BlackBerry(BB)2024-12-20 02:25Financial Data and Key Metrics - The company achieved positive EBITDA and EPS in Q3, marking a return to profitability for the first time since Q3 FY2022 [11] - Operating cash flow improved by 162 million, exceeding the upper end of the guidance range [28] - Gross margins improved to 74% sequentially and year-over-year [28] - Positive operating and free cash flow of 62 million, 13% year-over-year and sequential growth, driven by royalties and development seat licenses [13][14] - Key design wins included a German luxury automaker and a major Asian auto OEM for QNX hypervisor and operating system [15] - QNX SDP 8.0 gained traction with over 10 silicon vendors committing to support it [16] - IoT EBITDA was 93 million, exceeding guidance, with 7% sequential growth (10% for Secure Communications) [21] - Secure Communications ARR increased by 3% sequentially and 8% year-over-year to 8 million, with Secure Communications EBITDA at 7 million, slightly above guidance, with gross margins at 71% [27][31] - EBITDA for Licensing was 6 million [31] Market Performance - Automotive sector led IoT growth, with strong performance in digital cockpit and ADAS [14] - Industrial automation, medical, and rail verticals showed progress, with new logos like Universal Signaling and Progress Rail [18] - Secure Communications saw strong renewals in government and financial sectors, including KfW, Scottish Police, and Johns Hopkins University [22][23] Strategic Direction and Industry Competition - The sale of Cylance to Arctic Wolf is expected to strengthen the balance sheet and align with the company's strategic direction [12][13] - Focus on IoT growth, particularly QNX, with increased R&D and sales investments [47] - Secure Communications is positioned as a stable business, with growth opportunities in AtHoc and Secusmart [80][84] Management Commentary on Operating Environment and Future Outlook - Management highlighted the company's pivot to profitability and positive cash flow as a significant milestone [11][39] - The sale of Cylance is seen as a transformational move to address financial challenges and focus on core growth areas [12][13] - The company expects Q4 revenue for Secure Communications to be 62-60-10-60-70 million [36] Other Important Information - The company will participate in CES 2025, showcasing QNX developments in automotive and other industries [91] - FedRAMP high certification for AtHoc is expected to strengthen the company's competitive position in the U.S. federal market [72][73] Q&A Session Summary Question: Segment EBITDA and guidance adjustments [43] - The segmented EBITDA results are pre-corporate overhead, with corporate costs around 9 million in Q3 [51] - The sequential step down in EBITDA is due to a shift in revenue mix, with higher-margin Secusmart licenses in Q3 and more hardware components expected in Q4 [45][46] Question: Capital allocation post-Cylance sale [55] - The company plans to strengthen the balance sheet and invest in IoT growth, with potential for small tuck-in M&A and share buybacks [57][59] Question: QNX revenue mix and outlook [61] - QNX revenue mix is approximately 20% development, 20% services, and 60% royalties, with fluctuations in development seat licenses [62] - The company expects an uptick in development seat revenue as OEMs address design challenges [64] Question: Secure Communications DBNR and performance [66] - Secure Communications DBNR improved to 95%, driven by strong renewals and expansions in government and financial sectors [67] - The segment is expected to stabilize further post-Cylance sale [69] Question: FedRAMP high certification for AtHoc [70] - The certification process is nearing completion, with potential to strengthen the company's position in the federal market and open new opportunities [72][73] Question: Secure Comms ARR growth and Q4 guidance [76] - Secure Comms ARR has been trending up, with an 8% year-over-year increase in Q3 [77] - Q4 guidance reflects a stable business, with growth opportunities in Secusmart's software-based model [80][84] Question: IoT royalty strength and macro backdrop [86] - IoT growth is driven by content per vehicle rather than vehicle production volume, making it less dependent on macroeconomic conditions [87] Question: Tax losses from Cylance [88] - The company retains significant tax losses, providing a shelter for future U.S. profits [89]