BlackBerry Limited — Q3 FY2022 Form 10-Q
Reporting period: Three and nine months ended November 30, 2021. Unaudited U.S. GAAP financial statements; amounts in U.S. dollars unless noted.
Business context and period
BlackBerry reports three segments: Cybersecurity, IoT, and Licensing and Other. The company’s strategy centers on cybersecurity software and services, embedded/automotive software, and intellectual-property licensing. The fiscal year ends February 28.
Financial results and liquidity
| Metric | Q3 FY2022 | Q3 FY2021 | Nine months FY2022 | Nine months FY2021 |
|---|---|---|---|---|
| Revenue | $184M | $218M | $533M | $683M |
| Gross margin | $117M; 63.6% | $149M; 68.3% | $343M; 64.4% | $491M; 71.9% |
| Operating income (loss) | $51M | $(127)M | $(148)M | $(794)M |
| Net income (loss) | $74M | $(130)M | $(132)M | $(789)M |
| Adjusted net income (loss), non-GAAP | $(1)M | $9M | $(61)M | $74M |
Q3 basic EPS was $0.13 and diluted loss per share was $(0.05); nine-month basic and diluted loss per share were $(0.23) and $(0.28), respectively. Q3 GAAP profit included a $110M non-cash gain from revaluing convertible debentures and $25M of net investment income, including gains on an investment distribution. The debenture valuation gain is not representative of core operating performance.
For the nine months, operating cash flow was $(37)M, versus $30M provided in the prior year. Investing activities provided $111M and financing activities provided $9M. Cash, cash equivalents and investments were $772M at November 30, 2021, down $32M from February 28, 2021; this includes $29M of restricted cash and investments. Working capital was $520M, compared with $577M at year-end.
Long-term debentures were carried at fair value of $673M, against $365M principal, and bear 1.75% interest. Contractual obligations totaled approximately $620M, including $365M principal and $101M lease obligations. Management said available resources, expected operating cash generation, expense reductions and potential financing should fund commitments and foreseeable operating needs.
Material changes versus comparable periods
- Q3 revenue declined $34M (16%) year over year. Nine-month revenue declined $150M (22%).
- Q3 Cybersecurity revenue was $128M, down $2M; IoT was $43M, up $11M; Licensing and Other was $13M, down $43M, largely reflecting lower patent licensing revenue.
- For the nine months, Cybersecurity revenue fell $14M to $355M, IoT grew $34M to $126M, and Licensing and Other fell $170M to $52M. The Licensing decline largely reflected lower intellectual-property licensing revenue, including the Teletry arrangement.
- IoT growth reflected improved automotive royalties and higher development-seat revenue. Cybersecurity recurring revenue indicators were mixed: ARR was $358M, down from $365M a year earlier, while cybersecurity dollar-based net retention remained 95%.
- Q3 GAAP earnings improved sharply versus the prior year, but adjusted results weakened to a $1M loss from $9M income. The prior-year nine-month comparison included $594M of goodwill impairment and $21M of long-lived asset impairment, neither recurring in FY2022.
Outlook, management commentary and risks
- Management expected Q4 FY2022 Cybersecurity revenue of $125M–$135M and sequential IoT revenue growth. It cautioned that sequential Cybersecurity growth may or may not occur.
- Management withdrew its expectation for double-digit Cybersecurity billings growth in FY2022 and said it no longer expected to meet prior Cybersecurity revenue guidance of $495M–$515M or Software and Services revenue guidance of $675M–$715M, citing delays in large government deals. Cybersecurity billings did increase sequentially in Q3.
- A potential sale of part of the patent portfolio remained under negotiation. The company expected a definitive agreement in Q4 FY2022, but gave no assurance of an agreement or completed sale. Licensing and Other revenue was expected to be nominal in Q4 if a sale agreement was reached, or about $10M if the process ended without one.
- BlackBerry IVY early access began in October 2021; a beta release was planned for February 2022, with vehicle installations expected to begin in FY2023.
- Management cited COVID-19 and global chip shortages as risks to QNX automotive activity, customer demand and sales cycles. Other risks include patent and securities litigation, foreign-exchange and interest-rate exposure, customer concentration, and supply availability. The filing reported no material litigation claims both probable and reasonably estimable; some reasonably possible claims could not be quantified.
- CEWS government subsidies were $3M in Q3 and $30M for the nine months, down from $10M and $37M in the comparable periods. Some subsidies may be repayable if conditions are not met; repayment was not considered probable.
Key facts for investors to verify
- Whether Cybersecurity revenue and billings recover as delayed government contracts close, and whether the revised FY2022 expectations are met.
- Whether IoT/QNX growth persists amid automotive chip and supply-chain constraints, and whether IVY progresses on its announced schedule.
- Whether the patent-portfolio negotiations produce a definitive agreement, and the resulting effect on licensing revenue and cash.
- Underlying operating performance excluding the substantial, non-cash debenture fair-value movements and investment gains; also monitor operating cash flow and deferred revenue.
- The dilution and valuation implications of the debentures: $365M principal, $673M reported fair value, and approximately 60.8M shares issuable upon full conversion.