Conference Transcript - BB 2026-08-12

Kingsley Crane, Analyst — Canaccord

Hi, everyone. Thanks for joining. Again, Kingsley Crane, a technology analyst here at Canaccord. Thrilled to have the BlackBerry team with us here once again. We've got John G. Mateo, CEO, and Tim Putts, CFO. Thank you so much for being here.

Tim Foote, CFO

Thank you, Kingsley.

Kingsley Crane, Analyst — Canaccord

Maybe we'll start with you, John. You reported Q1 back in June, 26% growth, Rule 40 business in both segments, your first cash-positive fiscal Q1 in nine years, and you raised the full-year guide. So you've described this as a transition from a turnaround to profitable growth. Just what's working now that maybe wasn't working two years ago?

John J. Giamatteo, CEO

Yeah, when we sat here a couple of years ago, I think we were still on our journey. And part of that journey, I think, has been laser-like focus on two specific areas of the business. I think when we made our transition 10 years ago off of devices and into software and services, we dabbled in a lot of different things. We got into the endpoint security game with the silence acquisition. And I think narrowing our focus towards mission-critical secure communications on the secure comm side and really fueling the investment on all the growth opportunity that we see on the Q&X side. I think that laser focus on those two things, you know, sometimes, you know, you take all the oxygen out of the air when you have a big acquisition.

Kingsley Crane, Analyst — Canaccord

And I think by divesting that and really honing our focus, our money, our resources onto those two parts of the business, I think that's helped us with sustainable execution and where we are today. so when you look at how the stock is traded it kind of oscillates between well in the past it's been more of this value sum of the parts debate and then it becomes you know this much broader growth narrative uh can you how do you manage the business through that kind of transition internally and then how do you manage your investor expectations maybe you might both have something to say yeah yeah um that's so it's always hard uh but i guess what i would say more

John J. Giamatteo, CEO

fundamentally you know you know we're not stock pickers you know we're we're business builders and that's that's really what we focus on is really uh building a strong you know foundation for growth for the company for the long term the stocks you know it's going to do what it's going to do from from time to time but i think if we're growing uh we're generating profit our margin expansion over the last quarter uh uh has been exceptional uh and generating cash if we're hitting those fundamentals i'm sure the stock is gonna is gonna take care of itself um and i think

Tim Foote, CFO

that's what we're starting uh we're starting to see that's a perfect summary nothing more to add to that yeah exactly focus on the fundamentals and we're delivering so worth pointing out you have nearly a billion and in backlog could you just walk us through how that backlog converts what happened what has to happen between a design win and start a production and how we could expect you know that to play over the next couple years is there any way to accelerate it yeah so we're really proud of our QNX royalty backlog it's a it's a great great aspect to the Q&X business that makes us a really long-term business and also gives us a great deal of visibility that other software companies just don't have. So, like you say, we're just short of a billion. It's been growing really healthily. This past year, we added twice as much into that royalty backlog as we took out to recognize in the P&L. So, that's a really healthy leading indicator. If you keep doing that in the long term, you're going to be growing the business pretty solidly. So one of the questions I get is how robust is that backlog number? So we monitor churn on an ongoing basis, and the churn is pretty low, relatively low, single-digit percentage churn. And partly that's because we're so diversified with our Q&X business that we work with so many different OEMs. We work with different powertrains, for instance, so EV versus ICE versus hybrid. So if one is winning and one's losing, we kind of ride the waves with that. So the question about conversion into the P&L, so that 950 million, when we look at it today, first of all, it's not a static number. As we go forward, we're adding new designs every quarter. But if we take that number as it is today, what we see is sequential growth every year for the first four years. And in that first four years, we're converting more than half of that backlog into the P&L. Then obviously, it starts to tail. But like I said at the beginning, we're really pleased about the growth in that backlog, and it's a great asset for the company.

Kingsley Crane, Analyst — Canaccord

How about development licenses? You had those be the strongest they've been in quite some time, this most recent quarter, and you called out that that can be viewed as one of the earliest indicators of future growth. So how should we think about those serving as a leading indicator and then just the timeline for that to translate?

Tim Foote, CFO

That's a great question. So when we think about QNX, there's always a lifetime to every design that we get built into. So be that a car, be it a robot, be it a medical instrument, there's kind of a similar pattern in that at the beginning, meaning OEM will buy software development licenses. So it's really an SDK, software development kit, for developing software on top of QNX. And we take most of that revenue up front at that point. Then over a period of somewhere between a year and three years, depending on what they're developing, they're going to develop the software that goes into that endpoint. They'll consume professional services. But then the really interesting bit happens when it goes into production, which is when we start to get royalties. The royalties are 100% revenue, 100% margin revenue, excuse me, and that's what we're talking about with this billion dollars of backlog. So the fact that we've had a record quarter this past quarter for that early stage revenue, the development licenses, is a really good leading indicator that people are developing on QNX, In particular, our latest version of QNX, called SDP-8, for future designs that will come into production.

Kingsley Crane, Analyst — Canaccord

Right, so you called SDP-8.0, which also now has AMD x86 support alongside ARM support. What is it about 8.0, other than being the latest and greatest piece of software, that has developers excited, has customers excited?

Tim Foote, CFO

Yeah, maybe I'll start with you, feel free. So we're really pleased about this development. It creates more clear blue water between us and the competition. So one of the things we're seeing, and it's actually a real tailwind for this business, is a move towards high-performance compute at the edge. So in the past, you'll see a car will have 200 small ECUs powering single functions. Not very interesting to QNX because QNX handles complexity, high performance. It's not really designed for that. What you're seeing is a consolidation of those chips into fewer high-performance chips. And the really important thing is, if you're making that investment into the silicon, are you getting the bang for the buck in terms of the software? Does that translate into what you can do with the software? And the older version of QNX, and certainly the latest version of many of our competitors, they don't harness that full potential of the chip. Whereas SDP-8 has been developed to scale. So you go from two cores to four cores to eight cores. Are you seeing that linear scaling of performance? And SDP-8 does that. And it puts us in the same conversation as Linux from a performance perspective. But importantly, we're real-time, we're deterministic, with safety certified, which is obviously what Linux is not. So it puts us into a category of our own.

John J. Giamatteo, CEO

Yeah. The only thing I would add on top, I think that's the biggest part is that high-performance compute and taking the advantage of all the technology that's coming out. But the other little kind of, I think, nuggets of QNX goodness that goes along with that on STP or, you know, things like safety certifications as it goes, continuing, you know, that on everything that we do, real-time determinism on everything that we do as we go to SDP-8. You know, for our customers, having backwards compatibility is an important aspect, so it helps them seamlessly move to the next level at their speed. So I think the high-performance compute advantages with all the other kind of things that come along with the value proposition of QNX is one of the reasons why we think SDP-8 is getting so much traction right now.

Kingsley Crane, Analyst — Canaccord

So SDP-8 is getting a lot of traction now. AlloyCore could be a huge opportunity, and you're starting to see that become more relevant or you will over the next year is the idea. So what does that do to content and economics per vehicle? And then does that end up changing who you compete with materially?

John J. Giamatteo, CEO

We're excited about what this opportunity represents. Everything that we've achieved thus far, and I'll point out that the $950 million backlog has no alloy core in it yet at this point. and when you think about us moving up and going from an OS provider to a platform provider inside the quantum of increase there, multiples dramatically, and we're just scratching the surface we've got a tremendous pipeline and we think that's going to fuel the next kind of you know version of growth for the company on the QNX side of the business so alloy car and I think what's great about it really solves a need for our customers you know all of this pulling together software different middleware OS application pulling all this together and stitching it together and bringing it to the marketplace you know that's not easy that's it's not a core competency that I would say a lot of our customers have so the fact that they can lean on a company like us who has those core competencies at the OS level the partnership that we put in place with vector which is the biggest middleware player stitching all of that together delivering that to them in a high performance way that that helps reduce their cost and enables them to focus on the application layer where they can really differentiate themselves I think all those those kind of value propositions are coming together and we think is going to generate a real good opportunity for us in the future so it's a high performance platform and it can reduce some costs for customers but certifying some of these components can also take quite a while and that's the significant value for customers would that also potentially shorten that

Kingsley Crane, Analyst — Canaccord

timeline for backlog conversion for an alloy core customer could that be a benefit in the future?

John J. Giamatteo, CEO

Yeah I think it could I think it absolutely could but we're you know right right now we want to come back here and announce our first alloy core win uh get that get some some some runs on the board with that um we couldn't be more excited about where that's tracking right now so uh stay tuned watch this space and we'll be we'll be back with some news when we get some big wins that the first place you're really going to see alloy core show up you're not going to see it show up on the pnl you're going to see it show up been our backlog because just all the the way the revenue model runs through the process so when you

Kingsley Crane, Analyst — Canaccord

see us announce a you know we're at 950 million I think is where we you know when we when we exceed the billion dollar mark you know we are making progress in our vision and our goal and we hope to you know to get there so when we talk about physical AI it's important to think about probabilistic versus deterministic and especially when you think about safety and some of the implications for for human safety and one of the quotes that you've had that I like is that you know cars robot on wheels but like can you just help the audience understand why your success and automotive it's you know places you in a strong competitive position to win the general embedded

John J. Giamatteo, CEO

market thanks for taking that up King that is that's that's the thing we're excited about everything at BlackBerry, I will tell you. It's just not only the core business and the alloy core opportunity and, you know, even secure comms is actually firing all cylinders last quarter. But in this particular topic, there's a lot of investment going into it, as you all know, when you have a company like NVIDIA, you know, talk about how this could be a $4 trillion kind of market over the course of, you know, the foreseeable future, and us having a deep partnership with a company like Invitas. They developed their Halo safety stack and all the different applications for things like robotics, for things like, you know, surgical robotic arms in the medical space, industrial automation AMRs and autonomous forklifts you look at all of these use cases all of these applications when you have a partner like Nvidia come out and say our entire halo safety stack is on top of QNX that's a heck of a statement you know that's a that's a heck of an endorsement. And I think the traction that we got, the subject matter expertise that we put in place on the automotive side, and the fact that almost every car manufacturer in the world is adopting QNX and different variants of it, I think is a great testament to how well positioned we are to address this exploding, you know, market, how fast it's going to explode, where it's going to explode. You know, we're following all of that and we're partnering with all the right players. But I think when it does, you know, take off in earnest, I think we're couldn't be better positioned to participate in it.

Kingsley Crane, Analyst — Canaccord

So you mentioned that endorsement from NVIDIA with Halos. You also have strong relationships with Qualcomm and ARM. How much of this build out over the next couple of years is going to be channel-led versus direct sales? And maybe you can get your tentacles out within the channel before it ramps more materially.

John J. Giamatteo, CEO

You know, I think our... What's great about our channel model is, while we have these great partnerships with Qualcomm and NVIDIA and Texas Instruments, ARM, NXP, you name it, you know, we've got a great deep partnership and they love the fact of what our software can do to enable their high compute technology in all these different applications. So when they come out to a robotic manufacturer and say, you know, our entire stack has been developed on top of QNX, that in and of itself gives us a position because that endorsement so we most of our applications most we are working directly with the oems sometimes there's a tier one provider in in part of it but the this partnership that we have with the silicon players is more like a give and take for both of us you know we developing this high performance software they're developing this high performance hardware we're bringing we our interests are completely aligned because of how well we're positioned and we've proven that with the automotive space and now that's starting to take hold in this whole physical ai explosion that we're starting to see so just want to circle back on timing you know we might not necessarily know how quickly this could develop but automotive that's closer to three to five years, how do you think that could play out in physical AI and robotics? Yeah, I think it's early days for, again, a lot of this is going to show up in, for us, backlog, which will turn into revenue, which will turn, but what's encouraging to us is just the momentum, the investment, the massive, And when the industry puts this level of energy and investment into a category like this, we think there's a near-term opportunity for us to really drive this part of the business forward. You know, we're, I think, in a really good position. The fact that we have such a strong position with automotive as our kind of foundational component. And then, you know, the fast-growing aspect of physical AI, you know, albeit on a small base, it's one of our fastest-growing segments inside the company right now. But, you know, we see opportunities, real opportunities coming through the pipeline right now.

Kingsley Crane, Analyst — Canaccord

I want to touch on secure comms as well. So you had an excellent quarter. I think revenue grew 24%. ARR was closer to flat. DBNRR is still. remains below 100%. So can you just remind us how much of that was related to deal timing, how you think that could play over the next couple quarters and is 100% in our aspirational or like what's the pathway to get there?

Tim Foote, CFO

A lot of questions in there, but great questions. So we're really pleased about the turnaround in the secure comms business. I think if you looked at it a couple of years ago, the profile is very different to where we are now. We've repositioned that towards some modest growth now. profitable cash flow generative and importantly you mentioned dollar base net retention but I think more holistic is ARR. So ARR has been growing sequentially each of the last four quarters and this past quarter it was five percent higher year over year. That means when you look at dollar base net retention we've had some churn in our more commoditized UEM product which is why that's not at 100%, but we're replacing that with at least that again in new business that we're winning. So we're winning in a number of different verticals right now, particularly government and defense, where obviously there's some budget expansion, and that's a tailwind for this business. So net-net, overall, we're seeing a growth in ARR. And if you look at our guidance, we're guiding to around about 270 million-ish for the year. 220 million of that is ARR, so very solid, very recurring. So that means there's a bit of a go-get. In Q1, we had a really big win with the Canadian government for deployment of our SecuSmart encrypted voice and data platform. We see a pipeline of similar kind of opportunities, but timing can be a little bit variable. Government's great. Once you're in, you're in for a long time, but sometimes it can take a little bit of time to get in. So you're going to see a little bit of variation from quarter to quarter, but what I would urge people to do is more look at the trend line from year to year, which right now we believe is looking positive.

Kingsley Crane, Analyst — Canaccord

So a big benefit for secure comms has been sovereign demand. So defense budgets are rising across NATO. You have excellent demand, sovereign demand in Europe. But how cyclical do you think that that is and then how structural that could be and just the impact on secure comms demand?

John J. Giamatteo, CEO

Yeah, we, to Tim's point, 80% of that business, I don't want to say you could set your watch by it, but it's repeatable, it's reliable, it's recurring. it's something. The other 20% in governments, you know, we found since 75% of that business is actually with governments around the world, that that tends to be a little, you know, could be a little lumpy from time to time. Right now, there is a lot of activity, a lot of, you know, geopolitical and all the different, you know, dynamics that are happening around the world that I think is having a lot of governments ask about their mission-critical communications, enhanced encryption technology like our SecuSuite portfolio, our ad hoc emergency notifications is deployed widely through governments around the world. So we certainly are seeing, you know, some demand and some uptick in opportunities around that, you know, but, you know, at the same time, you know, governments, it's one of those it takes a while to get in. You know, you've got to go through high levels of certification, FedRAMP. In Germany, they have a BSI certification that we're one of the only vendors that has passed it. So now they're talking to us about mobile device management broadly across the German market. So it's kind of, you've got to stick with it. And then once you get in, it becomes a sticky, longer-term relationship. So definitely some ebbs and flows that go along with that part of the business, but we feel like it's certainly stabilized, solid profitability and solid cash generation that helps us invest in growth opportunities like QNX and other parts of the company.

Kingsley Crane, Analyst — Canaccord

Getting close on time, just want to make sure the audience has a chance to ask a question if they'd like. Like, I mean, John, Tim, any parting words for our audience?

John J. Giamatteo, CEO

Hey, thanks for coming out. We appreciate your interest in the company. A few years ago, there was a few less people in this room. So we appreciate, you know, the interest in the company. What I would tell you is we are on a rock-solid foundation now. We've got good line of sight to top-line growth. We've got great line of sight to margin expansion, the way we've addressed the cost structure of the kind of what I would call the old bloated BlackBerry is trim, it's lean, it's mean, it's focused. So when we start to see these upside, top-line opportunities, they drop right to the bottom line pretty quickly, which enables us to get to a rule of 40, even sometimes a rule of 50 type of quarter, which is something that we're proud of. The only other thing, since where the clock has ticked off, is I would tell you it's a little bit of a softer thing. We're here at a finance conference, and everybody's talking numbers and trends and all those things. But I would tell you the employee engagement across BlackBerry globally has never been higher. People are excited. Our people are loving what they're doing. They love the contributions that they're making to the industries that they operate in. And I think that's another little bit of piece of the special sauce that's helped us kind of engineer this turnaround is our people are completely engaged with it as well. So, Kingsley, thanks for the opportunity. And thanks, everybody, for coming out and hear our story. Thanks so much.