Business context and reporting period
BlackBerry Limited provides cybersecurity software and services, embedded and automotive software (including QNX), and patent licensing. This Form 10-K covers the fiscal year ended February 28, 2023; amounts are in U.S. dollars. The fourth quarter ended the same date.
Key financial results
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $656 million | $718 million |
| Gross margin | $419 million; 63.9% | $467 million; 65.0% |
| Operating loss | $725 million | $2 million |
| Net income (loss) | $(734) million; basic loss per share $(1.27), diluted $(1.35) | $12 million; basic earnings per share $0.02, diluted loss per share $(0.31) |
| Adjusted net loss (non-GAAP) | $(103) million; $(0.18) per share | $(55) million; $(0.10) per share |
| Operating cash flow | $(263) million | $(28) million |
| Free cash flow (usage, non-GAAP) | $(270) million | $(36) million |
Adjusted EBITDA was a loss of $71 million, versus a loss of $8 million in FY2022. The company reported cash, cash equivalents and investments of $487 million at year-end, including $27 million of restricted cash and investments. Working capital was $14 million, down from $646 million.
Revenue by segment was Cybersecurity $418 million (down $59 million), IoT $206 million (up $28 million), and Licensing and Other $32 million (down $31 million). Cybersecurity gross margin was $233 million; IoT gross margin was $169 million.
In Q4, revenue was $151 million versus $185 million a year earlier; gross margin was $100 million (66.2%). GAAP net loss was $495 million, or $(0.85) per share, while adjusted net loss was $13 million, or $(0.02) per share.
Material changes versus the prior comparable period
- Annual revenue fell 9%, primarily from lower BlackBerry Spark sales, longer government sales cycles, customer churn, and reduced patent licensing and legacy service access fee revenue.
- IoT revenue grew, reflecting higher QNX development-seat and royalty revenue. The QNX royalty backlog was approximately $640 million at FY2023 year-end, compared with $560 million at the end of Q1 FY2023; this estimate is not guaranteed future revenue.
- Cybersecurity ARR was $298 million in Q4, down from $347 million a year earlier. Cybersecurity dollar-based net retention was 81%, versus 91%; management attributed the declines primarily to Spark customer churn.
- GAAP results included $245 million of goodwill impairment and $235 million of long-lived asset impairment, mainly in Cybersecurity, and a $165 million securities class-action settlement. The impairment charges were non-cash; the settlement was paid during the year.
- Cash and investments declined $283 million year over year. Operating cash use included the $165 million settlement payment and working-capital changes.
Debt, liquidity and unusual items
The company had $365 million principal amount of 1.75% convertible debentures due November 13, 2023; their year-end fair value was approximately $367 million and they were classified as a current liability. Contractual obligations totaled $556 million, including $371 million of debenture principal and interest due within 12 months, $103 million of purchase obligations, and $82 million of lease obligations. Management said available resources, expected operating cash generation, expense reductions, potential financing and the patent sale transaction should provide sufficient capacity for the foreseeable future.
GAAP operating results were also affected by non-cash debenture fair-value gains: $138 million for FY2023. The company presents non-GAAP measures that exclude specified items; these measures are not standardized and should be considered alongside GAAP results.
The $165 million Pearlstein settlement was approved by the court and paid in FY2023. After year-end, BlackBerry terminated its unsuccessful Catapult patent-sale agreement and signed a new agreement with Malikie Innovations for $170 million cash at closing, another $30 million by the third anniversary, and potential royalties of up to $900 million. Completion is conditional on regulatory approvals and other conditions; the royalties are uncertain.
Guidance, outlook and principal risks
- FY2024 revenue outlook: Cybersecurity $425–$450 million and IoT $240–$250 million. Q1 FY2024 outlook: Cybersecurity $100–$110 million and IoT $50–$53 million.
- Management expects Cybersecurity ARR to return to sequential growth in the second half of FY2024. It forecasts FY2024 Cybersecurity TCV billings of $430–$480 million, expected to exceed Cybersecurity revenue.
- Management expects approximately $5 million of quarterly intellectual-property licensing revenue in FY2024, excluding the Malikie transaction. BlackBerry IVY was expected to become generally available in May 2023, with vehicle installations beginning in the 2025 model year.
- Risks highlighted include cybersecurity competition and customer churn, delayed government sales, automotive production and semiconductor supply constraints, macroeconomic uncertainty, privacy and regulatory requirements, litigation, foreign-exchange exposure, and execution of the patent sale and refinancing or repayment of the debentures.
- The auditor issued an unqualified opinion on the financial statements and internal controls, and management reported effective internal control over financial reporting as of February 28, 2023. The impairment valuations were identified as a critical audit matter.
Important facts for investors to verify
- Whether the Malikie transaction closes, when proceeds are received, and whether any contingent royalties are ultimately earned.
- How BlackBerry will repay, refinance or otherwise address the $365 million debentures due November 2023, and the resulting effect on liquidity and dilution.
- Whether Cybersecurity ARR, retention, TCV billings and revenue stabilize or improve against management’s FY2024 outlook.
- Whether QNX backlog converts into royalties as forecast, given automotive production, supply-chain and customer-volume risks.
- Whether further impairment charges, operating cash use or working-capital pressure arise; the reported asset valuations depend on management estimates and assumptions.