Post Earnings Coverage as Blackberry Software Service Sales Doubles

BlackBerry also Announces Discontinuation of Handset Business

LONDON, UK / ACCESSWIRE / September 30, 2016 / Active Wall St. announces its post-earnings coverage on BlackBerry Limited (NASDAQ: BBRY). 

Today, AWS is promoting its earnings coverage on BBRY. Get our free coverage by signing up to http://www.activewallst.com/registration-3/?symbol=BBRY.

Earnings Reviewed

The company reported its fiscal 2017 second-quarter financial results on September 28th, 2016. The Canadian handset manufacturer reported narrower-than-expected loss while revenues at the software and services segment improved 111% reported a breakeven quarter and raised its full-year outlook.

For the quarter ended on August 31st, 2016, Blackberry reported a net loss of $372 million, or $0.71 per share, which included a $96 million inventory charge, compared to a net income of $51 million, or a loss of $0.24 per share, in the same period a year ago. Excluding non-recurring items, the company broke even on a per-share basis for the second consecutive quarter, beating analyst expectations for a loss of $0.5 per share. Revenue dropped to $334 million down 28.2% from $490 million last year, below analysts’ expectations of $392 million.

Segment Wise

During Q2 FY17, Blackberry’s total software services revenue came in at $156 million, up 111% on y-o-y basis, accounting for 44% of total sales; this was, however, down from $166 million reported in Q1 FY17. Roughly 81% of the Q2 FY17 software and services revenue was recurring. The company said it continues to expect revenue growth of 30% from software and services in FY 2017. For the reported quarter revenue from the Mobility solutions segment was $105 million and contributed approximately 30% of total sales. Blackberry generated Services access fees revenues of $91 million in Q2 FY17 and accounted for 26%. BlackBerry had around 3,000 enterprise customer wins in Q2 FY17.

On geographical basis, for Q2 FY17, North America contributed 56.9% to the total revenue of $334 million (on a reported basis), while Europe, the Middle East, and Africa accounted for 29.9%. Similarly, Latin America and the Asia/Pacific contributed 3.9% and 9.3%, respectively, in revenue during Q2 FY17.

Leadership Change

BlackBerry announced a change in senior leadership in a separate release on the same day. The company announced the departure of Chief Financial Officer, James Yersh, for personal reasons and appointed Steven Capelli as his replacement at the end of October. Capelli brings 25 years of executive experience in the software and technology industry. Most recently, Capelli was president of Worldwide Field Operations at Sybase with responsibility for $1 billion in annual revenue.

Balance Sheet

At the end of Q2 FY17, Blackberry had cash, cash equivalents, short-term and long-term investments of approximately $2.5 billion. Blackberry retired its convertible debt of 1.25 billion just after quarter end and replaced it with a convertible note of $605 million. By retiring the previous debt early, the company expects to save over 50 million a year in interest payments.

Operating Metrics

During Q2 FY17, Blackberry delivered the highest gross margin in the company history at 62%. This number was up from 53% in Q1 FY17 and 41% in the comparable quarter a year ago. This was attributed to an improvement in device margins and a more favorable revenue mix. Q2 FY17 operating income was $16 million. Blackberry achieved its eleventh consecutive quarter of positive EBITDA which came in at $45 million, translating to about 13% EBITDA margins.

Outlook

For FY17, BlackBerry expects adjusted earnings per share to be in the range of breakeven to a loss of $0.50 compared to analysts’ prediction of a loss of $0.16 per share.

The End of BlackBerry Phone

BlackBerry will no longer internally design or develop smartphone hardware. Instead, the company now intends to outsource hardware development to other partners. CEO John Chen says this will reduce the capital requirements of making phones while boosting return on invested capital. BlackBerry will shift to more of a royalty model, licensing its software and brand name out to other phone manufacturers.

“We are reaching an inflection point with our strategy,” said Chief Executive John Chen, “Our financial foundation is strong, and our pivot to software is taking hold.”

The company sold 400,000 devices in Q2 FY17, half what it sold in Q2 FY16. Apple sold 40.4 million units of iPhones in the previous quarter.

Licensing Agreement

BlackBerry announced an agreement with newly formed joint venture PT BB Merah Putih to license BlackBerry software and services for the production of handsets for the Indonesian market. This partnership will accelerate BlackBerry’s overall focus on driving software growth, specifically developing and licensing device software offerings, including security solutions and applications, through its Mobility Solutions business unit.

BB Merah Putih will source, distribute, and promote BlackBerry-branded devices that use BlackBerry’s secure Android software and applications. The joint venture and its affiliates account for nearly half of the total Indonesian mobile market.

Stock Performance

BlackBerry’s stock is trading tumbled 4.68%, closing Thursday’s session at $7.94 on volume of 11.35 million shares, which was above its 3-month average volume of 4.07 million shares. Shares of the company have surged 18.33% in the last three months. The company’s stock has a market cap of $4.19 billion as of Thursday’s closing bell.

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