BlackBerry Limited — Form 10-Q Summary
Reporting period: Third quarter and nine months ended November 30, 2023 (fiscal 2024). Unaudited U.S. GAAP financial statements; amounts are U.S. dollars in millions except per-share data.
Business context and results
BlackBerry provides cybersecurity software and services and embedded IoT software, including QNX. It reports three segments: Cybersecurity, IoT, and Licensing and Other. The nine-month results include a significant one-time contribution from the May 2023 sale of non-core patents.
| Metric | Q3 FY2024 | Q3 FY2023 | Nine months FY2024 | Nine months FY2023 |
|---|---|---|---|---|
| Revenue | $175 | $169 | $680 | $505 |
| Gross margin | $127; 72.6% | $109; 64.5% | $391; 57.5% | $319; 63.2% |
| Operating loss | $(11) | $(2) | $(69) | $(226) |
| Net loss | $(21); $(0.04) basic EPS | $(4); $(0.01) basic EPS | $(74); $(0.13) basic and diluted EPS | $(239); $(0.41) basic EPS |
| Operating cash flow | $(31) | $(185) | $12 | $(253) |
- Q3 adjusted net income, a non-GAAP measure, was $3 million ($0.01 per share), compared with an adjusted loss of $30 million ($0.05 per share). Nine-month adjusted net income was $14 million versus an adjusted loss of $90 million.
- Nine-month revenue increased $175 million, principally reflecting $218 million of revenue recognized on the Malikie patent transaction. Without that transaction, reported revenue growth is not representative of underlying segment trends.
- Q3 segment revenue: Cybersecurity $114 million (up $8 million year over year), IoT $55 million (up $4 million), and Licensing and Other $6 million (down $6 million). Nine-month revenue was $286 million in Cybersecurity, $149 million in IoT, and $245 million in Licensing and Other.
- Q3 gross margin improved year over year, largely reflecting revenue mix, including higher-margin Secusmart software licenses. Nine-month gross margin percentage declined as the patent transaction had a lower margin contribution.
Cash, debt and liquidity
- At November 30, 2023, the company reported $271 million of cash, cash equivalents and investments, including $25 million of restricted cash; cash and cash equivalents were $210 million. The comparable reported cash and investments total at February 28, 2023 was $487 million.
- Working capital was negative $58 million, versus positive $14 million at February 28, 2023. Current assets were $450 million and current liabilities $508 million.
- The company repaid $365 million principal of its 2020 debentures at maturity on November 13, 2023, using cash on hand and proceeds from $150 million of new 1.75% convertible debentures issued to Fairfax affiliates. The new debentures mature February 15, 2024, with an extension to May 15, 2024 only by mutual agreement. They are convertible into up to 25 million shares at $6 per share, subject to terms and limits.
- Management said available resources, anticipated operating cash generation, expense reductions, and potential financing are expected to meet funding needs for the foreseeable future. This assessment depends in part on future cash generation and access to financing.
- Nine-month investing cash flow was $112 million and financing cash flow was negative $211 million, primarily reflecting the debenture repayment and new issuance. The net decrease in cash, cash equivalents and restricted cash was $87 million.
Material changes, outlook and commentary
- Management reduced fiscal 2024 Cybersecurity revenue guidance to $369–$374 million and IoT revenue guidance to $211–$215 million. Total Software and Services revenue, excluding potential IVY revenue, is forecast at $580–$589 million. Q4 total revenue guidance is $150–$159 million; Q4 Cybersecurity revenue is expected at $83–$88 million and IoT at $62–$66 million.
- Cybersecurity ARR was approximately $273 million, down from $313 million a year earlier. Management no longer expects ARR to return to sequential growth in the second half of FY2024; it expects Q4 ARR broadly consistent with Q3 and a return to growth in FY2025.
- The company withdrew its FY2024 Cybersecurity TCV billings guidance of $430–$480 million, citing uncertainty around large government deals. It still expects Cybersecurity TCV billings to exceed Cybersecurity revenue for FY2024.
- Management withdrew its prior expectation of non-GAAP profitability and positive operating cash flow for Q4 and FY2024, citing revised expectations for Cybersecurity and IoT. It expects operating cash flow to improve in Q4.
- Macroeconomic uncertainty, customer budget constraints, longer cybersecurity sales cycles, and automotive labor disruptions and program rescheduling may affect results. Management also said it no longer expects previously stated fiscal 2026 revenue targets for Cybersecurity, IoT, and total Software and Services to be met.
- The company completed the Malikie patent sale for $170 million cash at closing, an additional fixed $30 million due by the third anniversary, and potential royalties of up to $700 million. It recognized $218 million revenue and $147 million cost of sales in Q1. Only $23 million of estimated future royalties was recognized at present value; $210 million of variable consideration remained constrained and may be recognized later if accounting criteria are met.
- On December 11, 2023, after the quarter, BlackBerry announced it would pursue a full separation of its IoT and Cybersecurity businesses rather than the previously contemplated IoT subsidiary IPO. Completion, timing, costs, and effects remain uncertain.
- Other notable items include $11 million of Q3 long-lived asset impairment, including impairment of abandoned patents; a higher credit-loss allowance on receivables ($6 million versus $1 million at year-end); and ongoing litigation. The company reported no material claims for which loss was both probable and reasonably estimable, but certain reasonably possible claims could not be estimated.
Most important facts for investors to verify
- Whether Cybersecurity and IoT meet revised revenue expectations, and whether Cybersecurity ARR stabilizes and returns to growth as management anticipates.
- How much of reported growth and future revenue depends on the Malikie transaction, including collection of fixed consideration and any future royalties.
- How the February 2024 debenture maturity will be funded or extended, and the implications of the Fairfax related-party financing and potential share conversion.
- Whether negative working capital and recent operating losses improve through operating cash generation, expense reductions, and working-capital management.
- The execution, costs, and potential disruption associated with the announced business separation, alongside litigation, customer concentration, and automotive-industry risks.