BlackBerry(BB) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS This section presents BlackBerry Limited's unaudited consolidated financial statements for the three and six months ended August 31, 2024, including balance sheets, statements of shareholders' equity, operations, comprehensive loss, and cash flows, along with detailed notes on accounting policies, fair value measurements, balance sheet specifics, income taxes, debentures, capital stock, loss per share, accumulated other comprehensive loss, commitments, contingencies, revenue, and segment disclosures Consolidated Balance Sheets Consolidated Balance Sheets | Metric | August 31, 2024 (in millions) | February 29, 2024 (in millions) | | :----- | :---------------------------- | :------------------------------ | | Total Assets | $1,299 | $1,395 | | Total Liabilities | $567 | $619 | | Total Shareholders' Equity | $732 | $776 | - Current assets decreased from $508 million as of February 29, 2024, to $438 million as of August 31, 2024, primarily due to decreases in cash and cash equivalents, short-term investments, and accounts receivable[10] - Current liabilities decreased from $356 million as of February 29, 2024, to $305 million as of August 31, 2024, mainly driven by reductions in accounts payable, accrued liabilities, and current deferred revenue[10] Consolidated Statements of Shareholders' Equity Consolidated Statements of Shareholders' Equity | Metric | August 31, 2024 (in millions) | May 31, 2024 (in millions) | | :----- | :---------------------------- | :------------------------- | | Capital Stock and Additional Paid-in Capital | $2,964 | $2,957 | | Deficit | $(2,219) | $(2,200) | | Accumulated Other Comprehensive Loss | $(13) | $(15) | | Total Shareholders' Equity | $732 | $742 | - Shareholders' equity decreased from $776 million as of February 29, 2024, to $732 million as of August 31, 2024, primarily due to a net loss of $61 million for the six months ended August 31, 2024[17] - Stock-based compensation contributed $15 million to capital stock and additional paid-in capital for the six months ended August 31, 2024[17] Consolidated Statements of Operations Three Months Ended August 31 | Metric | 2024 (in millions) | 2023 (in millions) | Change (YoY) | | :----- | :----------------- | :----------------- | :----------- | | Revenue | $145 | $132 | +$13 | | Gross Margin | $94 | $85 | +$9 | | Operating Loss | $(21) | $(47) | +$26 | | Net Loss | $(19) | $(42) | +$23 | | Basic Loss per Share | $(0.03) | $(0.07) | +$0.04 | Six Months Ended August 31 | Metric | 2024 (in millions) | 2023 (in millions) | Change (YoY) | | :----- | :----------------- | :----------------- | :----------- | | Revenue | $289 | $505 | $(216) | | Gross Margin | $190 | $264 | $(74) | | Operating Loss | $(60) | $(58) | $(2) | | Net Loss | $(61) | $(53) | $(8) | | Basic Loss per Share | $(0.10) | $(0.09) | $(0.01) | - For the three months ended August 31, 2024, revenue increased by $13 million, and net loss decreased by $23 million, indicating improved operational performance[21][22] - For the six months ended August 31, 2024, revenue decreased significantly by $216 million, primarily due to the one-time patent sale in the prior year, leading to an increased net loss of $8 million[21][22] Consolidated Statements of Comprehensive Loss Three Months Ended August 31 | Metric | 2024 (in millions) | 2023 (in millions) | | :----- | :----------------- | :----------------- | | Net Loss | $(19) | $(42) | | Other Comprehensive Income | $2 | $1 | | Comprehensive Loss | $(17) | $(41) | Six Months Ended August 31 | Metric | 2024 (in millions) | 2023 (in millions) | | :----- | :----------------- | :----------------- | | Net Loss | $(61) | $(53) | | Other Comprehensive Income | $1 | $3 | | Comprehensive Loss | $(60) | $(50) | - Foreign currency translation adjustment contributed $2 million and $1 million to other comprehensive income for the three and six months ended August 31, 2024, respectively[25] Consolidated Statements of Cash Flows Six Months Ended August 31 | Metric | 2024 (in millions) | 2023 (in millions) | Change (YoY) | | :----- | :----------------- | :----------------- | :----------- | | Net Cash Provided by (Used in) Operating Activities | $(28) | $43 | $(71) | | Net Cash Provided by Investing Activities | $15 | $76 | $(61) | | Net Cash Provided by Financing Activities | $1 | $2 | $(1) | | Net Increase (Decrease) in Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents | $(12) | $121 | $(133) | | Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, End of Period | $188 | $443 | $(255) | - Operating activities shifted from providing $43 million in cash in 2023 to using $28 million in 2024, primarily due to the prior year's patent sale and changes in working capital[28][236] - Investing activities provided $15 million in cash in 2024, a decrease from $76 million in 2023, mainly due to lower net proceeds from short-term and long-term investments[28][236] Notes to the Consolidated Financial Statements 1. Summary of Significant Accounting Policies and Critical Accounting Estimates - The interim consolidated financial statements are prepared in accordance with U.S. GAAP and include normal recurring adjustments for fair presentation[31] - The Company early adopted ASU 2023-07 on segment reporting in Q1 fiscal 2025, which did not have a material impact on disclosures[32] - No material changes to accounting policies or critical accounting estimates from the Annual Financial Statements[31] 2. Fair Value Measurements, Cash, Cash Equivalents and Investments - Fair value measurements are categorized into Level 1, 2, and 3 based on input observability, with the Company maximizing observable inputs[36] Cash, Cash Equivalents and Investments (August 31, 2024, in millions) | Category | Fair Value | | :------- | :--------- | | Cash and Cash Equivalents | $171 | | Short-term Investments | $40 | | Long-term Investments | $37 | | Restricted Cash and Cash Equivalents | $17 | | Total | $265 | - An impairment charge of $3 million was recorded for operating lease ROU assets and property, plant and equipment due to exiting certain leased facilities for the six months ended August 31, 2024[42] 3. Consolidated Balance Sheet Details - Allowance for credit losses for accounts receivable remained at $6 million as of August 31, 2024[52][53] Intangible Assets, Net (in millions) | Category | August 31, 2024 | February 29, 2024 | | :------- | :-------------- | :---------------- | | Acquired technology | $45 | $54 | | Other acquired intangibles | $45 | $52 | | Intellectual property | $46 | $48 | | Total Net Book Value | $136 | $154 | - Goodwill increased by $1 million to $563 million as of August 31, 2024, primarily due to the effect of foreign exchange[63] - Restructuring program liabilities decreased from $21 million as of February 29, 2024, to $8 million as of August 31, 2024, with $22 million in cash payments made during the six months[69] 4. Income Taxes - The net effective income tax expense rate for the six months ended August 31, 2024, was approximately 17%, up from 10% in the prior year, reflecting changes in unrecognized income tax benefits and geographic mix of earnings[70] - Total unrecognized income tax benefits remained at $20 million as of August 31, 2024[70] 5. Debentures - The Company issued $200 million aggregate principal amount of 3.00% senior convertible unsecured notes in January 2024, due February 15, 2029, convertible into 52 million common shares[71] - The carrying amount of the Notes increased from $194 million to $195 million for the six months ended August 31, 2024, due to amortization of debt issuance costs[73] - The 2020 Debentures matured on November 13, 2023, and no fair value adjustments were recorded for the three and six months ended August 31, 2024[74][75] 6. Capital Stock Common Shares Outstanding (000s) | Date | Shares Outstanding | | :--- | :----------------- | | February 29, 2024 | 589,233 | | August 31, 2024 | 590,728 | Change in Capital Stock and Additional Paid-in Capital (in millions) | Item | Amount | | :--- | :----- | | Stock-based compensation | $15 | | Employee share purchase plan | $1 | | Total Increase | $16 | - As of September 24, 2024, the Company had 591 million voting common shares outstanding, with an additional 51.5 million common shares issuable upon conversion of the Notes[78] 7. Loss Per Share Loss Per Share (Three Months Ended August 31) | Metric | 2024 | 2023 | | :----- | :--- | :--- | | Basic Loss per Share | $(0.03) | $(0.07) | | Diluted Loss per Share | $(0.03) | $(0.07) | Loss Per Share (Six Months Ended August 31) | Metric | 2024 | 2023 | | :----- | :--- | :--- | | Basic Loss per Share | $(0.10) | $(0.09) | | Diluted Loss per Share | $(0.10) | $(0.09) | - The weighted average number of shares outstanding for basic and diluted loss per share was 590,549 thousand for the three months ended August 31, 2024, and 590,188 thousand for the six months ended August 31, 2024[79] 8. Accumulated Other Comprehensive Loss Accumulated Other Comprehensive Loss (in millions) | Category | August 31, 2024 | August 31, 2023 | | :------- | :-------------- | :-------------- | | Foreign Currency Cumulative Translation Adjustment | $(13) | $(14) | | Change in Fair Value From Instrument-Specific Credit Risk On Debentures | $0 | $(6) | | Other Post-Employment Benefit Obligations | $0 | $(1) | | Total Accumulated Other Comprehensive Loss | $(13) | $(21) | - The total accumulated other comprehensive loss decreased from $(21) million in August 2023 to $(13) million in August 2024, primarily due to the absence of fair value changes from instrument-specific credit risk on debentures and other post-employment benefit obligations[82] 9. Commitments and Contingencies - The Company had $16 million in collateralized outstanding letters of credit as of August 31, 2024, supporting leasing arrangements[83] - No material claims outstanding as of August 31, 2024, for which potential loss is both probable and reasonably estimable[85] - The Company is involved in ongoing litigation, including a putative Ontario class action and an employment class action, with trial dates set for June 2, 2025, for the latter[85] 10. Revenue and Segment Disclosures Segment Revenue (Three Months Ended August 31, in millions) | Segment | 2024 | 2023 | Change | | :------ | :--- | :--- | :----- | | Cybersecurity | $87 | $79 | +$8 | | IoT | $55 | $49 | +$6 | | Licensing | $3 | $4 | $(1) | | Total | $145 | $132 | +$13 | Segment Revenue (Six Months Ended August 31, in millions) | Segment | 2024 | 2023 | Change | | :------ | :--- | :--- | :----- | | Cybersecurity | $172 | $172 | $0 | | IoT | $108 | $94 | +$14 | | Licensing | $9 | $239 | $(230) | | Total | $289 | $505 | $(216) | - The significant decrease in Licensing revenue for the six months ended August 31, 2024, was primarily due to the $218 million patent sale in Q1 fiscal 2024, which was a one-time event[95][199] Revenue by Geographic Region (Three Months Ended August 31, in millions) | Region | 2024 | 2023 | Change | | :----- | :--- | :--- | :----- | | North America | $69 | $72 | $(3) | | Europe, Middle East and Africa | $47 | $39 | +$8 | | Other regions | $29 | $21 | +$8 | Revenue by Geographic Region (Six Months Ended August 31, in millions) | Region | 2024 | 2023 | Change | | :----- | :--- | :--- | :----- | | North America | $137 | $389 | $(252) | | Europe, Middle East and Africa | $94 | $76 | +$18 | | Other regions | $58 | $40 | +$18 | - Revenue from products and services transferred over time was $79 million for the three months and $156 million for the six months ended August 31, 2024[100] - Remaining performance obligations as of August 31, 2024, totaled $189 million, with $161 million expected to be recognized within 12 months[105] 11. Cash Flow and Additional Information Cash Flow Information (Six Months Ended August 31, in millions) | Metric | 2024 | 2023 | | :----- | :--- | :--- | | Interest Paid | $3 | $3 | | Income Taxes Paid | $10 | $4 | | Income Tax Refunds Received | $0 | $0 | - The Company is exposed to foreign exchange risk, with approximately 26% of cash and cash equivalents, 26% of accounts receivable, and 73% of accounts payable denominated in foreign currencies as of August 31, 2024[113] - Liquidity risk is managed with $265 million in cash, cash equivalents, and investments as of August 31, 2024, deemed sufficient for foreseeable future funding requirements[116] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on BlackBerry Limited's financial condition and results of operations for the three and six months ended August 31, 2024, compared to the prior year, covering business overview, recent developments, financial highlights, non-GAAP measures, key metrics, detailed segment performance, and liquidity, emphasizing the virtual separation of its Cybersecurity and IoT businesses and ongoing cost management efforts Business Overview - BlackBerry provides intelligent security software and services, leveraging AI and machine learning in cybersecurity, safety, and data privacy, securing over 235 million vehicles[122] - The Company's two core divisions, Cybersecurity and IoT, address growing market opportunities, with IoT solutions implemented in all top ten automotive OEMs and 24 of the 25 top EV OEMs[122] - Key recent developments include the addition of QNX Containers, launch of CylanceMDR™ Pro, and partnerships with ETAS and AMD to advance software-defined vehicles and robotics[128][129] - The virtual separation of IoT and Cybersecurity businesses has substantially realized its objective, achieving approximately $130 million in operating expense reduction since its inception in Q3 fiscal 2024[130] Second Quarter Fiscal 2025 Summary Results of Operations Q2 Fiscal 2025 vs. Q2 Fiscal 2024 (in millions, except per share) | Metric | Q2 FY25 | Q2 FY24 | Change | | :----- | :------ | :------ | :----- | | Revenue | $145 | $132 | +$13 | | Gross Margin | $94 | $85 | +$9 | | Operating Expenses | $115 | $132 | $(17) | | Net Loss | $(19) | $(42) | +$23 | | Basic Loss per Share | $(0.03) | $(0.07) | +$0.04 | - Cybersecurity revenue increased by $8 million to $87 million, driven by strong product revenue in Secusmart[133] - IoT revenue increased by $6 million to $55 million, primarily due to strong BlackBerry QNX royalty revenue[133] Financial Highlights - Cash, cash equivalents, and investments totaled $265 million as of August 31, 2024, down from $298 million as of February 29, 2024[139] Q2 Fiscal 2025 Financial Highlights (in millions, except per share) | Metric | U.S. GAAP | Non-GAAP | | :----- | :-------- | :------- | | Revenue | $145 | N/A | | Net Loss | $(19) | $(2) | | Basic Loss per Share | $(0.03) | $0.00 | Non-GAAP Financial Measures - Non-GAAP measures exclude items like debentures fair value adjustment, restructuring charges, stock compensation expenses, amortization of acquired intangible assets, and long-lived asset impairment charges to provide a clearer view of core operating performance[141] Adjusted Gross Margin (Three Months Ended August 31, in millions) | Metric | 2024 | 2023 | | :----- | :--- | :--- | | Gross Margin | $94 | $85 | | Stock Compensation Expense | $1 | $1 | | Adjusted Gross Margin | $95 | $86 | | Adjusted Gross Margin % | 65.5% | 65.2% | Adjusted Operating Expense (Three Months Ended August 31, in millions) | Metric | 2024 | 2023 | | :----- | :--- | :--- | | Operating Expense | $115 | $132 | | Adjustments | $(16) | $(18) | | Adjusted Operating Expense | $99 | $114 | Adjusted Net Loss (Three Months Ended August 31, in millions) | Metric | 2024 | 2023 | | :----- | :--- | :--- | | Net Loss | $(19) | $(42) | | Adjustments | $17 | $19 | | Adjusted Net Loss | $(2) | $(23) | Adjusted EBITDA (Six Months Ended August 31, in millions) | Metric | 2024 | 2023 | | :----- | :--- | :--- | | Operating Loss | $(60) | $(58) | | Total Non-GAAP Adjustments to Operating Loss | $44 | $65 | | Adjusted Operating Income (Loss) | $(16) | $7 | | Amortization (excluding acquired intangibles) | $9 | $12 | | Adjusted EBITDA | $(7) | $19 | | Adjusted EBITDA Margin % | (2%) | 4% | Key Metrics Key Metrics (Three Months Ended August 31) | Metric | 2024 | 2023 | Change | | :----- | :--- | :--- | :----- | | Cybersecurity Annual Recurring Revenue (ARR) | $279M | $279M | $0 | | Cybersecurity Dollar-Based Net Retention Rate (DBNRR) | 88% | 81% | +7% | | Recurring Software Product Revenue Percentage | ~80% | ~90% | -10% | - Cybersecurity DBNRR increased to 88% as of August 31, 2024, from 81% in the prior year, indicating improved retention from existing customers[165] - Recurring software product revenue percentage decreased to approximately 80% for the three months ended August 31, 2024, from 90% in the prior year, due to product mix[166] Results of Operations - Three months ended August 31, 2024 compared to the three months ended August 31, 2023 Revenue by Segment (Three Months Ended August 31, in millions) | Segment | 2024 | 2023 | Change | | :------ | :--- | :--- | :----- | | Cybersecurity | $87 | $79 | +$8 | | IoT | $55 | $49 | +$6 | | Licensing | $3 | $4 | $(1) | | Total | $145 | $132 | +$13 | - Cybersecurity revenue exceeded expectations at $87 million, driven by strong Secusmart product revenue[171] - IoT revenue also surpassed expectations at $55 million, primarily due to robust BlackBerry QNX royalty revenue[171] Operating Expenses (Three Months Ended August 31, in millions) | Expense Category | 2024 | 2023 | Change | | :--------------- | :--- | :--- | :----- | | Research and development | $37 | $50 | $(13) | | Sales and marketing | $34 | $43 | $(9) | | General and administrative | $33 | $30 | +$3 | | Amortization | $11 | $14 | $(3) | | Total Operating Expenses | $115 | $132 | $(17) | - Net loss decreased by $23 million to $19 million, primarily due to lower operating expenses and increased revenue[190] Results of Operations - Six months ended August 31, 2024 compared to the six months ended August 31, 2023 Revenue by Segment (Six Months Ended August 31, in millions) | Segment | 2024 | 2023 | Change | | :------ | :--- | :--- | :----- | | Cybersecurity | $172 | $172 | $0 | | IoT | $108 | $94 | +$14 | | Licensing | $9 | $239 | $(230) | | Total | $289 | $505 | $(216) | - The $230 million decrease in Licensing revenue was primarily due to the one-time $218 million patent sale in Q1 fiscal 2024[199] Operating Expenses (Six Months Ended August 31, in millions) | Expense Category | 2024 | 2023 | Change | | :--------------- | :--- | :--- | :----- | | Research and development | $79 | $104 | $(25) | | Sales and marketing | $72 | $88 | $(16) | | General and administrative | $73 | $84 | $(11) | | Amortization | $23 | $29 | $(6) | | Total Operating Expenses | $250 | $322 | $(72) | - Net loss increased by $8 million to $61 million, primarily due to the decrease in revenue from the prior year's patent sale, partially offset by reduced operating expenses and an improved gross margin percentage[225] Financial Condition Cash, Cash Equivalents, and Investments (in millions) | Metric | August 31, 2024 | February 29, 2024 | Change | | :----- | :-------------- | :---------------- | :----- | | Cash and cash equivalents | $171 | $175 | $(4) | | Restricted cash and cash equivalents | $17 | $25 | $(8) | | Short-term investments | $40 | $62 | $(22) | | Long-term investments | $37 | $36 | +$1 | | Total | $265 | $298 | $(33) | Working Capital (in millions) | Metric | August 31, 2024 | February 29, 2024 | Change | | :----- | :-------------- | :---------------- | :----- | | Current assets | $438 | $508 | $(70) | | Current liabilities | $305 | $356 | $(51) | | Working capital | $133 | $152 | $(19) | - The decrease in current assets was primarily due to a $49 million decrease in accounts receivable and a $22 million decrease in short-term investments[233] - The decrease in current liabilities was mainly driven by a $33 million decrease in deferred revenue and a $10 million decrease in accounts payable[233] Contractual and Other Obligations (as of August 31, 2024, in millions) | Obligation Type | Total | Short-term (next 12 months) | Long-term (>12 months) | | :-------------- | :---- | :-------------------------- | :--------------------- | | Operating lease obligations | $60 | $18 | $42 | | Purchase obligations and commitments | $48 | $48 | $0 | | Debt interest and principal payments | $227 | $6 | $221 | | Total | $335 | $72 | $263 | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section details BlackBerry Limited's exposure to market risks, specifically foreign exchange, interest rate, and credit/customer concentration risks, which the Company actively manages through hedging activities for foreign currency and by investing in liquid, investment-grade securities, while continuously monitoring customer creditworthiness - The Company is exposed to foreign exchange risk, with 26% of cash, 26% of accounts receivable, and 73% of accounts payable denominated in foreign currencies as of August 31, 2024[244] - Interest rate risk arises from fixed-rate investments and financing components in customer contracts, as well as the fixed-rate Notes, with no current use of interest rate derivative instruments[245][247] - Credit risk is managed by investing in liquid, investment-grade securities and monitoring customer financial condition; one customer comprised 11% of revenue for the three months and 12% for the six months ended August 31, 2024[248] ITEM 4. CONTROLS AND PROCEDURES As of August 31, 2024, BlackBerry Limited's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective in ensuring timely and accurate reporting of information required under the Exchange Act, with no material changes to internal control over financial reporting occurring during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of August 31, 2024[249] - No material changes to internal control over financial reporting occurred during the three months ended August 31, 2024[250] PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS This section refers to Note 9 of the Consolidated Financial Statements for details on BlackBerry Limited's ongoing legal proceedings, which include various litigations in the normal course of business, such as class action lawsuits - Information regarding legal proceedings is detailed in Note 9 to the Consolidated Financial Statements[251] ITEM 5. OTHER INFORMATION This section states that neither BlackBerry Limited nor its officers or directors adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements for the sale of common shares during the three months ended August 31, 2024 - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by the Company or its officers/directors during the three months ended August 31, 2024[252] ITEM 6. EXHIBITS This section lists the exhibits filed with the Form 10-Q, including employment and separation agreements, certifications from the CEO and CFO, and XBRL-related documents - Key exhibits include employment agreement with Tim Foote, separation agreement with Steve Rai, and certifications from the CEO and CFO[252][253] - XBRL instance and taxonomy extension documents are also filed as exhibits[253]