BlackBerry (BB) Surpasses Q2 Earnings and Revenue Estimates

BlackBerry Limited BB reported healthy financial results for second-quarter fiscal 2019 (ended Aug 31, 2018), driven by growth in BlackBerry Technology Solutions and Enterprise Software and Services businesses.

Net Income

On a GAAP basis, net income for the reported quarter came in at $43 million compared with $19 million in the year-ago quarter. The year-over-year rise was primarily due to lower operating expenses.

Non-GAAP net income was $21 million or 4 cents per share compared with $26 million or 5 cents per share. The bottom line beat the Zacks Consensus Estimate by 2 cents.

BlackBerry Limited Price, Consensus and EPS Surprise

BlackBerry Limited Price, Consensus and EPS Surprise | BlackBerry Limited Quote

Revenues

Quarterly GAAP revenues decreased 11.8% year over year to $210 million, primarily due to lower revenues from Service access fees and Handheld devices. Software and services revenues were $193 million, up 4.3% year over year.

Total non-GAAP revenues were $214 million compared with $249 million in the year-earlier quarter. Software and services non-GAAP revenues were $197 million, up 1% year over year. The top line surpassed the Zacks Consensus Estimate of $213 million.

Segmental Performance

Non-GAAP revenues from Enterprise software and services decreased 9.8% year over year to $92 million. BlackBerry Technology Solutions non-GAAP revenues increased 28.9% from a year ago to $49 million, primarily driven by BlackBerry QNX. Notably, software development license, services and loyalty revenues have grown due to increase in the number of design wins. Non-GAAP revenues from Licensing, IP and other were $56 million, stable year over year. Handheld devices non-GAAP revenues were $5 million compared with $16 million in the year-earlier quarter. SAF (service access fees) revenues continued its downtrend and decreased to $12 million from $37 million in the year-earlier quarter.

Operating Metrics

Gross profit was $161 million or 76.7% of revenues compared with $175 million or 73.5% of revenues in the year-ago quarter. Total operating expenses declined to $122 million from $153 million reported in the prior-year quarter. Operating income increased to $39 million from $22 million in the prior-year quarter, primarily due to lower operating expenses. Quarterly non-GAAP operating income was $17 million. Adjusted EBITDA was $33 million, equating to an adjusted EBITDA margin of 15%.

Cash Flow

During the first six months of fiscal 2019, BlackBerry generated $22 million of cash from operations compared with $867 million in the year-earlier period. Free cash flow before considering the impact of restructuring and legal proceedings was $37 million.

Liquidity

As of Aug 31, 2018, BlackBerry had $581 million of cash and cash equivalents and $739 million of long-term debt. The company’s total cash, cash equivalents, short-term and long-term investments were $2.4 billion as of the same day.

Fiscal 2019 Outlook

BlackBerry has reiterated its outlook for fiscal 2019. The company expects total software and services revenue growth to be in the range of 8-10% year over year. It expects total software and services billings growth to be in double-digits. The company anticipates non-GAAP earnings per share to be positive. Free cash flow is also expected to be positive, before considering the impact of restructuring and legal proceedings.

Zacks Rank & Stocks to Consider

BlackBerry currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the broader industry include Orange S.A. ORAN, Comtech Telecommunications Corp. CMTL and Ubiquiti Networks, Inc. UBNT. While Orange carries a Zacks Rank #2 (Buy), Comtech and Ubiquiti sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.              

Orange has a long-term earnings growth expectation of 24.8%.

Comtech has a long-term earnings growth expectation of 5%. It beat earnings estimates in each of the trailing four quarters, the average surprise being 136%.         

Ubiquiti has a long-term earnings growth expectation of 18.6%. It surpassed earnings estimates thrice in the trailing four quarters with an average positive surprise of 9%.    

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