What will BlackBerry Q4 earnings bring?

This Friday morning BlackBerry will report the final quarter of the company’s fiscal 2014 results. As usual, I’ll remind you that yes, it is really the end of their 2014 year since they have a February year end to their fiscal year.

To set the stage for the announcement, let’s take a quick look back at what happened last quarter. The company reported only $1.2 billion in revenue for Q3, which was down from $1.6 billion in Q2. Revenues have been falling sharply, and everyone is waiting to see where they level out. In terms of devices, the company recognized revenue on 1.9 million units, which was also a sharp reduction from the 3.7 million units in Q2. Hardware sales made up 40% of sales last quarter. 53% of sales came from service revenue, which is still mostly tied to legacy BBOS carrier fees. This is an area that is in decline as the business model shifts to BlackBerry 10.

Also, during Q3, BlackBerry announced a partnership with Foxconn for future hardware, and they restructured their reporting divisions into the following segments: Enterprise services; Messaging; QNX Embedded Business; and Devices. The BBM rollout has gone quite well with BlackBerry reaching 40 million newly registered users in the first two months.

So the big question is … what has happened to the financials since then? In terms of guidance, management didn’t say much in the outlook section of last quarter’s report. For Q4 they said “the Company anticipates maintaining its strong cash position and further reducing operating expenses as it continues to implement its previously-announced cost reduction program."

It’s pretty hard to maintain your cash position unless you stabilize revenue or offset a revenue decline with healthy cuts to operating expenses. Last quarter the adjusted gross margin was about $400 million, while cash operating expenses were $865 million. The difference between those numbers is (roughly speaking) the loss on the income statement. Cash burn is lower than the difference because they’re not spending as much buying capital assets these days, while they are writing down the value of past assets as per accounting rules. But going forward if they want to maintain their cash balance they need to either keep squeezing the working capital balance (pushing out payables, collecting receivables, selling down inventory), or they must improve gross margin, or they must cut expenses. The latter two are obviously the most important for the long term health of BlackBerry.

What do analysts expect? The consensus estimate is revenue of $1.11 billion, or about an 8% decline quarter over quarter. Earnings per share are expected to be a loss of $0.57, which means are expected to be a loss of about $295 million in the income statement. If they hit these numbers I think they’ll accomplish their stated goals. But I’m much more interested in knowing how they are doing with respect to building up BES revenue, launching eBBM, and of course growing (and potentially monetizing, in time) their BBM user base. And naturally I’m interested in knowing how the hardware business is poised to do once the Foxconn products hit the market.

For the May quarter, analysts seem to expect long-awaited revenue growth, so it will be interesting to see what guidance is for the quarter. We’re not talking about big growth expectations, but I do notice the consensus revenue forecast is $1.15 billion, up from $1.11 billion in Q4. If that ends up being anywhere close to accurate it would be a really nice sign of potential business stability.

What are you hoping to see or hear on Friday?