BlackBerry Ltd. shares closed 23% lower Tuesday, after the cybersecurity company posted another loss for its second quarter, while revenue fell short of estimates, in a report that included the prominent use of nonstandard numbers.
The Waterloo, Ontario–based company BB, -3.49% led its second-quarter report with non-GAAP revenue, or revenue that does not conform with Generally Accepted Accounting Principles. The company derived that number by adding revenue from an acquisition, an accounting presentation that is not allowed under GAAP rules, as MarketWatch reported last quarter.
The company also, again, adjusted numbers to recognize commission expenses on the revenue added back in, even though it won’t recognize either sum on its books.
“The chasm between GAAP and this elaborate non-GAAP accounting is that it makes it impossible for investors to understand the true financial condition of the company,” said Drew Bernstein, co-managing partner at Marcum Bernstein & Pinchuk. “It’s why I feel so strongly that stakeholders need to come together and develop reliable standards that people can look at.”
The ultimate arbiter is the SEC, he said.
BlackBerry did not respond to several MarketWatch requests for comment. After MarketWatch reported in June on the company’s first-quarter earnings, a corporate-communications executive said BlackBerry was comfortable that its reporting practices were fully compliant, as a foreign private issuer, with U.S. regulatory requirements. The SEC declined to comment.
BlackBerry said it had a net loss of $44 million, or 10 cents a share, for the quarter, after posting a profit of $43 million, but a loss of 4 cents a share, in the year-earlier period The loss for the latest quarter includes $36 million for an acquired intangibles amortization expense, $14 million in stock-compensation expenses, $2 million in acquisition and integration charges, a benefit of $23 million related to the fair-value adjustment on the debentures, among other items. Excluding those items, the non-GAAP per-share number had the company breaking even, as compared with a FactSet consensus for a 1-cent-a-share loss.
Revenue came to $244 million, up from $210 million a year earlier, but below the $268 million FactSet consensus.
The non-GAAP revenue number of $261 million was also below consensus. It was explained by the company in a footnote reading: “During the second quarter of fiscal 2020, the company recorded software deferred revenue acquired but not recognized due to business combination accounting rules of $17 million, of which $16 million was included in BlackBerry Cylance and $1 million was included in IoT.”
It also “recorded deferred commission expense acquired but not recognized due to business combination accounting rules of approximately of $4 million,” according to another footnote.
On a conference call after the earnings report, Chief Executive John Chen led with non-GAAP numbers, without identifying them as such. SEC rules require that GAAP numbers be presented with equal, or greater, prominence to non-GAAP figures.
“In our second fiscal quarter, total company revenue was $261 million,” he told analysts, according to a FactSet transcript. “It grew 22% year-over-year. Total software and services was $256 million, growing 30% year-over-year and driven by double-digit percentage growth in software and services billings in the same period.”
Rosanna Landis Weaver, a program manager for CEO-pay issues at As You Sow, a nonprofit that promotes corporate social responsibility, said investors have become increasingly wary of non-GAAP figures and that BlackBerry is at risk of losing investors’ trust.
“Once you’ve lost trust, it’s very hard to regain it. Excessive use of non-GAAP, and the SEC allowing it to continue, is a big issue,” she said. “There’s enough lack of trust in institutions right now [that] we don’t need to be adding to it.”