BlackBerry posts Q1 profit, stocks soar

BlackBerry started its 2015 fiscal year with a smaller-than-expected loss, demonstrating the positive effects of its transition plan amid a steep decline in handset sales.

The company this morning reported an adjusted loss of US$60 million, or $0.11 per share on revenues of $966 million, which was smaller than pre-release analyst consensus of $0.26 per share. BlackBerry’s GAAP figures were even stronger with the company posting a surprise $23 million profit thanks to non-cash income from favourable changes in the fair value of its recent debenture issue and pre-tax restructuring charges of $226 million. Shares of the embattled handset maker spiked in pre-market trade, jumping more than 13 per cent to $9.37, their highest level since March.

Falling hardware

Compared to the same quarter last year, revenues were off 68 per cent as handset sales continued to slide. BlackBerry realized hardware revenue on 1.3 million handsets, and sold through 2.6 million handsets – including shipments made and recognized before the quarter. During this morning’s analyst call, CEO John Chen said the company’s handset business will be profitable if it sells 10 million handsets over the next year.

While BlackBerry didn’t confirm how many of the handsets sold this quarter were based on BB10 or the older BB7 operating system, Chen told analysts BB10-based devices accounted for 65 per cent of handset revenues. This marks the first time the new operating system has outsold the old.

The company’s cash position improved by $429 million during the quarter, to $3.1 billion from $2.7 billion the previous quarter. The company’s cash position has become a closely watched metric, as it helps determine how much runway BlackBerry has while it works to replace declining handset revenues with income from higher margin services and software sales. In April, Chen estimated it could take another six to eight quarters for BlackBerry to complete the transition.

 “Our performance in fiscal Q1 demonstrates that we are firmly on track to achieve important milestones, including our financial objectives and delivering a strong product portfolio,” Chen said in a statement. “Over the past six months, we have focused on improving efficiency in all aspects of our operations to drive cost reductions and margin improvement. Looking forward, we are focusing on our growth plan to enable our return to profitability.”

Improving the odds

Chen had boosted confidence in the company’s prospects late last month when during a panel session at the Re/Code Code Conference he raised the company’s prospects for success to 80 per cent – up from his estimate of 50 per cent soon after he took control last November. Speaking to analysts on this morning’s conference call, Chen said the numbers reinforce that belief.

“I think quarters like this, and ability to reach them, allow the market to return some confidence in us,” he said.

The revenue breakdowns point to significant progress in transitioning away from the company’s longtime core handset business. In the year-ago quarter, 71 per cent of BlackBerry’s revenue came from hardware, 26 per cent from services and 3 per cent from software and other sources. This quarter, hardware accounted for just 39 per cent of revenue, services 54 per cent and 7 per cent for software and other sources. Last quarter, hardware drove 37 per cent of the company’s $976 million revenue.

Before this morning’s announcement, investors had been nudging BlackBerry shares higher over the past month – up about 14.5 per cent to $8.29, a three-month high, at market close Wednesday – amid a steady drumbeat of reports the company is starting to make progress in its transition.

In its press release, the company predicted break-even cash flow by the end of the current 2015 fiscal year, and said it will be “increasingly looking for opportunities to prudently invest in growth.”

 That growth could include new employees. Speaking with reporters following the annual general meeting, he confirmed the company is “at the very tail end” of the last major wave of 4,500 layoffs and is now starting to re-staff a number of areas within the company. Chen says he’s reached out to the University of Waterloo and other institutions worldwide to connect with co-op students and graduates for potential new roles.

 “We’ll probably start modestly,” he said. “Probably a few hundred, and then go from there.”

Carmi Levy is a London, Ont.-based independent technology analyst and journalist. The opinions expressed are his own.