BlackBerry: On Track To Financial Stability

Jun.19.14 | About: BlackBerry Ltd. (BBRY)

Summary

GAAP Net income of $0.04 per share.

Enterprise initiatives are on the rise.

QNX and BBM mobile payments mature.

Today is a pivotal day for BlackBerry (NASDAQ:BBRY), as investors receive new information on the path of recovery. BlackBerry's CEO John Chen has repeatedly stated that the company will be cash flow-positive by the end of this fiscal year. To accomplish this, BlackBerry has to show that most of the write-downs are finished relating to last year's BB 10 smartphones. As the new smartphones are being manufactured by Foxconn (OTC:FXCOF), the financial bleeding should cease when BlackBerry turns the corner.

The focus is shifting to the enterprise solutions and what value the new CEO can bring for shareholders. John Chen has been focusing on business-to-business customers through its enterprise solutions. There have been many announcements in recent weeks highlighting this new direction; such as Project Ion and the "Internet of Things".

Financial Data for First-Quarter 2015

Revenue: $966M

39% Hardware, 54% services and 7% software

GAAP net income $23M, or $0.04 per share

Non-GAAP net loss $60 million, or $0.11 per share

Gross margin has increased to 48%, from the previous quarter of 43%

Revenue saw a slight decrease to $966 million, which was a small decrease of 1% from the previous quarter. This is not a concern, as revenue has been relatively stable, and the attention is on costs.

Liabilities have substantially decreased from the last fiscal quarter. Accounts payable has decreased to $261 million from $474 million in the previous quarter. This is a result directly related to costs incurred in the BB10 smartphone manufacturing arena. Purchase order obligations with contract manufacturers are currently at $317 million. This has resulted in a decrease in the adjusted operating expenses by 57% year-over-year, and a 13% decrease from the previous quarter.

Total cash has increased to $3.1 billion from $2.7 billion. This brings BlackBerry's cash reserves in line with values prior to the BB10 crisis. It is important to note that this metric is now skewed, due to the fact that BlackBerry has debt owed to Fairfax (OTCQB:FRFHF) and associated parties.

The previous issue with Venezuela has been rectified, and all accounts have been settled.

The number of handheld devices sold this quarter has increased to 1.6 million from 1.3 million the previous quarter. This metric is no longer a concern, as BlackBerry has been relegated to a niche market for handheld devices. Since the focus is now on enterprise solutions, BB10 smartphones are only required in a supporting role.

New Incentives

BlackBerry is pushing forward with many new initiatives that are centered on the core strengths of security and enterprise solutions. Some projects have already been announced, but are being formalized in the coming months. We should see new venture announcements every 30 days over the next two fiscal quarters.

To support the existing BB10 platform, BlackBerry will be bringing in the Amazon App store to increase the availability of Android apps.

BBM Windows is scheduled to be released in July, and this should assist the deployment of the new mobile payment system called BBM Money. This new venture has the support of Canada's top three telecoms: Rogers, Bell and Telus. Financial transaction support is being provided by MasterCard (NYSE:MA), Visa (NYSE:V), Royal Bank of Canada, Toronto-Dominion Bank and CIBC.

BB10 has brought QNX to the attention of many. BlackBerry is building on this attention, with the anticipated release of QNX cloud in September of this fiscal year. Security is a big part of the system, and the Security Summit is planned for the next fiscal quarter in New York City. The venue has not been confirmed, but is planned for the month of September.

Moving Forward

CEO John Chen stated in this quarter's financial statement:

"Our performance in fiscal Q1 demonstrates that we are firmly on track to achieve important milestones, including our financial objectives and delivering a strong product portfolio"

This is the same message that shareholders have been hearing for the past few months, and it is refreshing that the financial statements support this. We still have three financial quarters to go before we see John Chen's plan come to fruition.

The stock price has increased by 10% in the before-hours market. In the short term, we should see a gradual rise in share price into the low teens.

Disclosure: The author is long BBRY. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.