BlackBerry Targets Software Licensing to Boost Revenue

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BlackBerry Limited on Monday released its ‘Fiscal 2016 Second Quarter Results’ showing continued progress in key financial metrics including software growth, EBITDA and free cash flow.

BlackBerry, a global leader in mobile communications, reported the 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 Results

Non-GAAPrevenue for the second quarter of fiscal 2016 was $491 million with GAAP revenue of $490 million.

GAAPrevenue 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, and43% for service access fees (SAF). BlackBerry had 2,400enterprise customer winsin 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-GAAPloss for the second quarter was ($66) million, or ($0.13)per share.  GAAPbasicnet income for the quarter was $51million, or $0.10 per basic share

Basic GAAPnet income includes the aforementioned purchase accounting impact on GAAPrevenue, a non-cash credit associated with the change in the fair value of the debentures of $228million (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 $11million.

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 $3.35billion as of August 29, 2015. The cash balance increased $37million 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 $238million 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 $100million.

“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 John Chen, executive chairman and chief executive officer. “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

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.

Handheld Device Roadmap

On Monday, BlackBerry also announced 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 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.

 

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