BlackBerry (BB) issues update on seperation, profitability

BlackBerry Limited (NYSE: BB) today provided an update on the previously announced process to separate its IoT and Cybersecurity businesses as standalone divisions, and drive the Company towards profitability and positive cash flow.

Progress on Path to Profitability

As previously outlined, in the prior quarter BlackBerry took actions that, once fully realized, will reduce the annual cost run rate by approximately $50 million. These actions were largely focused on the Cybersecurity business and included approximately 200 headcount reductions.

During the current quarter, BlackBerry is taking further actions to streamline its cost structure. Within the Cybersecurity business, additional headcount reductions are expected to generate annualized savings of approximately $27 million and non-headcount actions an incremental $8 million. Efficiencies have been identified in all functions, but in particular within cost of goods sold and research and development. Backed by solid, industry-typical levels of R&D investment, the Cybersecurity business is executing on its exciting product roadmap in a focused and efficient manner.

Within G&A functions, actions are being taken during the current quarter to realize annualized run rate savings of approximately $20 million. As part of these savings, BlackBerry has exited 6 of its 36 global office locations, including San Ramon, California, which are expected to realize annualized savings of approximately $7 million. Other reductions in force are expected to realize annualized savings of approximately $13 million.

Costs associated with these actions in the current quarter are expected to total approximately $12 million.

Expected return to Positive Cashflow

In the current fiscal year, operating cash usage in Q2 was $56 million and improved significantly to $31 million in Q3. As previously outlined, BlackBerry expects a further sequential reduction in operating cash usage for the current, fourth quarter.

Given the cost-reduction actions taken, as outlined above, and anticipated further operating efficiencies during FY25, BlackBerry expects to maintain a positive net cash position throughout the coming fiscal year, despite the first fiscal quarter being a seasonal low for cash, and to be operating cashflow positive by Q4 FY25.

Progress with Separation

BlackBerry has made material progress towards establishing both the IoT and Cybersecurity business units as fully standalone divisions. The Company has established a Project Management Office, and appointed leading management consultants, Alvarez & Marsal, to assist with the process.

Divisional Chief Financial Officers, Chief People Officers and General Counsel for both the IoT and Cybersecurity businesses have been appointed and are in the process of establishing divisional back-office teams that will complement the already-standalone Sales, Marketing and R&D functions for each business.

Solid Balance Sheet

As previously disclosed, BlackBerry secured long-term financing last month through the issuance of convertible senior notes in the aggregate principal amount of $200 million. The Board was pleased by the significant level of interest in the offering and the Company will use the net proceeds primarily to repay $150 million of short-term debentures due on February 15, 2024. Following this repayment, BlackBerry will have reduced its debt by 45% compared to November 2023 and, with the planned return to positive operating cash flow, expects to be well-positioned with a solid balance sheet.

"I'd like to thank the BlackBerry team for the significant progress made towards separating our core businesses and achieving profitability and positive cash flow. The steps taken have required difficult decisions, and I appreciate the thoughtful, rigorous approach that has been adopted," said John J. Giamatteo, Chief Executive Officer, BlackBerry. "The Company is fully focused and working with urgency towards our goals. We're directing our resources where we believe we can maximize returns and continue to delight our customers. Our balance sheet is solid following the refinancing and we believe BlackBerry is well-positioned to execute on our strategy."

Investor Briefing Call

An investor briefing conference call and live webcast will be held tomorrow, Tuesday February 13, 2024, beginning at 8:00 a.m. ET, which can be accessed using the following link (here) or through the Company's investor webpage (BlackBerry.com/Investors) or by dialing toll free +1 (844) 512-2926 and entering Elite Entry Number 6312676. Slides used during the presentation will be available for download through the Company's investor webpage.

A replay of the conference call will be available at approximately 12:00 p.m. ET on February 13, 2024, using the same webcast link (here) or by dialing Canada toll free +1 (855) 669-9658 or US toll free +1 (877) 344-7529 and entering Replay Access Code 3593353.

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