This summary is based on the second quarter fiscal 2007 earnings call conducted by Research in Motion Limited (RIMM) on October 4, 2007.
Co-Chief Executive Officer, Director: James L. Balsillie
Chief Accounting Officer: Brian Bidulka
Vice President of Investor Relations: Edel Ebbs
Key Investors Issues
- The earnings per share rose to 50 cents from 25 cents in the prior year quarter.
- Quarterly revenue grew to $1.37 billion from $1.08 billion in last year.
- For Q3, the firm projects revenue in the range of $1.6 billion to $1.67 billion.
Second Quarter Fiscal 2007 Financial Highlights
Revenue for the second quarter was $1.37 billion, up 27% from $1.08 billion in the previous quarter.
Handheld devices represented $1.08 billion, or 78% of RIM''s revenue during the quarter, up from 76% of total revenue in the previous quarter.
Total devices shipped in the quarter were approximately 3.1 million, up from 2.4 million in the prior quarter. Approximately 2.7 million new devices were activated in Q2, either for new customers or for replacements and upgrades. Actual sell-through was somewhat higher as there are some devices sold without a BlackBerry service plan that are not captured in this number. The ratio of devices activated to net subscriber account additions has increased slightly from Q1, as replacement and upgrade sales continued to increase. Channel inventory on a four-weeks basis remained approximately flat in Q2.
Average device ASPs were slightly higher than expected at approximately $353. This is due to mix of handsets shipped in the quarter. The firm expects ASPs in Q3 to be approximately $340.
Service revenue was $201 million, 15% of revenue for the quarter, up $27 million from Q1. With respect to monthly ARPU, as expected, it declined slightly on a normalized basis in the quarter.
Software revenue was $57 million, or 4% of revenue.
Other revenues, such as repairs and accessories, was $36 million, or 3% of revenue.
Gross margin for the first quarter was over 51%, which is in line with the June guidance.
Operating expenses increased slightly more than what the firm had forecast last quarter.
- R&D spending was $88 million, or 6% of revenue for the quarter.
- Selling, marketing and administrative expenses increased by 12% to $198 million and were 14% of revenue.
- Included in Q2 op-ex is slightly higher compensation expense than in the previous quarter due to the appointment of two of RIM''s directors to Director Emeritus status.
- The Canadian dollar has continued to strengthen relative to the U.S. dollar and this had impact on the RIM''s operating expenses. The firm’s largest operating expense exposure to the Canadian dollar continues to be the payroll. However, the firm does have some offsetting Canadian dollar revenue, as well as a program in place to hedge a portion of the exposure. This does not insulate the company 100% and it continues to hedge its exposure, which may result in the firm entering into forward contracts at more or less favorable rates over time. In the short-term, RIM continues to expect minimal impact on operating expenses as a result of the Canadian dollar fluctuations.
- The tax rate for the quarter was approximately 30%, in line with the forecast.
- Net income for Q2 was $288 million, or 50 cents per share diluted. This reflects the effective three-for-one stock split that occurred during the quarter.
- Weighted average diluted shares used in the EPS calculation for the quarter were 572 million. Actual shares outstanding at September 1, 2007 were $560 million. Total options outstanding at quarter end were $18 million. These share counts reflect the affect of the three-for-one stock split that occurred in the quarter.
RIM''s balance sheet continues to be strong, with substantial cash reserves and appropriate working capital balances.
- At the end of the second quarter, RIM had approximately $1.7 billion in cash, cash equivalents, and investments. This was up $166 million from the prior quarter.
- During the quarter, RIM generated approximately $227 million in cash from operations. The primary use of cash in the quarter was capital expenditures of approximately $79 million. These capital expenditures were slightly lower than forecast due to the deferral of certain investments from Q2 into Q3.
- From a working capital perspective, trade receivables were up from the prior quarter, in line with top line growth and DSOs decreased to 52 days from 55 days in the prior quarter.
- Inventory on hand was approximately $301 million versus $259 million in the prior quarter. Inventories continued to be primarily raw materials and semi-finished goods to support demand for current and upcoming product launches.
Demand for BlackBerry products and services in Q2 was robust, with approximately 1.45 million BlackBerry net subscriber accounts added during the quarter.
