Press release follows.
NEWS RELEASE
December 20, 2013
FOR IMMEDIATE RELEASE
BLACKBERRY REPORTS THIRD QUARTER RESULTS FOR FISCAL 2014
Waterloo, ON – BlackBerry Limited
(NASDAQ: BBRY; TSX: BB), a global leader in wireless innovation, today reported
financial results for the three months ended November 30, 2013 (all figures in
U.S. dollars and U.S. GAAP, except where otherwise indicated).
Q3 Highlights:
·
Company begins transition to operating unit structure:
Enterprise Services, Messaging, QNX Embedded business and the Devices business
·
New organizational structure to drive greater focus on
services and software, while establishing a more efficient business model for
the Devices business
·
Enterprise Services:
Company sees increasing penetration of BlackBerry Enterprise Service 10 (BES10)
with over 30,000 commercial and test servers installed to date, up from 25,000
in September 2013; Company remains a mobile device management leader with
global enterprise customer base exceeding 80,000
·
Messaging:
Over 40 million newly registered iOS/Android users in the last 60 days; more than
a dozen Android OEMs to preload BBM, including most recently LG; over 250,000
BBM Channels created by global user base since launch of BBM Channels on
BlackBerry, including large brands such as Coke Indonesia and USA Today; BBM is
the most secure mobile messaging service for use in regulated enterprises
·
QNX Embedded Business:
QNX to unveil new technology in automotive and cloud services at the 2014
International Consumer Electronics Show in January
·
Devices:
Company strikes joint device development and manufacturing agreement with
Foxconn; initial focus of partnership to be development of a consumer
smartphone for Indonesia and other fast-growing markets in early 2014
·
Revenue for the third quarter of approximately $1.2 billion,
compared to $1.6 billion in the previous quarter; Company recognizes revenue on
approximately 1.9 million smartphones in the third quarter, compared to 3.7
million smartphones in the previous quarter
·
Company takes primarily non-cash, pre-tax charges of $4.6
billion associated with long-lived assets, inventory and supply commitments,
and previously announced restructuring and strategic review process; GAAP loss
from continuing operations of $4.4 billion, or $8.37 per share diluted,
compared with a GAAP loss from continuing operations of $965 million, or $1.84
per share diluted, in the prior quarter
·
Adjusted loss from continuing operations for the third
quarter, excluding charges, was $354 million, or $0.67 per share diluted, compared
with adjusted loss from continuing operations of $248 million, or $0.47 per
share diluted, in the prior quarter
·
Cash and investments balance of $3.2 billion; cash used in
operations of $77 million
Q3 Results
Revenue for the third quarter of fiscal 2014 was
approximately $1.2 billion, down $380 million or 24% from approximately $1.6
billion in the previous quarter and down 56% from $2.7 billion in the same
quarter of fiscal 2013. The revenue breakdown for the quarter was approximately
40% for hardware, 53% for services and 7% for software and other revenue.
During the third quarter, the Company recognized hardware revenue on
approximately 1.9 million BlackBerry smartphones compared to approximately 3.7
million BlackBerry smartphones in the previous quarter. Most of the units
recognized were BlackBerry 7 devices. During the quarter, approximately 4.3
million BlackBerry smartphones were sold through to end customers, which
included shipments made and recognized prior to the third quarter and which
reduced the Company’s inventory in channel. Of the BlackBerry smartphones sold
through to end customers in the third quarter, approximately 3.2 million were
BlackBerry 7 devices.
GAAP loss from continuing operations for the quarter was $4.4
billion, or $8.37 per share diluted. The loss includes a non-cash, pre-tax
charge against long-lived assets of approximately $2.7 billion (the “LLA
Impairment Charge”), a primarily non-cash, pre-tax charge against inventory and
supply commitments of approximately $1.6 billion (the “Q3 14 Inventory
Charge”), and pre-tax restructuring, legal and financial advisory charges of
approximately $266 million related to the Cost Optimization and Resource
Efficiency (“CORE”) program and the strategic review process. This compares
with a GAAP loss from continuing operations of $965 million, or $1.84 per share
diluted in the prior quarter, and GAAP income from continuing operations of $14
million, or $0.03 per share diluted, in the same quarter last year.
Adjusted loss from continuing operations for the third
quarter was $354 million, or $0.67 per share diluted. Adjusted loss from
continuing operations and adjusted diluted loss per share exclude the impact of
the LLA Impairment Charge of approximately $2.7 billion ($2.5 billion after
tax), the Q3 14 Inventory Charge of approximately $1.6 billion ($1.3 billion
after tax) and pre-tax restructuring and legal and financial advisory charges
of approximately $266 million ($225 million after tax) related to the CORE
program and strategic review process incurred in the third 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 $3.2 billion as of November 30, 2013, compared to $2.6 billion
at the end of the previous quarter. Cash flow used in operations in the third
quarter was approximately $77 million. Cash flows provided by financing
activities in the third quarter were approximately $991 million, including the
proceeds from the issuance of debt. Uses of cash included intangible asset
additions of approximately $234 million and capital expenditures of
approximately $46 million. Purchase obligations and commitments amounted to
approximately $2.1 billion as at November 30, 2013, with purchase orders with
contract manufacturers representing approximately $664 million of the total.
“With the operational
and organizational changes we have announced, BlackBerry has established a
clear roadmap that will allow it to target a return to improved financial
performance in the coming year,” said John Chen, Executive Chairman and Chief
Executive Officer of BlackBerry. “While our Enterprise Services, Messaging and
QNX Embedded businesses are already well-positioned to compete in their
markets, the most immediate challenge for the Company is how to transition the
Devices operations to a more profitable business model.”
Chen added: “We have accomplished a lot in the past 45 days,
but still have significant work ahead of us as we target improved financial
performance next year. However, the Company is financially strong, has a broad
and trusted product portfolio to work with, a talented employee base and a new
leadership team dedicated to implementing our new roadmap.”
BlackBerry Announces Five-Year Strategic Partnership with
Foxconn
The Company announced today that it has entered into a
five-year strategic partnership with Foxconn, the world’s largest manufacturer
of electronic products and components. Under this new relationship, Foxconn
will jointly develop and manufacture certain new BlackBerry devices and manage
the inventory associated with those devices. The initial focus of the
partnership will be a smartphone for Indonesia and other fast-growing markets
targeting early 2014.
“This partnership demonstrates BlackBerry’s commitment to the
device market for the long-term and our determination to remain the innovation
leader in secure end-to-end mobile solutions,” said Chen. “Partnering with
Foxconn allows BlackBerry to focus on what we do best – iconic design,
world-class security, software development and enterprise mobility management –
while simultaneously addressing fast-growing markets leveraging Foxconn’s scale
and efficiency that will allow us to compete more effectively.”
BlackBerry will own all of its intellectual property and
perform product assurance on devices through the Foxconn partnership, as it
does currently with all third-party manufacturers.
“BlackBerry is an iconic brand with great technology and a
loyal international fan base,” said Terry Gou, Founder and Chairman, Foxconn.
“We are pleased to be working with BlackBerry as it positions itself for future
growth and we look forward to a successful strategic partnership in which
Foxconn will jointly develop and manufacture new BlackBerry devices in both
Indonesia and Mexico for new and existing markets.”
BlackBerry will focus heavily, via internal development, on
market segments where its continuous innovations in secure hardware, software
and services remain critical and integral to enterprise and government
customers. BlackBerry also intends to drive adoption of its multi-platform BBM,
deliver real-time, reliable and secure messaging through its Network Operations
Center (NOC), and grow its enterprise mobility and mobile device management
business through on-premise and cloud-based solutions for cross-platform
devices as well as its own.
Outlook
In the fourth quarter, the Company anticipates maintaining
its strong cash position and further reducing operating expenses as it
continues to implement its previously-announced cost reduction program.
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 (1,264) $ (106%) (5,025) $ (4,401)
$ (8.37) $ Adjustments: CORE charges (2) 76 6% 266 225 0.43 LLA Impairment
Charge 2,748 2,475 4.71 Q314 Inventory Charge (3) 1,592 133% 1,592 1,347 2.56
Adjusted 404 $ 34% (419) $ (354) $ (0.67) $
____________
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 third
quarter of fiscal 2014, the Company reported GAAP gross margin of $(1.3)
billion or (106%) of revenue. Excluding the impact of the Q3 14 Inventory
Charge and CORE charges included in cost of sales, the adjusted gross margin
was $404 million, or 34%.
(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. Further, the Company
announced the formation of a special committee to conduct an organizational
strategic review on August 12, 2013. During the third quarter of fiscal 2014,
the Company incurred charges related to the CORE program and strategic review
process of approximately $266 million pre-tax, or $225 million after tax.
Substantially all of the pre-tax charges are related to one-time employee
termination benefits, facilities and manufacturing costs related to the CORE
program and legal and financial advisory costs related to the strategic review
process. During the third quarter of fiscal 2014, charges of approximately $76
million were included in cost of sales, charges of approximately $37 million
were included in research and development and charges of approximately $153
million were included in selling, marketing, and administration expenses.
(3) During the third
quarter of fiscal 2014 the Company performed a long-lived asset impairment test
and based on the results of that test, the Company recorded a non-cash LLA
Impairment Charge of approximately $2.7 billion pre-tax, or $2.5 billion after
tax.
(4) During the third quarter of fiscal 2014, the Company
recorded a primarily non-cash, pre-tax charge against inventory and supply
commitments of approximately $1.6 billion, or $1.3 billion after tax, which is
primarily attributable to BlackBerry 10 devices.
North America340$ 28.5%414$ 26.3%761$ 24.8%587$ 21.9%647$
23.7%Europe, Middle East and Africa549 46.0%686 43.6%1,343 43.7%1,227
45.8%1,160 42.5%Latin America135 11.3%196 12.5%449 14.6%479 17.9%535 19.6%Asia
Pacific169 14.2%277 17.6%518 16.9%385 14.4%385 14.1%Total1,193$ 100.0%1,573$
100.0%3,071$ 100.0%2,678$ 100.0%2,727$ 100.0%BlackBerry Limited(United States
dollars, in millions)Revenue by RegionAugust 31, 2013June 1, 2013March 2,
2013December 1, 2012For the quarter endedNovember 30, 2013
Supplementary
Geographic Revenue Breakdown
Conference Call and Webcast
A conference call and live webcast will be held beginning at
8 am ET, which can be accessed by dialing 1-800-814-4859 or through your
BlackBerry® 10 smartphone, personal computer or BlackBerry® PlayBook™ tablet at
http://ca.blackberry.com/company/investors/events.html. A replay of the
conference call will also be available at approximately 10 am by dialing
(+1)416-640-1917 and entering pass code 4612570# or by clicking the link above
on your BlackBerry® 10 smartphone, personal computer or BlackBerry® PlayBook™
tablet. This replay will be available until midnight ET January 3, 2014.
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.
Investor Contact:
BlackBerry Investor Relations
+1-519-888-7465
investor_relations@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, including statements regarding: BlackBerry’s plans,
strategies and objectives, and the anticipated opportunities and challenges in
fiscal 2014; BlackBerry’s expectations with respect to the sufficiency of its
financial resources, including the anticipated receipt of a significant income
tax refund in the first half of fiscal 2015; BlackBerry’s expectations
regarding new product initiatives and their timing, including BlackBerry
Enterprise Service 10, BlackBerry 10 smartphones and BlackBerry Messenger
cross-platform for Android and iPhone; BlackBerry’s plans and expectations
regarding its existing and new service offerings, assumptions regarding its
service revenue model, and the anticipated levels of decline in service revenue
in the fourth quarter of fiscal 2014; anticipated demand for, and BlackBerry’s
plans and expectations relating to its BlackBerry 7 and 10 smartphones,
including programs to drive sell-through of these smartphones; BlackBerry’s
on-going efforts to streamline its operations and its expectations relating to
the benefits of its CORE program and similar strategies; BlackBerry’s plans to
reduce operating expenditures by approximately 50% by the end of the first
quarter of fiscal 2015, including the continued implementation of a workforce
reduction of approximately 4,500 positions; BlackBerry’ plans and expectations
regarding marketing and promotional programs; BlackBerry’s estimates of
purchase obligations and other contractual commitments; and assumptions and
expectations described in BlackBerry’s critical accounting estimates and
accounting policies. 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, including but not limited to BlackBerry’s
expectations regarding its business, strategy, opportunities and prospects,
including its ability to implement meaningful changes to address its business
challenges, the launch of products based on the BlackBerry 10 platform, general
economic conditions, product pricing levels and competitive intensity, supply
constraints, and BlackBerry’s expectations regarding the cash flow generation
of its business and the sufficiency of its financial resources. 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, without limitation: risks related to BlackBerry’s ability to
implement and realize the benefits of its strategic initiatives, including a
return to its core strength of enterprise and security, changes to the Devices
Business, including the new partnership with Foxconn, and the transition to an
operating unit organizational structure consisting of Enterprise Services,
Messaging, QNX Embedded Business and the Devices Business; the risk that
uncertainty relating to BlackBerry’s recently completed strategic review
process, operational restructuring, recent management changes and workforce
reductions may adversely impact BlackBerry’s business, existing and future
relationships with business partners and end customers of its products and
services, and its ability to attract and retain key employees; BlackBerry’s
ability to maintain existing enterprise customer relationship and to transition
such customers to the BES10 platform and deploy BlackBerry 10 smartphones, and
the risk that current BES10 test installations may not convert to commercial
installations; risks related to BlackBerry’s ability to implement and to
realize the benefits of its operational restructuring initiatives, including
its CORE program, and its ability to continue to realize cost reductions in the
future, including the on-going efforts to reduce operating expenditures by 50%
and to continue to implement a workforce reduction of approximately 4,500
positions by the end of the first quarter of fiscal 2015; BlackBerry’s ability
to adapt to, and realize the anticipated benefit of, recent management changes;
risks related to BlackBerry’s ability to offset or mitigate the impact of the
decline in its service access fees on its consolidated revenue by developing an
integrated services and software offering; BlackBerry’s ability to enhance its
current products and services, or develop new products and services in a timely
manner or at competitive prices, including risks related to new product
introductions; intense competition, rapid change and significant strategic
alliances within BlackBerry’s industry; BlackBerry’s increasing reliance on
third-party manufacturers for certain products and its ability to manage its
production and repair process, and risks related to BlackBerry changing
manufacturers or reducing the number of manufacturers or suppliers it uses;
BlackBerry’s ability to maintain its existing relationships with its carrier
partners and distributors; BlackBerry’s ability to maintain or increase its
liquidity, its existing cash balance, to access existing or potential
alternative sources of funding and the sufficiency of its financial resources;
BlackBerry’s ability to manage inventory and asset risk and the potential for
additional charges related to its inventory; potential charges relating to the
impairment of intangible assets recorded on BlackBerry’s balance sheet;
BlackBerry’s ability to successfully maintain and enhance its brand; risks
associated with BlackBerry’s foreign operations, including risks related to
recent political and economic developments in Venezuela and the impact of
foreign currency restrictions; risks relating to network disruptions and other
business interruptions, including costs, potential liabilities, lost revenues
and reputational damage associated with service interruptions; risks related to
litigation, including litigation claims arising from BlackBerry’s practice of
providing forward-looking guidance; security risks; risks related to
intellectual property rights; BlackBerry’s ability to expand and manage
BlackBerry® World™; reliance on strategic alliances with third-party network
infrastructure developers, software platform vendors and service platform
vendors; risks related to the collection, storage, transmission, use and
disclosure of confidential and personal information; BlackBerry’s reliance on
suppliers of functional components for its products and risks relating to its
supply chain; BlackBerry’s ability to obtain rights to use software or
components supplied by third parties; risks related to government regulations,
including regulations relating to encryption technology; BlackBerry’s reliance
on third-party manufacturers; potential defects and vulnerabilities in
BlackBerry’s products; risks as a result of actions of activist shareholders;
government regulation of wireless spectrum and radio frequencies; risks related
to economic and geopolitical conditions; risks associated with acquisitions;
foreign exchange risks; and difficulties in forecasting BlackBerry’s financial
results given the rapid technological changes, evolving industry standards,
intense competition and short product life cycles that characterize the
wireless communications industry. These risk factors and others relating to
BlackBerry are discussed in greater detail 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.
The BlackBerry family
of related marks, images and symbols are the exclusive properties and
trademarks of BlackBerry Limited. RIM, Research In Motion and BlackBerry are
registered with the U.S. Patent and Trademark Office and may be pending or
registered in other countries. All other brands, product names, Company names,
trademarks and service marks are the properties of their respective owners.
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 November 30, 2013 August 31, 2013 December 1, 2012 November 30,
2013 December 1, 2012 Revenue $ 1,193 $ 1,573 $ 2,727 $ 5,837 $ 8,396 Cost of
sales 2,457 1,947 1,897 6,433 6,036 Gross margin (1,264) (374) 830 (596) 2,360
Gross margin % (106.0%) (23.8%) 30.4% (10.2%) 28.1% Operating expenses Research
and development 322 360 393 1,040 1,126 Selling, marketing and administration
543 527 487 1,743 1,589 Amortization 148 171 180 499 533 Impairment of
long-lived assets 2,748 - - 2,748 - Impairment of goodwill - - - - 335 3,761
1,058 1,060 6,030 3,583 Operating loss (5,025) (1,432) (230) (6,626) (1,223)
Investment income (loss), net - (6) 18 (1) 21 Loss from continuing operations
before income taxes (5,025) (1,438) (212) (6,627) (1,202) Recovery of income
taxes (624) (473) (226) (1,177) (480) Income (loss) from continuing operations
(4,401) (965) 14 (5,450) (722) Loss from discontinued operations, net of tax -
- (5) - (22) Net income (loss) $ (4,401) $ (965) $ 9 $ (5,450) $ (744) Earnings
(loss) per share Basic and diluted earnings (loss) per share from continuing
operations (8.37) (1.84) 0.03 (10.39) (1.38) Basic and diluted loss per share
from discontinued operations - - (0.01) - (0.04) Total basic and diluted
earnings (loss) per share $ (8.37) $ (1.84) $ 0.02 $ (10.39) $ (1.42)
Weighted-average number of common shares outstanding (000’s) Basic 525,656
524,481 524,160 524,766 524,160 Diluted 525,656 524,481 524,852 524,766 524,160
Total common shares outstanding (000's) 526,184 524,639 524,160 526,184 524,160
For the nine months ended
BlackBerry Limited
Incorporated under the Laws of Ontario
(United States dollars, in millions except per share data)
(unaudited)
Consolidated Balance Sheets
As at November
30, 2013 March 2, 2013 Assets Current Cash and cash equivalents $ 2,274 $ 1,549
Short-term investments 788 1,105 Accounts receivable, net 1,242 2,353 Other
receivables 151 272 Inventories 254 603 Income taxes receivable 299 597 Other
current assets 623 469 Deferred income tax asset 31 139 Assets held for sale
192 280 5,854 7,367 Long-term investments 130 221 Property, plant and
equipment, net 1,070 2,147 Intangible assets, net 1,342 3,430 $ 8,396 $ 13,165
Liabilities Current Accounts payable $ 750 $ 1,064 Accrued liabilities 1,888
1,842 Deferred revenue 699 542 3,337 3,448 Long-term debt 994 - Deferred income
tax liability 25 245 Income taxes payable 9 12 4,365 3,705 Shareholders’ Equity
Capital stock and additional paid-in capital 2,403 2,431 Treasury stock (183)
(234) Retained earnings 1,817 7,267 Accumulated other comprehensive income loss
(6) (4) 4,031 9,460 $ 8,396 $ 13,165
BlackBerry Limited
Incorporated under the Laws of Ontario
(United States dollars, in millions except per share data)
(unaudited)
Consolidated
Statements of Cash Flows November 30, 2013 December 1, 2012Cash
flows from operating activitiesLoss from continuing operations(5,450)$ (722)$
Loss from discontinued operations- (22) Net loss(5,450) (744) Adjustments to
reconcile net loss to net cash provided by operating activities:
Amortization1,067 1,524 Deferred income taxes(114) (15) Income taxes payable(3)
2 Stock-based compensation50 63 Impairment of long-lived assets2,748 -
Impairment of goodwill- 335 Other97 25 Net changes in working capital
items2,010 903 Net cash provided by operating activities405 2,093 Cash flows
from investing activitiesAcquisition of long-term investments(228) (200)
Proceeds on sale or maturity of long-term investments283 180 Acquisition of
property, plant and equipment(241) (325) Acquisition of intangible assets(837)
(770) Business acquisitions, net of cash acquired(7) (105) Acquisition of
short-term investments(1,149) (837) Proceeds on sale or maturity of short-term
investments1,537 392 Net cash used in investing activities(642) (1,665) Cash
flows from financing activitiesIssuance of common shares1 - Tax deficiencies
related to stock-based compensation(12) (10) Purchase of treasury stock(16)
(25) Issuance of debt1,000 - Net cash provided by (used in) financing
activities973 (35) Effect of foreign exchange gain (loss) on cash and cash
equivalents(11) 1 Net increase in cash and cash equivalents for the period725
394 Cash and cash equivalents, beginning of period1,549 1,516 Cash and cash
equivalents, end of period2,274$ 1,910$ As atNovember 30, 2013August 31,
2013Cash and cash equivalents2,274$ 1,181$ Short-term investments788 1,163
Long-term investments130 225 3,192$ 2,569$ For the nine months ended
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