The Bright Road Ahead for BlackBerry: Navigating Through Automotive Success and Cybersecurity Growth

Automotive Triumphs and Technological Advances

The past quarter showcased BlackBerry’s prowess in the automotive sector, driven by robust QNX development seat revenue. Within this realm, the digital cockpit and ADAS remained steadfast revenue generators, painting a picture of innovation and progress.

A high point was the unveiling of the next-generation QNX operating system, SDP 8.0. This leap offers unparalleled performance on cutting-edge silicon, a landmark advancement resonating deeply within the industry. The ripple effect of this milestone is akin to a stone cast into a calm pond, creating waves of excitement and potential.

Moreover, the integration of our Hypervisor into the cloud sphere marks a pivotal moment, exemplifying our commitment to adapt and thrive in a rapidly evolving technological landscape. The move not only fosters innovation but also streamlines processes, epitomizing efficiency and foresight.

Bolstering the IoT Business and Software Development

Looking ahead, a glance into the crystal ball reveals a landscape brimming with possibilities and potentials. Despite a predicted lull in Q1 for IoT business, the horizon remains promising, ripe with opportunities for growth and expansion.

The delays plaguing software-defined vehicle programs, while presenting short-term challenges, hold a silver lining of long-term prosperity. Automakers turning to BlackBerry for support underscore our expertise and reliability, paving the way for a symbiotic relationship grounded in trust and innovation.

By simplifying and accelerating software development processes, BlackBerry is poised to shape the future of the automotive industry, carving a niche as a trailblazer and a reliable partner.

Fortifying Cybersecurity and Global Impact

The cybersecurity division witnessed a flourishing quarter, surpassing expectations and charting a path of steady growth. The spotlight shone brightly on the Spark product group, with notable advancements propelling us forward into a realm of innovation and opportunity.

Remarkable renewals and new alliances, spanning the globe from the U.S. Air Force to the Netherlands police, underscore our unwavering commitment to excellence and security. The newly inaugurated Cybersecurity Center of Excellence in Kuala Lumpur stands as a testament to our dedication to fostering global cybersecurity expertise.

In essence, the cybersecurity market looms large, offering a fertile ground for growth and development. Steered by a steady hand and a prudent outlook, we are well-positioned to navigate the dynamic cybersecurity landscape, ensuring a stable revenue stream and sustained growth.

BlackBerry: Navigating Financial Waters with Precision

Financial Performance Overview

BlackBerry’s financial performance, presented in non-GAAP terms, showcases a total company revenue of 173 million for the quarter. The IoT sector contributed 66 million, with cybersecurity revenue standing at 92 million, and licensing revenue at 15 million. Notably, the percentage of recurring software product revenue surged to nearly 90%. Moreover, the total company gross margin climbed to an impressive 75%, accompanied by a reduction in operating expenses to $113 million.

Operational Efficiency and Growth Strategy

The non-GAAP operating expenses, excluding certain charges, reflected the company’s focus on efficiency and profitability. Both non-GAAP operating profit and net profit for the fourth quarter were strong at 16 million. BlackBerry surpassed expectations by delivering $0.03 of non-GAAP basic earnings per share for the quarter and reported adjusted EBITDA of 21 million.

Financial Outlook and Strategic Initiatives

Looking ahead, BlackBerry anticipates a range for EPS and adjusted EBITDA for Q1 and the fiscal year 2025. The company aims to exit the year on a positive note, achieving both positive EPS and operating cash flow in Q4. Additionally, strategic moves, such as a successful convertible debt raise, have reinforced the company’s financial position, enabling it to execute its long-term strategy effectively.

Cost Reduction Measures and Operational Optimization

BlackBerry’s proactive approach to cost reductions has yielded significant results. With targeted actions across various segments, including cybersecurity and central functions, the company achieved $55 million in savings. This emphasis on cost efficiency is driving positive outcomes, positioning BlackBerry for a path towards positive operating cash flow and adjusted EBITDA for fiscal year 2025.

Exceptional Performance Milestones

The quarter marked a series of achievements for BlackBerry. The IoT business experienced its best-ever revenue quarter and exceeded previous records for new backlog wins and royalty backlog. Cybersecurity ARR showed stabilization with sequential growth, while overall revenue witnessed a notable 5% year-over-year increase. Moreover, the company’s strategic cost-saving actions are enhancing EBITDA and cash flow projections for the upcoming fiscal year.

Q&A Session Highlights

Operator:

Thank you, sir. We will now begin the question-and-answer session.

Mike Walkley – Canaccord Genuity – Analyst:

Hey, John. Just wanted to delve into the improving ARR in the cybersecurity business. Could you shed light on BlackBerry’s position relative to legacy players and the growth outlook in this segment?

John Giamatteo – Chief Executive Officer:

We’re thrilled with the progress in stabilizing and gearing up for growth in our cybersecurity ARR. The journey involved substantial product enhancements and customer engagement efforts. As we pivot for growth, we are confident in our position vis-a-vis legacy players and optimistic about the segment’s growth trajectory.

The Future of Market Opportunities and Strategic Cost Management

Insight into Market Growth Potential

As we ponder future prospects, the landscape appears more settled, akin to a garden finding its balance. The legacy endpoint providers, reminiscent of industry stalwarts like Trellix, Trend Micro, and Broadcom Symantec, seem to be unlocking untapped potential.

Encouraging Growth Outlook

With the advent of the Cylance offering, a next-generation endpoint capability seems within reach, akin to a sprinter approaching the finish line with renewed vigor. Noteworthy is the acquisition of several new, albeit smaller, clientele over the past quarter, painting a promising picture for what lies ahead.

Addressing Challenges in the IoT Arena

Transitioning to discussions regarding the IoT business, there is a narrative of robust performance underscored by record-breaking figures and a robust backlog. However, amidst this success, hurdles in the form of delays mar the path, hinting at potential growth in the mid-single digits for the upcoming year.

CEO Perspectives on Overcoming Software Challenges

John Giamatteo, the Chief Executive Officer, sheds light on the persisting challenges faced in the software-defined vehicle sector. He articulates a landscape where hurdles persist, with complexities in software integration posing formidable obstacles. Despite concerted efforts to aid partners in their journey, the road ahead appears arduous, with no immediate signs of easing.

Backup Plans and Prudent Caution

The narrative shifts to contingency measures aimed at navigating the challenging terrain. Giamatteo’s stance on maintaining a cautious approach serves as a prudent strategy amidst uncertainties, underscoring the importance of foresight and preparedness in turbulent times.

Exploring IoT Innovations and Growth Potential

We pivot back to the realm of IoT innovation, where discussions veer towards the recent positive buzz surrounding CES announcements. The unveiling of SDP 8.0 at CES signifies a transformative leap forward, akin to a phoenix rising from the ashes, signaling a promising trajectory for the business.

Cost Management Strategies and Future Roadmap

A dive into cost-saving measures reveals a strategic shift towards optimal investments and streamlined operations. Giamatteo’s reference to industry consultations for benchmarking exemplifies a well-thought-out approach to aligning costs with industry standards, ensuring a sustainable and efficient operational model.

Financial Transparency and Business Segmentation

Amidst discussions on financial disclosures, a roadmap for segmented profitability analysis emerges, shedding light on the separation between IoT and cyber divisions. The forthcoming clarity in segmented profitability marks a step towards enhanced transparency, fostering a deeper understanding of the business’s financial dynamics.

Operator

Thank you. The next question comes from Paul Treiber with RBC Capital Markets. Please go ahead.

Paul Treiber — RBC Capital Markets — Analyst

The Rise of BlackBerry: Unveiling Future Opportunities and Cost Savings

CEO John Giamatteo’s Strategic Vision

BlackBerry, often likened to a phoenix rising from the ashes, recently showcased solid quarterly performance, setting new records within the Internet of Things (IOT) realm. The cybersecurity business has shown signs of stabilization, presenting a promising future. Under the astute leadership of CEO John Giamatteo, the company is paving the way for profitability by splitting into two divisions.

Strategic Cost Reduction Initiatives

Giamatteo spoke about the arduous task of trimming costs, highlighting a $105 million heavy lift in the last six months. This involved restructuring facilities, rationalizing labs, and optimizing the go-to-market strategy. While progress is evident, the CEO emphasized the complexity of further cost-saving endeavors. Giamatteo, akin to a seasoned chess player, acknowledged the need for caution and careful deliberation to ensure continuous business momentum.

Future Projections and Transparent Updates

The strategic trajectory shoehorns BlackBerry towards sustained growth and operational efficiency. CFO Steve Rai underscored ongoing structural transformations, emphasizing the incremental nature of these changes spanning multiple fiscal years. Giamatteo’s prudent approach to balancing agility with stability echoes a captain steering his ship through turbulent waters.

Commitment to Transparency and Investor Interest

Throughout the earnings call, the leadership team reiterated their commitment to providing transparent updates to investors. The company’s emphasis on meticulous planning and organic growth resembles a gardener nurturing a young sapling, ensuring it thrives in the competitive tech ecosystem. With a clear focus on financial discipline and future-oriented strategies, BlackBerry is poised for a resurgence in the ever-evolving tech landscape.

Closing Remarks

In closing, Giamatteo expressed gratitude towards shareholders and analysts for their participation. The optimistic tone of the call, akin to a crescendo in a triumphant symphony, reflected the unwavering belief in BlackBerry’s potential. As the call concluded, Giamatteo’s closing remarks were not just a formality but a heartfelt assurance of continued transparency and growth ahead.