Research in Motion Q1 Revisions

Research in Motion (RIMM) Q1 Revisions

INCOME STATEMENT
Three Months Ended May 29, 2010
Revenue	$4,351,471
Cost of Sales	$2,380,320
Gross Margin	$1,971,151
	45.30%
Operating Expenses:
R&D	$272,319
SG&A	$538,549
Amortization	$88,896
Total	$899,763
Income from Operations	$1,071,388
Investment Income	$4,454
Income before Taxes	$1,075,842
Provision for Income Taxes	$306,836
Net Income	$769,006
EPS
Basic	$1.38
Shares Outstanding	558,200

Previous estimates for this quarter’s earnings were the following:

Q1 EPS:  $1.29

Q1 Rev:  $4.35 Bil

Q1 Gross Margin:  43.4%

New estimates for the first quarter have been slightly revised as a result of RIMM’s Q4 results this past week:

            Q1 EPS (Revised):  $1.38

            Q1 Rev (Revised):  $4.351 Bil

            Q1 Gross Margin (Revised):  45.3%

Once again, the process of creating estimates included a combination of four things:

1)      Scouring through Wednesday’s earnings announcement and Management Discussion and Analysis (MD&A),

2)      Running numerous regression tests,

3)      Revising the common-size statements, and

4)      Choosing which estimates from all the tests best fit the data.

Revenue

When it comes to predicting revenue, I generally run five to seven different regression tests of past quarterly sales figures to determine which test(s) best predicts the previous quarter’s sales, this time of $4.08 Bil.  As you can see in the below accuracy table, the data I used in the First-Order model best predicted last quarter’s sales; therefore, that’s the model that I used to predict Q1 sales. 

Accuracy
Model	Prediction	Percent Err.	W/ St. Err.	Percent Err.	R^2	Ad R^2
First-Order	$3,739,447	8.3%	$4,092,011	-0.3%	86.05%	85.41%
Exponential	$5,071,297	-24.3%	-	-	98.60%	-
Deasonal	$3,779,412	7.4%	$4,137,282	-1.4%	83.71%	83.03%
Dummy	$3,823,812	6.3%	$4,206,712	-3.1%	84.69%	81.77%
Lagged	$4,531,045	-11.1%	$4,698,039	-15.2%	96.56%	96.20%

Operating & Non-operating Expenses

To arrive at the operating and non-operating expenses for RIMM, I employ two methods.  First, I run simple linear regression tests on each line of the income statement using the past ten quarters of data.  Second, I use common-size analysis to determine each line’s percentage of total revenue and then average each line.  Then, I compare the results against past business and economic trends and choose each estimate accordingly.

Q1 Quarterly Predictions
Period	Cost of Sales	R&D	SG&A	Amortization	Investment Income	Provision for Inc. Tax	Outstanding Shares
1	914,483	104,573	267,881	31,314	20,114	172,067	549,837
2	1,105,208	127,776	326,592	36,552	18,977	182,899	551,564
3	1,270,473	181,347	379,644	43,633	17,168	223,855	552,899
4	1,512,592	193,044	382,968	53,023	31,554	275,729	553,687
5	2,079,615	182,535	406,493	61,595	10,568	225,264	554,105
6	1,931,985	219,777	514,291	67,396	9,136	56,167	554,787
7	1,971,296	235,571	429,748	73,292	7,625	183,989	555,789
8	2,249,055	242,329	465,717	83,129	6,425	262,134	554,277
9	$2,216,622	$267,164	$497,642	$86,540	$5,454	$307,076	557,114
Regression	$2,566,353	$289,002	$538,549	$95,802	$2,630	$249,779	557,462
Aritmentic	$2,347,651	$272,319	$581,655	$81,989	$23,211	$306,836	553,784
Mean	$2,457,002	$280,660	$560,102	$88,896	$12,920	$278,308	555,623
	$2,380,320				$4,454		558,000

The estimates that I have arrived at show EPS in the upper range of RIMM’s guidance of $1.31-$1.38.   Also of note, the estimated gross margin figure is higher than what management is forecasting.  As the company shifts the makeup of their product line, I feel that GM will not be reduced by as much as management is anticipating.  Lastly, I was interested to see that my revenue estimate came right in line with what the company is expecting as well as what I previously predicted prior to Q4’s Wednesday announcement.

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Disclaimer:
· Opinions, estimates and projections contained in this report are of the author as of the date published and are subject to change without notice.
· This report is not, nor should it be construed as, an offer to sell or solicitation of an offer to buy any securities.
· Unless otherwise noted, all research reports provide information of a general nature and do not address the circumstances of any particular investor.