RIM beats Q3 earnings; Q4 guidance worse than expected

Research In Motion on Thursday reported earnings for the third quarter of fiscal 2012. The struggling smartphone vendor announced earlier this month that it would miss its third-quarter guidance of between $5.3 billion and $5.6 billion in revenue, and it said EPS would likely be in line with the low end of its earlier guidance. The numbers are now in, and RIM pulled in $5.2 billion last quarter while recording earnings of $1.27 per share, or $667 million, beating its lowered guidance. RIM shipped 14.1 million smartphones in the third quarter, in line with its guidance of between 13.5 million and 14.5 million units, and sell-through came in below expectations at 13 million units. Net income dropped to $285 million from $911 million in the same quarter last year, and the vendor’s fourth-quarter guidance was worse than expected. Read on for more.

“RIM continues to have strong technology, unique service capabilities and a large installed base of customers, and we are more determined than ever to capitalize on our strengths to overcome the recent execution challenges surrounding product launches and the resulting financial performance,” the company’s co-CEOs said in a joint statement. “As part of our commitment to improving our performance to better meet the expectations of shareholders and customers, we continue to evaluate ways to improve in several areas of the Company’s operations. It may take some time to realize the benefits of these efforts and the platform transition that we are undertaking, but we continue to believe that RIM has the right set of strengths and capabilities to maintain a leading role in the mobile communications industry.”

RIM’s global subscriber base grew to nearly 75 million customers during the quarter, up more than 30% over the same quarter last year.

The lack of interest in RIM’s debut tablet, the BlackBerry PlayBook, has finally come to a head — RIM took a charge of $485 million related to unsold PlayBook inventory in the third fiscal quarter. The Waterloo, Ontario-based company only sold 150,000 PlayBook tablets into sales channels last quarter after selling 500,000 units in the first quarter and 200,000 in the second.

During the second quarter, RIM total cash and cash equivalents dropped from $2.9 billion to $1.4 billion due in large part to $780 million spent on Nortel patents. At the end of the third fiscal quarter, RIM’s available cash was up sequentially to $1.5 billion.

In the fourth fiscal quarter, RIM has forecast EPS of between $0.80 and $0.95 compared to the Street’s earlier $1.08 consensus, and the vendor anticipates revenue of between $4.6 billion and $4.98 billion compared to Wall Street’s $5.12 billion. Shares of RIM stock dropped 7% in after-hours trading on the news.

The company expects to ship between 11 and 12 million BlackBerry smartphones in the fourth fiscal quarter, and its full press release follows below.

RESEARCH IN MOTION REPORTS THIRD QUARTER FISCAL 2012 RESULTS

Waterloo, ON – Research In Motion Limited (RIM) (NASDAQ: RIMM)(TSX: RIM), a world leader in the mobile communications market, today reported third quarter results for the three months ended November 26, 2011 (all figures in U.S. dollars and U.S. GAAP, except where otherwise indicated).

Highlights:

– Revenue of $5.2 billion, up 24% from last quarter — BlackBerry smartphone shipments of 14.1 million, up 33% from Q2 — GAAP net income of $265 million or $0.51 per share diluted; adjusted net income of $667 million or $1.27 per share diluted — Subscribers up 35% year-over-year to almost 75 million — Cash flow from operations of approximately $895 million — Total of cash, cash equivalents, short-term and long-term investments of $1.5 billion

Q3 Results:

Revenue for the third quarter of fiscal 2012 was $5.2 billion, up 24% from $4.2 billion in the previous quarter and down 6% from $5.5 billion in the same quarter of last year. The revenue breakdown for the quarter was approximately 79% for hardware, 19% for service and 2% for software and other revenue. During the quarter, RIM shipped approximately 14.1 million BlackBerry smartphones and approximately 150,000 BlackBerry PlayBook tablets.

“Despite the challenges faced in the third quarter, the BlackBerry subscriber base grew to almost 75 million customers around the world. In addition, RIM launched a range of new BlackBerry 7 based smartphones globally and introduced holiday promotions that helped drive growth in the installed base of BlackBerry PlayBook users,” said Jim Balsillie and Mike Lazaridis, Co-CEOs at Research In Motion. “RIM continues to have strong technology, unique service capabilities and a large installed base of customers, and we are more determined than ever to capitalize on our strengths to overcome the recent execution challenges surrounding product launches and the resulting financial performance. As part of our commitment to improving our performance to better meet the expectations of shareholders and customers, we continue to evaluate ways to improve in several areas of the Company’s operations. It may take some time to realize the benefits of these efforts and the platform transition that we are undertaking, but we continue to believe that RIM has the right set of strengths and capabilities to maintain a leading role in the mobile communications industry.”

The Company’s GAAP net income for the quarter was $265 million, or $0.51 per share diluted, compared with GAAP net income of $329 million, or $0.63 per share diluted, in the prior quarter and GAAP net income of $911 million, or $1.74 per share diluted, in the same quarter last year. Adjusted net income for the third quarter was $667 million, or $1.27 per share diluted. Adjusted net income and adjusted diluted earnings per share exclude the impact of pre-tax charges of $54 million ($40 million after tax) to revenue related to the service interruption experienced in the third quarter, $485 million ($356 million after tax) for the PlayBook inventory provision taken in the third quarter and $7 million ($6 million after tax) for the Company’s cost optimization program that was implemented in the second quarter of fiscal 2012. These charges and their related impacts on GAAP net income and diluted earnings per share are summarized in the table below.

View data

Reconciliation of GAAP revenue and net income to adjusted revenue and net income (United States dollars, in millions except per share data) For the quarter ended November 26, 2011 —————————————- Revenue Net Income Diluted EPS (before (net of (net of taxes) income tax) income tax) —————————————- As reported $ 5,169 $ 265 $ 0.51 Adjustments: PlayBook Inventory Provision(1) – 356 0.68 Cost Optimization Program(2) – 6 0.01 Q3 Service Interruption(3) 54 40 0.07 —————————————- Adjusted $ 5,223 $ 667 $ 1.27 —————————————- —————————————

Note: Adjusted revenue, adjusted net income and adjusted diluted earnings per share do not have a standardized meaning prescribed by GAAP and thus are not comparable to similarly titled measures presented by other issuers. The Company believes that the presentation of adjusted revenue, adjusted net income, and adjusted diluted earnings per share enables the Company and its shareholders to better assess RIM’s operating results relative to its operating results in prior periods and improves the comparability of the information presented. Investors should consider these non-GAAP financial measures in the context of RIM’s GAAP results.

(1) During the third quarter of fiscal 2012, the Company recorded a pre-tax provision of approximately $485 million, $356 million after tax, related to its inventory valuation of BlackBerry PlayBook tablets. The charge was predominantly non-cash.

(2) Cost of sales, research and development, and selling, marketing and administration expenses included approximately $7 million in total pre-tax charges, $6 million after tax, during the third quarter of fiscal 2012 related to the cost optimization program to streamline operations across the Company. Included in the cost of sales, research and development, and selling, marketing and administration expenses for the third quarter of fiscal 2012 were approximately $1 million, $3 million, and $3 million, respectively, of pre-tax charges related to the cost optimization program.

(3) During the third quarter of fiscal 2012, the Company experienced a service interruption which resulted in the loss of service revenue and the payment of service credits in the quarter totalling approximately $54 million, $40 million after tax, related to the interruption in the availability of the Company’s network.

The total of cash, cash equivalents, short-term and long-term investments was $1.5 billion as at November 26, 2011, compared to $1.4 billion at the end of the previous quarter, an increase of $87 million from the prior quarter. Cash flow from operations was approximately $895 million and uses of cash included strategic purchases of intellectual property assets of approximately $375 million, and property, plant and equipment expenditures of approximately $205 million.

Q4 Outlook

Revenue for the fourth quarter of fiscal 2012 ending March 3, 2012 is expected to be in the range of $4.6-$4.9 billion. Gross margin percentage for the fourth quarter is expected to be approximately 38%. BlackBerry smartphone shipments are expected to be between 11 million and 12 million units. Earnings per share for the fourth quarter is expected to be in the range of $0.80-$0.95.

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