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Why Is BlackBerry (BB) Up 4.1% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for BlackBerry (BB). Shares have added about 4.1% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is BlackBerry due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

BlackBerry Q3 Earnings Top Estimates on Lower Expenses

BlackBerry reported healthy third-quarter fiscal 2019 (ended Nov 30, 2018) financial results, primarily driven by growth in software and services business, and lower operating expenses.

Net Loss

On a GAAP basis, net loss for the reported quarter was 1 cent per share compared with a loss of 52 cents per share in the year-ago quarter. The year-over-year improvement was mainly due to lower total operating expenses.

Non-GAAP net income came in at $28 million or 5 cents per share compared with $16 million or 3 cents per share in the prior-year quarter. Adjusted earnings for the quarter were 3 cents per share which beat the Zacks Consensus Estimate of 2 cents.

Revenues

Quarterly GAAP revenues remained stable year over year at $226 million. Software and services revenues were $217 million, up 14.2%.

Non-GAAP revenues were $228 million compared with $235 million in the year-earlier quarter. The top line surpassed the Zacks Consensus Estimate of $213 million.

Geographically, North America generated revenues of $151 million compared with $133 million in the year-ago quarter. Revenues from Europe, Middle East and Africa were $56 million, down 18.8% year over year, while revenues from other regions totaled $19 million, down 20.8%.

Segmental Performance

Non-GAAP revenues from Enterprise software and services decreased 7.5% year over year to $98 million. BlackBerry Technology Solutions non-GAAP revenues increased 23.3% to $53 million, primarily driven by BlackBerry QNX. Software development license, services and royalty revenues have grown double-digit percentage across various applications in the automotive and general embedded market, underscoring an increase in the number of design wins as the company was chosen by customers from around the world. Non-GAAP revenues from Licensing, IP and other were $68 million, up 36% year over year. The company did not generate any non-GAAP revenues from Handheld devices in the reported quarter, while generating $9 million in the year-earlier quarter. SAF (service access fees) non-GAAP revenues continued its downtrend and decreased to $9 million from $27 million in the year-earlier quarter.

Other Quarterly Details

Gross profit was $170 million or 75.2% of revenues compared with $168 million or 74.3% of revenues in the year-ago quarter. Total operating expenses decreased to $112 million from $426 million reported in the prior-year quarter. This was primarily due to lower arbitration charges, selling, marketing and administration expenses, and favorable adjustment of debentures fair value.

Operating income improved to $58 million against operating loss of $258 million in the prior-year quarter, mainly due to lower operating expenses. Non-GAAP operating income was $27 million compared with $16 million in the year-ago quarter. Adjusted EBITDA was $44 million compared with $35 million in the prior-year quarter.

During the quarter, BlackBerry has inked an agreement to acquire Cylance, an artificial intelligence (AI) and cybersecurity leader. The buyout will help to boost the company’s future software and services business growth as it will provide additional cyber security capabilities with advanced AI and machine learning technology.

Cash Flow

During the first nine months of fiscal 2019, BlackBerry generated $82 million of cash from operations compared with $866 million in the year-ago period. In the fiscal third quarter, free cash flow before considering the impact of restructuring and legal proceedings was $39 million.

Liquidity

As of Nov 30, 2018, BlackBerry had $1,084 million of cash and cash equivalents and $665 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 continues to expect 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 for the full fiscal is also expected to be positive.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.


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