BlackBerry Reports Fiscal 2020 Second Quarter Results

- Total company non-GAAP revenue of $261 million, or 22% growth year-over-year; total company GAAP revenue of $244 million, or 16% growth year-over-year

- Total non-GAAP Software and Services revenue of $256 million, or 30% growth year-over-year; total GAAP Software and Services revenue of $239 million, or 24% growth year-over-year

- Total company non-GAAP earnings per basic and diluted share of $0.00; GAAP loss per basic share of $0.08 and GAAP loss per diluted share of $0.10

- Total company free cash flow generated of $14 million, as reported

WATERLOO, Ontario, Sept. 24, 2019 /PRNewswire/ -- BlackBerry Limited (NYSE: BB; TSX: BB) today reported financial results for the three months ended August 31, 2019 (all figures in U.S. dollars and U.S. GAAP, except where otherwise indicated).

Second Quarter Fiscal 2020 Results

    --  Total company non-GAAP revenue for the second quarter of fiscal 2020 was
        $261 million, up 22% year-over-year. Total company GAAP revenue for the
        second quarter of fiscal 2020 was $244 million, up 16% year-over-year.
        Total non-GAAP software and services revenue was $256 million, up 30%
        year-over-year. Total GAAP software and services revenue was $239
        million, up 24% year-over-year. Second quarter recurring non-GAAP
        software and services revenue (excluding IP licensing and professional
        services) was over 90%. Non-GAAP gross margin was 75% and GAAP gross
        margin was 72%.
    --  Total company non-GAAP operating earnings was $2 million. Total company
        GAAP operating loss was $43 million. Non-GAAP earnings per share was
        $0.00 (basic and diluted). GAAP net loss was $0.08 per basic share and
        $0.10 per diluted share. GAAP net loss includes $36 million for acquired
        intangibles amortization expense, $14 million in stock compensation
        expense, $2 million in acquisition and integration charges, a benefit of
        $23 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
        $938 million as of August 31, 2019. Free cash flow generated, before
        considering the impact of acquisition and integration expenses,
        restructuring costs and legal proceedings, was $17 million. Cash
        generated from operations was $18 million and capital expenditures were
        $4 million.

"In the quarter, our QNX, Cylance and Licensing businesses executed at or better than our expectations. We achieved break-even non-GAAP earnings per share and generated free cash flow even with increased investments in sales and product development to support future growth," said John Chen, Executive Chairman and CEO, BlackBerry.

"We are encouraged by the positive reception on BlackBerry Intelligent Security, and we have a number of exciting new product launches in the next six months."

"Recent market consolidation has validated our thought leadership and the holistic strategy we shared last year. We are integrating our endpoint management and AI technologies and capabilities on one platform to address the high-growth endpoint security market."

Management Change
With its focus on long-term, sustainable growth, BlackBerry announces that Steve Capelli will move into the newly-created role of Chief Revenue Officer to drive revenue-generating and business development activities across the company. BlackBerry promotes Steve Rai from Deputy Chief Financial Officer to Chief Financial Officer. These changes take effect as of October 1, 2019.

Outlook
BlackBerry estimates fiscal 2020 total company non-GAAP revenue growth to be in the range of 23% to 25%, driven by a double-digit percentage increase in billings year-over-year, and non-GAAP profitability for fiscal 2020.

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 August 31, 2019:


                
            Q2 Fiscal 2020 Non-GAAP Adjustments                                                                                            
            For the Three Months Ended August 31, 2019

                                     ---

                                                                                  
     
     (in millions, except for per share amounts)


                                        
            
              Income statement                   Revenue                                       Gross            Gross margin                                       Income (loss)               Net income               Basic earnings
                                                      location                                                                     margin             % (before                                            before                     (loss)                  (loss) per
                                                                                                                               (before taxes)           taxes)                                          income taxes                                             share



                As reported                                                                              $
            244                                                        $
            176                                                          72.1
                                                                                                                                                                                                                                                      %                              $
        (43)           $
        (44)  $
        (0.08)


     Debentures fair
      value adjustment
      (2)                           
            Debentures fair value adjustment                                                                                                                                                   
      %                                           (23)                (23)


     Restructuring                             
            Cost of sales                                                                               1                                                                       0.4
      charges (3)                                                                                                                                                                                                            %                            1                                    1


     Restructuring
      charges (3)                           Selling, marketing and administration                                                                                                                                                
      %                                              2                    2


     Software deferred
      revenue acquired                                                                                                                                                                                                       %
      (4)                                        
            Revenue                                  17                                              17                                                                       1.8                            17                                   17


     Software deferred
      commission expense
      acquired (5)                          Selling, marketing and administration                                                                                                                                                
      %                                            (4)                 (4)


     Stock compensation                        
            Cost of sales                                                                               1                                                                       0.4
      expense (6)                                                                                                                                                                                                            %                            1                                    1


     Stock compensation
      expense (6)                        
            Research and development                                                                                                                                                       
      %                                              3                    3


     Stock compensation
      expense (6)                           Selling, marketing and administration                                                                                                                                                
      %                                             10                   10


     Acquired intangibles
      amortization (7)                         
            Amortization                                                                                                                                                             
      %                                             36                   36


     Business acquisition
      and integration
      costs (8)                             Selling, marketing and administration                                                                                                                                                
      %                                              2                    2



                Adjusted                                                                                 $
            261                                                        $
            195                                                          74.7
                                                                                                                                                                                                                                                      %                                 $
        2              $
         1    $
         0.00

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 second quarter of fiscal
                                  2020, the Company reported GAAP
                                  gross margin of $176 million or
                                  72.1% 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 $195 million, or
                                  74.7% of revenue.



              (2)              During the second quarter of fiscal
                                  2020, the Company recorded the Q2
                                  Fiscal 2020 Debentures Fair Value
                                  Adjustment of $23 million. This
                                  adjustment was presented on a
                                  separate line in the Consolidated
                                  Statements of Operations.



              (3)              During the second quarter of fiscal
                                  2020, the Company incurred
                                  restructuring charges of
                                  approximately $3 million, of which
                                  $1 million was included in cost of
                                  sales and $2 million was included
                                  selling, marketing and
                                  administration expense.



              (4)              During the second quarter of fiscal
                                  2020, the Company recorded
                                  software deferred revenue acquired
                                  but not recognized due to business
                                  combination accounting rules of
                                  $17 million, of which $16 million
                                  was included in BlackBerry Cylance
                                  and $1 million was included in
                                  IoT.



              (5)              During the second quarter of fiscal
                                  2020, the Company recorded
                                  deferred commission expense
                                  acquired but not recognized due to
                                  business combination accounting
                                  rules of approximately of $4
                                  million.



              (6)              During the second quarter of fiscal
                                  2020, the Company recorded stock
                                  compensation expense of $14
                                  million, of which $1 million was
                                  included in cost of sales, $3
                                  million was included in research
                                  and development, and $10 million
                                  was included in selling, marketing
                                  and administration expense.



              (7)              During the second quarter of fiscal
                                  2020, the Company recorded
                                  amortization of intangible assets
                                  acquired through business
                                  combinations of $36 million, which
                                  was included in amortization
                                  expense.



              (8)              During the second quarter of fiscal
                                  2020, the Company recorded
                                  business acquisition and
                                  integration costs incurred through
                                  or as a result of business
                                  combinations of $2 million, which
                                  was including in selling,
                                  marketing and administration
                                  expenses.

Supplementary Geographic Revenue Breakdown


                                                                                                                  
       
               BlackBerry Limited


                                                                                                          
             
        (United States dollars, in millions)


                                                                                                                   
       
               Revenue by Region




                                                                       
        For the Quarters Ended


                       
           August 31, 2019     
          May 31, 2019                     February 28, 2019                 November 30, 2018                
        August 31, 2018


      North America         $
              179           73.4                              $
              160                   64.8                                  $
           176         69.0         $
     151       66.8        $
     133    63.3
                                                        %                                                                 %                                                        %                        %                     %


      Europe, Middle     47                    19.3                      61                                  24.7                         61                             23.9           56   24.8        53           25.3
       East and Africa                           %                                                           %                                                         %                   %                        %


      Other regions      18                     7.3                      26                                  10.5                         18                              7.1           19    8.4        24           11.4
                                                 %                                                           %                                                         %                   %                        %




     Total                 $
              244          100.0                              $
              247                  100.0                                  $
           255        100.0         $
     226      100.0        $
     210   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


                August 31,                            August 31,    August 31,                         August 31,                        August 31,                            August 31,
                    2019                                   2018           2019                                2018                               2019                                   2018

                                                                                                                                                                                      ---

     IoT                     $
              133                                      $
              137                                                        $
              1                          $
     4    $
     134 $
     141


     BlackBerry
      Cylance           35                                                                                      16                                                                           51


     Licensing          71                                       56                                                                                                                          71      56


     Other               5                                       17                                                                                                                           5      17



     Total                   $
              244                                      $
              210                                                       $
              17                          $
     4    $
     261 $
     214

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 BlackBerry.com/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 #6987534 and at the link above.

About BlackBerry
BlackBerry (NYSE: BB; TSX: BB) is a trusted security software and services company that provides enterprises and governments with the technology they need to secure the Internet of Things. Based in Waterloo, Ontario, the company is unwavering in its commitment to safety, cybersecurity and data privacy, and leads in key areas such as artificial intelligence, endpoint security and management, encryption and embedded systems. For more information, visit BlackBerry.com and follow @BlackBerry.

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: BlackBerry's plans, strategies and objectives including the anticipated benefits of its strategic initiatives and its intentions to expand and enhance its product and service offerings, and BlackBerry's expectations regarding non-GAAP revenue growth, billings growth and non-GAAP profitability for fiscal 2020.

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 could significantly harm its business; 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 channel partners; 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; 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 risk that network disruptions or other business interruptions could have a material adverse effect on BlackBerry's business and harm its reputation; BlackBerry's ability to generate revenue and profitability through the licensing of security software and services or the BlackBerry brand to device manufacturers; 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, channel partners and representatives to use acceptable ethical business practices or to comply with applicable laws, which could negatively impact BlackBerry's business; BlackBerry's reliance on third parties to manufacture and repair its hardware products; risks related to the Company's success in 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, which could materially impact BlackBerry's financial condition; 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, which may negatively affect BlackBerry.

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 changes in technology and BlackBerry's business strategy, 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                                                                                                                  For the Six Months Ended


                                                        August 31, 2019                                           May 31, 2019                              August 31, 2018                                                August 31, 2019                       August 31, 2018




              
                Revenue                                        $
        
          244                                                                                       $
              247                                                                                     $
          210               $
           491       $
            423


                            Cost of sales                            68                                                             70                                                                                                    49                                                   138      101



                            Gross margin                            176                                                            177                                                                                                   161                                                   353      322



    Gross margin %                                               72.1
                                                                                                                                    %                                                                                                    %                                                    %       %
                                                                      %                                                          71.7                                                                                                  76.7                                                  71.9     76.1


                            Operating expenses


               Research and development                              62                                                             71                                                                                                    51                                                   133      112


               Selling, marketing and
                administration                                      132                                                            121                                                                                                   106                                                   253      206



              Amortization                                          48                                                             49                                                                                                    35                                                    97       72


               Debentures fair value
                adjustment                                         (23)                                                          (28)                                                                                                 (70)                                                 (51)    (42)


                                                                    219                                                            213                                                                                                   122                                                   432      348



                            Operating income (loss)                (43)                                                          (36)                                                                                                   39                                                  (79)    (26)


               Investment income, net                                                                                               3                                                                                                     5                                                     3       11



                            Income (loss) before income
                             taxes                                 (43)                                                          (33)                                                                                                   44                                                  (76)    (15)


                            Provision for income taxes                1                                                              2                                                                                                     1                                                     3        2



                            Net income (loss)                             $
        
          (44)                                                                                     $
              (35)                                                                                     $
          43              $
           (79)      $
           (17)



                            Earnings (loss) per share



              Basic                                                    $
        
          (0.08)                                                                                   $
              (0.06)                                                                                   $
          0.08            $
           (0.14)    $
           (0.03)




              Diluted                                                  $
        
          (0.10)                                                                                   $
              (0.09)                                                                                 $
          (0.04)           $
           (0.19)    $
           (0.08)





               Weighted-average number of
                common shares outstanding
                (000s)



              Basic                                            552,343                                                        551,845                                                                                               537,299                                               552,096  537,136



              Diluted                                          612,843                                                        612,345                                                                                               597,799                                               612,596  597,636


               Total common shares outstanding
                (000s)                                          548,336                                                        547,922                                                                                               537,768                                               548,336  537,768


                                                           
              
                BlackBerry Limited


                                                         
             Incorporated under the Laws of Ontario


                                                      
           (United States dollars, in millions) (unaudited)




                                                        
             
                Consolidated Balance Sheets




                                                                              
              
                As at


                                                            August 31, 2019                                    February 28, 2019




     
                Assets



     
                Current


      Cash and cash equivalents                                                 $
              
                460                             $
        548



     Short-term investments                                            389                                                        368


      Accounts receivable, net                                          194                                                        194



     Other receivables                                                  18                                                         19



     Income taxes receivable                                            10                                                          9



     Other current assets                                               60                                                         56



                                                                      1,131                                                      1,194


                   Restricted cash and cash
                    equivalents                                          34                                                         34


                   Long-term investments                                 55                                                         55


                   Other long-term assets                                35                                                         28


                   Deferred income tax assets                                                                                       2


                   Operating lease right-of-use
                    assets                                              145


                   Property, plant and equipment, net                    79                                                         85



     
                Goodwill                                           1,458                                                      1,463


                   Intangible assets, net                               996                                                      1,068



                                                                              $
              
                3,933                           $
        3,929



                   Liabilities



     
                Current



     Accounts payable                                                           $
              
                37                              $
        48



     Accrued liabilities                                               191                                                        192



     Income taxes payable                                               18                                                         17


      Deferred revenue, current                                         249                                                        214



                                                                        495                                                        471


                   Deferred revenue, non-current                        107                                                        136


                   Operating lease liabilities                          135


                   Other long-term liabilities                            6                                                         19


                   Long-term debt                                       627                                                        665


                   Deferred income tax liabilities                        1                                                          2



                                                                      1,371                                                      1,293



                   Shareholders' equity


                   Capital stock and additional paid-
                    in capital                                        2,722                                                      2,688



     
                Deficit                                            (125)                                                      (32)


                   Accumulated other comprehensive
                    loss                                               (35)                                                      (20)



                                                                      2,562                                                      2,636



                                                                              $
              
                3,933                           $
        3,929


                                                                  
              
                BlackBerry Limited


                                                              
              Incorporated under the Laws of Ontario


                                                           
            (United States dollars, in millions) (unaudited)




                                                          
            
                Consolidated Statements of Cash Flows




                                                                                             For the Six Months Ended


                                                             August 31, 2019                                           August 31, 2018

                                                                                                                                    ---

                     Cash flows from operating activities



       Net loss                                                               $
              
                (79)                                     $
        (17)


        Adjustments to reconcile net loss to net
         cash used in operating activities:



       Amortization                                                     107                                                                  79


        Deferred income taxes                                              1


        Stock-based compensation                                          31                                                                  39


        Non-cash consideration
         received from contract
         with a customer                                                 (8)


        Debentures fair value
         adjustment                                                     (51)                                                               (42)


        Operating leases                                                (10)



       Other                                                              4                                                                   2


        Net changes in working capital items:


        Accounts receivable, net                                                                                                              6


        Other receivables                                                  1                                                                  19


        Income taxes receivable                                          (1)                                                                 11



       Other assets                                                    (10)                                                                (9)


        Accounts payable                                                (11)                                                               (12)


        Income taxes payable                                               1                                                                   2


        Accrued liabilities                                             (26)                                                               (43)


        Deferred revenue                                                   4                                                                 (7)


        Other long-term
         liabilities                                                                                                                        (6)



                     Net cash provided by
                      (used in) operating
                      activities                                        (47)                                                                 22



                     Cash flows from investing activities


        Acquisition of long-term
         investments                                                                                                                        (1)


        Acquisition of property,
         plant and equipment                                             (6)                                                                (9)


        Proceeds on sale of
         property, plant and
         equipment                                                                                                                            1


        Acquisition of intangible
         assets                                                         (16)                                                               (16)


        Business acquisitions,
         net of cash acquired                                              1


        Acquisition of short-
         term investments                                              (553)                                                            (2,178)


        Proceeds on sale or
         maturity of short-term
         investments                                                     532                                                               1,939



                     Net cash used in
                      investing activities                              (42)                                                              (264)



                     Cash flows from financing activities


        Issuance of common shares                                          3                                                                   2


        Finance lease liability                                          (1)



                     Net cash provided by
                      financing activities                                 2                                                                   2



                     Effect of foreign
                      exchange loss on cash,
                      cash equivalents,
                      restricted cash, and
                      restricted cash
                      equivalents                                        (1)                                                                (2)



                     Net decrease in cash,
                      cash equivalents,
                      restricted cash, and
                      restricted cash
                      equivalents during the
                      period                                            (88)                                                              (242)


                     Cash, cash equivalents,
                      restricted cash, and
                      restricted cash
                      equivalents, beginning
                      of period                                          582                                                                 855



                     Cash, cash equivalents,
                      restricted cash, and
                      restricted cash
                      equivalents, end of
                      period                                                    $
              
                494                                       $
        613





                     As at                                   August 31, 2019                                          February 28, 2019

    ---                                                                                                                             ---

        Cash and cash equivalents                                               $
              
                460                                       $
        548


        Restricted cash and cash
         equivalents                                                             $
              
                34                                        $
        34


        Short-term investments                                                  $
              
                389                                       $
        368


        Long-term investments                                                    $
              
                55                                        $
        55

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SOURCE BlackBerry Limited