BlackBerry Limited — Q1 FY2022 10-Q
Reporting period: Three months ended May 31, 2021; comparative period ended May 31, 2020. Amounts are in U.S. dollars. BlackBerry reorganized its reporting into Cyber Security, IoT, and Licensing and Other segments; prior-period segment data was restated.
Financial results and liquidity
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Revenue | $174 million | $206 million |
| Gross margin | $114 million; 65.5% | $143 million; 69.4% |
| Operating loss | $58 million | $645 million |
| Net loss | $62 million; $0.11 per share | $636 million; $1.14 per share |
| Adjusted net income (loss), non-GAAP | $(27) million; $(0.05) per share | $7 million; $0.01 per share |
| Operating cash flow | $(33) million | $(31) million |
| Free cash flow, non-GAAP | $(35) million | $(32) million |
Cash, cash equivalents, and investments totaled $769 million at May 31, 2021, down from $804 million at February 28, 2021. Working capital was $551 million, versus $577 million. The quarter’s $150 million increase in cash and restricted cash included $176 million of investing cash inflow, primarily net proceeds from investment maturities and purchases; it should not be read as operating cash generation.
Long-term debentures were carried at fair value of $715 million, against $365 million principal outstanding. The fair value decreased $5 million during the quarter, including $4 million of non-cash income in earnings and $1 million of income in other comprehensive income. The company reported $382 million of debt interest and principal payments in its contractual-obligations table, predominantly due in one to three years.
Material changes and segment performance
- Cyber Security: Revenue fell 10% to $107 million from $119 million. Management attributed the decline mainly to lower Spark product revenue and professional services.
- IoT: Revenue rose to $43 million from $29 million, reflecting recovery in QNX royalties and higher development-seat revenue. Segment gross margin rose to $36 million from $23 million.
- Licensing and Other: Revenue declined to $24 million from $58 million, mainly because of lower intellectual-property licensing revenue, including the Teletry arrangement.
- Overall revenue fell $32 million, and gross margin percentage declined 3.9 percentage points. The prior-year comparison included a $594 million goodwill impairment; its non-recurrence largely explains the sharp improvement in GAAP operating and net losses. Adjusted results weakened year over year.
- Cyber Security annual recurring revenue was $364 million, down from $370 million; its dollar-based net retention rate was 94%, versus 101%. QNX royalty revenue backlog was $490 million, compared with $450 million, though management cautioned it is based on customer forecasts and may not predict realized revenue.
Outlook, commentary, and risks
Management revised its expectations: FY2022 Cyber Security revenue is now expected toward the lower end of the previously stated $495–$515 million range, with billings growth more weighted to the second half. IoT revenue is expected to return to about $50 million per quarter by fiscal year-end, later than previously anticipated, primarily because of the global chip shortage. The filing does not provide a clear total-company revenue or earnings forecast.
Management said available financial resources, expected operating cash generation, expense reductions, and potential financing should fund commitments and foreseeable operations. It does not expect COVID-19 to materially harm liquidity, but warned that the pandemic and chip shortage may continue to materially affect QNX and consolidated results. Other risks include slower customer spending and longer sales cycles, receivable collection delays, foreign-exchange and investment risks, limited-source supply exposure, and potential impairment of goodwill and intangible assets.
BlackBerry recorded $15 million of Canada Emergency Wage Subsidy benefits as a reduction to operating expenses. Litigation includes certified U.S. and Canadian shareholder class actions and a certified Ontario employment class action; the company reported no material claims for which loss was both probable and reasonably estimable, while some possible losses could not be estimated. Restricted cash and investments of $29 million collateralized letters of credit.
Key facts investors should verify
- Whether Cyber Security billings and retention improve as management expects, given declining ARR and 94% net retention.
- How the chip shortage affects QNX royalties, IoT revenue recovery, and the $490 million royalty backlog.
- Whether Licensing and Other revenue remains pressured after the prior-year licensing contribution.
- The composition and timing of contractual obligations: the filing’s table lists $695 million total, while accompanying narrative appears to describe that total inconsistently.
- Potential dilution and debt exposure: 60.8 million shares were issuable upon full conversion of the debentures, in addition to other outstanding equity awards.