BlackBerry Limited (BB) Earnings Call Transcript
August 12, 2026
Earnings Call Speaker Segments
Hi, everyone, thanks for joining again. I am Kingsley Crane, a technology analyst here at Canaccord. Thrilled to have the BlackBerry team with us here once again. We've got John Giamatteo, CEO; and Tim Foote, CFO. Thank you so much for being here.
Thank you, Kingsley.
Thanks, Kingsley.
Maybe we'll start with you, John. You reported Q1 back in June, 26% growth, Rule 40 business in both segments, our first cash positive fiscal Q1 in 9 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 2 years ago?
Yes. 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 2 specific areas of the business. I think when we made our transition 10 years ago off of devices and into software and services, We were -- we dabbled in a lot of different things. We got into the endpoint security game with the Cylance 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 QNX side. I think that laser focus on those 2 things sometimes, you could take all the oxygen out of the air when you have a big acquisition and I think by divesting that and really honing our focus, our money, our resources, onto those 2 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 has traded, it kind of oscillates between in the past, it's been more of this value, some of the parts debate. And then it becomes this much broader growth narrative. Can you -- how do you manage the business through that kind of transition internally? And then how do you manage investor expectations? Maybe you might both have something to say.
Yes. Yes. It's always hard. But I guess what I would say more fundamentally, we're not stock pickers. We're business builders. And that's really what we focus on is really building a strong foundation for growth for the company for the long term. The stock -- it's going to do what it's going to do from time to time. But I think if we're growing, we're generating profit. Our margin expansion over the last quarter has been exceptional and generating cash. We're hitting those fundamentals. I'm sure the stock is going to take care of itself. And I think that's what we're starting to see.
That's a perfect summary, I have nothing to add to that. Yes, exactly focused on the fundamentals, and we're delivering.
So worth pointing out, you have nearly $1 billion in backlog. Could you just walk us through how that backlog converts. What happens -- what has to happen between a design win and start of production and how we could expect that to play out in the next couple of years? Is there any way you accelerate it?
Yes. So we're really proud of our QNX royalty backlog. It's a great aspect to the QNX 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 $1 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 it's a really healthy leading indicator if you keep doing that in a long time -- term, you're going to be growing the business pretty solidly. So 1 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 QNX business that we work with so many different OEMs and -- we work with different powertrains, for instance, so EV versus ICE versus hybrid. So if 1 is winning and when 1 is 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 4 years. And in that first 4 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.
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 1 of the earliest indicators of future growth. So how should we think about those serving as a leading indicator and then just the time line for that to translate .
That's a great question. So when we think about QNX, there's always a life time 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 the -- at the beginning, 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 upfront at that point. Then over a period of somewhere between a year and 3 years, depending on what they're developing, they're going to develop the software that goes into that end point. They will 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 $1 billion 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 and in particular, our latest version of QNX called SDP 8 for future designs that will come into production.
Right. So you called SDP 8.0, which also now has AMD X86 support alongside Arm support -- but what is it about 8.0 other than being the latest and greatest piece of software that has developers excited as customers excited? .
Yes. Maybe I'll start with you, feel free. So this is -- we're really pleased about this development. It creates more clear blue water between us and the competition. So 1 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, like does that translate into what you can do with the software? And the old 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 has been developed to scale. So you go from 2 courses to 4 calls to 8 calls -- 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. We're safety certified, which is obviously what Linux is not. So it puts us into a category of our own. .
Okay. 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 SDP are things like safety certifications as it goes to continuing that on everything that we do. Real-time determinism on everything that we do as we go to SDP 8. 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 that with all the other kind of things that come along with the value proposition of QNX is 1 of the reasons why we think SDP is getting so much traction right now.
So SDP 8 is getting a lot of traction now, Alloy Kore could be a huge opportunity. And you're starting to see that become more relevant you over the next year is the idea. But so what is that due to content and economics per vehicle? And then does that end up changing who you compete with materially?
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 Kore in it at this point. And when you think about Alloy us moving up and going from an OS provider to a platform provider inside the the quantum of increase their 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 version of growth for the company on the QNX side of the business. So Alloy Kore and I think what's great of it, it really solves a need for our customers. All of this pulling together software different middleware, OS, applications, pulling all this together and stitching it together and bringing it to the marketplace. That's not easy. 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 costs and enables them to focus on the application layer where they can really differentiate themselves. I think all of 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 a significant value for customers, would that also potentially shorten that time line for backlog conversion for Alloy Kore customer? Could that be a benefit in the future? .
Yes, I think it could. I think it absolutely could, but we're -- right now, -- we want to come back here and announce our first Alloy Kore win get that -- get some runs on the board with that. We couldn't be more excited about where that's tracking right now. So stay tuned, watch this space, and we'll be back with some news when we get some big wins that the first place you're really going to see Alloy Kore show up, you're not going to see it show up on the P&L. You're going to see it show up in our backlog because just all the way the revenue model runs through the process. So when you see us announce we're at $950 million, I think, is where we when we exceed the $1 billion mark, you know we are making progress in our vision and our goal. And we hope to get there.
Soon 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 human safety. And 1 of the quotes that you've had that I like as said cars, robot on wheels. But can you just help the audience understand why your success in automotive places you in a strong competitive position to win in the general embedded market.
Thanks for that opportunity. That's the we're excited about everything at BlackBerry. I would tell you. It's just not only the core business and the Alloy Kore opportunity and even secure comms is actually fired on 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 a company like NVIDIA talk about how this could be a $4 trillion kind of market over the course of the foreseeable future and us having a deep partnership with a company like [indiscernible]. They developed their Halo safety stack and all the different applications for things like robotics, for things like 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. 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 market. How fast it's going to explore, where it's going to explode. We're we're following all of that, and we're partnering with all the right players. But I think when it does take off in earnest, I think we're -- couldn't be better positioned to participate in it.
So you mentioned that endorsement from NVIDIA with Halos, -- you also have some 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?
No, 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. 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, 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, we are working directly with the OEMs and sometimes there's a Tier 1 provider in part of it. But this partnership that we have with the silicon players is more like a give and take for both of us. We develop in this high-performance software. They're developing this high-performance hardware. We're in -- 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 I just want to circle back on timing. You might not necessarily know how quickly this could develop. But automotive is closer to 3 to 5 years. How do you think that could play out in physical AI robotics?
Yes. It's -- I think it's -- it's early days for -- again, a lot of this is going to show up in -- for us, backlog, which will turn it to revenue, which will turn. But near-term opportunity for us to really drive this part of the business forward. 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 the fast-growing aspect of physical AI albeit on a small base, it's 1 of our fastest-growing segments inside the company right now. But it's -- we see that -- we see opportunities, real opportunities coming through the pipeline right now.
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. So 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 of quarters? And is 100% NRR aspirational? Or like what's the pathway to get there? .
A lot of questions in there, great questions. We are 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-based net retention. But I think more holistic is ARR. So ARR has been growing sequentially each of the last 4 quarters. And this past quarter, it was 5% higher year-over-year. That means when you look at dollar-based net retention, we've had some churn in our more commoditized UEM product which is why that's not 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 we as 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 is 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.
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. How cyclical do you think that, that is? And then how structural that could be and just the impact on secured comps demand?
Yes. We -- to Tim's point, we've -- 80% of that business I don't want to say you get set your watch by it, but it's repeatable, it's reliable, it's recurring. It's something -- the other 20% in governments, we found since 75% of that business is actually with governments around the world. That tends to be a little -- could be a little lumpy from time to time. Right now, there is a lot of activity go out of geopolitical and all the different 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 SECI Suite portfolio. Our ad hoc emergency notifications is deployed widely through governments around the world. So we certainly are seeing some some demand and some uptick in opportunities around that. But at the same time, governments it's 1 of those, it takes a while to get in. It's -- you got to go through high levels of certification Fed ramp in Germany, they have a BSI certification that we're 1 of the only vendors that have passed it. So now they're talking to us about mobile device management broadly across the German market. So it kind of -- you 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 opportunities like QNX and other parts of the company.
Getting close some time. I just want to make sure the audience has a chance to ask a question if they'd like. I mean, John, Tim, any parting words for our audience?
Thanks for coming out. We appreciate your interest in the company. Few years ago, there was a few less people in this room. So we appreciate 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, 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. It's not -- we're here in a finance conference and everybody's talking numbers and trends and all of 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 a 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.
Thank you .
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