Business context and reporting period
BlackBerry Limited filed its Form 10-K for the fiscal year ended February 28, 2022 (FY2022), with fourth-quarter results for the three months ended that date. Financial amounts are in U.S. dollars. The company reports Cybersecurity, IoT, and Licensing and Other segments; it reorganized segment reporting in FY2022.
BlackBerry sells security software and services to enterprises and governments and embedded software, notably QNX, to automotive and other industries. QNX software was embedded in more than 195 million vehicles. The company also continued developing BlackBerry IVY with AWS; vehicle installations are expected to begin in the 2024 or 2025 model year.
Key financial metrics
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $718 million | $893 million |
| Gross margin / margin rate | $467 million / 65.0% | $643 million / 72.0% |
| Operating expenses (GAAP) | $469 million | $1.750 billion |
| Net income (loss) (GAAP) | $12 million | $(1.104) billion |
| Adjusted net income (loss) (non-GAAP) | $(55) million | $88 million |
| Operating cash flow | $(28) million | $82 million |
| Free cash flow (usage) | $(36) million | $74 million |
| Cash, cash equivalents and investments | $770 million | $804 million |
| Working capital | $646 million | $577 million |
FY2022 GAAP diluted loss per share was $0.31 despite basic earnings per share of $0.02. The diluted calculation assumes conversion of the debentures and removes their fair-value gain; review the filing’s EPS reconciliation. The non-GAAP measures are company-defined and are not directly comparable across issuers.
At year-end, the company reported $365 million principal amount of 1.75% convertible debentures, carried at fair value of approximately $507 million. The debentures mature in November 2023 and are convertible into approximately 60.8 million shares. Contractual obligations totaled $603 million, including $377 million of debenture principal and interest and $101 million of operating lease obligations.
Material changes versus comparable periods
- Revenue fell $175 million, or about 20%, year over year. Licensing and Other declined $209 million, primarily due to reduced patent monetization during the patent-sale process; Cybersecurity declined $14 million; IoT increased $48 million.
- Gross margin fell $176 million and the margin rate declined 7 percentage points, mainly reflecting lower Licensing and Other revenue and mix.
- FY2022 GAAP net income improved substantially from the prior-year loss, but the comparison is heavily affected by non-cash debenture fair-value changes and the prior-year $594 million goodwill impairment. On an adjusted basis, results moved from $88 million income to a $55 million loss.
- Operating cash flow declined from $82 million to negative $28 million, which management attributed mainly to lower revenue and working-capital changes. Cash and investments decreased $34 million.
- Cybersecurity annual recurring revenue was $347 million, down from $369 million; its dollar-based net retention rate was 91%, versus 95%. IoT ARR rose to $93 million from $84 million.
Outlook, commentary, risks and unusual items
- FY2023 outlook: Cybersecurity revenue expected to be broadly consistent with FY2022; IoT revenue expected at $200–$210 million; Licensing and Other revenue expected to be minimal, except potential revenue associated with closing the patent sale. Management expects Cybersecurity billings growth of 8–12% and year-over-year billings growth in each FY2023 quarter.
- The $600 million agreement to sell substantially all non-core patent assets to Catapult excludes patents essential to current core operations and provides BlackBerry a license back. Closing is subject to financing and other conditions and was targeted for the end of FY2023’s first quarter; it had not closed as of the filing.
- Management cited pandemic-related disruption, automotive supply-chain constraints and the global chip shortage as pressures on QNX royalties and customer activity. Russia’s invasion of Ukraine added uncertainty to automotive production, supply chains and cyber threats; BlackBerry said it would cease business activities in Russia and did not expect a material financial effect.
- In Q4, GAAP net income was $144 million, while adjusted net income was $6 million. The quarter included a $165 million non-cash gain from changes in the fair value of debentures, making reported GAAP results unusually sensitive to share-price and valuation inputs.
- Other risks include intense competition, customer churn and renewal risk, cybersecurity incidents or product vulnerabilities, reliance on channel partners and third-party platforms, foreign-exchange exposure, litigation, regulatory and privacy requirements, and potential impairment of goodwill or other assets. A securities class action and other proceedings are disclosed; the company reported no material claims for which loss was both probable and reasonably estimable.
- The company reported $844 million of goodwill and $613 million of long-lived assets. No goodwill or long-lived-asset impairment was recorded in FY2022; the annual goodwill test indicated reporting-unit fair values exceeded carrying values. Patent-sale-related cash-flow assumptions could affect the Intellectual Property reporting unit.
- The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting; management also concluded internal controls were effective.
Important facts for investors to verify
- Whether the Catapult patent transaction closed, when proceeds were received, and the resulting accounting and licensing-revenue effects.
- Whether Cybersecurity ARR, retention and billings improve in line with FY2023 expectations, given the 91% retention rate and recent ARR decline.
- Whether IoT revenue reaches guidance amid automotive production, chip-supply and royalty-volume uncertainty, and progress toward IVY deployments.
- Underlying profitability and cash generation excluding debenture fair-value movements; reconcile GAAP and non-GAAP results and monitor free cash flow.
- Convertible-debenture repayment or conversion outcomes, including potential dilution, fair-value volatility and the November 2023 maturity.
- Material developments in the disclosed litigation, deferred tax-asset valuation allowance, and asset-impairment assumptions.