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01/11 11:28
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call presents a generally positive outlook. The company has achieved its first positive GAAP net income in over 3 years, indicating financial improvement. The guidance remains strong despite potential production disruptions. The QNX division shows promise with new product interest, and a share buyback program is planned, which typically boosts investor confidence. Despite some concerns about market clarity and management's avoidance of specifics, the overall sentiment is positive, with a focus on growth and strategic initiatives. Given the market cap, this should result in a positive stock price movement of 2% to 8%.
Total company revenue $121.7 million, stronger-than-expected and beating guidance. No specific year-over-year change mentioned.
Adjusted EBITDA $16.4 million, growing over 55% year-over-year. The increase was attributed to solid profitability and tight cost controls.
Non-GAAP earnings per share (EPS) Positive $0.02, beating guidance. No specific year-over-year change mentioned.
Operating cash usage $18 million, better-than-expected despite seasonality in cash flow for the first half of the year.
QNX revenue $57.5 million, representing 8% year-over-year growth. Growth was driven by royalties and development seat licenses, which grew 9% and 23%, respectively.
Secure Communications revenue $59.5 million, beating guidance. Annual recurring revenue (ARR) was stable at $209 million, and dollar-based net retention rate (DBNRR) remained flat at 92%. The stronger-than-expected revenue was driven by Secusmart product sales, particularly to the German government.
Licensing division revenue $4.7 million, slightly below expectations due to lower revenue from existing licensing arrangements.
Total company adjusted gross margin 75%, expanded by 1% year-over-year. The improvement was attributed to tight cost controls and grant funding offsetting R&D investments.
QNX gross margin 81%, slightly down due to unfavorable exchange rates.
Secure Communications gross margin 70%, showing sequential and year-over-year expansion. The improvement was driven by higher-than-expected revenue from Secusmart.
Adjusted net income $12.3 million, with GAAP net income at $1.9 million, marking the first positive GAAP net income in over 3 years.
Cash and investments $382 million, a decrease of $28 million during the quarter, but almost $100 million better than the same time last year.
QNX Hypervisor 8.0: Launched at the end of the quarter, it allows customers to virtually host guest operating systems like Android and Linux alongside safety-critical applications running on QNX, all on the same chip.
QNX vehicle platform: Announced earlier this year, it aims to simplify development and shorten time to market for automotive OEMs. Early access version targeted for delivery this calendar year.
Diversification beyond automotive: Targeting expansion into robotics, industrial automation, and medical devices. GEM (General Embedded Market) now represents 43% of the total SDP 8.0 pipeline, which grew by 55% in the quarter.
Secusmart product: Strong sales to the German government and growing pipeline globally, especially in defense.
Adjusted EBITDA growth: Grew over 55% year-over-year, reaching $16.4 million, beating guidance.
Share buyback program: Repurchased $10 million worth of shares as part of a $100 million program.
Focus on non-automotive verticals: Investing in GEM-focused sales force and channel partners to expand into robotics, industrial automation, and medical devices.
QNX ecosystem development: Initiated QNX-focused training programs in India and North America to build a stronger developer community.
Automotive Market Uncertainty: The automotive market faces uncertainty, including the impact of various tariff announcements. This has led to delays in customer buying decisions and could potentially impact production volumes, affecting royalty revenue.
Supply Chain Disruptions: OEMs are navigating possible disruptions to supply chains, which could impact production volumes and, consequently, royalty revenue.
Currency Exchange Rate Risks: Unfavorable exchange rates, particularly the weakening U.S. dollar against the Canadian dollar and euro, have impacted operating expenses and gross margins.
Elongated Sales Cycles: There are elongated buying decisions for new design wins, especially for newer products like QNX Cabin, which could delay revenue realization.
Government Sales Cycles: Sales cycles in government markets are typically long, which could delay revenue from products like Secusmart and AtHoc.
Economic and Market Uncertainty: General economic and market uncertainty is causing some customers to pull guidance and delay decisions, impacting revenue predictability.
QNX Diversification: BlackBerry plans to diversify QNX beyond automotive into adjacent verticals such as robotics, industrial automation, and medical devices. This strategy aims to reduce cyclical exposures and capitalize on significant growth in compute and safety-critical software at the edge.
QNX Vehicle Platform: BlackBerry is targeting delivery of an early access version of the QNX vehicle platform this calendar year. This platform aims to simplify development and shorten time to market for OEMs, potentially increasing royalty ASPs.
QNX Hypervisor 8.0: The launch of QNX Hypervisor 8.0 aims to strengthen BlackBerry's position in mixed criticality domains like Digital Cockpits by allowing customers to host multiple operating systems on the same chip.
QNX Ecosystem Development: BlackBerry is building the QNX ecosystem through training programs and partnerships with educational institutions, aiming to drive adoption across OEMs and the general embedded market.
Secure Communications Expansion: BlackBerry is optimistic about its pipeline for Secure Communications, particularly in defense and government sectors, and plans to capitalize on increased budgets in these areas.
QNX Revenue Guidance: For Q2, QNX revenue is expected to be between $55 million and $60 million, with adjusted EBITDA between $10 million and $13 million. Full-year revenue guidance remains at $250 million to $270 million, with adjusted EBITDA between $55 million and $60 million.
Secure Communications Revenue Guidance: For Q2, Secure Communications revenue is expected to be between $54 million and $59 million, with adjusted EBITDA between $3 million and $6 million. Full-year revenue guidance has been raised to $234 million to $244 million, with adjusted EBITDA between $37 million and $47 million.
Licensing Revenue Guidance: Licensing revenue is expected to be approximately $6 million per quarter, with full-year revenue guidance at $24 million and adjusted EBITDA at $20 million.
Total Company Revenue Guidance: For Q2, total company revenue is expected to be between $115 million and $125 million, with adjusted EBITDA between $8 million and $14 million. Full-year revenue guidance has been raised to $508 million to $538 million, with adjusted EBITDA between $72 million and $87 million.
Cash Flow Guidance: BlackBerry expects operating cash usage for Q2 to be between $5 million and $15 million but anticipates being operating cash flow positive for the full fiscal year, generating approximately $35 million.
Share Buyback Program: In May, BlackBerry announced a $100 million share buyback program based on their confidence in their plan to continue generating cash and driving increased shareholder value. During the quarter, they repurchased $10 million worth of shares, approximately 2.6 million shares at an average price of $3.89 per share. These shares have been subsequently canceled. The program allows for the repurchase of up to $100 million of shares or approximately 4.7% of the number outstanding at the time of approval. The company views this as an illustration of their belief that BlackBerry shares are undervalued and as a means to provide capital allocation optionality for further repurchases if conditions are favorable.
The company exceeded revenue and EBITDA guidance, indicating strong financial performance. QNX and Secure Communications showed growth, with positive outlooks and strategic investments. The Q&A highlighted potential in the Chinese market and robotics, despite some uncertainties. Raised guidance and increased cash flow further support a positive sentiment. Given the small-cap nature, the stock is likely to react positively, with a 2% to 8% increase expected.
The earnings call shows positive financial performance with increased revenue, profitability, and a significant turnaround in net income. The company has a strong growth outlook with a focus on diversifying QNX, expanding secure communications, and maintaining strong margins. The share repurchase plan also supports a positive sentiment. Despite some risks, such as geopolitical dependencies and supply chain issues, the overall sentiment is positive due to strong financial metrics, optimistic guidance, and strategic initiatives. Given the market cap, a 2% to 8% positive stock price movement is expected over the next two weeks.
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