BlackBerry Limited

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

Thank you, Chuck. Good afternoon, everyone, and welcome to BlackBerry's third quarter 2024 earnings conference call. I'm delighted to say that joining me on today's call is BlackBerry's new Chief Executive Officer, John Giammatteo, 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 harbour provisions of applicable US 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. And hello, everyone. My name is John G. Matteo, and I'm delighted to be joining you all today as BlackBerry's new CEO. I'm sure some of you will already know me from my time as president of the cybersecurity business unit, where while we still have work to do, the team has made significant progress with product, go-to-market, and overall operational efficiency during the past couple of years. As president, I've been at the heart of BlackBerry's operations, and I'm already very familiar with how things work, the challenges we face, and the steps we need to take going forward. I've stepped into this role at a pivotal time for BlackBerry, as we have a lot of work ahead of us. Among my first priorities is to fully separate the IoT and cybersecurity business units, right-sizing our operations and driving efficiencies in the process. But I'll come back to this more later in the call. Let me first discuss our performance this quarter, starting with the IoT business. The IoT team delivered the strongest quarter for revenue for several years, despite a number of industry-level headwinds. Revenue for the quarter increased 12% sequentially and 8% year-on-year to $55 million. Gross margin remained at a strong 84%. The main driver for revenue growth this quarter was the automotive, and in particular, Advanced Driver Assistance Systems, or ADAS. Revenue from royalties increased sequentially, and while still below the long-term average, represented 44% of QNX revenue. Development seats was 32%, and services, 24% of revenue in the quarter. In addition to delivering solid revenue, we maintained our design win momentum, adding meaningfully to our QNX royalty backlog. This was a strong quarter for new ADAS-related design wins. We secured a design win for our RTARs for safety and secure C++ libraries for use in a front facing camera solution that will be deployed by a leading European automaker. QNX was also be the foundation for an ADAS platform to be developed by a global tier one supplier and used by two leading Asian OEMs. Among other ADAS wins was a design with one of the largest automakers in the world who will use QNX OS for safety as its operating system. But this wasn't only a good quarter for automotive. We secured a number of new gem design wins as well. The use cases secured this quarter were broad. They included displacing a rival product with QNX hypervisor for an industrial automation controller that will be used in applications such as petroleum refineries, factory automation, and wastewater treatment. In medical, we secured a significant design for infusion pumps for bedside medication delivery. And our hypervisor and black channel products will be used in autonomous off-road defense vehicles as well. We continue to be excited about the large and growing opportunities outside of auto, where the need for safety-critical, high-performance software at the edge is growing fast. And speaking of high performance, we remain firmly on track for general access release for our QNX STP 8.0 next generation platform. This will be a really significant product launch, and everybody at BlackBerry couldn't be more excited about it. This step change in performance and scalability will enable developers to fully harness the significant levels of additional compute that next generation processors offer. So look out for more information on this and other exciting developments as we gear up for CES in January. Turning now to a brief update on Ivy, we continue to make progress in what is a long sales cycle business. Proof-of-concept trials are progressing well, and feedback from customers remains strong. We remain focused on converting POCs into design wins and hope to announce another win at CES in January. The Ivy ecosystem continues to grow strongly, and at CES, we'll be demonstrating more than 20 use cases with 12 partners, and expect there to be three third-party booths demonstrating Ivy-based products. Moving now to Outlook for the IoT business in Q4. As mentioned, the strong revenue growth and continued design wind momentum in Q3 was achieved despite some macro headwinds. The first was the UAW labor disputes, which naturally has had a negative impact on production volumes for some of our largest customers, and we expect this impact to be felt in our fiscal Q4. The second is ongoing slippage of software programs at major automakers. Leading OEMs continue to deal with the challenges of delivering very complex automotive software solutions. And while there is no change in strategic direction towards software-defined vehicles, some of the timelines have pushed back. Because of these near-term headwinds, we're taking a more conservative view on our Q4 outlook. That said, we continue to expect QNX to have its strongest quarter ever, with revenue in the range of 62 to 66 million. Now, let me turn to the cybersecurity business unit. This was a strong year for cyber. I'm sorry, strong quarter for cyber. Revenue in Q3 was $114 million, growing 44% sequentially and 8% year over year. Gross margin improved by 14 percentage points to 68%. While ARR of $273 million showed a sequential decrease, it was the smallest decrease in the last two years, pointing to a stabilization in Q4 before an anticipated return to growth next fiscal year. The dollar-based net retention rate improved one percentage point to 82%. Cyber total contract value or TCV billings was 109 million representing solid sequential growth of 47% and year over year growth of 6%. The cyber business has a very strong foothold in the government space where leading governments around the world trust BlackBerry software to secure their environments, communications and data. While this type of business often has longer sales cycles, the partnerships that are built are often very long-term. We are delighted to build such a partnership with the government of Malaysia this quarter by securing a significant multi-year contract to provide a full range of products. The deal included our Cylance, UEM, Ad Hoc, and SecuSmart offerings. As part of the deal, BlackBerry will establish a cybersecurity center of excellence in Kuala Lumpur during calendar year 2024. We were also very pleased to land a significant seven-year ad hoc contract with the US Department of Homeland Security. Ad hoc, which is the leading critical events management solution in the U.S. federal government with 75% market share, will be used to power the DHS's new personal emergency notification system. Revenue recognition on some of the products in the portfolio result in significant in-quarter revenue. In particular, our SecuSmart secure communication software offerings and some elements of our UEM endpoint management. The remainder, in contrast, are generally recognized on a ratable basis. Given the strong SecuSMART content this quarter, this was a significant tailwind, helping in part to drive both revenue and gross margin improvements. While deals of this magnitude don't necessarily land every quarter, we're very pleased with the overall traction we're seeing with SecuSmart outside of its core German market. Let me now switch to some of the key product developments that we have going on in cyber. Over the past couple of years, the cyber product team has been busy bringing leading solutions to market, closing a number of product gaps and positioning us to compete. During the quarter, we announced the latest of these with a launch of the generative AI-powered cybersecurity SOC Assistant. This solution helps customers to quickly understand threat alerts and prioritize their response with in-line generative AI assistance without needing to be an expert in prompt engineering. We also announced a number of enhancements to our SecuSmart product suite for secure communications. This included encrypted video and group audio calls, along with additional compliance tools and administrative features as well. Moving now to Outlook for a cyber business in Q4, we expect revenue to be in the range of 83 to 88 million for the quarter. This is lower than our previous outlook, primarily because of the reassessment of the likelihood, size, and timing of some of the large government deals in the pipeline. We also expect ARR to stabilize and to be flat sequentially. Touching briefly on licensing, revenue for the quarter was $6 million, and we continue to expect Q4 to be approximately 5 million as before. So let me now hand the call over to Steve, who will provide you more color on our financials. Steve, over to you.

Thank you, John. As always, my comments on our financial performance will be in non-GAAP terms unless otherwise noted. Total company revenue for the third quarter was $175 million. IoT revenue was $55 million, cybersecurity revenue was $114 million, and licensing revenue was $6 million. The percentage of software product revenue that was recurring decreased to approximately 70%, 7-0, primarily driven by the impact of SecuSmart revenue related to the Malaysia deal that John referenced. Total company gross margin improved to 73%, also largely driven by Malaysia. Operating expenses were 115 million, broadly flat quarter on quarter, but as in Q2, benefiting from some one-time items such as reaching benefit caps for the calendar year. Non-GAAP operating expenses exclude a 13 million fair value gain on the convertible to ventures, 11 million in impairment of long-lived assets, nine million in amortization of acquired intangibles, nine million in restructuring expenses, and seven million in stock compensation expense. The non-GAAP operating profit was 13 million and non-GAAP net profit for the third quarter was $3 million. BlackBerry delivered $0.01 of non-GAAP basic earnings per share for the quarter, beating expectations. Adjusted EBITDA, excluding the non-GAAP adjustments outlined, was $18 million. Total cash, cash equivalents, and investments decreased to $271 million as of November 30th, due in part to cash used by operating activities of 31 million, but primarily to a 215 million net reduction in outstanding debt. During the quarter, the 365 million of convertible debentures issued in September 2020 were fully repaid as previously communicated. A smaller $150 million of short-term convertible debentures were then issued, which matured in February 2024, with an option to extend to May 2024, should both parties agree. Despite significant increases in the level of interest rates since 2020, The coupon rate on these extension to ventures remains at 1.75% and the conversion price remains at $6. This provides BlackBerry with meaningful additional liquidity at attractive rates while we evaluate longer term financing needs. That concludes my comments and I'll turn it back to John.

Thank you, Steve. last week we announced a change in strategic direction of the company the board with input from its advisors has reassessed the earlier decision to pursue a subsidiary ipo of the iot business we believe There is increased optionality for optimizing shareholder value by stepping back from that path and instead focusing on fully separating the IoT and cyber businesses. As part of this, we will have the opportunity to optimize and streamline processes, building even stronger standalone divisions. A key focus is to return BlackBerry to profitability and positive cash flow. And this requires us to take some tough decisions on our cost structure. In Q3, we took a number of actions to reduce expenses in the cyber business and the back office that will reduce our cost run rate by about 50 million per year. These decisions along with strong collection receivables played a part in almost having our operating cash usage from 56 million last quarter to 31 million in Q3. Given the combination of strong billings this past quarter and the benefit of a full quarter of cost reductions, we expect to further improve operating cash flow in Q4. However, we believe that we can go further. BlackBerry has been in an investment mode, particularly in cyber. And now that a number of key product enhancements have been brought to market, we're in a position to return investment levels closer to industry averages. Furthermore, BlackBerry's business has significantly pivoted and made a number of acquisitions over the years. And we see ways to streamline how our back office works. For instance, despite recent cost reduction efforts, we still have 36 offices worldwide. We have some duplicative teams, To illustrate the potential opportunities, let me outline current OPEX expectations for Q4. As mentioned, we expect total company revenue to be in the range of 150 to 159 million. On a non-GAAP basis, sales and marketing is expected to be approximately 27%, while R&D 30%, and G&A excluding amortization at 20%. Both R&D and G&A are high compared to our long-term targets, but we see opportunities to significantly right-size across the board while continuing to nurture the exciting growth opportunities in our two divisions. We are targeting the completion of the separation process in two fully standalone divisions with a much lighter weight corporate overlay in calendar year 2023. So before we open the lines for Q&A, let me quickly summarize the key messages. This was a good quarter for BlackBerry. The IoT business unit delivered its strongest quarterly revenue for the past two years and maintained strong momentum in adding royalty backlog from design wins in Auto and Gem. The cyber business secured large government deals that helped drive strong sequential revenue growth, and ARR continues to stabilize. We took actions relating to our cost structure that in part contributed to a significantly lower operating cash flow usage. And we are targeting significant further reductions in the future. And we have begun to work to separate our IoT and cyber business units into fully standalone divisions that we believe will position BlackBerry for more strategic alternatives to drive increased shareholder value. Let's now move to Q&A. Operator, can you please open the lines?

Yes, sir. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. And to withdraw your question, please press star then 2. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Mike Walkley with Canaccord Genuity. Please go ahead.

Great. Thanks for taking my questions. And John, congratulations on promotion to CEO. Thank you. I just want to dig in, I guess, to start with on the cybersecurity outlook, given the probability of some of the larger government deals. Are these deals just taking longer to close, which is common for some of the large deals in this tougher macro environment? Or have some been lost? And I guess given the lumpiness within cybersecurity, How should we think maybe about a run rate for the business off of what your guidance is this year into 2025? I know you're not providing long-term guidance, but do you think this business grows off of what you put up for 2024? Thank you.

Yeah, great questions across the board. And I think, you know, a couple of things. One, to the first question around, you know, the deals and the lumpiness of them and did they go away or is it timing? You know, a couple of things. I think a number of them are more timing related activities that tends to be, you know, the way it is. I think some of the dynamics that's happening right now with You know, whether it's the continuing resolution activity in the U.S. government, that tends to slow things down a little bit. And there's similar kinds of things happening in the German government, which obviously we have a big footprint with our SecuSmart business. So I think a number of them are more timing related. And, you know, some of them... You know, there's one deal in particular where they decided to go more towards an iOS solution than an Android solution. And that lowers a little bit of the addressable market for us as they make a decision to operate or adapt another operating system. So on that perspective, some of it's timing, a little bit of a customer experience, moving into a different technology that tends to use a little bit less of what we offer. But I think that's how I would address that. As far as longer term with governments, which it does represent, it's naturally, you know, a pretty lumpy business just the way that works. You know, we're fortunate enough this quarter the lumps went our way, you know, with Malaysia and DHS and a couple other things. So, you know, my commitment is to just give you the best transparent, realistic view of this business that I possibly have, which is why I'd love to be able to say some of these opportunities are in the forecast and give you a bit of a higher guidance. But I want to be balanced and prudent and pragmatic about it. And that's my commitment as I move into this new role to try and give you as much transparency as I can.

Okay, great. And maybe just a follow-up question for you in a bigger picture. It just sounds like you've already made some really hard decisions on cutting costs on the cybersecurity side, but it sounds like maybe IoT, you're leaving alone, or does that business have areas you can streamline also? I know you've been in the COC for a short time, but how are you thinking about allocating resources to the two businesses as you work towards reporting them separately?

Yeah, you know, I think that's probably something it's worth coming back to next quarter as we dig into it. I mean, I think it's fair to say the IoT business is in a more stable place. It's definitely been more of a growth trajectory. So naturally, we take that into account. You know, we don't want to disrupt the momentum that we're seeing on the IoT side at all. But, you know, since it's day seven in the job in this new role, if you give me a little more time, we'll come back to you with some more insights next quarter.

Yeah, fair enough. Best wishes for success in your new role, and happy holidays to everybody on the call. Same to you. Thank you.

The next question will come from Paul Tiber with RBC Capital Markets. Please go ahead.

Thanks for taking the question. Good afternoon. Just a high-level question, just in regards to the separating of QNX and cyber, you mentioned better position the company for strategic alternatives. What specifically do you mean by that? I mean, are you looking at divesting some segments or an entire segment here?

I think it gives us, you know, Paul, just more flexible. I think in the past they've been a little bit blended. You know, we had cyber, we had IoT, we had a corporate convergence strategy, which sometimes I think limits, you know, some of the optionality that we have out there. So making a very decisive decision. A decision around two business units, independent, driving towards profitability. We think that gives us more optionality, whatever they may be, whether that's a spinoff, a sale, you know, we're going to... our board will consider, you know, the best options that maximize our shareholder value. And in the interim, getting them aligned independently, focused on their large, each of them have large respective TAMs in the industry. We kind of just felt that's a better approach and gives us better options for the future.

Okay, thanks for that, Kalar. Second question, just on liquidity and cash flow, when you comments on Q4 cash flow improving is helpful. But how do we think about liquidity here, particularly with the converts? You know, there's an option to extend them. But as you separate the two businesses, how do you think about managing cash and how much cash should be consumed in the short term just with any restructuring payouts?

So a couple of things, Paul. So we're obviously... You know, as John said, next quarter, which would be our year end, we'll be in a position to provide more color, you know, concretely on those plans. And, you know, there will be updates, of course, with respect to the financing structure that, you know, certainly we're pursuing and exploring, you know, longer term financing and looking at the different options to put that in place, which is being actively worked. We've got sufficient liquidity and access to capital to kind of execute on the plans. Obviously, the The goal in the very short term is to get both businesses generating positive cash flow. So there shouldn't be a significant drag in the business after a relatively short period of time, but we're working on those plans.

And then just a last question for me, just back to John. Dee, I mean, you've been head of the cyber business for a couple of years. You've seen the investments in product and go to market. Where do you see the business at strategically in terms of product, in terms of trying to capture mindshare with customers? And how do you see the growth trajectory, you know, going forward in that business?

Yeah, the cyber business unit, it... you know, a number of different dynamics, because we have a number of different products that address different, but one thing I will call out was like the Malaysia deal was actually an interesting example of how they bought into our whole, you know, vision of the portfolio, you know, and maybe, you know, one product in the portfolio maybe there's a better product out there. But the overall historic holistic solution and how we delivered it really caught their attention and convinced them that we were the right company to partner with. So I do think the entire portfolio approach is helpful in certain accounts like a big government like that that's looking for a broad set of solutions. But, you know, our ad hoc business is firing on all cylinders, gaining market share. Our SecuSmart business, very, very strong in the German government. And we've got some nice winds outside of Germany this year, which we think is a step in the right direction. UES, we've been focused on the Cylance platform to really get that product back to where we need it to be. You know, there were some gaps in the portfolio. There were some quality issues. So, you know, each of them have a number, and UEM is a very mature company. you know, product that has a little bit less growth. So, you know, holistically, you know, we think there's an opportunity for this business to grow. We're looking very closely at what, you know, as we think about next year's plans and AOP and, you know, and we'll come back to you with a projection for next quarter. But a lot of different dynamics in the cyber business, which is why sometimes it's hard to handicap growth because of these factors that kind of run within it. So we'll come back to you with more details next quarter, but hopefully that gives you a few snippets.

Thanks.

The next question will come from Luke Young with Baird. Please go ahead.

Good afternoon. Thanks for taking questions. I want to start with IoT. Just hoping you could comment at a high level on the bookings environment and automotive. Just wondering if you're seeing any impact of moderating EV demand on the software side, realizing that these macro issues we've been dealing with have been pre-existing for a few quarters now, but is EV interplaying with that at all, John?

Yeah, we've definitely seen that. You know, EV, some of the big next generation EV projects, there's been some delays by some of the big OEMs. So absolutely, we're seeing it. But I would say on this one, we are more, you know, the underlying fundamentals of our IoT business, I believe, just couldn't be stronger. Right now, you know, Boone, I think about, you know, the backlog that we have for our royalties. When you think about the design wins, that number of design wins, automotive and otherwise, with JEM and other things that we're getting, we think that's, you know, an opportunity. Ivy has a bit of a... you know, when we think of how well positioned we are into that market, I think we're in a really good position to weather some of these, you know, these headwinds that come from time to time. And this, you know, the last couple of quarters, there's been some headwinds between the strikes with UAW, between, you know, some of the, as a result, some of the manufacturers pull back a little bit on some of their more sophisticated vehicles. But I think all in all, we're really well positioned as these headwinds subside and we start seeing more things rolling off the lines and more of these new designs, which inevitably are going to come to market. We think we're really well positioned. Very strong backlog, which I think sets us up well for the future.

Thanks for that. And then a bigger picture question, you know, I appreciate the color on your presentation. Looking at the cost structure, cash flows, those sorts of things. And John, I'm just hoping to understand your approach and really just waiting of time between looking at BlackBerry overall operations at the segment level. Should we think of you having sort of a player coach mentality?

A player-coach mentality. Well, you know, maybe that's an interesting way to describe it. We do – we've got a great team in IoT, great, strong leadership. We've built a really strong business there. So, absolutely, we want to give them the resources, the support, the financial back, anything that, you know, the bigger – So, you know, definitely look at it as two companies on their own, driving their own businesses, and with kind of a holding company structure that's there. you know, to support them with all the things that they need to drive their business forward. So I don't know if you call that player coach, but certainly, you know, maybe parent-child. You know, you want your children to get up and run and reach for the stars, and we're going to do everything we can to give them everything they need to do it.

Okay, I'll leave it there. Thank you.

Thanks, Luke. The next question will come from Trip Chandra with Global Equities Research. Please go ahead.

Thank you so much and a very good quarter. I had a couple of questions. First on cybersecurity. Traditional machine learning created a new set of challenges in cybersecurity, which Silence and BlackBerry addressed very well. Now we are having these generative AI, including transformer models, which are coming into the marketplace. I was wondering what kind of a market expansion you see these new technologies pose to BlackBerry, and how does BlackBerry plan to monetize or capitalize on these new threats that are going to come because of these new generative technologies? And then I have a follow-up.

Thanks, Tripp. Yeah, absolutely. We think AI has a big role to play in this industry. It's actually one of the things that we think is one of our differentiators is our machine learning, our AI technology that underpins our entire portfolio. You know, Cylance was was you know i would say the the inventor the creator of aiml cyber security we're on our seventh generation of um of machine learning where where our efficacy efficacy rates are the best that they've ever been so uh this is something that we um we watch closely we we invest close we we incorporate some of the technology, not only into our cyber threat intelligence, but just how we, even in our EDR capabilities, when a notification comes up, how can we help our SOC analysts, our customers, identify these issues much more quickly using AI technology. So we think it has a very big role to play. We're going to continue to invest in it and leverage it as a way for us to grow our revenue.

Perfect. The second question is like some of the previous people also asked about software in these new generation cars, including EVs. And even as of today, Porsche has not got this software system in place. The software continues to be their weakest link, including these new generation companies, Lucid, Fisker, you name them, and traditional companies too. So I was wondering, like, What is preventing these established automakers from fully embracing BlackBerry and QNX? And why are they still going on the path of pretty much failure to do it themselves when they don't even have the software skills? I think they can just buy versus make decision should be a no brainer. Why are these companies not embracing QNX and have a jumpstart on the software-defined vehicles? Any thoughts? I'll appreciate it. And thanks again. Good execution this quarter.

Thanks, Tripp. Tripp, I was just wondering if you want to come over and join our sales team because I love it. Absolutely. You know, we have – we feel, you know, the same that there's software-defined vehicles and bring that technology in just – is good for everybody it's good for the oems good for their customers good for us um we're you know fortunate the team's done a great job uh we have uh very entrenched um where um um you know with over 235 billion vehicles that have qnx today the design wins with our our big um you know customers today i think positions us really well. I think we're getting our fair share of the market. And I think there's more to be had. I think there has been some headwinds this year with just everything going on with the economy and strikes and whatever that's maybe having them pull back a little bit but when um you know the floodgates open and they bring in these next generation ev vehicles and that have more software in them than ever before uh i think we couldn't be better positioned to capture even uh more of that uh market share particularly with things like our most uh recent uh release sdpa.0 i think uh you know, that leverages the processor capacity and that next generation capability. So something we're all over. We're going to continue to be all over. And we're hopeful to be announcing more and more design wins for you guys, you know, in the future.

Thank you so much. All the best.

Thanks, Tripp. The next question will come from Todd Copeland with CIBC. Please go ahead.

Yeah, good evening. I just had a couple of cash questions. What's the expectation for cash restructuring costs relating to cyber?

So we're working through that, you know, but it's not going to be astronomical. You know, it'll be, you know, well within our means to handle with the available resources. Okay.

And is that expected to be booked in the fourth quarter?

You'll have to stay tuned, but we'll provide an update. We're working through that.

Okay. And at this point, what is the expected timing to get cyber cash flow positive with the track you're getting yourself on?

Todd, I think that's something we're going to have to come back to you on. We made great strides over the course of the last couple of years. We've got more plans that we're working through now. And I think it's probably best for us to give you a more comprehensive update in next quarter after we've done some of that work. I see. Okay.

And then I just wanted to make sure I had this right. It sounded like you said you expected to have the separation complete next fiscal year. So it sounds like it's going to take a little while to work through the redundancies, the 36 offices, and whatever other optimization plans you want to put in place. Can you just talk us through a rough timeline on that? Thanks a lot.

Yeah, I think... On this one, I think it's going to be one of those things where as we go through the process, there's going to be some low-hanging fruit, some quick wins, some things that we can do really quickly that will save us some money, get the teams aligned, etc., And then there'll be, you know, other ones that are going to take a little bit longer. But I think, you know, mid-calendar year, getting into a position where we can have the majority of the functions and capabilities within the two business units up and running and stand-alone I think that would be success for us. I think there'll be some straggling things. There might be some IT-related things that, you know, take a little bit longer to untangle and unwind and get them set up properly within the divisions. But, you know, that's how we feel about we want to move as fast as we possibly can.

That's all for me. Thanks a lot. Thanks, Todd.

The next question will come from Daniel Chan with TD Cowan. Please go ahead.

Yes, thanks. John, I think your contract calls out some incentive for you to get the business to cash flow positive by Q1 fiscal 25, which isn't a lot of time considering how much work there is to do. So appreciate that you highlighted some of the organic cost cuts that you're thinking about. Just wondering if there are any other options you're weighing at this point in particular. Your predecessor said he wasn't really considering any asset sales to bring the business to profitability. Just wondering whether there are other options outside of the organic cost cuts you're thinking about.

Yeah. You know, as I come into this, just a different, you know, fresh, you know, new approach, not fresh, but just, you know, it's I want to look at all of our options. I think, obviously, the organic things that you mentioned, Daniela, To me, those are, you know, that should be the majority of our time. You know, let's streamline things. Let's get the divisions up and running. That's where the big, you know, the big money is going to be. At the same time, me, you know, coming in with just a different perspective. I've been with the company for a couple years. I've come from the – to take a look at some of the other assets that we have, you and decide whether or not, you know, do they make sense to be part of the company? Is there opportunity to monetize it in some other way? You know, the answer is yes. I think I would be open to looking at all those kinds of things. You know, kind of in the spirit of 80-20, you know, 80% of getting to cash flow positive is probably going to come from the organic stuff. But to the extent that we can find 10%, 15%, 20% through some other things, that's something we'll absolutely take a look at.

That's helpful. Thanks. Can you get to your targets just by cost cuts alone?

How about we'll come back to you next quarter? I'd love to. But, you know, honestly, I'd love for us to get a little more growth out of the business. You know, there's two ways of getting to, you know, getting to cash flow positive. And part of that's growth and part of that's taking the cost structure down. Obviously, since we... You know, revenue has been a little, you know, a little bit lumpy. We've been focusing more on the cost side of things. But between trying to drive revenue, trying to focus on the cost, maybe looking at some of the assets, as you mentioned, all of these things go into the equation to get us to a better place a year from now.

Okay, that's great. Maybe on the ARR a little bit, that metric continues to decline. And as you pointed out, it's slowing its decline. But I think the expectation was for that to have stabilized or even growing by now. What has been the source of its continued declines? And you called out it stabilizing by next quarter. What's giving you the confidence that it's going to stabilize next quarter? Thank you.

Yeah, we've had, you know, from a stabilizing ARR perspective, we've had some, I would say, some churn that mostly has come from, you know, You know, some of our UES customers, the smaller UES customers, we've had, you know, a little bit of UEM, you know, churn. So, you know, renewal rates is something, you know, that... we're focused on. Some of that will be, you know, improving the product, making it more stable. Our customers will stay with it. That's part of the equation. The other is, you know, some customers that maybe bet and said they're going to move on, you know, that'll get flushed out. We'll get to that low point. And I really do believe between the product stabilizing and the customers that maybe vocally said they were unhappy and are have moved on, have moved on. I think we're really getting now to a point where we've hit the, we're, we're bottoming out. We're hitting that step, that point. And now as we get, you know, wins like Malaysia onto the board, you know, that'll start moving us in the, in the other direction. We've had some other net new logo wins. That'll start us moving in a, in a better direction. So I know we're, we might be a quarter or so, you know, behind where we hope to be at this point. But I really am optimistic that we're leveling that off and looking for, you know, seeing prospects for growth as we go into next year.

Thanks, John.

All right.

Thanks, Daniel.

This concludes our question and answer session. I would like to turn the conference back over to Mr. John Giamatteo, CEO of BlackBerry, for any closing remarks. Please go ahead, sir.

Perfect. Thank you, operator. So let me just finish today just by reminding everybody that our IoT division will be showcasing a number of exciting developments in both QNX and ID at CES in Las Vegas from January 9th to the 12th, as well as we'll be hosting the Motor Trend Software Defined Vehicle Innovator Awards as well. So there'll be an investor-focused Q&A on Wednesday, January 10th, featuring members of the IoT leadership team. So please look out for further details earlier in the new year on how you can join via live stream. So thank you all for joining us here today, and I look forward to speaking to you again soon. Bye, everyone.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.