Quarters Ended
		May 31, 2019		February 28, 2019		November 30, 2018		August 31, 2018		May 31, 2018
North America		$	160			64.8	%		$	176			69.0	%		$	151			66.8	%		$	133			63.3	%		$	139			65.3	%
Europe, Middle East and Africa		61			24.7	%		61			23.9	%		56			24.8	%		53			25.3	%		52			24.4	%
Other regions		26			10.5	%		18			7.1	%		19			8.4	%		24			11.4	%		22			10.3	%
Total		$	247			100.0	%		$	255			100.0	%		$	226			100.0	%		$	210			100.0	%		$	213			100.0	%

Supplementary Revenue by Product and Service Type Breakdown

BlackBerry Limited

(United States dollars, in millions)

Revenue by Product and Service Type

	U.S. GAAP		Adjustments		Non-GAAP
	For the Three Months Ended		For the Three Months Ended		For the Three Months Ended
	May 31, 2019		May 31, 2018		May 31, 2019		May 31, 2018		May 31, 2019		May 31, 2018
IoT	$	136			$	126			$	1			$	4			$	137			$	130
BlackBerry Cylance	32			—			19			—			51			—
Licensing	72			63			—			—			72			63
Other	7			24			—			—			7			24
Total	$	247			$	213			$	20			$	4			$	267			$	217

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- 877-682-6267 or by logging on at https://www.blackberry.com/us/en/company/investors . A replay of the conference call will also be available at approximately 11 a.m. ET by dialing 1-800-585-8367 and entering Conference ID #3689875 and at the link above.