BlackBerry Reports Second Quarter Fiscal 2014 Results

September 27, 2013

WATERLOO, ONTARIO--(Sept. 27, 2013) - BlackBerry (NASDAQ:BBRY)(TSX:BB), a world leader in the mobile communications market, today reported second quarter results for the three months ended August 31, 2013 (all figures in U.S. dollars and U.S. GAAP, except where otherwise indicated).

Q2 Highlights:

  • Revenue for the second quarter of approximately $1.6 billion; company recognizes revenue on approximately 3.7 million smartphones in the second quarter
  • GAAP loss from continuing operations of $965 million, or $1.84 per share diluted; includes a primarily non-cash, pre-tax charge against inventory and supply commitments of approximately $934 million and pre-tax restructuring charges of approximately $72 million
  • Adjusted loss from continuing operations of $248 million, or $0.47 per share diluted; adjusted gross margin of $570 million, or 36%
  • Company sees increasing penetration of BlackBerry Enterprise Service 10 (BES 10) with more than 25,000 commercial and test servers installed to date, up from 19,000 in July 2013
  • Cash and investments balance of $2.6 billion

Q2 Results

Revenue for the second quarter of fiscal 2014 was approximately $1.6 billion, down 49% from $3.1 billion in the previous quarter and down 45% from $2.9 billion in the same quarter of fiscal 2013. The revenue breakdown for the quarter was approximately 49% for hardware, 46% for service and 5% for software and other revenue. During the second quarter the company recognized hardware revenue on approximately 3.7 million BlackBerry smartphones. Most of the units recognized are BlackBerry 7 devices, in part because certain BlackBerry 10 devices that were shipped in the second quarter of fiscal 2014 will not be recognized until those devices are sold through to end customers. During the quarter, approximately 5.9 million BlackBerry smartphones were sold through to end customers, which included shipments made prior to the second quarter and which reduced the Company's inventory in the channel.

The GAAP loss from continuing operations for the quarter was $965 million, or $1.84 per share diluted, including a primarily non-cash, pre-tax charge against inventory and supply commitments of approximately $934 million (the "Z10 Inventory Charge"), and pre-tax restructuring charges of approximately $72 million related to the Cost Optimization and Resource Efficiency ("CORE") program. This is compared with a GAAP loss from continuing operations of $84 million, or $0.16 per share diluted in the prior quarter and GAAP loss from continuing operations of $229 million, or $0.44 per share diluted, in the same quarter last year.

The adjusted loss from continuing operations for the second quarter was $248 million, or $0.47 per share diluted. The adjusted loss from continuing operations and adjusted diluted loss per share exclude the impact of the Z10 Inventory Charge of approximately $934 million ($666 million after tax) and pre-tax restructuring charges of approximately $72 million ($51 million after tax) related to the CORE program incurred in the second quarter of fiscal 2014. These impacts on GAAP loss from continuing operations and diluted loss per share from continuing operations are summarized in the table below.

The total of cash, cash equivalents, short-term and long-term investments was $2.6 billion as of August 31, 2013, compared to $3.1 billion at the end of the previous quarter. Cash flow used in operations in the second quarter was approximately $136 million. Uses of cash included intangible asset additions of approximately $268 million and capital expenditures of approximately $112 million.

"We are very disappointed with our operational and financial results this quarter and have announced a series of major changes to address the competitive hardware environment and our cost structure," said Thorsten Heins, President and CEO of BlackBerry. "While our company goes through the necessary changes to create the best business model for our hardware business, we continue to see confidence from our customers through the increasing penetration of BES 10, where we now have more than 25,000 commercial and test servers installed to date, up from 19,000 in July 2013. We understand how some of the activities we are going through create uncertainty, but we remain a financially strong company with $2.6 billion in cash and no debt. We are focused on our targeted markets, and are committed to completing our transition quickly in order to establish a more focused and efficient company."

Reconciliation of GAAP gross margin, gross margin percentage, loss from continuing operations before income taxes, loss from continuing operations and diluted loss per share from continuing operations to adjusted gross margin, adjusted gross margin percentage, adjusted loss from continuing operations before income taxes, adjusted loss from continuing operations and adjusted diluted loss per share from continuing operations:

(United States dollars, in millions except per share data)

                     
  Gross
Margin(1)
(before
taxes)
  Gross
Margin %(1)
(before
taxes)
  Loss from
continuing
operations
before
income
taxes
 
Loss from
Continuing
Operations
  Diluted loss
per share from
continuing
operations
 
As reported $ (374 ) (24 %) $ (1,438 ) $ (965 ) $ (1.84 )
Adjustments:                            
CORE charges (2)   10   1 %   72     51     0.10  
Z10 inventory provision (3)   934   59 %   934     666     1.27  
Adjusted $ 570   36 % $ (432 ) $ (248 ) $ (0.47 )
                             
   
Note: Adjusted gross margin, adjusted gross margin percentage, adjusted loss from continuing operations before tax, adjusted loss from continuing operations and adjusted diluted loss per share from continuing operations do not have a standardized meaning prescribed by GAAP and thus are not comparable to similarly titled measures presented by other issuers. The Company believes that the presentation of these non-GAAP measures enables the Company and its shareholders to better assess the Company's operating results relative to its operating results in prior periods and improves the comparability of the information presented. Investors should consider these non-GAAP measures in the context of the Company's GAAP results.
 
(1) During the second quarter of fiscal 2014, the Company reported a GAAP gross margin of ($374) million or (24%) of revenue. Excluding the impact the Z10 Inventory Charge and CORE charges included in cost of sales, the adjusted gross margin was $570 million, or 36%.
(2) As part of the Company's ongoing effort to streamline its operations and increase efficiency, the Company commenced the CORE program in March 2012. During the second quarter of fiscal 2014, the Company incurred approximately $72 million in total pre-tax charges related to the CORE program. Substantially all of the pre-tax charges are related to one-time employee termination benefits and facilities costs. During the second quarter of fiscal 2014, charges of approximately $10 million were included in cost of sales, charges of approximately $8 million were included in research and development and charges of approximately $54 million were included in selling, marketing, and administration expenses.
(3) During the second quarter of fiscal 2014, the Company recorded a primarily non-cash, pre-tax charge against inventory and supply commitments of approximately $934 million, $666 million after tax, which is primarily attributable to BlackBerry Z10 devices.

Supplementary Geographic Revenue Breakdown

BlackBerry Limited
(United States dollars, in millions)
Revenue by Region
   
  For the quarter ended
   
    August
31, 2013
    June 1, 2013     March 2, 2013     December
1, 2012
    September
1, 2012
 
North America $ 414 26.3 % $ 761 24.8 % $ 587 21.9 % $ 647 23.7 % $ 868 30.3 %
Europe, Middle East and Africa   686 43.6 %   1,343 43.7 %   1,227 45.8 %   1,160 42.5 %   1,087 38.0 %
Latin America   196 12.5 %   449 14.6 %   479 17.9 %   535 19.6 %   520 18.2 %
Asia Pacific   277 17.6 %   518 16.9 %   385 14.4 %   385 14.1 %   386 13.5 %
   
Total $ 1,573 100.0 % $ 3,071 100.0 % $ 2,678 100.0 % $ 2,727 100.0 % $ 2,861 100.0 %

About BlackBerry

A global leader in wireless innovation, BlackBerry® revolutionized the mobile industry when it was introduced in 1999. Today, BlackBerry aims to inspire the success of our millions of customers around the world by continuously pushing the boundaries of mobile experiences. Founded in 1984 and based in Waterloo, Ontario, BlackBerry operates offices in North America, Europe, Asia Pacific and Latin America. BlackBerry is listed on the NASDAQ Stock Market (NASDAQ:BBRY) and the Toronto Stock Exchange (TSX:BB). For more information, visit www.blackberry.com.

This news release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and Canadian securities laws. The terms and phrases "expects", "believe", "focused", "getting", "opportunities", "we are seeing", "continuing", "drive", "improve", "should", "will", "increasing", "anticipated", and similar terms and phrases are intended to identify these forward-looking statements. Forward-looking statements are based on estimates and assumptions made by BlackBerry in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors that BlackBerry believes are appropriate in the circumstances. Many factors could cause BlackBerry's actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements, including those described in the "Risk Factors" section of BlackBerry's Annual Information Form, which is included in its Annual Report on Form 40-F and the "Cautionary Note Regarding Forward-Looking Statements" section of BlackBerry's MD&A (copies of which filings may be obtained at www.sedar.com or www.sec.gov). These factors should be considered carefully, and readers should not place undue reliance on BlackBerry's forward-looking statements. BlackBerry has no intention and undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

BlackBerry Limited  
Incorporated under the Laws of Ontario  
(United States dollars, in millions except share and per share amounts) (unaudited)  
   
Consolidated Statements of Operations  
   
   
  For the three months ended For the six months ended  
  August
31, 2013
June
1, 2013
  September
1, 2012
August
31, 2013
  September
1, 2012
 
   
Revenue $ 1,573   $ 3,071   $ 2,861   $ 4,644   $ 5,669  
Cost of sales   1,947     2,029     2,117     3,976     4,139  
Gross margin   (374 )   1,042     744     668     1,530  
   
  Gross margin %   (23.8 %)   33.9 %   26.0 %   14.4 %   27.0 %
   
Operating expenses                              
  Research and development   360     358     366     718     733  
  Selling, marketing and administration   527     673     556     1,200     1,103  
  Amortization   171     180     180     351     352  
  Impairment of goodwill   -     -     -     -     335  
    1,058     1,211     1,102     2,269     2,523  
   
Operating loss   (1,432 )   (169 )   (358 )   (1,601 )   (993 )
   
  Investment income (loss), net   (6 )   5     -     (1 )   3  
   
Loss from continuing operations before income taxes  
(1,438
)  
(164
)  
(358
)  
(1,602
)  
(990
)
   
Recovery of income taxes   (473 )   (80 )   (129 )   (553 )   (251 )
   
  Loss from continuing operations   (965 )   (84 )   (229 ) $ (1,049 ) $ (739 )
   
  Loss from discontinued operations, net of tax   -     -     (6 )   -   $ (14 )
   
Net loss $ (965 ) $ (84 ) $ (235 ) $ (1,049 ) $ (753 )
   
   
Loss per share                              
Basic and diluted loss per share from continuing operations $ (1.84 ) $ (0.16 ) $ (0.44 ) $ (2.00 ) $ (1.41 )
Basic and diluted loss per share from discontinued operations   -     -     (0.01 )   -     (0.03 )
Total basic and diluted loss per share $ (1.84 ) $ (0.16 ) $ (0.45 ) $ (2.00 ) $ (1.44 )
   
   
Weighted-average number of common shares outstanding (000's)                              
  Basic   524,481     524,160     524,160     524,320     524,160  
  Diluted   524,481     524,160     524,160     524,320     524,160  
                                 
Total common shares outstanding (000's)   524,639     524,160     524,160     524,639     524,160  
   
   
BlackBerry Limited  
Incorporated under the Laws of Ontario  
(United States dollars, in millions except share and per share amounts) (unaudited)  
   
Consolidated Balance Sheets  
   
   
As at   August
31, 2013
    March
2, 2013
 
   
Assets            
Current            
  Cash and cash equivalents $ 1,181   $ 1,549  
  Short-term investments   1,163     1,105  
  Accounts receivable, net   1,743     2,353  
  Other receivables   223     272  
  Inventories   941     603  
  Income taxes receivable   462     597  
  Other current assets   696     469  
  Deferred income tax asset   128     139  
  Assets held for sale   122     145  
    6,659     7,232  
Long-term investments   225     221  
Property, plant and equipment, net   2,119     2,264  
Intangible assets, net   3,505     3,448  
  $ 12,508   $ 13,165  
   
   
Liabilities            
Current            
  Accounts payable $ 1,130   $ 1,064  
  Accrued liabilities   1,909     1,842  
  Deferred revenue   834     542  
    3,873     3,448  
Deferred income tax liability   202     245  
Income taxes payable   9     12  
    4,084     3,705  
   
Shareholders' Equity            
Capital stock and additional paid-in capital   2,451     2,431  
Treasury stock   (234 )   (234 )
Retained earnings   6,218     7,267  
Accumulated other comprehensive income   (11 )   (4 )
    8,424     9,460  
  $ 12,508   $ 13,165  
   
   
BlackBerry Limited  
Incorporated under the Laws of Ontario  
(United States dollars, in millions except share and per share amounts) (unaudited)  
   
Consolidated Statements of Cash Flows  
   
    For the six months ended  
    August
31, 2013
    September
1, 2012
 
   
   
Cash flows from operating activities            
Loss from continuing operations $ (1,049 ) $ (739 )
Loss from discontinued operations   -     (14 )
Net loss   (1,049 )   (753 )
   
Adjustments to reconcile net loss to net cash provided by operating activities:            
  Amortization   756     1,001  
  Deferred income taxes   (32 )   10  
  Income taxes payable   (3 )   6  
  Stock-based compensation   38     42  
  Impairment of goodwill   -     335  
  Other   39     11  
Net changes in working capital items   737     483  
Net cash provided by operating activities   486     1,135  
   
Cash flows from investing activities            
Acquisition of long-term investments   (220 )   (161 )
Proceeds on sale or maturity of long-term investments   180     85  
Acquisition of property, plant and equipment   (195 )   (240 )
Acquisition of intangible assets   (603 )   (537 )
Business acquisitions, net of cash acquired   (7 )   (105 )
Acquisition of short-term investments   (917 )   (397 )
Proceeds on sale or maturity of short-term investments   930     204  
Net cash used in investing activities   (832 )   (1,151 )
   
Cash flows from financing activities            
Tax deficiencies related to stock-based compensation   (2 )   (5 )
Purchase of treasury stock   (16 )   -  
Net cash used in financing activities   (18 )   (5 )
Effect of foreign exchange gain (loss) on cash and cash equivalents  
(4

)
 
5
 
Net decrease in cash and cash equivalents for the period   (368 )   (16 )
Cash and cash equivalents, beginning of period   1,549     1,527  
Cash and cash equivalents, end of period $ 1,181   $ 1,511  
   
   
As at   August 31, 2013     June 1, 2013  
   
Cash and cash equivalents $ 1,181   $ 1,591  
Short-term investments   1,163     1,233  
Long-term investments   225     247  
  $ 2,569   $ 3,071  
 
Investor Contact:
BlackBerry Investor Relations
(519) 888-7465
investor_relations@blackberry.com