BlackBerry Reports Q2 2027 Results: Full Earnings Call Transcript

On Thursday, BlackBerry (TSX: BB ) discussed second-quarter financial results during its earnings call. The full transcript is provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

Access the full call at Summary BlackBerry reported strong financial results for Q2 FY 2027, with a 26% year-over-year revenue growth and an 81% increase in adjusted EBITDA, leading to an increase in their full-year revenue and EBITDA guidance. QNX achieved record quarterly revenue of $80 million, driven by strong performance in the automotive sector and the first Alloy Core design win, projected to generate over $100 million in future royalties.

The company is cautiously optimistic about Secure Communications due to geopolitical uncertainties, but overall, they have raised their full-year outlook for revenue and EBITDA, reflecting solid execution and strategic growth in key areas. Full Transcript Betsy, Operator Good morning and welcome to BlackBerry's second quarter fiscal year 2027 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 towards the end of the conference. Should you need assistance during the call, please signal a conference specialist by pressing 0. 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 at BlackBerry.

Please go ahead. Suzanne Spera, Senior Director of Investor Relations Thank you, Betsy. Good morning, everyone, and welcome to BlackBerry's second quarter fiscal year 2027 earnings conference call. Joining me on today's call is BlackBerry's Chief Executive Officer John 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'll then open the call for a brief Q&A session. com. As part of today's webcast presentation, slides will be displayed.

com, as well as the replay of today's call. S. and Canadian securities laws. 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 or 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. Those 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 certain non-GAAP numbers in their summary of our quarterly results. com websites. And with that, let me now turn the call over to John.

John J. Giamatteo, Chief Executive Officer Thanks, Suzanne, and thanks to everyone for joining us. We're pleased to report another very strong quarter for BlackBerry, reflecting meaningful progress both financially and strategically. Revenue grew 26% year over year while adjusted EBITDA grew 81%, resulting in our second consecutive Rule of 40 quarter.

We also generated $29 million of operating cash flow, delivered our sixth consecutive quarter of positive GAAP net income, and adjusted earnings per share again exceeded our target. 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've 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% year over year growth, 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 design win dollars, with the value of design wins 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 three growth pillars. The first is our core automotive business, second is moving further up the software stack with Alloy Core, and third is expanding beyond auto into adjacent general embedded markets. 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 one 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 three-quarters of the market over the next five 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've 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're also seeing increasing adoption of SDP8, 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 SDP8. Importantly, some of the programs we've 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're 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. Cortora, 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. Cortora 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 three times higher than the customer's current deployment of the 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 one 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 do 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 Core 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, GEM represents approximately 20% of QNX revenue and is an important part of our longer-term growth opportunity. We're 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're seeing this across physical AI, robotics, industrial automation, medical devices, aerospace and defense, rail, and more.

We're also investing in programs that help us engage earlier across the GEM ecosystem. QNX Everywhere is free for non-commercial 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 nine-inning game, I'd say we're really just about the beginning of the second inning.

We're seeing real customer activity, a growing pipeline, and meaningful ecosystem development, with some markets starting to mature and others still relatively early in their adoption cycles and needing more time to become material financial contributors. One 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're excited to announce that we've secured a new design win with Uber, which selected QNX as the foundation for software in its next generation of vehicles, providing an important proof point of the opportunity we see in physical AI. Momenta and Exheart also selected QNX OS for Safety, built on SDP8, as the foundation for a production-ready autonomous driving platform certified to ISO 26262. The same principles that apply to robotaxis also apply to autonomous robots operating in a factory or warehouse.

Beyond Uber, we're also seeing a growing pipeline of robotics and physical AI opportunities, including more than 20 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 GEM markets remain early, the combination of a broadening pipeline, growing customer base, and increasing demand for safety-critical software gives us confidence that GEM 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% year over year and within our guidance range. Annual recurring revenue, or ARR, was approximately $221 million, up 4% year over year.

While our dollar-based net retention rate, or DBNRR, remained relatively stable at 91%, 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 2027, Secure Communications revenue grew 13% year over year. , Canada, Europe, Asia, and the Middle East.

S. 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 (Chief Financial Officer) Thank you, John, and good morning, everyone.

As John mentioned, Q2 was another very strong quarter for BlackBerry and one 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. We also recorded our strongest quarterly GAAP net income since Q4 of fiscal 2022, 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% 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%, while adjusted EBITDA almost doubled and exceeded expectations at $47 million, representing 29% of revenue. Adjusted net income for the quarter was $43 million and GAAP net income was $34 million.

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.