BlackBerry Limited — FY2021 Form 10-K
Reporting period: Fiscal year ended February 28, 2021; the filing also reports the quarter ended that date. Amounts are in U.S. dollars unless noted. BlackBerry operates as one segment, focused on cybersecurity, enterprise software and embedded/automotive software.
Financial performance and position
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $893 million | $1.040 billion |
| Gross margin | $643 million; 72.0% | $763 million; 73.4% |
| Operating expenses | $1.750 billion | $912 million |
| Operating loss | $1.107 billion | $149 million |
| Net loss | $1.104 billion; $1.97 per share | $152 million; $0.27 basic loss per share |
| Operating cash flow | $82 million | $26 million |
| Free cash flow (non-GAAP) | $74 million | Not clearly stated in the provided filing text |
- Revenue fell 14% year over year. Software and Services revenue declined to $621 million from $691 million; Licensing and Other fell to $272 million from $349 million.
- Adjusted results (non-GAAP): revenue of $919 million, operating income of $98 million, EBITDA of $167 million and net income of $101 million, or $0.18 per share. FY2020 adjusted revenue was $1.099 billion and adjusted net income was $74 million, or $0.13 per share. These measures exclude specified items and are not U.S. GAAP measures.
- Cash, cash equivalents and investments totaled $804 million, down from $990 million. Working capital was $577 million, compared with $75 million.
- The company issued $365 million principal amount of 1.75% convertible debentures, due November 2023, and redeemed its prior 3.75% debentures for approximately $615 million. The new debentures’ reported fair value was $720 million at year-end; this is distinct from their $365 million principal amount.
Material changes and quarterly results
- The $1.104 billion GAAP net loss widened by $952 million. The largest drivers were a $594 million goodwill impairment charge in the BlackBerry Spark reporting unit and a $372 million non-cash debenture fair-value charge. Long-lived asset impairment expense was $43 million.
- Operating expenses also reflected lower research, sales and administrative costs and $53 million of Canada Emergency Wage Subsidy support. Adjusted operating expenses declined to $576 million from $754 million.
- For Q4 FY2021, revenue was $210 million versus $282 million a year earlier; GAAP net loss was $315 million versus $41 million. Adjusted net income was $16 million versus $51 million. Q4 operating cash flow was $51 million and free cash flow was $48 million.
- Q4 Software and Services revenue was $160 million, down from $170 million; Licensing and Other was $50 million, down from $112 million, largely reflecting the decline in BBM Consumer licensing revenue.
Outlook, risks and unusual items
- For FY2022, management expects Cyber Security revenue of $495–$515 million and BTS revenue of $180–$200 million, implying total Software and Services revenue of $675–$715 million. BTS guidance assumes the global chip shortage is alleviated by mid-year; management expects BTS to return to a pre-pandemic run rate of about $50 million per quarter by then.
- While patent-sale negotiations or related regulatory reviews continue, BlackBerry expects Licensing and Other revenue of $10–$15 million per quarter. If negotiations end mid-FY2022 without a sale, it expects about $100 million of Licensing and Other revenue for the year; a completed sale would, in management’s view, make FY2022 revenue significantly higher than $100 million. No transaction is assured. The company says it would retain rights to use any patents sold and does not intend to sell patents associated with its current Software and Services business.
- Management expects Cyber Security and BTS billings to grow by double-digit percentages in FY2022. Software and Services ARR was approximately $468 million in Q4; dollar-based net retention was 91% and net customer churn was approximately 1%.
- COVID-19 and the global chip shortage disrupted QNX automotive royalties, customer activity and sales cycles. Management warns these factors may continue to materially affect QNX and consolidated results in FY2022, while not expecting a material adverse effect on liquidity. The company also notes possible further asset impairment.
- Other key risks include intense competition, customer renewals and retention, cybersecurity incidents or product vulnerabilities, reliance on channel partners and patent licensing, foreign exchange and regulatory exposure. Teletry represented 22% of FY2021 revenue, compared with 13% in FY2020.
- Legal proceedings include U.S. and Canadian shareholder class actions and an Ontario employment class action. The company reported no material claims assessed as both probable and reasonably estimable; other claims remain reasonably possible but losses could not be estimated. Its U.S. shareholder class certification was granted in January 2021, with review proceedings noted in the filing.
Most important facts for investors to verify
- Whether FY2022 Cyber Security and BTS revenue and billing expectations are achieved, particularly given the chip-shortage assumption and QNX royalty exposure.
- The status, timing, proceeds and revenue implications of the proposed patent-portfolio sale, including the continued constraint on patent monetization while negotiations proceed.
- The debentures’ $365 million principal, $720 million year-end fair value, conversion terms and potential dilution of up to 60.8 million shares.
- The assumptions supporting the $594 million goodwill impairment and whether further impairment is required; the auditor identified goodwill impairment and IP licensing revenue recognition as critical audit matters.
- Cash generation and liquidity trends, including receivables collection, deferred revenue and the effects of government subsidies and temporary cost reductions.
- Developments in pending litigation and any resulting financial exposure; the filing states that the potential loss for certain reasonably possible claims could not be estimated.