BlackBerry Ltd. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• The past quarter was a significant inflection point for BlackBerry, with IoT and Cybersecurity divisions exceeding guidance ranges. The company returned to profitability with positive EBITDA and EPS.
• IoT overcame automotive challenges, with strong growth in royalties and development seat licenses, and secured design wins in various verticals including automotive, industrial, and rail.
• Cybersecurity division had strong revenue, with Secure Communications showing growth in UEM, AtHoc, and Secusmart, and ARR/DBNRR improving.
• The sale of Cylance to Arctic Wolf is a transformational move, aligning with strategic direction and strengthening the balance sheet.
• Focus on cost control kept operating expenses in line with Q2, contributing to the company's return to profitability.

Segment Performance

• IoT Division: Delivered revenue of $62 million, exceeding the top end of guidance range, with 13% year-over-year and sequential growth. EBITDA was $18 million, representing 38% sequential growth, and gross margins expanded to 85%.
• Cybersecurity Division: Excluding Cylance, Secure Communications had revenue of $93 million, achieving 7% sequential growth (10% for the Secure Communications division). EBITDA for the Secure Communications division excluding Cylance was $22 million, with a strong 30% EBITDA margin. ARR for Secure Communications excluding Cylance increased 3% sequentially and 8% year-over-year to $215 million, and the dollar-based net retention rate (DBNRR) was 95%. Including Cylance, cybersecurity had positive EBITDA of $8 million, with gross margins improving to 67%.
• Licensing Division: Generated revenue of $7 million, driving $6 million of EBITDA.

Guidance

• Fourth Quarter Fiscal Year 2025:
  • Secure Comms division: Revenue expected to be in the range of $62 million to $66 million, EBITDA $4 million to $6 million.
  • IoT: Revenue expected $60 million to $65 million, EBITDA $8 million to $10 million; full year IoT revenue guidance raised to $230 million to $235 million.
  • Licensing: Revenue expected approximately $4 million, EBITDA approximately $3 million.
  • Total company: Adjusted EBITDA from continuing operations expected $10 million to $20 million, non-GAAP EPS between -$0.01 to +$0.01.
• Revised guidance for fiscal '26 to be provided in Q4 earnings.

Risks

• Factors causing actual results to differ from forward-looking statements, including risks in consummating the Cylance sale and other risks discussed in annual filings and MD&A.

Question and Answer

Q: EBITDA by segment and guide, pre or post corporate overhead?

A: Segments are IoT, Secure Comms, Licensing; corporate overhead was ~$9 million this quarter, which needs to be added to other components to get total company results.

Q: Allocation of Cylance deal consideration?

A: Consideration will be used for strengthening balance sheet, investing in growth (e.g., IoT), potential M&A, and buybacks once the deal closes.

Q: QNX mix and fiscal '26 outlook?

A: QNX mix is roughly 20% dev, 20% services, 60% royalties; dev seat revenue has been challenged, but hopeful for uptick as OEMs address challenges.

Q: Secure Comms DBNR and AtHoc FedRAMP high?

A: DBNR for Secure Comms is 95%, AtHoc is close to achieving FedRAMP high, with timing potentially impacted by government processes but strengthening existing position.

Q: Secure Comms ARR growth and Q4 guidance?

A: ARR for Secure Comms is stable, with subscription model of Secusmart software driving trajectory; Q4 guidance reflects mix shifts to hardware components with lower margins.

Q: IoT royalty strength vs macro backdrop?

A: QNX growth is driven by content per vehicle, not solely SAR of vehicles produced, providing stability despite macro challenges.

Q: Cylance tax losses?

A: Significant tax losses (well into hundreds of millions) provide shelter for profits in U.S. businesses, valuable to the company.