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BlackBerry Reports Second Quarter Fiscal 2014 Results

WATERLOO, ONTARIO--(Marketwired - Sep 27, 2013) - BlackBerry (BBRY)(BB.TO), a world leader in the mobile communications market, today reported second quarter results for the three months ended August 31, 2013 (all figures in U.S. dollars and U.S. GAAP, except where otherwise indicated).

Q2 Highlights:

  • Revenue for the second quarter of approximately $1.6 billion; company recognizes revenue on approximately 3.7 million smartphones in the second quarter

  • GAAP loss from continuing operations of $965 million, or $1.84 per share diluted; includes a primarily non-cash, pre-tax charge against inventory and supply commitments of approximately $934 million and pre-tax restructuring charges of approximately $72 million

  • Adjusted loss from continuing operations of $248 million, or $0.47 per share diluted; adjusted gross margin of $570 million, or 36%

  • Company sees increasing penetration of BlackBerry Enterprise Service 10 (BES 10) with more than 25,000 commercial and test servers installed to date, up from 19,000 in July 2013

  • Cash and investments balance of $2.6 billion

Q2 Results

Revenue for the second quarter of fiscal 2014 was approximately $1.6 billion, down 49% from $3.1 billion in the previous quarter and down 45% from $2.9 billion in the same quarter of fiscal 2013. The revenue breakdown for the quarter was approximately 49% for hardware, 46% for service and 5% for software and other revenue. During the second quarter the company recognized hardware revenue on approximately 3.7 million BlackBerry smartphones. Most of the units recognized are BlackBerry 7 devices, in part because certain BlackBerry 10 devices that were shipped in the second quarter of fiscal 2014 will not be recognized until those devices are sold through to end customers. During the quarter, approximately 5.9 million BlackBerry smartphones were sold through to end customers, which included shipments made prior to the second quarter and which reduced the Company's inventory in the channel.

The GAAP loss from continuing operations for the quarter was $965 million, or $1.84 per share diluted, including a primarily non-cash, pre-tax charge against inventory and supply commitments of approximately $934 million (the "Z10 Inventory Charge"), and pre-tax restructuring charges of approximately $72 million related to the Cost Optimization and Resource Efficiency ("CORE") program. This is compared with a GAAP loss from continuing operations of $84 million, or $0.16 per share diluted in the prior quarter and GAAP loss from continuing operations of $229 million, or $0.44 per share diluted, in the same quarter last year.

The adjusted loss from continuing operations for the second quarter was $248 million, or $0.47 per share diluted. The adjusted loss from continuing operations and adjusted diluted loss per share exclude the impact of the Z10 Inventory Charge of approximately $934 million ($666 million after tax) and pre-tax restructuring charges of approximately $72 million ($51 million after tax) related to the CORE program incurred in the second quarter of fiscal 2014. These impacts on GAAP loss from continuing operations and diluted loss per share from continuing operations are summarized in the table below.

The total of cash, cash equivalents, short-term and long-term investments was $2.6 billion as of August 31, 2013, compared to $3.1 billion at the end of the previous quarter. Cash flow used in operations in the second quarter was approximately $136 million. Uses of cash included intangible asset additions of approximately $268 million and capital expenditures of approximately $112 million.

"We are very disappointed with our operational and financial results this quarter and have announced a series of major changes to address the competitive hardware environment and our cost structure," said Thorsten Heins, President and CEO of BlackBerry. "While our company goes through the necessary changes to create the best business model for our hardware business, we continue to see confidence from our customers through the increasing penetration of BES 10, where we now have more than 25,000 commercial and test servers installed to date, up from 19,000 in July 2013. We understand how some of the activities we are going through create uncertainty, but we remain a financially strong company with $2.6 billion in cash and no debt. We are focused on our targeted markets, and are committed to completing our transition quickly in order to establish a more focused and efficient company."

Reconciliation of GAAP gross margin, gross margin percentage, loss from continuing operations before income taxes, loss from continuing operations and diluted loss per share from continuing operations to adjusted gross margin, adjusted gross margin percentage, adjusted loss from continuing operations before income taxes, adjusted loss from continuing operations and adjusted diluted loss per share from continuing operations:

(United States dollars, in millions except per share data)

Gross
Margin(1)
(before
taxes)

Gross
Margin %(1)
(before
taxes)

Loss from
continuing
operations
before
income
taxes


Loss from
Continuing
Operations

Diluted loss
per share from
continuing
operations

As reported

$

(374

)

(24

%)

$

(1,438

)

$

(965

)

$

(1.84

)

Adjustments:

CORE charges (2)

10

1

%

72

51

0.10

Z10 inventory provision (3)

934

59

%

934

666

1.27

Adjusted

$

570

36

%

$

(432

)

$

(248

)

$

(0.47

)

Note: Adjusted gross margin, adjusted gross margin percentage, adjusted loss from continuing operations before tax, adjusted loss from continuing operations and adjusted diluted loss per share from continuing operations 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 2014, the Company reported a GAAP gross margin of ($374) million or (24%) of revenue. Excluding the impact the Z10 Inventory Charge and CORE charges included in cost of sales, the adjusted gross margin was $570 million, or 36%.

(2)

As part of the Company's ongoing effort to streamline its operations and increase efficiency, the Company commenced the CORE program in March 2012. During the second quarter of fiscal 2014, the Company incurred approximately $72 million in total pre-tax charges related to the CORE program. Substantially all of the pre-tax charges are related to one-time employee termination benefits and facilities costs. During the second quarter of fiscal 2014, charges of approximately $10 million were included in cost of sales, charges of approximately $8 million were included in research and development and charges of approximately $54 million were included in selling, marketing, and administration expenses.

(3)

During the second quarter of fiscal 2014, the Company recorded a primarily non-cash, pre-tax charge against inventory and supply commitments of approximately $934 million, $666 million after tax, which is primarily attributable to BlackBerry Z10 devices.

Supplementary Geographic Revenue Breakdown

BlackBerry Limited

(United States dollars, in millions)

Revenue by Region

For the quarter ended

August
31, 2013

June 1, 2013

March 2, 2013

December
1, 2012

September
1, 2012

North America

$

414

26.3

%

$

761

24.8

%

$

587

21.9

%

$

647

23.7

%

$

868

30.3

%

Europe, Middle East and Africa

686

43.6

%

1,343

43.7

%

1,227

45.8

%

1,160

42.5

%

1,087

38.0

%

Latin America

196

12.5

%

449

14.6

%

479

17.9

%

535

19.6

%

520

18.2

%

Asia Pacific

277

17.6

%

518

16.9

%

385

14.4

%

385

14.1

%

386

13.5

%

Total

$

1,573

100.0

%

$

3,071

100.0

%

$

2,678

100.0

%

$

2,727

100.0

%

$

2,861

100.0

%

About BlackBerry

A global leader in wireless innovation, BlackBerry® revolutionized the mobile industry when it was introduced in 1999. Today, BlackBerry aims to inspire the success of our millions of customers around the world by continuously pushing the boundaries of mobile experiences. Founded in 1984 and based in Waterloo, Ontario, BlackBerry operates offices in North America, Europe, Asia Pacific and Latin America. BlackBerry is listed on the NASDAQ Stock Market (BBRY) and the Toronto Stock Exchange (BB.TO). For more information, visit www.blackberry.com.

This news release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and Canadian securities laws. The terms and phrases "expects", "believe", "focused", "getting", "opportunities", "we are seeing", "continuing", "drive", "improve", "should", "will", "increasing", "anticipated", and similar terms and phrases 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 and its perception of 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 those described in the "Risk Factors" section of 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). These factors should be considered carefully, and readers should not place undue reliance on BlackBerry's forward-looking statements. 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 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,
2013

June
1,
2013

September
1,
2012

August
31,
2013

September
1,
2012

Revenue

$

1,573

$

3,071

$

2,861

$

4,644

$

5,669

Cost of sales

1,947

2,029

2,117

3,976

4,139

Gross margin

(374

)

1,042

744

668

1,530

Gross margin %

(23.8

%)

33.9

%

26.0

%

14.4

%

27.0

%

Operating expenses

Research and development

360

358

366

718

733

Selling, marketing and administration

527

673

556

1,200

1,103

Amortization

171

180

180

351

352

Impairment of goodwill

-

-

-

-

335

1,058

1,211

1,102

2,269

2,523

Operating loss

(1,432

)

(169

)

(358

)

(1,601

)

(993

)

Investment income (loss), net

(6

)

5

-

(1

)

3

Loss from continuing operations before income taxes


(1,438

)


(164

)


(358

)


(1,602

)


(990

)

Recovery of income taxes

(473

)

(80

)

(129

)

(553

)

(251

)

Loss from continuing operations

(965

)

(84

)

(229

)

$

(1,049

)

$

(739

)

Loss from discontinued operations, net of tax

-

-

(6

)

-

$

(14

)

Net loss

$

(965

)

$

(84

)

$

(235

)

$

(1,049

)

$

(753

)

Loss per share

Basic and diluted loss per share from continuing operations

$

(1.84

)

$

(0.16

)

$

(0.44

)

$

(2.00

)

$

(1.41

)

Basic and diluted loss per share from discontinued operations

-

-

(0.01

)

-

(0.03

)

Total basic and diluted loss per share

$

(1.84

)

$

(0.16

)

$

(0.45

)

$

(2.00

)

$

(1.44

)

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

Basic

524,481

524,160

524,160

524,320

524,160

Diluted

524,481

524,160

524,160

524,320

524,160

Total common shares outstanding (000's)

524,639

524,160

524,160

524,639

524,160

BlackBerry Limited

Incorporated under the Laws of Ontario

(United States dollars, in millions except share and per share amounts) (unaudited)

Consolidated Balance Sheets

As at

August
31, 2013

March
2, 2013

Assets

Current

Cash and cash equivalents

$

1,181

$

1,549

Short-term investments

1,163

1,105

Accounts receivable, net

1,743

2,353

Other receivables

223

272

Inventories

941

603

Income taxes receivable

462

597

Other current assets

696

469

Deferred income tax asset

128

139

Assets held for sale

122

145

6,659

7,232

Long-term investments

225

221

Property, plant and equipment, net

2,119

2,264

Intangible assets, net

3,505

3,448

$

12,508

$

13,165

Liabilities

Current

Accounts payable

$

1,130

$

1,064

Accrued liabilities

1,909

1,842

Deferred revenue

834

542

3,873

3,448

Deferred income tax liability

202

245

Income taxes payable

9

12

4,084

3,705

Shareholders' Equity

Capital stock and additional paid-in capital

2,451

2,431

Treasury stock

(234

)

(234

)

Retained earnings

6,218

7,267

Accumulated other comprehensive income

(11

)

(4

)

8,424

9,460

$

12,508

$

13,165

BlackBerry Limited

Incorporated under the Laws of Ontario

(United States dollars, in millions except share and per share amounts) (unaudited)

Consolidated Statements of Cash Flows

For the six months ended

August
31, 2013

September
1, 2012

Cash flows from operating activities

Loss from continuing operations

$

(1,049

)

$

(739

)

Loss from discontinued operations

-

(14

)

Net loss

(1,049

)

(753

)

Adjustments to reconcile net loss to net cash provided by operating activities:

Amortization

756

1,001

Deferred income taxes

(32

)

10

Income taxes payable

(3

)

6

Stock-based compensation

38

42

Impairment of goodwill

-

335

Other

39

11

Net changes in working capital items

737

483

Net cash provided by operating activities

486

1,135

Cash flows from investing activities

Acquisition of long-term investments

(220

)

(161

)

Proceeds on sale or maturity of long-term investments

180

85

Acquisition of property, plant and equipment

(195

)

(240

)

Acquisition of intangible assets

(603

)

(537

)

Business acquisitions, net of cash acquired

(7

)

(105

)

Acquisition of short-term investments

(917

)

(397

)

Proceeds on sale or maturity of short-term investments

930

204

Net cash used in investing activities

(832

)

(1,151

)

Cash flows from financing activities

Tax deficiencies related to stock-based compensation

(2

)

(5

)

Purchase of treasury stock

(16

)

-

Net cash used in financing activities

(18

)

(5

)

Effect of foreign exchange gain (loss) on cash and cash equivalents


(4


)


5

Net decrease in cash and cash equivalents for the period

(368

)

(16

)

Cash and cash equivalents, beginning of period

1,549

1,527

Cash and cash equivalents, end of period

$

1,181

$

1,511

As at

August 31, 2013

June 1, 2013

Cash and cash equivalents

$

1,181

$

1,591

Short-term investments

1,163

1,233

Long-term investments

225

247

$

2,569

$

3,071