BLACKBERRY Ltd (BB) Q2 2027 Earnings Call Transcript

And welcome to BlackBerry's second quarter fiscal year 2027 earnings conference call. My name is Betsy, and I will be your conference moderator for today's call. During the presentation, all participants will be in a listen-only mode. We will be facilitating a brief question and answer session towards the end of the conference. Should you need assistance during the call, please signal a conference specialist by pressing star zero. As a reminder, this conference is being recorded for replay purposes. I would now like to turn today's call over to Suzanne Spera, Senior Director of Investor Relations of BlackBerry. Please go ahead.

Thank you, Betsy. Good morning, everyone, and welcome to BlackBerry's second quarter fiscal year 2027 earnings conference call. Joining me on today's call is BlackBerry's Chief Executive Officer, John Giamatteo, and and Chief Financial Officer, Tim Foote. After I read our cautionary note regarding forward-looking statements, John will provide a business update and Tim will review the financial results. We'll then open the call for a brief Q&A session. This call is available to the general public via call-in numbers and via webcast in the Investor Information section at BlackBerry.com. As part of today's webcast presentation, slides will be displayed. The slides are also available on the investor information section at blackberry.com, as well as the replay of today's call. Some of the statements we'll be making today constitute forward-looking statements and are made pursuant to the safe harbor provisions of applicable U.S. and Canadian securities laws. We'll indicate forward-looking statements by using words such as expect, will, should, model, intend, believe, and similar expressions. Forward-looking statements are based on estimates and assumptions made by the company in light of its experience and its perception of historical trends, current conditions, and expected future developments, as well as other factors that the company believes are relevant. Many factors could cause the company's actual results or performance to differ materially from those expressed or implied by the forward-looking statements. Those factors include the risk factors that are discussed in the company's annual filings in MD&A. You should not place undue reliance on the company's forward-looking statements. Any forward-looking statements are made only as of today, and the company has no intention or undertakes no obligation to update or revise any of them, except as required by law. As is customary during the call, John and Tim will reference certain non-GAAP numbers in their summary of our quarterly results. For reconciliation between our GAAP and non-GAAP numbers, please see the earnings press release published earlier today. which is available on the edgar cedar plus and blackberry.com websites and with that let me now turn the call over to john thanks suzanne and thanks to everyone for joining us we're pleased to report another very strong quarter for blackberry reflecting meaningful progress both financially and strategically.

Revenue grew 26 percent year over year, while adjusted EBITDA grew 81 percent, resulting in our second consecutive rule of 40 quarter. We also generated $29 million of operating cash flow, delivered our sixth consecutive quarter of positive gap net income, and adjusted earnings per share, again, exceeded our target, our expectations. QNX had a record quarter, and strategically, we reached an important milestone with our first alloy core design win, the largest design win in our history. So when you put all of that together, Q2 gives us another clear proof point that the profitable growth model we've been building is working. It also gives us increased confidence as we head into the second half, and as Tim will discuss in more detail, we are raising our full-year revenue and adjusted EBITDA outlook. Let me start my review of the quarter with QNX. QNX delivered record quarterly revenue of $80 million representing 27% year-over-year growth and coming in well above the high end of our guidance. Combined with expanded profitability, QNX once again comfortably exceeded the Rule of 40 benchmark for the quarter. Performance was broad-based across development licenses, professional services, and royalties. In particular, Q2 was our strongest quarter ever for design win dollars, with the value of design win secured in the first half exceeding our previous record for any full fiscal year. Development license activity also remained healthy in Q2, with recurring development license revenue holding strong quarter over quarter. That matters because customers typically purchase these tools early in a program, making them a useful leading indicator of future design wins and royalty opportunities. So in Q2, we saw strength not only in the revenue being recognized today, but also an activity that can support future growth. As you may recall, our Q&X strategy is built around three growth pillars. The first is our core automotive business. Second is moving further up the software stack with AlloyCore. And third is expanding beyond auto into adjacent general embedded markets. Now, let me start with the first pillar, QNX's core auto business, which was the main driver behind this quarter's strong performance. That strength is being supported by the auto industry's transition towards software-defined vehicles and more centralized compute architectures. Let me put some numbers around that because I believe they help explain the opportunity. Roughly 90 million vehicles are produced globally each year. Today, about one-third of them have the type of high-performance centralized compute architecture where QNX's capabilities are most relevant, and we have a very strong market share in that segment. Industry forecasts indicate that this segment could expand to roughly three-quarters of the market over the next five years. That means our addressable market could more than double over that period. In addition to more vehicles becoming addressable to QNX, as more domains become software-defined, we see potential for greater QNX content in each of those vehicles as well. We've already secured design wins with multiple instances of QNX in a single vehicle, and we expect those design wins to continue to move into production over the next several years. So QNX does not need global vehicle production to increase to enable revenue growth, but rather through greater penetration of the market and greater dollar content per vehicle. We're also seeing increasing adoption of SDP-8, our next-generation platform designed for these higher-performance compute architectures. We are working with multiple major global OEMs and Tier 1 suppliers as they evaluate and develop on SDP-8. Importantly, some of the programs we've won over the past several years are now entering production, allowing higher QNX content secured in those designs to begin translating into royalty revenue. As our software content within the vehicle increases, so does the value of that opportunity. The transition to SDP-8 and the greater value it delivers is also creating an opportunity to evolve our commercial model. For new commercial arrangements, we are increasingly securing minimum contractual volume commitments rather than non-contractual forecasts. This is giving us greater certainty around volumes, revenue, and cash flow from new design wins, and the potential for us to both receive cash and recognize a portion of revenue earlier. Over time, we believe this could improve both the visibility and economics of our customer relationships. We're also seeing a lot of opportunity in China. New government-mandated safety requirements for assisted and automated driving systems reinforce the importance of proven, safety-certified foundational software, and we continue to see strong momentum in China. The second Q&X growth pillar builds on our core automotive business by moving us further up the software stack. As we have discussed, AlloyCore expands QNX from a foundational operating system towards a broader software platform. This quarter, we reached an important milestone with our first AlloyCore design win. Cortora, the commercial vehicle software joint venture between Volvo Group and Daimler Truck, selected AlloyCore as the foundational software platform for its next-generation high-performance compute architecture. Cortora plans to deploy alloy core across multiple software domains in its next-generation vehicles and is expected to substantially increase QNX software content and royalty per vehicle compared with traditional QNX operating system deployments. In fact, for this first design win, the ASP per instance is approximately three times higher than the customer's current deployment of QNX operating system. This is an important commercial validation of AlloyCore and demonstrates the opportunity to expand QNX from individual foundational software components to a broader software platform within the vehicle. AlloyCore addresses one of the biggest challenges facing OEMs today, the cost and complexity of integrating the foundational software stack. By bringing QNX foundational software, common automotive services, and vector middleware together in a pre-integrated, safety-certified platform, AlloyCore can reduce integration complexity and allow OEMs to focus more engineering resources on differentiated applications. The magnitude of this first award also demonstrates the potential of the platform. The value of future royalties from this design win is estimated to be more than $100 million, making it the largest design win in QNX's history, despite annual commercial vehicle volumes being significantly smaller than for passenger cars. As with traditional QNX design wins, there will be a lead time before the majority of the value is realized through production royalties. So we do not expect this design win to materially change our revenue profile this fiscal year. The more important takeaway is that AlloyCore has moved from a strategic opportunity to commercial validation. And we believe this is just the beginning. We are actively working with a number of global OEMs and major tier ones on alloy core opportunities around the globe, but particularly in Europe and Asia, with potential further wins in coming quarters. And the third QNX growth pillar is expansion beyond automotive into adjacent general embedded markets. Today, JEM represents approximately 20% of QNX revenue and is an important part of our longer-term growth opportunity. We're excited about the opportunity because the same capabilities that differentiate QNX in automotive, including real-time determinism, functional safety, security, and reliability, are increasingly relevant in adjacent verticals. We're seeing this across physical AI, robotics, industrial automation, medical devices, aerospace and defense, rail, and more. We're also investing in programs that help us engage earlier across the GEM ecosystem. QNX Everywhere is free for non-commercial use and puts the platform into the hands of more developers. At the same time, our QNX Launchpad program is designed to lower the barriers to entry for commercial development on QNX, helping early stage companies build on and continue using our platform as their business grows. Using a baseball analogy, if you think about this as a nine inning game, I'd say we're really just about the beginning of the second inning. We're seeing real customer activity, a growing pipeline and meaningful ecosystem development, with some markets starting to mature and others still relatively early in their adoption cycles and needing more time to become material financial contributors. One area we are particularly excited about is physical AI. At a high level, physical AI is what happens when AI moves beyond the digital world and begins interacting with the physical world. Robo-taxis are a great example of physical AI in practice. They are intelligent systems that must not only make decisions, but execute them safely and predictably in the real world. AI can recognize objects and understand the environments around the vehicle, but the underlying system still has to translate those decisions into physical action like steering, braking, and acceleration, safely and reliably every time. That is exactly where QNX's deterministic safety certified foundation becomes essential. And the robo-taxi market is beginning to transition from concept towards production at scale. This quarter, we're excited to announce that we've secured a new design win with Uber, which selected QNX as the foundation for software and its next generation of vehicles, providing an important proof point of the opportunity we see in physical AI. Momenta and X-Heart also selected QNX OS for Safety, built on SDP-8, as the foundation for a production-ready autonomous driving platform certified to ISO 26262. The same principles that apply to robo-taxis also apply to autonomous robots operating in a factory or warehouse. Beyond Uber, we're also seeing a growing pipeline of robotics and physical AI opportunities, including more than 20 companies currently engaging with us around NVIDIA-based platforms. Within the pipeline, we have a number of humanoid robot OEMs, as well as surgical robots, autonomous mobile robots, or AMRs, as well as autonomous tractors, drones, and planes. While many GEM markets remain early, the combination of a broadening pipeline, growing customer base, and increasing demand for safety-critical software gives us confidence that GEM can materially expand QNX's long-term addressable market. Taken together, Core Automotive, Alloy Core, and GEM give QNX multiple paths to growth across different time horizons. Turning to secure communications, the business performed broadly as expected following a particularly strong first quarter. Revenue was $61 million, up 2% year over year, and within our guidance range. Annual Recurring Revenue, or ARR, was approximately $221 million, up 4% year-over-year, while our Dollar-Based Net Retention Rate, or DBNRR, remained relatively stable at 91%. ARR provides a stable recurring revenue base, while larger government opportunities can provide incremental growth and profitability when they convert. Those opportunities can have long sales cycles and do create variability from quarter to quarter. Importantly, for the first half of 2027, secure communications revenue grew 13% year over year. We also continue to see customer activity across government, critical infrastructure, and other highly regulated sectors during the quarter, including renewals and expansions with customers across the U.S., Canada, Europe, Asia, and the Middle East. These included organizations such as a number of agencies in the U.S. federal government as well as internationally with the Dutch Police, the U.K.'s National Grid, Rolls-Royce, the Saudi National Bank, and Babcock. So while quarterly timing can vary, the underlying business remains stable and profitable. Touching briefly on licensing, revenue was approximately $22 million, significantly above our expectations. The upside was driven primarily by a new licensing arrangement secured during the quarter. So while Q2 was strong, we would not view this level of activity as a new quarterly run rate. With that, let me now turn the call over to Tim, who will provide more detail on our financial results.

Thank you, John, and good morning, everyone. As John mentioned, Q2 was another very strong quarter for BlackBerry and one that demonstrated the strong operating leverage in our financial model. Based on our revenue growth and adjusted EBITDA margin, we actually delivered a rule of 50 quarter. We also recorded our strongest quarterly gap net income since Q4 of fiscal 2022, while QNX achieved its highest quarterly revenue in history. What stands out to me is how efficiently our revenue is translating into higher profitability and cash generation while we continue to invest for growth. With that, let me walk through the quarter in more detail. Revenue for BlackBerry as a whole was 163 million, up 26% year over year and above the high end of our guidance range. Total company adjusted gross margin expanded three percentage points year over year to 78%, while adjusted EBITDA almost doubled and exceeded expectations at $47 million, representing 29% of revenue. Adjusted net income for the quarter was $43 million and gap net income was $34 million. Adjusted EPS was $0.07, also above our expectations. Importantly, the combination of solid revenue growth, gross margin expansion, and disciplined management of operating expenses drove significant operating leverage in the quarter. That leverage was particularly evident in the higher margin areas of the business, including Q&X royalties and licensing. We also generated strong operating and free cash flow, which I'll discuss in more detail shortly. Turning first to the segments, QNX revenue was $80 million, exceeding the high end of guidance and growing 27% year over year. Adjusted gross margin expanded four percentage points year over year to 87%, matching the highest reported quarterly level in the business's history. Adjusted EBITDA increased 41% to 29 million, representing a margin of 36% for the quarter. this performance reflects the benefit of meaningful revenue growth and a favorable mix particularly higher margin royalty revenue while we continue to invest in go-to-market and r&d the combination of continued growth and profitability again put q and x comfortably above the rule of 40 benchmark in q2 in secure communications revenue was 61 million representing 2% year-over-year growth and within our guidance range. Adjusted gross margin for secure comms was 61% reflecting lower margin SecuSmart device revenue in the quarter. Adjusted EBITDA was $8 million representing a margin of 13% with disciplined expense management partially offsetting the lower gross margin. Overall, the segment delivered the stable and profitable performance we expected following a particularly strong first quarter. Licensing revenue was £22 million, well above our expectations, with adjusted EBITDA at £20 million. The strong conversion of incremental licensing revenue into adjusted EBITDA reflects the high incremental operating leverage of this business. As always, the timing of larger licensing transactions can vary between quarters. Importantly, we converted the expanded profitability in the quarter into cash. We generated $29 million of operating cash flow in Q2, significantly above our guidance range. For the first half of fiscal 2027, we generated $34 million of operating cash flow compared with a usage of cash of $14 million in the prior year period, representing a year-over-year improvement of $48 million. The story was very similar for free cash flow, given BlackBerry's CapEx Lite operating model, with free cash flow for the quarter at $28 million and $30 million year-to-date. We ended the quarter with approximately $447 million of cash and investments, representing net cash of approximately $247 million. Our improving cash generation continues to strengthen our balance sheet and gives us significant financial flexibility in how we allocate capital. Our priorities remain unchanged and are centred on three areas. First, investing for growth in Q&X. We continue to prioritise what we believe are our largest long-term organic value creation opportunities, including investment behind Core Automotive, Alloy Core and GEM. Second, discipline share repurchases. We retain significant capacity under our current NCIB buyback program and will continue to evaluate repurchases when we believe they represent an attractive use of capital relative to other opportunities. And third, selectively evaluating M&A. We continue to assess potential value accretive opportunities that could accelerate our strategy, particularly with a view to fast tracking the gem opportunity. We have the balance sheet to act when the right opportunity arises, but the strategic and financial bar remains high. Overall, our approach remains disciplined and focused on creating long-term shareholder value. With that, let's turn to our outlook. Following the strong first-half performance we are raising our full year QNX revenue outlook for the second consecutive quarter by 17 million dollars at the midpoint to 315 to 325 million and adjusted EBITDA by 20 million at the midpoint to between 95 and 105 million. In Q3 we expect QNX revenue to be between 82 and 88 million, which is 24% year-over-year growth at the midpoint, and adjusted EBITDA of between 27 and 32 million. The increased outlook reflects the strength and trajectory we continue to see across the business, while maintaining an appropriate level of flexibility for normal quarter-to-quarter variability. This is not a quarterly business, and we continue to encourage investors to focus on longer-term growth trends rather than focus on growth from quarter-to-quarter. For secure communications, an already dynamic backdrop in the US where secure comms has a substantial footprint with the US federal government is being further complicated by recent geopolitical developments, including trade tensions between Canada and the United States. As a result, we're prudently updating our four-year revenue outlook. While we haven't yet seen anything material arising from this issue, nor have we seen a slowdown in pipeline generation outside of North America, we consider it appropriate to be cautious as we head into the second half accordingly we're revising the full year revenue forecast for secure comms to 260 to 270 million and adjusted EBITDA outlook to be between 50 and 58 million for Q3 we expect revenue to be between 55 and 60 million and adjusted EBITDA between $6 and $10 million. For licensing, we are raising our full-year revenue outlook by $12 million to approximately $41 million and adjusted EBITDA outlook to approximately $36 million. Following the unusually strong performance in Q2, for Q3 and Q4, we expect licensing to return to a more typical quarterly revenue level of approximately 6 million with adjusted EBITDA for approximately 5 million. As noted earlier the timing of larger licensing transactions can vary from quarter to quarter so we continue to take a measured approach to the quarterly outlook. So for the second consecutive quarter we are raising our full year total company outlook for both revenue and EBITDA reflecting the strength of our first half execution and increased confidence in the business for revenue we are increasing guidance by 19 million dollars at the midpoint to 616 to 636 million representing 14 year-over-year growth we're also raising our adjusted EBITDA outlook by 21 million at the midpoint to $141 to $158 million, which is 43% year-over-year growth. For Q3, we expect total company revenue of between $143 and $154 million and adjusted EBITDA of between $28 and $37 million. We expect to deliver adjusted basic earnings per share of between $0.04 and $0.05 for the quarter and are increasing our full-year outlook to be between $0.19 and $0.22. cents. We also expect another quarter of positive operating cash flow of between 20 and 30 million and are raising our four-year outlook by 15 million to approximately 115 million dollars as we continue to materially strengthen our balance sheet. The increased four-year outlook reflects the solid execution we have seen in the first half while maintaining a measured approach to the second half. With that, let me hand the call back to John.

Thanks, Tim. And before we move to Q&A, let me leave you with three things I think are most important from the quarter. First, the financial model is solid and scalable. We delivered another strong quarter, achieved better than Rule of 40 performance, generated robust cash flow, and raised our full-year outlook. Second, the QNX opportunity is becoming broader and more tangible. Our core automotive business is delivering record performance today. Alloy Core has moved from strategic opportunity to commercial validation, And we continue to build the long-term opportunity in GEM and physical AI. And third, expanded profitability and cash generation are giving us greater strategic flexibility. This allows us to keep investing in the business while remaining disciplined in how we approach buybacks and selectively evaluate M&A. The progress we're seeing today reflects the foundation we built through the transformation work over the past two years, and we're now seeing that translate into stronger growth, margins, and cash generations. So as we head into the second half, we feel very good about the position of the business and the opportunities in front of us. And with that, let's move to Q&A. Betsy, could you please open up the lines?

We will now begin the question and answer session. To ask a question, please press star 1 on your telephone keypad. Please make sure your line is unmuted. Again, press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We request that you limit yourself to one question and one follow-up. The first question today comes from Toucan Sukmar with Stifo. Please go ahead.

Good morning, guys, and congrats on the quarter. The first question for me is on the improving profitability outlook. Could you guys speak to what the mix of royalty revenues that have been converting from BACROG, How has that been trending quarter of a quarter, year of a year? And how much of that four-year guide race on the profitability side is led by the licensing strength you saw in the quarter?

Hey, Susan. Thanks for the question. Some good stuff there. So, yeah, we're feeling great about the leverage in our model. I think we've got a really tight cost structure. We continue to invest, but in a very disciplined manner. So that incremental top line is very rapidly translating into expanded bottom line margins and also efficiently converting into cash as well. So we see a very strong balance sheet right now. So, yeah, in this quarter, the QNX was the star of the show. And within that, royalties was also the star of the show. So what we're seeing is obviously we've had significant growth in our backlog over the last few years as we've secured newer, larger design wins. And what we're seeing is some of those are now moving into production. And that backlog, the $950 million that we last reported, is starting to convert. So it's a great line of sight for us in terms of revenue. That's why we feel good about raising our outlook for the rest of the year for the second quarter in a row. And right now, we feel like we've definitely got the wind at our backs in that business. It's really on fire in terms of the core automotive side of things.

Thank you. That's good color. For my next question, I just wanted to touch on the fiscal AI opportunity here. How does the revenue model in GEM compare to a typical automotive programming? I'm just wondering if it's still kind of a per unit type model or is it different? And secondly, is there an alloy core opportunity in the GEM market?

So I'll take the first part and then maybe hand over to John for the second part. So in terms of the model, it's fundamentally the same. So it's a volume based royalty model. and with some pre-production royalty streams similar to the automotive side of things such as development licenses and services as well. You can because the volumes tend to be lower you can see some higher per unit economics there but as we start to see gem expand and some of these more nascent markets actually move towards higher production volumes I would expect to see them to move down the price curve per unit but ultimately with a much higher scale so I wouldn't think of it much differently it's pretty much the same model and ultimately it's the same software and that's one of the beauties of the market is that we're able to leverage the investment that we've made the products that we've battle tested in in the automotive side and and roll them out

across into these adjacent verticals so relatively similar but john on the the alloy core yeah opportunity yeah thanks um yeah on the alloy core what i would say about it in the gem space and the physical ai space is it's it's definitely early days it's a market that's really forming now and you know our approach has really been to take a broader type of ecosystem approach so yeah you're seeing us with these programs like QNX Everywhere, getting QNX into the hands of as many developers as we possibly can in the early stages of them building the software platforms for a lot of these devices that are coming. You know, this quarter, we actually launched the QNX Launchpad program as another kind of way for us to engage with the industry more broadly. So, you know, We kind of use our core asset of that real time performance operating system and how that helps manage this whole physical world and digital world collision that's starting to happen. And I do think there's going to be tremendous opportunities for us to play a broader role long term. And the final thing I guess I would mention is just how the engagement with the Silicon players, our partnership with NVIDIA. is very quickly starting to build a strong pipeline of opportunity. So, you know, this broader ecosystem player with the Silicon players, with the QNX everywhere and Launchpad programs, puts us square into, I think, a leadership position long-term.

Whether that develops into a broader platform stack along the lines of what we're doing with AlloyCore, you know that's that's probably something that'll develop over time the next question comes from paul treber with rbc capital markets please go ahead oh thanks for taking the question and good morning uh congrats on a strong quarter just trying to understand that the cadence of q and x's growth here uh and just looking at the you know the the typically you know the year is is back end loaded um you know based on our calculations you know guidance does imply that that that q4 revenue uh for uh for q and x is is down slightly from q3 and in the growth slows can you just speak to that that cadence through the year um and then you know what if anything is is driving that slower growth in q4 yeah i i think i'll start paul tim you can you can chip in um You know, we, you know, we continue to, you know, try to encourage everybody.

I mean, this is a this is a long term business with long sales cycles and long production. So, you know, kind of the longer term growth trends, we think is the important thing for for everybody to to focus on. um you know quarter over quarter variations um is not how we manage the business not how we invest is not how we partner with our customers so um yep from from quarter to quarter things um things can be there but overall when you when you look at the year at the midpoint level where we're at now uh you know we're projecting it to be 19 percent uh growth year over year which is, I think, really strong growth. It's above what we thought we would be at the start of the year. You know, the fact that the other thing I would say is the design wins and the fact that we booked more design wins in the first half of the year than we booked in any full fiscal year ever in the business's history. These are all, to me, they point to strong long-term fundamentals of the QNX business. So I'd avoid getting too fixated on quarter to quarter and what that might look like because I think the long-term trajectory of the business is really in a healthy place.

QNX is definitely not slowing down. If anything, it's accelerating. But from quarter to quarter, that's not going to be linear.

That's good to hear. A second question. Just on, you mentioned the prepared remarks that there's now contracted minimum royalties and that led to some of revenue being recognized at an earlier stage. Can you elaborate on that? In particular, when did you start to see a larger number of these contracted minimum royalties in contracts?

And what was the magnitude of contribution from that in Q2? you so we yeah this is this is a really good opportunity for us as part of our transition to sdp8 and the significant incremental value that we bring to our customers ultimately it gives us greater certainty as we look forward um as john mentioned it's is moving away from non-contractual forecast towards contractual fixed minimums and for us that in addition to certainty also accelerates receipt of cash which obviously every company is looking to do as part of that there is potential for a portion of revenue to be to be recognized earlier i mean we're kind of feeling our way into this right now it's for new contracts and um and it over time we should see this start to grow um but for us this is great i mean it's just greater greater certainty earlier cash and ultimately potential for some revenue too the only thing i would add to it paul is um what we all the things tim said uh really helped the business in so many ways but the the customer dynamic what we love about it also the conviction that our customers have with our product this is

a strong statement because typically in the automotive industry, they give you an estimate and they'll adjust you. Now our customers are coming in and say, we're bought into you guys for the long term to the point where we'll actually make a minimum commitment. That's a new dynamic. And I think that is attributable to how the strength of the product is and our vision and where we're going, that they want to make a longer term firm commitment with us, which is you know, definitely an inflection point from where we were a few years ago.

The next question comes from Todd Kooplin with CIBC. Please go ahead.

Yes, great. Good morning, everyone. I'm wondering if you can talk about the Ally Corps pipeline. Obviously, great to see the first deal. Just talk about the nature of that pipeline. Is it commercial or is it in light vehicles? Talk about expectations for the second half of the year in terms of future design wins and how they might compare to this first win. Thank you.

Thanks, Todd. Yeah, really healthy pipeline, I would tell you. And it does span everything. It just so happens that Cotura and the commercial was the first one out of the gate. But we've got a lot of global OEMs and tier ones that we're engaging with on the passenger vehicle side of the equation as well. So a lot of activity right now, particularly in Europe and Asia, with engagement on how this simplifies their world. I think the value proposition of us partnering with Vector and stitching together a broader set of safety certified platforms and capabilities that will allow them to focus on some of the more differentiated, I think that's resonating. And I think if anything, you know, the alloy core, the Cortora win, you know, generally, well, you know, people, I think we get more interest, you know, hey, tell us a little bit more about that. How can that work for us? So we're a very healthy pipeline. Obviously, they're big decisions that take time to work through the funnel. But we're very excited about what this could mean for the business long term.

And then my second question had to do with U.S. Fed. You've obviously clipped the guidance for the second half of the year. What would you expect with what you know now to get visibility on whether or not that's actually going to play out?

Yeah. As Tim mentioned in his remarks, we don't see anything, you know, today that specifically is creating that. It's more of, I think, a general, you know, cautionary. A lot of, you know, we think about the SecureCom's business, 220 plus million dollars of it is ARR, very durable, very good, strong line of sight, too. And then the balance between our guidance and our, you know, new deals, upfront revenue. And with all, you know, just the geopolitical uncertainty that's happening around the world, the timing of some of those deals, I don't know. It's just we feel a little bit more uncertain about it with some of the unrest that's happening around the world and trade conversations and all those types of things. So we thought it was prudent to just take a little bit more of a cautious tone on the timing of some of those new opportunities, because, you know, the government in and of itself tends to be a bit of a longer sales cycle. We'll add on top of that some of the geopolitical activity now. We thought the right thing to do was to be a little more cautious there.

The next question comes from John Chow with TD Cowan. Please go ahead.

Good morning, guys, and thanks for taking my question. John, you mentioned RoboTaxi, and congrats on the win with Uber. Could you help us frame this RoboTaxi opportunity as whether exposure is direct or indirect, and the content per vehicle, and maybe comment on the timeline?

Yeah, good questions. Timeline, like I said, RoboTaxi's a tremendous opportunity. There's been a lot of innovation and a lot of investment going into it and really started to see that look, take the next step from a concept to more production. So our partnership with a company like Uber, we think, puts us in a strong position, you know, for that over time. I will say, though, you know, the whole physical AI space, going back to my analogy of baseball, we're in the early days here. You know, the ASP per car, you know, whether it's a broader kind of alloy core type of play that there's so many variables right now in a market that's just really starting to develop and starting to mature that, you know, we'll play that out. But we do think our strong pole position with our safety-certified foundational software capability starting to resonate with the robo-taxi, we think that's a really strong place to be.

And, you know, as the industry develops, we think we're in a really good position to capture more than our fair share of the market. thanks to the color and if i plug into our operating cash flow guidance i think the company is going to have close to half a billion dollar cash by the end of this physical year and tim you mentioned the company will consider token acquisition especially in the gem space so could you help us understand your current pipeline in terms of and how how you value this deals and what what the trigger is is more driven by the valuation or functionality and you're actually okay with paying a premium yeah so a lot of good things in there john so first of all it's a good

problem to have it's a good problem to have like what are you going to do with the all the cash that we're generating so i mean we we are as we mentioned we're doing we're investing in the business right now we'll take a look at share buybacks as well when that's appropriate but But yeah, M&A, we see a really large opportunity in GEM, in physical AI and all the other verticals that John mentioned. So if we can fast track, then we will. We've got the balance sheet to give us the flexibility to be able to do that. But like it was mentioned, the bar is going to be high. The strategic fit has to be very good. The financial profile has to be appropriate. and it really does have to move us further down the field quite meaningfully. So we continue to look at opportunities. The team, our corp dev team and also the QNX team, they spend a lot of time looking at this. So we're not going to say much more than that today as you'd probably expect, but if something comes up that fits our criteria, then we're definitely in a position to be able to execute on it.

The next question comes from Kingsley Crane with Canaccord Genuity. Please go ahead.

Hi, thanks for taking the questions. Been bouncing on a few calls, so apologies if some of this has been asked, but just want to frame the Cortura, you know, record win in another way. So of the $100 million added to backlog, just trying to get a sense of maybe what the value of that deal would have been if you had been chosen more for basic capabilities like base OS and hypervisor versus this AlloyCore engagement.

Yeah, I think we tried to address it a little bit in our comments around the Cortora win. And if we had just done a traditional QNX operating system addressing maybe one or two domains relative to the more, you know, complete platform approach that we kind of a holistic car approach that we're moving towards with some of our customers, It probably adds, you know, probably three times a normal ASP of what it would be on a traditional, you know, SDP-8 alone type of approach. So I think it's a combination of moving up the stack and moving into more domains. You know, a few years ago, a lot of what we did, you know, was digital cockpit. Now it's ADAS, it's body control. It's a broader set of capabilities. And that coupled with the middleware layer and some of the diagnostic systems and capabilities that Vector brings to the table, the combination of those two stitched together with services that delivers it reliably for our customers, I think that's what's really expanding the addressable market and our ASP per vehicle in a material way. So hopefully that gives you a little more color on how that opportunity is materializing.

Okay, really helpful. And then, Tim, understood on the comments around conservatism on secure comms in the back half, it just seems like based on the updated guidance in the implied Q3, Q4 split that almost all of that conservatism is applied to Q3, at least in our model. So is that the right way to think about it? Is that purely due to the sort of federal concerns? And just how to think about those two quarters things.

Yeah, so I think John addressed this earlier, but just to reiterate the point, the way we look at the secure comms business, which remains stable, it remains profitable, it's generating cash, is that it has a solid base of ARR, which is roughly speaking around about 80% of that business. And then 20%, the remaining 20% of the guide really relies on some bigger government opportunities that drive in quarter revenue. So right now, we're just feeling not as good in terms of the timing of some of those deals. Not that they're necessarily going away, but the timing becomes slightly less certain than before. So as a result, we're just taking a prudent view on things and see where things kind of land. But like John mentioned in his remarks, we haven't seen, well, actually it's me, we haven't actually seen anything material so far. So let's hope that remains the case.

I would like to turn the call back over to John Giamatteo of CEO of BlackBerry for closing remarks.

Terrific. Thank you, Betsy. Hey, thanks everybody for joining today's call. Thanks for your interest in BlackBerry and the exciting business and opportunities that we have in front of us. We look forward to providing you a good comprehensive update on the business next quarter. Thanks again for being with us.

This concludes today's call. Thank you for your participation. You may now disconnect.