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BlackBerry Earnings: Growth Slows

By Daniel Sparks - Sep 24, 2019 at 8:41PM

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The company managed to break even on an adjusted basis, despite increased investments. But management cited "softness" in one key area.

Digital security company BlackBerry ( BB -3.66% ) reported its fiscal second-quarter results before the market opened on Tuesday. A deceleration in quarterly revenue growth and a more moderate view from management for full-year revenue spooked investors, sending the stock plummeting lower.

The company saw double-digit top-line growth and managed to break even on a non-GAAP basis, despite sharply higher spending on sales and product development aimed to capitalize on growth opportunities. But the company said its enterprise software and services (ESS) business performed below its expectations.

A man cups his hand around a shield with a check mark inside it.

Image source: Getty Images.

BlackBerry's second-quarter results: The raw numbers

Metric

Q2 2020

Q2 2019

Change

Non-GAAP (adjusted) revenue

$261 million

$214 million

22%

Non-GAAP EPS

$0.00

$0.04

(100%)

Non-GAAP gross margin

75%

78%

(300 basis points)

Data source: BlackBerry's fiscal second-quarter resultsGAAP = Generally accepted accounting principles. Fiscal years shown. 

What happened with BlackBerry this quarter?

The tech company's fiscal second-quarter non-GAAP revenue increased 22% year over year to $261 million. This was a slight deceleration from 23% growth in fiscal Q1. Non-GAAP software and services revenue, which accounts for the bulk of the company's top line, increased 30% year over year to $256 million. That was notably below its fiscal first-quarter non-GAAP software and services revenue of $260 million.

Importantly, the company's recurring software and services revenue, or software and services revenue excluding intellectual property licensing and professional services, once again represented more than 90% of total revenue.

The company's non-GAAP earnings per share worsened from $0.04 to $0.00, as research and development and sales, marketing, and administration expenses increased sharply.

What management had to say

"In the quarter, our QNX, Cylance, and licensing businesses executed at or better than our expectations," said BlackBerry CEO John Chen in the company's second-quarter earnings release. "We achieved breakeven non-GAAP earnings per share and generated free cash flow even with increased investments in sales and product development to support future growth."

But Chen said in the company's fiscal second-quarter earnings call that it saw "softness" in its ESS business. "The softness in our ESS business is primarily due to the retooling of our sales force," the CEO said.

Looking forward

The company guided for full-year fiscal 2020 non-GAAP revenue to grow 23% to 25% year over year. That compares with a previous forecast for 23% to 27% growth. The lowered outlook reflects expectations for the impact of the company's revamping of its sales force. Chen expects softness in ESS to persist for another two quarters as it works through this "retooling."

Notably, Chen said in in the company's second-quarter earnings release that the company has "a number of exciting new product launches in the next six months."

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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