BlackBerry Limited — Q1 Fiscal 2021 10-Q
Reporting period: Three months ended May 31, 2020; amounts are in U.S. dollars unless stated otherwise. BlackBerry reports as one operating segment, focused on security software and services, IoT solutions, and licensing.
Financial results
| Metric | Q1 FY2021 | Q1 FY2020 |
|---|---|---|
| Revenue | $206 million | $247 million |
| Gross margin | $143 million; 69.4% | $177 million; 71.7% |
| Operating expenses | $788 million | $213 million |
| Net loss | $636 million; $1.14 per share | $35 million; $0.06 basic loss per share |
| Cash used in operating activities | $31 million | $64 million |
| Free cash flow | Negative $32 million | Not clearly stated in the filing text |
Revenue fell 17% year over year. Software and Services revenue was $148 million, down $20 million; Licensing and Other was $58 million, down $21 million. The gross margin percentage declined 2.3 percentage points. GAAP operating expenses include a $594 million non-cash goodwill impairment charge in the BlackBerry Spark reporting unit, which drove most of the increase in reported loss. Excluding specified items, the company reported adjusted revenue of $214 million, adjusted net income of $12 million ($0.02 per share), adjusted operating income of $3 million, and adjusted EBITDA of $20 million. These are non-GAAP measures and are not directly comparable across companies.
Liquidity, debt and balance sheet
- Cash, cash equivalents and investments totaled $955 million at May 31, versus $990 million at February 29, 2020. Working capital was $81 million, up from $75 million.
- Current assets were $1.172 billion and current liabilities were $1.091 billion. Total assets were $3.215 billion, down from $3.888 billion, principally reflecting the goodwill impairment.
- Convertible debentures had a reported fair value of $599 million and unpaid principal of $605 million. They bear 3.75% interest and mature November 13, 2020; management expects to repay them at maturity. The company said its resources should be sufficient for foreseeable needs.
- Operating cash use improved to $31 million from $64 million used a year earlier. Investing activities used $39 million, mainly reflecting net investment purchases and $8 million of intangible asset additions. Financing provided $4 million.
Changes, outlook and risks
- COVID-19 adversely affected QNX automotive software demand, customer spending, sales cycles and the ability to meet customers. Management said the pandemic could materially affect fiscal 2021 results, though it did not expect a material adverse effect on liquidity.
- Management forecast fiscal 2021 adjusted revenue of approximately $950–$965 million, assuming a gradual reopening of the global economy; it expected Q2 adjusted revenue to exceed Q1. The company also expected fiscal 2021 non-GAAP profitability and positive free cash flow.
- Operating cost actions included deferred discretionary spending and capital expenditure, temporary suspension of some retirement-plan matching, salary increase deferrals, and $9 million of Canadian wage subsidies recorded as a reduction of operating expenses.
- Software and Services recurring revenue was reported as greater than 90% of adjusted segment revenue excluding IP licensing and professional services. Software and Services ARR was approximately $500 million; dollar-based net retention was 93%. QNX royalty revenue backlog was approximately $450 million at the start of the quarter, but depends on forecast volumes and is not a guarantee of future revenue.
- Customer concentration increased: Teletry represented 26% of quarterly revenue, versus 16% a year earlier. Receivables days outstanding rose to 95 from 70, and overdue balances increased amid COVID-19. The allowance for credit losses was $13 million.
- Litigation includes securities, employment and intellectual-property matters. The company reported no material claims for which loss was both probable and reasonably estimable, while noting some reasonably probable claims could not be estimated. Contractual obligations totaled $969 million, including $615 million of debenture principal and interest and $158 million of lease obligations.
Important facts for investors to verify
- Whether the $950–$965 million adjusted revenue outlook, non-GAAP profitability and positive free-cash-flow expectations were achieved, and the assumptions underlying that outlook.
- Progress in repaying or refinancing the $605 million debenture principal at its November 2020 maturity, including any conversion or related dilution.
- Whether QNX demand, software revenue trends, customer retention and the QNX royalty backlog recover as the pandemic’s effects evolve.
- Collection of receivables and the effect of customer concentration, overdue balances and credit-loss estimates on liquidity.
- The assumptions supporting the $594 million goodwill impairment valuation, and whether further impairment or other asset valuation changes become necessary.
- Developments in disclosed litigation and any material outcomes or contingencies not estimable at the filing date.