BlackBerry Limited — Q1 FY2025 Form 10-Q
Reporting period: Three months ended May 31, 2024. Amounts are in U.S. dollars; financial amounts are in millions unless stated otherwise. The comparison is with the three months ended May 31, 2023, unless noted.
Business context and results
BlackBerry operates Cybersecurity, IoT and Licensing and Other businesses. Management is pursuing a full separation of Cybersecurity and IoT, with the aim of operating them independently and improving profitability and cash generation.
| Metric | Q1 FY2025 | Q1 FY2024 |
|---|---|---|
| Revenue | $144 | $373 |
| Gross profit / margin | $96 / 66.7% | $179 / 48.0% |
| Operating expenses | $135 | $190 |
| Operating loss | $(39) | $(11) |
| Net loss / diluted loss per share | $(42) / $(0.07) | $(11) / $(0.02) |
| Operating cash flow | $(15) | $99 |
| Free cash flow (non-GAAP) | $(16) | $97 |
Non-GAAP results were an adjusted net loss of $15 million, or $0.03 per share, and adjusted EBITDA of negative $7 million, versus adjusted net income of $35 million, adjusted EPS of $0.06 and adjusted EBITDA of $41 million in Q1 FY2024. BlackBerry’s non-GAAP measures exclude specified items and are not standardized under U.S. GAAP.
Revenue, margins and changes
- Cybersecurity: Revenue was $85 million, down $8 million; gross margin was $50 million (59%), versus $56 million (60%). Management attributed the revenue decline primarily to lower BlackBerry Spark product revenue, partly offset by SecuSUITE.
- IoT: Revenue was $53 million, up $8 million; gross margin was $43 million (81%), versus $36 million (80%). Higher QNX royalty revenue and professional services contributed to the increase.
- Licensing and Other: Revenue was $6 million, versus $235 million; the prior-year period included $218 million of revenue from a one-time patent sale. The prior-year segment also had an $11 million decline in intellectual-property licensing revenue.
- Total revenue fell $229 million, principally because the patent-sale revenue did not recur. Gross margin percentage improved mainly due to revenue mix, including a higher contribution from QNX and a lower contribution from the prior-year patent sale; gross profit nevertheless declined $83 million.
- Operating expenses decreased $55 million year over year. The prior-year period included a $22 million debenture fair-value charge; lower salaries, credit-loss provision, consulting and other costs also contributed. Q1 FY2025 included $8 million of restructuring charges and a $3 million long-lived-asset impairment.
Cash, liquidity and debt
- Cash, cash equivalents and investments totaled $283 million at May 31, 2024, down from $298 million at February 29, 2024. This includes $17 million of restricted cash; cash and cash equivalents alone were $143 million.
- Working capital was $137 million, down from $152 million at fiscal year-end. Accounts receivable was $148 million and days sales outstanding increased to 111 days from 100 days.
- Operating cash use was $15 million, compared with cash provided of $99 million in the prior-year quarter. Management said the year-over-year change primarily reflected working-capital movements and noted collection timing.
- Long-term notes had a carrying value of $194 million. The company issued $200 million principal amount of 3.00% convertible notes in January 2024, due February 2029; the initial conversion terms represent approximately 52 million shares, subject to adjustment. The notes are convertible or may be settled in cash, shares or a combination at the company’s election, subject to their terms.
- Contractual obligations totaled $357 million: $98 million due within 12 months and $259 million thereafter. This includes $230 million of debt principal and interest payments. BlackBerry had $17 million of collateralized letters of credit.
Outlook, commentary and risks
- Q2 FY2025 guidance: Total revenue of $136–$144 million; Cybersecurity revenue of $82–$86 million; IoT revenue of $50–$54 million; non-GAAP EPS of $(0.02)–$(0.04); and adjusted EBITDA of negative $5–$15 million.
- FY2025 guidance: Non-GAAP EPS of $(0.03)–$(0.07) and adjusted EBITDA between breakeven and $10 million. No numeric full-year revenue forecast is provided in the filing text supplied.
- Management expects sequentially higher operating cash use in Q2, followed by improvement in Q3. It said current financial resources, expected operating cash generation and expense reductions should be sufficient for foreseeable funding requirements.
- Cybersecurity annual recurring revenue was approximately $285 million, down $4 million year over year but up $5 million sequentially. Cybersecurity dollar-based net retention was 87%, versus 81% a year earlier. Recurring software product revenue was approximately 80% of software and services product revenue, versus approximately 90% a year earlier, which management attributed to product mix.
- Management said it had reduced annualized expenditures by approximately $105 million in fiscal 2024 and was pursuing further run-rate reductions as part of the business separation and cost-reduction efforts.
- Risks include working-capital and customer-collection timing, customer concentration (one customer represented 13% of quarterly revenue), foreign-exchange, interest-rate and investment risks, and execution of the business separation and cost reductions. The company is involved in ordinary-course litigation, including a Canadian securities class action and an employment class action scheduled for trial in June 2025. No material claim was assessed as both probable and reasonably estimable; some reasonably possible claims could not be quantified.
- The Malikie patent transaction included $30 million of fixed consideration due by the third anniversary of closing and potential future royalties of up to $700 million. At May 31, 2024, $23 million of the estimated variable consideration had been recognized and $210 million remained constrained under the company’s accounting policy.
Important facts for investors to verify
- Whether Q2 and FY2025 revenue, non-GAAP EPS, adjusted EBITDA and cash-flow expectations are achieved; non-GAAP guidance is not reconciled to GAAP because certain charges cannot be reasonably predicted.
- Whether Cybersecurity ARR, retention and recurring-revenue trends improve, and whether IoT revenue growth and QNX royalties continue.
- Whether working-capital movements, receivable collections and DSO support liquidity, given negative operating cash flow in the quarter.
- Progress and costs of the Cybersecurity/IoT separation and additional expense reductions, including any further restructuring or impairment charges.
- Conversion, settlement and dilution implications of the 2029 convertible notes, as well as realization of patent-sale consideration and possible royalties.
- Developments in litigation, tax examinations and the $17 million Strategic Innovation Fund amount, a portion of which may be repayable if specified conditions are not met.