Blackberry (BBRY) Q2 Fiscal 2017 Earnings Call

Blackberry (BBRY) CEO John Chen feels like the turnaround at the company is gaining traction

“Coming out of Q2, I feel that we are reaching a good inflection point where our financial picture is stable and our pivot to software taking hold.”

And he announced they no longer will be manufacturing phone handsets

“BlackBerry will focus on providing state-of-the-art security and device software. BlackBerry will discontinue internal hardware development and fully outsource this function to the third-party. BlackBerry will receive royalty per unit.”

By outsourcing their hardware manufacturing, they hope to increase returns on capital and reduce expenses 

“So with what I announced today, we will end that activity and rely completely on partners. So working with partners, relying is too strong a word, and working with them to make sure their hardware portfolio is up to spec and competitive, is of course reduce a lot of expenses, not only on operating expenses, but capital that we talk about, we don’t have inventory we need to carry anymore. So it’s a long list of savings, you know, people, equipment and so forth.”

Blackberry FY 2Q16 Earnings Call Notes

BlackBerry’s (BBRY) CEO John Chen on Q2 2017 Results

Exiting hardware development business

“Coming out of Q2, I feel that we are reaching a good inflection point where our financial picture is stable and our pivot to software taking hold. In line with this pivot, we are announcing a new strategic direction in our mobility solutions business, focused on developing and licensing of our security device software as well as the BlackBerry brand. As part of this strategy, we have decided to discontinue all the handset hardware development, only hardware, and to leverage third-party partners to provide that function, I’ll provide some details little later.”

New CFO

“You are all aware by now that James Yersh has decided to leave BlackBerry for personal reasons. James has been with the company since 2008 and our CFO since November 2013 when I came on board.”

What the announcement means

“We really have not outsourced all our development – hardware development or handset development effort. We are taking one or two products outsource it to others, but we’ve been developing our own handset also. So with what I announced today, we will end that activity and rely completely on partners. So working with partners, relying is too strong a word, and working with them to make sure their hardware portfolio is up to spec and competitive, is of course reduce a lot of expenses, not only on operating expenses, but capital that we talk about, we don’t have inventory we need to carry anymore. So it’s a long list of savings, you know, people, equipment and so forth.”

 

Blackberry 2Q15 Earnings Call Notes

CEO John Chen

We continue to lead in mobile security

“The key takeaway here is really that we continue to lead in mobile security and now we are bringing the BlackBerry security know-how into the Android ecosystems. As a result, we believe we can address a larger and growing segment of the enterprise space and we believe we could be a leader in this space.”

Directly addressing analyst research

“I need to clarify two misperceptions from reading the research notes from our Good announcement.”

Discussion of contract manufacturers taking on “unique parts exposure”

” we have both arrangements. We have ones that we will take inventory, or at least parts — I call it the unique parts exposure. Then we have one that we don’t, as you well know. So this, of course, will continue, whether it’s an Android device or a BlackBerry 10 device. So there’s no difference here.”

We’ve stabilized cash flow, now we have to stabilize revenue

“Remember, we all said about a year ago, we were talking about stabilizing the company, the business, and focusing on cash flow from operation. I think we have accomplished that. This year, as we said, we’re going to stabilize the revenue, and unfortunately, we have a really low point here. But we do expect Q3 to level up and maybe even up a little bit, and then Q4 to go up from that level, and as I pointed out, I think we are all very focused on one key psychological win which is our software revenue eventually will cover these — the growth will cover the decline of the SAF and those two equations will converge, maybe that’s a way to put it. And that we expect in Q4.”

We’re still on plan

“We have some very exciting products that we are developing in house here. We haven’t seen the full impact of our IoT investment and that will come. So yes, I’m still on my plan.”


CFO

Changing some financial reporting

“Before I dive into our details, as you probably noticed, we are changing our non-GAAP income statement presentation to exclude purchase accounting deferred revenue write-down, stock based compensation expense, and amortization of purchased or acquired intangibles as part of the M&A transactions.”

JS Conference Call Notes BBRY

Jeremy S., an investment analyst in Southern California, has started to contribute to Avondale’s company notes database. Below are quotes from some of the calls that Jeremy has read this week.

 

Blackberry (BBRY) is attempting to shift its strategy from a legacy phone manufacturer to a software firm under CEO John Chen.  For those unfamiliar with John Chen’s background, he is the former CEO of Sybase which he sold to SAP in 2010 for $5.8 billion, ultimately generating a 28 percent compounded annual growth rate during his 13 years as CEO at Sybase.  He also currently sits on the Board of Directors at Disney & Wells Fargo.  Chen believes a profitable turnaround and strategy shift at Blackberry is within reach next year and outlined his steps to simplify and streamline the business.  

“On the handset front, we are taking steps to get the business to profitability. A few key actions were taken in the quarter. Number one, we have reduced our spending in hardware through some level of reorganization. Number two, we moved some hardware resources to our software and our Internet of Things efforts.”

Blackberry CEO John Chen went on to emphasize the firm’s emphasis on security

“So I would like to say a few words about security, as it related to cyber security and our mobile security software. In the quarter we made a lot of progress investing in the security strategy, starting with the acquisition of WatchDox. To put this acquisition in context, BlackBerry focuses to expand our leadership in mobile security connectivity and communications. WatchDox expands our portfolio, allows us to protect documents on any device at rest or in transit, even after they left the network.”

Blackberry CEO John Chen said their QNX connected car platform continues to gain momentum

“Lastly, the number of smart cars now on the road using QNX solution is now over 60 million. And in the quarter we also released our features on over the air, the OTA, and I think this represents a very large opportunity for that product.”

Blackberry CEO John Chen said governments continue to embrace the Blackberry platform as security is of the highest importance in that particular sector

“A lot of our customers are in highly regulated industries that are not willing for us to use their name, especially in government agencies. And it’s safe to say, most of all the Canadian government agency users are BES.”

Blackberry FY 1Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“Revenue for the first quarter of fiscal 2014 was $3.1 billion, up 15% from the fourth quarter, and up approximately 9% from one year ago.”

“We shipped 6.8 million smartphones in the first quarter, compared to 6 million in the fourth quarter, which represented a 13% increase. Approximately 40% of these devices were Blackberry 10 devices”

“Europe, Middle East, Africa, our largest region, represented 43% of revenue in Q1, and was up 9%. North America represented 25% of revenue, and was up 30%. Asia-Pacific represented 17% of revenue, and grew 35%, and Latin America represented 15% of our revenue, but was down 6% due to service revenues in Venezuela”

“For the second question of how do we feel about Blackberry 10 and the launch, I think I said this in my script. We’re doing what we said we would do, right? We are launching BES 10, Q10, Q5, more to come. We’re in the middle of it, right?

So it’s really too early to say. We’re building a portfolio right now. Against what my expectation was in Q1, we are performing, and from that perspective, I’m confident in the future of Blackberry 10.

But there’s lots of work to do, there’s lots of new products to be built, there are lots of new products to be launched. There’s lots of marketing campaigns to be generated. So it’s going to be ongoing effort. It’s not automatic.

I know sometimes you guys look at, you know, where is this one product that kills everything else? I tell you, it’s not out there. It is a very competitive market, it has several players. And you’ve got to be on your tippy toes all the time to perform, and that’s what we’re doing.

But we’re not ignoring competition either. And what we have done with Blackberry 10 is build a fantastic, differentiated user experience that users now latch onto. And that doesn’t happen from one week to the other. It doesn’t happen from one month to the other. And it actually doesn’t happen from one quarter to the other.

This a marathon, right? And we are ready, with the financials that we have under our belt, and we’re ready to run that marathon. And that’s what we’re doing. So I’m not looking at the short term. It’s important for me how the BB10 penetrates. It’s important for me how the BES 10 penetrates, and it’s important how is the BBM cross-platform coming along.”

“I love my board, but it’s the C levels in Blackberry that run the operations. And you know, we’re absolutely bang-on with what we wanted to do with the product. We’re executing as we speak. And, you know, whatever’s being discussed in the board room, I probably wouldn’t discuss that on public earnings call.

But I can tell you that we are in sync with our board. We all know what we’re up for here. We’re all together in this fight. And you know, we’re executing, and the last quarter has shown that we execute against what we say we would do in that very quarter. And that’s the only thing that matters at the moment to the board and to the executive management of Blackberry.”