BlackBerry Limited

Good afternoon and welcome to the BlackBerry second quarter fiscal year 2024 results conference call. My name is Rocco and I will be your conference moderator for today's call. During the presentation, all participants will be in a listen-only mode. We will be facilitating a brief question and answer session towards the end of the conference. Should you need assistance during the call, please signal a conference specialist by pressing star then zero. As a reminder, this conference is being recorded for replay purposes. I would now like to turn today's call over to Tim Foote, Vice President of BlackBerry Investor Relations. Please go ahead.

Thank you, Rocco. Good afternoon and welcome to BlackBerry's second quarter 2024 earnings conference call. With me on the call today are Executive Chair and Chief Executive Officer John Chen and Chief Financial Officer Steve Ray. After I read our cautionary note regarding forward-looking statements, John will provide a business update and Steve will review the financial results. We will then open the call for a brief Q&A session. This call is available to the general public via call-in numbers and via webcast in the investor information section at blackberry.com. A replay will also be available on the blackberry.com website. Some of the statements we'll be making today constitute forward-looking statements and are made pursuant to the safe harbor provisions of applicable U.S. and Canadian securities laws. will indicate forward-looking statements by using words such as expect, will, should, model, intend, believe and similar expressions. Forward-looking statements are based on estimates and assumptions made by the company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors that the company believes are relevant. Many factors could cause the company's actual results or performance to differ materially from those expressed or implied by the forward-looking statements. These factors include the risk factors that are discussed in the company's annual filings and MD&A. You should not place undue reliance on the company's forward-looking statements. Any forward-looking statements are made only as of today, and the company has no intention and undertakes no obligation to update or revise any of them, except as required by law. As is customary during the call, John and Steve will reference non-GAAP numbers in their summary of our quarterly results. For reconciliation between our GAAP, and non-GAAP numbers, please see the earnings press release published earlier today, which is available on the EDGA, CEDA, and BlackBerry.com websites. And with that, I'll turn the call over to John.

Thanks, Tim. Good afternoon, everyone, and thank you for joining us today. Let me start with the IoT business unit. Revenue for the quarter increased 9% sequentially to $49 million, and gross margin increased by 400 basis points to 84%. The most important long-term leading indicator of the health of this business is securing new design wins and royal and building royalty backlog. And we have, and that we had another strong quarter. In fact, by the end of the first half, we have secured more than two thirds of our FY24 annual target for new backlog and expect to exceed it. In a quarter, QNX secured 20 news design wins in auto, and seven in general embedded market verticals. The largest of these was an eight-figure estimate lifetime revenue ADAS win with one of the top five global automakers to deploy our QNX OS for safety. This win illustrates a strong secular trend of consolidation of software into centralized compute domains. With this ADAS module powering drive monitoring surround view, lane keep assist, adaptive cruise control, and other safety features, all on a single chip. As automotive software stacks becomes more complex and requires significantly higher compute power, it plays the QNX strength. In addition to our strong win rate for ADOS, we are also the clear market leader for foundational software in the digital cockpit. The combination of our high-performance safety-critical RTOS and hypervisors allows for mixed criticality in this domain. Given our market-leading positions, our design wins continue to be well diversified across all major global markets. In Asia, we secure a design win with LG Electronics that includes our hypervisor and will be deployed in a number of vehicle models for our top 10 global automakers. We also secure wins with Vision and leading OEM Cherry via Bosch and Mount Otis. In Europe, a digital carpet win also include our acoustic middleware. And this is exciting because feedback from customers suggests that this relatively new market opportunity for software-defined acoustic is likely to be fast-growing. As well as our strong footprint in auto, QNX is well diversified in other verticals. particularly medical and industrial. Building on our position in surgical robotics, this quarter we secure a design win for our QNX medical OS for safety to be deployed in a robotic arms for dentistry. These design wins confirm that QNX business is strongly positioned for the long term. With revenue for Q2 being largely in line with expectation, we continue to expect IoT to deliver solid year-over-year growth this fiscal year. That said, we are taking a prudent view on our IoT revenue outlook for the next two quarters. Automakers are currently addressing a number of significant challenges, including the industrial industry's strike action, the transition to software-defined vehicles, as well as the electrification's pivot and supply chain challenges. Delay to either pre-production software development programs or to production schedule could impact our revenue this fiscal year. However, we expect these to be relatively short-term timing issue. As a result, we revised and broadened our IoT revenue outlook range to $225 million to $240 million. This represents a 9% to 17% year-over-year growth. This means that we still expect a strong second half of the fiscal year. We expect further sequential growth into Q3, and we currently expect Q4 to be the strongest quarter for revenue in QNX history. This confidence is based on a combination of the pipeline of potential new design wins, our service schedule, and royalty expected from the backlog. Turning now to product, at our analyst stay in May, we announced the upcoming launch of our new generation QNX real-time operating system, QNX 8.0, targeted for December. This release will make a fundamental shift in market performance, and we expect it to further cement QNX leadership position in automotive and beyond. Feedback from the beta trial has been very positive, with customer and partners impressed with performance scalability and functionality. Perhaps some of these will convert into revenue in Q4. This significant enhancement of performance and scalability comes at a time when chip makers are focused on developing hardware to power generative AI. We believe that our QNX 8.0 software is uniquely positioned to maximize the potential of gen AI in embedded systems, particularly in safety-critical use cases. QNS8 will combine best-of-breed performance with the ability to run mission-critical process safely and securely alongside Gen-AI stack on the same chip. Now, moving on to Ivy. We were delighted to announce that Ivy was selected by Tier 1 supplier Mitsubishi Electric to power its new FlaxConnect.x in-cabin systems. IV edge technology and the high-quality real-time insight that it provides will help enhance road safety and enable new in-vehicle experience. In addition, we have solid traction with new IV proof-of-concept trials. Currently, we are progressing POC with a number of major OEMs, including a top-ten global automaker and also a leading commercial vehicle OEM, Scania. The strong level of interest for Ivy POC clearly confirms our strategy. On the product front, this month we will release an updated version with significant enhancement to cloud features and increased hardware and software support. Ivy's development has moved from the early heavy lifting phase and the focus is now on refinements, enhancing stability, expanding sensor supports and improving the developer experience. The Ivy ecosystem continue to expand and mature. We now have over 40 partners currently building on Ivy, and there are more than 20 pre-integrated solutions that are being used by customer in POC trial and at industry events. This month, the Ivy Innovation Fund make its latest investment, this time in Core Actions, an exciting Israeli startup. Core Actions has developed an AI power application that will leverage the IV platform's sensor insight to detect potential driver awareness issues. Their AI model analyze micro muscles movement, such as through steering view sensor data, to understand brain activity, and we are pleased to add them to the ecosystems. Moving now to cyber business unit. Revenue for the quarter was 79 million, and total contract value billings were 74 million. Gross margin was 54%. ARR came in at $279 million. The dollar-based net retention rate was stable at 81%. Revenue this quarter was lower than expectation due to deal slippage. BlackBerry, along with many others in the cybersecurity space, is experiencing elongated deal cycles. Deals are requiring multiple rounds of review and scrutiny, and while this isn't impacting win rates, it's having a real impact on the timing of when the deal closes. This is especially true in government, where BlackBerry has a very strong presence. In particular, a small number of large, mainly perpetual deals, which therefore had a significant portion of in-quarter revenue, slipped to later quarters. While this materially will impact Q2 reported revenue, we remain confident with how these deals are progressing and expect them to close this fiscal year. Further, we have a well-defined pipeline of significant deals that are progressing well. These deals are primarily in the government vertical, where BlackBerry is well-known and trusted, and we have strong customer relationship. Due to the overall confidence in the strong improvement in revenue in the second half compared to the first, we are reiterating the full year cyber revenue outlook for the current fiscal year. Because large government deals like these are both complex and binary, we will of course update you on the progress made in closing them during the next earnings call. Let me now highlight some of the deals closed during the quarter. In government, we secured new deals with U.S. Department of Justice, Department of State, Department of Energy, and Department of Education. Also, the Internal Revenue Services, the Canadian Revenue Agency, the U.S. National Nuclear Security Administration, Custom and Border Patrol Protection, and the Ministry of Justice in Quebec. Outside of North America, we secure business with the Bank of Italy, Netherlands Share Service Center, ICT, as well as the Federal Court of Australia, the Australian Federal Police, and the Director General of Force Intelligence in Bangladesh. In fact, we see a good pipeline of opportunities developing in Asia Pacific currently. In addition to government customers, we secure wins with leading banks, including Morgan Stanley and Santander, as well as with leading technology firms, LG, Philips, and Toshiba, just to name a few. Moving now to product, Silent is the pioneer in the use of AI in cybersecurity. with AI at the very core of its suite of products, long before it became today's buzzwords. Our battle-hardened AI model has been trained for many years, continually learning to distinguish threats from non-threats by referencing trillions of data points. Last month, we released a major update to this model, which has been rolled out to our customers, providing an increased level of protection. The model has driven even stronger threat prevention rates than before and further reduced false positives. This release is part of the investment we made in our product portfolio, and these enhancements are being well received by our customers. This is validated by Cylance Endpoint, our AI-driven prevention, detection, and response solution being placed in the top right-hand quadrant for the garnered pure insight customer's choice. This positioning is based on feedback from real customers, reflecting the experience of our product and us as a company. This pairs nicely with the same recognition received by BlackBerry UEM in February, where it was the only endpoint management solution identified as a customer choice. Let me now hand the call over to Steve, who will provide more color on our financial.