BlackBerry announce Second Quarter Fiscal 2016 results

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Today, BlackBerry has announced their second quarter of fiscal 2016 results. In the last 3 months, BlackBerry has recognized the sales of 800,000 BlackBerry smartphones with revenues of $491 million.

General consensus was a EPS loss of 9 cents a share with revenue coming in at $611 million, a 33% decline from last year with an approx 975,000 BlackBerry smartphones sold.

“I am confident in our strategy and continued progress, highlighted by our fourth consecutive quarter of year-over-year double digit growth in software licensing revenue and sixth consecutive quarter of positive free cash flow,” said Executive Chairman and Chief Executive Officer John Chen. “In order to expand our leadership in cross-platform software and services, we are investing strategically – organically through new products and services based on the BES platform, and through acquisitions like AtHoc and Good.”

“At the same time, we are focused on making faster progress to achieve profitability in our handset business. Today, I am confirming our plans to launch Priv, an Android device named after BlackBerry’s heritage and core mission of protecting our customers’ privacy. Priv combines the best of BlackBerry security and productivity with the expansive mobile application ecosystem available on the Android platform,” continued Mr. Chen.

“From these initiatives, we anticipate modest sequential revenue growth in each of the remaining quarters of fiscal 2016.”

Read the full press release below:

BlackBerry Reports Fiscal 2016 Second Quarter Results

Q2 results show continued progress in key financial metrics including software growth, EBITDA and free cash flow

WATERLOO, ONTARIO–(Marketwired – Sept. 25, 2015) – BlackBerry Limited (NASDAQ:BBRY)(TSX:BB), a global leader in mobile communications, today reported financial results for the three months ended August 29, 2015 (all figures in U.S. dollars and U.S. GAAP, except where otherwise indicated).

Q2 Highlights

--  Non-GAAP software and services revenue of $74 million, a 19% increase
    over Q2 FY15 driven by 33% growth in software licensing revenue 
--  Positive free cash flow of $100 million in the quarter 
--  Cash and investments balance of $3.35 billion at the end of the fiscal
    quarter, an increase of $37 million over Q1 FY16 after using $47 million
    on share repurchases 
--  Non-GAAP loss of ($0.13) per share, basic GAAP earnings of $0.10 per
    share 
--  Non-GAAP operating loss of ($84) million, with GAAP operating income of
    $33 million 
--  Non-GAAP gross margin of 40.9% and GAAP gross margin of 37.8% 
--  Adjusted EBITDA of $68 million 
--  After the close of the quarter, BlackBerry closed the acquisition of
    AtHoc and announced an agreement to acquire Good Technology 
--  Today, the company also confirmed plans to launch a flagship handheld
    device that will run on the Android operating system with BlackBerry
    security 

Q2 Results

Non-GAAP revenue for the second quarter of fiscal 2016 was $491 million with GAAP revenue of $490 million. GAAP revenue reflects a purchase accounting write down of deferred revenue associated with the acquisition of WatchDox. The revenue breakdown for the quarter was approximately 15% for software and services, 41% for hardware, and 43% for service access fees (SAF). BlackBerry had 2,400 enterprise customer wins in the quarter. Approximately 60% of the licenses associated with these deals are cross-platform. During the second quarter, the Company recognized hardware revenue on over 800,000 BlackBerry smartphones with an ASP of approximately $240.

Non-GAAP loss for the second quarter was ($66) million, or ($0.13) per share. GAAP basic net income for the quarter was $51 million, or $0.10 per basic share. Basic GAAP net income includes the aforementioned purchase accounting impact on GAAP revenue, a non-cash credit associated with the change in the fair value of the debentures of $228 million (the “Q2 Fiscal 2016 Debentures Fair Value Adjustment”), pre-tax charges of $85 million related to restructuring, stock compensation of $14 million, and amortization of acquired intangibles of $11 million. 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 $3.35 billion as of August 29, 2015. The cash balance increased $37 million in the second quarter. The company repurchased 6 million shares during the quarter for a total of $47 million. Excluding $1.25 billion in the face value of our debt, the net cash balance at the end of the quarter was $2.1 billion. Purchase orders with contract manufacturers totaled approximately $248 million at the end of the second quarter, compared to $238 million at the end of the first quarter and down from $344 million in the year ago quarter. Excluding the impact of foreign exchange rates, operating cash flow was $110 million with free cash flow (operating cash flow minus capital expenditures) of $100 million.

“I am confident in our strategy and continued progress, highlighted by our fourth consecutive quarter of year-over-year double digit growth in software licensing revenue and sixth consecutive quarter of positive free cash flow,” said Executive Chairman and Chief Executive Officer John Chen. “In order to expand our leadership in cross-platform software and services, we are investing strategically – organically through new products and services based on the BES platform, and through acquisitions like AtHoc and Good.”

“At the same time, we are focused on making faster progress to achieve profitability in our handset business. Today, I am confirming our plans to launch Priv, an Android device named after BlackBerry’s heritage and core mission of protecting our customers’ privacy. Priv combines the best of BlackBerry security and productivity with the expansive mobile application ecosystem available on the Android platform,” continued Mr. Chen.

“From these initiatives, we anticipate modest sequential revenue growth in each of the remaining quarters of fiscal 2016.”

Expanding Leadership in Mobile Cross-Platform Software and Services

Acquisitions of Good Technology and AtHoc

On September 4, BlackBerry announced it had entered into a definitive agreement to acquire Good Technology for $425 million in cash. The acquisition is aligned with BlackBerry’s strategy to offer customers the most complete, end-to-end solution that secures the entire mobile enterprise, across all platforms. The acquisition will further build on BlackBerry’s strong leadership in Enterprise Mobility Management (EMM) value-added services. Good will bring complementary capabilities and technologies to BlackBerry, including secure application management and containerization that protects end user privacy – with the majority of its activations from iOS devices. This experience combined with BlackBerry’s strength in BlackBerry 10 and Android management will provide customers with increased choice for securely deploying any leading operating system in their organization.

The transaction is expected to close toward the end of the company’s 2016 fiscal third quarter and is subject to customary closing conditions, including regulatory approvals.

On September 22, BlackBerry closed its acquisition of AtHoc, a leading provider of secure, networked crisis communications for $250 million in cash. AtHoc’s platform alerts any device – including iOS, Android, PC and Mac desktops, digital displays, radios, IP phones, and endpoints such as sirens, fire panels and speakers – helping organizations and people to connect and share information in times of crisis. The acquisition is well aligned with BlackBerry’s strength in government and public sector, and AtHoc will become a key component of the company’s Internet of Things (IoT) platform. The leading provider to the U.S. Departments of Defense (DoD) and Homeland Security, AtHoc also supports public and private enterprises across the world, including healthcare providers and industrial facilities. The AtHoc platform will integrate with BBM and BlackBerry’s enterprise portfolio and trusted global network to offer customers new capabilities for safety, security and mission-critical business communication.

Handheld Device Roadmap

Today, BlackBerry is announcing two new additions to its handheld device roadmap.

First, the company will launch a flagship slider device, Priv, which will run on the Android operating system, bringing together the best of BlackBerry security and productivity with the expansive mobile application ecosystem available on the Android platform. In combination with BlackBerry’s efforts to support Android for Work on the BES12 platform, the new device will offer best in class security for enterprise customers. BlackBerry expects the device to be available late in the calendar year in major markets in-store and online, and will release further details in the coming weeks. While the new device will provide a choice in OS to new and existing customers, the company remains committed to the BlackBerry 10 operating system, which enables industry-leading security and productivity benefits.

Second, the company will continue to develop and enhance the BlackBerry 10 operating system and is confirming plans to release platform updates focused on security and privacy enhancements, with version 10.3.3 scheduled to be available in March 2016.

Outlook

The company anticipates modest sequential growth in total revenue in each of the remaining quarters of fiscal 2016.

The company continues to anticipate positive free cash flow. The company targets sustainable non-GAAP profitability in the fiscal 2016 fourth quarter.

Reconciliation of GAAP gross margin, gross margin percentage, income before income taxes, net income and earnings 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)

  Q2 Fiscal 2016 Non-GAAP      For the three months ended August 29, 2015   
         Adjustments                          (in millions)                 
--------------------------- ------------------------------------------------
                                         Gross    Income                    
                                Gross margin %    (loss)               Basic
              Income           margin  (before    before       Net  earnings
               statement      (before taxes)(1    income    income    (loss)
               location     taxes)(1)        )     taxes    (loss) per share
              ------------- --------- -------- --------- --------- ---------
As reported                 $    185     37.8% $     21  $     51  $   0.10 
Debentures                                                                  
 Fair Value   Debentures                                                    
 Adjustment    fair value                                                   
 (2)           adjustment          -        -%     (228)     (228)          
RAP Charges                                                                 
 (3)          Cost of sales       14      2.9%       14        14           
RAP Charges   Research and                                                  
 (3)           development         -        -%       14        14           
RAP Charges   Selling,                                                      
 (3)           marketing                                                    
               and                                                          
               administrati                                                 
               on                  -        -%       51        51           
CORE Program  Selling,                                                      
 Charges (4)   marketing                                                    
               and                                                          
               administrati                                                 
               on                  -        -%        6         6           
Software                                                                    
 deferred                                                                   
 revenue                                                                    
 acquired (5) Revenue              1      0.1%        1         1           
Stock                                                                       
 compensation                                                               
 expense (6)  Cost of sales        1      0.1%        1         1           
Stock                                                                       
 compensation Research and                                                  
 expense (6)   development         -        -%        4         4           
Stock         Selling,                                                      
 compensation  marketing                                                    
 expense (6)   and                                                          
               administrati                                                 
               on                  -        -%        9         9           
Acquired                                                                    
 intangibles                                                                
 amortization                                                               
 (7)          Amortization         -        -%       11        11           
                            --------- -------- --------- --------- ---------
Adjusted                    $    201     40.9% $    (96) $    (66) $  (0.13)
                            ========= ======== ========= ========= =========

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 second quarter of fiscal 2016, the Company reported GAAP
    gross margin of $185 million or 37.8% of revenue. Excluding the impact
    of the resource alignment program (RAP) charges and stock compensation
    expense included in cost of sales, along with software deferred revenue
    acquired included in revenue, the non-GAAP gross margin was $201
    million, or 40.9% of revenue. 
2.  During the second quarter of fiscal 2016, the Company recorded the Q2
    Fiscal 2016 Debentures Fair Value Adjustment of $228 million. The
    adjustment was presented on a separate line in the Consolidated
    Statements of Operations 
3.  During the second quarter of fiscal 2016, the Company incurred charges
    related to the RAP of $79 million pre-tax and after tax, of which $14
    million were included in cost of sales, $14 million were included in
    research and development and $51 million were included in selling,
    marketing, and administration expenses. 
4.  During the second quarter of fiscal 2016, the Company incurred charges
    related to the CORE program of $6 million, which were included in
    selling, marketing, and administration expenses. 
5.  During the second quarter of fiscal 2016, the Company recorded software
    deferred revenue acquired but not recognized due to business combination
    accounting rules of $1 million, which were included in revenue. 
6.  During the second quarter of fiscal 2016, the Company recorded stock
    compensation expense of $14 million, of which $1 million were included
    in cost of sales, $4 million were included in research and development,
    and $9 million were included in selling, marketing, and administration
    expenses. 
7.  During the second quarter of fiscal 2016, the Company recorded
    amortization of intangible assets acquired through business combinations
    of $11 million, which were included in amortization expense. 

Supplementary Geographic Revenue Breakdown

BlackBerry Limited (United States dollars, in millions) Revenue by Region

                                  For the quarter ended                     
            ----------------------------------------------------------------
             August 29,               February 28, November 29,  August 30, 
                 2015    May 30, 2015     2015         2014         2014    
            ------------ ------------ ------------ ------------ ------------
North                                                                       
 America    $176   36.0% $285   43.3% $205   31.0% $213   26.9% $297   32.4%
Europe,                                                                     
 Middle                                                                     
 East and                                                                   
 Africa      202   41.2%  245   37.2%  283   42.9%  366   46.1%  368   40.2%
Latin                                                                       
 America      33    6.7%   42    6.4%   60    9.1%   84   10.6%  111   12.1%
Asia                                                                        
 Pacific      79   16.1%   86   13.1%  112   17.0%  130   16.4%  140   15.3%
            ----- ------ ----- ------ ----- ------ ----- ------ ----- ------
Total       $490  100.0% $658  100.0% $660  100.0% $793  100.0% $916  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 1-888-428-9507 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 10 am ET by dialing 1-647-436-0148 and entering pass code 3790672# or by clicking the link above. This replay will be available until 10 am ET October 11th, 2015.

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