BlackBerry (BBRY) Q2 2015 Results Earnings Call Transcript

September 30, 2014 12:25 am | By More

John Chen, BlackBerry’s Chief Executive Officer discusses Q2 2015 earnings results in a conference call held on September 26, 2014.

Edited Transcript of BlackBerry (BBRY) Q2 2015 Earnings Conference Call..

Company: BlackBerry (BBRY)

Event Name: Q2 2015 Earnings Conference Call

Date: September 26, 2014, 08:00 AM ET

BlackBerry (BBRY)Q2 2015 Earnings Call – Webcast audio

 

Operator

Good day, and welcome to the BlackBerry second quarter 2015 results conference call. Today’s conference is being recorded. At this time I would like to turn the conference over to Joe del Callar. Please go ahead sir.

Joe del Callar – Head of Investor Relations

Thank you, operator. Welcome everyone to BlackBerry’s fiscal 2015 second quarter results conference call. With me on the call today are Chief Executive Officer, John Chen and Chief Financial Officer, James Yersh. After I read our cautionary note regarding forward-looking statements, John will provide a business update and James will then review the second quarter results. We will then open up the call for questions.

In order to let as many people as possible ask questions, please limit yourself to one question. This call is available to the general public via call-in numbers and via webcast on the investor relations section at blackberry.com. The webcast can be accessed through your BlackBerry 10 smartphone, your personal computer, or your BlackBerry PlayBook tablet. A replay of the webcast will also be available on the blackberry.com website.

Some of the statements we will be making today constitute forward-looking statements and are made pursuant to the Safe Harbor provisions of the U.S. Private Securities Legislation Reform Act of 1995 and Canadian securities laws.

We will indicate forward-looking statements by using words such as expect, plan, anticipate, estimate, may, will, should, forecast, intend, believe, continue and similar expressions. Forward-looking statements are based on estimates and assumptions made by the company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors that the company believes are appropriate under in the circumstances.

Many factors could cause the company’s actual results, performance, or achievements to differ materially from those expressed or implied by the forward-looking statements, including the risk factors relating to the company that are discussed in the Risk Factors section of our annual information form, which is included in the company’s annual report on Form 40-F and the company’s MD&A, copies of which filings may be obtained at www.blackberry.com.

These factors should be considered carefully and you should not place undue reliance on the company’s forward-looking statements. The company has no intention and undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

I will now turn the call over to John.

John Chen – CEO

Okay, thank you, Joe. Good morning everybody and welcome. Thank you for joining us. Let’s just start right into the quarter.

This quarter from all our key operating measures, was happened to be a very solid quarter. I like to highlight a few things that we were particularly pleased with.

The focus on margins enabled us to achieve a non-GAAP operating profit. Our non-GAAP loss per share narrowed down — significantly down to $0.02 a share which of course compare that to the $0.11 a share last quarter.

Our cash balance, we maintained at $3.1 billion and we dramatically lowered our use of our cash from normal operations to $36 million and may I remind you that was from $255 million cash use of last quarter. We added over a million new users to Blackberry 10 in the quarter.

And lastly, I am pleased to point out that the hardware business turned in a non-GAAP gross profit for the first time in five quarters which is slightly ahead of our expectation. This is, of course, directly as a result of our supply chain efficiencies, the improvement in our distribution channel and the strong focus on margin and of course much more work needs to be done and could be done there.

Revenue came in within our range, at the low end of our range. I like to spend a minute or so to just highlight a few factors that affected the revenue this quarter.

First, you know we are all as a team very focused on margin and so we have chose to turn down — and throughout the quarter a few lower margin deals.

Secondly, it’s our plan to aggressively shift our software business from the perpetual license to a subscription base. So as most of you were familiar with this know the fact that subscription although have a lower revenue in the current quarter but build a much larger and more repeatable revenue stream for future quarters.

We are definitely in the first half of what I refer to the eight quarters recovery and from a revenue standpoint we might not be at the lowest point but we are near the bottoming of those revenue. I will make some comments about that later this morning.

Now let me spend a little bit time on the growth part. We had obviously done with our workforce restructure portion of our plan that was a well leaked document and we are now making judicious investment in growth. Most specifically we are focusing on the following four areas.

So first let me start with hardware.

As I mentioned earlier we turned to profit this quarter. Last quarter, we successfully launched the Z3 as you may all know, I think it’s May 12, in Indonesia and since then 12 more countries had been launched including India, Philippines, the UAE and South Africa.

Demand of the products continues to be strong. In fact, I think our demand is pacing supply at this point –outpacing supply at this point. We have plans to roll out in 10 more countries beyond this point. We just – so that was about the Z3.

Couple of days ago we launched Passport in three cities around the world “simultaneously”. And I’m very pleased to announce that we already have orders over 200,000 Passports as we enter the day.

For the U.S. the Passport is available Unlocked on Amazon and blackberry.com. If you all know we price the phone at $599 U.S. in the United States and $699 in Canada. And at this level the device is profitable, because many people — I point this out because a lot of people have asked me about this question.

We have extremely good receptivity for the product. It’s sold out on blackberry.com within six hours and sold out within 10 hours on amazon.com. In fact, I believe we were the number one selling Unlocked smartphone on Amazon on the day that before it was sold out.

The engineering team is now working hard on the Classic which some of you who attended the Toronto event had a glimpse of that, which currently I am using and testing personally, and we expect to launch this product before the end of the year.

We also have a very strong roadmap beyond the Classic. I think, I’m going to talk about that a little bit more in detail at the Mobile World Congress in March and I will see you guys in Barcelona for those of you interested in looking at those.

Moving on to the Enterprise software side. I think the highlights of the quarter are definitely the success of our EZ Pass Program. It has been extremely successful. We added 3500 total registration — customer registration. By the end of Q1, just as a reminder, 90 days ago or a little more than 90 days ago, 120 days ago we were at 1.2 million license traded in, by the end of last quarter 3.4 million license has been issued, about three times the number in our last earnings call.

And we could just look at the math a little bit. The quarter brought in 2.2 million new licenses, over 900 new customers. So we are seeing a much more bigger global companies signing on with BlackBerry.

Of the 3.4 million licenses, 840,000 licenses has been traded in from our competitors, such as Mobile Iron, Good and AirWatch, this is 25% of the total license. And this of course jumped from 10% of the total license from competitors a quarter ago.

With such a strong uptick of our EZ Pass Program and our upcoming release of BES 12 in November, we are potentially considering ending the EZ Pass Program earlier than January like we originally intended to. We currently have 70 customers in our beta program on the BES 12 many of whom are Fortune 500.

Now moving onto the value-added service, which as a reminder to everybody, is our part of the strategy to grow the value-added services to replace the decline on the service activation fee or known as the SAF. We just introduced – so a couple of key points there. We just introduced Blend, which is our secure unified communication platform. It is now available free for all the BlackBerry device who are on BB10.3 releases and on iTunes and Google Play.

The receptivity again has been tremendous in the last few days and we have enterprise and we have a pretty strong plan in attacking the enterprise space for monetizing these features. We are releasing also later on this year, releasing the identity management software, which is of different from Blend but in tandem with Blend.

We also know that many customers want to access cloud services like Box and Workday, so we want to have our customer do this in a secure manner with our identity management solution, this is part of that release.

Other products that have been introduced and will be introduced over the next 90 days will include the BBM Protected, BBM Meetings and BBM Money.

BBM now reported 91 million monthly active user, MAU which is up 6% from a quarter ago, and 44% by the way over a year ago. We also recently released BBM on the Window Phone. We started generating revenue for BBM Protected in finance, government and healthcare vertical already. And we also expect to launch the BBM Protected on iOS and Android later in the year.

In addition to the internal value added services investment which we talk about, which was Blend and identity management and the BBM part. We have been making some acquisitions, strategic acquisitions; particularly I like to point to the two of them in the past 90, 120 days.

First, we acquired company in Germany by the name of Secusmart, which should be closed with the government regulatory approval assuming we get the government regulatory approval by the end of the year, which will provide us a secure voice and text communication.

To put a little bit in context, BlackBerry has always been known as the leader in secure data with all the encryption technology and so forth. And of course we have the BBM Message which is highly secure, so we have data and messaging covered. With this acquisition we also cover voice and text, thereby we believe we have covered all the medium of the communication interactions.

The second company acquired is Movirtu. Movirtu is a UK based company. They provide a virtual Sim solution that allow users to have both the corporate or personal number on a single device. The single device could be Apple iOS, could be Android and could be BlackBerry device. This is what we’ve been hearing from a lot of our customers wanting to implement a secure BYOD Solutions and also help them to facilitate the split-billing solutions.

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