BlackBerry Limited

Good day and welcome to BlackBerry's second quarter fiscal year 2025 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask a question. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Martha Gonder, Director of Investor Relations, BlackBerry. Please go ahead.

Thank you, Dave. Good afternoon, everyone, and welcome to BlackBerry's second quarter fiscal year 2025 earnings conference call. Joining me on today's call is BlackBerry's Chief Executive Officer, John Giammatteo, and Chief Financial Officer, Tim Foote. After I read our cautionary note regarding forward-looking statements, John will provide a business update and Tim 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 that are made pursuant to the safe harbor provisions of applicable US and Canadian securities law. We'll 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 or undertakes no obligation to update or revise any of them, except as required by law. As is customary during the call, John and Tim will reference non-GAAP numbers in their summary for 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 EDGAR, CDAR+, and blackberry.com websites. And with that, I'll turn the call over to John.

Thanks, Martha, and congratulations on your new role as Director of Investor Relations for the company. Q2 was another good quarter for BlackBerry, as we're making significant progress in delivering on our strategy. Both the IoT and cybersecurity divisions delivered solid year over year, as well as sequential revenue growth. The combination of this and the ongoing benefit from the actions to improve our cost profile drove year-over-year improvements in non-GAAP EPS and adjusted EBITDA, with BlackBerry achieving break-even ahead of plan. Likewise, cash used by operations also came in better than expected. This past quarter, the IOT division delivered revenue of $55 million, representing 12% year-over-year growth and 4% sequential growth, and also exceeded the top end of the guidance range that we provided. Gross margin improved by one percentage point sequentially to 82% due to favorable product mix. This quarter followed a similar trend to last in that strong royalty revenue has driven a significant portion of the better than expected results. Production based royalties were stronger both sequentially and year over year. This improvement is in part a consequence of the growth in royalty backlog that we've built from the considerable amount of design wins that we've secured in recent years. On the flip side, as in Q1, development seat revenue for Q2 remains somewhat subdued. Development seat consumption is generally driven by the timing of the ramp up of automaker software development programs. And as we've mentioned in recent quarters, these programs have experienced significant delays. We've seen some improvement in recent months, but these delays continue to hold back development seat revenue in the near term. In addition to revenue recognized in the quarter, in Q2, we secured a number of new design wins that will generate future revenue. In particular, we secured a number of large automotive advanced driver assistance systems or ADAS wins. Among them, in Japan, we secured two design wins with leading OEMs to power ADAS functionality that includes surround camera and milli-wave radar for identifying objects. Among the design wins in digital cockpit, we secured a follow-on win to that announced last year with Hyundai Mobus, a subsidiary of South Korea's largest automaker, Hyundai. Running on a Qualcomm chipset, that QNX hypervisor and advanced virtual frameworks will provide the safety critical foundation for integrated digital cluster, infotainment, and safety applications. We've made large investments in our QNX product portfolio in recent years, resulting in a number of significant product launches being announced at CES in January. Generally speaking, new product adoption in automotive has a relatively long lead time, but we're pleased with the traction we've seen for these new products since their launch. In the quarter, we secured further design wins on our next generation SDP 8.0 platform. SDP 8.0 is the flagship. next generation product in the qnx portfolio and provides customers with a step change increase in performance while maintaining the incredibly high level of functional safety that qnx is renowned for one of the world's largest industrial oems upgraded from sd 7.1 to sdp 8.0 for their next generation of design for an optical guiding system to be used in airport shuttle buses in addition we secured a design win with a german specialized machine manufacturer for sdp 8.0 to power the control unit for pharmaceutical tablet presses during the quarter we announced an exciting development for qnx sound our new software-defined acoustics platform. Haletech, a Swedish developer of Android-based infotainment systems, announced that they're building QNX sound into their digital cockpit architecture, the foundation for which is QNX's hypervisor. QNX Sound is a true value-add proposition, enabling both significant bill of material savings by eliminating expensive audio hardware, as well as potential net new revenue streams from custom audio experiences. Finally, on the product side, you may recall that at CES, we announced that Stellantis had leveraged QNX in the cloud to develop a digital twin of their cockpit architecture. This was a specific deployment which our engineers have now productized for sale to the industry in general. We're in early discussions with a number of automakers and feel optimistic that this product will gain traction in coming quarters. In addition to our core automotive market, we also see a large opportunity to build on our presence in adjacent verticals, or what we call the general embedded market. This past quarter, we took another step forward by adding a senior go-to-market executive with strong, relevant experience to help drive our efforts in this space. Finally, a quick update on Ivey. The auto software program delays that we've spoken about that have extended QNX development cycles have had an even greater impact on Ivey. When automakers are fully focusing their efforts on delivering core systems on time, they have less bandwidth for new functionality like Ivy. Despite this, we progress multiple proof of concepts with major OEMs this fiscal year and are working on a number of potential opportunities for Ivy, but it is unlikely that we'll see material revenue in the near term. On the cost side, now that Ivy is through the significant investment required for its initial development, we've integrated the sales and R&D efforts into the core QNX team. We believe this not only drives efficiencies, but also leverages the reach and expertise of our QNX team. Let me now move over to our cybersecurity division. Similar to IoT, this was a solid quarter for cyber. Revenue was $87 million, meaning we exceeded the top end of the guidance range we provided last quarter and achieved 10% year-over-year growth. This performance was driven by the three product groups that reflect BlackBerry's strong heritage in secure communications. That is UEM endpoint management, ad hoc critical events management, and SecuSmart encrypted voice and data. all three components delivered year-over-year growth and collectively revenue increased by 24%. While the UEM market is mature and there is strong competition in cloud-based deployments, our product has a niche with on-premise deployments in particular, particularly where data, sovereignty, and security are a significant concern. We typically see this need most in government and financial services. And as other UEM providers have ceased to invest due to the strength of the competition, we continue to strategically enhance the features that resonate most with our target market and deepen our competitive moat. This helped UEM to deliver both sequential and year-over-year revenue growth for Q2. While there is still some churn in our broader customer base, we're offsetting this with new logos and customer expansions. In the quarter, we secured important renewal and upsells, in particular with a number of government agencies, including the US Immigration and Customs Enforcement, the US Department of Energy, the US Army Corps of Engineers, and the UK Ministry of Defense. Similarly, Ad Hoc had a solid quarter, with revenue growing both sequentially and year over year. We secured a significant renewal and expansion with the United States Department of State, as well as a large expansion with the Air Force, among other deals. Renewal rates for Ad Hoc remain very high at close to 100%. which speaks to how integrated our product is in US federal deployments in particular. Finally, our SecuSmart business had a good year to date. Revenue in both Q1 and Q2 has been meaningfully ahead of the prior fiscal year. This strength has been driven by deals from its core customer base within the German government, where our full solution typically sold along with hardware is most commonly used. Because these licenses are tied to hardware, these customers typically buy new licenses to coincide with device refresh cycles. Together with the fact that the software is deployed on premise and therefore revenue is largely recognized upfront. This means there can be some variability in the top line for SecuSmart from quarter to quarter. However, this past quarter, we saw further traction for our software only solution with a major net new logo government in Europe, purchasing our SecuSuite product for deployment in military applications. Let me now move from secure communications to our Cylance endpoint security business. This remains a very competitive market. And this quarter, we continue to see some churn in our customer base that purchases product only, not managed services. And this drove year over year decline in Cylance revenue. That said, we're pleased with the ongoing traction from the customers adopting managed services or MDR this quarter. Our Cylance MDR offerings provide customers with a wide range of options to suit their needs and budgets, from our on-demand product right up to our newly launched XDR-focused MDR Pro offering. New logo and upsell of MDR offset some of the churn we saw in the customer base this quarter. We've invested heavily in our Cylance product in recent years, and we're pleased that our solution was recognized by customers as a customer's choice winner in Gartner's recent evaluation. In terms of key metrics for a cyber business, annual recurring revenue, or ARR, remains largely stable, flat year over year at 279 million. The dollar-based net retention rate, or DBNRR, improved year on year by seven percentage points and sequentially for the fourth consecutive quarter by one percentage point to 88%. Let me comment briefly on our licensing business, which came in broadly in line with guidance at $3 million. This revenue relates largely to legacy deals that predate the sale of the non-core portion of the portfolio to Maliki. Gross margins remained at 67% after allowing for amortization on the patents that generated this revenue. Now, during the quarter, we announced that Tim Foote was appointed as BlackBerry's new CFO. Tim had previously served as a CFO for the cybersecurity division and in a number of other senior finance positions at BlackBerry, including as the head of investor relations. This deep knowledge of both BlackBerry and more broadly the finance function, as well as a strong appreciation for our shareholder base and what financial analysts are focused on, positions him really well in this role. I look forward to continuing my partnership with him as we keep moving the BlackBerry strategy forward. So with that, let me turn the call over to Tim, who can provide some more color around our financials.