RIM posts huge Q1 miss: First net loss in 8 years, BlackBerry 10 launch delayed, 5,000 jobs cut

RIM Q1 2013 Earnings Report

Analysts anticipated another miss ahead of Research In Motion’s first-quarter earnings report on Thursday as sales continue to stall ahead of the struggling smartphone vendor’s first BlackBerry 10 smartphone launch, which is expected this October. RIM warned in late May that it would likely see an operating loss in the first fiscal quarter — its first net quarterly loss since fiscal 2004 — but the Street’s consensus ranged from a profit of $0.01 per share on $3.1 billion in sales to a net loss of $0.03 per share. The numbers are now in and RIM reported on Thursday that it lost $0.37 per share on revenue of $2.8 billion.

The company said that it plans to cut an additional 5,000 jobs beyond its most recent round of layoffs, and these new efforts will cost the company $300 million. Despite this new round of cost-cutting efforts, the company said it expects to report an operating loss in the fiscal second quarter as well.

To compound matters, unexpected delays will push the launch of RIM’s first BlackBerry 10 smartphone back to the first calendar quarter of 2013. RIM previously said the first handset to run its next-generation OS would be released later this year.

RIM CEO Thorsten Heins confirmed on the company’s earnings call that it intends to launch a full-touchscreen BlackBerry 10 device in the first quarter next year, and that launch will be followed by the launch of a QWERTY smartphone shortly after. New details surrounding both models leaked earlier this week. Heins also said RIM is exploring opportunities to license BlackBerry 10 to other companies.

RIM sold 7.8 million BlackBerry smartphones during the first fiscal quarter of 2013, down 41% from the same quarter a year earlier, and the firm’s cash on hand rose to $2.2 billion.

The company’s stock plummeted more than 17% in after-hours trading on the news. RIM’s full earnings release follows below.

Research In Motion Reports First Quarter Fiscal 2013 Results

WATERLOO, ONTARIO — (Marketwire) — 06/28/12 — Research In Motion

Limited (RIM) (NASDAQ:RIMM)(TSX:RIM), a world leader in the mobile

communications market, today reported first quarter results for the

three months ended June 2, 2012 (all figures in U.S. dollars and U.S.

GAAP, except where otherwise indicated).

 

Highlights:

 

*T

 

–  Cash, cash equivalents, short-term and long-term investments increased

to $2.2 billion at the end of the first quarter

–  Cash flow from operations was approximately $710 million in the first

quarter

–  Revenue of $2.8 billion in Q1, down 33% from $4.2 billion in the prior

quarter

–  GAAP net loss in Q1 of $518 million or $0.99 per share diluted; adjusted

net loss of $192 million or $0.37 per share diluted

–  Shipments of BlackBerry smartphones were 7.8 million and shipments of

BlackBerry PlayBook tablets were approximately 260,000

–  BlackBerry 10 smartphone launch now scheduled for Q1 of calendar 2013

–  Restructuring efforts underway that will include a workforce reduction

of approximately 5,000 employees as part of RIM’s  efforts to realize

over $1 billion in cost savings, based on RIM’s Q4 FY2012 run rate

–  Launched World Tour BlackBerry Jam developer sessions in 23 countries

resulting in strong adoption and support by application and developer

partners for BlackBerry 10 platform

–  BlackBerry App World continues to grow with over 89,000 applications

available

–  The overall BlackBerry subscriber base continued to grow, and the

subscriber base grew in all regions except for North America

–  RIM names Steve Zipperstein, former General Counsel of Verizon Wireless,

as Chief Legal Officer

 

*T

 

Q1 Results

 

Revenue for the first quarter of fiscal 2013 was $2.8 billion, down

33% from $4.2 billion in the previous quarter and down 43% from $4.9

billion in the same quarter of fiscal 2012. The revenue breakdown for

the quarter was approximately 59% for hardware, 36% for service and

5% for software and other revenue. During the quarter, RIM shipped

7.8 million BlackBerry smartphones and approximately 260,000

BlackBerry PlayBook tablets.

 

GAAP net loss for the quarter was $518 million, or $0.99 per share

diluted, compared with a GAAP net loss of $125 million, or $0.24 per

share diluted, in the prior quarter and GAAP net income of $695

million, or $1.33 per share diluted, in the same quarter last year.

 

Adjusted net loss for the first quarter was $192 million, or $0.37

per share diluted. Adjusted net loss and adjusted diluted loss per

share exclude the impact of pre-tax charges of $335 million ($326

million on an after tax basis), which are predominantly non-cash

related to the impairment of goodwill. This charge and its related

impact on GAAP net loss and diluted loss per share are summarized in

the table below.

 

“Our first quarter results reflect the market challenges I have

outlined since my appointment as CEO at the end of January. I am not

satisfied with these results and continue to work aggressively with

all areas of the organization and the Board to implement meaningful

changes to address the challenges, including a thoughtful realignment

of resources and honing focus within the Company on areas that have

the greatest opportunities,” said Thorsten Heins, President and CEO.

“Our top priority going forward is the successful launch of our first

BlackBerry 10 device, which we now anticipate will occur in the first

quarter of calendar 2013.  In parallel with the roll out of

BlackBerry 10, we are aggressively working with our advisors on our

strategic review and are actively evaluating ways to better leverage

our assets and build on our strengths, including our growing

BlackBerry subscriber base of approximately 78 million, our large

enterprise installed base, our unique network architecture and our

industry leading security capabilities.”

 

The total of cash, cash equivalents, short-term and long-term

investments was $2.2 billion as of June 2, 2012, compared to $2.1

billion at the end of the previous quarter, an increase of

approximately $100 million from the prior quarter. Cash flow from

operations in Q1 was approximately $710 million.  Uses of cash

included intangible asset additions of approximately $285 million,

capital expenditures of approximately $155 million and a business

acquisition of approximately $100 million.

 

BlackBerry 10 Update

 

The successful launch of the BlackBerry 10 platform and the delivery

of high quality, full-featured BlackBerry 10 smartphones remain the

Company’s number one priority. Over the past several weeks, RIM’s

software development teams have made major progress in the

development of key features for the BlackBerry 10 platform; however,

the integration of these features and the associated large volume of

code into the platform has proven to be more time consuming than

anticipated. As a result, the Company now expects to launch the first

BlackBerry 10 smartphones in market in Q1 of calendar 2013.

 

“RIM’s development teams are relentlessly focussed on ensuring the

quality and reliability of the platform and I will not compromise the

product by delivering it before it is ready. I am confident that the

first BlackBerry 10 smartphones will provide a ground-breaking next

generation smartphone user experience,” said Thorsten Heins,

President and CEO. “We are encouraged by the traction that the

BlackBerry 10 platform is gaining with application developers and

content partners following the successful BlackBerry Jam sessions

that we have held around the world since the beginning of May.

Similarly, the reception of the BlackBerry 10 platform by our key

carrier partners has been very positive and they are looking forward

to going to market with BlackBerry 10 smartphones in the first

quarter of calendar 2013.”

 

Organizational Update

 

RIM today also announced the appointment of Steve Zipperstein, former

General Counsel of Verizon Wireless, as its Chief Legal Officer.

Prior to joining Verizon, Mr. Zipperstein previously served as Deputy

General Counsel for GTE Corporation and was employed with the United

States Department of Justice as a federal prosecutor. Mr. Zipperstein

joins Kristian Tear, Chief Operating Officer and Frank Boulben, Chief

Marketing Officer as the latest additions to RIM’s executive

management team.

 

CORE Program

 

The Company announced its CORE (Cost Optimization and Resource

Efficiency) program in March of this year. The program is focused on

delivering operational savings through various initiatives, with

financial objectives for the program targeted to drive at least $1

billion in savings by the end of fiscal 2013, based on RIM’s Q4

FY2012 run rate. As a result of the shift in BlackBerry 10 launch

timeline, the increasingly competitive environment, as well as the

identification of additional cost saving and efficiency

opportunities, the Company may increase the scope and magnitude of

these programs, and considers these original estimates as minimum

numbers it will be pursuing.

 

To date, the Company has started implementing a number of these

initiatives including:

 

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–  a reduction in the number of layers of management to drive better

clarity, efficiency and accountability across the organization;

–  the continued streamlining of our supply chain, which includes the

consolidation of our manufacturing footprint from 10 external

manufacturing sites to three, and working closely with our suppliers and

other partners to identify ways to drive further efficiency;

–  outsourcing key parts of the Company’s Global Repair operations,

including management of device level repairs;

–  targeted use of resources in our sales and marketing initiatives to more

effectively leverage marketing windows and prioritize our marketing

efforts and spend in regions that offer the highest opportunity and

return;

–  further outsourcing of non-core functions as determined during the

implementation of the CORE program; and

–  a global workforce reduction of approximately 5,000 employees, which is

expected to be completed by the end of fiscal 2013.

 

*T

 

The Company expects to incur restructuring related charges of

approximately $350 million by the end of fiscal 2013, primarily

associated with the global workforce reduction.   Other charges and

cash costs may occur during this process, and the Company intends to

share more details throughout the year regarding its progress as

programs are implemented or changes are completed.

 

Outlook

 

The Company expects the next several quarters to continue to be very

challenging for its business based on the increasing competitive

environment, lower handset volumes, potential financial and other

impacts from the delay of BlackBerry 10, pressure to reduce RIM’s

monthly infrastructure access fees, and the Company’s plans to

continue to aggressively drive sales of BlackBerry 7 handheld

devices.  The Company expects to report an operating loss in the

second quarter of fiscal 2013, as RIM continues to invest in

marketing programs and continues to work through the transition to

BlackBerry 10, as well as the Company’s fixed costs being allocated

over a lower volume of shipments. This outlook excludes the impact of

charges related to the CORE Program.

 

*T

 

Reconciliation of GAAP net loss and diluted loss per share to adjusted net

loss and adjusted diluted loss per share:

(United States dollars, in millions except per share data)

Three months ended

June 2, 2012

—————————-

Net Loss  Diluted EPS

(net of      (net of

income tax)  income tax)

—————————-

As reported                                      $        (518)  $    (0.99)

Adjustment:

Impairment of Goodwill(1)                                  326         0.62

—————————-

Adjusted                                         $        (192)  $    (0.37)

—————————-

—————————-

 

*T

 

Note: Adjusted net loss and adjusted diluted loss 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 net loss and

adjusted diluted loss 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

measures in the context of RIM’s GAAP results.

 

(1) During the first quarter of fiscal 2013, the Company performed a

goodwill impairment test and based on the results of that test, the

Company recorded a pre-tax goodwill impairment charge of

approximately $335 million, or $326 million after tax.

 

Conference Call and Webcast

 

A conference call and live webcast will be held beginning at 5 pm ET,

June 28, 2012, which can be accessed by dialing 1-800-814-4859 (North

America), (+1)416-644-3414 (outside North America), or through your

personal computer or BlackBerry(R) PlayBook(TM) tablet at

http://www.rim.com/investors/events/index.shtml. A replay of the conference

call will also be available at approximately 7 pm ET by dialing

(+1)416-640-1917 and entering pass code 4501363#. A replay of the

webcast will be available on your personal computer or BlackBerry

PlayBook tablet by clicking the link above. This replay will be

available until midnight ET, July 12, 2012.

 

About Research In Motion

 

Research In Motion (RIM), a global leader in wireless innovation,

revolutionized the mobile industry with the introduction of the

BlackBerry(R) solution in 1999. Today, BlackBerry products and

services are used by millions of customers around the world to stay

connected to the people and content that matter most throughout their

day. Founded in 1984 and based in Waterloo, Ontario, RIM operates

offices in North America, Europe, Asia Pacific and Latin America. RIM

is listed on the NASDAQ Stock Market (NASDAQ:RIMM) and the Toronto

Stock Exchange (TSX:RIM). For more information, visit http://www.rim.com or

http://www.blackberry.com.

 

This news release contains forward-looking statements within the

meaning of the U.S. Private Securities Litigation Reform Act of 1995

and Canadian securities laws, including statements regarding: the

Company’s current expectations regarding the timing of the BlackBerry

10 smartphone launch; RIM’s plans and strategies to implement

meaningful changes to address its challenges; anticipated continued

growth in the Company’s BlackBerry subscriber base; the Company’s

views regarding the anticipated benefits and customer response to the

BlackBerry 10 smartphones; RIM’s expectations and beliefs relating to

the support of its developer partners and the development of its

ecosystem in advance of the launch of BlackBerry 10; RIM’s plans,

objectives, estimates and expectations regarding the scope, magnitude

and benefits of the CORE program, and the Company’s expectations

regarding restructuring-related charges in fiscal 2013; RIM’s

intention to provide shareholders with updates, when possible,

relating to its progress and challenges; RIM’s outlook, including its

expectation that the business will continue to be very challenging

for the next several quarters, and its expectations regarding the

effects of the intense competition in the wireless communications

industry, declining handset volumes, the impacts from the delay of

BlackBerry 10, pressures to reduce RIM’s monthly infrastructure

access fees, and the financial impact of its sales and marketing

initiatives relating to BlackBerry 7 smartphones; and the Company’s

current expectation that it will continue to report operating losses

in the second quarter of fiscal 2013.  The terms and phrases

“scheduled”, “underway”, “will”, “continue”, “implement”, “address”,

“honing”, “opportunities”, “going forward”, “anticipate”, “leverage”,

“growing”, “believes”, “confident”, “financial objectives”,

“targeted”, “drive”, “may”, “estimates”, “pursuing”, “expects”,

“intends” “plans”, “work through”, “transition”, “outlook”, and

similar terms and phrases are intended to identify these

forward-looking statements.    Forward-looking statements are based

on estimates and assumptions made by RIM in light of its experience

and its perception of historical trends, current conditions and

expected future developments, as well as other factors that RIM

believes are appropriate in the circumstances, including but not

limited to general economic conditions, product pricing levels and

competitive intensity, supply constraints, the timing and success of

new product introductions, RIM’s expectations regarding its business,

strategy, opportunities and prospects, including its ability to

implement meaningful changes to address its business challenges, and

RIM’s expectations regarding the cash flow generation of its

business.

Many factors could cause RIM’s actual results, performance or

achievements to differ materially from those expressed or implied by

the forward-looking statements, including, without limitation: RIM’s

ability to enhance current products and develop new products and

services in a timely manner or at competitive prices, including risks

related to further delays in new product introductions, including the

Company’s BlackBerry 10 smartphones; risks related to intense

competition, including RIM’s ability to compete in the tablet market,

strategic alliances or transactions within the wireless

communications industry, and risks relating to RIM’s ability to

maintain or grow its services revenues; RIM’s reliance on carrier

partners and distributors; risks relating to network disruptions and

other business interruptions, including costs, potential liabilities,

lost revenue and reputational damage associated with service

interruptions; RIM’s ability to manage inventory and asset risk;

RIM’s ability to implement and realize the anticipated benefits of

its CORE program; RIM’s ability to maintain or increase its cash

balance; security risks and risks related to the collection, storage,

transmission, use and disclosure of confidential and personal

information; RIM’s ability to attract and retain key personnel; RIM’s

ability to adapt to recent management changes; RIM’s reliance on

suppliers of functional components for its products and risks

relating to its supply chain; RIM’s ability to maintain and enhance

the BlackBerry brand; risks related to RIM’s international

operations; risks related to government regulations, including

regulations relating to encryption technology; RIM’s reliance on

third-party network infrastructure developers, software platform

vendors and service platform vendors; RIM’s ability to expand and

manage its BlackBerry App World applications catalogue; RIM’s

reliance on third-party manufacturers; potential defects and

vulnerabilities in RIM’s products; risks relating to litigation,

including litigation claims arising from the Company’s past practice

of providing forward-looking guidance; RIM’s ability to manage its

past growth and its ongoing development of service and support

operations; potential additional charges relating to the impairment

of goodwill or other intangible assets recorded on RIM’s balance

sheet; disruptions to RIM’s business as a result of shareholder

activism; risks related to intellectual property; and difficulties in

forecasting RIM’s financial results given the rapid technological

changes, evolving industry standards, intense competition and short

product life cycles that characterize the wireless communications

industry.

These risk factors and others relating to RIM are discussed in

greater detail in the “Risk Factors” section of RIM’s Annual

Information Form, which is included in its Annual Report on Form 40-F

and the “Cautionary Note Regarding Forward-Looking Statements”

section of RIM’s MD&A (copies of which filings may be obtained at

http://www.sedar.com or http://www.sec.gov).  These factors should be considered

carefully, and readers should not place undue reliance on RIM’s

forward-looking statements.  RIM has no intention and undertakes no

obligation to update or revise any forward-looking statements,

whether as a result of new information, future events or otherwise,

except as required by law.

 

*T

 

Research In Motion Limited

Incorporated under the Laws of Ontario

(United States dollars, in millions except share and per share amounts)

(unaudited)

Consolidated Statements of Operations

Three months ended

——————————-

June 2,   March 3,   May 28,

2012       2012      2011

—————————————————————————-

Revenue                                       $  2,814  $   4,190  $  4,908

Cost of sales                                    2,026      2,789     2,752

——————————-

Gross margin                                       788      1,401     2,156

——————————-

Gross margin %                                  28.0%      33.4%     43.9%

Operating expenses

Research and development                          368        386       423

Selling, marketing and administration             552        650       704

Amortization                                      176        152       132

Impairment of goodwill                            335        355         -

——————————-

1,431      1,543     1,259

——————————-

Income (Loss) from operations                     (643)      (142)      897

Investment income, net                              3          5         7

——————————-

Income (Loss) before income taxes                 (640)      (137)      904

Provision (benefit) for income taxes              (122)       (12)      209

——————————-

Net income (loss)                             $   (518) $    (125) $    695

——————————-

——————————-

Earnings (loss) per share

Basic                                       $  (0.99) $   (0.24) $   1.33

——————————-

——————————-

Diluted                                     $  (0.99) $   (0.24) $   1.33

——————————-

——————————-

Weighted-average number of common shares

outstanding (000′s)

Basic                                        524,160    524,160   523,983

Diluted                                      524,160    524,160   524,524

Total common shares outstanding (000′s)        524,160    524,160   524,112

 

*T

 

*T

 

Research In Motion Limited

Incorporated under the Laws of Ontario

(United States dollars, in millions except per share data) (unaudited)

Consolidated Balance Sheets

June 2,    March 3,

As at                                                      2012        2012

—————————————————————————-

Assets

Current

Cash and cash equivalents                          $  1,467  $    1,527

Short-term investments                                  471         247

Accounts receivable, net                              2,551       3,062

Other receivables                                       255         496

Inventories                                           1,018       1,027

Income taxes receivable                                 194         135

Other current assets                                    512         365

Deferred income tax asset                               196         197

———————-

6,664       7,056

Long-term investments                                       309         337

Property, plant and equipment, net                        2,722       2,748

Goodwill                                                      -         304

Intangible assets, net                                    3,372       3,286

———————-

$ 13,067  $   13,731

———————-

———————-

Liabilities

Current

Accounts payable                                   $    659  $      744

Accrued liabilities                                   2,086       2,382

Deferred revenue                                        489         263

———————-

3,234       3,389

Deferred income tax liability                               216         232

Income taxes payable                                          9          10

———————-

3,459       3,631

———————-

Shareholders’ Equity

Capital stock and additional paid-in capital              2,441       2,446

Treasury stock                                             (273)       (299)

Retained earnings                                         7,395       7,913

Accumulated other comprehensive income                       45          40

———————-

9,608      10,100

———————-

$ 13,067  $   13,731

———————-

———————-

Research In Motion Limited

Incorporated under the Laws of Ontario

(United States dollars, in millions except per share data) (unaudited)

Consolidated Statements of Cash Flows

For three months ended

——————————–

June 2, 2012     May 28, 2012

—————————————————————————-

Cash flows from operating activities

Net income (loss)                            $        (518) $           695

Adjustments to reconcile net income (loss)

to net cash provided by operating

activities:

Amortization                                         480              355

Deferred income taxes                                (16)               1

Income taxes payable                                  (1)               -

Stock-based compensation                              25               23

Impairment of goodwill                               335                -

Other                                                 11               23

Net changes in working capital items                   395              (77)

——————————–

Net cash provided by operating activities              711            1,020

——————————–

Cash flows from investing activities

Acquisition of long-term investments                  (118)             (67)

Proceeds on sale or maturity of long-term

investments                                            32               43

Acquisition of property, plant and equipment          (153)            (222)

Acquisition of intangible assets                      (284)            (560)

Business acquisitions, net of cash acquired           (105)             (27)

Acquisition of short-term investments                 (234)            (111)

Proceeds on sale or maturity of short-term

investments                                           103              162

——————————–

Net cash used in investing activities                 (759)            (782)

——————————–

Cash flows from financing activities

Issuance of common shares                                -                7

Tax deficiencies related to stock-based

compensation                                           (4)              (1)

Purchase of treasury stock                               -              (26)

——————————–

Net cash used in financing activities                   (4)             (20)

——————————–

Effect of foreign exchange loss on cash and

cash equivalents                                       (8)             (23)

——————————–

Net increase (decrease) in cash and cash

equivalents for the period                            (60)             195

Cash and cash equivalents, beginning of

period                                              1,527            1,791

——————————–

Cash and cash equivalents, end of period     $       1,467  $         1,986

——————————–

——————————–

As at                                         June 2, 2012    March 3, 2012

—————————————————————————-

Cash and cash equivalents                    $       1,467  $         1,527

Short-term investments                                 471              247

Long-term investments                                  309              337

——————————–

$       2,247  $         2,111

——————————–

——————————–

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