BlackBerry (BB) Q2 2027 Earnings Call Transcript

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DATE

Sept. 24, 2026

CALL PARTICIPANTS

• Senior Director of Investor Relations - Suzanne Spera
• Chief Executive Officer - John Joseph Giamatteo
• Chief Financial Officer - Tim Foote

TAKEAWAYS

• Revenue -- $163.3 million, representing a 26% increase year over year driven by record performance in the QNX segment.
• Adjusted EBITDA -- $47.0 million, representing 29% of revenue and an 81% increase from the prior-year period.
• QNX Revenue -- $80.3 million, a record quarterly result reflecting 27% growth year over year.
• Secure Communications Revenue -- $60.9 million, representing 2% growth year over year while maintaining a stable base of recurring revenue.
• Licensing Revenue -- $22.1 million, exceeding management expectations due to a new licensing arrangement secured during the quarter.
• Adjusted Gross Margin -- 78.2%, improving 3 percentage points year over year due to favorable revenue mix in the QNX and licensing segments.
• Operating Cash Flow -- $29.3 million, an increase from $3.4 million in the prior-year quarter.
• Cash and Investments -- $447.1 million, including approximately $247.0 million in net cash, providing strategic flexibility for capital allocation.
• Alloy Core Design Win Value -- $100 million in estimated future royalties, marking the largest design win in the history of the QNX business.
• Alloy Core ASP -- approximately threefold higher than current deployments of the traditional QNX operating system.
• Secure Communications ARR -- $221 million, representing 4% growth year over year.
• Dollar-Based Net Retention Rate -- 91%, remaining stable as the company maintained renewals across government and critical infrastructure sectors.
• JEM Revenue -- approximately 20% of total QNX revenue, representing expansion into robotics and medical device markets.
• Full Year Revenue Guidance -- $616 million to $636 million, raised by $9 million at the midpoint from previous estimates.
• Full Year Adjusted EBITDA Guidance -- $141 million to $158 million, representing 43% year-over-year growth at the midpoint.
• Full Year QNX Revenue Guidance -- $315 million to $325 million, raised by $17 million at the midpoint due to core automotive strength.
• Full Year Secure Communications Guidance -- $260 million to $270 million, adjusted to reflect caution regarding the timing of government opportunities.
• Full Year Adjusted EPS Guidance -- $0.19 to $0.22, raised following performance in the first half of the year.
• Full Year Operating Cash Flow Guidance -- approximately $115 million, an increase of $15 million over previous targets.
• GAAP Net Income -- $33.9 million, marking the sixth consecutive quarter of positive net income.
• Design Win Milestone -- H1 design win value exceeded the previous record for any full fiscal year in the history of the QNX business.
• Q3 Revenue Guidance -- $143 million to $154 million, with expected adjusted EBITDA of $28 million to $37 million.

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RISKS

• Foote stated, "an already dynamic backdrop in the US where Secure Communications has a substantial footprint with the US federal government is being further complicated by recent geopolitical developments including trade tensions between Canada and the United States," citing these factors as reasons for revising the segment's full-year outlook.

SUMMARY

BlackBerry Limited (NYSE:BB) reported a 26% increase in revenue for the second quarter, achieving its second consecutive Rule of 40 quarter and its sixth consecutive quarter of positive GAAP net income. Management reported that the company achieved a Rule of 50 quarter based on its combination of revenue growth and adjusted EBITDA margins. The QNX segment delivered record quarterly revenue, driven by broad performance across development licenses and royalties as the automotive industry shifts toward software-defined vehicles. Management raised its full-year guidance for revenue, adjusted EBITDA, and operating cash flow, reflecting performance in the first half of the year. While the company maintained a stable recurring revenue base in secure communications, management issued a more cautious outlook for the second half of the year due to geopolitical uncertainties and potential impacts on government procurement cycles.

• CEO Giamatteo noted that Alloy Core has transitioned from a strategic opportunity to commercial validation following a design win from the Cortica joint venture.
• Management reported that the company is increasingly securing minimum contractual volume commitments for QNX, which provides greater certainty for revenue and cash flow compared to traditional noncontractual forecasts.
• The company secured a design win with Uber for its next generation of vehicles, which management cited as a significant proof point for the opportunity in physical AI.
• Management stated that QNX revenue growth is driven by increased market penetration and higher dollar content per vehicle, independent of global vehicle production levels.
• CFO Foote indicated that the company is evaluating potential value-accretive M&A opportunities to accelerate its strategy in general embedded markets.
• The company launched the QNX Launchpad program to lower barriers to entry for commercial developers as part of its strategy to expand the QNX ecosystem.

INDUSTRY GLOSSARY

• Alloy Core: A software platform that expands QNX from a foundational operating system to a broader integrated platform.
• QNX: A real-time operating system used primarily in automotive and embedded systems for safety-critical applications.
• SDP 8: The next-generation Software Development Platform from BlackBerry designed for high-performance compute architectures.
• JEM: General Embedded Markets, referring to non-automotive sectors such as robotics, industrial automation, and medical devices.
• Physical AI: Technology where artificial intelligence interacts with and executes actions in the physical world, such as autonomous vehicles or surgical robots.
• ADAS: Advanced Driver Assistance Systems.
• ARR: Annual Recurring Revenue, a measure of predictable and recurring revenue streams.
• DBNRR: Dollar-Based Net Retention Rate, measuring the ability to retain and expand revenue from existing customers.
• Rule of 40: A financial benchmark for software companies where the sum of revenue growth and profit margin exceeds 40%.

Full Conference Call Transcript

Operator: Good morning, and welcome to BlackBerry's Second Quarter Fiscal Year 27 Earnings Conference Call. My name is Betsy, 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. Should you need assistance during the call, please signal a conference specialist by pressing zero. As a reminder, this conference is being recorded for replay purposes. I would now like to turn today's call over to Suzanne Spera, senior director of investor relations of BlackBerry. Please go ahead.

Suzanne Spera: Thank you, Betsy. Good morning, everyone, and welcome to BlackBerry's second quarter fiscal year 27 Earnings Conference Call. Joining me on today's call is BlackBerry's Chief Executive John Joseph Giamatteo. 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. As part of today's webcast presentation slides will be displayed.

The slides are also available on the Investor Information section at blackberry.com as well as the replay of today's call. Some of the statements we will be making today constitute forward-looking statements, and are made pursuant to the safe harbor provisions of applicable U. S and Canadian securities laws. We 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 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. Those factors include the risk factors that are discussed in the company's annual filings in MD and 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 certain non GAAP numbers in their summary of our quarterly results.

For a reconciliation between our GAAP and non GAAP numbers, please see the earnings press release published earlier today. Which is available on the EDGAR, SEDAR+, and blackberry.com websites. And with that, let me now turn the call over to John.

John Joseph Giamatteo: Thanks, Suzanne. And thanks to everyone for joining us. We are pleased to report another very strong quarter for BlackBerry reflecting meaningful progress both financially and strategically. Revenue grew 26 percent year over year while adjusted EBITDA grew 81 percent resulting in our second consecutive Rule of 40 quarter. We also generated $29 million of operating cash flow delivered our 6th consecutive quarter of positive GAAP net income, and adjusted earnings per share again exceeded our target our expectations. QNX had a record quarter, and strategically we reached an important milestone with our first Alloy Core design win. The largest design win in our history.

So when you put all of that together, Q2, gives us another clear proof point that the profitable growth model we have been building is working. It also gives us increased confidence as we head into the second half. And as Tim will discuss in more detail, we are raising our full year revenue and adjusted EBITDA outlook. Let me start my review of the quarter with QNX. QNX delivered record quarterly revenue of $80 million representing 27 percent year over year growth. And coming in well above the high end of our guidance. Combined with expanded profitability, QNX once again comfortably exceeded the Rule of 40 benchmark for the quarter.

Performance was broad based across development licenses, professional services and royalties. In particular, Q2, was our strongest quarter ever for DesignWind Dollars. With the value of Design Win secured in the first half, exceeding our previous record for any full fiscal year. Development license activity also remained healthy in Q2, with recurring development license revenue holding strong quarter over quarter. That matters because customers typically purchase these tools early in a program. Making them a useful leading indicator of future design wins and royalty opportunities. So in Q2,, we saw strength not only in the revenue being recognized today, but also in activity that can support future growth.

As you may recall, our QNX strategy is built around 3 growth pillars. the first is our core automotive business, Second is moving further up the software stack, Alloy Core. And third is expanding beyond auto into adjacent general embedded markets. Now let me start with the first pillar, QNX's core auto business, which was the main driver behind this quarter's strong performance. That strength is being supported by the auto industry's transition towards software defined vehicles and more centralized compute architectures. Let me put some numbers around that because I believe they help explain the opportunity. Roughly 90 million vehicles are produced globally each year.

Today, about 1-third of them have the type of high performance centralized compute architecture where QNX's capabilities are most relevant and we have a very strong market share in that segment. Industry forecasts indicate that this segment could expand to roughly 3-quarters of the market over the next 5 years. That means our addressable market could more than double over that period. In addition to more vehicles, becoming addressable to QNX, as more domains become software defined, we see potential for greater QNX content in each of those vehicles as well.

We have already secured design wins with multiple instances of QNX in a single vehicle, and we expect those design wins to continue to move into production over the next several years. So QNX does not need global vehicle production to increase to enable revenue growth. But rather through greater penetration of the market and greater dollar content per vehicle. We are also seeing increasing adoption of SDP 8 our next generation platform designed for these higher performance compute architectures. We are working with multiple major global OEMs and tier 1 suppliers as they evaluate and develop on SDP 8. Importantly, some of the programs we have won over the past several years are now entering production.

Allowing higher QNX content secured in those designs to begin translating into royalty revenue. As our software content within the vehicle increases, so does the value of that opportunity. The transition to SDP8 and the greater value it delivers is also creating an opportunity to evolve our commercial model. For new commercial arrangements, we are increasingly securing minimum contractual volume commitments rather than non contractual forecasts. This is giving us greater certainty around volumes, revenue and cash flow from new design wins and the potential for us to both receive cash and recognize a portion of revenue earlier. Over time, we believe this could improve both the visibility and economics of our customer relationships.

We are also seeing a lot of opportunity in China New government mandated safety requirements for assisted and automated driving systems reinforce the importance of proven safety certified foundational software and we continue to see strong momentum in China. The second QNX growth pillar builds on our core automotive business by moving us further up the software stack. As we have discussed, Alloy Core expands QNX from a foundational operating system towards a broader software platform. This quarter, we reached an important milestone with our first Alloy Core design win. Cortica, the commercial vehicle software joint venture between Volvo Group and Daimler Truck selected Alloy Core as the foundational software platform for its next generation high performance compute architecture.

Cortica plans to deploy Alloy Core across multiple software domains in its next generation vehicles and is expected to substantially increase QNX software content and royalty per vehicle compared with traditional QNX operating system deployments. In fact, for this first design win, the ASP per instance is approximately 3x higher than the customer's current deployment of QNX operating system. This is an important commercial validation of Alloy Core, and demonstrates the opportunity to expand QNX from individual foundational software components to a broader software platform within the vehicle. Alloy Core addresses 1 of the biggest challenges facing OEMs today. The cost and complexity of integrating the foundational software stack.

By bringing QNX foundational software common automotive services and vector middleware together in a pre integrated safety certified platform Alloy Core can reduce integration complexity, and allow OEMs to focus more engineering resources on differentiated applications. The magnitude of this first award also demonstrates the potential of the platform. The value of future royalties from this design win is estimated to be more than $100 million making it the largest design win in QNX's history despite annual commercial vehicle volumes being significantly smaller than for passenger cars. As with traditional QNX design wins, there will be a lead time before the majority of the value is realized through production royalties.

So we did not expect this design win to materially change our revenue profile this fiscal year. The more important takeaway is that Alloy Core has moved from a strategic opportunity to commercial validation. And we believe this is just the beginning. We are actively working with a number of global OEMs and major Tier 1s on alloy opportunities around the globe, but particularly in Europe and Asia, with potential further wins in coming quarters. And the third QNX growth pillar is expansion beyond automotive. Into adjacent general embedded markets. Today, JEM represents approximately 20 percent of QNX revenue and is an important part of our longer term growth opportunity.

We are excited about the opportunity because the same capabilities that differentiate QNX in automotive including real time determinism, functional safety, security and reliability, are increasingly relevant in adjacent verticals. We are seeing this across physical AI, robotics, industrial automation, medical devices, aerospace and defense, rail, and more. We are also investing in programs that help us engage earlier across the JEM ecosystem. QNX Everywhere is free for noncommercial use and puts the platform into the hands of more developers. At the same time, our QNX Launchpad program is designed to lower the barriers to entry for commercial development on QNX, helping early stage companies build on and continue using our platform as their business grows.

Using a baseball analogy, if you think about this as a 9 inning game, I would say we are really just about the beginning of the second inning. Seeing real customer activity a growing pipeline and meaningful ecosystem development, some markets starting to mature and others still relatively early in their adoption cycles and needing more time to become material financial contributors. 1 area we are particularly excited about is physical AI. At a high level, physical AI is what happens when AI moves beyond the digital world and begins interacting with the physical world. Robotaxis are a great example of physical AI in practice.

They are intelligent systems that must not only make decisions, but execute them safely and predictably in the real world. AI can recognize objects and understand the environments around the vehicle but the underlying system still has to translate those decisions into physical action. like steering, braking, and acceleration. Safely and reliably every time. That is exactly where QNX's deterministic safety certified foundation becomes essential. And the robotaxi market is beginning to transition from concept towards production at scale. This quarter, we are excited to announce that we have secured a new design win with Uber. Which selected QNX as the foundation for software and its next generation of vehicles.

Providing an important proof point of the opportunity we see in physical AI. Momenta and Xpeng also selected QNX OS for safety built on SDP 8 as the foundation for a production ready autonomous driving platform certified to ISO 26.3 thousand. The same principles that apply to robotaxis also apply to autonomous robots operating in a factory or warehouse. Beyond Uber, we are also seeing a growing pipeline of robotics and physical AI opportunities including more than 20-plus companies currently engaging with us around NVIDIA based platforms. Within the pipeline, we have a number of humanoid robot OEMs as well as surgical robots, autonomous mobile robots or AMRs, as well as autonomous tractors, drones, and planes.

While many JEM markets remain early, the combination of a broadening pipeline growing customer base, and increasing demand for safety critical software gives us confidence that JEM can materially expand QNX's long term addressable market. Taken together, core automotive Alloy Core, and GEM give QNX multiple paths to growth. Across different time horizons. Turning to secure communications. The business performed broadly as expected following a particularly strong first quarter. Revenue was $61 million up 2 percent year over year and within our guidance range. Annual recurring revenue or ARR was approximately $221 million up 4 percent year over year while our dollar based net retention rate or DBNRR remained relatively stable at 91 percent.

ARR provides a stable recurring revenue base, while larger government opportunities can provide incremental growth and profitability when they convert. Those opportunities can have long sales cycles and do create variability from quarter to quarter. Importantly, for the first half of 27, secure communications revenue grew 13 percent year over year. We also continue to see customer activity across government, critical infrastructure and other highly regulated sectors during the quarter, including renewals and expansions with customers across The U. S, Canada, Europe, Asia, and The Middle East.

These included organizations such as a number of agents in the US federal government, as well as internationally, with the Dutch police The UK's National Grid, Rolls Royce, the Saudi National Bank, and Babcock. So while quarterly timing can vary, the underlying business remains stable and profitable. Touching briefly on licensing, revenue was approximately $22 million significantly above our expectations. The upside was driven primarily by a new licensing arrangement secured during the quarter. So while Q2, was strong, we would not view this level of activity as a new quarterly run rate. With that, let me now turn the call over to Tim who will provide more detail on our financial results.

Tim Foote: Thank you, John, and good morning, everyone. As John mentioned, Q2, was another very strong quarter for BlackBerry and 1 that demonstrated the strong operating leverage in our financial model. Based on our revenue growth, and adjusted EBITDA margin, we actually delivered a Rule of 50 quarter. Also recorded our strongest quarterly GAAP net income since Q4 of fiscal 22, while QNX achieved its highest quarterly revenue in history. What stands out to me is how efficiently our revenue is translating into higher profitability and cash generation. While we continue to invest for growth. With that, let me walk through the quarter in more detail.

Revenue for BlackBerry as a whole was 163 million, up 26 percent year over year and above the high end of our guidance range. Total company adjusted gross margin expanded 3 percentage points year over year to 78 percent while adjusted EBITDA almost doubled. And exceeded expectations at 47 million. Representing 29 percent of revenue. Adjusted net income for the quarter was 43 million and GAAP net income was $34 million. Adjusted EPS was $0.07, also above our expectations. Importantly, the combination of solid revenue growth gross margin expansion and disciplined management of operating expenses, drove significant operating leverage in the quarter. That leverage was particularly evident in the higher margin areas of the business, including QNX royalties, and licensing.

We also generated strong operating and free cash flow which I will discuss in more detail shortly. Turning first to the segments. QNX revenue was $80 million exceeding the high end of guidance growing 27 percent year over year. Adjusted gross margin expanded 4 percentage points year over year to 87 percent, matching the highest reported quarterly level in the business's history. Adjusted EBITDA increased 41 percent to 29 million, representing a margin of 36 percent for the quarter. This performance reflects the benefit of meaningful revenue growth and a favorable mix, particularly higher margin royalty revenue. We continue to invest in go to market and R&D.

The combination of continued growth and profitability again put QNX comfortably above the Rule of 40 benchmark in Q2,. In secure communications, revenue was $61 million representing 2 percent year over year growth and within our guidance range. Adjusted gross margin for Secure Communications was 61 percent reflecting lower margin SecuSmart device revenue. in the quarter. Adjusted EBITDA was $8 million representing a margin of 13 percent with disciplined expense management partially offsetting the lower gross margin. Overall, the segment delivered the stable and profitable performance we expected following a particularly strong first quarter. Licensing revenue was $22 million well above our expectations.

With adjusted EBITDA at 20 million The strong conversion of incremental licensing revenue into adjusted EBITDA reflects the high incremental operating leverage of this business. As always, the timing of larger licensing transactions can vary between quarters. Importantly, we converted the expanded profitability in the quarter into cash. We generated $29 million of operating cash flow in Q2, significantly above our guidance range. For the first half of fiscal 27, we generated $34 million of operating cash flow compared with a usage of cash of $14 million in the prior year period. Representing a year over year improvement of $48 million The story was very similar for free cash flow given BlackBerry's CapEx light operating model.

With free cash flow for the quarter at $28 million and $30 million year to date. We ended the quarter with approximately $447 million of cash and investments, representing net cash of approximately $247 million Our improving cash generation continues to strengthen our balance sheet and gives us significant financial flexibility in how we allocate capital. Our priorities remain unchanged, and are centered on 3 areas. First, investing for growth in QNX. We continue to prioritize what we believe are our largest long term organic value creation opportunities. Including investment behind core automotive, Alloy Core, and Gen. Second, disciplined share repurchases. We retained significant capacity under our current NCIB buyback program.

And we will continue to evaluate repurchases when we believe they represent an attractive use of capital relative to other opportunities. And third, selectively evaluating M&A. We continue to assess potential value accretive opportunities that could accelerate our strategy. Particularly with a view to fast-tracking the JEM opportunity. We have the balance sheet to act when the right opportunity arises. But the strategic and financial bar remains high. Overall, our approach remains disciplined. And focused on creating long term shareholder value. With that, let's turn to our outlook. Following the strong first half performance, we are raising our full year QNX revenue outlook for the second consecutive quarter by $17 million at the midpoint. To 315 to 325 million.

And adjusted EBITDA by $20 million at the midpoint, to between 95 and 105 million. For Q3, we expect QNX revenue to be between 82 and $88 million which is 24 percent year over year growth at the midpoint. And adjusted EBITDA of between 27 and $32 million. The increased outlook reflects the strength and trajectory we continue to see across the business, while maintaining an appropriate level of flexibility for normal quarter to quarter variability. This is not a quarterly business. And we continue to encourage investors to focus on longer term growth trends rather than focus on growth from quarter to quarter.

For secure communications, an already dynamic backdrop in The US where Secure Communications has a substantial footprint with the US federal government is being further complicated by recent geopolitical developments. Including trade tensions between Canada and The United States. As a result, we are prudently updating our full year revenue outlook. While we have not yet seen anything material arising from this issue, nor have we seen a slowdown in pipeline generation outside of North America, we consider it appropriate to be cautious as we head into the second half.

Accordingly, we are revising the full year revenue forecast for Secure Communications to $260 to $270 million and adjusted EBITDA outlook to be between 50 million and 58 million For Q3, we expect revenue to be between $55 and $60 million and adjusted EBITDA between 6 million and 10 million For licensing, we are raising our full year revenue outlook by $12 million to approximately 41 million.

And adjusted EBITDA outlook to approximately 36 million Following the unusually strong performance in Q2,, for Q3 and Q4, we expect licensing to return to a more typical quarterly revenue level of approximately $6 million with adjusted EBITDA of approximately 5 million As noted earlier, the timing of larger licensing transactions can vary from quarter to quarter. So we continue to take a measured approach to the quarterly outlook. So for the second consecutive quarter, we are raising our full year total company outlook. For both revenue and EBITDA. Reflecting the strength of our first half execution and increased confidence in the business. For revenue, we are increasing guidance by $9 million at the midpoint to $616 to $636 million.

Representing 14 percent year over year growth. We are also raising our adjusted EBITDA outlook by $21 million at the midpoint to 141 to 158 million. Which is 43 percent year over year growth. For Q3, we expect total company revenue of between $143 million and $154 million and adjusted EBITDA of between $28 and $37 million We expect to deliver adjusted basic earnings per share of between $0.04 and $0.05 for the quarter and are increasing our full year outlook to be between $0.19 and $0.22. We also expect another quarter of positive operating cash flow.

Of between 20 million and $30 million, and are raising of full year outlook by 15 million to approximately $115 million as we continue to materially strengthen our balance sheet. The increased full year outlook reflects the solid execution we have seen in the first half. While maintaining a measured approach. to the second half. With that, let me hand the call back to John.

John Joseph Giamatteo: Thanks, Tim. And before we move to Q&A, let me leave you with 3 things I think are most important from the quarter. First, the financial model is solid and scalable. We delivered another strong quarter achieved better than Rule of 40 performance generated robust cash flow, and raised our full year outlook. Second, the QNX opportunity is becoming broader and more tangible. Our core automotive business is delivering record performance today, Alloy Core has moved from strategic opportunity to commercial validation and we continue to build the long term opportunity in JEM and physical AI. And third, expanded profitability and cash generation are giving us greater strategic flexibility.

This allows us to keep investing in the business while remaining disciplined in how we approach buybacks, and selectively evaluate M&A. The progress we are seeing today reflects the foundation we built through the transformation work over the past 2 years. And we are now seeing that translate into stronger growth margins and cash generations. So as we head into the second half, we feel very good about the position of the business and the opportunities in front of us. And with that, let's move to Q&A. Betsy, could you please open up the lines?

Operator: We will now begin the question and answer session. To ask a question, Again, press star 1 to ask a question. We will pause for just a moment to allow everyone an opportunity to signal for questions. We request that you limit yourself to 1 question and 1 follow-up. the first question today comes from Suthan Sukumar with Stifel. Please go ahead.

Suthan Sukumar: Good morning, guys. And the first question for me is on the improving profitability outlook. Could you guys speak to what the mix of royalty revenues that have been converting from backlog, how has that been trending quarter over quarter, year over year? And how much of that full year guide raise on the profitability side is led by the licensing strength you saw in the quarter?

Tim Foote: Hi Suthan. Thanks for the questions. Some good stuff there. So, yeah, we are feeling great about the leverage in our model. I think we have got a really tight cost structure. And we continue to invest, but very a very disciplined manner. So that incremental top line is very rapidly translating into expanded bottom line margins. And also efficiently converting into cash as well. So see a very strong, balance sheet right now. So, yes, in this quarter, the QNX was the star of the show, and within that, royalties was also the star of the show.

So what we are seeing is, obviously, we have had significant growth in our backlog over the last few years as we have secured newer, larger design wins And what we are seeing is some of those are now moving into production. And that backlog, the 950 million that we last reported is starting to convert. So it is a it is a great line of sight for us in terms of revenue. that is why we feel good about raising our outlook for the rest of the year. For the second quarter in a row.

And right now, we feel like we have definitely got the wind at our backs in that business. it is it is really on fire in terms of the core automotive side of things. Thank you.

Suthan Sukumar: that is good color. For my next question, I just wanted to touch on the physical AI opportunity here. How does the revenue model, in GEM compared to a typical automotive program? And I am just wondering if it is still kind of per unit type model or is it different? And secondly, is there an Alloy Core opportunity in the GEM market?

Tim Foote: So I will take the first part and then maybe hand over to John for the second part So in terms of the model, it is fundamentally the same. Suthan. So it is it is a volume based royalty model. And with some pre preproduction royalty stream similar to the automotive side of things such as development licenses and services as well. You can because the volumes tend to be lower. You can see some higher per unit economics there. But as we start to see GM expand, in some of these more nascent markets actually move towards higher production volumes. So I would expect to see them to move down the price curve per unit.

Ultimately, with a much higher scale. So would not think of it much differently. it is pretty much the same model, and ultimately, it is the same software. that is 1 of the beauties of the market is that we are able to leverage the investment that we have made products that we battle tested in the automotive side and roll them out across into these adjacent verticals. So relatively similar.

John Joseph Giamatteo: But, John, on the Alloy Core opportunity. Yeah. Thanks Suthan. Yeah. On the Alloy Core, what I would say about it in the JEM space and the physical AI space, is it is definitely early days. it is a market that is really forming now. And our approach has really been to take a broader type of ecosystem approach. So you are seeing us with these programs like QNX everywhere. Getting QNX into the hands of as many developers as we possibly can in the early stages of them building the software platforms for a lot of these devices that are coming. Now this quarter, we actually launched the QNX Launchpad program.

That was another kind of way for us to engage with the industry more broadly So, you know, we kind of use our core asset of that real time performance operating system and how that helps manage this whole physical world and digital world collision that is starting to happen. And, I do think there is gonna be tremendous opportunities for us to play a broader role long term And the final thing, I guess, I would mention is just how the engagement with Silicon players. Our partnership with NVIDIA is very quickly starting to build a strong pipeline of opportunities.

So this broader ecosystem player with the silicon players, with the QNX everywhere and Launchpad programs, puts us square into I think, a leadership position long term. Whether that develops into a broader platform stack along lines of what we are doing with Alloy Core. that is probably something that will develop over time.

Operator: the next question comes from Paul Treiber with RBC Capital Markets. Please go ahead.

Paul Treiber: Thanks for taking the question and good morning. Congrats on a strong quarter. Just trying to understand the cadence of QNX's growth here. And just looking at the typically the year is back end loaded. Based on our calculations guidance does imply that Q4 revenue for QNX is down slightly from Q3 and the growth slows. Can you just speak to that cadence through the year And then what if anything is driving that slower growth in Q4?

John Joseph Giamatteo: Yes. I think I will start, Paul. Tim, you can chip in. We continue to try to encourage everybody. I mean, this is a this is a long term business with long sales cycles and long production. So, you know, kind of the longer term growth trends we think, is the important thing for everybody to focus on. Quarter-over-quarter variations is not how we manage the business, not how we invest, it is not how we partner with our customers. So yes, from quarter-to-quarter, can be lumpy.

But overall, when you look at the year at the midpoint level where we are at now, you know, we are projecting it to be 19 percent growth year over year, which is, I think, really strong growth. it is above where what we thought we would be, at the start of the year. You know, the fact that the other thing I would say was the design wins and the fact that we booked more design wins in the first half of the year than we booked in any full fiscal year ever in the business' history. These are all to me, they point to strong long term fundamentals of the QNX business.

So I would avoid getting too fixated on quarter to quarter on what that might look like. I think the long term trajectory of the business is really in a healthy place.

Tim Foote: Yes. QNX is definitely not slowing down. it is if anything, it is accelerating. But from quarter-to-quarter, that is not gonna be linear.

Paul Treiber: Okay. that is that is good to hear. just a second question. Just on you mentioned in the prepared remarks that there is now contracted minimum royalties and that led to some of revenue being recognized at an earlier stage. Can you elaborate on that? In particular, when did you start to see a larger number of these contracted minimum royalty in contracts? And what was the magnitude of contribution from that in Q2,?

Tim Foote: So, yes. This is this is a really good opportunity for us. As part of our transition to SDP8 and a significant incremental value that we bring to our customers Ultimately, gives us greater certainty as we look forward. As John mentioned, it is moving away from non contractual forecast towards contractual fixed minimums. And for us, that in addition to certainty also accelerates receipt of cash. Which obviously, every company is looking to do. As part of that, there is potential for a portion of revenue to be recognized earlier. I mean, we are kind of feeling our way into this right now. For new contracts. And it over time, we should see this start to grow.

But for us, this is great. I mean, it is just greater certainty, earlier cash, and ultimately potential for some revenue too.

John Joseph Giamatteo: The only thing I would add to it, Paul, is what we all the things Tim said, really helped the business in so many ways. But the customer dynamic, what we love about it also, conviction that our customers have with our product. This is a strong statement because typically in the automotive industry, they give you an estimate, they will adjust you.

Now our customers are coming in and say, we are bought into you guys for the long term to the point where we will actually make a minimum commitment that is a new dynamic, and I think that is attributable to you know, how, the strength of the product is and our vision and where we are going. That they wanna make a longer term firm commitment with us, which is definitely an inflection point from where we were a few years ago.

Operator: the next question comes from Todd Coupland with CIBC. Please go ahead.

Todd Coupland: I am wondering if you can talk about the Alloy Core pipeline. Obviously, great to see the first deal. Just talk about, the nature of that pipeline. Is it, commercial, or is it in light vehicles? Talk about expectations for the second half of the year in terms of future design wins and how they might compare to, this first win. Thank you.

John Joseph Giamatteo: Thanks, Todd. Yes. Really healthy pipeline, I would tell you. And it does span everything. It just so happens that Cortica and commercial was the first 1 out of the gate. But we are we have got a lot of global OEMs and tier ones that we are engaging with on the passenger vehicle side of the equation as well. So lot of activity right now, particularly in Europe and Asia, with engagement on you know, how this simplifies their world. I think the value proposition of us partnering with Vector and stitching together a broader set of safety certified platforms and capabilities that will allow them to focus on some of the more differentiated.

I think that is resonating And I think if anything, you know, the Alloy Core, the Cortica win generally, people I think it get more interest. You know? Hey. Tell us a little bit more about that. How can that work for us? So we are, very healthy pipeline Obviously, they are big decisions that take time. To work through the funnel. But we are very excited about what this could mean for the business long term.

Todd Coupland: And then my second question had to do with US Fed. Obviously clipped the guidance for the second half of the year. When would you expect, with what you know now to get visibility on whether or not that is actually going to play out?

John Joseph Giamatteo: Yes. As Tim mentioned in his remarks, we do not see anything today that specifically is creating that is. it is more of a, I think, a general cautionary tone. A lot of we think about the secure communications business, 220-plus million dollars of it is ARR. Very durable, very good strong line of sight to it.

And then the balance between our guidance and what our, you know, new deals upfront revenue And with all the, Todd, just the geopolitical uncertainty that is happening around the world, the timing of some of those deals, I do not know. it is just we feel a little bit more, uncertain about it with some of the unrest that is happening around the world and trade conversations and all those types of things. So we thought it was prudent to just take a little bit more of a cautious tone on the timing of some of those new opportunities because, you know, the government in and of itself tends to be a bit of a longer sales cycle.

Add on top of that some of the geopolitical activity now we thought the right thing to do was to be a little more cautious there.

Operator: the next question comes from John Shao with TD Cowen. Please go ahead.

John Chao: Hey, good morning guys and thanks for taking my question. John, you mentioned Robotaxi, and congrats on a win with Uber. So could you help us frame this robotaxi opportunity as whether exposure is direct or indirect? The content per vehicle, and maybe comment on the pipeline.

John Joseph Giamatteo: Good questions. Tim, like I said, I we are sick robotaxis tremendous opportunity. there is been a lot of innovation and a lot of investment going into it. And really started to take see that look take the next step from a concept to more production. So our partnership with a company, like Uber, we think, puts us in a in a in a strong position you know, for that over time. I will say, though, you know, the whole physical AI space is going back to my analogy of, of baseball. it is, we are in the early days here.

You know, the, the ASP per car know, whether it is in a it is a broader kind of Alloy Core type of play that there is so many variables right now in a market that is just really, starting to develop and starting to mature. That, you know, we will play that out. But we do think our strong pole position with our safety certified foundational software capability starting to resonate with the Robotaxi we think that is a really strong place to be. And, you know, we will, as the industry develops, we think we are in a really good position to capture our, more than our fair share of the market.

John Chao: Thanks for the color. And if I plug into our operating cash flow guidance, I think the company is going to have close to $half a billion dollars cash by the end of this fiscal year. And Tim, you mentioned the company will consider an acquisition, especially in the JEM space. So could you help us understand your current pipeline in terms of M&A and how you evaluate these deals and what the trigger is more driven by the valuation or functionality, and you are actually okay with paying a premium.

Tim Foote: Yeah. So a lot of good things in John. So first of all, it is a good problem to have. A good problem to have. But what are you going to do with the all the cash that we are generating? So mean, we are as we mentioned, we are doing. We are investing in the business right now. We will take a look share buybacks as well when that is appropriate. But, yes, M&A, if we see a really large opportunity in JEM. In physical AI and all the other verticals that John mentioned. So if we can fast track, then we will.

We have got the balance sheet to give us the flexibility to be able to do that. But as was mentioned, the bar is gonna be high. The strategic fit has to be very good. The financial profile has to be appropriate. It really does have to move us further down the field quite meaningfully. So we continue to look at opportunities The team, our corp-dev team, and also QNX team spend a lot of time looking at this. So not gonna say much more than that today as you would probably expect, but if something comes up that fits our criteria, then we are definitely in a position to be able to execute on it.

Operator: the next question comes from Kingsley Crane with Canaccord Genuity. Please go ahead.

Kingsley Crane: Hi. Thanks for taking the questions. Been bouncing on a few other calls, so apologies if of this has been asked. But just wanna frame the, Cortica you know, record win in another way. So of the $100 million added to backlog, just trying to get a sense of maybe what the value of that deal would have been if you had been chosen more for basic capabilities like BaseOS and Hypervisor. Versus this Alloy Core engagement? Thanks.

John Joseph Giamatteo: Yeah. I think we tried to address it a little bit in our comments around the Cortica win If we had just done a traditional QNX operating system, addressing maybe 1 or 2 domains. Relative to the more, you know, complete platform approach that we kind of the holistic car approach that we are moving towards with the with some of our customers. It probably adds probably 3x a normal ASP of what it would be on a traditional SDP 8 alone type of approach. So I think it is a combination of moving up the stack and moving into more domains. You know? A few years ago, a lot of what we did, was digital cockpit.

Now it is ADAS. it is body it is it is a broader set of capabilities. And that coupled with the middleware layer and some of the, you diagnostic systems and capabilities that Vector brings to the table. The combination of those 2 stitched together with services that delivers it reliably for our customers, I think that is what is really expanding the addressable market and our ASP per vehicle in a material way. So hopefully, that gives you a little more color on how that opportunity is materializing.

Kingsley Crane: Okay. Really helpful. And then Tim, understood on the comments around conservatism on secure communications in the back half. It just seems like based on the updated guidance and the implied Q3, Q4 split that almost all of that conservatism is at is applied to Q3, at least in our models, So is that the right way to think about it? Is that, you know, purely due to the sort of federal concerns? And just how you how to think about those 2 quarters. Thanks.

Tim Foote: Yeah. So I think John addressed this earlier, but just to reiterate the point, the way we look at the Secure Communications business, which remains stable it remains profitable, it is generating cash, is that it has a solid base of ARR, which is roughly speaking around about 80 percent of that business. And then 20 percent the remaining 20 percent of the guide really relies on some bigger government opportunities that drive in quarter revenue. So right now, we are just feeling not as good in terms of the timing of some of those deals. Not that they are necessarily going away, but the timing becomes slightly less certain than before.

So as a result, we are just taking a prudent view on things and see where things kind of land. But John mentioned in his remarks, we have not seen well, actually, it is me. We have not actually seen anything material so far. So hope that remains to be the case.

Operator: I would like to turn the call back over to John Joseph Giamatteo, CEO of BlackBerry for closing remarks.

John Joseph Giamatteo: Terrific. Thank you, Betsy. Hey, thanks everybody for joining today's call. Thanks for your interest in BlackBerry and the exciting business and opportunities that we have in front of us. We look forward to providing you a good comprehensive update on the business next quarter. Thanks again for being with us.

Operator: This concludes today's call. Thank you for your participation. You may now disconnect.

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