To offset GAAP mandated deferred revenue write downs associated with acquisitions
Blackberry (BB), a security software maker, created its own metric to add them back. The company
has historically reported “software deferred revenue” in its non-GAAP presentations, which
boosted revenue recognized and, according to the company, offered investors a better picture of
the company’s operating performance.

In its latest 10-Q, Blackberry announced it was ditching the metric:

“In the first quarter of fiscal 2022, the Company discontinued its use of software
deferred revenue acquired in its key metrics as the Company no longer reports
non-GAAP revenue.”

The change, according to our analysis, removed $8 million from non-GAAP sales Blackberry
reported in the prior year’s comparable quarter. It also increased Blackberry’s gross margin by
2.1%. The metric also inflated Blackberry’s adjusted net income for the quarter from $4 million to
$12 million, or 200%.

Not only does the change have the potential to negatively impact reported results going forward,
according to Blackberry’s past disclosures it will also make it more difficult for investors to
understand the company’s operating results and underlying trends. Here are the benefits
Blackberry says the metric once provided investors:

“The Company believes that reversing the acquisition-related deferred revenue
write-downs (so that the full amount of revenue booked by the acquired businesses is
included) provides a more appropriate representation of revenue in a given period and,
therefore, provides readers of the Company’s financial statements with a more
consistent basis for comparison across accounting periods.”

We suspect the change was made to hide possible deterioration in deferred revenue in the
companies Blackberry has acquired. The latest quarter reveals annual recurring revenue down
by $6 million in Blackberry’s cybersecurity segment and $17 million in its IoT segment. Similarly,
Blackberry’s Net Retention Rate in the cybersecurity segment declined 7%. The company
blames COVID-19 and the semiconductor chip shortage for declines in its annual recurring
revenue.