BlackBerry misses revenue forecast in latest quarter, vows to return to sales growth

BlackBerry (NASDAQ:BBRY) reported a narrower net loss for its fiscal third quarter and said it continues to expect to achieve profitability sometime in its next fiscal year. However, although the firm is nursing itself back to financial health, the company's revenue fell off sharply in its most recent quarter and the firm only sold 2 million BlackBerry smartphones in the period.

In its most recent quarter, which ended Nov. 29, BlackBerry posted a net loss of $148 million, down from a massive loss of $4.4 billion in the year-ago period, when it booked $4.6 billion in charges related to asset-impairment, inventory charges and restructuring following the company's bungled efforts to launch its BlackBerry 10 platform in the consumer market.

Adjusted to exclude certain items, BlackBerry posted a profit of $6 million in the quarter, which was better than analyst had expected, according to a Thomson Reuters poll cited by the Wall Street Journal.

BlackBerry produced normalized positive cash flow of $43 million in the quarter, which was a quarter earlier than promised, according to Bloomberg. The company continues to anticipate break-even or better cash flow from operations.

Nonetheless, the company faces significant headwinds as it looks to recapture market share in the enterprise and government markets. Total revenue clocked in at $793 million, down nearly 34 percent from $1.19 billion a year ago and below analysts' expectations for revenue of around $932 million, according to the Journal.

Around 46 percent of the company's revenue in the quarter came from hardware, 46 from services and 8 percent from software and other revenue. During the third quarter, the company recognized hardware revenue on around 2 million BlackBerry smartphones (compared to 2.1 million in its fiscal second quarter). During the fiscal third quarter, the company said around 1.9 million BlackBerry smartphones were sold to end customers (down from 2.4 million in the fiscal second quarter).

The company was selling out its inventory of older BlackBerry 7 smartphones in the quarter, which lowered its average selling prices and depressed revenue. BlackBerry expects hardware revenue to ramp up as its sells higher-margin phones like the square-shaped Passport and new Classic phone.

"We achieved a key milestone in our eight quarter plan with positive cash flow. We also attained another important milestone in the release of our new enterprise software products and devices," BlackBerry CEO John Chen said in a statement. "Our focus now turns to expanding our distribution and driving revenue growth."

Chen expanded on those comments during a conference call with analysts, and said that the company's revenue "is not satisfying." He noted that the company has focused on improving margins and cash flow this year and now needs to focus on growing sales.

"Sustainable profitability can only come from revenue growth, and that is our strategy here," Chen said.

BlackBerry this week formally unveiled its new Classic smartphone, an upgrade to its iconic Bold smartphone with a physical Qwerty keyboard and trackpad. The company is partnering with AT&T Mobility (NYSE: T) and Verizon Wireless (NYSE: VZ) to release the Classic--notable since only AT&T launched the previous Passport phone in the U.S. However, while the Classic is available today through Amazon.com and BlackBerry.com for $449 without a contract in the U.S., BlackBerry's U.S. carrier partners have not yet announced Classic pricing or availability.

Chen said BlackBerry is looking to re-engage with carrier partners that may not have worked with the company in a while. "If they treat us respectfully I will definitely do anything I can to reciprocate that," he said.

Chen said that pre-orders for the Classic are trending ahead of what the company experienced with the Passport a few months ago. The Passport is now available in 48 countries, Chen said, though he added that North America and Europe have accounted for 61 percent of Passport sales to date.

The company last month released its cross-platform BlackBerry Enterprise Service 12 solution in a bid to win back major enterprise and government customers that may have transitioned to other enterprise mobile device management vendors like AirWatch and Mobile Iron in the past few years. Chen said that BES 12 now supports Google's (NASDAQ:GOOG) Android 5.0, or Lollipop, software.

To help spur adoption of BES 12, BlackBerry launched an "EZ Pass" program this past spring, which lets customers trade in their licenses and move from BES and other mobile device management platforms to BES 10. For existing BlackBerry customers, the EZ Pass program matches any active existing on-premise BES license and any active license customers may have from other MDM vendors, with a corresponding Silver BES 10 perpetual license, though terms and conditions apply. Customers also receive free Advantage level technical support with their new license.

Chen said BlackBerry is going to end the EZ pass program at the end of this month as it looks to convert customers that switched into revenue-generating customers. Typically, he noted, it takes six to nine months for enterprises to make the kind of switch to BES 12 that BlackBerry is hoping they will.

Chen said large companies like Boeing, Bombardier, McKinsey and Tata Energy have signed onto BES 12. The company has 89 customers in BES 12 beta trials and 174 customers plan to launch beta trials in the next 12 months. Chen noted 70 percent of all beta customers support smartphones running multiple operating systems, including Apple's (NASDAQ:AAPL) iOS and Microsoft's (NASDAQ:MSFT) Windows Phone. BlackBerry has received 4,900 customer registrations for EZ Pass, 1,300 more than when BlackBerry reported on the figure last quarter.

To date, BlackBerry has a total of 6.8 million licenses issued for BES 10, a 100 percent increase from last quarter. Around 30 percent of the company's total licenses are from competitors' mobile device management solutions.

Chen said in the next fiscal year the company plans to double its software revenue, something that should start showing up in its results by next June. 

For more:
- see this release
- see this WSJ article (sub. req.)
- see this Globe and Mail article
- see this Bloomberg article

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