BlackBerry Earnings Call Insights: Cash Flow Movements and Quarterly Taxes

BlackBerry (NASDAQ:BBRY) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Cash Flow Movements

Peter Misek – Jefferies & Co.: Just a couple of quick questions here. Firstly, more of a housekeeping item to understand cash flow movements. So just again, you sold through almost 2 million more units than you shipped, which implies channel inventory obviously was down 2 million, and you’re talking about basically operating cash flow breakeven in next quarter, which also implies no channel inventory; meaning, or said another way, you’re selling through absolutely every item you’re building. Can you confirm that logic makes sense and doesn’t that mean that you’re being a little conservative on the cash flow side? And then secondly, just on your marketing going up 50%; marketing as part of SG&A, can you help us understand, if we look at the SG&A item, how much that is going up? And then lastly, on services revenue, you guys lost around 3 million subs, you’ve articulated how those broken by geography, but more interested to understand how on the corporate side that’s been looking and how the adoption of your mobile device management strategy has been working.

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Brian Bidulka – CFO: I’ll take the first one, Peter, on the cash flow. Your logic is roughly correctly, although I wasn’t entirely sure on one of your points, but we are planning to invest in the launch and that’s one of the big cash drivers in the quarter, but also just inventory build-out and just our whole cash flow conversion cycles where we are expecting to see some impact on our cash position. But as I mentioned, we continue to believe we are going to maintain that strong cash position throughout Q1.

Thorsten Heins – President and CEO: This is Thorsten. There are a lot of questions. Let’s try to address them really briefly. On the marketing side, I mean, no doubt that we have to market BlackBerry 10 strongly and that’s what we will be doing. So, I think this is a very meaningful investment of ours into brining BlackBerry 10 to market and we are actually very fully supportive of those expense and we see good feedback on that one. On the Enterprise, where is the 3 million subscriber loss coming from, our data show that it’s actually mostly coming out of what we call the prepaid segment with the strong interest from our corporate customers in maintaining the BES installed base because it means something to them; it means security, it means reliability, it is network connection. And I think the numbers are reported in terms of customers signing up for the BES 10 and BB 10 get ready program. It’s testament to them and supporting us in the corporate domain.

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Quarterly Taxes

Ehud Gelblum – Morgan Stanley: A couple of quick things. First of all, Brian, if you can go back over the taxes this quarter. I didn’t quite get it. Last quarter you actually called out the income tax benefit you got of $166 million. This quarter you had $112 million of positive on the tax line and I just want to understand is it all R&D tax credit, so just kind of a clarification there, and is there any way we can kind of normalize that as to what it otherwise would have been? And then, on the back to subscribers, EMEA subs fell, I was under the impression that was a decent part of the BlackBerry 10 launch, and just want to understand what the trend is over there. Are there prepaid markets that are falling? Despite the BB 10 launch, I would’ve thought we would have seen a little bit – more of a stable platform over there. And then Latin and EMEA on the same thing, those were going up and are they going up for – because of BlackBerry 10 or they were going up because we’re still shipping BlackBerry 7, and maybe even BlackBerry 6 units into those markets? Maybe you can give us kind of a sense as to the health of the BlackBerry 6 or BlackBerry 7 shipments into those markets that would be great.

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Brian Bidulka – CFO: Okay, I’ll take the first one on the taxes. So, the tax benefit, you’re right, last quarter we pulled it out because it was a one-time event on our international tax restructuring. This quarter, it’s more just tax loss carrybacks, but a large portion of it was R&D tax benefits, including enacted rate or R&D benefit changes that happened in the U.S. in the quarter. So that was part of that. And just on a normalized rate going forward, it’s difficult when you’re in that – the loss position on that actual tax provision, but normally that we’ve talked around the 25% rate on a normalized basis on earnings for the tax rate going forward.

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Thorsten Heins – President and CEO: Okay. On the question regarding the subscriber number, one general comment I would like to make here is, we’ve reported subscriber numbers for quite some time. I think actually what’s really important is for all of us to understand is what’s the dollar value that we generate out of that subscriber base. And I talked in my speech about moving to a different business model on the services, and we’re innovating and developing new services as we speak. So I just want everybody to have that in mind. At the end of the day, it’s about the dollar number that’s being created. So, the BlackBerry 10 introduction is very successful in those markets, but I think we discussed that in prior earnings calls that there is a different business model to some of the revenue fees was BlackBerry 10 than it was for BB 7. So the uptake you see in LatAm and other regions on subscribers is actually really attributed mostly to the BlackBerry 7; so still selling strong in those regions, and on the BB 10 side, we see a strong uptake, both in consumers and in enterprises. But the split between what is registered as a subscriber or not is changing and we know it’s changing and that’s why we’re adapting our business model. But I also said in my speech that we are managing that service schedules decline very, very thoughtfully with our carrier partners, that’s why we only had a reduction of 2% in this quarter and we will – we’re expecting a decline of maximum single-digit percentage number in the coming quarters.

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