BlackBerry Ltd. Q2 FY2025 earnings call

• IoT Highlights: Strong revenue growth, production-based royalties improved due to royalty backlog from design wins, secured new design wins in ADAS and digital cockpit. - Cybersecurity Highlights: UEM, AtHoc, and Secusmart showed growth, ARR stable, DBNRR improved. Cylance saw churn in product-only customers but MDR traction. - Cost Management: Achieved breakeven for non-GAAP EPS and adjusted EBITDA, operating expenses decreased to $99 million, cash usage better than expected.

IoT Division: Delivered revenue of $55 million, representing 12% year-over-year growth and 4% sequential growth, exceeding the top end of the guidance range. Gross margin improved by 1 percentage point sequentially to 82% due to favorable product mix. Cybersecurity Division: Generated revenue of $87 million, exceeding the top end of the prior quarter's guidance range and achieving 10% year-over-year growth. The three product groups (UEM, AtHoc, Secusmart) all delivered year-over-year growth, with ARR remaining stable at $279 million and DBNRR improving to 88%. Cylance had year-over-year decline in revenue due to churn in product-only customers, but MDR offerings offset some churn. Licensing business was broadly in line with guidance at $3 million.

• IoT: Q3 revenue expected to be in range of $56 million to $60 million; FY IoT revenue guidance raised to $225 million to $235 million. - Cyber: Q3 revenue expected in range of $86 million to $90 million; FY Cyber revenue guidance reiterated at $350 million to $365 million. Q3 adjusted EBITDA expected to be in range of break-even to positive $10 million, non-GAAP EPS between -$0.01 to positive $0.01. FY adjusted EBITDA expected in range of break-even to positive $10 million, non-GAAP EPS in range of -$0.05 to -$0.02. Q3 expected sequential improvement in cash flow, Q4 expected positive cash flow and EBITDA.

• Potential impact of proposed bans on Chinese auto software and hardware, which is being closely monitored. - Delayed or canceled OEM programs affecting the timing of royalty revenue in the future. - Market competition and churn in certain segments, such as Cylance product-only customers.

Q: What magnitude of opportunity does QNX Containers and the HaleyTek integration and launch open up?

A: Containers are part of TAM expansion, QNX moving to cloud with safety-certified containers; HaleyTek integration opens up sound as a new product element in vehicles.

Q: Just a question related to the EBITDA progression reaching break-even sooner than expected in the quarter. How to reconcile with full-year EBITDA guidance?

A: Q1 was at negative $7 million, Q2 broke even ahead of schedule, with sequential improvements expected from Q3 to Q4.

Q: Any potential impact from the proposed ban on Chinese auto software and hardware?

A: QNX is well diversified geographically and industrially, watching developments closely as China is an important market.

Q: How should we think about delayed or canceled programs impacting potential royalty revenue in several years?

A: Work not gone away, secular trends still there, long-term business with $850 million backlog, confident in secular trends despite timing bumps.

Q: The ARR kind of reversed trajectory, what changed?

A: Overall year-over-year relatively flat, some variability due to Cylance churn offset by UEM and AtHoc trends.

Q: First, there's an emergence of generative AI devices. Your views?

A: Resonate with startup perspective, will share more at Investor Day on capital allocations for AI-centric growth.

Q: On Cyber, I think I heard you say more customers are adopting your managed services offering, and that drove the year-over-year decline in Cylance revenue. Elaborate?

A: Cylance has product-only and MDR segments; product-only had sluggishness, but MDR from existing customers offset some churn.