The Market Ticker
Commentary on The Capital Markets- Category [Earnings]

After a sharp gyration in the pre-market when the release hit the tape the shares on a tear today, reversing the sell-off from yesterday.  Given the actual release it's not hard to see why.

Q2 Highlights:

• Cash and investments balance of $3.1 billion at the end of the fiscal quarter, up $11 million from the prior quarter

• Normalized cash use of $36 million in the quarter, compared to $255 million in the prior quarter

• Non-GAAP gross margin of 47.5%, driven by positive non-GAAP hardware gross margin 

• Breakeven non-GAAP operating margin

• The EZ Pass Program has resulted in a total of 3.4 million licenses issued for BES10, a nearly three-fold increase from last quarter, with 25% of total licenses traded in from competitors’ Mobile Device Management platforms

• 91 million monthly active BBM users, up from 85 million in the prior quarter

• Created the BlackBerry Technology Solutions unit, encompassing QNX (embedded software), Certicom (cryptography), Paratek (antenna tuning), the patent portfolio and the Internet of Things strategy

• Announced an agreement to acquire Secusmart, a leader in high-security voice and text encryption, and recently announced the acquisition of Movirtu, a provider of virtual SIM solutions, after the end of the quarter

The firm shipped and sold through a bit over 2 million devices.  However, the Passport sold out over 200,000 units in both their online store and Amazon almost immediately on launch day Wednesday -- against their last quarter selling 10% of that volume direct to customers in a couple of hours with no carrier "skim-off" or subsidy is pretty damned impressive.

I didn't get one, by the way; I was too slow and I'm not considered a "privileged" journalist (and thus wasn't given one to review "cutting the front of the line.")  Yes, I'm buying one when I can get my grubby paws on a unit.

But that's just part of the good news.  The BES10 licenses are a big deal, as that was one of the question marks that many have had: Can BlackBerry penetrate the mobile device management business, and can they steal customers from competitors in the process?  The answer to both appears to be yes.

Questions about financial stability appear to be behind the company.  Cash balance went up, and not through one-off events like selling debt either.  Operationally the firm is extremely close to cash-flow breakeven on a non-GAAP basis and appears to be well-positioned to meet the metric Chen had put forward of doing so on a GAAP basis within the next couple of quarters.  Finally, BBM usage continues to grow.

As I noted the other day I believe one of the 900lb Gorillas in the room is in fact Blend, as it is something nobody else has.  While BES10 and 12 are very important on a forward basis Blend may well be a corporate driver of handset sales, which nobody has modeled as a material part of the firm's operating profit going forward.

I believe that's a mistake -- and one that, if I'm right, won't be recognized for another couple of quarters as it will be approximately then that 10.3.1 is out for everyone and the Classic has launched.

In the meantime the revenue coming from BES10 and the upcoming launch of 12 in another couple of months is coming online and that should be expected to accelerate.  That a quarter of the licenses coming in are from robbing competitor customers is a strong positive indicator of market acceptance.

These guys aren't done folks -- not by a long shot.

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