BlackBerry Limited — Q2 Fiscal 2024 Form 10-Q
Reporting period: Three and six months ended August 31, 2023. Unaudited interim financial statements are presented in U.S. dollars; amounts below are in millions except per-share data.
Financial performance
| Metric | Q2 FY2024 | Q2 FY2023 | Six months FY2024 | Six months FY2023 |
|---|---|---|---|---|
| Revenue | $132 | $168 | $505 | $336 |
| Gross margin | $85; 64.4% | $106; 63.1% | $264; 52.3% | $210; 62.5% |
| Operating loss | $(47) | $(47) | $(58) | $(224) |
| Net loss | $(42); $(0.07) per share | $(54); $(0.09) basic per share | $(53); $(0.09) per share | $(235); $(0.41) basic per share |
| Operating cash flow | $(56) | $(23) | $43 | $(66) |
Q2 adjusted net loss, a non-GAAP measure, was $23 million, or $0.04 per share, versus adjusted net loss of $29 million, or $0.05 per share, a year earlier. Adjusted EBITDA was a loss of $22 million versus a loss of $16 million. Q2 free cash flow usage was $57 million.
- Q2 revenue fell 21% year over year, led by Cybersecurity revenue of $79 million, down $32 million. IoT revenue was $49 million, down $2 million; Licensing and Other was $4 million, down $2 million.
- Six-month revenue rose principally because of the Malikie patent sale: $218 million of revenue and $147 million of cost of sales were recognized in Q1. The transaction boosted six-month revenue and gross profit but reduced gross margin percentage through its lower-margin mix.
- Cash, cash equivalents and investments were reported at $519 million, up from $487 million at February 28, 2023; this total includes $28 million of restricted cash. Cash and cash equivalents alone were $415 million. Working capital was negative $68 million, versus positive $14 million at year-end.
- Current liabilities included $383 million of debentures at fair value. The debentures’ $365 million principal was due November 13, 2023; the fair value adjustment is non-cash. Operating cash flow for the six months improved to $43 million, but included significant working-capital movements.
Changes, outlook and notable items
- Management lowered FY2024 IoT revenue expectations to $225–$240 million, citing rescheduled OEM development programs and production timelines and macroeconomic uncertainty. It expects sequential IoT growth in Q3 and Q4 revenue above any prior quarter.
- FY2024 Cybersecurity revenue is expected at $425–$450 million, dependent in part on closing certain large government deals in the second half. Total Software & Services revenue, excluding potential IVY revenue, is expected at $650–$690 million, revised down due primarily to the IoT outlook.
- Management expects non-GAAP profitability and positive operating cash flow in Q4 and for FY2024 overall; both expectations depend in part on closing large government Cybersecurity deals.
- The Malikie transaction provided $170 million cash at closing, with a further $30 million due by the third anniversary and potential royalties of up to $700 million. The filing recognized $23 million in present-value variable royalty consideration and constrained a further $210 million; future recognition depends on evolving estimates and accounting constraints. Malikie accounted for 45% of revenue for the six-month period.
- The Board’s strategic review, announced May 1, 2023, is considering alternatives including possible separation of businesses. No timetable is set and there is no assurance of a transaction. Management says liquidity resources, expected cash generation and expense reductions, and potential financing are expected to meet foreseeable needs, while noting recent operating losses and the imminent debenture maturity.
- Other cited risks include longer Cybersecurity sales cycles and customer budget constraints, potential adverse effects from a prolonged North American auto labor disruption on QNX royalties, foreign-exchange and investment risks, and the ability to execute strategic alternatives and manage CEO succession. The filing reports no material litigation claims assessed as both probable and reasonably estimable; some claims remain reasonably possible but losses cannot be estimated.
Important facts for investors to verify
- How the November 13, 2023 debenture maturity was addressed, including repayment, conversion or refinancing terms.
- Whether large government Cybersecurity deals close and support the company’s FY2024 revenue, profitability and cash-flow outlook.
- Subsequent QNX/OEM program timing, automotive production conditions and the effects of any labor disruption.
- Actual cash generation, working-capital trends, receivable collections and changes in the $6 million credit-loss allowance; days sales outstanding rose to 86 from 75 at fiscal year-end.
- Progress and any disclosed outcome of the strategic review, and realized Malikie deferred consideration and royalties versus the constrained estimates.
- The potential $90 million contingent CEO cash award, payable only if the specified share-price threshold is met before November 3, 2023; the recorded liability was nil at quarter-end.