Release Date: December 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- BlackBerry Ltd (BB, Financial) achieved profitability and positive cash flow for the first time in 12 quarters, excluding the impact of the Malikie sale.
- The IoT division delivered strong revenue growth of 13% year-over-year, driven by royalties and development seat licenses, particularly in the automotive sector.
- The cybersecurity division exceeded revenue expectations with $93 million, achieving 7% sequential growth, and a 10% increase in the secure communications division.
- The sale of Cylance to Arctic Wolf is expected to strengthen BlackBerry Ltd (BB)'s balance sheet and align with its strategic direction.
- Gross margins improved both sequentially and year-over-year to 74%, with the IoT division achieving an 85% gross margin and cybersecurity improving by 12 percentage points to 67%.
Negative Points
- The cybersecurity division faced a tough year-over-year comparison due to a significant multi-year deal with the Malaysian government in the previous year.
- The QNX business faces challenges in the automotive sector, with fluctuations in development seat licenses impacting revenue.
- The Secure Communications division is not expected to be a major growth driver, with a focus on stability rather than significant expansion.
- The company is experiencing a shift in revenue mix, which may lead to lower margins in the upcoming quarter due to increased hardware components.
- The pending sale of Cylance has led to the withdrawal of previously provided guidance for the cybersecurity division, creating uncertainty in future projections.
Q & A Highlights
Q: Is the EBITDA by segment excluding corporate costs, and can you explain the sequential step down in EBITDA despite flat revenue?
A: Tim Foote, Chief Financial Officer: The EBITDA by segment does not include corporate costs, which were about $9 million this quarter. The sequential step down in EBITDA is mainly due to a shift in mix. This quarter had strong licensing revenue for the Secusmart business, which has high margins. In Q4, we expect a shift towards lower-margin hardware components. Additionally, we are investing in growth opportunities for the QNX business, increasing headcount and expenses in R&D and sales and marketing.
Q: What are the priorities for the capital from the Cylance sale, assuming the deal closes?
A: John Giamatteo, President - Cyber Security: Our priorities include strengthening the balance sheet and investing in growth opportunities, particularly in IoT. We are considering organic growth and potential small tuck-in acquisitions to scale in the IoT space. Additionally, we may consider stock buybacks as a good use of capital, depending on the stock price.
Q: Can you provide insights into the mix of QNX revenue streams and expectations for fiscal '26?
A: Tim Foote, Chief Financial Officer: The QNX revenue mix is approximately 20% development, 20% services, and 60% royalties. This mix can shift quarterly, especially with development seat licenses. We expect challenges to persist but anticipate an uptick in development revenue as OEMs address challenges and richer designs come into play.
Q: How did the Secure Communications segment perform, and what is the outlook for its DBNR?
A: John Giamatteo, President - Cyber Security: The Secure Communications segment performed well, with a 95% dollar-based net retention rate (DBNR). We aim to maintain this stability and potentially increase it. The AtHoc business, in particular, has strong renewal rates. We expect less volatility in DBNR without the Cylance business and anticipate stronger performance going forward.
Q: How do you reconcile IoT royalty strength with the weak macro backdrop?
A: Tim Foote, Chief Financial Officer: The growth in QNX is driven more by content per vehicle rather than the number of vehicles produced. We do not rely on a growing SAR (Seasonally Adjusted Annual Rate) for QNX growth, as the content piece is more significant.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
